INTRODUCTION TO SUPPLY
CHAIN MANAGEMENT
E Commerce
SUPPLY CHAIN
• A supply chain consists of all parties involved,
directly or indirectly, in fulfilling a customer
requirement.
• All facilities, functions, activities, associated with
flow and transformation of goods and services from
raw materials to customer, as well as the associated
information flows.
• An integrated group of processes to “source,”
“make,” and “deliver” products.
Customer
Field s, demand
Source Regional Warehouse centers
s: Warehous s: stocking sinks
plants es: stocking points
vendors points
ports
Suppl
y
Inventory &
warehousin
Production g costs
/ purchase Transportatio
costs Transportati
cost n costs
son Inventory &
warehousin
g costs
• Supply chain management (SCM) is the
management of the flow of goods
• The goal or mission of supply chain
management can be defined using Mr.
Goldratt’s words as “Increase throughput
while simultaneously reducing both
inventory and operating expense”
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Supply Chain Management
• Definition:
Supply Chain Management is primarily concerned
with the efficient integration of suppliers, factories,
warehouses and stores so that merchandise is
produced and distributed in the right quantities, to
the right locations and at the right time, and so as to
minimize total system cost subject to satisfying
customer service requirements.
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• Supply chain management has been defined as
the "design, planning, execution, control, and
monitoring of supply chain activities with the
objective of creating net value, building a
competitive leveraging
infrastructure, worldwide
synchronizing supply
logistics,
with demand and performance
measuring
globally
.
What is a supply chain?
Supply Chain Illustration
Copyright 2006 John Wiley & 10-8
Sons, Inc.
Benefits of SCM
This positively Contributes
Reduces
affects inventory to overall
uncertainty levels, cycle
& risks in increase in
time, business
the supply profitabilit
processes &
chain. customer y &
service. competitive
advantage.
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SUPPLY CHAIN STAGES
• Customers
• Retailers
• Wholesalers/Distributors
• Manufacturers
• Component/ Raw material suppliers
– It is not compulsory that all the stages should be
present in a supply chain
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What Is Supply Chain Management (SCM)?
Plan Source Make Deliver Buy
• A set of approaches used to efficiently
integrate
– Suppliers
– Manufacturers
– Warehouses
– Distribution centers
• So that the product is produced and distributed
– In the right quantities
– To the right locations
– And at the right time
• System-wide costs are minimized and
• Service level requirements are satisfied
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History of Supply Chain Management
• 1960’s - Inventory Management Focus, Cost
Control
• 1970’s - MRP & OM - Operations Planning
• 1980’s - MRPII, JIT - Materials Management,
Logistics
• 1990’s - SCM - ERP - “Integrated” Purchasing,
Financials, Manufacturing, Order Entry
• 2000’s - Optimized “Value Network” with Real-
Time Decision Support; Synchronized &
Collaborative Extended Network for SCM.
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Objectives
• Satisfy the customer needs.
• Maximize the overall value generated.
• Increase supply chain surplus.
• High supply chain profitability.
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SUPPLY CHAIN DECISIONS
• Design>planning> execution
> control>monitoring.
• Ensure effective flow of goods
and information
• Clusters of store near the
distribution center.
• Collaboration with suppliers.
• Active efforts to steer
customer at real time. 14
• Worth of inventory.
• Manage cash flow
• Should be flexible.
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DECISION PHASES IN SUPPLY
CHAIN
1. Supply chain strategy or design
• How to structure for next several years
• What is the chain configuration
• How resources allocated
• What process each stage will perform
• Out sourcing
• In house functions
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• Locations and capacities of production
and ware houses
• Mode of transportation
• Type of information system
2. Supply chain planning
• for several months.
• Forecast for the coming year
• Analyses demand in different markets
• Which market? Location?
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• Sub contracting
• Inventory policies
• Timing
• Size of marketing
• Price promotions
3. Supply chain operations
• weekly or daily operation decisions
• Individual customer orders
• Allocation of inventory and
production
• Set dates for activities
• Generate lists for warehouses
• Allocation of shipments
• Schedules of trucks.
Drivers of supply chain performance
• Aim.. responsiveness and efficiency at lowest
possible cost.
• Drivers are set to improve the supply chain
performance.
• Facilities
• Inventory
• Transportation
• Information
• Sourcing
• Pricing.
Drivers of Supply Chain Performance
• Facilities
– places where inventory is stored, assembled, or fabricated
– production sites and storage sites (distribution facilies (DC))
– Location, capacity, flexibility
– Responsive – several DC close to customer v.s. Efficiency- central few DCs
• Inventory
– raw materials, WIP, finished goods within a supply chain
– inventory policies
– Responsiveness – Large inventories, Efficiency – low inventories
• Transportation
– moving inventory from point to point in a supply chain
– combinations of transportation modes and routes
– Transportation choices make big impact on responsiveness
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Drivers of Supply Chain Performance
• Information
– data and analysis and sharing regarding inventory, transportation, facilities,
costs, prices, supplier performance, demand forecast throughout the supply
chain
– potentially the biggest driver of supply chain performance, affects all other
drivers directly.
• Sourcing
– Sourcing functions that are outsourced, like production, storage, management of
information etc.
– Motorolla suffered from responsiveness after outsourcing production to
contract manufacturers in china because of long distances, started flying in
some of its cellular phones.
• Pricing
– Price associated with goods and services provided by a firm to the supply
chain
– Affects the behavior of the buyer.
– Transportation company charging based on lead time provided by customer.
Efficiency customers will order early. If the price is not dependent on lead time
early orders are very unlikely.
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A Framework for
Structuring Drivers
Competitive Strategy
Supply Chain
Strategy
Efficiency Responsiveness
Supply chain structure
Logistical Drivers
Facilities Inventory Transportation
Interacting driver
Information Pricing
Sourcing
Cross Functional Drivers
Structuring Drivers; Wal-Mart example
• Competitive strategy; every-day-low-price, reliable product availability,
wide-variety.
• Supply chain must be efficient with adequate level of
responsiveness
• Inventory – low levels of inventories, cross-ducking (no storage at DCs)
(efficiency)
• Transportation – owns its fleet of trucks (responsiveness)
• Facilities – Centrally located DCs. Won’t open stores until demand justifies
several of them and a DC to support them.
• Information – High investment on information technology, sharing sales
data directly and timely with its suppliers
• Sourcing – finding efficient suppliers, feeding them with large orders
• Pricing – Every day low price (no sales season), assuring steady demand
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Thank You
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