CHAPTER 11

SUPPLY CHAIN
MANAGEMENT

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 Learning Objectives
• Learn about the supply chain network and
management drivers.

• Understand the complexity and importance of

the integration of supply chain.

• Learn about supply chain components, processes,

and flows.

• Know the different levels of supply chain integration.

• Examine the impact of the ERP on supply

chain management.

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 Preview
• A good supply chain management (SCM) system can
act as a digital nerve center for the entire business
and save the company millions of dollars in costs in
order fulfillment and other back-end support
processes.

• SCM gives companies access to all of the critical

information they need to plan their operations in
an efficient way whenever and wherever they
need it.

• SCM improves efficiencies and reduces costs

substantially while also giving companies the
adaptability to modify their business
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processes.

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 Supply Chain Management
• Supply chain is the network of services, material,
and information flow that link a firm’s customer
relations, order fulfillment, and supplier relations
processes to those of its suppliers and customers.

• Michael Potter
– A business value chain consists of a series of processes or
activities conducted by the company to add value to the existing
product or service and to provide a competitive advantage in
the market.

• Companies need to understand their supply chain and

build the strategy such that its competitive strategy
and supply chain strategy are aligned.

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 Supply Chain Management (Contᾼd)
• Corporations are striving to focus on core
competencies and become more flexible and reduced
their ownership of raw materials sources and
distribution channels.

• All the functions of a company’s supply chain

contribute to its success or failure and they all need to
work together to ensure success.

• To achieve strategic fit, a company must ensure that

its supply chain capabilities support its ability to satisfy
the targeted customer segments.

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Figure 11-1 Collaboration in Supply
Chain Information

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 SCM Drivers
Facilities
• Facilities are the places in the supply chain
network where product is manufactured, stored, or
shipped.
• The two major types of facilities are production
sites (plants) and storage sites (warehouses).
• A company needs to decide how many
suppliers, manufacturing facilities, distribution
centers, and warehouses to have.
Information
• Information consists of data and analysis
concerning facilities, inventory, transportation, and
customers throughout the supply chain.
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 SCM Drivers (Contᾼd)
Inventory
• Inventory is the raw materials, work in process,
and finished goods that belong to the company.

• A successful inventory management policy is to

achieve that right balance of responsiveness and
efficiency.

Transportation
• Transportation moves the product between
different stages in a supply chain.

• The type of transportation a company uses also

affects the inventory and facility locations in the supply
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chain.

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 SCM Flows
Three
Categories
• Product Flow - The product flow includes the
movement of goods from a supplier to a customer, as
well as any customer returns or service needs.

• Information Flow - The information flow involves

transmitting orders and updating the status of
delivery.

• The finance Flow - The financial flow consists of

credit terms, payment schedules, and consignment
and title ownership arrangements.

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Figure 11-2 Flows in a Typical Supply Chain

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 Software and Technology
• Increasing numbers of companies are using the
Internet and Web-based applications as part of their
SCM solution.

• There are two main types of SCM software.

– Planning Applications: Use advanced algorithms to
determine the best way to fill an order.
– Execution Applications: Track the physical status of goods,
the management of materials, and financial information involving
all parties.

• Extended Enterprise
– Some SCM applications are based on open data models
that support the sharing of data both inside and outside the
enterprise.

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 SCM Processes
• Procurement
– Procurement is the business-to-business purchase and
sale of supplies and services.

• Outsourcing and Partnerships

– An arrangement in which a company provides services
for another company that could also be done or have
usually been provided in-house.

• Manufacturing Flow Management

– The manufacturing process is to produce and supply products
to the distribution channels based on past forecasts or point
of sales (POS) data.

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 SCM Processes (Contᾼd)
• Order Fulfillment
– Process that responds to customer demand by
merging several important functions: order
management, storage, and delivery of finished
goods.

• Customer Service Management Process

– Source of customer information and also provides
the customer with real-time information on promising
dates and product availability through interfaces with
the company’s production and distribution
operations.

• Forecasting
– Seeks to predict levels of weekly or monthly
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product activity over a time horizon.

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 E-business and Supply Chain Management
(E-SCM)
• A Web-enabled supply chain management (e-SCM)
solution is the digital nerve center of the entire
business.

• e-SCM is the optimal combination of technology and

business processes that optimizes delivery of
goods, services, and information from the supplier to
the consumer in an organized and efficient way.

• e-SCM can use e-business concepts and Web

technologies to manage inventory and
information beyond the organization, both
upstream and downstream.

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 E-SCM Components
• Replenishment Systems

• E-procurement

• Collaborative Planning

• Collaborative Design and Product Development

• E-logistics

• Supply Webs (Exchanges)

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 ERP System and Supply Chain
• ERP focus is on providing an integrated transaction
processing that enhances organizational performance
by increasing information consistency and transaction
efficiency.

• SCM, on the other hand, are aimed at providing a

higher level of business planning and decision support
functionality for effective coordination and execution of
inter-organizational business processes.

• Web-based technologies have revolutionized the

way business is carried on and SCM and ERP are no
exceptions.

