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Chapter 6 Supply Chain Management

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Objectives

1. Understand the concepts of supply chain & supply chain management

2. Understand supply chain management goals3. Appreciate the role of logistics and the difference

between logistics and supply chain management 4. Understand basic concepts of logistics

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1. The Concept of Supply Chain & Supply Chain Management (SCM)

• A supply chain is a set of three or more firms directly linked by one or more of the upstream and downstream flows of products, services, finances, and information from a source to a customer.– Basic supply chain

– Extended supply chain

– Ultimate supply chain

Objective 1

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Basic Supply Chain

SUPPLIER

Sewing shops in Hong Kong

FIRM

Tommy Hilfiger in Hong Kong

May Department Storesin St. Louis

CUSTOMER

Objective 1

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Extended Supply Chain

SUPPLIER

CUSTOMER

SUPPLIER’S SUPPLIER

. . .

CUSTOMER’SCUSTOMER

FIRM

. . .

Yarn suppliers inKorea

Sewing shops in Hong Kong Tommy Hilfiger

in Hong Kong

Lord & Taylorin New York

May Department Stores

in St. Louis

Objective 1

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Ultimate Supply Chain

SUPPLIER

CUSTOMER

ULTIMATE SUPPLIER

. . .

ULTIMATECUSTOMER

FIRM

. . .

FINANCIAL PROVIDER

THIRD PARTY LOGISTICS SUPPLIER

MARKET RESEARCH FIRM

DHL

Hong Kong & Shanghai BankCotton Farmers in Egypt

M/A/R/C

Tommy Hilfiger

Sewing shopsin Hong Kong

May DepartmentStores

Consumers

Objective 1

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Supply Chain Management (SCM)

• Supply Chain Management is 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.

- Council of Logistics Management

• Supply Chain Management integrates supply and demand management within and across companies.

Objective 1

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Supply Chain Management (SCM)

Upstream Suppliers(USX, DuPont)

Direct Suppliers(Johnson Controls, TRW)

Auto Buyers(Consumers)

Auto Makers(Ford, GMC)

Business Marketing

Business Marketing

ConsumerMarketing

Objective 1

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The Supply Chain Model

Note the key elements of supply chain management and the important integration that must take place among a variety of business functions across different organizations in the supply chain.

Objective 1

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2. Supply Chain Goals

• Supply chain goals– Waste reduction, minimize duplication, harmonizing

operations and systems and enhancing quality.

– Time compression, compression of order to delivery cycle time.

– Flexible response, the meeting of customer’s unique requirements in a cost effective manner.

– Unit cost reduction, reduce cost per unit to the end user by first determining the level of performance desired by the customer.

Objective 2

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Information Technology's role in SCM

• Supply chain software/technology– ERP– CPFR– RFID

• Internet

Objective 2

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3. Logistics’ Role in SCM

• Logistics definition: – “Logistics is that part of that supply chain process

that plans, implements, and controls the efficient flow and storage of goods, services, and related information from the point of origin to the point of consumption in order to meet customers’ requirements.”

-- Council of Logistics Management 1998

Objective 3

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Distinguish Logistics and SCM

• SCM is focused on the integration of all business processes

• Logistics is focused on moving and storing activities

Objective 3

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Strategic Role of Logistics

• Historically viewed as a cost center

• Logistics is now regarded as a critical strategic weapon

• Drivers of the increasing strategic role of logistics

1. Business process integration

2. Implementation of JIT

3. Total cost approach

Objective 3

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Business Processes Integration

• Sales-Marketing-Logistics integration– Logistics as a strategic marketing weapon

– Logistics as a critical part of customer service

– Logistics should be an integral part of marketing/corporate strategy

Objective 3

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Just-In-Time Systems

• Originated from Japanese automobile industry

• Goals of JIT1. Minimize inventory costs

2. Improve product quality

3. Maximize production efficiency

4. Provide optimal levels of customer service

Objective 3

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Just-In-Time Systems

• Principle: – requiring the delivery of the specified product at

the precise time, and in the exact quantity needed

• JIT relationship: – Less suppliers

– Longer relationship/partnership

Objective 3

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Total-Cost Approach

• Calculating logistics costs– Activity-based costing (ABC)

• Measure costs associated with specific activities

– Total cost of ownership (TCO)• More than acquisition costs

• Also include costs of subsequent use

Objective 3

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4. Understanding Logistics:Logistics Management in a Firm’s Generic Value

Chain

Source: Michael E. Porter (1985), Competitive Advantage, p. 46

Objective 4

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Basic Logistics Functions

• ___________– Public vs. contract vs. private

• ___________– Speed– Consistency

• ____________– Buffer against uncertainties – Objective: eliminate inventories– Use 80/20 Rule– Anticipatory vs. responsive forecasting

Objective 4

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Understanding Logistics -Common Elements of Logistics Service

Objective 4

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An Important Consideration in Logistics

• Two important variables in logistics:– Total logistics costs– The level of customer service

• There is a tradeoff between these two– Example: making deliveries by air

• The key is to find the balance– Find what customer needs

• Use 80/20 Rule

– Meet customer needs at lowest possible costs

Objective 4

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Third-Party Logistics (3PL)

• 3PL definition: outsourcing all or many of a firm’s logistics operations to a specialized company.

- Council of Logistics Management

• Perform a wide range of logistics functions – Ex. Ryder, Caterpillar Logistics. Etc

• 4PLs manage 3PLs

Objective 4

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Third-Party Logistics (3PL)

• Reasons to use 3PL– Cost reduction– Focus on core competencies– Improve customer service– Flexibility– Reduced capital investment– Access to new market

Objective 4