CHAPTER 2

Supply Chain
Management
 Supply Chain Management 2-2

The integration of key

business processes from end
user through original
suppliers, that provides
products, services, and
information that add value for
customers and other
stakeholders.

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 Integrating and Managing Business 2-3

Processes across the Supply Chain

Supply Chain Scope (functions and entities)
Information flow

Tier 2 Tier1 Materials Physical Marketing

Supplier Supplier Purchasing Management Production Distribution & Sales Customer Consumer
Supply Chain Business Processes

Product Flow
Product flow

Customer relationship management

Customer service management

Demand management
Order fulfillment
Manufacturing flow management
Procurement
Product development and commercialization
Returns channel

Supply Chain Management Components

• Planning and Control • Product structure
• Process (work) structure • Management methods
• Organization structure • Power and leadership structure
• Product flow facility structure • Risk and reward structure
• Information flow facility (IT) structure • Culture and attitude
Source: Martha Cooper, Douglas M. Lambert, and Janus D. Pagh, “Supply Chain Management: More than a New Name for Logistics,”
McGraw-Hill/Irwin The International Journal ofCopyright © 2001 Volume
Logistics Management, by The8,McGraw-Hill Companies, Inc. All rights reserved.
Number 1(1997), p.10.
 Supply Chain Network Structure 2-4

Tier 3 to Tier 3 to
Initial Tier 2 Tier 1 Tier 1 Tier 2 Consumers/
suppliers Suppliers Suppliers Customers Customers End-Customers

1 1

2 2
Tier 3 to n suppliers

n 1 1
n

Consumers / End-Customers
1

1
n
Initial Suppliers

2 2

Tier 3 to n customers
1
n

2 3 n 1
3
2
n n
n
1

Focal Company Members of the Focal Company’s Supply Chain

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 Elements and Key Decisions 2-5

2. What processes should be linked

with each of these key
supply chain members?

Supply chain
business
processes

Supply chain Supply chain

management network
components structure

3. What level of integration 1. Who are the key supply

and management should be chain members with whom
applied or each process link? to link processes?

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 Types of Business Process Links 2-6

• Managed Process Links

• Monitored Process Links
• Not-Managed Process Links
• Nonmember Process Links

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
 Types of Inter-company 2-7

Business Process Links

Tier 3 to Tier 3 to
Initial Tier 2 Tier 1 Tier 1 Tier 2 Consumers/
suppliers Suppliers Suppliers Customers Customers End-Customers

1 1

2 2
Tier 3 to n suppliers

Consumers / End-Customers
n 1 1
n
1
Initial Suppliers

n 1

Tier 3 to n customers
2 2

1
n

2 3 1 n 1
3 n 2
n n
n
1 1

n n

Managed Process Links Focal Company

Monitor Process Links
Members of the Focal Company’s Supply Chain
Not-Managed Process Links
Non-Member Process Links Non-Members of the Focal Company’s Supply Chain

Source: Douglas M. Lambert, Martha C. Cooper and Janus D. Pagh, "Supply Chain Management: Implementation
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
Issues and Research Opportunities,” The International Journal of Logistics Management, Vol. 9, No. 2 (1998), p.7.
 Underlying Process Vision 2-8

Supply Chain Management Vision

The key to achieving an integrated flow of product and information throughout
the supply chain is to create a focused customer interface, a focused supplier
interface, and an integrated, process-oriented, supply chain which is driven by
the customer.

Customer Relationship
Management
Customer
Service Fulfillment
Management

Customer

Demand Procurement
Management

Manufacturing Flow
Management
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies,Source:
Inc. All 3M
rights reserved.
 Fundamental Management 2-9

Components
Physical and technical Managerial and behavioral
management components management components
Planning and Management
control methods methods

Work flow/ Power and

activity structure leadership structure

Organization Risk and

structure reward structure

Communication
Culture and
and information flow
attitude
facility structure

Product flow
facility structure
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
 Customer Relationship Management 2-10

• Customer service teams develop and implement

customer partnering programs.
• Product/service agreements are established.
• New customer interfaces lead to improved
communication and better predictions of
customer demand and improve the way
customers are serviced.
• Teams identify and eliminate sources of
production variability.
• Key performance evaluation criteria (both level
of service and customer profitability) are used
to measure results.
McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
 Customer Service Management 2-11

• Provides a single source of customer information,

a point of contact for administration of the
product/service agreement.
• Conveys real-time information through interface
with product and distribution operations.
• Requires an on-line/real-time product and
pricing information to assist customers with
inquiries, order placement, and after-sales
service.
• Includes front line technical service that assists
customers with product applications and
recommendations.

