Fundamentals of Supply Chain Management

1. SUPPLY CHAIN MANAGEMENT
Chapter 1: Introduction to Supply
Chain Management

2. Prescribed textbook:
• Simchi-Levi, D., Kaminsky, P. & Simchi-Levi, E. 2003, Designing and Managing the Supply
Chain, 3rd edition, McGraw-Hill, USA.
Reference textbook:
• Bloomberg, D.J., Murray, A. and Hanna, J.B. 1998, The Management of Integrated Logistics: A
Pacific Rim Perspective, 2nd edn, Sprint Print, Prentice-Hall.
• Bowersox, D.J. Closs, D.J. and Cooper, M.B. 2002, Supply Chain Logistics Management,
McGraw-Hill/Irwin, New York.
• Christopher, M. 1998, Logistics & Supply Chain Management, 2nd edn, Pearson Education.
Essex.
• Cooper, J. 1994, Logistics & Distribution Planning, Kogan Page, London.
• Coyle, J. J., Langley, C. J. & Bardi, E. J. 2003, The Management of Business Logistics: A
Supply Chain Perspective, 7th edn, Thomson Learning, Canada.
• Coyle, J.J., Bardi, E.J. and Langley, C.J. 2003, The Management of Business Logistics, West
Publishing Company, New York.
• Greasley, A. 2006, Operations Management, John Wiley & Sons Ltd, Chichester, England.
• Johnson, J.C. 1999, Contemporary Logistics, Prentice Hall, Upper Saddle River, N.J.
Reference

3. Reference textbook:
• Lambert, D. M., Stock, J. R. and Ellram, L. M. 1998, Fundamentals of Logistics Management, McGraw
Hill, USA.
• Rushton, A., Croucher, P. and Baker, P. 2006, The Handbook of Logistics and distribution
Management, 3rd edn, Kogan Page, UK.
• Stock, J.R. and Lambert D.M. 2001, Strategic Logistics Management, 4th Edn, Irwin/McGraw-
Hill, Boston.
• Mentzer, J. T., DeWitt, W., Min, S., Nix, N. W., Smith, C. D. and Zacharia, Z. G. 2001,
‘Defining supply chain management’, Journal of Business Logistics, Vool. 22, No. 2, pp. 1 –
25.
List of additional readings
• Mentzer, J. T., DeWitt, W., Min, S., Nix, N. W., Smith, C. D. and Zacharia, Z. G. 2001,
‘Defining supply chain management’, Journal of Business Logistics, Vool. 22, No. 2, pp. 1 –
25.

4. 1.1 Differentiating between logistics and supply chain management
1.2 What is a supply chain?
1.3 What is supply chain management?
1.4 Definitions of supply chain management
1.5 The supply chain network
1.6 The benefits of supply chain management
1.7 Technology and supply chain management
1.8 Supply chain management: New business models and challenges
1.9 Key issues in supply chain management
1.10 Supply chain management – industry standard
Content

5. • Logistics is an element of the supply chain, while
scope of SCM encompasses logistics
management activities and others
– What are those of logistics management?
• A supply chain is, in effect, the integration of
various logistics chains with various strategic
issues. What are they?
1.1 Differentiating between Logistics and Supply
Chain Management

6. • SCM focuses on integration of business processes
and activities aiming at enhancing customer value,
rather than on particular business functions
– What about logistics?
• It is a set of approaches utilized to efficiently
integrate suppliers, manufacturers, warehouses, and
stores, so that merchandise is produced and
distributed at the right quantities, to the right
locations, and at the right time, in order to minimize
system wide costs while satisfying service level
requirements (Simchi-Levi et al. 2008)
Differentiating between Logistics and Supply
Chain Management (C)

7. Differentiating between Logistics and Supply
Chain Management (C)
Source: Gattorna (2006)

8. • The interrelationship, through which information,
physical goods, and services flow back and forth,
consisting of business entities that undertake
value-creating activities involved in supplying
necessary materials, transforming various
supplies into valuable goods and services, and
distributing the final outputs to customer markets
(Kim 2005)
1.2 What is a Supply Chain?

