Summary of Managing the Global Supply Chain 4th editon
Chapter 1
No organizatonn whether businessn government or non-proftn can stand alone. It depends on
connectons to other organizatons in a network relatonship. The supply chain is a concept of closely
coordinatedn cooperatve networksn competng with other networks. It encompasses all
organizatons and actiites associated with the fow and transformaton of goods from raw
materials through to the end user, as well as the fow of informaton and money. The focus is on
managing processes that engage other frms as partners in managed relatonships to perform the
actvites necessary to fulfll the process. It is propelled by the realizaton that no organizaton can be
good at all things and by the expanding reach and ease of access to informaton and communicaton
technology.
- This perspectve is necessary not only for growthn but survival in the struggle for global
markets.
The underlying concept of the supply chain is simplen a linear sequence of operatons organized
around the fow of materials from source of supply to their fnal distributon as fnished products to
ultmate users. Traditonally seen the supply chain consists of material resources and the
organizaton of processorsn distributors and users. It also involves supportng enterprises to provide
transportn communicatons and other specialized functons. Togethern they become a single
coordinated entty that transcends organizatonal boundaries.
The historic commodity of supply chains stems back from the roman empire. The chains were here
organized as a series of individual enterprisesn connected through independent buying and selling
transactonsn bounded by the geography of resources and available technologies. These supply chains
howevern were difcult to manage. The only soluton was vertical interraton; the direct ownership
of supplier or customer organizatons. New informaton and communicatons methods made it
possible to reach across the borders of the owned organizaton and enabled the coordinaton of
operatons and management through the supply chainn without the investment and problems of
direct ownership.
Vertcal integraton is an individual organizaton in the supply chain integratng (for instance by
taking over) its own upstream parts
Horizontal integraton is integraton with other equal parts in the supply chain (for instance by taking
over more producton facilites)
The underlying framework for the supply chain is the value chain of Porter (1985). Koter described a
series of primary actvites that add value to the output of the frmm inbound logistcsn operatonsn
outbound logistcsn marketng & sales and services. They are supported by external purchased inputsn
technology and human resources.
Differences among value chains become sources of compettve advantage. The value chain is
embedded into a larger stream of actvites; this is called the value system. The value system consists
of the interrelatonships between various value chains. For instancen the supplier has a value chainn
1
,creatng and delivering input for the customerss value chain that again produces and delivers input to
its customers.
Supply chains emerged because it provides potental solutons to the problems of duplicaton and
responsiveness.
- A basic supply chain consists of a focal companyn an immediate supplier and an immediate
customer.
- An extended supply chain includes the immediate supplierss suppliers and the immediate
customerss customers.
- An ultmate supply chain involves all companies from the inital supplier to the ultmate
customer.
Supply chain management = the integraton of business processes from end user through original
suppliers that provides productsn services and informaton that add value for customers and other
stakeholders. It emphasizes integraton of business processes.
- Integratin means coordinaton across functonal lines and legal corporate boundaries.
Business processes are directly related to the producton of productsn services and informaton.
Examples of business processes in a supply chain are order fulfllmentn customer orders and returns.
Logistcs is one of the core functons contained with supply chain management. Logistcs deals with
the physical and controlling connectons between organizatons.
Bechtel and Jayaram (1997) defne fve different SCM schools of thoughtm
1. Functonal chain awarenessn where a chain of functonal actvites provides a basis for materials
fow.
2. Linkage/logistcs emphasizes the linkages between functonal areas and with a focus on logistcs.
3. Informaton emphasizes informaton fow in both directons among chain members.
4. Integraton of processes across the supply chain towards an objectve of customer satsfacton.
5. A future perspectie describing a demand-driven seamless comprehensive pipeline emphasizing
relatons as well as transactons.
2
,The customer orientaton
The chain of porter can be seen as a push irientatinn meaning that products and materials move
toward the fnal marketn driven by forecast demand.
