CHAPTER 6

Supply Chain Management

MARIA KHAN

Learning outcomes

Identify the main elements of supply chain management and their relationship to the value chain and value networks

Assess the potential of information systems to support supply chain management and the value chain.

Management issues

Which technologies should we deploy for supply chain management and how should they be prioritized?

Which elements of the supply chain should be managed within and beyond the organization and how can technology be used to facilitate this?

Introduction to SCM

SCM is 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

Global Supply Chain Forum (GSCF)

Supplier Manufacturer Distributor Retailer Customer

UpstreamDownstream

Supply Chain Management

Supply chain management (SCM) is the management of the flow of goods.

It includes the movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption.

Interconnected or interlinked networks, channels and node businesses are involved in the provision of products and services required by end customers in a supply chain. 

SCM: Definition

“ Supply chain management has been defined as the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally. “

1. Planning:Advanced planning and schedulingOptimizationDistribution planningCollaborative planning, forecasting and replenishment

2. Sourcing:Indirect or e-procurementDirect material sourcingSupplier relationship management

3. Manufacturing:Product life cycle ManagementEnterprise asset ManagementEnterprise production ManagementSupply-chain controlProduct development Management

4. Management:Supply-chain event ManagementProcess managementSupply-chain visibility

5. Execution:FulfillmentLogistics collaborationTransportation ManagementGlobal trade management

6. Selling:E-commerce platformsCatalog managementOrder managementCustomer-relationship Management.

SCM – some definitions

Supply chain management (SCM):

The coordination of all supply activities of an organization from its suppliers and partners to its customers.

1. Upstream supply chain:

Transactions between an organization and its suppliers and intermediaries, equivalent to buy-side

e-commerce.

SCM – some definitions

2. Downstream supply chain:

Transactions between an organization and its customers and intermediaries, equivalent to sell-side e-commerce.

Members of the supply chain

Members of the supply chain: (a) simplified view, (b) including intermediaries

ECR

ECR is focused on demand management aimed at creating and satisfying customer demand by optimizing product assortment strategies, promotions, and new product introductions. It creates operational efficiencies and costs savings in the supply chain through reducing inventories and deliveries.

Objective and strategies

Objectives and strategies for effective consumer response (ECR)

Using technology to support SCM

Early implementation(1989-1993):

PC-based EDI purchasing system

Electronic trading gateway(1990-1994):

EDI-based but involved a wider range of parties

The move towards Internet commerce (1996 onwards):

Provide a lower-cost alternative to traditional EDI

A history of SCM at BHP Steel

Early implementation(1989-1993):This was a PC-based EDI purchasing

system.

Objectives: reduce data errors to 0 reduce administration costs improve management control reduce order lead time

A history of SCM at BHP Steel

Benefits included: rationalization of suppliers to 12 major partnerships (accounting

for 60% of invoices). 80% of invoices placed electronically by 1990. 7000 items were eliminated from the warehouse, to be sourced

directly from suppliers, on demand. Shorter lead times in the day to day – from 10 days to 26 hours

for items supplied through a standard contract and from 42 days to 10 days for direct-purchase items.

Barriers: Mainly technological. Another significant barrier is the cost in time

and money in the initial set-up. The preliminary expenses and time that arise from the implementation, customization and training can be costly.

Electronic trading gateway 1990-1994

Character Also EDI-based, but involved a wider range of parties

both externally (from suppliers through to customers) and internally (from marketing, sales, finance, purchasing and legal)

Aim Provide a combined upstream and downstream supply

chain solution to bring benefits to all parties

Continued….

Learning's The difficulty of getting customers involved

– only four were involved after 4 years, although an industry-standard method for data exchange was used. This was surprising since suppliers had been enthusiastic adopters.

From 1994, there was no further uptake of this system.

The move towards Internet commerce 1996 onwards

The Internet was thought to provide a lower-cost alternative to traditional EDI for smaller suppliers and customers, through using a lower-cost value-added network. Objectives:

Extend the reach of electronic communications with supply chain partners.

Broaden the type of communications to include catalogue ordering, freight forwarding and customer ordering.

Barriers: The main barriers to implementation at this stage have been

business issues, i.e. convincing third parties of the benefits of integration and managing the integration process.

Continued…. Barriers:

The main barriers to implementation at this stage have been business issues, i.e. convincing third parties of the benefits of integration and managing the integration process.

A typical supply chain (example from The B2B Company)

A simple model of supply chain

Acquisition of resources (inputs)

Transformation (process)

Products and services (outputs)

E-Procurement

The e-procurement value chain consists of indent management, e-Tendering, e-Auctioning, vendor management, catalogue management, Purchase Order Integration, Order Status, Ship Notice, e-Invoicing, e-Payment, and contract management

E-Invoicing

Electronic invoicing is a form of electronic billing.  E-invoicing methods are used by trading partners, such as customers and their suppliers, to present and monitor transactional documents between one another and ensure the terms of their trading agreement are being met. These documents include invoices, purchase orders, debit notes, credit notes, payment terms and instructions and remittance advices. 

What is logistics?

