CHAPTER 2 Supply Chain Management

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 Business Processes Tier 1 Supplier Tier 2 Supplier SUPPLY CHAIN MANAGEMENT Integrating and Managing Processes Across the Supply Chain Logistics Purchasing Marketing & Sales R&D Customer Consumer/ End-user CUSTOMER RELATIONSHIP MANAGEMENT CUSTOMER SERVICE MANAGEMENT DEMAND MANAGEMENT ORDER FULFILLMENT MANUFACTURING FLOW MANAGEMENT PROCUREMENT PRODUCT DEVELOPMENT AND COMMERCIALIZATION RETURNS PRODUCT FLOW Production Finance Manufacturer Information Flow 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

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 Figure 2-2

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 1. Who are the key supply chain members with whom to link processes? 3. What level of integration and management should be applied or each process link? 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

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 Issues Affecting Channel Structure

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 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 Customer Relationship Management Procurement Fulfillment Customer Service Management Manufacturing Flow Management Demand Management Customer Source: 3M 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.