Chapter 1

Supply Chain Management

 What Is a “Supply Chain”?
A supply chain is a network of companies that
provides goods or services.
Tier 3 to Tier 3 to
Initial Tier 2 Tier 1 Tier 1 Tier 2 Consumers/
suppliers Suppliers Suppliers Customers Customers End-users

1 1

2 2

n n

Consumers/End-users
1
1
1
2
Initial Suppliers

n 2

1
3 1
2 3
n
3 n
1
n n
2
1 Focal Company
n
n
Members of the Focal Company’s Supply Chain

Source: Adapted from Douglas M. Lambert, Martha C. Cooper and Janus D. Pagh, "Supply Chain Management: Implementation Issues and Research Opportunities,” The International Journal of Logistics
Management, Vol. 9, No. 2 (1998), p. 3.

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance, p. 5.
What is Supply Chain Management?
 There is a lot of confusion over what supply chain
management is.
 Some consider it “logistics outside the firm” but the
CLM definition of logistics includes “point of origin to
point of consumption” so that can’t be right.
 We will define supply chain management as “the
integration of key business processes from end user
through original suppliers that provides products,
services, and information that add value for
customers and other stakeholders.”
 From this definition, the GSCF framework has been
developed which includes eight key business
processes.
© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance.
 Supply Chain Management Processes
Information Flow

Manufacturer
Tier 2 Tier 1 Consumer/
Supplier Supplier Logistics Customer End user
Purchasing Marketing
PRODUCT FLOW
Production Finance
R&D
Supply Chain Management Processes

CUSTOMER RELATIONSHIP MANAGEMENT

CUSTOMER SERVICE MANAGEMENT

DEMAND MANAGEMENT

ORDER FULFILLMENT

MANUFACTURING FLOW MANAGEMENT

SUPPLIER RELATIONSHIP MANAGEMENT

PRODUCT DEVELOPMENT AND COMMERCIALIZATION

RETURNS MANAGEMENT

Source: Adapted from Douglas M. Lambert, Martha C. Cooper and Janus D. Pagh, "Supply Chain Management: Implementation Issues and Research Opportunities,” The International Journal of Logistics
Management, Vol. 9, No. 2 (1998), p. 2.

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance, p. 3.
 The Processes… Briefly
 Customer Relationship Management - provides
the structure for how relationships with customers
are developed & maintained, including the PSAs
between the firm & its customers.

 Customer Service Management - provides the

firm’s face to the customer, including management
of the PSAs, and provides a single source of
customer information.

 Demand Management – provides the structure for

balancing the customers’ requirements with supply
chain capabilities.

 Order Fulfillment – includes all activities necessary

to define customer requirements, design the logistics
network, and fill customer orders.
© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance.
The Processes… Briefly… continued
 Manufacturing Flow Management - includes all
activities necessary to move products through the
plants & to obtain & manage manufacturing flexibility
in the supply chain.
 Supplier Relationship Management - provides the
structure for how relationships with suppliers are
developed & maintained, including the PSAs
between the firm & its suppliers.
 Product Development and Commercialization –
provides the structure for developing and bringing to
market new products jointly with customers and
suppliers.
 Returns Management – includes all activities
related to returns, reverse logistics, gatekeeping, &
avoidance.
© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance.
 Why Is SCM Cross-Functional?
 Question: What functions are involved in
managing a single company?
 Answer: Marketing, logistics, R&D, finance,
production, purchasing, etc.
 Question: If a “supply chain” is a network of
companies, why would you manage it with
anything less?
 Answer: You shouldn’t.

 Lesson: All functional areas in the firm will

be involved in managing the supply chain.