9. What is a Supply Chain? (C)
Component
Component
Raw material
Component
Component
Raw material
Nairobi
Amsterdam
Chicago
Hong Kong
Option
Finished goods
Peripheral
Accessory
Subassembly
Subassembly
Subassembly N. America
Europe
Asia/Pacific
S. America
Africa/M.East
Raw materials WIP Final assembly Distribution Customers

10. • Supply Chain Management encompasses the
planning and management of all activities involved
in sourcing and procurement, conversion, and all
Logistics Management activities. Importantly, it also
includes coordination and collaboration with
channel partners, which can be suppliers,
intermediaries, third-party service providers, and
customers. In essence, Supply Chain Management
integrates supply and demand management within
and across companies.
(Council of Supply Chain Management Professionals)
1.3 What is Supply Chain Management anyway?

11. • The study of how to manage the supply chain in an optimum
way to create maximum value for customers (Kim 2005)
• The management of upstream and downstream relationships
with suppliers and customers to deliver superior customer
value at less cost to the supply chain as a whole in order to
achieve a more profitable outcome (Christopher 1998)
• The objective of managing the supply chain is to synchronise
the requirements of the customer with the flow of materials
from suppliers in order to effect a balance between what are
often seen as conflicting goals of high customer service, low
inventory management, and low unit cost (Stevens 1989 in
Mentzer et al. 2001, p. 6)
What is Supply Chain Management anyway?

12. • Supply chain management is a set of approaches
utilized to efficiently integrate suppliers,
manufacturers, warehouses, and stores, so that
merchandise is produced and distributed at the
right quantities, to the right locations, and at the
right time, in order to minimize system wide costs
while satisfying service level requirements
(Simchi-Levi, Kaminsky and Simchi-Levi 2008)
What is Supply Chain Management anyway? (C)

13. • Mentzer et al. (2001, p. 8) list SCM activities as:
– Integrated behaviour
– Mutually sharing information
– Mutually sharing risks and rewards
– Cooperation
– The same goal and the same focus on serving
customers
– Integration of processes
– Partners to building and maintain long-term
relationships
What is Supply Chain Management anyway? (C)

14. 1.4 Supply Chain Management Evolution
1950s 1960s 1970s 1980s 1990s 2000s Beyond
Traditional Mass Manufacturing
Inventory Management/Cost
Optimization
JIT, TQM, BPR,
Alliances
SCM Formation/
Extensions
Further Refinement
of
SCM Capabilities
Source: Simchi-Levi et al. (2008)

15. • Recall that the ultimate goal of SCM is to provide
value to the end customers
• Each player in the SC thus take outputs from an
upstream player as their input then transforms it
to value/output to the next downstream player
• Value in SC is created in this process though
production, and/or storage, and distribution
• SC network is a result of these activities
1.5 The Supply Chain Network

16. • Elements of the SC network:
– Facilities (nodes)
– Transport systems (links)
– Inventories
– Information systems
• Spanning those elements are SCM issues at both
strategic, tactical and operational levels
The Supply Chain Network (C)

17. The Supply Chain Network (C)

18. • 12 areas of SCM activity (Pyke and Johnson
2001):
– Location
– Transport and logistics
– Outsourcing and logistics alliances
– Sourcing and supplier management
– Marketing and channel restructuring
– Inventory and forecasting
– Service and after sales support
– Reverse logistics and green issues
The Supply Chain Network (C)

19. – Product design and new product introduction
– Information and electronic mediated environments
– Metrics and incentives
– Global issues
• The focus on each issue is on either achieving a
globally optimised supply chain or managing
uncertainty in the supply chain, or both
The Supply Chain Network (C)

20. The Supply Chain Network (C)
Source: Simchi-Levi et al. (2008)

21. • Supply chain management is concerned with the
efficient integration of suppliers, factories, warehouses
and stores so that merchandise is produced and
distributed:
– In the right quantities and quality
– To the right locations, right time and customer
– At the right cost
• In order to
– Minimize total system cost
– Satisfy customer service requirements
Goals of Supply Chain Management

22. • All of the advanced strategies, techniques,
and approaches for Supply Chain
Management focus on followings:
– Global Optimisation: minimising systemwide
cost & maintaning systemwide service level
– Managing Uncertainty
What makes Supply Chain Management difficult?

