CHAPTER 2
Supply Chain
Management
Supply Chain Management
2-2
The integration of key business
processes from end user through
original suppliers, that provides
products, services, and
information that add value for
customers and other
stakeholders.
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
SUPPLY CHAIN MANAGEMENT
2-3
Integrating and Managing Processes Across the Supply Chain
Information Flow
Tier 2
Supplier
Manufacturer
Tier 1
Supplier
Customer
Logistics
Marketing & Sales
Purchasing
Production
Consumer/
End-user
PRODUCT FLOW
Finance
R&D
Supply Chain Business Processes
CUSTOMER RELATIONSHIP MANAGEMENT
CUSTOMER SERVICE MANAGEMENT
DEMAND MANAGEMENT
ORDER FULFILLMENT
MANUFACTURING FLOW MANAGEMENT
PROCUREMENT
PRODUCT DEVELOPMENT AND COMMERCIALIZATION
RETURNS
Source: Douglas M. Lambert, Martha C. Cooper, Janus D. Pagh, “Supply Chain Management: Implementation Issues and Research Opportunities”, The International Journal
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
of Logistics Management, Vol. 9, No. 2, 1998, p. 2.
Supply Chain Network Structure
Tier 1
Suppliers
Tier 1
Customers
Tier 2
Customers
1
1
2
2
n
1
1
2
2
Tier 3 to
Consumers/
End-Customers
n
1
n
1
2
3
n
3
n
1
1
2
n
n
Tier 3 to n customers
n
Consumers / End-Customers
Tier 2
Suppliers
Tier 3 to n suppliers
Initial Suppliers
Tier 3 to
Initial
suppliers
2-4
1
n
Focal Company
McGraw-Hill/Irwin
Members of the Focal Company’s Supply Chain
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Elements and Key Decisions
2-5
2. What processes should be linked
with each of these key
supply chain members?
Supply chain
business
processes
Supply chain
management
components
3. What level of integration
and management should be
applied or each process link?
McGraw-Hill/Irwin
Supply chain
network
structure
1. Who are the key supply
chain members with whom
to link processes?
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Types of Business Process Links
•
•
•
•
2-6
Managed Process Links
Monitored Process Links
Not-Managed Process Links
Nonmember Process Links
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Types of Inter-company
Business Process Links
Tier 1
Suppliers
Tier 2
Customers
1
1
2
2
n
1
1
2
2
Tier 3 to
Consumers/
End-Customers
n
n
n
1
2
n
1
n
Managed Process Links
Monitor Process Links
Not-Managed Process Links
Non-Member Process Links
1
3
n
1
n
1
2
n
n
Tier 3 to n customers
1
3
McGraw-Hill/Irwin
Tier 1
Customers
Consumers / End-Customers
Tier 2
Suppliers
Tier 3 to n suppliers
Initial Suppliers
Tier 3 to
Initial
suppliers
2-7
1
n
Focal Company
Members of the Focal Company’s Supply Chain
Non-Members of the Focal Company’s Supply Chain
Source: Douglas M. Lambert, Martha C. Cooper and Janus D. Pagh, "Supply Chain Management: Implementation
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Issues and Research Opportunities,” The International Journal of Logistics Management, Vol. 9, No. 2 (1998), p.7.
Underlying Process Vision
2-8
Supply Chain Management Vision
The key to achieving an integrated flow of product and information throughout
the supply chain is to create a focused customer interface, a focused supplier
interface, and an integrated, process-oriented, supply chain which is driven by
the customer.
Customer Relationship
Management
Customer
Service
Management
Fulfillment
Customer
Demand
Management
Procurement
Manufacturing Flow
Management
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies,Source:
Inc. All 3M
rights reserved.
Fundamental Management
Components
Physical and technical
management components
Managerial and behavioral
management components
Planning and
control methods
Management
methods
Work flow/
activity structure
Power and
leadership structure
Organization
structure
Risk and
reward structure
Communication
and information flow
facility structure
Culture and
attitude
2-9
Product flow
facility structure
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Customer Relationship Management
2-10
• Customer service teams develop and implement
customer partnering programs.
• Product/service agreements are established.
• New customer interfaces lead to improved
communication and better predictions of
customer demand and improve the way
customers are serviced.
• Teams identify and eliminate sources of
production variability.
• Key performance evaluation criteria (both level
of service and customer profitability) are used
to measure results.
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Customer Service Management
2-11
• Provides a single source of customer information,
a point of contact for administration of the
product/service agreement.
• Conveys real-time information through interface
with product and distribution operations.
• Requires an on-line/real-time product and
pricing information to assist customers with
inquiries, order placement, and after-sales
service.
• Includes front line technical service that assists
customers with product applications and
recommendations.
