Supply Chain Principles and

Applications
C W Poole
Presentation to the
HEFMA Conference 2010

What is supply chain

management?
SOME DEFINITIONS

Supply Chain Management (SCM) is the management of a network of interconnected businesses

involved in the ultimate provision of product and/or service packages required by end customers
(Harland). Supply Chain Management spans all movement and storage of raw materials,
materials, work-in-process
inventory, and finished goods from point of origin to point of use or consumption ( supply chain).
chain).

Supply chain management (SCM) is the combination of art and science that goes into improving the way a
company finds the raw components it needs to make a product or service and deliver it to customers. The
following are five basic components of SCM.

A customer focused definition is given by Zokaei & Hines Supply chain strategies require a total
systems view of the linkages in the chain that work together efficiently to create customer
satisfaction at the end point of delivery to the consumer. As a consequence costs must be lowered
throughout the chain by driving out unnecessary costs and focusing attention on adding value.
Throughput efficiency must be increased, bottlenecks removed and performance measurement
must focus on total systems efficiency and equitable reward distribution to those in the supply
chain adding value. The supply chain system must be responsive to customer requirements.

The Council of Supply Chain Management Professionals (CSCMP), say that Supply Chain Management
encompasses the planning and management of all activities involved in sourcing,
sourcing, procurement,
procurement,
conversion, and logistics management . It also includes the crucial components of coordination and
collaboration with channel partners,
partners, which can be suppliers,
suppliers, intermediaries,
intermediaries, third-party service providers,
and customers.
customers. In essence, supply chain management integrates supply and demand management within
and across companies. More recently, the loosely coupled, self-organizing network of businesses that
cooperate to provide product and service offerings has been called the Extended Enterprise.
Enterprise.

S C M basic principles

A supply chain, as opposed to supply chain management, is a set of organizations directly linked by one or more
of the upstream and downstream flows of products, services, finances, and information from a source to a
customer. Managing a supply chain is 'supply chain management' (Mentzer et al.,
al., ).

Supply chain event management (SCEM) is a consideration of all possible events and factors that can disrupt a
supply chain. With SCEM possible scenarios can be created and solutions devised.

Supply chain management must address the following problems:

Distribution Network Configuration:

Configuration: In the field of operations research, several types of optimal facility
location problems and algorithms have been proposed. Such problems typically minimize the logistics cost with
given inter-node transportation cost and facility location cost. But, when issues of controlling inventory to cope
with fluctuating demands are taken into account, issues of facility size become critical for each different for each
location.

Distribution Strategy interrogates questions of operating control (centralized, decentralized or shared);

Information:
Information: Integration of processes through the supply chain require the sharing of valuable information,
including demand signals, forecasts, inventory, transportation, potential collaboration, etc.

Inventory Management:
Management: Quantity and location of inventory, including raw materials, work-in-progress (WIP)
and finished goods.

Cash-Flow:
Cash-Flow: Arranging the funding flows, payment terms and methodologies for payment within the supply
chain.(UKZN cash flow issues)

Trade-Offs in Logistical Activities:

Activities: The former activities must be well coordinated in order to achieve the
lowest total logistics cost. Trade-offs may increase the total cost if only one of the activities is optimized.

Supply chain execution therefore calls for the effective managing and
coordinating of the movement of materials, information and funds across the
supply chain. The flow is therefore bi-directional.

