Supply Chain Management
300 BC
Caesar made trading posts in East Asia to grow his trade. This was the first retailer supplier relationship. Establishment of the silk route to India.
1904
Charles S. Rolls became selling agent for cars made by F. Henry Royce. (The first traces of outsourcing).
1985-
Cisco removed itself from the supply chain by providing to the customer directly from the vendor.
Business Impact - Boost Customer Service Right Stock Location
Customers expect products to be available at the right location. For example, customers will be upset if the auto dealership does not have the necessary parts for repair in stock and as a result, must keep the customer's car a day or two until parts arrive.
Year 2000
Customized Supply Chain
Seven Principles of SCM Principle 6
Develop supply chain wide technology strategy that supports multiple levels of decision making and gives a clear view of the flow of products, services, and information.
Business Impact - Improve Financial Position Decreases Fixed Assets
Firms value supply chain managers because they decrease the use of large fixed assets such as plants, warehouses, and transportation vehicles in the supply chain. If supply chain experts can redesign the network to properly serve U.S. customers from six warehouses rather than ten, the firm will avoid building four very expensive buildings.
1151
First known fire and plague insurance offered in Iceland.
Supply Chain Evolution 1960s
Fragmentation
1996-
Internet revolutionized the information pathway and the distribution system of the business.
Key SCM Concepts Mutual Agreement on Goals
An integrated supply chain requires more than just agreement on the contractual terms of a buy/sell relationship. Partners in the chain must appreciate that the only entity that puts money into a supply chain is the end customer. Therefore, establishing a mutual understanding of the mission, strategy, and goals of participating organizations is essential. The integrated supply chain is about adding economic value and maximizing the total content of the product.
Why go Global? 4. Greater Competition
- Wider supplier base/network o Benchmark against international standards - New sources
Key SCM Concepts
- mutual agreement on goals - mutual trust - compatible organizational cultures
MAJOR IMPLEMENTING GUIDELINES AND POLICIES Awarding of POs, Contracts:
1. All purchase agreements and amendments involving a mutual agreement between the company and the selected vendor shall be clearly and completely written. 2. The limits of purchasing authority shall be clearly defined and followed. To divide any individual procurement into a number of small purchases so as to fall within the authorization limit at a lower level shall not be allowed.
MAJOR IMPLEMENTING GUIDELINES AND POLICIES Canvassing, Negotiation and Selection:
1. All requests for quotations, negotiation, and selection shall be coursed through and handled by authorized purchasing personnel. 2. Only accredited vendors shall be considered in the negotiation and selection. 3. Minimum of three (3) suppliers' quotations are required.
MAJOR IMPLEMENTING GUIDELINES AND POLICIES Requisitioning:
1. All requests to purchase shall be covered by duly authorized requisitioning document. 2. All requests to purchase shall include all information necessary to render an intelligent purchasing decision, including quality specs, quantity and timing. 3. Specifications shall not favor any specific supplier or brand, generic specs is required.
Market Entry
1. Barter Trade 2. Offset/Counter Purchase 3. Buyback 4. Switch trading
3 Types of Purchasing Organization
1. Complete decentralization, allowing full autonomy in each of the units; 2. Complete centralization, all purchases are made from a central office; or 3. A combination of both.
Other Advantages of Centralization
1. Consolidating requirements 2. Developing sources 3. Rationalizing stocks 4. Simplifying procedures 5. Working with suppliers to eliminate unnecessary costs 6. Working with his colleagues to ensure an effective flow of information which will enable the objectives of the enterprise to be met
Major Trend Involving Purchasing Functions and Process 11. Increasing decentralization of buying decisions in multi-site operations
1. Cost reduction imperative 2. Desire of management to move buying decisions clearer to the responsible using manager
Why go Global?
1. Cost/Price Benefits 2. Availability/Continuity of Supply 3. High quality Technological Know How 4. Greater Competition 5. Relative ease of communication 6. Market Entry
Balancing Conflicting Needs:
1. The user, want the best quality item immediately, regardless of cost and effort. 2. The inventory controllers/planners want to always have stock, but as little as possible and at the shortest possible lead times. 3. The financial controller wants a little or no stock and lower priced purchases. 4. The suppliers prefer flexible lead timers and highest possible prices obtainable. 5. Purchasing's role is very dependent on meeting the needs of other functions. 6. Its pivotal role is to make "best value" supply decisions 7. It should effectively manage the large expenditures involved in the procurement of goods and services in line with the organization's goals and directions.
