Supply Chain Management
(SCM)
SCM
• Supply chain refers to those activities associated with the flow
and transformation of goods from the raw materials stage
(such as extraction), through to the end user, as well as the
associated and necessary two-way information flows.
• The supply chain includes: the management of information
systems, sourcing and procurement, production scheduling,
order processing, inventory management, warehousing,
customer service, the after-market disposition of packaging
and materials, and potentially recycling of products.
• Supply chain management (SCM) is the integration of these
activities through improved supply chain relationships. The
goal is to achieve a competitive advantage.
SCM Importance
1. Advancement in technology and the information
revolution
2. A global marketplace and global competition
giving rise to customer demands regarding
greater product variety, lower product and
service costs, higher quality, shorter delivery
times, and sustainability demands
3. Material and service inputs from suppliers have
a major impact on an organizations’ ability to
meet its customer needs
Components and Functions
of a Supply Chain
1. External Suppliers: Tier 1, Tier 2, Tier 3, …
2. Internal Functions: sourcing and procurement,
production scheduling, order processing,
inventory management, warehousing, customer
service, the after-market disposition of
packaging and materials, and potentially
recycling of products
3. External Functions: Traffic Management and
physical Distribution Management
Key SCM Decisions
1.
2.
3.
4.
5.
6.
Inventory management: levels and positioning
Forecasting and demand management
Production planning and materials management
Transport mode(s) and policies
Reverse logistics
Supply chain structure: number of stages, locations of value added
work, location of pull trigger
7. Distribution structure: number of distribution centers and
warehouses, location sof facilities (regional or global), capacities
8. Distribution flow patterns: customer assignments, direct flows
9. Metrics: delivery time, fill rates, product line breadth,
customization capability, etc.
10. Outsourcing and partnering
11. Supplier selection and coordination
3 Key Dimensions of
SCM Competition
1.
Enriching the customer
This entails a quick understanding of the unique requirements of each individual
customer and rapidly providing it.
2.
Cooperation in order to enhance competitiveness
This cooperation includes better intraorganizational cooperation and quite likely
will extend to interorganizational cooperation such as partnerships with
suppliers and may possibly extend to newer, emerging virtual relationships with
competing organizations.
3.
Leverage the impact of people, information and technology
This dimension recognizes the importance of employees as a company asset and
therefore places greater emphasis on the development of this asset through
education, training, and empowerment.
SCM Strategy Development
• Firms are implementing numerous strategies in order to enhance
competitive capabilities.
• Strategies are being implemented which extend beyond the firm,
serving to integrate companies and improve performance through a
supply chain.
• Many of these external supply-chain management initiatives
integrate materials, organizations, and information, often through
advances in technology.
• Strategies entail many trade offs
• The implementation of any SCM strategy is highly context
dependent. The appropriate strategies followed differ for each
company and each company must base its strategy upon an
understanding of its customers and markets, products, strengths
and weaknesses, competition, and resources.
Functional versus Innovative Products:
Differences in Demand*
Aspects of Demand
•
•
•
Product Life Cycle:
Contribution Margin:
Product Variety
•
Avg Margin of Forecast Error
at Production Commitment:
Average Stockout Rate:
Avg Forced End-of-Season
Markdown as % of Full Price:
Lead Time Required for
Made-to-Order Products:
SCM Keys:
•
•
•
•
Functional
Predictable demand)
Innovative
(Unpredictable Demand)
> 2 years
5% - 20%
Low (10-20 variants
per category)
3 months to 1 year
20% - 60%
High (∞ potential of
variants per category)
10%
1% - 2%
40% - 100%
10% - 40%
0%
10% - 25%
6 months - 1 year
Physical efficiency ($)
1 day to 2 weeks
Speed and Flexibility
*Source: Fisher, Marshall l. "What is the Right Supply Chain for Your Product?" Harvard Business Review, March-April, 1997, pp. 105-116.
Bullwhip Effect Causes
1. Independent forecasting within each echelon
(decentralized policy making)
2. Order batching which amplifies variability
3. Price fluctuations
4. Rationing and shortage gaming
Counteracting Bullwhip Effect
1. Technology provides visibility: CPFR
(collaborative planning, forecasting, and
replenishment), POS (point-of-sales), data
mining
2. Trust: eliminates batching and gaming
3. Structural approaches: incentives, metric
alignment, stable pricing eliminates forward
buying)
SCM Strategies
1.
Electronic Commerce Initiatives (various forms)
•
Internally, decentralized client and server computing of networked intranets (versus mainframe) reportedly afford greater
access of real time data to more people.
•
Externally, e-commerce initiatives include: CPFR, POS data collection, VMI, RFID, shared databases, magnetic/optical data
capture (such as bar coding), the internet, and world-wide web sites.
2.
Partnerships
•
Partnering is a method of transforming contractual relationships into a cohesive, cooperative (collaborative) arrangement
with a single set of goals and established procedures for resolving disputes in a timely and effective manner.
•
Partnering Purpose: to avoid the natural adversarial relationship that exists
•
Partnerships better enable firms to provide competitive advantages.
•
Partnerships spread the financial risk over a group of companies
•
Partnerships work to increase vendor participation in supply chain activities (e.g., early supplier involvement (ESI), vendor
managed inventories (VMI), CPFR, JIT initiatives, etc.)
•
Many new forms of partnerships (contractual arrangements) have emerged: joint ventures, strategic alliances, virtual
organizations, B2B, B2C, and C2C exchanges.
•
The technological advances in computer networks (internets and intranets) and telecommunications is making it possible
for various forms of partnerships to coordinate geographically and institutionally dispersed capabilities.
SCM Strategies (continued)
3.
Outsourcing
•
A strategy used to reduce uncertainty, cut lead times, increase supply chain flexibility
•
The internet is providing a great boost to this strategy
•
It is gaining popularity for reported benefits including:
a.
b.
c.
d.
e.
f.
Outsourcer’s expertise
Lower unit costs through higher and more stable volumes (economies of scale,
specialization, improved capacity utilization)
Higher quality through greater investment justified by volumes
Lower financial risk to outsourcing firm through reductions in capital requirements with
lower equipment, warehousing, and inventory costs
Greater opportunity for adding value through customization
Wide ranging set of functions (e.g., product design, materials management and
transportation functions, inventory control and warehouse operations, etc.)
SCM Strategies (continued)
4. Postponement
• Postponement in the distribution channel
allows products to be designed for last
minute customization
• Forms: assembly, packaging, labeling,
mixing
SCM Strategies (continued)
5. Transportation and Warehousing Innovation
•
•
•
•
•
•
•
•
•
•
Reusable containers and dunnage
Rapid load/unload
Point-of-use doors
In-line vehicle sequencing
Mixed mode transport
JIT process center (delivery postponement)
Direct Delivery (elimination of the traditional middleman)
Crossdocking
Consolidation (LTL into TL) and Break Bulk (TL into LTL)
Services (labeling, postponement, mixing, customization, others)
SCM Strategies (continued)
6.
Purchasing Principles
• Supplier speed (order response time)
• Reliable delivery schedules (low variance)
• An increased emphasis on supplier location (e.g., supplier locations in
close proximity to OEM plants)
• Continuous improvement initiatives (cost, products, processes, quality,
flexibility, etc.)
• Reduced purchase quantities (more frequent deliveries) through
reduced order costs (same idea as lot size reductions)
• Consistent quality levels for purchased goods and materials
• Trust and increased information sharing (schedule sharing)
• Maintaining a smaller number of suppliers
• Longer-term supplier relations