Table of Contents

1.1 Physical Flows.................................................................................................................. 3

1.2 Information Flows ............................................................................................................ 3
2 The Importance of Supply Chain Management ...................................................................... 3
2.1 Boost Customer Service ................................................................................................... 3
2.2 Reduce Operating Costs ................................................................................................... 4
2.2.1 Decreases Purchasing Cost ....................................................................................... 4
2.2.2 Decreases Production Cost ....................................................................................... 4
2.2.3 Decreases Total Supply Chain Cost .......................................................................... 4
2.3 Improve Financial Position .............................................................................................. 4
2.3.1 Decreases Fixed Assets ............................................................................................. 4
2.3.2 Increases Cash Flow ................................................................................................. 5
3 Societal Roles of SCM ............................................................................................................ 5
3.1 Ensure Human Survival ................................................................................................... 5
3.1.1 SCM Helps Sustains Human Life ............................................................................. 5
3.1.2 SCM Improves Human Healthcare ........................................................................... 5
3.1.3 SCM Protects Humans from Climate Extremes ....................................................... 5
3.2 Improve Quality of Life ................................................................................................... 6
3.2.1 Foundation for Economic Growth ............................................................................ 6
3.2.2 Improves Standard of Living .................................................................................... 6
3.2.3 Job Creation .............................................................................................................. 6
3.2.4 Opportunity to Decrease Pollution............................................................................ 6
3.2.5 Opportunity to Decrease Energy Use ....................................................................... 7
3.3 Protect Cultural Freedom and Development .................................................................... 7
3.3.1 Defending Human Freedom ...................................................................................... 7
3.3.2 Protects Delivery of Necessities ............................................................................... 7
4 Supply Chain Management Concepts ..................................................................................... 8
4.1 The Seven Rights of Fulfillment ...................................................................................... 8
4.2 SCM Flows....................................................................................................................... 8
4.3 SCM Processes ................................................................................................................. 9
4.4 Seven Principles of SCM ............................................................................................... 10
 Supply Chain Management
Supply chain management (SCM) is the active management of supply chain activities to maximize
customer value and achieve a sustainable competitive advantage. It represents a conscious effort
by the supply chain firms to develop and run supply chains in the most effective & efficient ways
possible. Supply chain activities cover everything from product development, sourcing,
production, and logistics, as well as the information systems needed to coordinate these activities.
The concept of Supply Chain Management (SCM) is based on two core ideas:

 The first is that practically every product that reaches an end user represents the cumulative
effort of multiple organizations. These organizations are referred to collectively as the
supply chain.
 The second idea is that while supply chains have existed for a long time, most organizations
have only paid attention to what was happening within their “four walls.” Few businesses
understood, much less managed, the entire chain of activities that ultimately delivered
products to the final customer. The result was disjointed and often ineffective supply
chains.

The organizations that make up the supply chain are “linked” together through physical flows and
information flows.

1.1 Physical Flows

Physical flows involve the transformation, movement, and storage of goods and materials. They
are the most visible piece of the supply chain. But just as important are information flows.

1.2 Information Flows

Information flows allow the various supply chain partners to coordinate their long-term plans, and
to control the day-to-day flow of goods and materials up and down the supply chain.

2 The Importance of Supply Chain Management

It is well known that supply chain management is an integral part of most businesses and is
essential to company success and customer satisfaction.

2.1 Boost Customer Service

 Customers expect the correct product assortment and quantity to be delivered.
 Customers expect products to be available at the right location. (i.e., customer satisfaction
diminishes if an auto repair shop does not have the necessary parts in stock and can’t fix
your car for an extra day or two).
  Right Delivery Time – Customers expect products to be delivered on time (i.e., customer
satisfaction diminishes if pizza delivery is two hours late or Christmas presents are
delivered on December 26).
 Right After Sale Support – Customers expect products to be serviced quickly. (i.e.,
customer satisfaction diminishes when a home furnace stops operating in the winter and
repairs can’t be made for days)

2.2 Reduce Operating Costs

2.2.1 Decreases Purchasing Cost
Retailers depend on supply chains to quickly deliver expensive products to avoid holding costly
inventories in stores any longer than necessary. For example, electronics stores require fast
delivery of 60” flat-panel plasma HDTV’s to avoid high inventory costs.

