Part A: Introduction to Supply

Chain Management
Sources:
Principles of Supply Chain Management: A Balanced Approach, 4th Edition, Wisner, Tan, Leong
Supply Chain Management: A Global Perspective, 1st Edition, Sanders
Introduction to Supply Chain Management Technologies, 2nd Edition, Ross

Anoud Bani-Hani, EngD

CTI362: IT in SCM/L
Zayed University

1
 Learning Objectives
 Describe a supply chain and define SCM, its objectives and
elements.
 Understand SCM history, its trends, and changing paradigms.
 Describe logistics, its tasks, and role in SCM.
 Be familiar with industry SCM terminology.

2
 What is Supply Chain Management
(SCM)?
In simple terms it is:

▶ The coordination of all supply chain activities, starting

with raw materials and ending with a satisfied end
customer (consumer)

▶ Includes suppliers, manufacturers and/or service

providers, distributors, wholesalers, retailers, and end
customer

3
 What is Supply Chain Management
(SCM)?
SCM activities include:
▶ Coordination
Coordinate the movement of goods, services, and funds through the
supply chain
▶ Information Sharing
Share forecasts, point-of-sale data, planned promotional campaigns,
and inventory levels
▶ Collaboration
Jointly plan, operate, and execute business decisions as one entity

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What is Supply Chain Management
(SCM)?
Exercise:

Can you describe a Water Bottle

Supply Chain?

Can you draw it?

Think:
▶ What is the cost, revenue, and profit per bottle?
▶ Who are the suppliers, manufacturers, service providers,
distributors, wholesalers, retailers, and end customer for the
water bottle?

▶ When finished: what about other (more complex) products’

Supply Chains?

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What is Supply Chain Management
(SCM)?

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 What is a Supply Chain?
▶ A supply chain consists of the flow of products and services from/to:
▶ Raw materials manufacturers
▶ Intermediate products manufacturers
▶ End product manufacturers
▶ Wholesalers and distributors
▶ Retailers and,
▶ End customers

▶ Connected by transportation and storage activities

▶ Integrated through sharing of information, planning, and processing
activities

▶ Linking customers and suppliers into a “Chain”

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 Defining Supply Chain
 A supply chain is the system of organizations, people,
activities, information and resources involved in
transforming raw materials and components into a finished
product or service that is delivered to the end customer.

Supplier Manufacturer Distributor Retailer End Customers

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 Defining Supply Chain

 Supply Chain Nodes/Links/Stages:

 Customers
 Retailers
 Wholesalers/Distributors
 Manufacturers
 Component/Raw material suppliers

 Not all nodes are present in all supply chains: e.g. Dell

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 Sources: Field
plants Regional Warehouses: End Customers
vendors Warehouses
ports

Production/ Inventory &

purchase Transportation warehousing
costs costs costs

Most supply chains are actually supply networks; a manufacturer may receive material
from several suppliers and then supply several distributors.
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Defining Supply Chain

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 Defining Supply Chain
 Supply Chain includes three types of flow: Material Flow,
Information Flow, and Financial Flow.

Material generally flow from suppliers to consumer

(exceptions include Reverse Logistics)
supply

demand
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 Defining Supply Chain
 Supply Chain includes three types of flow: Material Flow,
Information Flow, and Financial Flow.

Cash
supply

demand
Information and funds (financial or cash) generally flow
from consumer to suppliers
(exceptions include production data and refunds)
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 Defining Supply Chain
For a supply chain to be successful, firms must work together
by sharing information on things like:
 Demand forecasts
 Production plans
 Production changes
 New marketing strategies
 New technologies employed
 Purchasing plans
 Delivery dates

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 Defining Supply Chain
 A typical Supply Chain consists of three separate, yet
integrated channels:
 Demand channel (Consumer)
 Process value channel (Supply)
 Value delivery network (Distribution)

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 Adding Value in a SC
 Every organization must make a product or a service that
someone values.
 Manufacturing companies create value by acquiring raw
materials and using them to produce something useful.
 Retailers bring together a range of products and present them in
a convenient way, sometimes supported by services (fitting
rooms or personalized advice).