Effective Cost Reduction Program Requirements
1. Top Management Support 2. Clear Definition of Goals 3. Visibility of Savings to Top Management 4. Measurement of Savings 5. Reporting on the process and its results 6. Incorporation of cost reduction goals in the individual performance appraisal process.
Major Trend Involving Purchasing Functions and Process 1. Increasing utilization of information
1. Use of information systems development and networking that can integrate individual material functions and tie purchasing to other operating departments 2. More extensive use of barcoding 3. Use of electronic data interchange 4. Increasing use of computer aided design (CAD) and computer aided manufacturing (CAM)
Key SCM Concepts Compatible Organizational Cultures
A positive relationship between the purchasing and supplying organizations that comes with compatible organizational cultures can be a real advantage in making a supply chain hum. A champion within one of the two firms promotes both formal and informal contacts, and those contacts contribute to the alignment of the organizational cultures, further strengthening the relationship. The operations manager is dealing with a supply chain that is made up of independent specialists, each trying to satisfy its own customers at a profit. This leads to action that may not optimize the entire chain. On the other hand, the supply chain is replete with opportunities to reduce waste and enhance value. We now look at some of the significant issues and opportunities.
Seven Principles of SCM Principle 7
Adopt channel spanning performance measures to gauge collective success in reaching the end-user effectively and efficiently.
Why go Global? 6. Market Entry
Allows entry of own products to other countries/new markets
Purchasing KPI % of Suppliers Operating with the company in Partnership Relationship
No. of Preferred and Certified Suppliers/ Total Targeted No. of Suppliers
Purchasing KPI Supplier Delivery Performance
No. of Requisitions Completely Delivered as per Specifications / Total No. of requisitions
MAJOR IMPLEMENTING GUIDELINES AND POLICIES Supplier Performance Evaluation:
Performance of vendors must be continuously monitored and evaluated against corporate standards of quality, timeliness, cost competitiveness, service orientation and management attitude.
Business Impact - Reduce Operating Cost Decreases Purchasing Cost
Retailers depend on supply chains to quickly deliver expensive products to avoid holding costly inventories in stores any longer than necessary. For example, electronics stores require fast delivery of 60" flat panel plasma HDTV's to avoid high inventory costs.
Key SCM Concepts Mutual Trust
Trust is critical to an effective and efficient supply chain. Members of the chain must enter into a relationship that shares information - a relationship built on mutual trust. Supplier relationships are most likely to be successful if risk and cost savings are shared - and activities such as end customer research, sales analysis, forecasting, and production planning are joint activities
Global partnering
companies that collaborate across time zones and oceans to drive costs down and performance up in way no single company ever could
SCM - Supply Chain Council
encompasses every effort involved in producing and delivering a final product or service, from the supplier's supplier to the customer's customer
Supply Chain
is the system by which organizations source, make, and deliver their products or services according to market demand
SCM - Accounting Dictionary
managing the "virtual" enterprise composed of suppliers and customers
Low KPI
may focus on processes in departments such as sales, marketing, HR, support and others
High KPI
may focus on the overall performance of the business
1958, J. Forrester
noticed that when information between parties that do business is insufficient, there are strong fluctuations in order volume, even when there is relatively stable demand
Bullwhip effect results Too Much Stock
results in increase in costs - "Holding Cost" - loss of productivity due to existing inventory - high opportunity cost - stockpiling of unsold stock
Bullwhip effect results Too Little Stock
results in the firm's inability to cope with demand - "other companies fill in your market" - loss of customers - delays and halts in production - loss of discounts for bulk buying
SCM - Marketing Dictionary
the coordination of operations with all the companies involved in the entire sequence of suppliers that contribute to the creation and delivery of a product or service
SCM - Ohio State University Global Supply Chain Forum
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
MAJOR IMPLEMENTING GUIDELINES AND POLICIES Negotiation
the process of working out a purchasing program together, to the point of reaching a mutually satisfactory agreement
TYPES OF PURCHASING AGREEMENT STRATEGIES Substitution
the use of a different or the same material but in another form which are cost effective because it is cheaper, easier to handle or simpler to process.