2.2.2 Decreases Production Cost

Manufacturers depend on supply chains to reliably deliver materials to assembly plants to avoid
material shortages that would shut down production. For example, an unexpected parts shipment
delay that causes an auto assembly plant shutdown can cost $20,000 per minute and millions of
dollars per day in lost wages.

2.2.3 Decreases Total Supply Chain Cost

Manufacturers and retailers depend on supply chain managers to design networks that meet
customer service goals at the least total cost. Efficient supply chains enable a firm to be more
competitive in the market place. For example, Dell’s revolutionary computer supply chain
approach involved making each computer based on a specific customer order, then shipping the
computer directly to the customer. As a result, Dell was able to avoid having large computer
inventories sitting in warehouses and retail stores which saved millions of dollars. Also, Dell
avoided carrying computer inventories that could become technologically obsolete as computer
technology changed rapidly.

2.3 Improve Financial Position

Increases Profit Leverage – Firms value supply chain managers because they help control and
reduce supply chain costs. This can result in dramatic increases in firm profits. For instance, U.S.
consumers eat 2.7 billion packages of cereal annually, so decreasing U.S. cereal supply chain costs
just one cent per cereal box would result in $13 million dollars saved industry-wide as 13 billion
boxes of cereal flowed through the improved supply chain over a five year period.

2.3.1 Decreases Fixed Assets

 Firms value supply chain managers because they decrease the use of large fixed assets such
as plants, warehouses and transportation vehicles in the supply chain. If supply chain
 experts can redesign the network to properly serve U.S. customers from six warehouses
rather than ten, the firm will avoid building four very expensive buildings.

2.3.2 Increases Cash Flow

 Firms value supply chain managers because they speed up product flows to customers. For
example, if a firm can make and deliver a product to a customer in 10 days rather than 70
days, it can invoice the customer 60 days sooner.
 Lesser known, is how supply chain management also plays a critical role in society. SCM
knowledge and capabilities can be used to support medical missions, conduct disaster relief
operations, and handle other types of emergencies.

Whether dealing with day-to-day product flows or dealing with an unexpected natural disaster,
supply chain experts roll up their sleeves and get busy. They diagnose problems, creatively work
around disruptions, and figure out how to move essential products to people in need as efficiently
as possible.

3 Societal Roles of SCM

3.1 Ensure Human Survival
3.1.1 SCM Helps Sustains Human Life
Humans depend on supply chains to deliver basic necessities such as food and water. Any
breakdown of these delivery pipelines quickly threatens human life. For example, in 2005,
Hurricane Katrina flooded New Orleans, LA leaving the residents without a way to get food or
clean water. As a result, a massive rescue of the inhabitants had to be made. During the first
weekend of the rescue effort, 1.9 million meals and 6.7 million liters of water were delivered.

3.1.2 SCM Improves Human Healthcare

Humans depend on supply chains to deliver medicines and healthcare. During a medical
emergency, supply chain performance can be the difference between life and death. For example,
medical rescue helicopters can save lives by quickly transporting accident victims to hospitals for
emergency medical treatment. In addition, the medicines and equipment necessary for treatment
will be available at the hospital as a result of excellent supply chain execution.

3.1.3 SCM Protects Humans from Climate Extremes

Humans depend on an energy supply chain to deliver electrical energy to homes and businesses
for light, heat, refrigeration and air conditioning. Logistical failure (a power blackout) can quickly
result in a threat to human life. For example, during a massive East Coast ice storm in January
1998, 80,000 miles of electrical power lines fell resulting in no electricity for 3,200,000 Montreal,
Quebec residents. Due to extreme cold, 30 died and 25% of all Quebec residents left home to seek
heated shelter. In addition, economic costs included $3 billion in lost business, $1 billion in home
damage and $1 billion in government expenditures.

3.2 Improve Quality of Life

3.2.1 Foundation for Economic Growth
Societies with a highly developed supply chain infrastructure (modern interstate highway system,
vast railroad network, numerous modern ports and airports) are able to exchange many goods
between businesses and consumers quickly and at low cost. As a result, the economy grows. In
fact, the one thing that most poor nations have in common is no or a very poorly developed supply
chain infrastructure.