A more recent view is that customers initate supply chain decisionsn confguring products and
initatng orders that pull products through the chain.
A similar approach is the value stream which starts with the customern specifes the fnal product and
volumen determines actvites and then jointly defnes the role of partners and their contributon to
value. The reality is that you can only antcipate customer demand to a limit extendn limitng the
ability to push.
Multple management perspecties
Logistcs orients stresses functonal actvity integraton such as balancing producton capacity against
holding fnished product inventoryn or tradeoffs between fast but expensive airfreight versus slower
but cheaper sea transport. The major contributon of logistcs has been the idea of product fow
materials enter organizatonsn they are transformed in producton and then distributed to users.
Manufacturing interprets the supply chain as an extended factoryn with suppliers feeding a fnal stage
of productonn followed by distributon. The strategic view focusses in the supply chain on
producton. The role is to support other areas.
The characteristcs of the supply chain
The supply chain as a wholen more than simply linking operatonal unitsn deals with the full scope of
actvites; productonn procurement and distributon. Directng this integraton becomes the purpose
of scm. In suchn supply chain management becomes a supra-organizaton (an organizaton on its
own)n linking all operatons of its members. Firms with a strong brand will ultmately direct the
development of the chain.
Understanding the supply chain
Understanding the supply chain is a prerequisite to managing it. There are three major componentsm
actvitesn organizatons and processes & operatons. Together they become a chain of actvites and
decisions. The chain is further linked to a corporate environment and external environment of
industryn competton and technology.
The supply chain is also a dynamic system. Actvites can be eliminated or reorganized to increase
efciency of effectveness. They can also be shieed between organizatons to improve system
performance. Actvites are the building blocks of the system. Pricesses manage and link actvites. A
supply chain is also dynamic since it changes over tme (e.g. adaptaton to changing environment or
actvites that increase compettve advantage).
Systemic approach
The supply chain is both a network and a system. The network propertes involve sequences of
connectons among organizatonal units for product and informaton fow. The systemic propertes
are the interdependence of actvitesn organizatons and processes.
The supply chain is also part of larger networks. Technological developmentsn competton and
politcal controversies infuence the directon of supply chains.
3
, There are fve operatng processes that describe the supply chainm
1. Demand management – e.g. forecastngn customer servicen sales supportn etc.
2. Distributon – provides the link between producton and the marketn allocaton of roles; infuences
logistcs through market requirements for service and efciency.
3. Producton – processes that add the value to product fow. How producton takes place also
infuences inventoryn transport and tme for delivery.
4. Procurement – or purchasing that links stages of manufacturing together. Managers of ‘outside
productons.
5. Returns – closes the supply chain loop by reusen recycling and remanufacturing of products and
components.
The management tasks
The primary task of the management is to integrate each stage into a larger system. Coordinaton is
imperatve for management.
- It becomes the frst management task to make market demands and customer orders visible
throughout the chain and direct effort to supply them
- A second task is to manage assets across the supply chain. Specifcallyn inventory.
The new corporate eniironment
There are 5 fundamental shiesm
1. The customer orientaton customer requirements in response and product offerings have
led to direct ordering and delivery to the customern product and service customizaton and
real-tme operatons.
2. The decline of mass producton manufacturing has moved from mass towards customized
producton. Niche marketng encourages unique products and short producton runs.
3. Smaller inventories producton quanttes are smallern saving inventory holding costs while
increasing fexibility in producton and distributon.
4. Development of electronic commerce procurement has become more efcientn
distributon has become more directn with less stock between factory and market. Shorter
chains are more responsive.
5. Smaller organizatons organizatons are being reduced by both downsizing and
outsourcing. One outcome is the virtual organizaton. Core competences are done in house
and other supportng actvites are performed outside the organizaton.
The global supply chain begins with the customer and walks through fve successive stagesm
distributonn fnal manufacturing/assemblyn frst ter suppliersn second ter suppliers to basic
materials.
- Informaton fows in both directonsm orders and transactons move toward the source of
supply.
