Chapter 1

INTRODUCTION TO
SUPPLY CHAIN MANAGEMENT

1. GENERALIZE SUPPLY CHAIN

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 EVOLUTION OF SUPPLY CHAIN MANAGEMENT

Further
Refinement of
SCM Capabilities

SCM
Formation/
Extensions

JIT, TQM, BPR,

Alliances

Inventory Management/Cost
Optimization

Traditional Mass Manufacturing

1950s 1960s 1970s 1980s 1990s 2000s Beyond

WHAT IS A SUPPLY CHAIN?

David Simchi-Levi et.al., 2009

Flow of products and services from:

• Raw materials manufacturers
• Intermediate products manufacturers
• End product manufacturers
• Wholesalers and distributors and
• Retailers
• Connected by transportation and storage activities
• Integrated through information, planning, and
integration activities
• Cost and service levels

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 What Is Supply Chain Management?

• Supply chain management is a set of approaches

utilized to efficiently integrate suppliers,
manufacturers, warehouses, and stores, so that
merchandise is produced and distributed at the right
quantities, to the right locations, and at the right
time, in order to minimize system wide costs while
satisfying service level requirements.

What Is Supply Chain Management?

• A typical supply chain is a chain operation such as:

raw materials are procured, products are produced,
shipped to warehouses, and then shipped to
retailers or customers (David Simchi-Levi et al.,
2000)

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 What Is Supply Chain Management?

• Felix et al. (2003) SC system integrates all operations

and departments through suppliers, inbound
logistics, core manufacturer, outbound logistics,
marketing and sales, and end customers

•  “SCM” ＞“Logistic”!

What Is Supply Chain Management?

• Stadtler (2002; 2005) built the house of SCM and

mentioned to the SC planning matrix (Meyr et al.,
2002) which related business functions:
procurement, production, transportation and
distribution, and sales

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 What Is Supply Chain Management?

Competitiveness
Customer service
Integration: Coordination:

Choice of partners Use of information

and communication
Network organization and technology
inter-organizational
collaboration Process orientation

Leadership Advanced planning

Foundation:
Logistics, marketing, operations research, organizational theory,
purchasing and supply…
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Fig. House of SCM (Stadtler, 2002; 2005)

What Is Supply Chain Management?

• “Fierce competition in today’s global market, the

introduction of products with short life cycles, and
the heightened expectations of customers have
forced business enterprises to invest in, and focus
attention on, their supply chains” (David Simchi-Levi
et al., 2000). Therefore, supply chain management
(SCM), now, is very important role in business
activities!

• Emphasize on the role of SCM.

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 SUPPLY CHAIN

Purchasing Manufacturing Distributing

Suppliers Raw materials Factories Warehouse/ Retailers/

storage customers

Fig. Typical Supply Chain

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SUPPLY CHAIN

procurement production distribution sales

long-term
Strategic Network planning

mid-term
Master Planning Demand
Planning
Purchasing Production Distribution
& Planning Planning
Material
short-term Demand
Requirements
Scheduling Transport fulfillment
Planning
Planning

Fig. Software modules covering the Supply Chain planning matrix (Meyr et al., 2002)
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 SUPPLY CHAIN MANAGEMENT

Supply chain management is concerned with the

efficient integration of suppliers, factories,
warehouses and stores so that merchandise is
produced and distributed:
•In the right quantities

•To the right locations

•At the right time

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WHAT IS SUPPLY CHAIN MANAGEMENT?

• Supply chain management is a set of approaches

utilized to efficiently integrate suppliers, manufacturers,
warehouses, and stores, so that merchandise is
produced and distributed at the right quantities, to the
right locations, and at the right time, in order to minimize
system wide costs while satisfying service level
requirements.

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 TWO OTHER FORMAL DEFINITIONS
The design and management of seamless, value-
added process across organizational boundaries
to meet the real needs of the end customer
Institute for Supply Management
Managing supply and demand, sourcing raw
materials and parts, manufacturing and assembly,
warehousing and inventory tracking, order entry
and order management, distribution across all
channels, and delivery to the customer
The Supply Chain Council

THE GOAL OF SUPPLY CHAIN MANAGEMENT

=>What Is the Goal of Supply Chain

Management?

In order to
•Minimize total system cost
•Satisfy customer service requirements

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 Khách hàng:
THE SCM NETWORK nhu cầu
Nhà máy Tổng kho Đại lý

Cung ứng

Chi phí bảo

quản
Chi phí sản Chi phí vận Chi phí vận
xuất / mua chuyển Chi phí chuyển
bảo quản
Fig. The logistics network
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D. Simchi-Levi, P. Kaminshy & E. Simchi-Levi, 1999

Key Observations

• Every facility that impacts costs need to be

considered
• Suppliers’ suppliers
• Customers’ customers
• Efficiency and cost-effectiveness throughout
the system is required
• System level approach
• Multiple levels of activities
• Strategic – Tactical – Operational

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 Other Related Observations

• Supply chain strategy linked to the Development

Chain

• Challenging to minimize system costs and maximize

system service levels

• Inherent presence of uncertainty and risk

THE DYNAMICS OF THE SUPPLY CHAIN

Production Plan Distributor Orders

Retailer Orders
Order Size

Customer
demand

Fig. The Dynamics of the Supply Chain Time

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Tom McGuffry, Electronic Commerce and Value Chain Management, 1998

