Chapter 1 Supply Chain

Current Trends in SCM: *Expanding the Supply Chain*

*Expanding the Supply Chain* - International firms are expanding partnerships and building facilities in foreign markets • *Right shoring* for maximum flexibility and minimum cost - The expansion involves: • *Breadth* - foreign manufacturing, office & retail sites, foreign suppliers & customers • *Depth* - second and third tier suppliers & customers

New Paradigm

*New paradigm* - Most successful firms focus their activities in its area of *specialization (core competency)*, entering into *trust-based relationships* with *supplier and customer firms.* -Focused on *total supply chain performance* where all participants in the supply chain benefit. -*Boundaries are dynamic* and extend from "the firm's suppliers' suppliers to its customers' customers (i.e., second tier suppliers and customers)." -Supply chains also deal with *reverse logistics* to handle returned products, warranty repairs, and recycling.

Supply Chain Management *Old Paradigm*

*Old paradigm* - Firm gained synergy as a *vertically integrated firm* encompassing the *ownership and coordination of several supply chain activities.* Organizational cultures emphasized *short-term*, company focused performance.

Four Parts of SCM

*Supply Management* - Supplier management, supplier evaluation, supplier certification, strategic partnerships *Operations* - Demand management, Forecasting, MRP, ERP, inventory management, JIT, TQM (Six Sigma) *Distribution* - Transportation management, customer relationship management, distribution network, global supply chains, service response logistics *Integration* Process integration, performance measurement

Operations Management Operations Issues:

- *Demand management* - match demand to available capacity - *Forecasting* models and accuracy - *Linking buyers & suppliers* via *MRP* and *ERP* systems - Use *lean systems* to improve the *flow of materials* to *reduce inventory levels* - Employ *Six Sigma* to improve *quality compliance* among suppliers

Current Trends in SCM *The Greening of Supply Chains*

- *Reduce Carbon Footprint:* *Producing, packaging, moving, storing, delivering* and other supply chain activities impact the environment - *Reduce environmental degradation* - Many *consumers are influenced by a firm's environmental reputation* - *De-manufacturing, Recycling, waste reduction* and conservation continues to grow in importance *Supply Chain Professionals impact all the above*

Supply Management Supply Elements: *Supplier Management* *Strategic Partnerships* *Ethics & Sustainability*

- *Supplier management* - improve performance through • *Supplier evaluation* (determining supplier *capabilities)* •*Supplier certification* (third party or internal certification to assure product quality and service requirements) - *Strategic partnerships* - successful and trusting relationships with top-performing suppliers - *Ethics and sustainability* - recognizing suppliers' impact on reputation and environmental impact

Integration Integration Trends: *Process Integration* *Performance Measurement*

- *Supply Chain Process Integration* - when supply chain participants work for *common goals.* Requires *intra-firm* functional integration. Based on efforts to *change attitudes & adversarial relationships* - *Supply Chain Performance Measurement* - Crucial for firms to know if procedures are working

Logistics Management Logistics Trends: *Transportation Management* *Customer Relationship Management* *Network Design*

- *Transportation management* - tradeoff between cost & timing of delivery & customer service, discuss modes of transportation - *Customer relationship management* - strategies to ensure deliveries, resolve complaints, improve communications, & determine service requirements - *Network design* - creating *distribution networks* based on tradeoff decisions between *cost & sophistication of distribution* system

Current Trends in SCM *Reducing Supply Chain Costs*

- Cost reduction achieved through: • Reduced purchasing & logistics costs • Reducing waste • Reducing excess inventory, and • Reducing non-value added activities -Continuous Improvement through • *Benchmarking* - improve over competitors' performance • *Best Practices* - implementing better methods • *Technology* - improved supply chain systems

Current Trends in SCM: *Increasing Supply Chain Responsiveness*

- Firms will increasingly need to be more flexible and responsive to *customer needs* - Supply chains will need to *benchmark* industry performance and meet and improve on a continuous basis - Responsiveness improvement will come from more effective and faster product & service delivery systems

Supply Chain includes what?

- Raw materials manufacturers - Component and intermediate manufacturers - Final product manufacturers - Wholesalers and distributors - Retailers End Customers

Connected by? Integrated through?

- Transportation & Storage Activities - Information, planning, and technology

What is Supply Chain?

A *supply chain* consists of the *flow of products and services* from *Raw Materials to End Users*

The planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities ... also includes coordination with channel partners, which can be suppliers, intermediaries, third party service providers, and customers.

Council of Supply Chain Management Professionals

Importance of SCM *Reduced Operating Capital Requirements* *Reduced Fixed Capital Requirements* *Reduced Costs*

Firms have discovered long term benefits: • *Reduced operating capital requirements* - Optimized *inventory levels* - Improved *cash flow* • *Reduced fixed capital requirements* - Outsource manufacturing & logistics (3PL) • *Reduced costs* - Obsolescence / expiration / price erosion - Lower *operating costs* - Lower *regulatory costs* • *Looking at Total Cost of Ownership (TCO)*

Supply Chain Goal

Goal is to have the *correct product* in the *needed quantity* at the *right location* for the *lowest cost.* Balancing *constant manufacturing* with *variable demand*

History of SCM

In 1956 the world's first *container ship* was capable of carrying approximately 58 35 foot containers. Currently, the world's largest container ship is capable of carrying approximately 18,000 standard 20' containers. Look at Chart

The design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer

Institute for Supply Management

The coordinated set of techniques to plan and execute all steps in the global network used to acquire raw materials from vendors, transform them into finished goods, and deliver both goods and services to customers

Logistics and Supply Chain Management Society