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 Value-added:
The difference between
the cost of inputs and the
value or price of outputs.

Stage of Production Value Value of

Added Product
Farmer produces and harvests wheat $0.15 $0.15
Wheat transported to mill $0.08 $0.23
Mill produces flour $0.15 $0.38
Flour transported to baker $0.08 $0.46
Baker produces bread $0.54 $1.00
Bread transported to grocery store $0.08 $1.08
Grocery store displays and sells bread $0.21 $1.29
Total Value-Added $1.29

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 Adding Value in a SC
 SCM can be a source of Value
 Improving Supply Chain Management can provide a way for
companies to achieve a cost-value advantage over
competitors
 Reduce Supply Chain Costs
 Inventory, distribution, coordination
 Service Excellence
 Shorter lead times, just-in-time deliveries, meeting customer service expectations
 New Supply Chain Technologies
RFID, Wal-Mart's Retail-Link system

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 What is Supply Chain Management?
The planning and management of all activities involved in sourcing and procurement,
conversion, and all logistics management activities … also includes coordination with
channel partners, which can be suppliers, intermediaries, third party service providers,
and customers.
Council of Supply Chain Management Professionals

The design and management of seamless, value-added processes across organizational

boundaries to meet the real needs of the end customer.

Institute for Supply 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.
Association for Operations Management
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 Defining Supply Chain Management
 A simple definition:
The systemic and strategic coordination of the traditional business
functions and the tactics across these business functions within a
particular company and across businesses within the supply chain, for
the purposes of improving the long-term performance of the
individual companies and the supply chain as a whole.

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 The Challenge of Supply Chain
Management
Uncertainty in demand and/or supply
Changing customer requirements
Decreasing product life cycles
Fragmentation of supply chain ownership
Conflicting objectives in the supply chain
Conflicting objectives even within a single firm
 Marketing/Sales wants: more inventory, fast delivery, many package types, special
wishes/promotions
 Production wants: bigger batch size, depots at factory, latest ship date, decrease
changeovers, stable production plan
 Distribution wants: full truckload, low depot costs, low distribution costs, small # of
SKUs (stock keeping unit,), stable distribution plan
Supply Demand

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Mission impossible: Matching Supply and Demand
The Challenge of Supply Chain
Management

I'm glad that the hole

is not on our side!

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 SCM Changing Paradigm
 Old paradigm - Firm gained synergy as a vertically integrated organization
encompassing the ownership and coordination of several supply chain
activities.
 Organizational cultures emphasized short-term, company focused performance.

 New paradigm - Firm in a supply chain focuses activities in its area of

specialization and enters into voluntary and trust-based relationships with
supplier and customer firms.
 All participants in the supply chain benefit.
 Boundaries are dynamic and extend from “the firm’s suppliers’ suppliers
to its customers’ customers.”
 Supply chains also include reverse logistics activities to handle returned
products, warranty repairs, and recycling.

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 SCM Changing Paradigm
 SCM Changing Paradigm

Functional vs. Process

Products vs. Customers

Revenues vs. Performance

Inventory vs. Information

Transactions vs. Relationships

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 What Is the Goal of Supply Chain
Management?
 Supply chain management is concerned with the efficient integration of
suppliers, factories, warehouses and stores so that merchandise is
produced and distributed right, in order to:
 Minimize total system cost
 Satisfy customer service requirements

The
Seven
Rights

Where can IT help?

