1. The Supply Chain Management Concept
CHAPTER 5
The Supply Chain Management Concept

2. Learning Objectives
To learn about supply chains and how the network of inter-organizational relationships is managed
To understand differences between prevalent supply chain process frameworks
To consider potential enablers of supply chain management implementation

3. Learning Objectives
To consider potential barriers to supply chain management implementation
To understand optional approaches for supply chain integration

4. The Supply Chain Management Concept Key Terms
Agile supply chain
Bullwhip effect
Contract logistics
Fast supply chain
Fourth-party logistics (lead logistics provider)
Global Supply Chain Forum (GSCF) model
Leagility
Lean supply chain
Perfect order

5. The Supply Chain Management Concept Key Terms
Relational exchanges
SCOR model
Supply chain
Supply chain analytics
Supply chain collaboration
Supply chain management
Supply chain partnership
Third-party logistics (logistics outsourcing)
Transactional exchanges

6. 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

7. Evolution of Supply Chain Management
A supply chain can be liberally viewed as a combination of processes, functions, activities,
relationships, and pathways along which products, services, information, and financial transactions move in and between enterprises from original producer to ultimate end-user or consumer.1
1John Gattorna, “Supply Chains Are the Business,” Supply Chain Management Review 10, no. 6 (2006): 42–49.

8. Evolution of Supply Chain Management

9. Evolution of Supply Chain Management
Supply Chains
Some are more complex than others
Typically more difficult to coordinate complex supply chains
Complex supply chains may include 3PL providers
Customers are an integral component regardless of complexity level

10. Logistics Versus Supply Chain Management
Logistics activities are part of managing one’s supply chain
Includes sourcing, procuring, and manufacturing
Need to work with multiple parties, including suppliers, 3PL providers, and end customers

11. Logistics Versus Supply Chain Management
SCM has a leading role for connecting business functions and business processes internally and across companies
SCM is inclusive of logistics management activities
Logistics managers can contribute to the success and benefit from involvement in SCM

12. SCM Process Frameworks
Two prominent models
Supply Chain Operations Reference (SCOR) Model
Global Supply Chain Forum (GSCF) Model
A primary distinction between the models is the degree of cross-functional involvement prescribed by each:
GSCF involves all business functions
SCOR model is focused on the logistics, operations, and procurement functions

13. Six Processes in the Supply Chain Operations Reference (SCOR) Model

14. Eight Processes in the Global Supply Chain Forum (GSCF) Model

15. Logistics and GSCF Model
Logistics considerations such as on-time pickup and delivery could arise within the order fulfillment process as well as being monitored by the customer service management process

16. Logistics and GSCF Model
Logistics function can contribute to customer relationship management and supplier relationship management processes in terms of outbound or inbound material flow being part of a product and service agreement with a key customer or supplier

17. Enablers of SCM Implementation
Customer power
Relationship structure
Leveraging technology
Supply chain facilitators

18. Customer Power Information is power
Customer has gained tremendous power over buying decisions
Internet allows the consumer to become highly knowledgeable about:
An individual organization and its
Competing organizations and their products

19. Customer Power and SCM Implications
Customer needs and wants can change relatively quickly therefore supply chains are increasingly required to be fast and agile
Fast supply chain emphasizes a speed and time component
Agile supply chain focuses on an organization’s ability to respond to changes in demand with respect to volume and variety

20. Customer Power and SCM Implications
Traditional supply chains
Factory-driven, push oriented
Focused on internal cost metrics (measures) such as labor costs and freight costs
Customer-centric supply chains
Pull-oriented
Concerned with metrics that take a more holistic perspective

21. Customer Power and SCM Implications
Perfect order
Simultaneous achievement of relevant customer metrics such as on-time delivery, damage free and correct order quantity
Examines the total impact of an incorrect order in a single metric via a multiplier effect
Metric has been shown to help diagnose problems within a supply chain and improve satisfaction
Look at orders from the customer’s perspective

22. Customer Power and SCM Implications
Leagility (lean + agility)
Hybrid approach that combines aspects of both lean and agile
Way to focus part of one’s supply chain on a timely response to fluctuating customer orders and/or product variety and another part of the supply chain on leveling out the planning requirements to smooth production output

23. Customer Power and SCM Implications
Lean supply chains
Focus on reducing the so-called bullwhip effect, which is characterized by variability in demand orders among supply chain members
One aspect of inventory control that could be influenced by a lean approach is to move from a pattern of stops and starts to a continuous flow
Achieve a better-controlled flow of inventory with lower levels of expensive inventory “lumps”

24. Customer Power and SCM Implications
Can reduce the amount of inventory in the supply chain through the use of:
Smaller, more frequent orders
Premium transportation
Demand-pull versus supply-push replenishment
Elimination or consolidation of slower-moving product
Reduced inventory may increase susceptibility to natural disasters

25. Relationship Structures
Companies should consider employing a long-term as opposed to a short-term orientation with key supply chain members:
Suppliers
Customers,
Intermediaries
Facilitators

26. Relationship Structures
Long-term orientation tends to be predicated on relational exchanges
“What’s in it for us?” philosophy
Short-term orientation tends to focus on transactional exchanges
“What’s in it for me?” philosophy ?

27. Relationship Structures
Attributes of relational exchange:
Trust
Commitment
Dependence
Joint Investment
Shared benefits
Information sharing

28. Relationship Structures
Supply chain collaboration refers to cooperative relationships between members of a supply chain—formal or informal—between companies and their suppliers or customers, established to enhance the overall business performance of all parties

29. Relationship Structures
Supply chain collaboration
Can be classified as transactional, tactical information sharing, or strategic in nature
Offers the best opportunity for improving supply chain performance
Transactional and tactical information sharing are currently the most prevalent types of collaboration

30. Relationship Structures

31. Relationship Structures
Supply chain partnership
An example of a strategic collaboration
Defined as a tailored business relationship between two supply chain members
Characteristics include:
High interdependence among the partners
Increased willingness to share information
Compatible goals and mutual trust
Buying decisions based on value as opposed to cost or price

32. Leveraging Technology
Technological advancements in computing and the internet affect the supply chain
Computing power
Supply chains can be complex entities consisting of multiple organizations, processes, and requirements
Can apply mathematical models that maximize shareholder wealth or minimize costs

33. Leveraging Technology
Internet
Commoditizes both goods and services
Allows a supply chain party to have virtually instantaneous visibility to the same data as other parties in the supply chain
Offers the opportunity for supply chains to become more proactive and less reactive
Can translate into lower inventories and improved profitability throughout the supply chain

34. Leveraging Technology
Supply chains depend on huge quantities of real-time information
Retail point-of-sale information can be transmitted directly to suppliers and translated into orders for replenishment of product
Vendors may allow customers to query vendor inventory records to determine what products are in stock and where the stocks are located

35. Leveraging Technology

36. Supply Chain Facilitators
Third-Party Logistics (3PL), also known as logistics outsourcing or contract logistics
Any logistics activity not performed in-house is representative of third-party logistics
Common 3PL activities involve inbound and outbound transportation, carrier negotiation and contracting, and freight consolidation
Well-known 3PL providers include Kuehne and Nagle, Schenker Logistics, and UPS Supply Chain Solutions

37. Supply Chain Facilitators
Fourth-party logistics (4PL) or lead logistics provider (LLP)
Refers to a company whose primary purpose is to ensure that various 3PLs are working toward the relevant supply chain goals and objectives
Need to have the expertise to consider:
Supply chain solutions and potential trade-offs
Make constant objective decisions across a broad set of
value-adding activities
Must be viewed as neutral

38. 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

39. 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

40. 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