Perfect Order
when customer requirements are met in full - On time Delivery/Delivery Reliability - Order Fill / Order Completeness - Line Fill - Invoice Error / Documentation Quality
SCM - Investopedia
will attempt to centrally control or link the production, shipment, and distribution of a product
US Air Force
"Procurement by negotiation is the process of arriving at a common understanding through bargaining on the essentials of a contract such as delivery, specifications, prices and terms."
Integrating and Managing Business Processes
"To successfully implement SCM, all firms within the supply chain must over come their own financial silos and accept a process approach of working together."
Purchasing KPI
- % of Suppliers Operating with the company in Partnership Relationship - Savings Generated thru Strategic Purchasing Approaches - Supplier Delivery Performance - Actual Purchase Cost of Critical Items/Industry Prices
Why go Global? 3. High-quality Technological Know How
- Advancement in technology in foreign sources - "Proprietary" products (exclusive products) - OEM (Original Equipment Manufacturer)
Operational Causes Anticipation of shortages
- Allocation rule of suppliers - Shortage gaming - Lean and JIT style management of inventories and a chase production strategy
Purchasing's Role in Total Customer Satisfaction:
- An organization can only provide its customers with better quality goods if it receives quality materials and services from its suppliers. - If suppliers are always on time and deliver quality materials, the quality and availability of the product or service to the customers will be satisfactory.
TYPES OF PURCHASING AGREEMENT STRATEGIES
- Contract Growing - Substitution - Volume Aggregation - Counter Trade - Toll Processing - Systems Contracting - Blanket Po - Consignment - VMI
Why go Global? 1. Cost/Price Benefits
- Differences in manufacturing cost structure, i.e. labor cost, material cost and overhead - Tariff advantage o Forex impact
Why go Global? 5. Relative ease of communication
- E-procurement - EDI - Internet
Supply Chain Performance Measures or KPI Inventory Management
- Inventory Control - Inventory Accuracy - Inventory Turn-over
Supply Chain Performance Measures or KPI
- Inventory Management - Customer Service Warehouse Management
Why go Global? 2. Availability/Continuity of Supply
- Items not locally available o Locally available but in short supply - Locally available but with cheaper imported counterpart/substitute
Benefits of Supply Chain Management
- Lower Inventory - Higher Productivity - Greater Agility - Shorter Lead Times - Higher Profits - Greater Customer Loyalty
Behavorial Causes
- Misuse of base-stock policies - Misperceptions of feedback and time delays - Panic ordering reactions after unmet demand - Perceived risk of other players' bounded rationality
Market Entry Barter Trade
- Oldest and simplest - Direct exchange of goods
Other KPIs
- Order Cycle Time - Order size Constraints - Ordering Convenience - Frequency of Delivery - Claims Procedure - Technical Support - Order Status information
Purchasing focuses On the RIGHT:
- Place - Time
SCM Processes
- Planning - Procurement - Production - Distribution - Customer Interface
Purchasing focuses on getting the RIGHT:
- Product - Service
Purchasing focuses With the RIGHT
- Quantity - Quality/Condition - Supplier - Price
Market Entry Offset/Counter Purchase
- Reciprocal buying - Cash used to make individual purchases
MAJOR IMPLEMENTING GUIDELINES AND POLICIES Supplier Accreditation:
- The Purchasing Group must maintain a list of accredited suppliers, products and services following a Supplier Accreditation System. - The list must be continuously updated so that only those who are active and performing based on described performance standards are maintained.
