The Objective of a Supply Chain

Maximize overall value created

Supply chain value: difference between what
the final product is worth to the customer and
the effort the supply chain expends in filling
the customer’s request
Value is correlated to supply chain profitability
(difference between revenue generated from
the customer and the overall cost across the
supply chain)
Evolution of Supply Chain Management

Activity fra
Supply Chain Schematic
 Supply Chain Features
 Functions: Logistics, Purchasing, Marketing,
Operations, . . .

 Institutions: Manufacturers, Retailers, Logistics

Service Providers, . . .

 Behaviors
• Power/Dependence
• Conflict
• Competition
• Cooperation, e.g. sharing information
Supply Chain Flows
Physical Promotional Financial

Logistics Marketing Finance and

Accounting
Service Sales Stimulate Sales Pay Bills

 Transportation  Advertising  Invoicing

 Warehousing  Personnel Selling  Payment
 Inventory  Sales Promotion
Management  Customer Service
 SCM versus Logistics: Four
Traditionalist
Perspectives
Re-labeling

Logistic Logistic
s s
SCM SCM

Unionis Intersectionist
t

SC
M SC Logistic
Logistics M s
 Logistics

SCM

Logistics hires “supply chain analysts” to focus

on cross-functional, inter-organizational issues.
The logistics community has tended
to view supply chain management as
“logistics outside the firm.”
 SCM versus Logistics: Four
Traditionalist
Perspectives
Re-labeling

Logistic Logistic
s s
SCM SCM

Unionis Intersectionist
t

SC
M SC Logistic
Logistics M s
 Logistics

SCM

Logistics hires “supply chain analysts” to focus

on cross-functional, inter-organizational issues.
The logistics community has tended
to view supply chain management as
“logistics outside the firm.”
 Logistics

SC
M

“Logistics Manager” “Supply Chain Manager”

“do not distinguish between logistics
and supply chain management” (SCM).

supply chain = logistics network

 SC
M
Logistics

SCM = purchasing + logistics + operations + marketing + . . .

Stock & Lambert (2001)
SCM: management of 8 key business
processes:

1. Customer relationship management

2. Customer service management
3. Demand management
4. Order fulfillment
5. Manufacturing flow management
6. Procurement
7. Product development & commercialization
8. Returns
Mentzer et al. (2001)
“all the traditional business functions
should be included”
1. Marketing & Sales
2. Research & development
3. Forecasting
4. Production
5. Purchasing
6. Logistics
7. Information systems
8. Finance
9. Customer service
 SCM Logistics

SCM staff function; internal consultants

 Intersectionist

SCM considers strategic, integrative

elements from several functional areas
(logistics, purchasing, operations, and
marketing). However, it does not get
involved in tactical elements, such as
picking orders in a warehouse.
 Logistics Defined

Logistics
controllin
Supply Chain Management Defined

SCM is the
of raw m
The Logistics/SC Mission

Gettin
A Revised Strategy is Generating
Great Top Management Interest
Historical perspective of distribution:
“The last frontier of cost
economies” Peter Drucker, 1962

The contemporary view:

Distribution is a new frontier for
demand generation—a competitive
Both views are now
weapon. important!
Critical Customer Service
Loop
Customer order processing (and
transmittal)

Transportation
Customers

Inventory
or supply source
 Significance of Logistics

• Costs are h

• Customers
 Scope of the Supply Chain for Most
Firms
Business logistics

Physical supply Physical distribution

(Materials management)

Sources of Plants/
Customers
supply operations
•Transportation •Transportation
Inventory maintenance
• Inventory maintenance
•
•Order processing •Order processing
•Acquisition •Product scheduling
•Protective packaging •Protective packaging
•Warehousing •Warehousing
•Materials handling •Materials handling
Information
• maintenance Information
• maintenance

Focus firm’s internal supply chain

Key Activities/Processes
• Primary
Setting
- customer service goals
-Transportation
Inventory
- management
- Location

• Secondary, or supporting
-Warehousing
-Materials handling
Acquisition
- (purchasing)
-Protective packaging
-Product scheduling
-Order processing
Reality of SC Scope
The Multi-Dimensions of SC

Int
n
t io

er
ina

or
g
d

an
or

iza
co

tio
al
on

na
SUPPLY
cti

lc
CHAIN

oo
fun

MANAGEMENT

rd
er

ina
Int

ti o
n
Activity and process
administration
 Study Framework
Inventory Strategy
• Forecasting Transport Strategy
• Inventory decisions • Transport fundamentals

CONTROLLING
• Purchasing and supply

ORGANIZING
• Transport decisions
scheduling decisions Customer

PLANNING
• Storage fundamentals service goals
• Storage decisions • The product
• Logistics service
• Ord. proc. & info. sys.

Location Strategy
• Location decisions
• The network planning process

The focus is
here
The Logistics Strategy Triangle
Inventory Strategy
• Forecasting
• Storage fundamentals Transport Strategy
• Inventory decisions •Transport fundamentals
• Purchasing and supply •Transport decisions
scheduling decisions
Customer
• Storage decisions service goals
• The product
• Logistics service
• Information sys.

Location Strategy
•Location decisions
•The network planning process
 Relationship of Logistics to
Marketing and Production
LOGISTICS
Sample
activities: MARKETING
PRODUCTION/ •Transport Interface Sample
OPERATIONS •Inventory
Interface activities: activities:
Sample activities: • Order •Customer
•Quality control activities: •Promotion
• Product processing service • Market
•Detailed production
scheduling • Materials standards research
scheduling • Plant • Pricing
•Equipmentmaint. handling • Product
location • Packaging
•Capacity planning mix
•Purchasing • Retail •Sales force
•Work measurement
location management
&standards

Production-
logistics Marketing-
interface logistics
interface

Internal Supply Chain

Relationship of Logistics to Marketing
Produc
Marketing

t
Promotion
Price

Place-
Customer
service levels
Logistics

Inventory Transpo
carrying rt costs
costs

Lot Warehousin
quantity Order g costs
costs processing
and
information
Relationship of Logistics to Production
•Coordinates through scheduling and strategy—make-
to-order or make-to-stock
•An integral part of the supply chain
−Affects total response time for customers
−Shares activities such as inventory planning
•Costs are in tradeoff
−Production lot quantities affect inventory levels and
transportation efficiency
−Production response affects transportation costs
and customer service
−Production and warehouse location are interrelated
 Contemporary Logistics Terms
•Value stream/logistics process
•Quick response and flexible manufacturing
•Mass customization
•Supply chain management/collaborative
logistics
•Reverse logistics
•Service logistics
•Continuous replenishment
•Lean logistics
•Integrated logistics