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance.
 Examples of Functional Involvement
Business
Functions

Business
Processes Research &
Marketing Sales Development Logistics Production Purchasing Finance

Customer Relationship Marketing Plan Account Technological Logistics Manufacturing Sourcing Customer
Management & Resources Management Capabilities Capabilities Capabilities Capabilities Profitability

Knowledge of Alignment of
Customer Service Prioritization of Technical Coordinated Priority
Customer Logistics Cost to Serve
Management Customers Service Execution Assessment
Operations Activities

Competing
Demand Competitors’ Process Manufacturing Sourcing Tradeoff

CUSTOMERS
Programs in Forecasting
SUPPLIERS

Management Initiatives Customer Space Requirements Capacities Capacities Analysis

Role of Logistics Knowledge of Environmental Network Material Distribution

Order Fulfillment Service in Customer Make-to-Order
Requirements Planning Constraints Cost
Marketing Mix Requirements

Differentiation Knowledge of Design for Prioritization Production Integrated Manufacturing

Manufacturing Flow Customer
Management Opportunities Manufacturability Criteria Planning Supply Cost
Requirements

Capabilities Reqd Material Inbound Integrated Supplier Total Delivered

Supplier Relationship for Competitive Sales Growth Business
Plan Product
Design Movement Specifications
Requirements Process Material
Specifications R & D Cost
Management Opportunities Specifications Material Flow Planning Capabilities Cost
Positioning

Product Development Product/Service Customer Product Logistics Process Material

R&D Cost
and Commercialization Gaps in Market Opportunities Design Requirements Specifications Specifications

Knowledge Reverse
Customer Product Remanufac- Material Revenue &
Returns Management of Marketing Information Logistics
Architecture, Data Base Strategy, Information Specification
Visibility
Knowledge Design turing Costs
Programs Capabilities

Source: Adapted from Douglas M. Lambert, Larry C. Guinipero and Gary J. Ridenhower, “Supply Chain Management: A Key to Achieving Business
Excellence in the 21st Century,” unpublished manuscript.

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance, p. 23.
 The Elements of the Supply Chain
Management Framework
2) What processes should be
linked with each of these key
supply chain members?

Supply Chain
Business
Processes

Supply Chain Supply Chain

Management Network
Components Structure

3) What level of integration and 1) Who are the key supply chain
management should be applied members with whom to link
for each process link? processes?

Source: Adapted from Douglas M. Lambert, Martha C. Cooper and Janus D. Pagh, "Supply Chain Management: Implementation Issues and Research Opportunities,” The International Journal of Logistics
Management, Vol. 9, No. 2 (1998), p. 4.

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance, p. 9.
 Network Structure: the Supply Chain Looks
Different Depending on Where You Are in It
For a Shrimper For a Retailer
Tier 3 to
Tier 3 to Initial Tier 2 Tier 1 Consumers/
Tier 1 Tier 2 Consumers/ suppliers Suppliers Suppliers End-users
Customers Customers End-users

1
1
2
2
n
n 1

Consumers/End-users
1 1

Initial Suppliers
2 n 2

3 1 2 3

n 3
n
n n
1

2 1

n n

Focal Company Members of the Focal Company’s Supply Chain

Source: Adapted from Douglas M. Lambert, Martha C. Cooper and Janus D. Pagh, "Supply Chain Management: Implementation Issues and Research Opportunities,” The International Journal of Logistics
Management, Vol. 9, No. 2 (1998), p. 3.

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance, p. 10.
 Therefore…
 Some companies might not need all eight
processes linked-up with the supply chain
members.
 Example: The Limited might not implement the
Customer Relationship Management process, at
least not as it is prescribed in this framework.

 Different firms might involve the various

functions differently… with differing levels of
involvement.

 Each firm will have to decide which of the

supply chain links to manage closely.

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance.
Types of Inter-Company Business Process Links
Tier 3 to Tier 3 to
Initial Tier 2 Tier 1 Tier 1 Tier 2 Consumers/
suppliers Suppliers Suppliers Customers Customers End-users

1 1

2 2

n n

Consumers/End-users
1
1
1
2
Initial Suppliers

n 2

1
3 1
2 3
1 n
3 n
n 1
n n
2
1 1
n
n
n

Managed Process Links Focal Company

Monitored Process Links
Members of the Focal Company’s Supply Chain
Not-Managed Process Links
Non-Member Process Links Non-members of the Focal Company’s Supply Chain

Source: Adapted from Douglas M. Lambert, Martha C. Cooper and Janus D. Pagh, "Supply Chain Management: Implementation Issues and Research Opportunities,” The International Journal of Logistics
Management, Vol. 9, No. 2 (1998), p. 7.

