CHAPTER 10. SUPPLY CHAIN MANAGEMENT
Main objective : increase core competencies, become flexible and agile.
Requirements for successful SCM: tight integration with suppliers, business partners, distributors and customers.
One method-use of IS.
THE STRUCTURE OF SUPPLY CHAINS
Supply Chain- flow of materials, information, money and services from raw material suppliers, through factories
and warehouses, to end customers. It includes the organization and processes that create and deliver products,
information and services to end customers.
3 segments of supply chain:
I. Upstream: sourcing or procurement of raw materials from external suppliers. Supply chain managers
select suppliers , develop pricing, delivery and payment processes between a company and its suppliers.It
includes management of inventory, receiving and verifying shipments, transferring goods to
manufacturing facilities and authorizing payments to suppliers.
II. Internal:where packaging, assembly, or manufacturing takes place. Managers schedule production,
testing, packagins, preparation for delivery, etc, while monitoring quality levels , production output and
III. Downstream: where distribution takes place, frequently by external distributors. Managers coordinate
receipt of order, develop network of warehouses, select carriers and develop invoicing systems to receive
3 flows in Supply Chain:
i. Material flows: physical products, raw materials, supplies and so forth flow along the chain. Includes
reverse flows/reverse logistics and involves product life cycle approach.
ii. Information flow: data that are related to demand, shipments, orders, returns, and schedules, as well as
changes in data. There are two types:
Information flow that replaces materials flow
One that provides supporting information
iii. Financial Flows: money transfers, payments, credit card information and authorization, payment
schedules, e-payments, and credit-related data. Bidirectional- reverse logistics for damanaged or
Supply Chain- physical , that means products
Or intangible- service, information, digitization of software, music, and other content.
Purpose of Supply chain:
Improve trust and collaboration among supply chain partners
Improves - supply chain visibility: ability for all organizations in a supply chain to access or view relevant data on
purchased materials as they move through their suppliers’ production processes and transportation networks
to their receiving docks, plus organization can access or view data on outbound goods.
- inventory velocity: time between the receipt of incoming goods and dispatch of finished, outbound
products.more velocity, quicker delivery, more customer satisfaction.
PROBLEMS ALONG THE SUPPLY CHAIN AND THEIR SOLUTIONS
Ineffective supply chain-> poor customer service, high inventory cost and loss of revenues.
Not delivering goods and services to individuals and businesses on time , at the right quantity and or poor quality.
Two sources of problems in supply chain:
- Uncertainties: major source is demand forecast, delivery time( depends on production machine failures to
road constructions), quality problems in materials-delay production and supply.
- The need to coordinate several activities, internal units, and business partners.
Major challenges managers face:
- Setting accurate inventory levels throughout the supply-chain is known as the bullwhip effect( erratic
shifts in orders up and down the supply chain due to change in demand brought about by different factors
magnified) which is often a result of push production model (production process begins with a forecast
eg. Customer demand, then production of forecasted products in forecasted quantity by mass production
and pushes or sells it to customers) in supply chain
- If forecasted demand is too high, excess production will increase carrying costs and loss in terms of
discounts given to sell off excess.
- If forecasted demand is too low, unmet production increase extra cost in the form of overtime cost and
loss of propective customers.
- Another problem is implementation of wrong business model.
SOLUTIONS TO SUPPLY CHAIN PROBLEMS
Ryder systems , large trucking company of 1970s, oil crisis- error in choosing optimal method for supply chain
Vertical integration: business strategy in which a company buys its upstream suppliers to ensure that its essential
supplies are available as soon as they are needed.
Using Inventories to solve supply chain problems: