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Introduction to Supply Chain Management


Supply Chain Management is the collaborative effort of multiple channel members to design, implement, and manage seamless Value-Added Processes to meet the real needs of the End Customer.

The development and integration of people and technological resources as well as the coordinated management of Materials, Information, and Financial Flows underlie successful Supply Chain Integration.

Supply Chain Alignment: Benefits, Barriers, and Bridges 

Center for Advanced Purchasing Studies CAPS  2001

Supply Chain Management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide cost while satisfying service level requirements. *


As the economy changes, as competition becomes more global, it’s no longer company vs. company but Supply Chain vs. Supply Chain.

Harold Sirkin, VP Boston Consulting Group



Sample Tools

Improved customer Responsiveness 

Agile Supply Chain

  • Postponement Strategy

  • EDI, Collaborative Planning:

    Change orders automatically trigger manufacturing and logistics operations

Higher product Quality

TQM, Six Sigma


Faster product Innovation 

SCM Innovative Strategies

Reduced Inventory Costs 

Lean Supply Chain, ERP

VSM, MRP, Global inventory management 

More Consistent On-Time delivery

Resilient Supply Chain

Variability Analysis

Shorter order fulfillment Lead Times

Supply Chain End to End Visibility

  • EDI,

  • Access to real-time partner information

  • Total Logistics Management Integrates transportation, ordering, warehousing and manufacturing systems

Better Asset Utilization

Assets Management


Lower Cost of Purchased Items

Lean Purchasing


Ability to handle unexpected events

Resilient Supply Chain

Variability Analysis

Superior Channel Relationships


Alliance Design - Suppliers Development Program

Increased Cash-to-Cash Velocity




Common Enablers

  • SCM Alignment

    Align Objectives and integrate resources across organizational boundaries.

    Cross-Functional Process Change

  • Integrating Resources and Outsourcing

    Supply Chain Integration allows the organization to focus on doing exceptionally well a few things for which it has unique skills and advantages. Non-core activities are then shifted to other channel members that possess superior capabilities in those areas. (Outsourcing)

  • SCOR  (Supply Chain Operation Reference) Model

The Magnitude in the Traditional View

  • The grocery industry could save $30 billion (10% of operating cost) by using effective logistics and supply chain strategies

  • A typical box of cereal spends 104 days from factory to sale

  • In car manufacturing, assembly processes have been lowered to about 9 hours thanks to leaning and  time compression. After fast cycle assembly however, the typical car is stored in the factory lot, a DC or at the dealership for several months.

  • Laura Ashley turns its inventory 10 times a year, five times faster than 3 years ago

The True Magnitude

  • Compaq estimates it lost $0.5 billion to $1 billion in sales in 1995 because laptops were not available when and where needed

  • When the 1 gigabyte processor was introduced by AMD, the price of the 800 megabyte processor dropped by 30%

  • P&G estimates it saved retail customers $65 million by collaboration resulting in a better match of supply and demand

Value Stream: COLA CANS

  • The chain of actions required to make a cola can took 319 days

  • 8 Firms - 14 Storage Points

  • Picked up and set down 30 Times

  • 24% of raw material scrapped

  • Making the can took far longer than making the coke

  • Only three hours of that time was spent in doing something that actually added value

  • The rest was in storage and transport



  • Competition is global

  • Low-cost producers from developing countries

  • Shorter product life cycles

  • Margins are being squeezed

  • New competitors

  • Blurring of industries

  • Startups

  • More Demanding Customers (information empowered customer)

  • Desire to team with the strongest channel partners

  • Tighter Alliance Relationships

  • Continued Merger Activity

  • Need for Better Information

  • New Information Technologies

  • Shifting Competitive Focus; i.e., from Companies to Supply Chains



In the 1970s, Inventory PUSH Era

The focus was on Operations Performance

  • Initial focus was on the internal front, limited to productivity within the the factory

  • Production output was pushed down to finished-goods locations

  • Integration of warehousing and transportation and physical distribution of finished goods

  • MRP & BOM - Operations Planning

In the 1980s,

The focus was on Re-Engineering, Quality and First beginning of Logistics Management

  • Lower operating costs

  • Stressed the need for quality

  • Reduce assets

  • Tactical planning

  • MRPII, JIT - Materials Management, Logistics

In the 1990s Customer Pull Era (Domino Effect) and Supply Chain Management

The focus is on improving Customer Service

  • Companies began migrating from an inventory push to a customer pull channel as power began to move the downstream to the customer

