CHAPTER 10: EXTENDING THE ORGANIZATION - SUPPLY CHAIN MANAGEMENT

·         Supply chain consists of all parties involved directly or indirectly. In procurement of a product or raw material

·         Supply chain management (SCM) involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability

·         The supply chain has 3 main links :

o   Materials flow from suppliers and their upstream suppliers at all levels

o   Transformation of materials into semi-finished and finished products or the organization’s own production processes

o   Distribution of products to customers and their downstream customers at all levels

·         The five basic supply chain management activities:

o   PLAN – prepare to manage all resources required to meet demand

o   SOURCE- build relationship with suppliers to procure raw materials

o   MAKE- manufacture products and create production schedule

o   DELIVER- plans for transportation of goods to customers

o   RETURN- support customers and product returns

·         Factors driving supply chain management:

o   Visibility: supply chain visibility is the ability to view all areas up and down the supply chain. Organizations can use technology tools that help them integrate upstream and downstream with both customers and suppliers. The bullwhip effect occurs when distorted product demand information passes from one entity to the next throughout the supply chain

o   Consumer behavior: behavior customers have changed the way businesses compete. Customers will leave if a company does not continually meet their expectations. Demand planning software generates demand forecasts using statistical tools and forecasting techniques. Companies can respond faster and more effectively to consumer demands through supply chain enhancement such as demand planning software

o   Competition: supply chain planning (SCP) software uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain while reducing inventory. Supply chain execution (SCE) software automates the different steps and stages of the supply chain. This could be as simple as electronically routing orders from a manufacturer to a supplier  

o   Speed: competition has focused on speed. New forms of servers, telecommunications, wireless applications and software are enabling companies to perform activities that were once never thought possible. These systems raise the accuracy, frequency and speed of communication between suppliers and customers as well as between internal users

·         3 factors fostering speed:

Factors fostering supply chain speed

1.       Pleasing customers has become something of a corporate obsession. Serving the customer in the best, most efficient, and most effective manner has become critical and information about issues such as order status, product availability, delivery schedule, and invoices has become a necessary part of the total customer service experience

2.       Information is crucial to managers’ abilities to reduce inventory and human resource requirements to a competitive level

3.       Information flows are essential to strategic planning for and development of resources

·         7 principles of supply chain management:

7 principles of supply chain management

1.       Segment customers by service need, regardless of industry and then tailor service to those particular segments

2.       Customize the logistics network and focus intensively on the service requirements and on the profitability of the preidentified customer segments

3.       Listen to signals of market demand and plan accordingly. Planning must span the entire chain to detect signals of changing demand

4.       Differentiate products closer to the customer, since companies can no longer afford to hold inventory to compensate for poor demand forecasting

5.       Strategically manage source of supply by working with key suppliers to reduce overall costs of owning materials and service

6.       Develop and supply chain information technology strategy that supports different levels of decision making and provides a clear view (visibility) of the of products, service and information

7.       Adopt performance evaluation measure that apply to every link in the supply chain and measure true profitability at every stage

·         Companies using supply chain to drive operating:

Companies using supply chain to drive operating

Dell                             : business grows 17 % per year with a $40 billion revenue base

Nokia                          : supply chain best practices are turning ideas into profitable business

Procter & gamble     : consumer driven supply chain is the defining architecture for large consumer                                        companies. Best practices in product innovation and supply chain effectiveness                                        are tops

IBM                              : hardware supply chain product development processes overhauled to the tune                                         of 70% better, faster and chain

Wal-mart stores        :everyday low prices define the customer demand driving Wal mart’s partner                                        integratred supply chain