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 SCM Importance
In 2007, US business logistics costs rose to Fortune-8 Company
Supply-Chain Cost as
% of Total Costs 2
an all time high of $1.4 trillion (10.1% of US
GM 94%
nominal Gross Domestic Product ) 3
Ford 93%
Conoco 90%
Supply-chain generally accounts for Wal-Mart 90%
between 60% and 90% of all company costs1 Chevron 88%
IBM 77%
A 2% improvement in process efficiency for Exxon 75%
GE 63%
supply-chain processes has 30 to 50 times the
impact of a 2% improvement in efficiency for…
IT… HR… Finance1… Sales…

1 Exclusive of Financial Services companies

2 Source: Hoovers 2006 Financial Data, Supply-Chain Council 2006 SCM Benchmark data on SCM cost for discrete & process industries
3 CSCMP 19th Annual State of the Logistics Industry 26
 SCM Importance
 Companies recognized that their capability to continuously
reinvent competitive advantage depends less on internal
capabilities and…

… more on their ability to look outward to their networks of

business partners in search of the resources to assemble the right
blend of competencies that…

…will enable their own organizations, core product, and process

strategies.

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 SCM Importance
 Today, no corporate leader believes that organizations can
survive and prosper isolated from their channels of suppliers
and customers.
 The ultimate core competency an enterprise may possess is
 Not found in a temporary advantage it may hold in a product or
a process,
 But, it is found in the ability to continuously assemble and
implement market-winning capabilities and collaborations with
supply chain partners

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 The Rise of SCM
SCM, Why Not Earlier?
 Three major changes have enabled companies to actualize
the power of supply chains to a degree impossible in the
past:
 Information Technologies
 New SCM management concepts and practices
 The requirements of operating in a global business
environment (cost, quality, responsiveness)

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 The Rise of SCM
 SCM has it’s roots in the age-old struggle of producers and
distributors to overcome the barriers of space and time to
match products and services to customers needs and desires

 Many attribute the foundations of SCM to the historical

evolution of Logistics,
 Logistics: a term originally used to describe the management of
military supplies
 The role of logistics: providing efficient and speedy movement
of goods from the point of supply to the point of need

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The Rise of SCM

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 The Rise of SCM
1950s-1960s
manufacturers focused on mass production techniques as their principal cost reduction and
productivity improvement strategies

1960s-1970s
Introduction of new computer technologies lead to development of Materials Requirements
Planning (MRP) and Manufacturing Resource Planning (MRPII) to coordinate inventory
management and improve internal communication

1980s-1990s
Intense global competition led U.S. manufacturers to adopt: Supply Chain Management
(SCM), Just-In-Time (JIT), Total Quality Management (TQM), Business Process
Reengineering (BPR)

2000s and Beyond

Companies focus on relationships, sustainability, social responsibility, and improving supply
chain integration using: Third-party service providers (3PLs), Integrating logistics, and
Client/server supply chain management software
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 SCM for Competitive Advantage
 Five primary Competitive Priorities:
 Cost
 Time
 Service
 Quality
 Innovation

 Companies that compete on cost offer products at the lowest price

possible
 Supply Chain Considerations:
asset utilization
inventory days of supply
product and supply chain costs
product and process standardization
33
 SCM for Competitive Advantage
 Companies that compete on time deliver products in as short a time
as possible
 Can utilize:
technology to speed processes
flexible workforce for peak demands
system analysis to eliminate/combine processes

 Companies that compete on service tailor their products to meet the

specific needs of target customers
 customer loyalty
 consistency
 reliability
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 SCM for Competitive Advantage

 Companies that compete on quality have products and

services known for their premium nature
 Embed quality throughout supply chain (TQM, Six Sigma)
 Product Traceability
the supply chain has the ability to easily trace a product

 Companies that compete on innovation focus on developing

“must have” products
 Supply chains of these companies focus on:
Speed to market
product design collaboration
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 SCM for Competitive Advantage

 Why not competing on all dimensions?

