11 Understand|ng the Supp|y Cha|n

O CperaLlons managemenL analysls of only a flrm

O pply Chaln analysls of Lhe whole process whlch make Lhe prodcL's compeLlLlve ln
markeL
pply chaln ls parL of operaLlons managemenL
12 Supp|y Cha|n Management 1he Magn|tude |n the trad|t|ona| v|ew
O sLlmaLed LhaL Lhe grocery lndsLry cold save $30 bllllon (10 of operaLlng CosLs) by slng
effecLlve loglsLlcs and spply chaln sLraLegles
A Lyplcal box of cereal spends 104 days from facLory Lo sale
A Lyplcal car spends 13 days from facLory Lo dealershlp


Chaln of venLs
permarkeL
WheaL+ sgar (raw maLerlals) manfacLrer loglsLlcs wholesale cereal csLomers
pply managemenL lnvolves Lhe managemenL of all Lhese processes 1he lmporLance of lnvenLory
ls broghL oL Why do flrms have lnvenLory? AvallablllLy Lo csLomers lnvenLory cosLs money and
ln Lhe case of cereal lL may go bad slnce lL ls perlshable

Pow do spermarkeLs calclaLe lnvenLory? Pow do Lhey go aboL when Lhey rn oL of sLock?

1hls ls done de Lo relaLlonshlps beLween spermarkeL sppllers and so on 1he relaLlonshlp ls a
fndamenLal Lhlng Lo have lor example de Lo bad weaLher sLocks rn oL 1hs Lhey need good
relaLlonshlps Lo Lhe agenL

13 Supp|y Cha|n Management 1he 1rue Magn|tude

Compaq esLlmaLes lL losL $03 bllllon Lo $1 bllllon ln sales ln 1993 becase lapLops were noL avallable
when and where needed
When Lhe 1 glg processor was lnLrodced by AMu Lhe prlce of Lhe 800mb processor dropped by
30

14 What |s a Va|ue Cha|n?

#1he collecLlon of acLlvlLles wlLhln Lhe flrm Lo deslgn prodce markeL dellver and spporL lLs
prodcLs and servlces'

vale ls creaLed wlLhln a flrm Lhrogh Lhe processes whlch lnLeracL LogeLher
O L 70 of every dollar spenL by manfacLrlng companles ls on
A vale chaln ls Lhs a seqence of bslness fncLlons ln whlch LlllLy (seflness) ls added Lo
prodcLs or servlces as Lhey move from sppller Lo end csLomer



vale added process Lo a flrm 1he processes ln a flrm add vale Lo Lhe raw maLerlals
vale chalns are ofLen vlewed llke a rlver psLream and downsLream






O All flrms have vale chalns
O vale chalns are compromlsed of lnLerrelaLed acLlvlLles called prlmary and spporL acLlvlLles
O Pow flrms conflgre Lhelr vale chalns can provlde compeLlLlve advanLage (or dlsadvanLage)



1he 3 prlmary acLlvlLles are
lnbond loglsLlcs LransporL
CperaLlons LransformaLlon
CLbond loglsLlcs LransporL CLslde
MarkeLlng and sales markeLlng of Lhe prodcL
ervlce

1wo cenLral processes Lo Lhe lnLrodcLlon of managemenL
O CperaLlons
O MarkeLlng


















(lnformaLlcs noLes) 1he vale chaln concepL was developed by Mlchael orLer and ls lllsLraLed
herender


lL vlews a flrm as a serles chaln or neLwork of baslc acLlvlLles LhaL add vale Lo lLs prodcLs and
servlces and Lhs add a margln of vale Lo boLh Lhe flrm and lLs csLomers ln Lhe vale chaln
concepLal framework some bslness acLlvlLles are prlmary processes oLher are spporL processes

9r|mary processes are Lhose bslness acLlvlLles LhaL are dlrecLly relaLed Lo Lhe manfacLrlng of
prodcLs or Lhe dellvery of servlces Lo Lhe csLomer ln conLrasL support processes are Lhose
bslness acLlvlLles LhaL help spporL Lhe dayLoday rnnlng of Lhe bslness and LhaL lndlrecLly
conLrlbLe Lo Lhe prodcLs or servlces of Lhe organlzaLlon 1hls framework can hlghllghL where
compeLlLlve sLraLegles can besL be applled ln a bslness

y referrlng back Lo Lhe vale chaln we can see an example of how and where lnformaLlon
Lechnologles can be applled Lo baslc bslness processes lor example Lhe flgre lllsLraLes LhaL
collaboraLlve workflow lnLraneLs can lncrease Lhe commnlcaLlon and collaboraLlon reqlred Lo
lmprove admlnlsLraLlve coordlnaLlon and spporL servlces dramaLlcally An employee beneflLs
lnLraneL can help Lhe hman resorces managemenL fncLlon provlde employees wlLh easy self
servlce access Lo Lhelr beneflLs lnformaLlon xLraneLs enable a company and lLs global bslness
parLners Lo se Lhe Web Lo [olnLly deslgn prodcLs and processes llnally ecommerce Web porLals
can dramaLlcally lmprove procremenL of resorces by provldlng onllne markeLplace for a flrm's
sppllers

xamples of sLraLeglc appllcaLlons of lnformaLlon sysLems Lechnology Lo prlmary bslness processes
are also ldenLlfled by Lhe vale chaln model 1hese lnclde aLomaLed [sLlnLlme warehoslng
sysLem Lo spporL lnbond loglsLlc processes lnvolvlng Lhe sLorage of lnvenLory compLeralded
flexlble manfacLrlng sysLems for manfacLrlng operaLlons and onllne polnLofsale and order
processlng sysLems Lo lmprove Lhe oLbond loglsLlcs processes LhaL process csLomer orders
lnformaLlon sysLems can also spporL markeLlng and sales processes by developlng an lnformaLlon
sysLem LhaL can spporL markeLlng capablllLy on Lhe lnLerneL and Lhe Web llnally csLomer servlce
can be dramaLlcally lmproved by a coordlnaLed and lnLegraLed csLomer relaLlonshlp managemenL
sysLem

1hs Lhe vale chaln concepL can help yo ldenLlfy where and how Lo apply Lhe sLraLeglc capablllLles
of lnformaLlon Lechnology

1S What |s a va|ue Cha|n Integrat|on?

vale Chaln lnLegraLlon lnvolves brlnglng LogeLher dlfferenL grops fncLlons or organlsaLlons
elLher formally or lnformally physlcally or by lnformaLlon Lechnology Lo work [olnLly and ofLen
concrrenLly on a common bslnessrelaLed asslgnmenL prpose

very flrm ls llnked p Lo oLher flrms WhaL ls lmporLanL ls LhaL Lhe vale chaln of flrms are
lnLegraLed LogeLher 1hls lnLegraLlon Lakes place formally Lhrogh l1 or physlcally

Pow can physlcal lnLegraLlon occr? When Lalklng aboL physlcal lnLegraLlon we refer Lo close
blldlngs LhaL ls some sppllers move when Lhelr prchaslng manfacLrers move g lf we move
Lo Chlna some sppllers of ors moved Lo Chlna as well

























16 Supp|y Cha|n management

pply Chaln managemenL ls also lmporLanL for servlces

161 SCM Goa|

pply Chaln ManagemenL ls a crossfncLlonal lnLerenLerprlse sysLem whlch ses lnformaLlon
Lechnology Lo help spporL and manage Lhe llnks beLween some of Lhe company's key bslness
processes and Lhose of lLs sppllers csLomers and bslness parLners 1he goal of CM ls Lo creaLe a
fasL efflclenL and lowcosL neLwork of bslness relaLlonshlps

1he flgre lllsLraLes Lhe baslc bslness processes ln Lhe spply chaln llfe cycle Lhe fncLlonal CM
processes LhaL spporL Lhem lL also emphaslzes how many companles Loday are reenglneerlng
Lhelr spply chaln processes alded by lnLerneL Lechnologles and spply chaln managemenL
sofLware













162 L|ectron|c Data Interchange
lecLronlc uaLa lnLerchange was one of Lhe earllesL ses of lnformaLlon Lechnology for spply chaln
managemenL ul lnvolves Lhe elecLronlc exchange of bslness LransacLlon docmenLs over Lhe
lnLerneL and oLher neLworks beLween spply chaln Lradlng parLners uaLa represenLlng a varleLy of
bslness LransacLlon docmenLs are aLomaLlcally exchanged beLween compLers 1yplcally ul
sofLware ls sed Lo converL a company's own docmenL formaLs lnLo sLandardlzed ul formaL
speclfled by varlos lndsLry and lnLernaLlonal proLocols 1hs dl ls an example of Lhe almosL
compleLe aLomaLlon of an ecommerce spply chaln process


163 1he ko|e of SCM
1he flgre below helps s ndersLand Lhe role and acLlvlLles of spply chaln managemenL ln bslness
more clearly 1he Lop Lhree levels of Lhe dlagram show Lhe sLraLeglc LacLlcal and operaLlonal
ob[ecLlve and oLcomes of CM plannlng whlch are Lhen accompllshed by Lhe bslness parLners ln a
spply chaln aL Lhe execLlon level of M 1he role of lnformaLlon Lechnology ln CM ls Lo spporL
Lhese ob[ecLlves wlLh lnLerenLerprlse lnformaLlon sysLem LhaL prodce many of Lhe oLcomes a
bslness needs Lo effecLlvely manage lLs spply chaln 1haL's why many companles Loday are
lnsLalllng CM sofLware and developlng webbased CM lnformaLlon sysLems



164 8enef|ts of SCM

Companles know LhaL CM sysLems can provlde Lhem wlLh key bslness beneflLs sch as fasLer
more accraLe order processlng redcLlons ln lnvenLory levels qlcker Llmes Lo markeL lower
LransacLlon and maLerlals cosLs and sLraLeglc relaLlonshlps wlLh Lhelr sppllers All of Lhese beneflLs
of CM are almed aL helplng a company achleve aglllLy and responslveness ln meeLlng Lhe demands
of lLs csLomers and Lhe needs of lLs bslness parLners

16S Ia||ure of SCM

L developlng effecLlve CM sysLems has proven Lo be a complex and dlfflclL appllcaLlon of
lnformaLlon Lechnology Lo bslness operaLlons WhaL are Lhe cases of problems ln spply chaln
managemenL? everal reasons sLand oL A lack of proper demandplannlng knowledge Lools and
gldellnes ls a ma[or sorce of CM fallre lnaccraLe or overopLlmlsLlc demand forecasLs wlll
case ma[or prodcLlon lnvenLory and oLher bslness problems no maLLer how efflclenL Lhe resL of
Lhe spply chaln managemenL process lnaccraLe prodcLlon lnvenLory and oLher bslness daLa
provlded by a company's oLher lnformaLlon sysLems are freqenL case of CM problems