Basic Supply Chain for a Product

Three entities and four flows

Information flow

Reverse product flow

Supplier Producer Customer

Primary Primary
product product
flow flow
Primary cash flow

© 2012 APICS The Association for Operations Management. All rights reserved. Version 3.0, 2012 Edition 1-2
 Two Types of Supply Chain Management
Vertical Integration Lateral (Horizontal) Integration
Degree to which a firm directly controls Coordinated management of separately
multiple links in the supply chain from raw owned links in the supply chain;
material extraction to retail sales “outsourcing”

Retail sales Raw Production

Components Retail
materials Distribution
Products sales
extraction Services
Distribution

Production
Components/products/services

Raw materials extraction

© 2012 APICS The Association for Operations Management. All rights reserved. Version 3.0, 2012 Edition 1-3
 Vertical Integration
Integrated automotive company: Benefits of vertical integration
ownership, management,
marketing/sales, finance No dealing with competitors for
supplies, etc.
Showroom Customer
Enhanced visibility into operations
Distribution
Control
Plant Primary Same ownership and
materials/ management for all activities in
Component product flow supply chain
production

Raw materials

© 2012 APICS The Association for Operations Management. All rights reserved. Version 3.0, 2012 Edition 1-4
 Lateral Integration
Information flow

Raw Components Plant Distribution Retail Customers

materials

Primary product flows Primary cash flows

Benefits of lateral integration

Economies of scale and scope
Improved business focus
Leveraging communication and
production competencies

© 2012 APICS The Association for Operations Management. All rights reserved. Version 3.0, 2012 Edition 1-5
 Supply Chain Strategies
Three Main Types
Stable Reactive Efficient Reactive
Supply Chain Supply Chain Supply Chain

• Has significant history of • Fulfills demand from trade • Serves as efficient, low-
stability partners’ sales and cost, integrated unit
• Focuses on execution, marketing strategies • Focuses efficiency and
efficiencies, cost • Is perceived as a cost cost management on total
performance center delivered cost of finished
• Uses simple connectivity • Ensures throughput at any goods
technologies cost (primary goal) • Places greater importance
on connectivity technology
• MTS • MTO and new equipment

© 2012 APICS The Association for Operations Management. All rights reserved. Version 3.0, 2012 Edition 1-6
 Stages of SCM Evolution
1: Multiple 2: Semifunctional 3: Integrated 4: Extended
Dysfunction Enterprise Enterprise Enterprise
• Impulsive activity • Mostly manual ops • New focus on • Process integration
• Pep talks, threats • Inventory reduction process across entity
• No teamwork in owned facilities • Internal process boundaries
• Little information • New low-price integration • Eventual electronic
exchange purchasing • MRP II/ERP information
strategies • Intranets, etc., connections among
• Some hard skills across functions multiple partners
training, job • Design teams • ERP-to-ERP links
enhancement • Enhanced • E-commerce
• Enhanced warehousing, • Supply chain vs.
marketing and logistics, supply chain
forecasting forecasting, etc. competition
• No coordination of
initiatives

© 2012 APICS The Association for Operations Management. All rights reserved. Version 3.0, 2012 Edition 1-7
 Stage 3: Integrated Enterprise

ERP

Suppliers Customers
Production Marketing/
Purchasing Logistics R&D Distribution
control sales
Suppliers Customers

Suppliers Materials/products/services Payments

Customers

Reverse product flow

© 2012 APICS The Association for Operations Management. All rights reserved. Version 3.0, 2012 Edition 1-8
 Stage 4: Extended Enterprise

Networked information flow

Suppliers’ Internal Customers’

Suppliers Customers
suppliers chain customers

Materials/products/services Payments

Reverse product flow

© 2012 APICS The Association for Operations Management. All rights reserved. Version 3.0, 2012 Edition 1-9
 APICS Definition of
Supply Chain Management
The design, planning, execution, control, and
monitoring of supply chain activities with the
objective of:
• Creating net value
• Building a competitive infrastructure
• Leveraging worldwide logistics
• Synchronizing supply with demand, and
• Measuring performance globally.
© 2012 APICS The Association for Operations Management. All rights reserved. Version 3.0, 2012 Edition 1-10