4
Chapter 1
No organizatonn whether businessn government or non-proftn can stand alone. It depends on
connectons to other organizatons in a network relatonship. The supply chain is a concept of closely
coordinatedn cooperatve networksn competng with other networks. It encompasses all
organizatons and actiites associated with the fow and transformaton of goods from raw
materials through to the end user, as well as the fow of informaton and money. The focus is on
managing processes that engage other frms as partners in managed relatonships to perform the
actvites necessary to fulfll the process. It is propelled by the realizaton that no organizaton can be
good at all things and by the expanding reach and ease of access to informaton and communicaton
technology.
- This perspectve is necessary not only for growthn but survival in the struggle for global
markets.
The underlying concept of the supply chain is simplen a linear sequence of operatons organized
around the fow of materials from source of supply to their fnal distributon as fnished products to
ultmate users. Traditonally seen the supply chain consists of material resources and the
organizaton of processorsn distributors and users. It also involves supportng enterprises to provide
transportn communicatons and other specialized functons. Togethern they become a single
coordinated entty that transcends organizatonal boundaries.
The historic commodity of supply chains stems back from the roman empire. The chains were here
organized as a series of individual enterprisesn connected through independent buying and selling
transactonsn bounded by the geography of resources and available technologies. These supply chains
howevern were difcult to manage. The only soluton was vertical interraton; the direct ownership
of supplier or customer organizatons. New informaton and communicatons methods made it
possible to reach across the borders of the owned organizaton and enabled the coordinaton of
operatons and management through the supply chainn without the investment and problems of
direct ownership.
Vertcal integraton is an individual organizaton in the supply chain integratng (for instance by
taking over) its own upstream parts
Horizontal integraton is integraton with other equal parts in the supply chain (for instance by taking
over more producton facilites)
The underlying framework for the supply chain is the value chain of Porter (1985). Koter described a
series of primary actvites that add value to the output of the frmm inbound logistcsn operatonsn
outbound logistcsn marketng & sales and services. They are supported by external purchased inputsn
technology and human resources.
Differences among value chains become sources of compettve advantage. The value chain is
embedded into a larger stream of actvites; this is called the value system. The value system consists
of the interrelatonships between various value chains. For instancen the supplier has a value chainn
1
,creatng and delivering input for the customerss value chain that again produces and delivers input to
its customers.
Supply chains emerged because it provides potental solutons to the problems of duplicaton and
responsiveness.
- A basic supply chain consists of a focal companyn an immediate supplier and an immediate
customer.
- An extended supply chain includes the immediate supplierss suppliers and the immediate
customerss customers.
- An ultmate supply chain involves all companies from the inital supplier to the ultmate
customer.
Supply chain management = the integraton of business processes from end user through original
suppliers that provides productsn services and informaton that add value for customers and other
stakeholders. It emphasizes integraton of business processes.
- Integratin means coordinaton across functonal lines and legal corporate boundaries.
Business processes are directly related to the producton of productsn services and informaton.
Examples of business processes in a supply chain are order fulfllmentn customer orders and returns.
Logistcs is one of the core functons contained with supply chain management. Logistcs deals with
the physical and controlling connectons between organizatons.
Bechtel and Jayaram (1997) defne fve different SCM schools of thoughtm
1. Functonal chain awarenessn where a chain of functonal actvites provides a basis for materials
fow.
2. Linkage/logistcs emphasizes the linkages between functonal areas and with a focus on logistcs.
3. Informaton emphasizes informaton fow in both directons among chain members.
4. Integraton of processes across the supply chain towards an objectve of customer satsfacton.
5. A future perspectie describing a demand-driven seamless comprehensive pipeline emphasizing
relatons as well as transactons.
2
,The customer orientaton
The chain of porter can be seen as a push irientatinn meaning that products and materials move
toward the fnal marketn driven by forecast demand.
A more recent view is that customers initate supply chain decisionsn confguring products and
initatng orders that pull products through the chain.
