Category Archives: Supply Chain Management

The Evolution of Supply Chain Management

The Evolution of Supply Chain Management

Supply chain management is a relatively new concept in business. Previously, management theory suggested that the overall efficiency of etechnical core or production function could be significantly improved if the core could be isolated or-buffered to the greatest extent possible from an often erratic and uncertain external environment. In order to isolate the technical core from suppliers (and also customers), companies established significant inventories of raw material and finished goods, as shown in  Exhibit 13.2A. While this approach produced highly efficient operations, it simultaneously  are the careless responsive to changes in the marketplace. This inability to react quickly to changes in customer demand, preferences, and so forth was caused primarily by the significant amounts of raw material and finished goods inventories that were maintained, and that first had to be depleted before the firm could begin supplying customers with new product. Within this type of operating environment, companies very often had an antagonistic relationship with their suppliers. Every item that was purchased had several vendors.  here
vendors were played off against each other in order to obtain the lowest possible price, which was the primary criterion for being awarded a contract. Suppliers, recognizing that this relationship could very likely be terminated with the next contract, invested minimal time and money to address the specific needs of individual customers. Because of this short-term perspective. very little information was shared between these firms. Under such conditions the purchasing function within a manufacturing company often reported to the operations manager, and its primary objective was to purchase raw material and components at the lowest possible cost. Today, companies are working more closely  with their suppliers so that they can be more responsive to the changing needs of their customers. In so doing, they are significantly reducing, and in some cases eliminating. these previously established buffer inventories, as

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Definition of Supply Chain Management

Definition of Supply Chain Management

Exhibit 13.1 shows the major elements in a firm's supply chain. in terms of tho e organizations with which it deals directly. The issues associated with the delivery of these products to the ~rm are referred to as inbound logistics. After the firm has added value by transforming  the purchased goods and services, the finished products are then delivered to its   ustomers and/or distributors. Similarly. the issues associated with the delivery of these products to the firm's customers and/or distributors are referred to as outbound logistics. From a larger perspective, a supply chain can be defined as a group of organizations that perform the various processes that are required to make a finished product. Here the chain would begin with the actual raw materials and end with the fine. head product that is delivered to the end user or final customer. For example. if the finished product is a piece inbound logistics of wood furniture, then the supply chain, going backwards from the customer. would include (a) the retail operation where the furniture was purchased. (b) the shipping company that delivered it, (e) the furniture manufacturer, (d) the hardware manufacturer. and (e) the lumber companies that harvested the wood from the forests. If the end product i fre. h fish fillets that are sold at a supermarket. then the supply chain would include (a) the supermarket, (b) the fresh fish supplier who delivered the fi h. (e) the f h process. or  ho filleted them. and (d) the fishermen who caught them.

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The structure of the supply chain can vary dramatically for different companies, even within the same industry. In addition, the role of an organization with respect to its span or degree of control over the supply chain can vary significantly. As an example, compare the supply chain for fish sold in a typical supermarket. described above, with that of Spenger's, a long-established fish market and seafood restaurant located in Berkeley. California. Until recently. many of the various types of fish sold in its market and restaurant were caught on its own fishing boats and processed in its own operation. (Spenger's, founded in 1890, sold the last of its fishing boats in 1994 with the retirement of its owner and now buys fish either  through brokers or from fishermen who ~work exclusively for Spenger's.) As an another illustration, Henry  Ford, in order to support his huge River Rouge automobile plant just outside of Detroit, Michigan. invested heavily in iron ore mines, forests, coal mines, and even cargo ships that transported raw material on the Great Lakes. His goal was to gain total control over his supply chain (which, in the end, he realized was not possible). The greater the degree or span of control that a firm has with respect to its supply chain, the   vertically integrated it is said to be. In other words, Ford's operation could be described as being very vertically integrated in comparison to other automotive manufacturers who focused solely on the manufacture and assembly of the cars themselves. Supply chain management, therefore, can be defined as the ability of a firm to work with its suppliers to provide high-quality material and components that are competitively priced. The closeness of the relationship between vendor and customer, in ljIlanyrespects, differentiates one type of supply chain from another. The adoption of the term supply chain management in lieu of materials management or purchasing reflects top management's recognition. of the strategic role of suppliers in contributing to the long-term success of the firm.