Major Trend Involving Purchasing Functions and Process 7. Development of more selective foreign sourcing
1. A sharpened focus on the best value by considering worldwide sourcing possibilities 2. Fluctuating foreign exchange rates
Major Trend Involving Purchasing Functions and Process 3. Reduction of the supplier base
1. Development of relatively small number of strategic suppliers requiring quasipartnership relationship between the buyer and supplier
Advantages of Centralization
1. Economies obtained by consolidating requirements of all units in the group, thereby improving purchasing strength in negotiation 2. Avoidance of critical materials in short supply 3. Better overall stock management and materials utilization 4. Economies of staffing and clerical effort together with uniformity in procedures, forms, standards, and specifications
Major Trend Involving Purchasing Functions and Process
1. Increasing utilization of information 2. Increasing emphasis on quality 3. Reduction of the supplier base 4. Increased use of negotiation, reduced use of competitive bidding 5. Increasing emphasis on competitive analysis 6. Increasing purchasing involvement in technology transfer 7. Development of more selective foreign sourcing 8. The increasing use of system contracting 9. The potential for increasing government regulation and/or influence 10. Emphasis on supply chain management 11. Increasing decentralization of buying decisions in multi-site operations 12. Increasing centralization of corporate contract buying 13. A tendency to draw top level purchasing management personnel from other departments 14. Changing characteristics of entry level purchasing personnel 15. Requirement for greater technical and operating competencies among buyers 16. Requirement for broader, non purchasing task knowledge among buyers
Purchasing Goals
1. Provide an uninterrupted flow of supplies and services to support the requirements and plans of end users 2. Purchase required items and services at the lowest cost consistent with the quality and service required 3. Develop competent vendors 4. Achieve harmonious and productive working 5. Analyze and report on long-range availability of major purchase items 6. Keep minimum investment in materials inventory in close coordination with the end users 7. Search the market continually for new and alternative materials and services whose adaptation might improve company efficiency and profitability
Four Key Activities of Purchasing
1. Receiving of duly authorized requisitioning document 2. Identifying accredited suppliers and products/services. 3. Canvassing and requesting quotations from suppliers. 4. Negotiating for best cost
Basic Purchasing Activities
1. Receiving of duly authorized requisitioning document 2. Identifying accredited suppliers and products/services. 3. Canvassing and requesting quotations from suppliers. 4. Negotiating for best cost 5. Selecting and awarding of PO or CO 6. Monitoring and expediting of Delivery in coordination with the End Users' requirements and plans. 7. Evaluating supplier performance.
Purchasing decisions impact on: (Pivotal Role of Purchasing in Supply Chain)
1. Stock Inventory Levels 2. Product Quality 3. Delivery Reliability 4. Costs
Cost Reduction Programs
1. Supplier development 2. Development of Competition / Avoidance of Monopoly 3. Requirement of Supplier Cost Reduction 4. Early supplier involvement in new product design and design changes 5. Substitution of materials
Advantages of Decentralization
1. The local buyer will have a better knowledge of the needs of his particular factory or unit, of local suppliers, transport and storage facilities 2. He will be able to respond more quickly to emergency requirements 3. The local buyer's direct responsibility to his immediate management will produce better liaison and tighter control by local top management particularly where they operate as a profit center
Purchasing Cost Management:
Given the large percentage of the organization's resources that purchasing spends, purchasing departments must manage and reduce costs. "...a 10% cost reduction in purchase expenditures has a much greater impact then a 10% reduction in labor or overhead expenses."
1305
House of Taxis operated courier messenger service for the rich European clients. (A kind of primitive Outsourcing)
Societal Roles - Ensure Human Survival SCM Protects Humans from Climate Extremes
Humans depend on an energy supply chain to deliver electrical energy to homes and businesses for light, heat, refrigeration and air conditioning. Logistical failure (a power blackout) can quickly result in a threat to human life. For example, during a massive East Coast ice storm in January 1998, 80,000 miles of electrical power lines fell resulting in no electricity for 3,200,000 Montreal, Quebec residents. Due to extreme cold, 30 died and 25% of all Quebec residents left home to seek heated shelter In addition, economic costs included $3 billion in lost business, $1 billion in home damage and $1 billion in government expenditures.
TYPES OF PURCHASING AGREEMENT STRATEGIES Blanket Po
Is a purchasing method whereby materials and supplies is awarded to a supplier with pre agreed price but without any committed volume. This method is advisable for nonstock items/hardware. The pre agreed price is the listed or average industry price less a fixed discount rate. Similar to a systems contract, the supplier is committed to ensure availability of the item when needed.
