Module 1: Supply Chain

Management Fundamentals
 Module 1 Contents

• Section A: Overview of Supply Chain

Management
• Section B: Supply Chain Management
Strategy
• Section C: Managing the Supply Chain
• Section D: Improving the Supply Chain

© 2007 APICS, Version 1.2 1-2

APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Learning Objectives

• Define and illustrate the supply chain as a concept.

• Define supply chain management as a concept and
provide examples.
• Describe the evolution of supply chain management
globally and within companies.
• Identify and describe key supply chain processes.
• Identify ways in which supply chain management
creates value.

© 2007 APICS, Version 1.2 1-3

APICS Certified Supply Chain Professional
1A: Overview of Supply Chain Management
Identifying Supply Chains
Basic supply chain
Three entities and four flows
Information flow

Reverse product flow

Supplier Producer Customer

Primary Primary
product product
flow flow
Primary cash flow
© 2007 APICS, Version 1.2 1-4
APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Identifying Supply Chains

Basic supply chain: three entities

Supplier Producer Customer

Raw materials Products Retailer

Components Power Wholesaler
Services Professional services Distributor
Energy Government services End user
Educational services

© 2007 APICS, Version 1.2 1-5

APICS Certified Supply Chain Professional
1A: Overview of Supply Chain Management
Identifying Supply Chains
Basic supply chain: four flows
Information flow
Invoices, sales lit., specs, blueprints,
receipts, orders, rules and regs, etc.
Primary cash flow

Payments for products, supplies, etc.

Primary product flow

Material, components, supplies,
services, energy, finished products
Reverse product flow
Returns for repair, replacement,
recycling, disposal, etc.

© 2007 APICS, Version 1.2 1-6

APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Identifying Supply Chains

Supply chain example:

lemonade stand

Suppliers’ Suppliers Producer Retailer Customer

Growers Corner Mom Kids Consumers

grocery
Miners
Utilities
Utilities
Builders
Manufacturers
Other
merchants
© 2007 APICS, Version 1.2 1-7
APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Identifying Supply Chains
Manufacturing supply chain model
Information flow
Tier 2 materials
supplier Tier 1 materials
Customer
supplier
Tier 2 materials Distributor
supplier
Customer
Tier 2 service Tier 1 materials Manufacturer
supplier supplier
Customer
Tier 2 materials
supplier
Distributor
Tier 1 service
supplier Customer
Tier 2 service
supplier Primary product flow Primary cash flow
© 2007 APICS, Version 1.2 1-8
APICS Certified Supply Chain Professional
1A: Overview of Supply Chain Management
Identifying Supply Chains
Services also have supply chains
Fuel supplies

Other
Electric backup
utilities
power

Electric
Electric Home
transformers
Power customers
Utility
Facility
maintenance
Commercial
customers
Programming
services

Janitorial
services © 2007 APICS, Version 1.2 1-9
APICS Certified Supply Chain Professional
1A: Overview of Supply Chain Management
Identifying Supply Chains
Summing up
• Supply chains
– Stretch from raw materials to consumers
– Include various entities and processes
– Run in reverse as well as toward end user
– Contain cash, product, and information
flows
– Connect to outside stakeholders.
© 2007 APICS, Version 1.2 1 - 10
APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Identifying Supply Chains

Discussion question
An auto manufacturer that buys directly from a utility
company, carburetor builder, textile company, and sheet
metal producer would have how many tiers of suppliers?
a. One
b. Two
c. Three
d. Four

Answer: a
© 2007 APICS, Version 1.2 1 - 11
APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Key Supply Chain Management Processes

Supply chain processes

P1 P2 P3 P4 P5 Pn

Raw End
Materials Suppliers Producers Distributors Retailers
Users

© 2007 APICS, Version 1.2 1 - 12

APICS Certified Supply Chain Professional
1A: Overview of Supply Chain Management
Key Supply Chain Management Processes