A similar approach is the value stream which starts with the customern specifes the fnal product and
volumen determines actvites and then jointly defnes the role of partners and their contributon to
value. The reality is that you can only antcipate customer demand to a limit extendn limitng the
ability to push.
Multple management perspecties
Logistcs orients stresses functonal actvity integraton such as balancing producton capacity against
holding fnished product inventoryn or tradeoffs between fast but expensive airfreight versus slower
but cheaper sea transport. The major contributon of logistcs has been the idea of product fow
materials enter organizatonsn they are transformed in producton and then distributed to users.
Manufacturing interprets the supply chain as an extended factoryn with suppliers feeding a fnal stage
of productonn followed by distributon. The strategic view focusses in the supply chain on
producton. The role is to support other areas.
The characteristcs of the supply chain
The supply chain as a wholen more than simply linking operatonal unitsn deals with the full scope of
actvites; productonn procurement and distributon. Directng this integraton becomes the purpose
of scm. In suchn supply chain management becomes a supra-organizaton (an organizaton on its
own)n linking all operatons of its members. Firms with a strong brand will ultmately direct the
development of the chain.
Understanding the supply chain
Understanding the supply chain is a prerequisite to managing it. There are three major componentsm
actvitesn organizatons and processes & operatons. Together they become a chain of actvites and
decisions. The chain is further linked to a corporate environment and external environment of
industryn competton and technology.
The supply chain is also a dynamic system. Actvites can be eliminated or reorganized to increase
efciency of effectveness. They can also be shieed between organizatons to improve system
performance. Actvites are the building blocks of the system. Pricesses manage and link actvites. A
supply chain is also dynamic since it changes over tme (e.g. adaptaton to changing environment or
actvites that increase compettve advantage).
Systemic approach
The supply chain is both a network and a system. The network propertes involve sequences of
connectons among organizatonal units for product and informaton fow. The systemic propertes
are the interdependence of actvitesn organizatons and processes.
The supply chain is also part of larger networks. Technological developmentsn competton and
politcal controversies infuence the directon of supply chains.
3
, There are fve operatng processes that describe the supply chainm
1. Demand management – e.g. forecastngn customer servicen sales supportn etc.
2. Distributon – provides the link between producton and the marketn allocaton of roles; infuences
logistcs through market requirements for service and efciency.
3. Producton – processes that add the value to product fow. How producton takes place also
infuences inventoryn transport and tme for delivery.
4. Procurement – or purchasing that links stages of manufacturing together. Managers of ‘outside
productons.
5. Returns – closes the supply chain loop by reusen recycling and remanufacturing of products and
components.
The management tasks
The primary task of the management is to integrate each stage into a larger system. Coordinaton is
imperatve for management.
- It becomes the frst management task to make market demands and customer orders visible
throughout the chain and direct effort to supply them
- A second task is to manage assets across the supply chain. Specifcallyn inventory.
The new corporate eniironment
There are 5 fundamental shiesm
1. The customer orientaton customer requirements in response and product offerings have
led to direct ordering and delivery to the customern product and service customizaton and
real-tme operatons.
2. The decline of mass producton manufacturing has moved from mass towards customized
producton. Niche marketng encourages unique products and short producton runs.
3. Smaller inventories producton quanttes are smallern saving inventory holding costs while
increasing fexibility in producton and distributon.
4. Development of electronic commerce procurement has become more efcientn
distributon has become more directn with less stock between factory and market. Shorter
chains are more responsive.
5. Smaller organizatons organizatons are being reduced by both downsizing and
outsourcing. One outcome is the virtual organizaton. Core competences are done in house
and other supportng actvites are performed outside the organizaton.
The global supply chain begins with the customer and walks through fve successive stagesm
distributonn fnal manufacturing/assemblyn frst ter suppliersn second ter suppliers to basic
materials.
- Informaton fows in both directonsm orders and transactons move toward the source of
supply.
4