 Successful companies focus on the strategically important
dimensions
 Order Winners – characteristics that win orders
 Order Qualifiers – characteristics that qualify the company to
participate in a particular market

36
 Trends in SCM
 Globalization – the concept of the “Global Marketplace” became
possible due to changes in:
Information Technology
Transportation
Government Policies

 Outsourcing – hiring a third party to perform a set of tasks for a

fee
 Increased Competitive Pressure; forces companies to focus on what
they do best and outsource other activities
 Core Competencies; create superior value by managing core
competencies better than competitors
37
 Trends in SCM
 Technology – Information Technology can be viewed as an enabler of
SCM:
 Internet
 Enterprise Resource Planning (ERP)
 Wireless and Satellite Communication
Global Positioning Systems (GPS)
Radio Frequency Identification (RFID)
 Blockchain

 Postponement – completion of the final product is postponed to the last

possible moment until local demand is known
 strategy for companies to reach diverse geographic areas while still
providing local customization
38
 Trends in SCM
 The Lean Supply Chain - the set of all organizations directly
linked by upstream and downstream flows of products, services,
finances, and information that collaboratively work to reduce cost
and waste
 Managing Supply Chain Disruptions:
 Increased Risk: Global Sourcing, Lean Operations
 Supply Chain Disruptions, such as: Transportation Delays, Industrial
Plant Fires, Work Stoppages, Natural Disasters, and Terrorist Attacks
 Strategies include: Backup Suppliers, Excess System Capacity,
Screening Suppliers for Risk, Developing Disruption Plans, and
Anticipating Disruption Costs

39
 Trends in SCM
 Supply Chain Security – the study of ways to protect security while
maintaining efficiency is now a key issue
 Government Regulations
 Theft and Product Tampering
 Electronic Seals
 RFID and GPS

 Sustainability and the “Green” Supply Chain

 Environmental Concerns: climate change, energy use, environmental
contamination, and resource depletion
 Sustainable Supply Chains
design processes to use environmentally friendly inputs and create outputs
that can be recycled and that do not contaminate the environment
Examples: “Smart Packages”, Filling Trucks as full as Possible
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 Green Supply Chain
Triple Bottom Line (TBL)

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 Trends in SCM

Examples of Smart Packages

42
 Trends in SCM
 Innovation
 Designing new products, cost-cutting production processes, and more efficient
product delivery mechanisms
 Competing on Innovation
typically shorter supply chains
involve suppliers early in design process
utilize supplier product and process improvement ideas

 The Financial Supply Chain - There is a trend to redesign entire supply

chains and search for less costly sources of supply
 Strategies
Global Sourcing
Production Outsourcing
Outsourcing Noncore Activities
 “Cash-to-Cash Cycle”
the time it takes to convert an order into cash
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 The SCOR Model
 SCOR is a supply chain processes reference model containing over 200 process
elements, 550 metrics, and 500 best practices including risk and environmental
management

 Organized around the five primary management processes of Plan, Source,

Make, Deliver and Return

 Developed by the industry for use as a cross-Industry open standard - Any

interested organization can participate in its continual development

Plan: Demand/Supply planning and Management

Source: Identify, select, Make: Manage production Deliver: Invoice, warehouse,

manage, and assess sources execution, testing and packaging transport and install

Return: Raw material Return: Finished goods

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 The SCOR Model
Supply
Supply Chain
Chain

Customer
Customer processes
processes
Supplier processes
Plan
Plan

Source Make Deliver

processes
Source Make Deliver
Supplier

Return
Return Return
Return

Process, arrow indicates material flow direction

Process, no material flow Information flow

45
 The SCOR Model
 The five integrated processes provide a boundary-free view of the true
end-to-end Extended Supply Chain

 Supports intra- and cross-enterprise optimization of arbitrary scale

Plan

Deliver Source Make Deliver

Source Make Deliver Source Make Deliver Source

Return Return Return Return Return

Return Return Return

Your Company Customer’s

Suppliers’ Supplier Customer Customer
Supplier
Internal or External Internal or External

46
Logistics

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 What is Logistics?
 Products have little value to the customer until they are moved
to the customer’s point of consumption
 Logistics is the business function responsible for transporting
and delivering products to the right place at the right time
throughout the supply chain

 Logistics is necessary to:

