CHAPTER 5 The Supply Chain Management Concept

Learning Objectives To learn about supply chains and their management To appreciate the attributes affecting supply chain management implementation To consider potential barriers to supply chain management implementation To examine supply chain integration © 2008 Prentice Hall

The Supply Chain Concept Key Terms Agile supply chain Bullwhip effect Fast supply chain Fourth-party logistics (lead logistics provider) Global Supply Chain Forum (GSCF) model Leagility Lean supply chain Key Terms Partnerships Perfect order Process Classification Framework (PCF) Supply chain Supply chain analytics Supply chain collaboration Supply chain management (SCM) © 2008 Prentice Hall

The Supply Chain Concept Key Terms Supply Chain Operations Reference (SCOR) model Third-party logistics (logistics outsourcing; contract logistics) © 2008 Prentice Hall

Evolution of Supply Chain Management Relatively new concept – rarely mentioned prior to 1990 Recognition grew when value could be found in coordinating various business functions SCM philosophy: Coordinate not only within organizations, but across organizations

About Supply Chains… A supply chain “encompasses all activities associated with the flow and transformation of goods from the raw material stage (extraction), through to the end user, as well as the associated information flows.” Source: Robert B. Handfield and Ernest L. Nichols, Jr., Introduction to Supply Chain Management

Different Supply Chain Configurations: Direct Supply Chain Supplier Organization Customer

Different Supply Chain Configurations: Extended Supply Chain Supplier’s suppliers Supplier Organization Customer Customer’s customers

Different Supply Chain Configurations: Ultimate Supply Chain 3rd Party Logistic Supplier Supplier Organization Customer Ultimate supplier customer Financial Provider Market Research

Supply Chain

Supply Chain Management Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies. CSCMP

Logistics CSCMP (Council of Supply Chain Management Professionals) definition: “Logistics is that part of the Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers’ requirements.” © 2008 Prentice Hall Source: clm1.org

Successful Supply Chains have… Enterprise-to-enterprise point of view Systems approach across all organizations in the supply chain Companies recognize interdependencies Goals and objectives are compatible © 2008 Prentice Hall

SCM Models Models identify business processes that help organizations implement and evaluate processes. Supply Chain Operations Reference (SCOR) - Supply Chain Council Global Supply Chain Forum (GSCF) - Supply Chain Management Institute Process Classification Framework (PCF) - APQC

The Supply-Chain Operations Reference (SCOR) Model Process reference models integrate the well-known concepts of business process reengineering, benchmarking, and process measurement into a cross-functional framework. A Process Reference Model Contains: Standard descriptions of management processes A framework of relationships among the standard processes Standard metrics to measure process performance Management practices that produce best-in-class performance Standard alignment to features and functionality http://supply-chain.org/f/SCOR%2090%20Overview%20Booklet.pdf http://archive.supply-chain.org/galleries/default-file/SCOR%2080%20Overview%20Booklet2.pdf

The Supply-Chain Operations Reference (SCOR) Model SCOR Process Definitions Plan Processes that balance aggregate demand and supply to develop a course of action which best meets sourcing, production, and delivery requirements Source Processes that procure goods and services to meet planned or actual demand Make Processes that transform product to a finished state to meet planned or actual demand Deliver Processes that provide finished goods and services to meet planned or actual demand, typically including order management, transportation management, and distribution management Return Processes associated with returning or receiving returned products for any reason. These processes extend into post-delivery customer support

The Supply-Chain Operations Reference (SCOR) Model http://archive.supply-chain.org/galleries/default-file/SCOR%2080%20Overview%20Booklet2.pdf © 2008 Prentice Hall

The Global Supply Chain Forum (GSCF) Model Customer Relationship Management (CRM) Customer Service Management Demand Management Order Fulfillment Manufacturing Flow Management Supplier Relationship Management Product Development and Commercialization Return Management http://findarticles.com/p/articles/mi_qa3705/is_200501/ai_n13632938/?tag=content;col1

Process Classification Framework (PCF) http://meilleradvisoryservices.com/yahoo_site_admin1/assets/images/APQC-PCF_w-logo.260172250_std.jpg

Process Classification Framework (PCF) http://modelle-frameworks.cw-innovations.de/files/2011/03/American-Productivity-and-Quality-Center-APQC-Process-Classication-Framework-PCF-with-Corporate-Modeler-2.jpg

Attributes Affecting SCM Implementation Customer power Long-term orientation Relational exchanges Transactional exchanges Leveraging technology Enhanced communication across organizations © Pearson Education, Inc. publishing as Prentice Hall