Beware of conflicting definitions

Suppliers
Logistics
Supply chain = Purchasing
Operations
Operations + Purchasing

© 2007 APICS, Version 1.2 1 - 13

APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Key Supply Chain Management Processes

Value chain primary activities and

the supply chain

Suppliers Inbound Outbound Marketing Customer Customers

logistics Operations logistics and sales service

Value Chain Support Activities

Infrastructure
Human resources
Technology
Procurement
© 2007 APICS, Version 1.2 1 - 14
APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Key Supply Chain Management Processes

APICS definition of supply chain management

The design, planning, execution, control, and
monitoring of supply chain activities with the
objective of
• Creating net value
• Building a competitive infrastructure
• Leveraging worldwide logistics
• Synchronizing supply with demand
• Measuring performance globally.
© 2007 APICS, Version 1.2 1 - 15
APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Key Supply Chain Management Processes

SCOR® SC reference model

Plan

Plan Plan Plan Plan

Deliver Source Make Deliver Source Make Deliver Source

Return
Source Make Deliver
Return Return Return Return Return

Suppliers’ Return Return Customer’s

Supplier Supplier Customer
Customer
Internal or External Internal or External
Your Company

Source: Supply-Chain Council (SCC)

© 2007 APICS, Version 1.2 1 - 16

APICS Certified Supply Chain Professional
1A: Overview of Supply Chain Management
Key Supply Chain Management Processes

SCOR’s limits
• Does apply to all customer interactions,
product transactions, and market
interactions

• Does not (yet) apply to sales and marketing,

R&D, product development, postdelivery
customer support
© 2007 APICS, Version 1.2 1 - 17
APICS Certified Supply Chain Professional
1A: Overview of Supply Chain Management
Key Supply Chain Management Processes

Five SCOR processes

Plan Demand/Supply Planning and Management

Source Sourcing Stocked, Make-to-Order, and Engineer-to-Order

Product

Make Make-to-Stock, Make-to-Order, and Engineer-to-Order

Product Execution
Order, Warehouse, Transportation, and Installation
Deliver Management for Stocked, Make-to-Order, and Engineer-
to-Order Product

Return Return of Raw Materials and Receipt of Returns of

Finished Goods
© 2007 APICS, Version 1.2 1 - 18
APICS Certified Supply Chain Professional
1A: Overview of Supply Chain Management
Key Supply Chain Management Processes

Discussion question
In which SCOR process would payments move in the
opposite direction of primary supply chain cash flows?
a. Source
b. Make
c. Return
d. Deliver

Answer: c

© 2007 APICS, Version 1.2 1 - 19

APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Evolution of Supply Chain Management
Two types of supply chain management
Vertical Integration Lateral (Horizontal) Integration
Degree to which a firm directly controls Coordinated management of separately
multiple links in the supply chain from owned links in the supply chain;
raw material extraction to retail sales “outsourcing”

Retail sales Raw Production

Components Distribution Retail
materials sales
extraction Products
Distribution Services

Production components/
products/services

Raw materials extraction

© 2007 APICS, Version 1.2 1 - 20

APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Evolution of Supply Chain Management
Vertical integration
Henry Ford’s integrated company: Benefits of vertical integration
Ownership, management,
marketing/sales, finance No dealing with competitors
for supplies, etc.
Showroom Customer
Customer
Enhanced visibility into
Distribution operations
Control
Plant Primary Same ownership and
materials/ management for all activities
Components product flow in supply chain
Raw materials

© 2007 APICS, Version 1.2 1 - 21

APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Evolution of Supply Chain Management
Lateral integration
Information flows

