Intro Supply Chain Management Chapter 1: Introduction to Supply Chain Management

Bullwhip Effect

*A supply chain inefficiency caused by improper demand forecasting and safety stock inventory.*

Supplier Evaluation & Supplier Certification

*Determining the current capabilities of suppliers.* Certification programs can either be company designed and administered, or they can be internationally recognized and standardized programs. Allows buyers to assume the supplier will meet certain product quality and service requirements.

Demand Management

*Strategies and systems aimed to minimize inventory costs, with the objective of matching demand to available capacity*, either by improving production scheduling, curtailing demand, using a back-order system or increasing capacity.

Supplier Management

*The encouraging or helping the firm's suppliers to perform in some desired fashion.* This involve assessing suppliers' current capabilities and then deciding if and how they need to improve them.

Transportation Management

*Tradeoff decisions between cost and timing of delivery / customer service via trucks, rail, water, air.* Trucks are more expensive than rail carriers but are faster and more flexible. Planes are more expensive but the fastest. Boats are the slowest and least expensive.

Supply Chain

1. Firms extract raw materials from the ground. (i.e: iron, oil, wood, food) and sell them to raw material suppliers. 2. These firms, responding to purchase orders from component manufacturers, turn the raw materials into usable materials by customers. 3. Component manufacturers, responding to orders and specifications from their customers (the final products manufacturers) make and sell intermediate components. 4. The final product manufacturers assemble finished products and sell them to wholesalers or distributors, who then resell these products to retailers as their product order are received. 5. Retailers in turn sell these products to us, the end-product consumers.

Supply Chain Management Elements

1. Supply 2. Operations 3. Logistics 4. Integration

Distribution Network

A method of ensuring successful product delivery. Typically, there is a trade off between the cost of the distribution network's design and customer service. The goal is to achieve a *perfect order fulfillment.*

Fourth-Party Provider (4PL) or Lead Logistics Providers

An organization hired to manage all of a firm's logistics and supply chain management capabilities.

Purchase of Products

Based on *cost*, *quality*, *availability*, *maintainability* and *reputation* factors.

End-Product Manufacturer or Focal Firm

Companies like General Motors or Coca-Cola that component manufacturers consider customers. They are in the middle of the supply chain. Companies closer to the focal firm are considered 1st Tier Suppliers and Customers.

Buyer Supplier Alliances

Companies realized in the 1990s that giving most of their business to their best suppliers would yield more sale through improvements in delivery, quality and product design and to generate cost savings through their closer attention to processes, materials and components uses in the manufacturing process.

SCM Main Idea

Coordination or integration of a number of goods and services related activities among supply chain participants to *improve operating efficiencies, quality and customers service among the collaborating organizations.* Free market supply chains are dynamic and fluent, which can cause complete optimization but also problems in effectively managing them.

Network Design

Creating *distribution* networks based on tradeoff decisions between cost & sophistication of distribution.

Supply Chain Management (SCM)

Defined by, *"the planning and management of all activities involved in sourcing and procurement, conversion and all logistics management activities. Importantly, it also include coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers and customers."* - The Council of Supply Chain Management Professionals (CSCMP).

Just-in-Time (JIT) & Total Quality Management (TQM)

Emphasizes the benefits and importance of strategic and cooperative supplier-buyer-customer relationships. Little inventory to cushion scheduling or production problems. Emerged in the 1980s driven by competitive markets.

Operating Exposure

Government intervention or political instabilities causing supply disruptions.

Business Process Reengineering (BPR)

Introduced in the 1990s, *BPR is the radical rethinking and redesigning of business processes to reduce waste and increase performance* that came as the result of growing interest in cost reduction and long term competitive advantage.

Second-Tier Suppliers and Customers

Logistics service companies, as well as non-domestic suppliers and customers.

Strategic Partnerships

One of the most important aspect of SCM. Creation of closer working relationships with customers in terms of long-term, higher-volume sales.

Perfect Order Fulfillment

Orders arriving on time, complete and damage free. A study by the AMR Research company found that 3 percent improvement in perfect order fulfillment led to a one percent improvement in profits.

Benchmarking

Progress report on certain suppliers, and services that provide insight and statistical data into wether a company is optimizing.

Ethical & Sustainable Sourcing

Purchasing from suppliers that are governed by environmental sustainability and social and ethical practices, yet also provide competitive advantage.

Supply Chain Responsiveness

Require firms to reevaluate their supply chain relationships, utilize business process reengineering, reposition and automate warehouses, design new products and services, reduce new product design cycles, standardize process and products, empower and train workers in multiple skills, build customer feedback into daily operations, and link together all of the supply chain participants information and communication systems using the latest technologies.

Service Providers

Responsible for the delivery of end products to customers and prevalent in most supply chains. For example, trucking, airfreight shipping companies, information system providers, public warehousing firms, freight forwarders, agents and consultants. They allow firms to serve their customers at the lowest possible cost.

Third-party Logistics Providers (3PLs)

Shipping, warehousing, and logistics services that provide transportation, storage, documentation and customs clearing services to firms.

Material Requirements Planning (MRP)

Software system for managing inventory.

Customer Relationship Management

Strategies regarding how to meet delivery due dates, how to successfully resolve customer complaints, how to communicate with customers and how to determine the logistics services required.

Global Supply Chains

Supply chains that extend over domestic borders for the sake of lower operating expenses. Some advantages include larger market for products, lower cost of labor, cheaper or better quality supply base, and new product ideas from foreign employees. Some of the risks include fluctuating exchange rates affecting production, operating exposure, potential changes in subsidies, tariffs, taxes and finally, failure to identify foreign customer needs and local reactions to products.

Enterprise Resource Planning (ERP)

System providing real time sales data, inventory and production information to all business units and to key supply chain participants.

Materials Requirements Planning (MRP) and Manufacturing Resource Planning (MRPII)

Systems allowing companies to see the importance of effective materials management. They could now recognize and quantify the impact of high levels of inventories on manufacturing, storage, and transportation costs. This was made possible through increased computer technology in the 60's and 70's.

Right Shoring

The combination of onshore, near-shore, and far-shore operations into a single, flexible, low cost approach to SCM. Essentially bringing in second and third tier suppliers & customers.

Lean Production System

The equivalence of JIT inventory management. This type of system usually results in faster delivery times, lower inventory levels and better quality.

Green Washing

The increased demand for green products that has caused companies to make environmental claims for products that are exaggerated or misleading.

Inventory Visibility

The transparency of inventory requirements created through communication between the MRP system and other firms in the supply chain through a bar code system for example.

Six Sigma Quality

Total quality management strategy in place to ensure continued quality compliance among suppliers and with internal production facilities.

Supply Chain Performance Measurement

Utilized along supply chains to help firms keep track of their supply chain management efforts.

Reverse Logistics Activities

When intermediate or end customers may need to return products, obtain warranty repairs or just throw products away or recycle them.

Supply Chain Process Integration

When members of the supply chain work together to make purchasing, inventory, production, quality and logistics decisions that impact the overall profits of the supply chain.