Prepared by Anthony J. Avallone and Young K. Ro
SANDERS, SUPPLY CHAIN MANAGEMENT
CHAPTER 1:
INTRODUCTION TO SUPPLY CHAIN ECONOMICS
Learning Objectives:
1. Define “supply chain management” and the activities involved.
2. Identify the flows through a supply chain and explain the bullwhip effect.
3. Describe the rise of supply chain management and its global implications.
4. Describe the characteristics of a competitive supply chain.
5. Identify and explain key trends that drive today’s Supply Chains.
Introduction
● Today’s business environment has forced companies to compete in different ways than
just a few years ago. Companies must now be rapid innovators as well as continue to
compete on the traditional dimensions of time, quality, cost, and customization.
● The onset of the digital age (internet, mobile apps, etc.), threats to security, and the
down economy has forced companies to become more responsive than they may have
been in years prior.
● Successful companies understand that they cannot achieve a necessary level of
competitive success in today’s global economy without supply chain management.
What is Supply Chain Management?
● Supply Chain Management (SCM) is the design and management of flows of
products, information, and funds throughout the supply chain. It involves the coordination
and management of all the activities of a supply chain. SCM may appear to be simple,
but it is a complex business concept that is far-reaching. Supply Chain is the network of
all entities involved in producing and delivering a finished product to its final customer.
This includes sourcing raw materials and parts, manufacturing, producing and
assembling the products, storing goods in warehouses, order entry and tracking,
distribution, and delivery to the final customer.
● A typical supply chain may involve many different trading partners, called stages, which
include:
○ Suppliers
○ Producers
○ Wholesalers/Distributors
○ Retailers
○ Customers
● Every supply chain is different and may not necessarily include each of these
components
● A supply chain is often called a value chain or a value network. A company’s supply
chain is the means in which it competes with others. “Upstream” part of the supply chain:
the part of the supply chain that comprise the inbound direction towards the company, or
1
, “focal firm.” The stages of the supply chain moving away from the focal firm are termed
“downstream.” The term “supply chain” implies a linear chain of participants from
suppliers to final customers. A supply chain network can take many different shapes,
depending on the number of suppliers, their locations, and the type of products being
produced.
● SCM Activities
○ SCM involves the coordination and management of all the activities of a supply
chain; SCM activities include the following
■ Collaboration: SCM requires collaboration between supply chain
members so they can jointly plan, operate, and execute business
decisions as one entity.
■ Information Sharing: SCM requires sharing relevant information among
members of the supply chain
● includes sharing demand and sales forecasts, points-of-sale data,
inventory levels, and promotional campaigns planned
■ Coordination: SCM involves coordinating the movements of goods and
services through the supply chain, from suppliers to manufacturers to
distributors to final customers
● also involves the movement of goods back up the supply chain as
products may be returned
● also involves the movement of funds through the supply chain as
products are bought and sold. This includes various financial
arrangements and terms of purchase between buyers and
suppliers
● Managing Flows Through the Supply Chain
○ There are many flows that move through a supply chain network.
■ Products are the first through the supply chain, from the beginning,
through production, and ending with the customer
■ It is possible for goods to be flowed back in to the supply chain, in a
process known as reverse logistics
■ Information is the second important flow through the supply chain
■ primary information is demand or sales data
○ The flow of funds is of paramount importance
○ Products flow in both directions, and therefore so does the transfer of funds
○ The key to successful SCM is the management of the flow of funds through the
supply chain
● The Bullwhip Effect
○ The fluctuation and distortion of information increases as it moves up the supply
chain
○ As a result, each stage of the chain carries progressively more inventory to
compensate for the lack of information
● Customer Focus
○ The main purpose for a supply chain is to respond to the demands of customers
and to generate profits for companies that participate in the chain
2
SANDERS, SUPPLY CHAIN MANAGEMENT
CHAPTER 1:
INTRODUCTION TO SUPPLY CHAIN ECONOMICS
Learning Objectives:
1. Define “supply chain management” and the activities involved.
2. Identify the flows through a supply chain and explain the bullwhip effect.
3. Describe the rise of supply chain management and its global implications.
4. Describe the characteristics of a competitive supply chain.
5. Identify and explain key trends that drive today’s Supply Chains.
Introduction
● Today’s business environment has forced companies to compete in different ways than
just a few years ago. Companies must now be rapid innovators as well as continue to
compete on the traditional dimensions of time, quality, cost, and customization.
● The onset of the digital age (internet, mobile apps, etc.), threats to security, and the
down economy has forced companies to become more responsive than they may have
been in years prior.
● Successful companies understand that they cannot achieve a necessary level of
competitive success in today’s global economy without supply chain management.
What is Supply Chain Management?
● Supply Chain Management (SCM) is the design and management of flows of
products, information, and funds throughout the supply chain. It involves the coordination
and management of all the activities of a supply chain. SCM may appear to be simple,
but it is a complex business concept that is far-reaching. Supply Chain is the network of
all entities involved in producing and delivering a finished product to its final customer.
This includes sourcing raw materials and parts, manufacturing, producing and
assembling the products, storing goods in warehouses, order entry and tracking,
distribution, and delivery to the final customer.
● A typical supply chain may involve many different trading partners, called stages, which
include:
○ Suppliers
○ Producers
○ Wholesalers/Distributors
○ Retailers
○ Customers
● Every supply chain is different and may not necessarily include each of these
components
● A supply chain is often called a value chain or a value network. A company’s supply
chain is the means in which it competes with others. “Upstream” part of the supply chain:
the part of the supply chain that comprise the inbound direction towards the company, or
1
, “focal firm.” The stages of the supply chain moving away from the focal firm are termed
“downstream.” The term “supply chain” implies a linear chain of participants from
suppliers to final customers. A supply chain network can take many different shapes,
depending on the number of suppliers, their locations, and the type of products being
produced.
● SCM Activities
○ SCM involves the coordination and management of all the activities of a supply
chain; SCM activities include the following
■ Collaboration: SCM requires collaboration between supply chain
members so they can jointly plan, operate, and execute business
decisions as one entity.
■ Information Sharing: SCM requires sharing relevant information among
members of the supply chain
● includes sharing demand and sales forecasts, points-of-sale data,
inventory levels, and promotional campaigns planned
■ Coordination: SCM involves coordinating the movements of goods and
services through the supply chain, from suppliers to manufacturers to
distributors to final customers
● also involves the movement of goods back up the supply chain as
products may be returned
● also involves the movement of funds through the supply chain as
products are bought and sold. This includes various financial
arrangements and terms of purchase between buyers and
suppliers
● Managing Flows Through the Supply Chain
○ There are many flows that move through a supply chain network.
■ Products are the first through the supply chain, from the beginning,
through production, and ending with the customer
■ It is possible for goods to be flowed back in to the supply chain, in a
process known as reverse logistics
■ Information is the second important flow through the supply chain
■ primary information is demand or sales data
○ The flow of funds is of paramount importance
○ Products flow in both directions, and therefore so does the transfer of funds
○ The key to successful SCM is the management of the flow of funds through the
supply chain
● The Bullwhip Effect
○ The fluctuation and distortion of information increases as it moves up the supply
chain
○ As a result, each stage of the chain carries progressively more inventory to
compensate for the lack of information
● Customer Focus
○ The main purpose for a supply chain is to respond to the demands of customers
and to generate profits for companies that participate in the chain
2
