What is a Supply Chain?

A supply chain consists of the flow of products

and services from:
– Raw materials manufacturers
– Component and intermediate manufacturers
– Final product manufacturers
– Wholesalers and distributors and
– Retailers
Connected by transportation and storage activities, and
Integrated through information, planning, and integration
activities
• Many large firms are moving away from in-house Vertically
Integrated structures to Supply Chain Management
Supply chain Processes
 What is Supply Chain Management ?
• A set of approaches used to efficiently integrate
– Suppliers
– Manufacturers
– Warehouses
– Distribution centers

• So that the product is produced and distributed

– In the right quantities
– To the right locations
– And at the right time

• System-wide costs are minimized and

• Service level requirements are satisfied

What is Supply Chain Management? (Cont.)
• Old paradigm - Firm gained synergy as a vertically integrated firm
encompassing the ownership and coordination of several supply chain
activities. Organizational cultures emphasized short-term, company
focused performance.

• New paradigm - Firm in a supply chain focuses activities in its area of

specialization and enters into voluntary and trust-based relationships with
supplier and customer firms.
– All participants in the supply chain benefit.
– Boundaries are dynamic and extend from “the firm’s suppliers’
suppliers to its customers’ customers (i.e., second tier suppliers and
customers).”
– Supply chains now deal with reverse logistics to handle returned
products, warranty repairs, and recycling.
Supply Chain Illustration
Importance of Supply Chain Management

Firms have discovered value-enhancing and

long term benefits

Who benefits most? Firms with:

– Large inventories
– Large number of suppliers
– Complex products
– Customers with large purchasing budgets
Firms using Supply Chain Management:
1. Start with key suppliers
2. Move on to other suppliers, customers, and
shippers
3. Integrate second tier suppliers and customers
(second tier refers to the customer’s customers
and the supplier’s suppliers)
Cost savings and better coordination of resources are reasons
to employ Supply Chain Management

– Reduced Bullwhip Effect- the magnified reduction

of safety stock costs based on coordinated
planning and sharing of information

– Collaborative planning, forecasting, and

replenishment activities reduce the Bullwhip Effect
and lead to better customer service, lower
inventory costs, improved quality, reduced cycle
time, better production methods, and other
benefits.
 Origins of Supply Chain Management

1950s & 1960s

U.S. manufacturers focused on mass production
techniques as their principal cost reduction and
productivity improvement strategies

1960s-1970s
Introduction of new computer technology lead to
development of Materials Requirements Planning
(MRP) and Manufacturing Resource Planning
(MRPII) to coordinate inventory management and
improve internal communication
1980s & 1990s
Intense global competition led U.S.
manufacturers to adopt
Supply Chain Management along with
Just-In-Time (JIT),
Total Quality Management (TQM), and
Business Process Reengineering (BPR) practices
2000s and Beyond
Industrial buyers will rely more on third-party
service providers (3PLs) to improve purchasing
and supply management

Wholesalers/retailers will focus on transportation

and logistics more & refer to these as quick
response, service response logistics, and
integrated logistics
 Supply Chain Management – Key Issues

• Forecasts are never right

– Very unlikely that actual demand will exactly equal
forecast demand

• The longer the forecast horizon, the worse the forecast

– A forecast for a year from now will never be as accurate
as a forecast for 3 months from now

• Aggregate forecasts are more accurate

– A demand forecast for all CV therapeutics will be more
accurate than a forecast for a specific CV-related product
 Supply Chain Management – Benefits
• A 1997 PRTM Integrated Supply Chain Benchmarking Survey of 331 firms
found significant benefits to integrating the supply chain

Delivery Performance 16%-28% Improvement

Inventory Reduction
Fulfillment Cycle Time
Forecast Accuracy
Overall Productivity
Lower Supply-Chain Costs
Fill Rates
Improved Capacity Realization
25%-60% Improvement
30%-50% Improvement
25%-80% Improvement
10%-16% Improvement
25%-50% Improvement
20%-30% Improvement
10%-20% Improvement
 Current Trends in Supply Chain Management

Expanding the Supply Chain

– U.S. firms are expanding partnerships and
building facilities in foreign markets
– The expansion involves:
• breadth- foreign manufacturing, office & retail sites, foreign
suppliers & customers
• depth- second and third tier suppliers & customers
Increasing Supply Chain Responsiveness
– Firms will increasingly need to be more flexible
and responsive to customer needs

– Supply chains will need to benchmark industry

performance and meet and improve on a
continuous basis

– Responsiveness improvement will come from

more effective and faster product & service
delivery systems
The Greening of Supply Chains
- Producing, packaging, moving, storing, delivering and
other supply chain activities can be harmful to the
environment

– Supply chains will work harder to reduce

environmental degradation

– Large majority (75%) of U.S. consumers influenced by

a firm’s environmental friendliness reputation

– Recycling and conservation are a growing alternative

in response to high cost of natural resources
Reducing Supply Chain Costs
– Cost reduction achieved through:
• Reduced purchasing costs
• Reducing waste
• Reducing excess inventory, and
• Reducing non-value added activities

– Continuous Improvement through

• Benchmarking- improve over competitors’ performance
• Trial & error
• Increased knowledge of supply chain processes
 Companies that offer SCM software solutions

1. SAP
2. Oracle
3. J.D. Edwards
4. Microsoft Great Plains
5. PeopleSoft
6. i2
7. Baan
8. Manugistics
 About SAP SCM

SAP Supply Chain Management Module helps

users with planning of supply chain processes to
enable collaboration and coordination of the
supplier network, helping companies respond to
shorter life cycles
• Delivers planning and execution
functions that are integrated by
design

• Supports best practices and

provides preconfigured software
for enabling collaborative
business, accelerating
implementation, and reducing
costs

• Is recognized by key industry

analysts as the market-leading SAP SCM Solution Map

SCM application
• The Supply Chain Management process in
SAP
– Demand Planning – SCM DP
– Supply Network Planning – SCM SNP
– Production Planning and Detailed Scheduling -
SCM PPDS
– Procurement Planning – SCM PPDS or R3 MRP
– The Core Interface – CIF
 SCM Demand Planning
Upload new
products
data

Monitor
Upload last
Forecast
period sales
Accuracy

Release Clean sales

forecast to history of
distribution exceptional
planning events

Launch
Add
Statistical
Promotions
Forecast

Adjust the
forecasts
SAP SCM Solutions
SAP SCM Solutions
SAP SCM Solutions
SAP Supply Chain Management
 Oracle ® SCM vs. SAP ® SCM

● Oracle ● SAP
– Less features – Multiple benefits
– Reduced information – More services in
on products package
– Certain services not – More technical support
provided – More information
– Less customized provided on products
 Bibliography
• http://sap-
press.de/download/dateien/2122/sappress_discover_s
ap_scm.pdf

• http://faculty.biu.ac.il/~shnaidh/zooloo/erp/mySAP_Sup
ply_Chain_Management_Solution_Map.pdf

• http://www.scribd.com/doc/21973165/Key-Issues-in-
Supply-Chain-Management

• http://www.academia.edu/1452141/SUPPLAY_CHAIN
_MANAGEMENT_PPT_at_BEC_DOMS_BAGALKOT