 Move goods from suppliers to buyers
Move finished goods to the customer
Move work-in-process materials within a firm
Return or recycle goods
 Store these items along the way in supply chains
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 Defining Logistics
“That part of SCM that plans, implement, and controls the
efficient, effective forward and reverses flow and storage goods,
services, and related information between the point of origin and
the point of consumption in order to meet customers’
requirements”
Council of Supply Chain Management Professionals (CSCMP)

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 SCM vs. Logistics
 SCM – concerns the collaboration between supply chain
partners in a strategic effort to achieve superior
competitiveness through coordinating: information,
technology, distribution, products, finances, relationships

 Logistics – the part of SCM that is concerned with

managing the flow of material

 Logistics provides SCM with three utilities:

 Time – products are delivered at the right time
 Place – products are delivered to the desired location
 Quantity – ensures correct quantities are delivered. A tradeoff
between too many goods and having shortages
50
 Evolution of Logistics
 Since the growth of SCM in the 1990s, logistics has been extended to include the
movement of goods through the entire supply chain, both upstream and
downstream

 Three types of Logistics:

 Business Logistics
moving and storing goods throughout the entire supply chain
 Military Logistics
supporting military needs
 Event Logistics
organizing and deploying resources in preparation for an event
51
 Logistics Tasks
 Transportation – moves products throughout the supply chain
 high cost; must decide the best mode of transportation
consider required speed, security, and product characteristics/requirements
 Storage
 where goods will be stored
 # of warehouses and distribution centers
 amount of inventory to store at each center
 Material Handling
 loading and unloading goods from vehicles
 placement and order picking
 moving goods throughout a facility
 automation vs. manual labor (automated storage and retrieval systems ASRS)
52
 Logistics Task
 Packaging
 protect products during transport and storage
 compatible with material handling equipment and mode of transportation
 Inventory Control
 manage quantities of inventory
 arrange for timely replenishments
 maintain accurate counts of inventory; electronic tracking and “cycle counting”
 Order Fulfillment
 Pick, pack, and ship order
 arrange for transportation and assure lead time is not exceeded
 Facility Location
 determine best location of storage facilities
 consider relation to manufacturing facilities, customers, and suppliers

53
 Shipping Systems
 Trucking
 Most flexible mode
 Government maintains infrastructure
 Moves the vast majority of manufactured goods
 Chief advantage is flexibility

 Railroads
 Capable of carrying heavy and large loads long distances
 Low cost, long transit time, and little flexibility
Typically combined with other modes

 Airfreight
 Fast and flexible for light, high value/priority goods over long distances
 Fastest and most expensive mode
54
 Shipping Systems
 Waterways
 Ability to transport very large and heavy shipments
 Typically used for bulky, low-value cargo (e.g., coal, grain)
 Very affordable, but extremely slow and inflexible
Used when shipping cost is more important than speed
 Includes ocean and inland waterways

 Pipelines
 limited to liquids and gases (very specific infrastructure)
 Used for transporting oil, gas, and other chemical products

 Multimodal
 Combines shipping methods for optimal cost and service level
 Common, especially in international shipments, aided by standardized containers
 Coordinating can be a challenge
 Most common are trailer-on-flatcar (TOFC) service, container-on-flatcar (COFC), or
piggy-back service
55
Shipping Systems

56
Shipping Systems

57
 Warehousing
 Warehouses provide a centralized location that stores and organizes
inventories before distribution
 Often called distribution centers (or DCs)

 Fundamental purpose is to store goods;

 Allows firms to store purchases, WIP, & finished goods and perform break
bulk services
 Provides faster & more frequent deliveries & better customer service

 May provide other functions

 Consolidation
 Break-bulk
 Channel assembly (value-add activity)
 Cross-docking

58
 Cross-Docking
 Cross-docking is a popular form of warehouse sorting that
attempts to move products “cross the dock” from inbound to
outbound, without ever being stored
 arriving larger shipments are broken into smaller shipments for
local delivery
 requires precise timing and coordination
 information technology tracks inventories
 especially used in retail industry

