CHAPTER 2
Supply Chain
Management
SCM vs Logistics
• Logistics
– deals with the management of material,
service and information flow across the SC
• SCM
– formerly, integrating logistics across the SC
– integrating and managing key business
processes across the SC
SCM vs Logistics
• 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.
• Logistics is a part of supply chain process that plans,
implements and controls the efficient, cost-effective
flow and storage of goods, services, and related
information from point of origin to point of
consumption in order to meet customers’
requirements.
SUPPLY CHAIN MANAGEMENT
Integrating and Managing Processes Across the Supply Chain
Information Flow
Tier 2
Supplier
Manufacturer
Tier 1
Supplier
Customer
Logistics
Marketing & Sales
Purchasing
Production
Consumer/
End-user
PRODUCT FLOW
Finance
R&D
Supply Chain Business Processes
CUSTOMER RELATIONSHIP MANAGEMENT
CUSTOMER SERVICE MANAGEMENT
DEMAND MANAGEMENT
ORDER FULFILLMENT
MANUFACTURING FLOW MANAGEMENT
PROCUREMENT
PRODUCT DEVELOPMENT AND COMMERCIALIZATION
RETURNS
Source: Douglas M. Lambert, Martha C. Cooper, Janus D. Pagh, “Supply Chain Management: Implementation Issues and Research Opportunities”, The International Journal
of Logistics Management, Vol. 9, No. 2, 1998, p. 2.
Figure 2-1
IMPLEMENTATION OF SUPPLY CHAIN MANAGEMENT
Typical
Functions
Silos
Business
Processes
S
U
P
P
L
I
E
R
S
Customer
Relationship
Management
Sales &
Marketing
Account
Management
Account
Customer Service
Management
Administration
Technical
Logistics
Requirements Requirements
Definition
Definition
Sourcing
Strategy
Customer
Profitability
Priority
Assessment
Cost
To Serve
Tradeoff
Analysis
Coordinated
Execution
Capability
Planning
Sourcing
Plant
Direct
Selected
Supplier(s)
Distribution
Cost
Production
Planning
Integrated
Supply
Manufacturing
Cost
Integrated
Planning
Supplier
Management
Materials
Cost
Process
Specifications
Material
Specifications
R & D Cost
Process
Requirements
Network
Planning
Fulfillment
Special
Orders
Environmental
Requirements
Distribution
Management
Product
Development and
Commercialization
Manufacturing
Strategy
Performance
Specifications
Demand
Planning
Procurement
Finance &
Purchasing Accounting
Technical
Service
Demand
Management
Manufacturing Flow Packaging
Management
Specifications
Manufacturing
Process
Stability
Order
Booking
Material
Specifications
Business
Plan
Product
Design
Prioritization
Criteria
Inbound
Flow
Movement
Requirements
C
U
S
T
O
M
E
R
S
Information Architecture, Data Base Strategy, Information Visibility
Note: Process sponsorship and ownership must be established to drive the attainment of the supply chain vision and eliminate the functional barriers that
artificially separate the process flows.
Customer Relationship Management
• Customer service teams develop and implement
customer partnering programs.
• New customer interfaces lead to improved
communication and better predictions of
customer demand and improve the way
customers are serviced.
• Teams identify and eliminate sources of
production variability.
• Key performance evaluation criteria (both level of
service and customer profitability) are used to
measure results.
Customer Service Management
• Provides a single source of customer information, a
point of contact for administration of the
product/service agreement.
• Conveys real-time information through interface
with product and distribution operations.
• Requires an on-line/real-time product and pricing
information to assist customers with inquiries,
order placement, and after-sales service.
• Includes front line technical service that assists
customers with product applications and
recommendations.
Supply Chain Network Structure
Tier 1
Suppliers
Tier 1
Customers
Tier 2
Customers
1
1
2
2
n
1
1
2
2
Tier 3 to
Consumers/
End-Customers
n
1
n
n
1
2
3
n
3
n
1
2
n
n
1
n
Focal Company
1
Members of the Focal Company’s Supply Chain
Figure 2-2
Consumers / End-Customers
Tier 2
Suppliers
Tier 3 to n customers
Tier 3 to n suppliers
Initial Suppliers
Tier 3 to
Initial
suppliers
The SCM Framework
Elements and Key Decisions
2. What processes should be linked
with each of these key
supply chain members?
Supply chain
business
processes
Supply chain
management
components
Supply chain
network
structure
3. What level of integration
and management should be
applied or each process link?
1. Who are the key supply
chain members with whom
to link processes?
Figure 2-3
Supply Chain Network Structure
• Members of SC
– Primary members: retailers,…
– Supporting members: banks,…
– Distinction may not be obvious
Supply Chain Network Structure
• Three structural dimensions
– Horizontal structure: number of tiers
across the SC
• Long with many tiers (or short...)
– Vertical structure: number of firms in a
tier
• Narrow if there are only a few firms
– Horizontal position: Position of focal
company-can be positioned at or near
initial source of supply or the end users
Issues Affecting Channel Structure
• Make versus buy: outsourcing
• Postponement: shifting the risk
- Postponing changes in the form and identity of the product to
the last possible point in the marketing process
- Postponing inventory location to the last possible point in
time
Issues Affecting Channel Structure
• Risk
-economies of large scale production
-reduction in logistics costs
-reduction of stockouts
-reduction of uncertainty
• Local laws
• Social and behavioral variables
• Physical factors: geography, size of market,
concentration of markets
• Technological factors
Issues Affecting Channel Structure
• Type of distribution
-Intensive distribution: chewing gum…
-Selective distribution
-Exclusive distribution
• Seasonality
Issues Affecting Channel Structure
Product characteristics
•
•
•
•
•
•
Value
Technicality
Market acceptance
Substitutability
Bulk
Perishability
Customer service objectives
• Availability
• Order cycle
• Communication
Types of Business Process Links
Types of business process links
•
•
•
•
Managed Process Links
Monitored Process Links
Not-Managed Process Links
Nonmember Process Links
Types of Inter-company
Business Process Links
Tier 1
Suppliers
Tier 1
Customers
Tier 2
Customers
1
1
2
2
n
1
1
2
2
Tier 3 to
Consumers/
End-Customers
n
n
n
1
2
3
3
n
1
n
Managed Process Links
Monitor Process Links
Not-Managed Process Links
Non-Member Process Links
1
n
1
n
1
2
n
n
Tier 3 to n customers
1
Consumers / End-Customers
Tier 2
Suppliers
Tier 3 to n suppliers
Initial Suppliers
Tier 3 to
Initial
suppliers
1
n
Focal Company
Members of the Focal Company’s Supply Chain
Non-Members of the Focal Company’s Supply Chain
Source: Douglas M. Lambert, Martha C. Cooper and Janus D. Pagh, "Supply Chain Management: Implementation
Issues and Research Opportunities,” The International Journal of Logistics Management, Vol. 9, No. 2 (1998), p.7.
Underlying Process Vision
Supply Chain Management Vision
The key to achieving an integrated flow of product and information throughout
the supply chain is to create a focused customer interface, a focused supplier
interface, and an integrated, process-oriented, supply chain which is driven by
the customer.
Customer Relationship
Management
Customer
Service
Management
Fulfillment
Customer
Demand
Management
Procurement
Manufacturing Flow
Management
Source: 3M