Attributes Affecting SCM Implementation Inventory control Reduction of the bullwhip effect Reduction of inventory in the supply chain Interorganizational collaboration Use of supply chain facilitators © Pearson Education, Inc. publishing as Prentice Hall

Supply Chain Facilitators Third-Party Logistics (3PL) Logistics outsourcing Contract logistics Fourth-party logistics (4PL) primarily used in global companies Lead logistics provider (LLP) Supply chain software © Pearson Education, Inc. publishing as Prentice Hall

Barriers to Supply Chain Management Regulatory and political considerations Lack of top management commitment Reluctance to share, or use, relevant data Incompatible information systems Incompatible corporate cultures Globalization © Pearson Education, Inc. publishing as Prentice Hall

Globalization of Supply Chains Increasing globalization Lower priced materials and labor Global perspective of companies Development of global competition Extremely difficult to execute due to differences Cultural, economic, and technological Political, spatial, and logistical © Pearson Education, Inc. publishing as Prentice Hall

Supply Chain Integration Long-term, mutually beneficial agreements Partnerships Strategic alliances Third-party arrangements Contract logistics Methods used to integrate Vertical integration Formal contracts Informal agreements © Pearson Education, Inc. publishing as Prentice Hall

Case 5-1 Johnson Toy Company Company Facts: Located Biloxi, Mississippi Product Facts: Basic Design Toys: Low profit margin Unconventional Toys: Risky, High profits if popular Jungle Jim the Jogger Market Facts: Seasonal

Case 5-1 Johnson Toy Company Problems at Hand: Popular toy turns into unpopular Production was cancelled Returns without a clear policy Discussions: #1: From the standpoint of an individual concerned with accounting controls, discuss and evaluate Johnson Toy Company’s present policies for handling returned items. #2: Answer question 1, but from the standpoint of an individual interested in marketing.

Case 5-1 Johnson Toy Company Discussions: #3: Propose a policy for handling returns that should be adopted by the Johnson Toy Company. Be certain to list circumstances under which exceptions would be allowed. Should it apply to the Jungle Jim dolls?

Case 5-1 Johnson Toy Company I. HIGH VOLUME CUSTOMERS (defined as purchasing $75,000 of merchandise from Johnson’s per year) A. Functionally damaged goods may be returned to Johnson’s plant at Johnson’s expense with a full refund. B. High volume customers will receive a straight 2% deduction off of the wholesale selling price to cover defectives—whether defectives are classified as cosmetically damaged or slow moving items, except when unable to sell due to special circumstances (see Section III).

Case 5-1 Johnson Toy Company II. LOW VOLUME CUSTOMERS  Functionally damaged goods may be returned to Johnson’s plant via Johnson’s salesperson with a full refund. Low volume customers will NOT receive an automatic deduction for defectives. Instead, the damage or defect must be defined:  Cosmetically damaged goods (classified as functionable and sellable): a 25% discount granted upon inspection by Johnson’s salesperson. Slow moving items: NO RETURNS  Non-moving items (for reasons other than physical damage)

Case 5-1 Johnson Toy Company SPECIAL CIRCUMSTANCES When product is not resellable for reasons other than being functionally damaged or just a slow mover in the off season, such as when the product receives bad press (as in the case of Jungle Jim and Jogger Dolls), Johnson will allow return of all such non-resellable items under the following conditions: Retailer must pay for the returned merchandise to reach Johnson’s plant. Retailer’s account will be credited for the full amount of said purchase. C. Credit is to be used within 30 days of receipt of returned goods at Johnson’s plant; credit will be void after 30 days.

Case 5-1 Johnson Toy Company Discussions: #4: Should this policy, if adopted, be printed and distributed to all of the retailers who handle Johnson Toy Company products? Why or why not? If it should not be distributed to them, who should receive copies? #5: Assume that it is decided to prepare a statement on returns to be distributed to all retailers and that it should be less than a single double-spaced page. Prepare such a statement. #6: On the basis of the policy in your answer to question 3, develop instructions for the Johnson Toy Company distribution and accounting departments with respect to their roles and procedures in the handling of returns.

Case 5-1 Johnson Toy Company Discussions: #7: Assume that you are Cheryl Guridi, the firm’s logistics manager. Do you think that the returns policy favored by the logistics manager would differ from what would be best for the firm? Why or why not? #8: Until the policy you recommend in your answer to question 3 takes effect, how would you handle the immediate problem of retailers wanting to return unsold Jungle Jim the Jogger dolls?