ISL455U-SUPPLY CHAIN MANAGEMENT
Chapter 1: Introduction to Supply Chain Management
Basic Concepts in Supply Chain Management
Procurement of materials for production, processing these materials into final products, transportation of products between different locations, warehousing and distributing the final products to customers are some of the main processes that exist in supply chains. Supply chain management deals with the integration and coordination of these processes in order to increase the efficiency and profitability of the supply chain.
Supply chain management can be defined as a set of approaches utilized to efficiently integrate the supply chain members in order to maximize total supply chain profitability. Supply chain management aims to produce and distribute the products to the right locations, at the right time, in the right quantities, in order to maximize system wide profitability while satisfying customer service levels (Simchi-Levi, Kaminsky and SimchiLevi, 2008).
Today, the definition of SCM is extended to include things like supply chain strategy, coinnovation and supply chain design.
Supply chain management has started to focus on the reverse flow of products from the customers to the manufacturers or suppliers, in addition to the forward flows. Closed-loop supply chain (CLSC) management refers to the integration of forward and reverse supply chain activities and improves the sustainability of supply chains.
Delivery of products and services to customers is a complex process that includes many integrated tools, functions and activities. Demand for the product needs to be estimated, then, plans and programs are developed in a certain period of time to meet this demand.
Sourcing (Procurement)
Sourcing refers to the processes to obtain or buy goods or services required for production. In order to satisfy the customer expectations, companies need to procure the right products, at the right time, at the right location, at the right price, at the right quality and in the right quantity.
Production
Production includes the core operations in supply chains that are needed to transform the raw materials to finished goods. Facility planning, demand forecasting, production planning, manufacturing method selection, inventory management, production scheduling are some of the problems that need to be analyzed during the production phase.
Distribution
Distribution refers to the movement of products between the facilities in the supply chain and the delivery of finished goods to the customers. There are different options in supply chains to deliver the products to customers.
Supply Chain Structure
The structure of the supply chain is defined by the number of facilities in the chain and their relations with each other, which create the length, width and dimensions of the chain. In its simplest form, a supply chain is composed of the suppliers and customers of the main company. Extended supply chains include three other types of participants: (i) the supplier’s supplier or the ultimate supplier at the beginning of an extended supply chain, (ii) the customer’s customer or ultimate customer at the end of an extended supply chain, (iii) service providers to other companies in the supply chain, which supply services in logistics, finance, marketing, information technology, etc.
Supply Chain Management Strategies
Globalization of businesses have forced the companies to change their strategies in order to effectively coordinate their operations. A key factor in this change is establishing closer relations with suppliers and customers. Every supply chain needs to develop its own strategy depending on its customers’ expectations in order to become successful and improve its performance.
Supply chains first need to identify their target customers, analyze and understand the characteristics and the needs of the customer segments that they intend to serve. The supply chain strategy should be designed to satisfy these target customer expectations. All the supply chain management decisions need to support this issue and the attributes of the supply chain should be based on these expectations.
The consistency between supply chain strategies and target customer expectations is defined as the strategic fit.
Every company needs to define its core competency that differentiates itself from others, and every supply chain has to develop different competencies and strategies in order to gain advantage in competition. The competitive strategy of a supply chain defines the target customer needs and aims to satisfy them through its products and services. The competitive strategy is developed to satisfy more of the customer’s expectations than the competitors.
Efficiency and Responsiveness in Supply Chains
Supply chain efficiency is defined as the cost of making and delivering the products to the customers. Companies aim to minimize their costs and want to be efficient. However, the definition of efficiency does not say anything about improving customer service or effectiveness of the supply chain. A supply chain might be very efficient in minimizing costs but if it does not satisfy customer expectations, it will not be an effective supply chain. Effectiveness of a supply chain is about how well the supply chain is meeting the expectations and demands of the customers.
Apart from minimizing costs, supply chains also aim to increase their responsiveness. Chopra and Meindl (2007, p. 30) define supply chain responsiveness as its ability to:
• respond to wide ranges of quantities demanded • meet short lead times • handle a large variety of products • build highly innovative products • meet a high service level • handle supply uncertainty
Push and Pull Strategies in Supply Chains
Processes in a supply chain can be divided into two groups depending on whether they are executed in anticipation of a customer order (push) or in response to a customer order (pull). A push strategy is a speculative one and production is initiated in anticipation of customer orders based on forecasts. On the other hand, a pull strategy is a reactive one and execution is initiated in response to actual customer orders.
Decisions in Supply Chain Management
In order to improve the efficiency and profitability in supply chains, various decisions related to different operations are made. These decisions require a systems approach that considers all the relations and interactions of different operations with each other.
Supply chain management decisions can be classified as strategic, tactical and operational level decisions depending on their significance and the time span that they cover. Strategic level decisions are long-term decisions that will be effective for many years and are mostly made by the top level managers. Types of products to produce, number and locations of facilities, distribution and information systems to be used are some examples of strategic level decisions. These decisions are generally about the structure of the supply chain and are difficult to change after they are implemented. Thus, strategic decisions need to be made carefully considering future uncertainties. Tactical level decisions are medium-term decisions (generally between 6 months and 2 years) and are generally made by medium level managers. Inventory policies, distribution tactics, marketing tactics and promotions, human resources decisions are some examples of tactical decisions. Operational level decisions are generally daily or weekly decisions made by low level managers. These decisions are made to operate daily activities. Assigning workers to jobs and machines, production scheduling, deciding order due dates, giving replenishment orders to suppliers are some examples of operational decisions.
Supply Chain Management And Logistics
Logistics is a part of supply chains that is mainly related to the distribution and transportation of products or services between facilities.
Logistics processes are aimed to provide the right materials at the right place at the right time. In order to achieve this objective, different distribution network designs and transportation options can be utilized.
Some of the different distribution strategies can be stated as follows:
• Direct Shipping: Materials are directly shipped from the manufacturing facility to the customers without any intermediaries. • Hub and Spoke Model: Materials are sent to hubs that serve as central nodes for nearby places, and the demand of spokes is satisfied by the shipments made from the related hubs. • Pooled Distribution: Materials are sent to the warehouses at predetermined geographical regions and these warehouses are used to satisfy demand at those regions. • Cross-Docking: Materials, coming from different facilities but going to different customers, are seperated and re-combined depending on customer requirements at intermediate locations with minimum handling, aiming a seamless connection between incoming and outgoing materials. • Milk Runs: Materials to be collected from (or delivered to) multiple facilities are collected (or delivered) via a certain route to minimize total routing and transportation costs.
Future Trends in Supply Chain Management
Globalization in today’s world forces the companies to be international and to do business with many different enterprises in dynamic and constantly changing global environments. Today, many companies make online sales instead of using classical brick-and-mortar stores. As the speed and capabilities of computer systems increase, data can be processed more rapidly and better decisions can be made in supply chain management.
Advances in IoT (Internet-of-Things) technologies, artificial intelligence and machine learning techniques are changing the supply chain businesses and operations. Supply chain firms have plenty of data at their fingertips, not only about their own processes, both also about their suppliers and customers, their expectations and behaviours.
Globalization also changed the supply chain businesses through changing trade regulations and removal of customs barriers and tariffs.
In today’s world, there is also a growing consideration for environmental and social issues in addition to the financial objectives. Sustainable supply chain management is becoming an important concept because of these considerations. Economic, environmental and social considerations are three main pillars of sustainability and maintaining the balance between them is the key issue to achieve sustainability.