23. • Why is global optimisation difficult?
– The supply chain is a complex network
– Different facilities often have different, conflicting
objectives
– The supply chain is a dynamic system that evolves
over time: customer demand, supplier capabilities,
relationships
– The system varies over time: although demand may be
known, planning needs to factor in seasonal
fluctuations, advertising & promotion, competitors’
strategies, etc.
Global Optimisation

24. • Conflicting objectives in the supply chain:
1. Purchasing
 Stable volume requirements
 Flexible delivery time
 Little variation in mix
 Large quantities
2. Manufacturing
 Long run production
 High quality
 High productivity
 Low production cost
Global Optimisation (C)

25. • Conflicting objectives in the supply chain:
3. Warehousing
 Low inventory
 Reduced transportation costs
 Quick replenishment capability
4. Customers
 Short order lead time
 High in stock
 Enormous variety of products
 Low prices
Global Optimisation (C)

26. • Everything for optimization, plus…
• Strategic Alliances/Supplier
Partnerships
• Supply Contracts/Incentive Schemes
Tools and Approaches for Global Optimisation

27. • Why is uncertainty hard to deal with?
– Matching supply and demand is difficult
– Forecasting doesn’t solve the problem
– Inventory and back-order levels typically fluctuate
widely across the supply chain
– Demand is not the only source of uncertainty:
 Lead times
 Manufacturing yields
 Transportation times
 Natural disasters
Managing Uncertainty

28. • Supply chain variability:
Managing Uncertainty (C)
Volumes
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
Actual
Consumer
Demand
Retailer Warehouse
to Shop
Retailer Orders
Production Plan
Manufacturer Forecast
of Sales

29. • What management wants:
Managing Uncertainty (C)
Volumes
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
Consumer
Demand
Production Plan

30. • What management gets:
Managing Uncertainty (C)
Volumes
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
Consumer
Demand
Production Plan

31. • Tools and approaches to deal with uncertainty:
– Pull Systems
– Risk Pooling
– Centralization
– Postponement
– Strategic Alliances
– Collaborative Forecasting
Managing Uncertainty (C)

32. • According to Simchi-Levi et al. (2003), in 1998,
American companies spent $898 billion in
supply-related activities (or 10.6% of gross
domestic product)
– Transportation 58%
– Inventory 38%
– Management 4%
• In the US market alone, the market size of the
third-party logistics industry is about $225 billion,
with the average industry growth rate of 5.2%
during the 2015–2020 period (IBISWorld, 2020)
1.6 The Benefits of Supply Chain Management

33. • It is estimated that the grocery industry could
save $30 billion (10% of operating cost) by using
effective logistics strategies
– A typical box of cereal spends more than three months
getting from factory to supermarket.
• A typical new car spends 15 days traveling from
the factory to the dealership, although actual
travel time is 5 days
The Benefits of Supply Chain Management (C)

34. • Procter & Gamble estimates that it saved retail
customers $65 million through logistics gains
over the past 18 months.
“According to P&G, the essence of its approach lies in
manufacturers and suppliers working closely together ….
jointly creating business plans to eliminate the source of
wasteful practices across the entire supply chain”.
(Journal of business strategy, Oct./Nov. 1997)
The Benefits of Supply Chain Management (C)

35. • In 10 years, Wal-Mart transformed itself by
changing its logistics system. It has the highest
sales per square foot, inventory turnover and
operating profit of any discount retailer
• Dell Computer has outperformed the competition
in terms of shareholder value growth over the
eight years period, 1988-1996, by over 3,000%
using
– Direct business model
– Build-to-order strategy
The Benefits of Supply Chain Management (C)

36. The Benefits of Supply Chain Management (C)
• Reducing non-value adding time improves service and
reduces cost (Christopher 2005 )
Value added
Time, place
and form
utility
7 5
6
12
11
10
8 4
2
1
9 3
Cost Added over Time
Production, storage and transportation costs and the time cost of money
Customer
Delivery
Regional
stock
In transit
Finished
Stock
Manufacturing
Raw
Materials
Customer
Delivery
Regional
stock
In transit
Finished
Stock
Manufacturing
Raw
Materials

37. The Benefits of Supply Chain Management (C)
• According to Pilliglio, Rabin, Todd and McGrath (in
Gould 1998, p. 66), benefits from integrating the supply
chain include:
– 16%-18% improvement in delivery performance
– 25%-60% improvement in inventory reduction
– 30%-50% improvement in fulfilment cycle time
– 25%-80% improvement in forecast accuracy
– 10%-16% improvement in overall productivity
– 25%-50% improvement in supply chain costs
– 20%-20% improvement in fill rates
– 10%-20% improvement in capacity realisation