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Figure 11-3 Example of Enterprise Level Portal

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Figure 11-4 ERP/Legacy Systems
Linkage Across the Supply
Chain

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 ERP versus SCM
Point of Comparison ERP SCM
Comprehensiveness Covers a wide range of Limited to specific supply
functionality chain functionality
Complexity Highly complex Relatively less complex
Sourcing tables Relatively static Relatively dynamic
Constraints handling All the demand, capacity, and Simultaneous handling of
material constraints are the constraints
considered in isolation of
each other
Functionality Relatively less dynamic Relatively more dynamic
because they are mainly because it performs
concerned with transaction simulations of transaction
processing speed and adjustments with regard
capacity to the constraints in real
time
Processing Speed Relatively slower Faster

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 Supply Chain Integration
• To stay competitive, enlightened companies have
strived to achieve greater coordination and collaboration
among supply chain partners.
• Information integration refers to the sharing of
information among members of the supply chain.
• Planning synchronization refers to the joint design and
execution of plans for product introduction,
forecasting, and replenishment.
• Workflow coordination refers to streamlined and
automated workflow activities between supply chain
partners.

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 Supply Chain Integration Dimensions
Dimension Elements Benefits
Information • Information • Reduced bullwhip effect
Integration sharing and • Early problem detection
transparency
• Faster response
• Direct and real-
• Trust building
time accessibility
Synchronized • Collaborative • Reduced bullwhip effect
Planning planning, forecasting, • Lower cost
and replenishment
• Optimized capacity utilization
• Joint design
• Improved service

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 Supply Chain Integration Dimensions (Contᾼd)
Dimension Elements Benefits
Workflow • Coordinated production • Efficiency and accuracy gains
Coordination planning and • Fast response
operations,
• Improved service
procurement, order
processing, engineering • Earlier time to market
change, and design • Expanded network
• Integrated,
automated business
processes
New Business • Virtual resources • Better asset utilization
Models • Logistics restructuring • Higher efficiency
• Mass customization • Penetrate new markets
• New services • Create new products
• Click-and-mortar models

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 Integrating ERP and SCM Systems
• ERP systems help in automating the business
processes and enabling reliable information capture and
retrieval.

• SCM systems offer capabilities to integrate various

entities that make up the supply chain and facilitate the
seamless flow of information between all the supply
chain partners.

• Integration of ERP and SCM is a very tough task

because each member in the supply chain may have
different hardware and software.

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 Enterprise Application Integration
• Facilitates the flow of information and straps
transactions among disparate and complex
applications and business processes within and among
the organizations.

• Provides a broad range of services that range from

security management to protocol management to
data mapping, among other related functions.

• Many of the companies today are embracing the

component-based applications either by developing
a new application or by componentizing their existing
applications.

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Phases of Enterprise Application Integration
Process
• Solution outline phase

• Architecture phase

• Design phase

• Implementation phase

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Benefits of Enterprise Application Integration
• Increased Efficiency: Automation of processes.
• Value of Information: Redundant databases are
aligned, eliminating duplicate data.
• Lower Costs: One interface per application lowering
the cost of upgrades.
• Increased Productivity: Results from business
process automation and access to real-time information.
• Improved Customer Service: Employees have real-
time access to give accurate information to customers.
• Enhanced Access: Ability to extend applications to
more users from anywhere and anytime over the VPN
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 RFID
• Allows for real-time automation of many data
collection functions originally conducted by paid
employees.

• Hardware - Each hardware implementation will need to be

designed specifically to meet the needs of purchaser as
there are no off-the-shelf alternatives

• Software - Much easier to design. There are cases

where a near vanilla implementation would be sufficient
giving the company some cost savings

• Changing any process where these steps occur

to automated RFID data collection will eliminate
the possibility of human error
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 Implications for Management
• Managers should understand that SCM is an
important component for the successful
implementation of ERP systems.

• Balancing the supply chain efficiency and

responsiveness is more an art than
science.

• E-Supply chain provides great competitive advantage

in today’s Web-enabled economy.

• Integrating is the key issue to the success of the

supply chain.
– Integration must occur at multiple levels, and not just at the network
or hardware platform level.

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 Summary
• Supply Chain Management (SCM) is a central piece
of technology in today’s enterprise system.
• SCM provides a link for services, materials, and
information across the value chain of the
organization.
• ERP vendors have started including SCM as
a component or module of the software.
• There are four main drivers for the SCM
system performance:
– Facilities
– Inventory
– Transportation
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– Information

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 Summary (Contᾼd)
• SCM involves the operation or management of
many organizations’ processes and procedures.
• SCM plays a major role in the success of e-business
and e-commerce.
• A good SCM is designed in collaboration with
the organizations’ partners rather than stand-
alone.
• Integration with SCM system is of many types (e.g.,
supply chain, ERP system, and enterprise
application).
• Enterprise Application Integration process is
very complex and has a multiphase life cycle.
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 Review Questions
1. What are the motivations for an organization to have
a good supply chain management (SCM) system?
2. Define SCM in your own words.
3. List the four drivers of SCM and how they impact
the system’s responsiveness.
4. What are the major types of SCM software?
5. Briefly describe the SCM processes.
6. Why is SCM implementation critical for the success
of e-business?
7. What are the major components of e-SCM?
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Publishing as Prentice Hall

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