Managerial issues

Managerial issues

In recent years, managers have continued to focus their efforts on supply chain issues for several reasons. First, in
order to be more responsive to the constantly changing needs of their customers, companies are concentrating their resources on their core competencies. With this a rower focus, firms are now buying a sulDgtantially'g'reader proportion of the goods and services that go into their product  than was previously the norm. In many cases, for example,  the cost of the purchased raw materials and components 60 percent (and often higher) of the cost of goods sold. As a result there is now greater dependency on suppliers and the need to develop long-term supplier relationships. In addition, the logistical costs (that is, the transportation and distribution costs) associated with the delivery of products has continued to increase, as firms are now able to extend their supply chains to the far corners of the world. To further complicate matters, there is increasing pressure on managers to reduce their inventories, thereby placing further dependence on their suppliers. To address the need to reduce inventories, managers have introduced  such concepts as consignment inventories and supplier-(or vendor-) managed inventories (SMI or Van, which we will discuss in this chapter. Advances in information technology have provided managers with a wide assortment of t oils that allow them to better oversee their firms' supply chains. These include electronic data interchange (EDI) and business- business (828) marketplaces. This increased emma- . sis on a firm's supply chain has caused. a dramatic shift in the role of the purchasing function. In the past, the purchasing function was typically viewed as being primarily a transactions-oriented function. N wit is seen by many firms as playing a more strategic role in determining the overall long-term success of the firm.

Supply Chain Management

SOLECTRON’S TIGHT SUPPLY  CHAIN IS A KEY FACTOR IN ITS SUCCESS

Most of us have probably never heard of Solectron, but almost all of us come in contact every day with the products it makes. Solectron Corporation n is one of a growing number of firms ~at are referred to as contract manufacturers. These  firms don’t manufacture. products under their wn brand name but, instead, produce brand name items such as printers and printer components for Hewlett Packard and computers and computer components for IBM. Solestron’s ability 10 playa critical role in  the supply, chain of these original equipment manufacturers (OEMs) is clearly demonstrated by its significant market share in a highly competitive industry. Solectron focuses on providing its outsourcing customers with significant competitive advantages in the form of access to advanced manufacturing technologies, reduced time-to-market, lower production costs, and more effective use of assets. Its continued commitment to excellence is evidenced by the fact that it is the only manufacturing firm to ever  in the pre tedious Malcolm Baldrige National Quality Award twice (in 1991 and again in 1997). Solectron plays a key role in the supply chain tor-these OEMs by providing a seamless relationship in dealing with these firms’ customers, For example, orders placed with the OEMs are usually transmitted directly to a Solectron plant to be filled. Once the product is made, it is then shipped directly to the customer with the OEM’s label. From the customer’s perspective,
they are dealing only with the OEM. Effective supply chain management with respect to its suppliers is also a contributing  factor to Solectron’s success. With 75 percent of its revenues going to purchase materials,components, and other items frcm its suppliers, it needs to have strong relationships with  suppliers who are very reliable.Source: Malcolm Baldrige National Quality Award-Profiles of Aw-ard Recipients. (http.z/www.quajtyrrust.Jove

Supply Chain Management

Chapter Objectives

• Introduce the concept of a firm’s supply chain and show how it has evolved over time to its present status.
• Identify current trends that are affecting the characteristics of a supply chain.
• Present the requirements necessary for a successful supply chain.
• Discuss the impact of technology on a firm’s supply chain.
• Define in-transit inventory costs and show how the” I he purchasing decision.