38. • Technology is central in modern supply chain
management, a ‘rocket science’ (Metz 1998)
• IT enables communication, allowing better decision
making and better coordination – both within and
between the individual businesses in a supply chain
• There have been advancements in communication,
manufacturing and transportation technologies enabling
advanced supply chain management
• Most important business and supply-chain-related
technologies have some information technology-related
function, i.e. RFID, tracking tools, etc.
1.7 Technology and Supply Chain Management

39. • The emphasis is now on collaborative business
relationships instead of adversarial relationships with
suppliers and customers
• “Virtual enterprise”
• IT is the key enabler
• Challenges:
– Intra- versus inter-organisational integration
– Demand management: shift from forecast to real-time demand
driven manufacturing & inventory management policies
– Management in uncertainty: push versus pull
– Short lifecycle and rapid obsolescence
1.8 SCM: New Business Models & Challenges

40. • Issues span
– Strategic: long term objectives and with long lasting
effects. Decisions include location of various
facilities, including the manufacturing plant,
distribution warehouses and the structure of the
distribution channel
– Tactical: concerned with purchasing and production
functions, inventory policies and transportation
strategies.
– Operational: day to day management of activities
such as scheduling, routing and vehicle loading etc.
1.9 Key Issues in SCM

41. • Key issues of SCM according to Kim (2005) and Simchi-
Levi et al. (2003):
– Structural dimension:
 Distribution network configuration
 Inventory control
 Logistics/distribution strategies
– Infrastructural dimension:
 Information sharing
 Supply contracts/smart pricing
 Strategic partnering
 Outsourcing and procurement strategies
 Innovation – product design and development
 Improvement: quality, process
 Information technology and Decision Support Systems
Key Issues in SCM (C)

42. • Key issues of SCM according to Kim (2005) and
Simchi-Levi et al. (2003):
– Supply chain performance:
 Customer satisfaction
 Financial performance
 Value creation to customers
• The focus on each issue is on either achieving a
globally optimised supply chain or managing
uncertainty in the supply chain, or both
Key Issues in SCM (C)

43. • The Supply Chain Operations Reference – model (SCOR)
has been developed and endorsed by the Supply–Chain
Council (SCC) as the cross-industry standard for supply
chain management.
• The SCC was formed in 1996 as an independent, not-for-
profit, global corporation with membership open to all
companies and organizations interested in applying and
advancing the state-of-the-art in supply-chain
management systems and practices.
• The SCC was merged in 2014 into APICS (the American
Production and Inventory Control Society)
• In 2019, APICS launched the Association for Supply
Chain Management (ASCM)
1.10 Supply Chain Management – Industry
Standard

44. • The Supply Chain Operations Reference – model (SCOR)
provides methodology, diagnostic and benchmarking tools that
help organizations make dramatic and rapid improvements in
supply chain processes
• SCOR is a part of the APICS body of knowledge used to foster
the advancement of end-to-end supply chain management
• The SCOR model is part of an enterprise portfolio describing the
critical elements in a value chain.
• Including SCOR, the APICS framework portfolio consists of the
Product Life Cycle Operations Reference model (PLCOR),
Customer Chain Operations Reference model (CCOR), Design
Chain Operations Reference model (DCOR), and Managing for
Supply Chain Performance (M4SC)
Supply Chain Management – Industry Standard
(C)

45. Supply Chain Management – Industry Standard
(C)
Source: ASCM (2017)

46. • SCOR:
– Links processes or supply chain activities to performance
measures, best practices, and software requirements
– Provides a systematic approach for identifying,
evaluating, and monitoring supply chain performance
– Has a broad scope beginning with a demand forecast or
order placement and ending with final invoice and final
payment
– Has a six-component framework of Plan, Source, Make,
Deliver, Return and Enable
– Incorporates five performance measures of Reliability,
Responsiveness, Agility, Costs and Asset Management
Efficiency (Assets)
Supply Chain Management – Industry Standard
(C)

47. Source: ASCM (2017)
Supply Chain Management – Industry Standard
(C)

48. Source: ASCM (2017)
Supply Chain Management – Industry Standard
(C)