The Key to Supply Chain Management The SCM Triangle Supply Management Demand Management Logistics Management Evolution to Strategic SCM Strategic Demand Management Demand Management Defined The Bullwhip Effect Evolution of Strategic Demand Forecasting Demand Planning with Time Fences Implications for Supply Management Strategic Logistics Management Logistics Defined Logistics Role in Supply Chain Management

1. Chapter 21
Demand Management
and Logistics
21-1

2. Key Concepts
• The Key to Supply Chain Management
» The SCM Triangle
– Supply Management
– Demand Management
– Logistics Management
» Evolution to Strategic SCM
21-2

3. Key Concepts
• Strategic Demand Management
» Demand Management Defined
» The Bullwhip Effect
» Evolution of Strategic Demand
» Forecasting Demand
» Planning with Time Fences
» Implications for Supply Management
21-3

4. Key Concepts
• Strategic Logistics Management
» Logistics Defined
» Logistics Role in Supply Chain Management
21-4

5. The Key to Supply Chain Management
• Supply management is the key to Supply
Chain Management.
• While many functional areas lay claim to
the emerging field of SCM, supply
management has the strongest claim
• Since supply professionals are
responsible for developing and managing
the interrelationships between supply
chain members, supply management is
the critical function responsible for
managing the supply chain
21-5

6. Harnessing the Power of SCM
• The issue of how to harness the power of SCM is
creating debate in upper management
boardrooms and academic classrooms across
the world
• Firms need to come to terms with how they are
going to improve their competitiveness in the
future through SCM
• Competition is not just firm versus firm, but chain
versus chain (or network versus network.)
• Identification of who is in charge of SCM is the
first step to moving it towards world class
21-6

7. Definitions of Supply Chain Management
• An integrating philosophy to manage the total
flow of a distribution channel from supplier to the
ultimate customer.
• Integrative management of the sequential flow of
logistical, conversion and service activities from
vendors to ultimate consumers necessary to
produce a product of service efficiently and
effectively.
21-7

8. Definitions of Supply Chain Management
• A strategic concept that involves the
understanding and managing of the sequence of
activities - from supplier to customer - that add
value to the product supply chain.
• The supply chain encompasses all activities
associated with the upstream and downstream
flow and transformation of goods and information
from the raw materials stage (extraction), through
to the end user.
• Supply chain management is the collaborative
effort of multiple channel members to design,
implement, and manage seamless value-added
processes to meet the real needs of the end
customer.
21-8

9. The Strategic SCM Triangle
Strategic Supply Management
21-9

10. Three Stages of SCM
1. SCM is the management of the internal
supply chain
2. SCM is supplier-focused
3. SCM is the management of a network of
enterprises
21-10

11. Strategic Demand Management
• Demand Management seeks to estimate, control,
smooth, coordinate, balance, and influence the
demand and supply for a firm’s products and
services.
• Demand Management strives to reduce total
costs for the firm and its supply chain.
• Demand Management works with the supply side
to adjust the inflow of materials and products.
• Demand Management must be a collaborative
process.
21-11

12. Need for World Class Demand Management
• A major driver of the recession of 2001-2002 was
the proliferation of error in forecasts
• Billions of dollars worth of inventories had
accumulated in some supply chains
• The primary reason for the inaction was the lack
of demand management
• A constant truth about forecasting is that the
further into the future one attempts to forecast
future conditions, the greater the error
21-12

13. Demand Management Characteristics
• Recognizes forecasts are developed at several
points throughout an organization
• Accepts forecasts from other functions and
updates them based on actual, real-time demand
• Works with the supply side to adjust the inflow of
materials and products
• Controls through execution of effective
production plans, calculation of inventory levels,
setting of capacity levels and developing
customer service strategies
21-13

14. Demand Management Characteristics
• Smoothes production after master production
schedules have already been released to internal
production and external suppliers
• Is a process (versus a bounded business
function) that requires the utmost in coordination
and communication between the responsible
parties
• Has contingency plans developed with supply
chain members to allow modification of short-
term schedules when necessary
• Balances the total costs of not meeting demand
against the total costs of adding additional
resources required to meet demand
21-14