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 THE DYNAMICS OF THE SUPPLY CHAIN

Practical information for managers

Production Plan
Order Size

Customer
demand

Fig. The Dynamics of the Supply Chain Time

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Tom McGuffry, Electronic Commerce and Value Chain Management, 1998

THE DYNAMICS OF THE SUPPLY CHAIN

What Management Wants…

The plan needs to be achieved by managers
Order Size

Customer
demand

Production Plan

Tom McGuffry, Electronic Commerce and Value Chain Management, 1998

Time
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 2 &3. SUPPLY CHAIN STRUCTURE AND
ITS OPERATION

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STRUCTURE & COMPONENTS

Customers,
Field demand
Sources: Regional Warehouses: centers
plants Warehouses: stocking sinks
vendors stocking points
ports points

Supply

Inventory &
warehousing
costs
Production/
purchase Transportation Transportation
costs costs costs
Inventory &
warehousing 24
D. Simchi-Levi, P. Kaminshy & E. Simchi-Levi, 1999 costs

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 The SCM Network

FIGURE 1.1: The logistics network

STRUCTURE & COMPONENTS

1. (Suppliers):

Suppliers Suppliers

Manufacturing Khách
Suppliers
Plants hàng
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 STRUCTURE & COMPONENTS
2. (Manufacturers):

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STRUCTURE & COMPONENTS

3. (Distributors):

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 STRUCTURE & COMPONENTS

4. (Retailers):

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STRUCTURE & COMPONENTS

5. (Customers/end-users):

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 THE DEVELOPMENT CHAIN

- Product architechture
Plan/Design - Make/buy
- Early supplier involvement

- Strategic partnerships
Source - Supplier (vendor) selection
- Supply contracts

Supply Produce Distribute Sell

D. Simchi-Levi, P. Kaminshy & E. Simchi-Levi, 2008

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The Development Chain

• Set of activities and processes associated with new

product introduction. Includes:

• product design phase

• associated capabilities and knowledge
• sourcing decisions
• production plans

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 The Development Chain

Fig. The enterprise development and supply chain

• Set of activities and processes associated with new product introduction. Includes:
• product design phase
• associated capabilities and knowledge
• sourcing decisions
• production plans

4. The COMPLEXITY in SUPPLY CHAIN

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 Complexity: The Magnitude
• U.S. companies spend more than $1 trillion in supply-related
activities (10-15% of Gross Domestic Product)

• Transportation 58%
• Inventory 38%
• Management 4%
• The grocery industry could save $30 billion (10% of operating
cost) by using effective logistics strategies

• A typical box of cereal spends 104 days getting from factory

to supermarket.

• A typical new car spends 15 days traveling from the factory

to the dealership.

Complexity: The Magnitude

• Compaq computer’s loss of $500 million to $1 billion in sales
in one year

• Laptops and desktops were not available when and where

customers were ready to buy them

• Boeing’s forced announcement of write-downs of $2.6b

• Raw material shortages, internal and supplier parts shortages….

• Cisco’s multi-billion ($2.2b) dollar write-off of inventories in

2001-2002
• Customers balked on orders due to market meltdown

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 Transactional Complexity
National Semiconductors:
• Production:
– Produces chips in six different locations: four in the US, one in
Britain and one in Israel
– Chips are shipped to seven assembly locations in Southeast
Asia.
• Distribution
– The final product is shipped to hundreds of facilities all over the
world
– 20,000 different routes
– 12 different airlines are involved
– 95% of the products are delivered within 45 days
– 5% are delivered within 90 days.

Supply Chain: The Potential

• P&G’s estimated savings to retail customers of $65 million
through logistics gains

• Dell Computer’s outperforming of the competition in terms

of shareholder value growth over more than two decades by
over 3,000% using:
• Direct business model
• Build-to-order strategy

• Wal-Mart transformation into the world’s largest retailer by

changing its logistics system:
• highest sales per square foot, inventory turnover and operating
profit of any discount retailer

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 5. KEY ISSUES IN SC MANAGEMENT

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Uncertainty and Risk Factors

• Forecasting is not a solution

• Demand is not the only source of uncertainty
• Recent trends make things more uncertain
• Lean manufacturing
• Outsourcing
• Off-shoring

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 RULES FOR logistic MANAGERs

6 RULES FOR logistic of the right product

in the right quantity

MANAGERs

the right condition

at the right price

the right customer

at the right cost

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Key Issues in Supply Chain Management

Chain Global Optimization Managing Risk and Uncertainty

Distribution Network Configuration
Supply Y
Inventory Control Supply Y
Production Sourcing Supply Y
Supply Contracts Both Y Y
Distribution Strategies Supply Y Y
Strategic Partnering Development Y
Outsourcing and Offshoring Development Y
Product Design Development Y
Information Technology Supply Y Y
Customer Value Both Y Y
Smart Pricing Supply Y

TABLE 1-1: Key supply chain management issues

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 KEY STRATEGIES FOR SC SUCCESS

Shorter, more predictable supply chains

Add final value to product closer to customer

supply chain success
Key strategies for

Move inventory upstream and out of supply chain

Greater collaboration among supply chain firms

Move to strategic sourcing and supply management

Increased outsourcing of logistics services

Leveraging information technology

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Questions?

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