TYPES OF PURCHASING AGREEMENT STRATEGIES Systems Contracting
Is a purchasing scheme whereby the supply of materials is awarded to one or more suppliers covering a period of six months to one year (sometimes even beyond one year). A minimum volume is committed to the vendor in exchange for a discounted price over the contract period
TYPES OF PURCHASING AGREEMENT STRATEGIES Contract Growing
Is a raw material sourcing scheme mostly applicable to agricultural based commodities like grain, fruits, root crops , livestock or even aqua based products like prawn and several fish varieties. The company provides the inputs and the grower on the other hand provides the facilities and labor.
TYPES OF PURCHASING AGREEMENT STRATEGIES Consignment
Is a supply agreement with a vendor/s whereby materials needed by the company are consigned by the vendor and automatically replaced once consumed. The company provides a space and takes responsibility in the safekeeping of the consigned item.
TYPES OF PURCHASING AGREEMENT STRATEGIES Counter Trade
Is the exchange of goods or services without the use of money. We can negotiate with our vendors that for the material, equipment or services that they supply to us, we compensate them partly if not wholly with finished products.
TYPES OF PURCHASING AGREEMENT STRATEGIES VMI
Is where the manufacturer assumes the responsibility for the automatic replenishment of the distributor's inventory through the use of Electronic Data Interchange (EDI) transmissions and a pre agreed upon stock plan.
Global Purchasing
It is buying materials, equipment and services of the right quality, in the right quantity, at the right time, at the right price from the right source GLOBALLY.
Business Impact - Reduce Operating Cost Decreases Production Cost
Manufacturers depend on supply chains to reliably deliver materials to assembly plants to avoid material shortages that would shut down production. For example, an unexpected parts shipment delay that causes an auto assembly plant shutdown can cost $20,000 per minute and millions of dollars per day in lost wages.
TYPES OF PURCHASING AGREEMENT STRATEGIES Volume Aggregation
Materials, equipment or service with high degree of commonality of use among divisions, a region/country, would be better produced based on the User's aggregated volume requirements. This will give the central requirement body at the region or group level the leverage in negotiating the best ultimate value.
MAJOR IMPLEMENTING GUIDELINES AND POLICIES Monitoring and Expediting:
Purchasing has to monitor and expedite delivery of pending orders (varying degrees depending on the criticality of supply and the supplier's delivery performance) up to its final delivery and acceptance, in close coordination with the requirements and plans of end users.
TYPES OF PURCHASING AGREEMENT STRATEGIES Toll Processing
Raw materials may be procured not necessarily in its processed form. We can always consider buying the crude form of the materials and have somebody do the processing for us resulting to a lower cost. Even finished products or packaging of finished products may be entered into a tolling arrangement.
Seven Principles of SCM Principle 1
Segment customers based on the service needs of distinct groups and adapt the supply chain to serve these segments profitably.
Societal Roles - Improve Quality of Life Improve Standard of Living
Societies with a highly developed supply chain infrastructure (modern interstate highway system, vast railroad network, numerous modern ports and airports) are able to exchange many goods between businesses and consumers quickly and at low cost. As a result, consumers can afford to buy more products with their income thereby raising the standard of living in the society. For instance, it is estimated that supply chain costs make up 20% of a product's cost in the U.S. but 40% of a product's cost in China. If transport damage is added in, these costs make up 60% of a product's cost in China. The high Chinese supply chain cost is a major impediment to improving the standard of living for Chinese citizens. Consequently, China has embarked on a massive effort to develop its infrastructure.
Market Entry Buyback
The firm supplies the technology, equipment and/or technical advice then takes percentage from the output from the facility
Supply Chain Performance Measures or KPI Customer Service
Stock Availability
Ancient Times
The Barter System evolved as an answer to the trading requirements. This was the first supply chain.
SCM Processes Procurement
The buy process focuses on the purchase of required raw materials, components, and goods. As a consumer, you're pretty familiar with buying stuff!
1998-
The concept of e-commerce changed the definition of business itself.
Purchasing
The process of obtaining externally supplied materials and services needed for the company's operation at the best ultimate value
Market Entry Switch trading
Use of third party to dispose off the goods, e.g. International Business clearing house
Supply Chain Evolution 2000s
Value Capture
1985
Wal Mart introduced the concept of Cross Docking and replaced K Mart as the leader in retail stores.