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Customer Order Fulfillment
2-12
• “Customer need dates” and requirements drive
the process.
• Manufacturing, distribution, and
transportation plans are integrated.
• Strategic alliances with key supply chain
members and carriers are formed to meet
requirements and to reduce total-delivered-cost
to customers
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Manufacturing Flow Management
2-13
• Product is pulled through the plant based on
customer needs.
• Manufacturing processes must flexibly respond
to market changes with rapid changeover
capabilities for mass customization.
• Minimum lot sizes are planned to move toward
a make to order environment.
• Production priorities are driven by required
delivery dates.
• Managers concentrate on keeping
setup/changeover costs very low.
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Procurement
2-14
• Strategic plans of suppliers and company are
aligned to focus resources on holding down
costs and developing new products.
• Supplier categorization and management is
implemented on a corporate global basis, with
purchasing in a strategic contracting role.
• Purchase order transactions are integrated
with the supply process to improve productivity
and all areas of supplier performance.
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Cost trade-offs in Marketing
and Logistics
Price
Order processing
and information
costs
MARKETING
Product
2-15
Place/customer
service levels
Inventory
carrying costs
Transportation
costs
Lot quantity costs
Warehousing costs
Order processing
and information
costs
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Reengineering SCM
Process Flow Chart
2-16
Mission statement
Business requirements
Assess:
• Culture
• Strategies
• Practices
• Processes
Acceptable
Not acceptable
Revise/reengineer
Strategic
partnerships
Organization
structure
Human
resource
capabilities
Information
systems
New enterprise design
for integrated process
Implement business
solution in supply chain
McGraw-Hill/Irwin
Source: Douglas M. Lambert, Larry C. Guinipero, and Gary J. Ridenhower, “Supply Chain Management: A Key to Achieving
Copyright
© 2001 by manuscript.
The McGraw-Hill
Companies, Inc. All rights reserved.
Business Excellence in the 21st
Century,” unpublished
All Rights reserved.
IMPLEMENTATION OF SUPPLY CHAIN MANAGEMENT
Typical
Functions
Silos
Business
Processes
S
U
P
P
L
I
E
R
S
Customer
Relationship
Management
Sales &
Marketing
Account
Management
Account
Customer Service
Management
Administration
Technical
Manufacturing
Logistics
Requirements Requirements
Definition
Definition
Customer
Profitability
Priority
Assessment
Cost
To Serve
Tradeoff
Analysis
Capability
Planning
Sourcing
Plant
Direct
Selected
Supplier(s)
Distribution
Cost
Production
Planning
Integrated
Supply
Manufacturing
Cost
Integrated
Planning
Supplier
Management
Materials
Cost
Process
Specifications
Material
Specifications
R & D Cost
Network
Planning
Fulfillment
Special
Orders
Environmental
Requirements
Distribution
Management
Product
Development and
Commercialization
Sourcing
Strategy
Coordinated
Execution
Process
Requirements
Procurement
Manufacturing
Strategy
Performance
Specifications
Demand
Planning
Manufacturing Flow Packaging
Management
Specifications
Finance &
Purchasing Accounting
Technical
Service
Demand
Management
Process
Stability
Order
Booking
Material
Specifications
Business
Plan
Product
Design
Prioritization
Criteria
Inbound
Flow
Movement
Requirements
2-17
C
U
S
T
O
M
E
R
S
Information Architecture, Data Base Strategy, Information Visibility
Note: Process sponsorship and ownership must be established to drive the attainment of the supply chain vision and eliminate the functional barriers that
artificially separate the process flows.
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
2-18
Supply Chain Design
•
•
•
•
•
•
1. Establish supply chain objectives
2. Formulate a supply chain strategy
3. Determine supply chain structure alternatives
4. Evaluate supply chain structure alternatives
5. Select supply chain structure
6. Determine alternatives for individual supply
chain members
• 7. Evaluate and select individual chain members
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
2-19
Supply Chain Design Considerations
• Market Coverage Objectives are determined by:
• Customer Buying Behavior
• Type of Distribution Possible (Intensive,
•
selective or exclusive)
• Supply Chain Structure (capabilities of
•
possible members)
• Control
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
2-20
Product Characteristics
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Value – high value products require a
shorter supply chain
Technicality – require salespeople for
demonstration and service parts to be
stocked
Market Acceptance – accepted products
require less effort
Substitutability – intensive distribution where easy
to substitute
Bulk – high bulk products distributed close to production
point
Perishability – must move product quickly
Market Concentration – when the market is geographically concentrated, short
supply chains most effecitve
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
2-21
Customer Service Objectives
• Availability: Products
• Order Cycle: Most favorable to consumers?
• Communication: Timely information to
consumer
McGraw-Hill/Irwin
Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.