SUPPLY CHAIN MANAGEMENT take into account plant capacities, workload

balancing, quality control, and equipment

- Arose in the late 1980s and came into
maintenance.
widespread use in the 1990s.
2. Inventory - The primary purpose of inventory
DEFINITION
is to act as a buffer against uncertainty in the
“A supply chain is the alignment of firms that supply chain.
bring products or services to market.”- From
3. Location - Where should facilities for
Lambert, Stock, and Ellram.
production and inventory storage be located?
“A supply chain consists of all stages involved, Where are the most cost efficient locations for
directly or indirectly, in fulfilling a customer production and for storage of inventory?
request. The supply chain not only includes the
4. Transportation -Air-freight and truck delivery
manufacturer and suppliers, but also
are generally fast and reliable but they are
transporters, warehouses, retailers, and
expensive. Shipping by sea or rail is much less
customers themselves.”- from Chopra and
expensive but usually involves longer transit
Meindl
times and more uncertainty
“A supply chain is a network of facilities and
5. Information - Timely and accurate
distribution options that performs the
information holds the promise of better
functions of procurement of materials,
coordination and better decision making.
transformation of these materials into
intermediate and finished products, and the
distribution of these finished products to
HOW THE SUPPLY CHAIN WORKS
customers.” - from Ganeshan and Harrison
1. Production (Two Approaches to
Manufacturing)
LOGISTIC vs. SUPPLY CHAIN MANAGEMENT
Product Focus - A factory that takes a product
LOGISTICS - refers to activities that occur within focus performs the range of different
the boundaries of a single organization and operations required to make a given product
supply chains refer to networks of companies line from fabrication of different product parts
that work together and coordinate their actions to assembly of these parts.
to deliver a product to market.
Functional Focus - A functional approach
SUPPLY CHAIN MANAGEMENT - Supply chain concentrates on performing just a few
management acknowledges all of traditional operations such as only making a select group
logistics and also includes activities such as of parts or only doing assembly. These functions
marketing, new product development, finance, can be applied to making many different kinds
and customer service. of products.

Companies in any supply chain must make -

decisions individually and collectively
2. Functional Focus - A functional approach
regarding their actions in five areas:
concentrates on performing just a few
1. Production - This activity includes the operations such as only making a select group
creation of master production schedules that of parts or only doing assembly. A functional
approach results in expertise about particular accuracy, then the only inventory that would be
functions instead of expertise in a given needed would be cycle inventory.
product.
3. Seasonal Inventory - This is inventory that is
Three Main Approaches to use in Warehousing built up in anticipation of predictable increases
in demand that occur at certain times of the
1. Stock Keeping Unit (SKU) Storage - In this
year
traditional approach, all of a given type of
product is stored together. This is an efficient -
and easy to understand way to store products.
4. LOCATION - Location refers to the
2. Job Lot Storage - In this approach, all the geographical site of supply chain facilities. It
different products related to the needs of a also includes the decisions related to which
certain type of customer or related to the needs activities should be performed in each facility.
of a particular job are stored together. This The responsiveness versus efficiency tradeoff
allows for an efficient picking and packing here is the decision whether to centralize
operation but usually requires more storage activities in fewer locations to gain economies
space than the traditional SKU storage of scale and efficiency, or to decentralize
approach. activities in many locations close to customers
and suppliers in order for operations to be more
3. Crossdocking - An approach that was
responsive
pioneered by Wal-Mart in its drive to increase
efficiencies in its supply chain. In this approach, There are six basic modes of transport that a
product is not actually warehoused in the company can choose from
facility.
1. Ship - which is very cost efficient but also the
- slowest mode of transport. It is limited to use
between locations that are situated next to
3. INVENTORY - Inventory is spread throughout
navigable waterways and facilities such as
the supply chain and includes everything from
harbors and canals.
raw material to work in process to finished
goods that are held by the manufacturers, 2. Rail - which is also very cost efficient but can
distributors, and retailers in a supply chain. be slow. This mode is also restricted to use
between locations that are served by rail lines.
There are three basic decisions to make
regarding the creation and holding of 3. Pipelines - which can be very efficient but are
inventory: restricted to commodities that are liquids or
gases such as water, oil, and natural gas.
1. Cycle Inventory - This is the amount of
inventory needed to satisfy demand for the 4. Trucks - which are a relatively quick and very
product in the period between purchases of the flexible mode of transport. Trucks can go almost
product. Companies tend to produce and to anywhere. The cost of this mode is prone to
purchase in large lots in order to gain the fluctuations though, as the cost of fuel
advantages that economies of scale can bring. fluctuates and the condition of roads varies.