  • This resulted in the present concept of supply chain management:  Managing relationships, Information, Material and funds

  • This could increase productivity and market share

  • SCM - ERP - “Integrated” Purchasing, Financials, Manufacturing, Order Entry

In the 2000s Extended enterprise “or Supply Chain” - Optimized “Value Network”

The focus is on Integration of Value Chain with Supply Chain

  • Supply Chain and a Value Chain are complementary views of an extended enterprise

  • Integrated business processes enabling the flows of products and services in one direction, and of value as represented by demand and cash flow in the other

  • Supply chains: downstream flow of goods and supplies from the source to the customer.

  • Value Chain: flows the other way. The customer is the source of value, and value flows from the customer, in the form of demand, to the supplier “demand chain” and cash “Cash Flow”

  • Real-Time Decision Support; Synchronized & Collaborative Extended Network, e-SCM, ERP II


Old-School Vs. New School Supply Chains

Old School

New School

Treat Supply Chain as a cost Center

Use Supply Chain to:

  • Grow Revenue

  • Increase Market Share

  • Create competitive advantage

Focus on operation cost control and reduction

Target Opportunities for new Value Added Services/ products

Perceived operating efficiency as excellence "efficiency trap"

Invest in a very specific capabilities

Become lean to the point of Starvation

Create a distinct business model


Use New Capabilities to change customer relationship




Leading to...



Integral management of materials, goods, Information & Fund flow



Resources Management and Asset utilization



Focus on markets and customer service



Co-makership and co-shipper partnerships



Demand-based replenishment & quick response systems


  • Embraces and links all of the Internal and External PARTNERS in the chain.

  • Integrates, Coordinates and Monitor the flow of Materials, Information, and Funds

  • Sourcing and procurement

  • Production scheduling and manufacturing

  • Order processing

  • Inventory management

  • Warehousing

  • Customer service

  • Distribution

  • Reverse Logistics

  1. Supply Management Challenges

  • How can we reduce costs?

  • Who should we purchase from?

  • What are the evaluative criteria we should use for evaluating performance?

  • What cultural differences will effect negotiations?

  • How can we eliminate waste by merging procurement processes and renegotiating contracts as a result of mergers and acquisitions?

  • What is the most effective cost based negotiating strategy?

  • What should our strategy be?

  • How can I best persuade and influence people?

  1. Forecasting Challenges

  • What are the market opportunities for new products or services?

  • What strategy do we need to develop a new niche in a growing marketplace?

  1. Inventory Challenges

  • How can I reduce cycle times

  • How can I redesign distribution processes to reduce inventory?

  • Should we switch to a consignment system?

  1. E-Business Challenges

  • How can I integrate my technology system with my foreign suppliers and customers?

  • Should I create a web auction? Which commodities should be included?

  • Should my business join an e-procurement consortium?

  • Our local facilities utilize different IT software and we are unable to integrate data between all locations.

  • What should we do to change this?

  1. Negotiations Challenges

  • What is the most effective fact based strategy?

  • Who should I assign to a team?

  • What are my alternatives?

  • What are my suppliers' needs?

  • What value can I add for my suppliers?

  1. Managing Relationships Challenges

  • Should I outsource? To whom? Why?

  • What impact will a switch to consignment inventory have on my supplier? How can

  • I motivate them to see concentrate on the positive instead of the negative?

  • How can I leverage my external partner's expertise to design a new product that will reduce production costs?

  • Who can I identify as a strategic partner and what must I do to ensure they meet our anticipated demand?

  • How does Total Cost of Ownership impact my choice of strategic partners?

  1. Logistics Challenges

  • How can we improve our distribution systems and identify cost savings when each product is shipped to a different address?

  • How can we better integrate sales/customer data with our operations to improve customer satisfaction?

  • Should we lease, buy, or build a warehouse?

  • Where should it be?

  • Or should we hire a third party to assume warehouse functions?

  1. Strategic Relationships Challenges

  • How can we optimize our supplier base?

  • How can we balance cooperation and competition?

  • How can we integrate our supplier's expertise to reduce our production time, costs, and design new products?

  1. Transportation Challenges

  • What product do I need delivered, to whom, when, and by what time? Can I seek the most cost-effective mode of transportation or is speed the most critical?

