Chapter 14: Supply Chain Management

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 1

Learning Outcomes
Define the terms supply chain and supply
chain management, and discuss the benefits
LO1 of supply chain management
Discuss the concept of supply chain

integration and explain why each of the six
LO2 types of integration is important
Identify the eight key processes of excellent

supply chain management, and discuss how
LO3 each of these processes impacts the end
customer

Learning Outcomes
Discuss the key strategic decisions supply

LO4
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

Supply Chain Integration
LO2
Discuss the concept of supply

chain integration and explain
why each of the six types of
integration is important.

A key principle of supply chain
management – that multiple firms
System work together to perform tasks as
Approach a single, unified system, rather
than as several individual
companies acting in isolation.
When multiple firms in a supply

chain coordinate their activities
Supply Chain and processes so that they are
Integration seamlessly linked to one another
in an effort to satisfy the
customer.

Relationship Integration
The ability of two or more

companies to develop social
Relationship
connections that serve to guide
Integration
their interactions when working
together.
When each firm in a supply chain

has clarity in terms of knowing
Role which firm is the leader, which
Specificity firms are the followers, and which
responsibilities are assigned to
each firm.

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

Measurement Integration
The performance assessment of
the supply chain as a whole that
Measurement also holds each individual firm or
Integration business unit accountable for
meeting its own goals
An accounting method used in

Activity- measurement integration to assess
Based the costs associated with each
costing (ABC) supply chain activity

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

Technology and Planning Integration
The creation and maintenance of

Technology
information technology systems
and planning
that connect managers across and
integration
through the firms in the supply
chain

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 real-
time
•Supply chain managers need strong internal
communications capability

Material and Service Supplier Integration
The strategic alignment between a

Material and firm and its supply chain materials
Service and services providers that
Supplier enables the firm to streamline work
Integration processes and provide smooth,
high-quality customer experiences.

Internal Operations Integration
Links internally performed work

Internal into a seamless process that
Operations stretches across departmental
Integration and/or functional boundaries, with
the goal of satisfying customer
requirements

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

Customer Integration
A competency that enables firms to
offer long-lasting, distinctive,
Customer value-added offerings to those
Integration customers who represent the
greatest value to the firm or
supply chain
The supply-chain process whereby

ABC customers are placed into groups
Segmentation 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

Customer Integration Drivers
•Understand not all customers are alike

•Should use market segmentation
•Select customer groups for whom to provide
highest levels of service

LO2
Review Learning Outcome

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.

Key Processes

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

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.

Demand Management
Demand Management Process- The

alignment of supply and demand
throughout the supply chain to
anticipate customer requirements
at each level and create demand-
related plans of action prior to
actual customer purchasing
behavior.

Order Fulfillment
Order Fulfillment Process- A

supply chain management process
involves generating, filing,
delivering, and providing on-the-
spot service for customer orders.

Manufacturing Flow Management
Manufacturing Flow Management

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

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.

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.

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.

Key Processes of Supply Chain Management

Strategic Supply Chain Management
Decisions
LO4
Discuss the key strategic

decisions supply chain managers
must make when designing
their companies’ supply chains.

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.

Lean versus Agile Supply Chain Management
38
Copyright 2010 by Cengage Learning Inc. All Rights Reserved
Mapping The Supply Chain

Key Strategic Decisions Supply Managers Must Make

Managing Logistical Components
LO5
Describe the logistical

components of the
supply chain.

Logistical Components of the Supply Chain
Sourcing & Procurement
Logistics Information System

Order Processing
Supply
Inventory Control
Chain
Team
Warehouse & Materials Handling
Transportation
42
Sourcing and Procurement
The Role of Purchasing:
• Plan purchasing strategies
• Develop specifications
• Select suppliers
• Negotiate price and service levels
• Reduce costs
43
Order Processing
Electronic Data Interchange-

Information 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
manufacturer’s or a customer’s
demand.

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.

Inventory Replenishment Example
Sleep Right Mattress

Retail Store
Sleep Right
Distribution Center
ABC Mattress
Wholesaling Company
Great Mattress
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

Criteria for Ranking
Modes of Transportation
Highest Lowest
Relative Air Truck Rail Pipe Water

Cost
Transit Water Rail Pipe Truck Air
Time
Reliability Pipe Truck Rail Air Water
Capability Water Rail Truck Air Pipe
Accessibility Truck Rail Air Water Pipe
Traceability Air Truck Rail Water Pipe

Supply Chain Performance Measurement
LO6
Explain why supply chain

performance measurement
is necessary and important.

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

The Balanced Scorecard Approach

Why is Supply Chain Performance Measurement Important?

Trends in Supply Chain Management
LO7
Discuss new technology

and emerging trends in
supply chain management.

Trends in Supply Chain Management
Globalization of supply chain management
Advanced computer technology
Outsourcing of logistics functions
Electronic distribution

Advanced Computer Technology
• Automatic identification systems
– Bar coding
– Radio frequency technology
• Communications technology
• Supply chain software systems

Outsourcing Logistics Functions
Outsourcing Benefits
• Reduce inventories
• Locate stock at fewer plants and

distribution centers
• Provide same or better levels of service

LO7
Review Learning Outcome
Emerging Trends in Supply Chain Management

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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 1

Discuss the concept of supply chain

Identify the eight key processes of excellent

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 2

Discuss the key strategic decisions supply

LO5 Describe the logistical components of the

LO6 Explain why supply chain performance

LO7 Discuss new technology and emerging trends in

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 3

Define the terms supply chain

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 4

The connected chain of all the

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 5

Supply Chain Management- A

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 6

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 7

Supply chain managers are responsible for

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 8

Supply chain oriented companies

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 9

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 10

Discuss the concept of supply

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 11

When multiple firms in a supply

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 12

The ability of two or more

When each firm in a supply chain

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 13

•High relationship integration allows the entire

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 14

An accounting method used in

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 15

•Managers in all firms and units must

•Firms in supply chain should agree on and

•Must be a widely agreed upon set of supply

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 16

The creation and maintenance of

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 17

Several firm-level and supply chain-level

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 18

The strategic alignment between a

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 19

Links internally performed work

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 20

• Firm should seek to standardize

• Work processes should be simplified

• Process standards should be developed for

• Overall logistical network of firm should be

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 21

The supply-chain process whereby

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 22

•Understand not all customers are alike

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 23

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 24

Identify eight key processes of

Copyright 2010 by Cengage Learning Inc. All Rights Reserved 25