Supply Chain Performance Measures or KPI Warehouse Management
Warehouse Utilization
1956
Warren Buffet started investment partnership in Omaha with money from family and friends and he went on to become a billionaire. (An overseas 3PL)
Elements of the Supply Chain Transportation
When the finished product arrives in the warehouse, the shipping department determines the most efficient method to ship the products so that they are delivered on or before the date specified by the customer. When the goods are received by the customer, the company will send an invoice for the delivered products
Key Performance Index (KPI)
a measurable value that demonstrates how effectively a company is achieving key business objectives
Business Impact of SCM
- Boost Customer Service - Reduce Operating Cost - Improve Financial Position
Operational Causes Lot-sizing/Order Synchronization
- Consolidation of demands - Transaction Motive - Quantity Discount
Elements of the Supply Chain
- Customer - Planning - Purchasing - Inventory - Production - Transportation
1960s - Fragmentation
- Demand Forecasting - Sourcing/Purchasing - Requirement Planning - Production Planning - Manufacturing Inventory - Warehousing - Materials Handling - Packaging - Goods Inventory - Distribution Planning - Order Processing - Transportation - Customer Service
Operational Causes
- Dependent Demand Processing - Lead time Variability - Lot-sizing/Order Synchronization - Trade promotion and forward buying - Anticipation of shortages
Societal Roles of SCM
- Ensure Human Survival - Improve Quality of Life - Protect Cultural Freedom
Operational Causes Dependent Demand Processing
- Forecast Errors - adjustment of inventory control parameters with each demand observation
Methods intended to reduce uncertainty, variability, and lead time
- Vendor Managed Inventory (VMI) - Just In-Time replenishment (JIT) - Strategic partnership - Information sharing - smooth the flow of products - eliminate pathological incentives
The Bullwhip Effect (or Whiplash Effect)
- an observed phenomenon in forecast-driven distribution channels - The tendency for larger order size fluctuations as orders are relayed through the supply chain - Creates unstable production schedules, expensive capacity change costs, longer lead times, obsolescence - Damage can be minimized with supplier coordination and planning - represents the amplification and distortion of demand variability as moving upstream in a supply chain, causing excessive inventories, insufficient capacities and high operational costs
Two important things in SCM (by SCM Managers)
1. They think about the supply chain as a whole all the links involved in managing the flow of products, services, and information from their suppliers' suppliers to their customers' customers (that is, channel customers, such as distributors and retailers). 2. They pursue tangible outcomes - focused on revenue growth, asset utilization, and cost.
Supply Chain Evolution 2010s
Automation
Elements of the Supply Chain Production
Based on a production plan, the raw materials are moved to the production area. The finished products ordered by the customer are manufactured using the raw materials purchased from suppliers. After the items have been completed and tested, they are stored back in the warehouse prior to delivery to the customer.
Societal Roles - Protect Cultural Freedom & Development Defending Human Freedom
Citizens of a country depend on military logistics to defend their way of life from those who seek to end it. Military logisticians strategically locate aircraft, ships, tanks, missiles and other weapons in positions that provide maximum security to soldiers and other citizens. Also, superior logistics performance yields military victory. For example, the B2 Stealth Bomber is able to deliver bombs to target without being detected by enemy radar.
Societal Roles - Protect Cultural Freedom & Development Protects Delivery of Necessities
Citizens of a country depend on supply chain managers to design and operate food, medicine, and water supply chains that protect products from tampering. Sophisticated packaging techniques, state-of-the-art surveillance cameras, global positioning systems, and RFID inventory tracking are some of the methods used to deter terrorists from accessing these vital logistics systems.
1990
Computer changed the way business is done.
Supply Chain Evolution 1980s
Consolidation
2000-
Currently concepts like e-commerce and digital TV are beginning to take shape.
Business Impact - Boost Customer Service Right Delivery Time
Customers expect products to be delivered on time. For instance, customers will be upset if pizza delivery is two hours late or Christmas presents are delivered on December 26th.
Business Impact - Boost Customer Service Right After Sale Support
Customers expect products to be serviced quickly. For example, when a home furnace stops operating in the winter, customers will demand repair in minutes or hours not days!