  • How can I redesign our warehousing process to reduce parts/repair transportation time?

  • Which third parties should I use? What should our contracts and negotiations strategy be?

  • Which software should we implement? What will it do and what won't it do and what are the impacts of these answers on other functions and parties?

  • What are the various governmental trade and tariff requirements and how does this impact our goals?

  • Should we buy or lease?

  1. Operations Challenges

  • How can we improve plant efficiency?

  • We want to move half of our manufacturing tasks to a lower cost labor market.

  • Where should it be, how do we plan the transition, how do we transfer technology, and how do we start up a new plant?

  1. Quality Management Activities Challenges

  • How can I improve customer satisfaction?

  • How can I reduce waste?

  • How can I improve the quality from suppliers?

  • What should the process be for returns?

  • How can I meet environmental standards without sacrificing cost effective measures?

  1. Information Technology Challenges

  • How can we design information flow to improve all functional processes?

  • To implement Supply Chain software:

  • Which product and company should we choose and what are the implementation considerations?

  • To add value to our services by offering a best practices relational database to our business partners:

  • What data should be included?

  • What should the searchable criteria be?

  • How should we distribute the database?

  • What technology should be

  • How can we customize standard software packages to achieve our goals?

  • If demand significantly exceeds our forecasts, can our systems handle the increased volume?

  • Total logistics management

  • Integrate transportation, ordering, warehousing and manufacturing systems

  • Change orders automatically trigger manufacturing and logistics operations

  • Global visibility of freight and distribution

  • Global inventory management

  • Global sourcing

  • Access to real-time partner information

Supply Chain Alignment, Module 5.2, Presentation for: Summer 2004

Lean/Six Sigma Systems MIT Leaders for Manufacturing Program (LFM)

Based on Dr. Herbert Kotzab and Dr. Andreas Otto, Transferring End-user Orientation to Physical Distribution action - considering Supply Chain Management as a Logistical Marketing Approach



Applies to


Sample Tools


Reducing the penalty in time, effort, cost or performance to move between any two activities in a process or between processes


Time and Cost



Maximizing the value of a target function through the use of quantitative models

Planning and Scheduling

Time and Cost


Adopt channel-spanning Performance Measures

Listen to signals of market demand and plan accordingly

Develop a supply chain-wide technology strategy covering: Collaborative Planning ,ERP, EDI, e-procurement, e-fulfillment

Differentiate, Customize

Increasing the specificity and thus the effectiveness of a subject towards a given purpose

Structure, processes, and planning

Cost and Service

Segment customers based on service needs

Customize the logistics network

Differentiate Materials according to their relative importance


Reducing the penalty in time, effort, cost or performance to replace a particular segment of the chain

Products and Processes

Time and Cost


Configure -to-Order system


Reducing the magnitude of variation of a certain parameter of an object over time

Material and Goods flows and Order flows


Reduce Bull-Whip effect

Safety Stock / fill Rate

Dynamic Safety Stock


Moving the product differentiation closer to the time and locus of consumption

Material and Goods flows and Order flows

Time and Cost


Postponement Strategy


(1) reducing the number of nodes, members or actors in the chain,

(2) or by reducing the physical distance between any two nodes.






Speed up

Reducing the amount of time to move between any two nodes in a chain or between an two stages in a process




Collaborate, Cooperate

Increasing the intensity and scope of cooperative behavior between two or more independent decision making units

Relationships, planning, scheduling, and execution.

Cost and Service

Source strategically


  • Social Factor

  • Ineffective and irregular communication

  • Inconsistent operating goals

  • Organizational culture and structure

  • Resistance to change – lack of trust

  • Lack of managerial commitment

  • Technical Factor

  • Inadequate information systems

  • Constrained resources

    • Technical

    • Financial

Supply Chain Alignment, Module 5.2, Presentation for: Summer 2004

Lean/Six Sigma Systems MIT Leaders for Manufacturing Program (LFM)

  • Lack of Top Management Support

  • Non-aligned Strategic and Operating Philosophies

  • Inability or Unwillingness to Share Information

  • Lack of Trust among Supply Chain Members

  • An Unwillingness to Share Risks and Rewards

  • Inflexible Organizational Systems and Processes

  • Cross-functional Conflicts and “Turf” Protection

  • Inconsistent/Inadequate Performance Measures

  • Resistance to Change

  • Lack of Training for New Mindsets and Skills