Supply Chain

Management

What is SCM
All facilities, functions, activities, associated with flow
and transformation of goods and services from raw
materials to customer, as well as the associated
information flows
An integrated group of processes to source, make,
and deliver products

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Prof. Shweta Agrawal

Supply Chain Illustration

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Supply chain management: An overview

Supply chain management is the combination of art and

science that goes into improving the way your company
finds the raw components it needs to make a product or
service, manufactures that product or service and
delivers it to customers.
It is a network that includes the vendors of raw
materials, plants that transform those materials into
useful products, and distribution centers to get those
products to the customers
Unless and until there is a specific effort to coordinate
the overall supply chain system, each organization in the
network will have its own objective and would work
independently and in isolation
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Prof. Shweta Agrawal

Contd.

Supply chain includes all activities associated with the

flow and transfer of goods and services, from raw
material extraction through use by the final consumer.
All of those different firms, as well as the consumer, are
part of the supply chain.
The manufacturer purchase component parts from
various tier 1 suppliers, such as companies that make
plastic parts.
The tier 1 suppliers may have also purchased materials
from tier 2 suppliers, such as companies that produce
the chemicals for making plastic.

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Prof. Shweta Agrawal

Contd.
The supply chain includes the companies that
move these items, such as trucking companies,
railroads, and shipping companies, as well as
warehouses or distribution centers. They are
called logistics.
Reserve logistics is a activity that helps to return
defective products to the manufacturer for repair
or replacement

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Prof. Shweta Agrawal

Supply
Chain
for
Denim
Jeans
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Supply
Chain
for
Denim
Jeans
(cont.)
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Information sharing in the supply chain

Traditionally, information has been shared only between

adjacent supply chain pairs, and that information has
been very limited.
This limited approach to information sharing leads to
bullwhip effect.
To reduce the bullwhip effect, supply chains use a hub
and spoke approach to sharing information.

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Prof. Shweta Agrawal

Supply Chain Processes

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Value vs. Supply Chain

Value chain

Supply chain

every step from raw materials to the eventual end user

ultimate goal is delivery of maximum value to the end user
activities that get raw materials and subassemblies into
manufacturing operation

Terms are used interchangeably

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Information Technology: A Supply

Chain Enabler

Information links all aspects of

supply chain
E-business

replacement of physical business

processes with electronic ones

Electronic data interchange (EDI)

a computer-to-computer
exchange of business documents

Bar code and point-of-sale

Radio frequency identification
(RFID)

technology can send product data

from an item to a reader via radio
waves

Internet

10-13

data creates an instantaneous

computer record of a sale

allows companies to
communicate with suppliers,
customers, shippers and other
businesses around the world,
instantaneously

FACTORS THAT LED TO INCLUSION OF

SCM AS COMPETITIVE STRATEGY

GLOBALIZATION
INCREASED COMPETITION
INFORMATION TECHNOLOGY
SHORTER PRODUCT LIFE CYCLES

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Contd.

Globalization has led to new markets, but at the

same time it increases the competition.
One way of winning market share is introducing
new products, leading to shorter product life
cycles.
One way to be more competitive is through
supply chain management.

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Prof. Shweta Agrawal

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BASIC COMPONENTS FOR SUPPLY CHAIN

MANAGEMENT:
THE FIVE BASIC COMPONENTS OF SCM
ARE:
PLAN
SOURCE
MAKE
DELIVER
RETURN
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Decision variables in supply chain management

Location:

Production:

here the decision making is what to make and in what facilities

Inventory:

this deals with the facilities and the various sourcing points

the focus here is how much to order, when to order and safety
stocks

Transportation:

the management here decides the mode of transportation,

shipment size, routing and scheduling

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Collaborative Planning, Forecasting,

and Replenishment

Process for two or more companies in a

supply chain to synchronize their demand
forecasts into a single plan to meet
customer demand
Parties electronically exchange

past sales trends

point-of-sale data
on-hand inventory
scheduled promotions
forecasts

Copyright 2006 John

Wiley & Sons, Inc.

10-24

Suppliers

Procurement

On-demand (direct response) delivery

requires supplier to deliver goods when demanded by

customer

Continuous replenishment

purchase of goods and services from suppliers

supplying orders in a short period of time according to

a predetermined schedule

Cross-enterprise teams coordinate processes

between company and supplier

Copyright 2006 John

Wiley & Sons, Inc.

10-25

Outsourcing

Sourcing

Outsourcing

purchase of goods and services from an outside

supplier

Core competencies

selection of suppliers

what a company does best

Single sourcing

a company purchases goods and services from

only a few (or one) suppliers

Copyright 2006 John

Wiley & Sons, Inc.

10-26

Original Equipment
Manufacturer
(OEM)

Maintenance
Repair and
Operation (MPO)

Corporate
Services

Copyright 2006 John Wiley & Sons,

Inc.

10-27

E-Procurement

Direct purchase from suppliers over the Internet

Direct products go directly into production process a
product, indirect products not
E-marketplaces

web sites where companies and suppliers conduct businessto-business activities

Reverse auction

a company posts orders on the Internet for suppliers to bid

on

Copyright 2006 John

Wiley & Sons, Inc.

10-28

Distribution Centers (DC)

and Warehousing
DCs are some of the largest business facilities in
the United States
Trend is for more frequent orders in smaller
quantities
Flow-through facilities and automated material
handling
Postponement
final assembly and product configuration may
be done at the DC
Copyright 2006 John
Wiley & Sons, Inc.

10-29

Warehouse Management
Systems
Highly automated system that runs day-to-day operations
of a DC
Controls item putaway, picking, packing, and shipping
Features
transportation management
order management
yard management
labor management
warehouse optimization
Copyright 2006 John
Wiley & Sons, Inc.

10-30

SCM Software

Enterprise Resource Planning (ERP)

software that integrates components of a company

by sharing and organizing information and data
SAP was first ERP software
mySAP.com

web enabled modules that allow collaboration between

companies along the supply chain

Copyright 2006 John

Wiley & Sons, Inc.

10-31

Copyright 2006 John

Wiley & Sons, Inc.

Linking Supply Chain with SAP

10-32

Other Measures of Supply Chain

Performance

Process Control

used to monitor and control any process in supply

chain

Supply Chain Operations Reference (SCOR)

establish targets to achieve best in class

performance

Copyright 2006 John

Wiley & Sons, Inc.

10-33

SCOR Model Processes

Plan
Develop a course of
action that best
meets sourcing,
production and
delivery
requirements

Source
Procure goods
and services to
meet planned
or actual
demand

Make
Transform
product to a
finished state to
meet planned
or actual
demand

Deliver
Provide products
to meet demand,
including order
management,
transportation
and distribution
Return
Return
products,
post-delivery
customer
support

Copyright 2006 John

Wiley & Sons, Inc.

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