59
 Third-Party Logistics (3PL)
 3PLs are companies that provide logistics and transportation
services to other firms

 Many companies deem logistics activities as noncore activities

 Outsourcing logistics can reduce inventory, costs, and improve
delivery reliability and speed

 Coordinate supplier inventory

with delivery services

 May provide warehousing,

assembly, testing, shipping,
customs

60
 INCOTERMS
 Commonly used term referring to the International
Commercial Terms

 Uniform rules that simplify international transactions of

goods with respect to shipping costs, risks, and
responsibilities of buyer, seller and shipper

61
62
 Reverse Logistics
 Reverse logistics is the process of moving products upstream from the
customer back toward manufacturers and suppliers
items customer did not want
returns of damaged items
overstock items
recalled items
 Considerations:
reverse flow does not directly add value
ability to easily return goods is becoming an “order qualifier”
items returned for different reasons may have different paths
 Importance
Retail returns range 6% to 10% of sales
Online returns range 20% to 30% of sales
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SCM Terminology

64
 SCM Terminology

Goods vs. Services

Tangible vs. Intangible Products

65
 The Service Supply Chain
 Service Supply Chains:
 focus more on the interaction between the customer
and provider
 often rely on customers as the supplier of inputs
 tend to be shorter than manufacturing supply chains
 are often more like hubs than chains
 do not have inventory as a buffer

66
 SCM Terminology
 Upstream – Activities positioned earlier in the supply chain.

 Downstream – Activities positioned later in the supply chain.

67
 SCM Terminology
First-tier supplier – provides products or services directly to a firm.
Second-tier supplier – provides products or services to a first-tier supplier.

First-tier customer – buys products directly from the operation

Second-tier customer – gets products from a first tier customer
68
SCM Terminology

69
 Inbound vs. Outbound Logistics
 Inbound logistics – purchasing and arranging the inbound
movement of materials, parts, and/or finished inventory from
suppliers to manufacturing or assembly plants, warehouses, or
retail stores.
 Supplier relationships are a key in creating value here.

 Outbound logistics – Is the process related to storing and delivering

your product or service to your customer.
 Concerns collection, storage, and distribution systems, and the related
information flows from the end of the production line to the end
customer

 Both may be internal or external to a firm

70
Inbound vs. Outbound Logistics

71
 Product Positioning Strategy
 Relates to the form in which the company stores its
finished products and delivery lead time
 Three options:
 Make-to-stock
 Assemble-to-order
 Make-to-order

72
 Make-to-stock Strategy
 Produces finished products for immediate sale or delivery,
in anticipation of demand

 Best strategy for standardized products that sell in high

volume
 large production batches
 provides finished products in inventory
 typically assembly line operations
 delivery lead time is shortest
 no customer involvement in product design

73
 Assemble-to-order Strategy

 The product is partially completed and kept in a generic

form, then finished when an order is received
 provides for many variations of the end product
 standard components held in inventory
 components combined to customer specifications
 shorter lead times than make-to-order
 low finished-goods inventory

74
 Make-to-order Strategy

 The product is made to customer specifications after an

order has been received

 Strategy for customized products or products with

infrequent demand
 provides for many variations of the end product
 low product volumes
 longest delivery time

75
Product Positioning Strategies

76
 Push vs. Pull SCM Systems

 Supply chain management

 Push-based model (build-to-stock)
Earlier SCM systems
Schedules based on best guesses of demand
 Pull-based model (build-to-order, demand-driven)
Web-based
Customer orders trigger events in supply chain
 Push- Versus Pull-Based
Supply Chain Models

The difference between push- and pull-based models is summarized by the slogan “Make what we sell, not sell
what we make.”
 Careers in SCM and Professional
Organizations
Examples of SCM job duties:

 Entry-Level Management Positions

 conduct product evaluations, generate forecast reports, perform
online replenishment

 Middle Level Management Positions

 responsible for accurate and timely product movement throughout
the supply chain

 Senior Executive Positions

 document and execute a global SCM plan

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End of Slides

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