The Concept of “Supply Chain
Management”
EIN5346 Logistics Management
Mendez Lynch
Donovan Richards
Maurice Robinson
Vaughn Mignott
The Concept of Supply Chain Management
– where it came from?
The concept of Supply Chain Management is a
relatively new concept, prior to the 1990s in relation
to both:
- Academic Literature, and
- Practitioner Literature
Recognition:
The early to mid-1990s witnessed a growing
recognition that there could be value in coordinating
the various business functions, both:
- Within Organizations, and
- Across Organizations
Recognition (contd):
• With this recognition, came into being the
Philosophy of “Supply Chain Management."
What is the Supply Chain Management
concept?
• The Supply Chain Management Concept is that
concept that encompasses all activities
associated with:
i.
Flow and transformation of Goods – From the
raw material stage (extraction) through to the
end user
ii. Information flows to and from the end user
What does the Supply Chain Concept
consist of?
• The Supply Chain Concept consists of all parties
involved (directly and/or indirectly), in fulfilling
customers’ requests. The parties involved are:
- Manufacturers
- Suppliers
- Transporters
- Warehouses
- Retailers
- Customers
Supply Chain Concept (contd)
• The Supply Chain Concept may also include:
- New product development
- Marketing
- Operations
- Distribution
- Finance
- Customer service
Types of Supply Chain Configurations
Three types of supply chain configurations are
looked at. These are:
▫ Direct Supply Chain
▫ Extended Supply Chain
▫ Ultimate supply chain
Direct Supply Chain
Supplier
Organization
Source – Prof. Dr. Ted Lee’s Class Presentation - 2010
Customer
Extended Supply Chain
•2
Supplier
Organization
Customer
Customer’s
customers
Supplier’s
suppliers
Source – Prof. Dr. Ted Lee’s Class Presentation - 2010
Ultimate Supply Chain
3rd Party Logistic Supplier
Supplier
Customer
Organization
Ultimate
customer
Ultimate
supplier
Financial Provider
Market Research
Source – Prof. Dr. Ted Lee’s Class Presentation - 2010
The management of the Supply Chain –
What is it?
Supply chain management, according to the
Council of Supply Chain Management
Professionals, is the:
Planning and Management of all activities
involved in the following:
- Sourcing and procurement
- Conversion
- Logistics management
Management of the Supply Chain (contd)
This involves coordination, and collaboration with
channel partners such as:
-
Suppliers
Intermediaries
Third party service providers, and
Customers
In general, Supply Chain Management integrates
supply and demand management within and across
organization(s)
Why Manage the Supply Chain?
Companies that excel in supply chain management
perform BETTER in every financial measure of
success
• Supply-chain excellence improves demand-forecast
accuracy, which results in approximately:




5% higher profit margin
15% less inventory
up to 17% stronger “perfect order” ratings
35% shorter cash-to-cash cycle times than the competition
Source: BusinessWeek (2004)
FIVE BASIC COMPONENT OF SUPPLY CHAIN
MANAGEMENT
1. Planning:
• The strategic portion of supply chain management.
• A strategy for managing all the resources that goes toward meeting customer
demand for your product or service.
• Balances aggregate demand and supply to develop a course of action which best
meets the requirements for:
-Sourcing
- Production, and
-Delivery
BASIC COMPONENT OF SUPPLY CHAIN MANAGEMENT
(contd)
2. Sourcing:
•Choose the suppliers that will deliver the goods and services you need to create
your product or service.
•Develop a set of pricing, delivery and payment processes with suppliers and
create metrics for monitoring and improving the relationships.
•Put together processes for managing the inventory of goods and services you
receive from suppliers.
BASIC COMPONENT OF SUPPLY CHAIN MANAGEMENT
(contd)
3. Making: (The manufacturing step. )
•Schedule the activities necessary for production, testing, packaging and
preparation for delivery.
•Is the most metric-intensive portion of the supply chain, it measures
- Quality levels
- Production output, and
- Worker productivity
4. Delivering: ( The "logistics” portion of SCM. )
It Involves:
- Coordinating the receipt of orders from customers
- Developing network of warehouses
- Picking carriers to get products to customers, and
- Set up an invoicing system to receive payments.
BASIC COMPONENT OF SUPPLY CHAIN
MANAGEMENT (contd)
5. Return: (The problem part of the supply chain. )
• Create a network for receiving defective and excess
products back from customers
•Supporting customers who have problems with
delivered products.
Key Attributes of Supply Chain
Management
• Customer Power – Customer has become highly
knowledgeable about individual organization and its
product as well as about competing organizations
and products
• Long-term Orientation – Seeks relational
exchanges rather than transaction exchanges
• Leveraging Technology – Supply chains can be
very complex entities which require appropriate
technology to maximize shareholder wealth and
reduce costs. This as opposed to what obtained
historically.
Attributes of Supply Chain Management (contd)
• Enhanced communication across Organization
–Accurate, real time, seamless information flow within
and across organizations is necessary as Supply chain
relies on high volumes of information
• Inventory Stock – Better control flow of inventory
with fewer inventory lumps and also reduction in the
amount of physical inventory
• Inter-organizational Collaboration – Supply
chain as a whole has the objective of optimizing the
performance of the entire supply chain rather than
individual organization
Typical Supply Chain
With all that have been said
previously, What does this Mean?