Logistics is the management of the flow of goods between the point of origin and the point of consumption in order to meet some requirements

Used to refer specifically to the management of logistics or inbound and outbound logistics Inbound logistics:

The management of material resources entering an organization from its suppliers and other partners

Outbound logistics:

The management of material resources supplied from an organization to its customers and intermediaries

Push and pull supply chain models

Push and pull approaches to supply chain management

The Value Chain

A model that considers how supply chain activities can add value to products and services to be delivered to the customer

Restructuring the internal value chain

Some weaknesses in the traditional value chain: Most applicable to manufacturing of physical

products

It is a one-way chain involved with pushing products to the customer

Does not emphasize the importance of value networks

Deise et al. (2000) adapted a new model

Two alternative models of the value chain: (a) traditional value chain model (b) revised value chain model

Towards virtual organization

An organization which uses information and communication technology to allow it to operate without clearly defined physical boundaries between different functions; Lack of physical structure Reliance of knowledge Use of communications technology Mobile work Boundary less and inclusive Flexible and responsive

Benefits of applying IS to SCM

Increased efficiency of individual processes: Benefit: Reduced cycle time and cost per order

Reduced complexity of the supply chain Benefit: Reduced cost of channel distribution and

sale

Improved data integration between elements of the supply chain: Benefit: Reduced cost of paper processing

Continued….

Reduced cost through outsourcing: Benefits: Lower costs through price competition

and reduced spend on manufacturing capacity and holding capacity. Better service quality through contractual arrangements?

Innovation: Benefit: Better customer responsiveness.

Benefits of SCM

Better visibility to customers and trading partners

Better business engagement processes

Less human dependency

Productivity improvement

Consistent, secure and reliable data exchange

Shorter cycle times

End to end system feeds expandability to other sites

Benefits to buying company

Increased convenience through 24 hours a day, 7 days a week, 365 days ordering

Increased choice of supplier leading to lower costs

Faster lead times and lower costs through reduced inventory holding

The facility to tailor products more readily

Increased information about products and transactions such as technical data sheets and order histories

IS-supported downstream SCM

Involves selling direct to customers

Operating a strategy of disintermediation by reducing the role of its branches

DELL EXAMPLE

Dell Computer is breaking the boundaries between departments to develop next-generation capabilities in supply chain management. Dell is an excellent example for breaking the boundaries. Dell Computer Corporation is the world’s leading direct computer systems company, with more than 16 000 employees in 33 countries. Dell has completed a supply chain program called DSi2 to rapidly develop next-generation capabilities in supply chain management for the organization.

DELL

The new capabilities are focused on breaking the boundaries between departments through:

. redesigning materials requirements planning (MRP) processes and configuring i2’s Supply Chain Planner (SCP) tool

. enabling collaboration with suppliers regarding forecast and purchase information and configuring i2’s Rhythm Collaboration Planner (RCP) tool

. assimilating and summarizing global demand and supply data from each of Dell’s regions and providing the business community visibility to this much sought-after data

e-commerce and supply chains – breaking down the boundaries 437 automating factory scheduling processes

AMAZON EXAMPLE

Customers of Amazon interact with its website and carry out a number of functions including:

browsing readers’ reviews of books;

reading feature articles about books and authors similar to those found in magazines and newspapers;

searching for details of a book based on information such as the author's name or the title of the book;

browsing the books which are the Amazon bestsellers;

ordering books using credit cards or some other similar payment method;

tracking the progress of an order.

Amazon

Behind the scenes of the Amazon site are a number of conventional functions which are found in all retailing applications, these include:

stock management: keeping track of what books are in stock and ordering titles when stocks become low;

payment management: paying suppliers of books for those that have been delivered;

customer payment management: keeping track of payments made by customers and of payments made by credit card companies and banks which correspond to the customer payments;

delivery: the process of sending books to customers;

market analysis: the process of analyzing sales in order to determine what books to order and which to discount in the future. This analysis occurs at both the customer level and at a temporal level in that customer preferences are processed and the times and dates when they express these preferences are analyzed; for example, in order to answer questions such as what books sell well at Christmas or at Easter?

Top Companies with Best SCM

The 2013 top 25 are: 1    Apple2    McDonald's3    Amazon.com4    Unilever5    Intel6    P&G7    Cisco Systems8    Samsung Electronics9    Coca Cola Company10    Colgate-Palmolive

Top Companies with Best SCM

11    Dell12    Inditex13    Wal-Mart Stores14    Nike15    Starbucks16    PepsiCo17    H&M18    Caterpillar19    3M20    Lenovo Group21    Nestlé22    Ford Motor23    Cummins24    Qualcomm25    Johnson & Johnson

Responsibilities of SCM Manager

Planning delivery timetables Ensuring stores have enough stock Making sure suppliers have enough stock to

meet demand Overseeing the ordering and packaging process Monitoring stock levels Tracking products through depots to make sure

they arrive at their destination Overseeing arrival of shipments

Responsibilities of SCM Manager

material resource planning enterprise resource planning audit and monitor suppliers source components under pressure establish new suppliers monitor and develop existing supply chain initiate and lead cost-saving initiatives negotiate and manage contracts