15. Future
Customer
Demand
Research
and
Technology
Daily
Schedules
Operations
Schedules
Demand
Forecasting
Strategic
Capacity
Planning
Aggregate
Plan for
Production
Master
Production
Schedule
Daily
Schedules
Operations
Schedules
(1-4 weeks)
Strategic
Product
Decisions
Strategic
Capacity
Planning
Aggregate
Plan
(12-24 months)
Master
Schedule
(1-12 months)
DEMAND
MANAGEMENT
SUPPLYINGFIRM
Demand
Forecasting
DEMAND
MANAGEMENT
Research
and
Technology
Future
Customer
Demand
Demand Management Information Flows
21-15

16. The Bullwhip Effect
• Failure to accurately estimate demand and share
information among supply chain entities can
result in bloated inventory levels due to a
cumulative effect of poor information cascading
up through a supply chain
• This effect is infamously known as the “Bullwhip”
21-16

17. Evolution of Strategic Demand
• Manual and visual systems for replenishment
• Reorder Point replenishment (ROP)
• Statistical Reorder Point techniques
• Material Requirements Planning (MRP)
• Distribution Requirements Planning (DRP)
• Manufacturing Resources Planning (MRP II)
• Distribution Resources Planning (DRP II)
• Just-in-Time (JIT)
• Enterprise Resource Planning (ERP)
• E-Commerce, E-Procurement, B2B capabilities
21-17

18. Questions Related to Demand Management
• What is enough inventory?
• What is too much inventory?
• What are the cost implications?
• What are the effects on customer service levels?
21-18

19. Forecasting Demand
• What is a forecast?
• In terms of SCM, a forecast is an estimate
of future demand
• A calculated guess or estimate about the
future demand for a firm’s products and
services under conditions of uncertainty
• Forecasts fall into two categories:
» Quantitative
» Qualitative
21-19

20. Comments Frequently Overheard about Demand
Forecasts
• “Forecasts are always inaccurate – why try to
improve them?”
• “Forecasts are always wrong. – they cannot be
made right!”
• “Forecasts constantly change!”
• “Someone must be to blame for an inaccurate
forecast!”
• “If only we had a good computerized forecasting
software module.”
• “You cannot believe the numbers!”
• “Using statistical forecasting tools takes too
much time.”
21-20

21. Planning with Time Fences
Demand Time Fence
Current
Production
Period
Intermediate
Planning
Period
Long-
Range
Planning
Period
TIME
FROZEN SLUSHY FLUID
Planning Time Fence
21-21

22. Implications for Supply Management
• Demand management organizationally fits
within either supply management or SCM
• Supply professionals manage the
relationships in the supply chain;
therefore they are in a critical position to
facilitate the high levels of communication
and trust that are required in Strategic
Demand Management.
21-22

23. Strategic Logistics Management
• Strategic LM forms the third side of the
Strategic SCM triangle
• Logistics professionals play an important
role in the success of supply chain
management in the management of
transportation, storage, and warehousing
activities
• Unfortunately, many companies define
logistics as synonymous with the term
SCM, thus ignoring the contributions and
roles of supply management and demand
management
21-23

24. Definition of Logistics
• Logistics is the part of the supply chain process
that plans, implements, and controls the efficient,
effective flow and storage of raw materials, in-
process inventory, finished goods, services and
related information from point of origin to point of
consumption (including inbound, outbound,
internal and external movements) for the purpose
of conforming to customer requirements. (Coyle
et al.)
21-24

25. A Generalization of a Typical Logistics System
Movement/
Transportation
Movement/
Transportation
Movement/
Transportation
Movement/
Transportation
Raw Materials
Supply Points
Storage
Storage
Storage
Raw Materials
Storage
Plant 1
Plant 3
Plant 2
Manufacturing
Distribution
Center
Distribution
Center
Distribution
Center
Finished Goods
Distribution
A
C
B
Markets
21-25

26. Concluding Remarks
• Substantive changes in the Supply Chain
Management field will be driven by:
» Institutionalisation of the SCM perspective
» Increasing emphasis on supply chain relationships
» Increasing emphasis on the long-term view
» Use of information technology to enhance supply chain
communications
» An increasing focus which looks “outward” toward the
intricacies of supplier and customer relations
21-26