Business Impact - Boost Customer Service Right Product Assortment and Quantity
Customers expect the correct product assortment and quantity to be delivered.
Seven Principles of SCM Principle 2
Customize the logistics network to the service requirements and profitability of customer segments.
Seven Principles of SCM Principle 4
Differentiate product closer to the customer and speed conversion across the supply chain
1621
Dutch West India Co. formed to trade with America and West Africa. (A pseudo third party logistics (3PL) by the Dutch Companies.)
Business Impact - Improve Financial Position Increases Profit Leverage
Firms value supply chain managers because they help control and reduce supply chain costs. This can result in dramatic increases in firm profits. For instance, U.S. consumers eat 2.7 billion packages of cereal annually, so decreasing U.S. cereal supply chain costs just one cent per cereal box would result in $13 million dollars saved industry wide as 13 billion boxes of cereal flowed through the improved supply chain over a five year period.
Business Impact - Improve Financial Position Increases Cash Flow
Firms value supply chain managers because they speed up product flows to customers. For example, if a firm can make and deliver a product to a customer in 10 days rather than 70 days, it can invoice the customer 60 day sooner.
Societal Roles - Ensure Human Survival SCM Helps Sustain Human Life
Humans depend on supply chains to deliver basic necessities such as food and water. Any breakdown of these delivery pipelines quickly threatens human life. For example, in 2005 Hurricane Katrina flooded New Orleans, LA leaving the residents without a way to get food or clean water. As a result, a massive rescue of the inhabitants had to be made. During the first weekend of the rescue effort, 1.9 million meals and 6.7 million liters of water were delivered
Societal Roles - Ensure Human Survival SCM Improves Human Healthcare
Humans depend on supply chains to deliver medicines and healthcare During a medical emergency, supply chain performance can be the difference between life and death. For example, medical rescue helicopters can save lives by quickly transporting accident victims to hospitals for emergency medical treatment. In addition, the medicines and equipment necessary for treatment will be available at the hospital as a result of excellent supply chain execution.
1981
IBM outsourced almost all of its activities and built a full computer.
1980
In the last phase, companies realized that the productivity could be increased significantly by managing relationships, information and material flow across enterprise borders. This resulted in the present concept of supply chain management.
Year 1995
Integrated Supply Chain
Supply Chain Evolution 1990s
Integration
The Forrester Effect
J. Forrester's Industrial Dynamics (1961)
Year 1990
Lean Supply Chain
Seven Principles of SCM Principle 3
Listen to market signals and align demand planning accordingly across the supply chain, ensuring consistent forecasts and optimal resource allocation.
1990s - Integration
Logistics
Seven Principles of SCM Principle 5
Manage sources of supply strategically to reduce the total cost of owning materials and services.
Business Impact - Reduce Operating Cost Decreases Total Supply Chain Cost
Manufacturers and retailers depend on supply chain managers to design networks that meet customer service goals at the least total cost. Efficient supply chains enable a firm to be more competitive in the market place. For example, Dell's revolutionary computer supply chain approach involved making each computer based on a specific customer order, then shipping the computer directly to the customer. As a result, Dell was able to avoid having large computer inventories sitting in warehouses and retail stores which saved millions of dollars. Also, Dell avoided carrying computer inventories that could become technologically obsolete as computer technology changed rapidly.
Supply Chain Uncertaintities
Matching supply and demand is difficult - Lead Times - Yields - Transportation Times - Natural Disasters - Component Availability
1980s - Consolidation
Materials Management - Warehousing - Materials Handling - Packaging Physical Distribution
Societal Roles - Improve Quality of Life Foundation for Economic Growth
Societies with a highly developed supply chain infrastructure (modern interstate highway system, vast railroad network, numerous modern ports and airports) are able to exchange many goods between businesses and consumers quickly and at low cost. As a result, the economy grows. In fact, the one thing that poor nations have in common is no or a very poorly developed supply chain infrastructure.
2000s - Value Capture
Supply Chain Management - Information Technology - Marketing/Sales - Strategic Planning - Finance
Societal Roles - Improve Quality of Life Opportunity to Decrease Energy Use
Supply chain activities involve both human and product transportation. As a by product of these activities, scarce energy is depleted. For example, currently transportation accounts for 30% of world energy use and 95% of global oil consumption. As designers of the network, supply chain professionals have the role of developing energy-efficient supply chains that use fewer resources.