3.2.2 Improves Standard of Living

Societies with a highly developed supply chain infrastructure (modern interstate highway system,
vast railroad network, numerous modern ports and airports) are able to exchange many goods
between businesses and consumers quickly and at low cost. As a result, consumers can afford to
buy more products with their income thereby raising the standard of living in the society. For
instance, it is estimated that supply chain costs make up 20% of a product’s cost in the U.S. but
40% of a product’s cost in China. If transport damage is added in, these costs make up 60% of a
product’s cost in China. The high Chinese supply chain cost is a major impediment to improving
the standard of living for Chinese citizens. Consequently, China has embarked on a massive effort
to develop its infrastructure.

3.2.3 Job Creation

Supply chain professionals design and operate all of the supply chains in a society and manage
transportation, warehousing, inventory management, packaging and logistics information. As a
result, there are many jobs in the supply chain field. For example, in the U.S., logistics activities
represent 9.9% of all dollars spent on goods and services in 2006. This translates into 10,000,000
U.S. logistics jobs.

3.2.4 Opportunity to Decrease Pollution

Supply chain activities require packaging and product transportation. As a by-product of these
activities, some unwanted environmental pollutants such as cardboard waste and carbon dioxide
fuel emissions are generated. For example, paper and paperboard accounted for 34% of U.S.
landfill waste in 2005. Only 50% of the 84 million tons of paper and paperboard waste were
recycled. Also, carbon dioxide emissions from transportation accounted for 33% of total U.S. CO2
emissions in 2005. As designers of the network, supply chain professionals are in a key position
to develop more sustainable processes and methods.
3.2.5 Opportunity to Decrease Energy Use
Supply chain activities involve both human and product transportation. As a by-product of these
activities, scarce energy is depleted. For example, currently transportation accounts for 30% of
world energy use and 95% of global oil consumption. As designers of the network, supply chain
professionals have the role of developing energy-efficient supply chains that use fewer resources.

3.3 Protect Cultural Freedom and Development

3.3.1 Defending Human Freedom
Citizens of a country depend on military logistics to defend their way of life from those who seek
to end it. Military logisticians strategically locate aircraft, ships, tanks, missiles and other weapons
in positions that provide maximum security to soldiers and other citizens. Also, superior logistics
performance yields military victory. For example, the B-2 Stealth Bomber is able to deliver bombs
to target without being detected by enemy radar.

3.3.2 Protects Delivery of Necessities

Citizens of a country depend on supply chain managers to design and operate food, medicine and
water supply chains that protect products from tampering. Sophisticated packaging techniques,
state of the art surveillance cameras, global positioning systems and RFID inventory tracking are
some of the methods used to deter terrorists from accessing these vital logistics systems.

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4 Supply Chain Management Concepts
Shortly after your alarm clock goes off and the coffee maker kicks on, the aroma of your favorite
coffee fills the air. The supply chain is responsible for getting those coffee beans across the world
and to your kitchen. Something so common in every household, takes a great deal of planning,
demand forecasting, procurement, and logistical expertise to move those beans to local sellers
while still fresh. Without a strong supply chain in place, your caffeine-fix options would be
severely limited.

SCM involves a series of key activities and processes that must be completed in an efficient (fuel-
conserving, cost-reducing, etc.) and timely manner. Otherwise, product will not be available when
needed by consumers like you.

4.1 The Seven Rights of Fulfillment

The ability to meet customer requirements, for everything from coffee beans to Crocs, is built upon
the expectation that everything is done correctly in the supply chain. And that means doing it right
the first time – no mulligans, no mistakes are allowed. In the quest to provide quality service and
satisfy customers, world-class companies along the supply chain are guided by the Seven Rights
of Fulfillment.

If you think about it, every order needs to be executed according to these seven goals. You must
attempt to deliver a “perfect order” to every customer every time. Doing it right the first time
makes the customer happy, saves the cost of fixing errors, and doesn't require extra use of assets.
Thus, every part of the organization has a vested interest in pursuing perfection.

A “perfect order” delivery is only attained when all Seven Rights of Fulfillment are achieved. To
accomplish a perfect order fulfillment, the seller has to have your preferred product available for
order, process your order correctly, ship the entire order via the means that you request, provide
you with an advanced shipping notification and tracking number, deliver the complete order on
time and without damage, and bill you correctly. A seller’s ultimate goal is to make the customer
happy by doing the job right, which gives them a good reason to use the seller’s services again in
the future.

4.2 SCM Flows

If the goal of SCM is to provide high product availability through efficient and timely fulfillment
of customer demand, then how is the goal accomplished?