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
 Customer Order Fulfillment 2-12

• “Customer need dates” and requirements drive

the process.
• Manufacturing, distribution, and
transportation plans are integrated.
• Strategic alliances with key supply chain
members and carriers are formed to meet
requirements and to reduce total-delivered-cost
to customers

McGraw-Hill/Irwin Copyright © 2001 by The McGraw-Hill Companies, Inc. All rights reserved.
 Manufacturing Flow Management 2-13

• Product is pulled through the plant based on

customer needs.
• Manufacturing processes must flexibly respond
to market changes with rapid changeover
capabilities for mass customization.
• Minimum lot sizes are planned to move toward
a make to order environment.
• Production priorities are driven by required
delivery dates.
• Managers concentrate on keeping
setup/changeover costs very low.

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 Procurement 2-14

• Strategic plans of suppliers and company are

aligned to focus resources on holding down
costs and developing new products.
• Supplier categorization and management is
implemented on a corporate global basis, with
purchasing in a strategic contracting role.
• Purchase order transactions are integrated
with the supply process to improve productivity
and all areas of supplier performance.

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 Cost trade-offs in Marketing 2-15

and Logistics
Product

MARKETING
Order processing
Price and information
costs

Place/customer
service levels
Inventory
LOGISTICS

Transportation
carrying costs
costs

Lot quantity costs Warehousing costs

Order processing
and information
costs
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 Reengineering SCM 2-16

Process Flow Chart

Mission statement

Business requirements

Assess:
• Culture Acceptable
• Strategies
• Practices
• Processes

Not acceptable
Revise/reengineer

Human Information
Strategic Organization resource
partnerships structure systems
capabilities

New enterprise design

for integrated process

Implement business
solution in supply chain

Source: Douglas M. Lambert, Larry C. Guinipero, and Gary J. Ridenhower, “Supply Chain Management: A Key to Achieving
McGraw-Hill/Irwin Copyright
Business Excellence in the 21st © 2001 by manuscript.
Century,” unpublished The McGraw-Hill Companies, Inc. All rights reserved.
All Rights reserved.
 IMPLEMENTATION OF SUPPLY CHAIN MANAGEMENT 2-17
Typical
Functions
Silos
Business
Processes Sales & Technical Logistic Manufac- Finance &
Marketing turing Purchasing
Accounting
s
S Customer
Relationship
Management
Account Requirements
Requirements
Management Definition Definition
ManufacturingSourcing
Strategy Strategy
Customer
Profitability
C
U Customer Service Account TechnicalPerformanceCoordinated Priority Cost U
Management Administration Service SpecificationsExecution Assessment To Serve

P Demand Demand Process Network Capability Tradeoff

S
Sourcing
P T
Management Planning RequirementsPlanning Planning Analysis

O
Special EnvironmentalDistribution Plant Selected Distribution
L Fulfillment
Orders RequirementsManagement Direct Supplier(s) Cost

I Manufacturing Flow Packaging Process PrioritizationProduction IntegratedManufacturing

Management SpecificationsStability Criteria Planning Supply Cost
M
E Procurement
Order Material Inbound Integrated Supplier Materials E
Booking Specifications Flow Planning Management Cost

R Product Business Product Movement Process Material

R
S
Development and
S Commercialization Plan Design Requirements Specifications R & D Cost
Specifications

Information Architecture, Data Base Strategy, Information Visibility

Note: Process sponsorship and ownership must be established to drive the attainment of the supply chain vision and eliminate the functional barriers that
artificially separate the process flows.
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