Chapter 14

Chapter 14: Supply Chain
Management
Prepared by Amit Shah, Frostburg State University
Designed by Eric Brengle, B-books, Ltd.
Copyright 2010 by Cengage Learning Inc. All Rights Reserved
Learning Outcomes
LO1
Define the terms supply chain and supply

chain management, and discuss the benefits
of supply chain management
LO2
Discuss the concept of supply chain

integration and explain why each of the six
types of integration is important
LO3
Identify the eight key processes of excellent

supply chain management, and discuss how
each of these processes impacts the end
customer
Learning Outcomes
LO4
Discuss the key strategic decisions supply

chain managers must make when designing
their companies supply chains
LO5
Describe the logistical components of the

supply chain
LO6
Explain why supply chain performance

measurement is necessary and important
LO7
Discuss new technology and emerging trends in

supply chain management
Supply Chains and Supply Chain

Management
LO1
Define the terms supply chain
and supply chain management,
and discuss the benefits
of supply chain management
Supply Chains
The connected chain of all the

business entities, both internal
and external to the company,
that perform or support the
logistics functions.
Supply Chains
Supply Chain Management- A
management system that
coordinates and integrates all
of the activities performed by
supply chain members into a
seamless process, from the
source to the point of
consumption, resulting in
enhanced customer and
economic value.
Supply Chains
Supply Chain Managers

Supply chain managers are responsible for
Making strategic decisions
Management of information through supply
chain
Coordinating relationships between
company and external partners
Benefits of Supply Chain

Management
Supply chain oriented companies
commonly report:
Lower inventory, transportation,
warehousing, and packaging costs
Greater supply chain flexibility
Improved customer service
Higher revenues
Increased profitability
LO1
Review Learning Outcome

Supply Chain Management
10
Supply Chain Integration

LO2
Discuss the concept of supply
chain integration and explain
why each of the six types of
integration is important.
11

System
System
Approach
Approach
Supply
Supply Chain
Chain
Integration
Integration
A
A key
key principle
principle of
of supply
supply chain
chain
management
management that
that multiple
multiple firms
firms
work
work together
together to
to perform
perform tasks
tasks as
as
aa single,
single, unified
unified system,
system, rather
rather
than
than as
as several
several individual
individual
companies
companies acting
acting in
in isolation.
isolation.
When
When multiple
multiple firms
firms in
in aa supply
supply
chain
chain coordinate
coordinate their
their activities
activities
and
and processes
processes so
so that
that they
they are
are
seamlessly
seamlessly linked
linked to
to one
one another
another
in
in an
an effort
effort to
to satisfy
satisfy the
the
customer.
customer.
12
Relationship Integration
Relationship
Relationship
Integration
Integration
Role
Role
Specificity
Specificity
The
The ability
ability of
of two
two or
or more
more
companies
companies to
to develop
develop social
social
connections
connections that
that serve
serve to
to guide
guide
their
their interactions
interactions when
when working
working
together.
together.
When
When each
each firm
firm in
in aa supply
supply chain
chain
has
has clarity
clarity in
in terms
terms of
of knowing
knowing
which
which firm
firm is
is the
the leader,
leader, which
which
firms
firms are
are the
the followers,
followers, and
and which
which
responsibilities
responsibilities are
are assigned
assigned to
to
each
each firm.
firm.
13
Relationship Integration
High relationship integration allows the entire
supply chain to perform at a higher level
Tend to be managed by formal or informal
social guidelines
Tend to be open to information sharing across
firm/business unit boundaries
Tend to practice equitable risk/reward sharing
14
Measurement Integration
Measurement
Measurement
Integration
Integration
The performance assessment of

the supply chain as a whole that
also holds each individual firm or
business unit accountable for
meeting its own goals
ActivityBased
costing (ABC)
An accounting method used in

measurement integration to assess
the costs associated with each
supply chain activity
15
Measurement Integration
Managers in all firms and units must
conduct functional assessments
Firms in supply chain should agree on and
commit to principles of ABC
Must be a widely agreed upon set of supply
chain metrics that are standards
16
Technology and Planning Integration
Technology
and planning
integration
The creation and maintenance of

information technology systems
that connect managers across and
through the firms in the supply
chain
17
Technology and Planning