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance, p. 16.
 Types of Inter-Company Business
Process Links
 Managed links: links that the focal company finds
important to integrate and manage.
 Monitored links: links that are not as critical to the
focal company, but they should be integrated and
managed between the other members of the supply
chain.
 Not managed links: links that the focal company is not
actively involved in managing, nor are they critical
enough to use resources for monitoring.
 Non-member links: links that are not part of the focal
company’s supply chain structure, but they can and
often will affect the performance of the focal company
and its supply chain.
© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance.
 Why Are Standardized Business
Processes Important?
It is important that everyone is talking the same language and
has the same expectations – otherwise there’s a mismatch.
Tier 2 Tier 1 Manufacturer
Consumer/
Supplier Supplier Logistics Customer End-user
Purchasing Marketing
PRODUCT FLOW
Production Finance
R&D

CUSTOMER RELATIONSHIP MANAGEMENT

CUSTOMER SERVICE MANAGEMENT

DEMAND MANAGEMENT

ORDER FULFILLMENT

MANUFACTURING FLOW MANAGEMENT

SUPPLIER RELATIONSHIP MANAGEMENT

PRODUCT DEVELOPMENT AND COMMERCIALIZATION

RETURNS MANAGEMENT

Source: Adapted from Douglas M. Lambert, Martha C. Cooper and Janus D. Pagh, "Supply Chain Management: Implementation Issues and Research Opportunities,” The International Journal of Logistics
Management, Vol. 9, No. 2 (1998), p. 10.

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance, p. 18.
 Management Components
The level of integration and management of a business process link is a function of the
number and level of components added to the link. Adding more management components
or increasing the level of each component can increase the level of integration of the
business process link.

Physical & Technical Managerial & Behavioral

Management Components Management Components

Planning and
Control Methods Management
Methods
Work Flow/
Activity Structure Power and
Leadership Structure
Organization
Structure Risk and
Reward Structure
Product Flow
Culture and
Structure
Attitude

Information Flow
Structure

Source: Adapted from Douglas M. Lambert, Martha C. Cooper and Janus D. Pagh, "Supply Chain Management: Implementation Issues and Research Opportunities,” The International Journal of Logistics
Management, Vol. 9, No. 2 (1998), p. 12.

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance, p. 21.
 Physical and Technical Management
Components
 Planning and control of operations are keys to moving an organization
or supply chain in a desired direction. The extent of joint planning is
expected to bear heavily on the success of the supply chain. The
control aspects can be operationalized as the best performance
metrics for measuring supply chain success.
 The work structure indicates how the firm performs its tasks and
activities. The level of integration of processes across the supply chain
is a measure of organizational structure.
 Organizational structure can refer to the individual firm and the supply
chain; the use of cross-functional teams would suggest more of a
process approach.
 Product flow structure refers to the network structure for sourcing,
manufacturing, and distribution across the supply chain. Since
inventory is necessary in the system, some supply chain members
may keep a disproportionate amount of inventory.
 The kind of information passed among channel members and the
frequency of information updating has a strong influence on the
efficiency of the supply chain.
© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance.
 Managerial & Behavioral
Management Components
 Management methods include the corporate philosophy and
management techniques. It is very difficult to integrate a top-down
organization structure with a bottom-up structure. The level of
management involvement in day-to-day operations can differ across
supply chain members.

 The power and leadership structure across the supply chain will affect
its form. One strong leader will drive the direction of the chain. The
exercise of power, or lack of, can affect the level of commitment of
other members. Forced participation will encourage exit behavior,
given the opportunity.

 The anticipation of sharing of risks and rewards across the supply

chain affects long-term commitment of its members.

 The importance of corporate culture and its compatibility across

members of the supply chain cannot be underestimated. Meshing
cultures and individuals’ attitudes is time consuming but is necessary
at some level for the channel to perform as a chain.
© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance.
 Conclusions

 Supply chain management is more than a

new name for logistics.

 It should be cross-functional and cross-firm.

 Understanding and using standard business

processes will help firms integrate more
effectively.

 The GSCF framework provides a structure for

learning about, understanding the potential of,
and implementing supply chain management.

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance.