B200B Nadia Ayoub

TMA 1 ID#: 5595

Supply Chain Management

If a company makes a product from parts purchased from suppliers,

and those products are sold to customers, then this is called supply chain.
A supply chain is a structure of organizations, technologies,
information, activities, raw material, and people who work together to move
a product or service from supplies to customers. Its activities involve
transforming the raw material into finished products that can be delivered to
end uses. Therefore supply chain is a network of retailers, distributors,
transporters, warehouses, and suppliers that contribute in the manufacture,
deliverance, and sale of a product to the consumer.

Figure 1 1
Supply Chain Management (SCM) is the management of an entire
network of interconnected businesses that work jointly to design, produce,
deliver, market, and service products. It is the way a company finds the raw
material it needs to make a product or service and deliver it to customers in
the right way. It is the supervision of materials, information, and finances as
they move in a process from supplier to manufacturer to wholesaler to
retailer to consumer.
“Supply Chain Management is the systemic, strategic coordination of the
traditional business functions and the tactics across these business functions
within a particular company and across businesses within the supply chain,
for the purposes of improving the long-term performance of the individual
companies and the supply chain as a whole (Mentzer et al., 2001)”. 2

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B200B Nadia Ayoub
TMA 1 ID#: 5595

Figure 2 3
Supply chain diagram

black arrow - flow of materials, information and finances

grey arrow - flow of information, finances and backhauls
a - initial supplier
b - supplier
c - manufacturer
d - wholesales
e - customer

Supply Chain Management is not a business function, rather it is a new

business model necessary for an organization's success and everyone in the
organization needs to be involved. By understanding the supply chain
management processes and how they should be implemented, management
will better understand the value of more integrated supply chains and how
this integration will lead to increased shareholder value and a sustainable
competitive advantage. Supply chain is made up of several elements that are
linked by the movement of products along it. The supply chain starts and
ends with the customer.

Customer: The customer starts the chain of events when they decide to
purchase a product that has been offered for sale by a company. The
customer contacts the sales department of the company, which enters the
sales order for a specific quantity to be delivered on a specific date. If the
product has to be manufactured, the sales order will include a requirement
that needs to be fulfilled by the production facility.

Planning: The requirement triggered by the customer’s sales order will be

combined with other orders. The planning department will create a
production plan to produce the products to fulfill the customer’s orders. To

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TMA 1 ID#: 5595

manufacture the products the company will then have to purchase the raw
materials needed.

Purchasing: The purchasing department receives a list of raw materials

and services required by the production department to complete the
customer’s orders. The purchasing department sends purchase orders to
selected suppliers to deliver the necessary raw materials to the
manufacturing site on the required date.

Inventory: The raw materials are received from the suppliers, checked for
quality and accuracy and moved into the warehouse. The supplier will then
send an invoice to the company for the items they delivered. The raw
materials are stored until they are required by the production department.

Production: Based on a production plan, the raw materials are moved

inventory to the production area. The finished products ordered by the
customer are manufactured using the raw materials purchased from
suppliers. After the items have been completed and tested, they are stored
back in the warehouse prior to delivery to the customer.

Transportation: When the finished product arrives in the warehouse, the

shipping department determines the most efficient method to ship the
products so that they are delivered on or before the date specified by the
customer. When the goods are received by the customer, the company will
send an invoice for the delivered products.

The central aim of supply chain management, to have the right

products in the right quantities (at the right place) at the right moment at
minimal cost, is translated into the interrelated issues of customer
satisfaction, inventory management, and flexibility. Customer satisfaction is
to a high degree dependent on the flexibility of the supply chain. Flexibility
is often imperfect because of long lead times, uncertainties, and unforeseen
event. To counterbalance this lack of flexibility companies will keep

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TMA 1 ID#: 5595

inventories at various levels of the supply chain. Balancing the costs of

imperfect customer satisfaction and holding inventory is a classic issue of
logistics and supply chain management.

Optimizing the supply chain requires understanding the market and

analyzing the areas that have the greatest impact on the business process.
Supply chain is a part of companies’ competitive advantage. No producer is
an island nor can any organization work independently from its supply
chain. Every organization works in teams or supply chains. So if any part of
your chain is weak then the whole business model becomes
weak. Wastes and inefficiencies that cannot be passed on to the customer
result in costs and low profits for the producer. In order to manage supply
chain the organization should bring together your suppliers and customers to
discuss uncompetitive issues that has bee discovered. They all have to
brainstorm as a group to solve the problem. Once everyone in the supply
chain is working together as a team then the organization will no longer have
just any old supply chain. Instead, the organization will have a value chain, a
chain that creates value for its participants.

The value chain is a systematic approach to examining the

development of competitive advantage. It was created by M. E. Porter in his
book, Competitive Advantage (1980). The chain consists of a series of
activities that create and build value. They culminate in the total value
delivered by an organization. The 'margin' depicted in the diagram is the
same as added value. The organization is split into 'primary activities' and
'support activities.
The primary activities are those that are directly concerned with
creating and delivering a product, and supporting activities which whilst
they are not directly involved in production, may increase effectiveness or
efficiency (e.g. human resource management). It is rare for a business to
undertake all primary and support activities. Value Chain Analysis is one
way of identifying which activities are best undertaken by a business and
which are best provided by others.

What activities a business undertakes is directly linked to achieving

competitive advantage. For example, a business which wishes to outperform
its competitors through differentiating itself through higher quality will have

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TMA 1 ID#: 5595

to perform its value chain activities better than the opposition. By contrast, a
strategy based on seeking cost leadership will require a reduction in the costs
associated with the value chain activities, or a reduction in the total amount
of resources used.
Primary Activities include Inbound Logistics, Operations,
Outbound, Logistics, Marketing and Sales, and Service.

Inbound Logistics where goods are received from a company's

suppliers. They are stored until they are needed on the
production/assembly line. Goods are moved around the organisation.
Operations is where goods are manufactured or assembled. Individual
operations could include room service in an hotel, packing of
books/videos/games by an online retailer, or the final tune for a new car's
engine. Outbound Logistics is when goods are now finished, and they need
to be sent along the supply chain to wholesalers, retailers or the final
consumer.
Marketing and Sales is the stage where the organisation prepares the
offering to meet the needs of targeted customers. This area focuses
strongly upon marketing communications and the promotions
mix.Service includes all areas of service such as installation, after-
sales service, complaints handling, training and so on.

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B200B Nadia Ayoub
TMA 1 ID#: 5595

Support Activities include Procurement, Technology Development, Human

Resource Management (HRM), and Firm Infrastructure.

Procurement is a function that is responsible for all purchasing of

goods, services and materials. The aim is to secure the lowest possible
price for purchases of the highest possible quality. They will be
responsible for outsourcing (components or operations that would
normally be done in-house are done by other organisations), and
ePurchasing (using IT and web-based technologies to achieve
procurement aims).

Technology Development is an important source of competitive

advantage. Companies need to innovate to reduce costs and to protect and
sustain competitive advantage. This could include production technology,
Internet marketing activities, lean manufacturing, Customer Relationship
Management (CRM), and many other technological developments.
Human Resource Management (HRM) where employees are an
expensive and vital resource. An organization would manage recruitment
and s election, training and development, and rewards and remuneration.
The mission and objectives of the organization would be driving force
behind the HRM strategy.

Firm Infrastructure includes and is driven by corporate or strategic

planning. It includes the Management Information System (MIS), and
other mechanisms for planning and control such as the accounting
department.

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B200B Nadia Ayoub
TMA 1 ID#: 5595

Organizations increasingly find that they must rely on effective supply

chains, or networks, to compete in the global market and networked
economy. New management paradigms, is the concept of business
relationships extends beyond traditional enterprise boundaries and seeks to
organize entire business processes throughout a value chain of multiple
companies.

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B200B Nadia Ayoub
TMA 1 ID#: 5595

References:
1. Chen,Paulraj (2004): A company's supply chain (en).png,
http://en.wikipedia.org/wiki/File:A_company's_supply_chain_(en).png,
2. Mentzer, J.T. et. al. (2001): Defining Supply Chain Management, in:
Journal of Business Logistics, Vol. 22, No. 2, 2001, pp. 1–25
3. Maly LOLek, (May 2007): Supply chain.svg
http://en.wikipedia.org/wiki/File:Supply_chain.svg,