Key Concepts of Supply

Chain Management

Chapter – 1
Objectives
 Appreciate what a supply chain is and what
it does
 Understand where your company fits in the
supply chain it participates in and the role it
plays in those supply chains
 Discuss ways to align your supply chain with
your business strategy
 Start an intelligent conversation about the
supply chain management issues in your
company
Definitions…

 A supply chain is the alignment of

firms that bring products or services to
market – Lambert, Stock, and Ellram.
Definitions…

 A supply chain consists of all stages

involved, directly or indirectly, in
fulfilling a customer request. The
supply chain not only includes the
manufacturer and suppliers, but also
transporters, warehouses, retailers,
and customers themselves – Chopra
and Meindl
Definitions…

 A supply chain is a network of facilities

and distribution options that performs
the functions of procurement of
materials, transformation of these
materials into intermediate and
finished products, and the distribution
of these finished products to
customers – Ganeshan and Harrison.
…Supply Chain Management

 The systematic, strategic coordination of the

traditional business functions and the tactics
across theses business functions within a
particular company and across businesses
within the supply chain, for the purposes of
improving the long-term performance of
individual companies and the supply chain
as a whole – Mentzer, Dewitt, et al.
…Supply Chain Management

 Supply chain management is the

coordination of production, inventory,
location, and transportation among the
participants in a supply chain to
achieve the best mix of
responsiveness and efficiency for the
market being served – author.
Logistics vs SCM
 Logistics refers to activities that occur within
the boundaries of a single organization and
supply chains refer to networks of
companies that work together and
coordinate their actions to deliver a product
to market.
 SCM acknowledges all of traditional logistics
and also includes activities such as
marketing, new product development,
finance, and customer service.
Company Actions in SC

Companies in any SC must take

decisions individually and collectively
regarding their actions in five areas:
 Production
 Inventory
 Location
 Transportation
 Information
Goal of SCM
 The goal or mission of supply chain
management can be defined as increasing
throughput while simultaneously reducing
both inventory and operating expense.
(here throughput means sales to the end
customer).

 In some markets customers value and will

pay for high levels of service while in others
customers simply seek the lowest prices.
Production

 The fundamental managerial decision is how

to resolve trade-off between responsiveness
and efficiency.
 Factories can be built to accommodate one
of two approaches to manufacturing;
product focus or functional focus.
 Warehousing can also be done using any of
three approaches; stock keeping unit, job
lot storage, or cross-docking.
Inventory

 Inventory is spread throughout the supply

chain and includes everything from raw
material to work in progress to finished
goods.
 There are three basic decisions to make
regarding the creation and holding of
inventory; cycle inventory, safety inventory,
and seasonal inventory.
Location
 Location refers to the geographical sitting of supply
chain facilities.
 It also includes the decision related to which
activities should be performed in each facility.
 The responsiveness versus efficiency trade-off here
is the decision whether to centralize activities in
fewer locations to gain economies of scale and
efficiency, or to decentralize activities in many
locations close to customers and suppliers.
 Location decisions have strong impacts on the cost
and performance of supply chain.
Transportation

 Transportation refers to the movement

of everything from raw material to
finished goods between different
facilities in a supply chain.
 Different modes of transportation are:
ship, rail, pipelines, trucks, airplanes,
and electronic transportation.
Information

 All decisions are based on timely

availability of information regarding
other four supply chain drivers.
 Information is used for two purposes
in supply chain; coordinating daily
activities and forecasting and planning
to anticipate and meet future
demands.
Evolving Structure of
Supply Chains - 21
 Vertical Integration: slow moving mass
markets of the industrial age, it was
common for successful companies to own
much of their supply chain.
 Virtual Integration: companies now focus on
their core competencies, and partner with
other companies to create supply chains for
fast moving markets.
Participants of Supply
Chain
 Producers
 Distributors
 Retailers
 Customers
 Service Providers
Aligning Supply Chain
with Business Strategy
 Understand the market your company
serves
 Define core competencies of your
company
 Develop needed supply chain
capabilities 37
Understand Markets Your
Company Serves
 The quantity of the product needed in each
lot
 The response time that customers are
willing to tolerate
 The variety of products needed
 The service level required
 The price of the product
 The desired rate of innovation in the
product.