Chapter 10

Extending the Organization

Supply Chain Management
(SCM)
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Learning Outcomes
1. List and describe the components of a typical supply
chain
2. Describe the four factors driving supply chains
3. Summarize the best practices for implementing
successful supply chain management system

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What Is a Supply Chain?

Network of organizations and facilities
Transforms raw materials into products delivered to
customers
Works with companies and consumers up and down
the chain
Customers order from retailers
Retailers order from distributors
Distributors order from manufacturers
Manufacturers get raw materials from suppliers
Transportation companies, warehouses, and
inventories also involved
Slide 4

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Basics of Supply Chain

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Supply Chain Relationships

Figure CE12-1

Slide 6

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Case: Nikes Supply Chain

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Sample Supply Chain: REI

Customer is the only source of revenue

Slide 8

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Supply Chain Management

Traditional SCM thinking involved I buy from my suppliers, I
sell to my customers.
Today, organizations gain value from having visibility
throughout their supply chain
Best Buy checks inventory levels at each of its 750 stores
across North America as often as every half-hour

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Supply chain management

1. Share data and information to create visibility

2. Interact to match expectations

3. Synchronize resources and processes to perform as one
Outsourcing Partner

Suppliers

Customers

My Company

Slide 10

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Basics of Supply Chain

The supply chain has three main links:

1. Materials flow from suppliers and their
upstream suppliers at all levels
2. Transformation of materials into semi-finished
and finished products through the organizations
own production process
3. Distribution of products to customers and their
downstream customers at all levels
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5 SCM Components

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Basics of Supply Chain

Plan This is the strategic portion of supply chain management. A company must have a plan for
managing all the resources that go toward meeting customer demand for products or services. A big
piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient,
costs less, and delivers high quality and value to customers.

Source Companies must carefully choose reliable suppliers that will deliver goods and services
required for making products. Companies must also develop a set of pricing, delivery, and payment
processes with suppliers and create metrics for monitoring and improving the relationships.

Make This is the step where companies manufacture their products or services. This can include
scheduling the activities necessary for production, testing, packaging, and preparing for delivery.
This is by far the most metric-intensive portion of the supply chain, measuring quality levels,
production output, and worker productivity.

Deliver This step is commonly referred to as logistics. Logistics is the set of processes that plans
for and controls the efficient and effective transportation and storage of supplies from suppliers to
customers. During this step, companies must be able to receive orders from customers, fulfill the
orders via a network of warehouses, pick transportation companies to deliver the products,
and implement a billing and invoicing system to facilitate payments.

Return This is typically the most problematic step in the supply chain. Companies must create a
network for receiving defective and excess products and support customers who have problems
with delivered products.
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Information Technologys
Role in the Supply Chain
Factors Driving SCM

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Visibility
Supply chain visibility the ability to view all
areas up and down the supply chain in real time
Bullwhip effect occurs when distorted product
demand information passes from one entity to the
next throughout the supply chain- More appears at
the end of this presentation
Supply chain visibility allows organizations to
eliminate the bullwhip effect
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Consumer Behavior
Companies can respond faster and more
effectively to consumer demands through
supply chain enhances
Demand planning software generates
demand forecasts using statistical tools
and forecasting techniques

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Competition
Supply chain planning (SCP) software uses advanced
mathematical algorithms to improve the flow and efficiency
of the supply chain while reducing inventory.
Supply chain execution (SCE) software automates the
different steps and stages of the supply chain
SCP and SCE both increase a companys ability to
compete
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Speed
Why is information speed critical in a
supply chain?
If the information arrives three days late,
chances are high that managers have
already made decisions based on current
information that might have been inaccurate
Information timeliness is critical
IT is an enabler of information timeliness
Digital dashboards
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Todays Supply Chain Reality

Increased outsourcing
Large global supply networks
Increased competition
Consumer driven

of visibility reduces suppliers ability to handle variability

Lack
in manual filling processes can cause stock-outs
Errors
All of these issues can increase costs, lower customer service and reduce
revenue
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Case Study: Dells SCM

Dell sells its computer systems directly to end customers,
bypassing distributors and retailers (resellers). Dell's supply chain
consists of only three stages the suppliers, the manufacturer
(Dell), and end users.
Dells direct contact with customers allows it to:
properly identify market segments,
analyze the requirements and profitability of each segment, and
develop more accurate demand forecasts.
Another Dells advantage is that it is able to get the customers
requirements regarding software to be loaded

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SCM Success Stories

Top reasons why more and more executives are turning to
SCM to manage their extended enterprises

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SCM Success Stories

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The Bullwhip Effect

The bullwhip effect occurs when distorted
product demand information passes from
one entity to the next throughout the
supply chain.

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The Bullwhip Effect

The bullwhip effect is the magnification of
demand fluctuations, not the
magnification of demand. The bullwhip
effect is evident in a supply chain when
demand increases and decreases. The
effect is that these increases and
decreases are exaggerated up the supply
chain.
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Example: Diapers
Babies use diapers at a very predictable
rate, and retail sales resemble this fact.
Information is readily available concerning
the number of babies in all stages of
diaper wearing. It is observed that this
product with uniform demand created a
wave of changes up the supply chain due
to very minor changes in demand.
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The Bullwhip Effect

Example: Diaper order from retailer:
Retailer waits until the inventory falls below
ceratin level and then reorder + a few more
The same process applied to distributors and
also to the manufacturer
Small change in demand is amplified at each
stage of SC and becomes quite large at the
end of the chain creating a ripple effect.
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The Bullwhip Effect

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The Bullwhip Effect

It can be seen that the Distributor orders to the factory experience demand
fluctuate far more drastically than the retail demand.
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The Bullwhip Effect

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Some reasons for the effect

Over-reacting to the backlog orders.
Little or no communication between supply chain
partners.
Delay times between order processing, demand, and
receipt of products.
Limitations on order size (i.e. retailers can order
products in cases of 10 from wholesaler; however,
distributors receive orders in cases of 1,000)
Inaccurate demand forecasts.

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Solution to Bullwhip Effect

Implement an effective SCM for greater
visibility across the supply chain
Eliminate effect by giving participants access
to consumer-demand information
Interorganizational information systems share
data

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RFID tag & SCM

Radio Frequency Identification
Tiny tags that carry large amount of data
tracking
Supply Chain around the globe are being
revamped with RFID tags.
Walmart (US) has been using this for several
years [cost 40 cents per tag]

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RFID IBM COMMERCIAL

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Demo

Bullwhip Fun Demo

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SCM Demos
Supply Chain Management For A Better World
Information Technology in Wal-Mart
Xbox supply chain (4 min)
Supply Chain Case Study ( 9 Min)

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SAP- SCM Demo

SAP SCM Demo
RFID Supply Chain Simulation Movie

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