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Supply Chain Management

Supply Chain Management Supply Chain: the sequence of organizations - their facilities, functions, and activities - that are involved in... thumbnail 1 summary

Supply Chain Management

Supply Chain: the sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or service.

Supply Chain eliminate non value added steps or work, become more competitive than the ones they are competing against.

Traditionally, marketing, planning, manufacturing, and distribution are the main business processes for a purchasing organizations where the supply chain operated independently. These organizations have their own vision and objectives which are often conflict to each other. Marketing's objective of high customer service and maximum sales dollars conflict with manufacturing (production) and distribution goals. Many manufacturing operations are designed to maximize throughput and lower costs with little consideration for the impact on inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very little information beyond historical buying trends and patterns. The result of these factors is that there is not a single, integrated plan for the organization---there were as many plans as businesses. Clearly, there is a need for a mechanism through which these different functions can be integrated to each other. "Supply chain management is a strategy through which such integration can be achieved."

Supply chain management is typically viewed to lie between fully vertically integrated firms, where a single firm, and those own the entire materials flow where each channel member operates freely. Therefore coordination between the various players in the chain is key in its effective management. Cooper and Ellram [1993] compare supply chain management to a well-balanced and well-practiced relay team. Such a team is more competitive when each player knows how to be positioned for the hand-off. The relationships are the strongest between players who directly pass the baton, but the entire team needs to make a coordinated effort to win the race.

Understanding the Process

The term “supply chain” first appeared in literature as an inventory management approach. Commercial businesses had been encountering a demand for greater levels of responsiveness and shorter cycle times for delivery and inventory of goods and services (placing, preparing, storing, and fulfilling orders).

The notion of “the perfect order” required that the supply chain provide non-standardized, quality products quickly and efficiently every time. Since holding of inventories can cost as much as 40% of their value, their efficient management is crucial.
As with any business process, supply chain management can benefit from the principles of reengineering. It is necessary for organizations to have a through understanding of how their existing supply chain works, as well as the processes of their suppliers and the needs of their customers, and to establish a performance measurement system after reengineering has occurred.
When cycle times are reduced, it can mean less inventory, less rework, and less overhead, all of which directly impact an organization's overall cost structure.

“World-class firms have demonstrated superior responsiveness to customer needs through integrated supply chains at about half the cost of their average industry segments.”

Recognizing Interdependencies

Changes in one element of the supply chain are likely to affect the cost and/or performance of other processes. For instance, when an airline modifies the way it purchase parts from suppliers, it must consider how those changes might affect mechanics in repair workshops.

Supply Chain Elements

Internal functions
A firm’s internal functions include the different processes used in transforming the inputs provided by the supplier network.
Activities include production scheduling, capacity planning, WIP management, shop floor control, scheduling maintenance and employees, quality control, and cycle time reduction.

Upstream external supply
Purchasing managers. They ensure that the right suppliers are selected, suppliers meet performance expectations, appropriate contractual mechanisms are employed, and good relationships are maintained.
Materials managers. They are responsible for planning, forecasting, and managing material flows between suppliers in the chain.

Downstream external supply
Encompasses all of the distribution channels, processes, and functions that the product passes through on its way to the end customer.
Logistics management involves the management of packaging, storing, transporting, and handling of materials at distribution centers, warehouses, and retail outlets.

Supply Chain Performance Drivers

- Quality
- Cost
- Flexibility
- Velocity
- Customer service

Integrated SCM

- Implementing integrated SCM requires:
- Analyzing the whole supply chain
- Starting by integrating internal functions first
- Integrating external suppliers through partnerships

Possible Supply Chain Objectives

- Reduce costs, improve quality
- Reduce lead time and inventory
- Reduce time to market
- Increase sales
- Improve demand data/forecasting

Principles of Supply Chain Management

Principle of Selective Risk
Logistics systems should be designed so that system performance objectives are directly related to the importance of the product or customer.

Principle of Information Selectivity
Logistics information systems should be designed to produce a focus on actionable and significant events.

Principle of Information Substitution
Systems should be designed to use information in place of other resources whenever possible.

Principle of Transaction Simplification
Systems should be designed to improve the efficiency and effectiveness of transactions.

Principle of Variance Reduction
Systems should be designed to reduce the unplanned variance in the system.

Principle of Inventory Velocity
Systems should be designed to facilitate the flow of inventory from raw material through the end user.

Principle of Postponement
Systems should be designed to delay the commitment of resources for a long as possible.
= Geographic postponement
= Value-added Postponement

Principle of Shared/Shifted Risk
The system should be designed to shift the risk to channel members best able to bear it.

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