Introduction to Supply Chain Management

Review this introduction to supply chain management to explore the elements of the process, including suppliers, manufacturers, distributors, and retailers. Each of these is involved in getting goods to consumers when they want them and at a cost that is agreeable to all parties.


Supply Chain Management

Definition: Supply Chain Management is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements.

Notice:

  • Who is involved
  • Cost and Service Level
  • It is all about integration


Conflicting Objectives in the Supply Chain

  1. Purchasing
    • Stable volume requirements
    • Flexible delivery time
    • Little variation in mix
    • Large quantities
  2. Manufacturing
    • Long run production
    • High quality
    • High productivity
    • Low production cost
  3. Warehousing
    • Low inventory
    • Reduced transportation costs
    • Quick replenishment capability
  4. Customers
    • Short order lead time
    • High in stock
    • Enormous variety of products
    • Low prices


Today's Supply Chain Challenges

  • Global supply chain with long lead times
  • Rising and shifting customer expectations
  • Increase in labor costs in developing countries
  • Increase in logistics costs

Increase in Logistics Costs


  • Rising energy prices
  • Rail capacity pressure
  • Truck driver shortage
  • Security requirements


Total US Logistics Costs 1984 to 2007 ($ Billions)


Today's Supply Chain Challenges

  • Global supply chain with long lead times
  • Rising and shifting customer expectations
  • Increase in labor costs in developing countries
  • Increase in logistics costs
  • Importance of sustainability
  • Unprecedented Volatility

Unprecedented Volatility


In 2008 the price of oil changed 5% or more from its previous close on 39 days making it the most volatile year since 1990.


Supply Chain: The Magnitude

  • It is estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies.
    • A typical box of cereal spends 104 days getting from factory to supermarket.
    • A typical new car spends 15 days traveling from the factory to the dealership.
  • Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them.
  • Boeing Aircraft, one of America's leading capital goods producers, was forced to announce write downs of $2.6 billion in October 1997.
    The reason? "Raw material shortages, internal and supplier parts shortages..".

Supply Chain: The Potential

  • Procter & Gamble estimates that it saved retail customers $65 million through logistics gains over the past 18 months.
    "According to P&G, the essence of its approach lies in manufacturers and suppliers working closely together manufacturers and suppliers working closely together .... jointly creating business plans to eliminate the source of wasteful practices across the entire supply chain".
  • Dell Computer has outperformed the competition in terms of shareholder value growth over the eight years period, 1988-1996, by over 3,000% using
    • Direct business model
    • Build-to-order strategy.

In 10 years,, Wal-Mart transformed itself by changing its logistics system. It has the highest sales per square foot, inventory turnover and operating profit of any discount retailer.


Supply Chain: The Complexity

National Semiconductors:
  • Production:
    • Produces chips in six different locations: four in the US, one in Britain and one in Israel
    • Chips are shipped to seven assembly locations in Southeast Asia.
  • Distribution
    • The final product is shipped to hundreds of facilities all The final product is shipped to hundreds of facilities all over the world
    • 20,000 different routes
    • 12 different airlines are involved
    • 95% of the products are delivered within 45 days
    • 5% are delivered within 90 days.
  • Achieving Global Optimization
    • Conflicting Objectives
    • Complex network of facilities
    • System Variations over time


Supply Chain Challenges

  • Achieving Global Optimization
    • Conflicting Objectives
    • Complex network of facilities
    • System Variations over time
  • Managing Uncertainty
    • Matching Supply and Demand
    • Demand is not the only source of uncertainty


What's New in Logistics?

  • Global competition
  • Shorter product life cycle
  • New, low-cost distribution channels
  • More powerful well-informed customers
  • Internet and E-Business strategies

Significant Increase in Outsourcing


New Concepts

  • Push Pull strategies
  • Direct-to-Consumer
  • Strategic alliances
  • Manufacturing postponement
  • Dynamic Pricing
  • E-Procurement

Source: David Simchi-Levi, https://learn.saylor.org/pluginfile.php/1282507/mod_resource/content/1/Introduction%20to%20Supply%20Chain%20Management%20-%20CC%20BY-NC-SA%204.0.pdf
Creative Commons License This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 License.

Last modified: Wednesday, April 12, 2023, 3:01 PM