Integration
Several firm-level and supply chain-level
capabilities must be developed
Firms in supply chain must become experts at
information management
Packets of information must be available in realtime
Supply chain managers need strong internal
communications capability
18
Material and Service Supplier Integration
Material and
Service
Supplier
Integration
The strategic alignment between a

firm and its supply chain materials
and services providers that
enables the firm to streamline work
processes and provide smooth,
high-quality customer experiences.
19
Internal Operations Integration
Internal
Operations
Integration
Links internally performed work

into a seamless process that
stretches across departmental
and/or functional boundaries, with
the goal of satisfying customer
requirements
20
Internal Operations
Integration
Five distinct groups of activities:
Firm must become cross-functionally unified

Firm should seek to standardize
operations/work processes
Work processes should be simplified
Process standards should be developed for
internal benchmarks
Overall logistical network of firm should be
reconfigured
21
Customer Integration
Customer
Customer
Integration
Integration
ABC
Segmentation
A competency that enables firms to

offer long-lasting, distinctive,
value-added offerings to those
customers who represent the
greatest value to the firm or
supply chain
The supply-chain process whereby
customers are placed into groups
A, B, and C according to their
overall long-term value to the firm
and to the extent to which the firm
can serve their desires
22
Customer Integration Drivers

Understand not all customers are alike
Should use market segmentation
Select customer groups for whom to provide
highest levels of service
23
LO2

24
Key Processes of Supply Chain

Management
LO3
Identify eight key processes of
excellent supply chain
management, and discuss
how each of these processes
impacts the end customer.
25
Key Processes
26
Customer Relationship Management

Customer Relationship
Management Process - The
prioritization of a firms marketing
focus on different customer
groups long-term value to the
company or supply chain;
designed to identify and
build relationships with good
customers.
27
Customer Service Management
Customer Service Management

Process- A multi-company, unified
response system to the customer
whenever complaints, concerns,
questions, or comments are voiced;
designed to ensure that customer
relationships remain strong.
28
Demand Management
Demand Management Process- The
alignment of supply and demand
throughout the supply chain to
anticipate customer requirements
at each level and create demandrelated plans of action prior to
actual customer purchasing
behavior.
29
Order Fulfillment
Order Fulfillment Process- A

supply chain management process
involves generating, filing,
delivering, and providing on-thespot service for customer orders.
30
Manufacturing Flow Management
Manufacturing Flow Management

Process - A process that ensures
that firms in the supply chain have
the resources they need.
31
Supplier Relationship Management
Supplier Relationship Management

Process - A supply chain
management process that supports
manufacturing flow by identifying
and maintaining relationships
with highly valued suppliers.
32
Product Development and

Commercialization
Product Development and
Commercialization Process- The
group of activities that facilitates
the joint development and
marketing of new offerings among
a group of supply chain partner
firms.
33
Returns Management
Returns Management Process- A
Process that enables firms to
manage volumes of returned
product efficiently, while
minimizing costs and maximizing
the value of the returned assets
to the firms in the supply chain.
34
LO3 Review Learning Outcome

Key Processes of Supply Chain Management
35
Strategic Supply Chain Management

Decisions
LO4
Discuss the key strategic
decisions supply chain managers
must make when designing
their companies supply chains.
36
Supply Chain Management

Lean Supply Chain Management The strategy
that focuses primarily on
the removal of waste from the supply chain to
achieve the lowest total cost to
the members of the supply chain system.
Agile Supply Chain Management The supply chain
strategy that focuses primarily on
the ability of the firm to fulfill customer demand,
even if this means somewhat higher costs.
37
Lean versus Agile Supply Chain

Management
38
Mapping The Supply Chain
39
LO4 Review Learning Outcome

Key Strategic Decisions Supply Managers Must Make
40
Managing Logistical Components

LO5
Describe the logistical
components of the
supply chain.
41
Logistical Components of the Supply

Chain
Supply
Chain
Team
LogisticsInformation
Information System
System
Logistics
Sourcing
Sourcing&& Procurement
Procurement
Order
OrderProcessing
Processing
Inventory
InventoryControl
Control
Warehouse
Warehouse&&Materials
MaterialsHandling
Handling
Transportation
Transportation
42
Sourcing and Procurement

