Supply Chain Management Chapter 1 INTRODUCTION TO SUPPLY

Supply Chain Management: Chapter 1 INTRODUCTION TO SUPPLY CHAIN MANAGEMENT Prepared by Mark A. Jacobs, Ph. D © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

LEARNING OBJECTIVES You should be able to: • Describe a supply chain and define supply chain management. • Describe the objectives and elements of supply chain management. • Describe local, regional, and global supply chain management activities among services and manufacturing companies. • Describe a brief history and some of the trends of supply chain management. • Understand how the bullwhip effect impacts supply chain members. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 2

CHAPTER OUTLINE • Introduction • Supply Chain Management Defined • The Importance of Supply Chain Management • The Origins of Supply Chain Management in the U. S. • The Foundations of Supply Chain Management • Some Current Trends in Supply Chain Management © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3

What is a Supply Chain? A supply chain consists of the flow of products and services from: § § § Raw materials manufacturers Component and intermediate manufacturers Final product manufacturers Wholesalers and distributors and Retailers Connected by transportation and storage activities, and Integrated through information, planning, and integration activities Many large firms are moving away from in-house Vertically Integrated structures to Supply Chain Management © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 4

What is a Supply Chain? (continued) © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 5

What is Supply Chain Management? 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 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 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 6

What is Supply Chain Management? (continued) • 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. • New paradigm - Firm in a supply chain focuses activities in its area of specialization and enters into voluntary and trust-based relationships with supplier and customer firms. § 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 now deal with reverse logistics to handle returned products, warranty repairs, and recycling. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 7

Importance of Supply Chain Management Firms have discovered value-enhancing and long term benefits Who benefits most? Firms with: § § Large inventories Large number of suppliers Complex products Customers with large purchasing budgets How do they benefit? § Lower purchasing and inventory costs § Improved quality § Higher levels of customer service © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 8

Importance of Supply Chain Management (continued) Firms using Supply Chain Management: 1. Start with key suppliers 2. Move on to other suppliers, customers, and shippers 3. Integrate second tier suppliers and customers (second tier refers to the customer’s customers and the supplier’s suppliers) © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 9

Importance of Supply Chain Management (continued) Cost savings and better coordination of resources are reasons to employ Supply Chain Management § Reduced Bullwhip Effect - the magnified reduction of safety stock costs based on coordinated planning and sharing of information § Collaborative planning, forecasting, and replenishment activities reduce the Bullwhip Effect and lead to better customer service, lower inventory costs, improved quality, reduced cycle time, better production methods, and other benefits. © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 10

Origins of Supply Chain Management 1950 s & 1960 s U. S. manufacturers focused on mass production techniques as their principal cost reduction and productivity improvement strategies 1960 s-1970 s Introduction of new computer technology lead to development of Materials Requirements Planning (MRP) and Manufacturing Resource Planning (MRPII) to coordinate inventory management and improve internal communication © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 11

Origins of Supply Chain Management (continued) 1980 s & 1990 s Intense global competition led U. S. manufacturers to adopt: § § Supply Chain Management (SCM) Just-In-Time (JIT) Total Quality Management (TQM) Business Process Reengineering (BPR) © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 12

Origins of Supply Chain Management (continued) 2000 s and Beyond Companies will focus on relationships, sustainability, and social responsibility Companies will focus on improving supply chain capabilities with initiatives such as: § Third-party service providers (3 PLs) § Integrating logistics § Using transportation to facilitate rapid response © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 13

Origins of Supply Chain Management (continued) © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 14

Supply The Foundations of Supply Chain Management Supply base rationalization, supplier alliances, SRM, global sourcing, ethics and sustainability Operations Demand management, CPFR, MRP, ERP, inventory visibility, lean systems, Six Sigma quality systems Logistics management, customer relationship management, network design, RFID, global supply chains, sustainability, service response logistics Integration Risk and security management, performance measurement, green supply chains © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 15

The Foundations of Supply Chain Management Supply Elements: (continued) § 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 carbon footprint © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 16

Important Elements of Supply Chain Management Operations Trends: (continued) § Demand management - match demand to available capacity § 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 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 17

Important Elements of Supply Chain Logistics. Management Trends: (continued) § Transportation management - tradeoff decisions between cost & timing of delivery / customer service via trucks, rail, water & air § 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 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 18

Important Elements of Supply Chain Management (continued) Integration Trends: § 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 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 19

Current Trends in Supply Chain Management Expanding the Supply Chain § U. S. 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 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 20

Current Trends in Supply Chain Management (continued) 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 © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 21

Current Trends in Supply Chain Management (continued) The GREENING of Supply Chains – Producing, packaging, moving, storing, delivering and other supply chain activities can be harmful to the environment • Supply chains will work harder to reduce environmental degradation • Large majority (75%) of U. S. consumers influenced by a firm’s environmental friendliness reputation • Recycling and conservation are a growing alternative in response to high cost of natural resources © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 22

Current Trends in Supply Chain Management (continued) Reducing Supply Chain Costs § Cost reduction achieved through: • • Reduced purchasing costs Reducing waste Reducing excess inventory, and Reducing non-value added activities § Continuous Improvement through • Benchmarking - improve over competitors’ performance • Trial & error • Increased knowledge of supply chain processes © 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23