2. Safety Inventory - Inventory that is held as a 5. Airplanes - which are a very fast mode of
buffer against uncertainty. If demand transport and are very responsive. This is also
forecasting could be done with perfect the most expensive mode, and it is somewhat
limited by the availability of appropriate airport DISTRIBUTORS - Distributors are companies
facilities. that take inventory in bulk from producers and
deliver a bundle of related product lines to
6. Electronic Transport - which is the fastest
customers. Distributors are also known as
mode of transport and is very flexible and cost
wholesalers. They typically sell to other
efficient. However, it can only be used for
businesses and they sell products in larger
movement of certain types of products such as
quantities than an individual consumer would
electric energy, data, and products composed of
usually buy. Distributors buffer the producers
data such as music, pictures, and text.
from fluctuations in product demand by
- stocking inventory and doing much of the sales
work to find and service customers.
5. INFORMATION - Information is the basis
upon which to make decisions regarding the RETAILERS - Retailers stock inventory and sell in
other four supply chain drivers. It is the smaller quantities to the general public. This
connection between all of the activities and organization also closely tracks the preferences
operations in a supply chain. and demands of the customers that it sells to. It
advertises to its customers and often uses some
Information is used for two purposes in any combination of price, product selection, service,
supply chain: and convenience as the primary draw to attract
1. Coordinating daily activities related to the customers for the products it sells.
functioning of the other four supply chain CUSTOMERS - Customers or consumers are any
drivers: production; inventory; location; and organization that purchases and uses a product.
transportation. The companies in a supply chain A customer organization may purchase a
use available data on product supply and product in order to incorporate it into another
demand to decide on weekly production product that they in turn sell to other
schedules, inventory levels, transportation customers. Or a customer may be the final end
routes, and stocking locations. user of a product who buys the product in order
2. Forecasting and planning to anticipate and to consume it.
meet future demands. Available information is SERVICE PROVIDERS - These are organizations
used to make tactical forecasts to guide the that provide services to producers, distributors,
setting of monthly and quarterly production retailers, and customers. Service providers have
schedules and timetables. developed special expertise and skills that focus
on a particular activity needed by a supply
chain. Because of this, they are able to perform
KEY CONCEPT OF SUPPLY CHAIN these services more effectively and at a better
PARTICIPANTS IN THE SUPPLY CHAIN price than producers, distributors, retailers, or
consumers could do on their own. Some
PRODUCERS - Producers or manufacturers are common service providers in any supply chain
organizations that make a product. This includes are providers of transportation services and
companies that are producers of raw materials warehousing services.
and companies that are producers of finished
goods.
ALIGNING THE SUPPLY CHAIN WITH BUSINESS
STRATEGY

STEPS IN ALIGNING THE SUPPLY CHAIN WITH

BUSINESS STRATEGY

1. Understand the market that your company

serves;

2. Define the strengths of your company and

the role the company could play in serving the
market;

3. Develop the needed supply chain

capabilities to support the roles your company
has chosen

Chopra and Meindl have defined the following

attributes that help to clarify requirements for
the customers you serve.

The quantity of the product needed in each lot

The response time that customers are willing to

tolerate

The variety of products needed

The service level required

The price of the product

The desired rate of innovation in the product