The
The Role
Role of
of Purchasing:
Purchasing:
Plan purchasing strategies

Develop specifications
Select suppliers
Negotiate price and service levels
Reduce costs
43
Order Processing
Electronic Data InterchangeInformation technology that
Replaces paper documents that
accompany business transactions
With electronic transmission
Of the information.
http://www.walmartstores.com
Online
44
Inventory Control
Inventory Control System- A method

of developing and maintaining an
adequate assortment of
materials or products to meet a
manufacturers or a customers
demand.
45
Inventory Control
Materials Requirement Planning
(MRP) - An inventory control system
that manages the replenishment of
raw materials, supplies, and components
from the supplier to the manufacturer.
Distribution Resource Planning (DRP) An inventory control system that manages
the replenishment of goods from the
manufacturer to the final consumer.
46
Inventory Replenishment
Example
Sleep
SleepRight
RightMattress
Mattress
Retail
RetailStore
Store
Sleep
SleepRight
Right
Distribution
DistributionCenter
Center
ABC
ABCMattress
Mattress
Wholesaling
WholesalingCompany
Company
Great
GreatMattress
Mattress
Company
Company
MRP
47
Materials Handling Functions

Receive goods into
warehouse
Identify, sort, and label
goods
Dispatch the goods to
temporary storage
Recall, select, or pick the
goods for shipment
48
Transportation
Airways
Water
Pipelines
Motor Carriers
Railroads
49
Transportation Mode Choice
Cost
Transit time
Reliability
Capability
Accessibility
Traceability
50
Criteria for Ranking

Modes of Transportation
Lowest
Highest
Relative
Cost
Air
Truck
Rail
Pipe
Water
Transit
Time
Water
Rail
Pipe
Truck
Air
Reliability
Pipe
Truck
Rail
Air
Water
Capability
Water
Rail
Truck
Air
Pipe
Accessibility Truck
Rail
Air
Water
Pipe
Traceability
Truck
Rail
Water
Pipe
Air
51
Supply Chain Performance Measurement

LO6
Explain why supply chain

performance measurement
is necessary and important.
52
Supply Chain Performance

Measurement
A good metric is characterized by five qualities:
Creates understanding of strategic objectives
and tactical plans
Promotes behaviors that are consistent with
achieving these objectives
Allows for recording of actual results/outcomes
Allows companies to compare themselves to
competitors and customer expectations
Motivates continuous improvement
53
The Balanced Scorecard

Approach
54
LO6
Why is Supply Chain Performance Measurement
Important?
55
Trends in Supply Chain Management

LO7
Discuss new technology
and emerging trends in
supply chain management.
56
Trends in Supply Chain

Management
Globalization
Globalization of
of supply
supply chain
chain management
management
Advanced
Advanced computer
computer technology
technology
Outsourcing
Outsourcing of
of logistics
logistics functions
functions
Electronic
Electronic distribution
distribution
57
Advanced Computer
Technology
Automatic identification systems
Bar coding
Radio frequency technology
Communications technology
Supply chain software systems
58
Outsourcing Logistics
Functions
Outsourcing
OutsourcingBenefits
Benefits
Reduce inventories
Locate stock at fewer plants and
distribution centers
Provide same or better levels of
service
59
LO7
Emerging Trends in Supply Chain Management
60

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Chapter 14: Supply Chain

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Define the terms supply chain and supply

Discuss the concept of supply chain

Identify the eight key processes of excellent

Discuss the key strategic decisions supply

Describe the logistical components of the

Explain why supply chain performance

Discuss new technology and emerging trends in

Supply Chains and Supply Chain

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

The connected chain of all the

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Supply Chain Managers

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Benefits of Supply Chain

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Review Learning Outcome

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Supply Chain Integration

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Supply Chain Integration

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

The performance assessment of

An accounting method used in

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Technology and Planning Integration

The creation and maintenance of

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Technology and Planning

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Material and Service Supplier Integration

The strategic alignment between a

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Internal Operations Integration

Links internally performed work

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Five distinct groups of activities:

Firm must become cross-functionally unified

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

A competency that enables firms to

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Customer Integration Drivers

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Review Learning Outcome

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Key Processes of Supply Chain

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Customer Relationship Management

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Customer Service Management

Customer Service Management

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Order Fulfillment Process- A

Copyright 2010 by Cengage Learning Inc. All Rights Reserved

Manufacturing Flow Management