Societal Roles - Improve Quality of Life Opportunity to Decrease Pollution
Supply chain activities require packaging and product transportation As a by product of these activities, some unwanted environmental pollutants such as cardboard waste and carbon dioxide fuel emissions are generated. For example, paper and paperboard accounted for 34% of U.S. landfill waste in 2005. Only 50% of the 84 million tons of paper and paperboard waste were recycled. Also, carbon dioxide emissions from transportation accounted for 33$ of total U.S. CO2 emissions in 2005. As designers of the network, supply chain professionals are in a key position to develop more sustainable processes and methods.
SCM Processes Distribution
The move process manages the logistical flow of goods across the supply chain. Transportation companies, third-party logistics firms, and others ensure that goods are flowing quickly and safely toward the point of demand
Societal Roles - Improve Quality of Life Job Creation
Supply chain professionals design and operate all of the supply chains in a society and manage transportation, warehousing, inventory management, packaging and logistics information. As a result, there are many jobs in the supply chain field. For example, in the U.S. logistics activities represent 9.9% of all dollars spent on goods and services in 2006. This translates into 10,000,000 U.S. logistics jobs.
Elements of the Supply Chain Customer
The customer starts the chain of events when they decide to purchase a product that has been offered for sale by a company. The customer contacts the sales department of the company, which enters the sales order for a specific quantity to be delivered on a specific date. If the product has to be manufactured, the sales order will include a requirement that needs to be fulfilled by the production facility.
SCM Processes Customer Interface
The demand process revolves around all the issues that are related to planning customer interactions, satisfying their needs, and fulfilling orders perfectly.
1975-1990
The earlier approach changed. Companies began migrating from an inventory push to a customer pull channel as power began to move the downstream to the customer.
1960-1975
The essence of SCM understood. This first phase is characterized as an inventory 'push' era that focused primarily on physical distribution of finished
SCM Processes Production
The make process involves the manufacture, conversion, or assembly of materials into finished goods or parts for other products. Supply chain managers provide production support and ensure that key materials are available when needed.
SCM Processes Planning
The plan process seeks to create effective long and short range supply chain strategies. From the design of the supply chain network to the prediction of customer demand, supply chain leaders need to develop integrated supply chain strategies.
Elements of the Supply Chain Purchasing
The purchasing department receives a list of raw materials and services required by the production department to complete the customer's orders. The purchasing department sends purchase orders to selected suppliers to deliver the necessary raw materials to the manufacturing site on the required date
Elements of the Supply Chain Inventory
The raw materials are received from the suppliers, checked for quality and accuracy and moved into the warehouse. The supplier will then send an invoice to the company for the items they delivered. The raw materials are stored until they are required by the production department.
Elements of the Supply Chain Planning
The requirement triggered by the customer's sales order will be combined with other orders. The planning department will create a production plan to produce the products to fulfill the customer's orders. To manufacture the product the company will then have to purchase the raw materials needed.
SCM - University of Tennessee Supply Chain Research Group
The systematic, strategic coordination of the traditional business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole
Year 1980
Traditional Supply Chain
SCM - Military Dictionary
a cross-functional approach to procuring, producing, and delivering products and services to customers
Supply Chain - Jayashanker et al.
a network of autonomous or semi-autonomous business entities collectively responsible for procurement, manufacturing, and distribution activities associated with one or more families of related products
Supply Chain - Ganeshan & Harrison
a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers
Supply Chain - Lee & Bullington
a network of facilities that procure raw materials, transform them into intermediate goods and then final products, and deliver the products to customers through a distribution system
What is supply chain?
a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer
SCM - Council of Supply Chain Management Professionals
encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities; coordination and collaboration with channel partners,; integrates supply and demand management within and across companies an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive and high-performing business model; and it drives the coordination of processes and activities with and across marketing, sales, product design, finance, and information technology
Extended Enterpise
the loosely coupled, self-organizing network of businesses that cooperates to provide product and service offerings
Bullwhip effect Dampening
the tendency of the variance of the replenishment orders to increase as it moves up a supply chain