Obviously, you need effective flows of products from the point of origin to the point of
consumption. But there’s more to it. Consider the diagram of the fresh food supply chain. A two-
way flow of information and data between the supply chain participants creates visibility of
demand and fast detection of problems. Both are needed by supply chain managers to make good
decisions regarding what to buy, make, and move.

Other flows are also important. In their roles as suppliers, companies have a vested interest in
financial flows; suppliers want to get paid for their products and services as soon as possible and
with minimal hassle. Sometimes, it is also necessary to move products back through the supply
chain for returns, repairs, recycling, or disposal.

Because of all the processes that have to take place at different types of participating companies,
each company needs supply chain managers to help improve their flows of product, information,
and money. This opens the door of opportunity to you to to a wide variety of SCM career options
for you!

4.3 SCM Processes

Supply chain activities aren't the responsibility of one person or one company. Multiple people
need to be actively involved in a number of different processes to make it work.
It's kind of like baseball. While all the participants are called baseball players, they don't do
whatever they want. Each person has a role – pitcher, catcher, shortstop, etc. – and must perform
well at their assigned duties – fielding, throwing, and/or hitting – for the team to be successful.

Of course, these players need to work well together. A hit-and-run play will only be successful if
the base runner gets the signal and takes off running, while the batter makes solid contact with the
ball. The team also needs a manager to develop a game plan, put people in the right positions, and
monitor success.

Winning the SCM “game” requires supply chain professionals to play similar roles. Each supply
chain player must understand his or her role, develop winning strategies, and collaborate with their
supply chain teammates. By doing so, the SCM team can flawlessly execute the following
processes:

 Planning – the plan process seeks to create effective long- and short-range supply chain
strategies. From the design of the supply chain network to the prediction of customer
demand, supply chain leaders need to develop integrated supply chain strategies.
 Procurement – the buy process focuses on the purchase of required raw materials,
components, and goods. As a consumer, you're pretty familiar with buying stuff!
 Production – the make process involves the manufacture, conversion, or assembly of
materials into finished goods or parts for other products. Supply chain managers provide
production support and ensure that key materials are available when needed.
 Distribution – the move process manages the logistical flow of goods across the supply
chain. Transportation companies, third party logistics firms, and others ensure that goods
are flowing quickly and safely toward the point of demand.
  Customer Interface – the demand process revolves around all the issues that are related
to planning customer interactions, satisfying their needs, and fulfilling orders perfectly.

4.4 Seven Principles of SCM

More than ten years ago, a research study of 100+ manufacturers, distributors, and retailers
uncovered some widely used supply chain strategies and initiatives. These ideas and practices were
distilled down to seven principles and presented in an article in Supply Chain Management
Review, a magazine widely read by SCM professionals.

 Principle 1: Segment customers based on the service needs of distinct groups and adapt
the supply chain to serve these segments profitably.
 Principle 2: Customize the logistics network to the service requirements and profitability
of customer segments.
 Principle 3: Listen to market signals and align demand planning accordingly across the
supply chain, ensuring consistent forecasts and optimal resource allocation.
 Principle 4: Differentiate product closer to the customer and speed conversation across the
supply chain.
 Principle 5: Manage sources of supply strategically to reduce the total cost of owning
materials and services.
 Principle 6: Develop a supply chain-wide technology strategy that supports multiple levels
of decision making and gives clear view of the flow of products, services, and information.
 Principle 7: Adopt channel-spanning performance measures to gauge collective success
in reaching the end-user effectively and efficiently.

Though they are more than a decade old, these timeless principles highlight the need for supply
chain leaders to focus on the customer. They also stress the importance of coordinating activities
(demand planning, sourcing, assembly, delivery, and information sharing) within and across
organizations.

Here's an excerpt from the article:

“Managers increasingly find themselves assigned the role of the rope in a very real tug of war—
pulled one way by customers’ mounting demands and the opposite way by the company’s need
for growth and profitability. Many have discovered that they can keep the rope from snapping and,
in fact, achieve profitable growth by treating supply chain management as a strategic variable.”
These savvy managers recognize two important things:

 They think about the supply chain as a whole—all the links involved in managing the flow
of products, services, and information from their suppliers' suppliers to their customers'
customers (that is, channel customers, such as distributors and retailers).
 They pursue tangible outcomes—focused on revenue growth, asset utilization, and cost.”
Source: David L. Anderson, Frank F. Britt, and Donavon J. Favre, “The Seven Principles of
Supply Chain Management, Supply Chain Management Review, (1997).

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