CHAPTER 10 : EXTENDING THE ORGANIZATION - SUPPLY CHAIN MANAGEMENT

Learning Outcomes

1. List and describe the components of a typical supply chain
2. Define the relationship between decision making and supply chain management
3. Describe the four changes resulting from advances in IT that are driving supply chains
4. Summarize the best practices for implementing a successful supply chain management system

Supply Chain Management

- The average company spends nearly half of every dollar that it earns on production

-In the past, companies focused primarily on manufacturing and quality improvements to 

influence their supply chains

Basics of Supply Chain

- The supply chain has three main links:

1.Materials flow from suppliers and their “upstream” suppliers at all levels

2.Transformation of materials into semifinished and finished products through the 

organization’s own production process

3.Distribution of products to customers and their “downstream” customers at all levels

- Organizations must embrace technologies that can effectively manage supply chains

 Plan

§A company must have a plan for managing all the resources that go toward meeting

customer demand for products or services.

Source

§Companies must carefully choose reliable suppliers that will deliver goods and

services required for making products. 

Make

§This is the step where companies manufacture their products or services. This can 

include scheduling the activities necessary for production, testing, packaging, and 

preparing for delivery.

Deliver (Logistic)

§Companies must be able to receive orders from customers, fulfill the orders via a 

network of warehouses, pick transportation companies to deliver the products, and 

implement a billing and invoicing system to facilitate payments.

Return

§This is typically the most problematic step in the supply chain. Companies must 

create a network for receiving defective and excess products and support customers 

who have problems with delivered products.

Information Technology’s Role in the Supply Chain

- Factors Driving SCM

          Visibility

- Visibility – more visible models of different ways to do things in the supply chain 

have emerged.  High visibility in the supply chain is changing industries, as Wal-Mart 

demonstrated

- Supply chain visibility – the ability to view all areas up and down the supply chain

- Bullwhip effect – occurs when distorted product demand information passes from 

one entity to the next throughout the supply chain

- Supply chain visibility allows organizations to eliminate the bullwhip effect

§To explain the bullwhip effect to your students discuss a product that demand does 

not change, such as diapers.  The need for diapers is constant, it does not increase at 

Christmas or in the summer, diapers are in demand all year long.  The number of 

newborn babies determines diaper demand, and that number is constant.

§Retailers order diapers from distributors when their inventory level falls below a 

certain level, they might order a few extra just to be safe

§Distributors order diapers from manufacturers when their inventory level falls below a 

certain level, they might order a few extra just to be safe

§Manufacturers order diapers from suppliers when their inventory level falls below a 

certain level, they might order a few extra just to be safe

§Eventually the one or two extra boxes ordered from a few retailers becomes several 

thousand boxes for the manufacturer.  This is the bullwhip effect, a small ripple at one 

end makes a large wave at the other end of the whip.

Consumer Behavior

- Companies can respond faster and more effectively to consumer demands through 

supply chain enhances

- Once an organization understands customer demand and its effect on the supply 

chain it can begin to estimate the impact that its supply chain will have on its 

customers and ultimately the organizations performance

- Demand planning software – generates demand forecasts using statistical tools 

and forecasting techniques

Competition

- Supply chain planning (SCP) software– uses advanced mathematical algorithms 

to improve the flow and efficiency of the supply chain

- Supply chain execution (SCE) software – automates the different steps and 

stages of the supply chain

- SCP and SCE both increase a company’s ability to compete

- SCP depends entirely on information for its accuracy

- SCE can be as simple as electronically routing orders from a manufacturer to a 

supplier

- SCP and SCE in the supply chain

Speed

- Three factors fostering speed

Supply Chain Management Success Factors

- SCM industry best practices include:

1.Make the sale to suppliers

2.Wean employees off traditional business practices

3.Ensure the SCM system supports the organizational goals

4.Deploy in incremental phases and measure and communicate success

5.Be future oriented