• Supply chain management
means more than just low
costs and high efficiency and
effectiveness
• It requires a superior ability
to shape and respond to
shifts in demand with
innovative products and
services
Supply Chain Management Trends
• Demand Driven Supply Network (DDSN)
• Lean Manufacturing
• Radio Frequency Identification (RFID)
• Transportation & logistics
Demand Driven Excellence
• A system of technologies and processes that
senses and responds to real time demand signals
across a network of customers, suppliers and
employees
Demand Driven Overlapping Principles
• Supply management
— Manufacturing,
logistics and sourcing
• Demand management
— Marketing, sales
and service
• Product management —
R&D, engineering and
product development
• Defining characteristics of supply chains built to
demand driven principles results in the ability to
manage demand rather than just respond to it
Operational and Innovation Excellence
• Two basic dimensions of measurement capture the
totality of the best-in-class, demand-driven, global
supply chain:
▫ Operational excellence
▫ Innovation excellence
Operational excellence
This involves:
• Reaching the ultmate in the execution of business processes
• When practiced, business is conducted in a manner that:
- Satisfies customer demand
-
Improves quality
Generates higher yields
Faster throughput &
Eliminate waste
Innovational Excellence
•Innovation is the key and critical factor toward better
results.
•In today's competitive world an organization desiring
different outcomes, without innovation the likelihood of
achieving extraordinary results is greatly diminished
•Innovation is rooted in the PDCA principle
• PLAN
• DO
• CHECK
• ADJUST
Also referred to as the cycle of continual improvement.
Operational and Innovation Excellence
The Hierarchy of Supply Chain Metrics:
Operational Excellence
The Hierarchy of Supply Chain Metrics:
Innovation Excellence
Lean Manufacturing
• Most companies have peacefully reconciled the
mandate to work lean while employing the latest
software to streamline processes and gain new
visibility over the supply chain
• Remove waste
• Reduce inefficiencies
Lean Manufacturing
Radio Frequency Identification
• RFID technology uses radio waves to read data
put on a chip embedded within a tag.
• Primarily used for identification and tracking
• Monitor product location at all time, updating
both planning and execution systems
RFID in Practice
Transportation & Logistics
Transportation & Logistics
• Physical movement of goods and services
• Companies need to adopt a strategic
transportation sourcing (STS) approach
• Strategic sourcing considers costs within the
total manufacturing and distribution supply and
demand environment
• Companies sometimes outsource the
transportation activities
Supply Chain Top 10 Companies
Source: Gartner (2010)
Financial Metrics Used to Rank SCM
Top 10
• ROA — Net income/total assets
• Inventory turns — Cost of goods sold/inventory
• Revenue growth — Change in revenue from prior
year
Supply Chain Management - Challenges
• A number of impediments may affect the effective implementation
of Supply Chain Management systems, despite the optimistic
attractive futuristic perspective of such chain. These impediments
include:
• Regulatory and Political Considerations – Regulations may prevent
some chains from entering certain markets. Also, events such as war
may affect supply chain management systems
• Lack of top management commitment – Top management might be
uncomfortable with one or more of the underpinnings of the supply
chain management
• Reluctance to share and/or use relevant information – Might not be
willing to share data that is propriety in nature
Challenges (contd)
• Incompatible information systems – Eg. Computer softwares
• Incompatible corporate cultures – Must be comfortable with
“how organizations in the supply chain do business”
• Globalization – Supply chains have increasingly become
global in nature, due to, amongst other reasons, lower price of
material and labor.
• However, with globalization, there come cultural, economic,
technological, political , spatial, and logistical challenges.
Which may affect the fulfillment of customer demands.
Recommendations
• Apply demand-driven principles in order to sense, shape and
respond to changes in market demand.
• Take a cue from the leaders when designing your own supply
chain strategy. Define how many supply chain types you have
and design a customized response for each.
• Balance operational excellence with innovation excellence for
superior overall performance.
• Focus on acquiring, mentoring, growing and retaining supply
chain talent.
• Measure your supply chain as your customer experiences it.
This will ensure continuous improvement
Recommendations (cont’d.)
Make individual and collective decision regarding action in the following areas:
Production:
What product does the market wants, how much and by when.
Inventory:
What inventory should be stocked at each stage of the supply chain and how
much of each type.
Location:
Where should facilities for production and inventory storage be located to be
most cost effective
Transportation:
How should inventory be moved from one supply chain location to another
Information:
How much data should be collected and how much information should be
shared.
Bibliography
•
http://www.gartner.com/technology/supply-chain/top25.jsp
•
http://www.businessweek.com/adsections/2004/pdf/0416_supplychain.pdf
•
http://www.pwc.com/gx/en/transportation-logistics
•
http://www.amrresearch.com
•
http://www.ariba.com
•
http://www.ifsna.com
•
http://www.ipsmartpackaging.com
•
http://www.matrics.com
•
http://www.peoplesoft.com
•
http://www.sap.com
•
http://www.myyellow.com
•
•
http://www.zebra.com
Contemporary Logistics – 9th Edition - by Paul R. Murphy, JR. & Donald F. Wood