Raw Components Plant Distribution Showroom Customers

materials

Primary product flows Primary cash flows

Benefits of lateral integration

Economies of scale and scope
Improved business focus
Improved expertise
© 2007 APICS, Version 1.2 1 - 22
APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Evolution of Supply Chain Management
Stages of SCM evolution
1: Multiple 2: Semifunctional 3: Integrated 4: Extended
Dysfunction Enterprise Enterprise Enterprise
• Impulsive • Mostly manual ops • New focus on • Process integration
activity • Inventory reduction in process across entity
• Pep talks, owned facilities • Internal process boundaries
threats • New low-price integration • Eventual electronic
• No teamwork purchasing strategies • MRP/ERP information
• Little • Some hard-skills • Intranets, etc., connections among
information training, job across functions multiple partners
exchange enhancement • Design teams • ERP-to-ERP links
• Enhanced marketing • Enhanced • E-commerce
and forecasting warehousing, • Supply chain vs.
• No coordination of logistics, supply chain
initiatives forecasting, etc. competition
© 2007 APICS, Version 1.2 1 - 23
APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Evolution of Supply Chain Management

Stage 3: integrated enterprise

ERP
Customers
Suppliers

Suppliers Purchasing Logistics Production R&D Marketing/ Distribution Customers

control sales

Suppliers Customers

Materials/products/ Payments
services

© 2007 APICS, Version 1.2 1 - 24

APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Evolution of Supply Chain Management

Stage 4: extended enterprise

Networked information flow

Suppliers’ Internal Customers’

Suppliers Customers
suppliers chain customers

Materials/products/
Payments
services

© 2007 APICS, Version 1.2 1 - 25

APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Evolution of Supply Chain Management

Discussion question
If a firm uses a logistics supplier to integrate with
external members and internally combines warehousing
and transportation to optimize costs, it has evolved to at
least
a. Stage 1: dysfunctional enterprise.
b. Stage 2: semifunctional enterprise.
c. Stage 3: integrated enterprise.
d. Stage 4: extended enterprise.

Answer: c
© 2007 APICS, Version 1.2 1 - 26
APICS Certified Supply Chain Professional
1A: Overview of Supply Chain Management
Creating Value through SC Management

Supply chain
values
• Financial value
• Customer value
• Social value (for
community, You can’t satisfy all
environment, etc.) the stakeholders all
the time.
© 2007 APICS, Version 1.2 1 - 27
APICS Certified Supply Chain Professional
1A: Overview of Supply Chain Management
Creating Value through SC Management

Financial value
• Potentially self-defeating tradeoffs
(e.g., cost cutting without net gain)
• “It takes money to make money” (such
as investments in upgrades)
• Distribution of net gains (with all
stakeholders in mind)
© 2007 APICS, Version 1.2 1 - 28
APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Creating Value through SC Management
Customer value

Quality, affordability, availability, service:

As one goes up, others tend to go down.

Availability Service Quality Affordability Quality

Quality Quality Availability Availability Service

Affordability Availability Affordability Quality Affordability

Service Affordability Service Service Availability

© 2007 APICS, Version 1.2 1 - 29

APICS Certified Supply Chain Professional
 1A: Overview of Supply Chain Management
Creating Value through SC Management

Social value
Making Avoiding
positive negative
contributions effects

• Social/cultural • Environmental impacts of

implications extraction, logistics,
• Public and military distribution, etc.
impact • Impact of laws and regulations
• Effects on jobs, • Reduce, reuse, recycle
taxes, economy (reverse supply chain)
© 2007 APICS, Version 1.2 1 - 30
APICS Certified Supply Chain Professional
1A: Overview of Supply Chain Management
Creating Value through SC Management

Discussion question
Which of the following is most likely to increase long-
term net financial value for a supply chain firm?
a. Reinvesting profits in research and infrastructure
upgrades
b. Channeling SC cost savings into end-user
discounts
c. Use of market leverage to force down supplier
costs
d. Large-scale layoffs and plant closings

Answer: a
© 2007 APICS, Version 1.2 1 - 31
APICS Certified Supply Chain Professional
1A: Overview of Supply Chain Management
Topic Review

• Identifying supply chains

• Key supply chain management
processes
• Evolution of supply chain management
• Creating value through supply
chain management
© 2007 APICS, Version 1.2 1 - 32
APICS Certified Supply Chain Professional