S C M activities functions and

processes S C M scope of
ACTIVITIES/FUNCTIONS
application/practice
Supply chain management therefore takes a cross-functional approach, including managing the
movement of raw materials or services into an organization, certain aspects of the internal
processing of materials into finished goods, as well as the movement of finished goods out of the
organization and toward the end-consumer. As organizations strive to focus on core competencies to
become more flexible, they reduce their ownership or control of raw materials, services sources and
distribution channels. These functions are increasingly being outsourced to other entities that can perform the
activities better or more cost effectively.
The effect is to increase the number of organizations involved in satisfying customer demand, while reducing
management control of daily logistics operations. Less control and more supply chain partners has led to the
creation of supply chain management as a discipline to deal with the complexities and the need for the
adoption of systems concepts. The purpose of supply chain management is thus to improve trust and
collaboration among supply chain partners, improving inventory visibility and the velocity of inventory
movement.
Supply chain activities can be grouped into strategic, tactical, and operational levels that allows for
organizations to see their business processes from a cross-industry viewpoint.
Strategic Level
Strategic partnerships with suppliers, distributors, and customers, creating communication channels for critical
information and operational improvements.
Product life cycle management , so that new and existing products can be optimally integrated into the supply
chain and capacity management activities.
Information technology supporting the operations throughout the chain.
The strategic level is directed to the long term needs requiring resource commitment.

S C M activities functions and

processes (continued)
Tactical Level
Sourcing of contracts and other purchasing decisions.
Production decisions, including contracting, scheduling, and planning process definition.
Inventory decisions, including quantity, location, and quality of inventory.
Transportation strategy, including frequency, routes, and contracting.
Benchmarking of all operations against competitors and implementation of best practices throughout the
enterprise.
Payment milestones.
The tactical level
level focuses on customer demand and satisfaction.
Operational Level
Daily production and distribution planning, including all nodes in the supply chain.
Production scheduling for each manufacturing facility in the supply chain.
Demand planning and forecasting,for both inbound and outbound operations,
Production operations, including the consumption of materials and flow of finished goods.
The operational level is directed towards mitigating risk.

The importance of Supply Chain Management - organizations increasingly find that they must
rely on effective supply chains, or networks, to compete in the global market and networked
economy. In Peter Drucker's (1998) new management paradigms, this concept of business
relationships extends beyond traditional enterprise boundaries and seeks to organize entire
business processes throughout a value chain of multiple companies.

The evolution of S C M
development
During the past decades, globalization, outsourcing and information technology have enabled
many organizations, such as Dell and Hewlett Packard, to successfully operate solid
collaborative supply networks in which each specialized business partner focuses on only a
few key strategic activities. This inter-organizational supply network can be acknowledged as
a new form of organization. (Likewise Toyota)
However, with the complicated interactions among the players, the network structure fits
neither "market" nor "hierarchy" categories. Traditionally, companies in a supply network
concentrate on the inputs and outputs of the processes, with little concern for the internal
management working of other individual players. Therefore, the choice of an internal
management control structure is known to impact local firm performance (Mintzberg).
In the 21st century, changes in the business environment have contributed to the
development of supply chain networks. First, as an outcome of globalization and the
proliferation of multinational companies, joint ventures, strategic alliances and business
partnerships, significant success factors were identified, complementing the earlier "Just-InTime", "Lean Manufacturing" and "Agile Manufacturing" practices. Secondly , technological
changes, particularly the dramatic fall in information communication costs, which are a
significant component of transaction costs, have led to changes in coordination among the
members of the supply chain network.
The security management system for supply chains is described in ISO/IEC 28000 and ISO/IEC
28001 and related standards published jointly by International Standard Organisation and the
International Electrotechnical Commission.

Computer applications for SCM

As supply chain management and organisations have become more far reaching and complex,
so the need to apply computerised applications has grown.
Supply chain management software embraces the tools or modules used to execute supply chain
transactions, manage supplier relationships and control associated business processes.
Supply chain management software is possibly the most fractured and fragmented group of
software applications on the planet. Each of the five major supply chain steps previously outlined
comprises dozens of specific tasks, many of which have their own specific software. Some software
vendors have assembled many of these different chunks of software together under a single roof, but no
one has a complete package that is right for every company. For example, most companies need to track
demand, supply, manufacturing status, logistics (i.e. where things are in the supply chain), and
distribution. They also need to share data with supply chain partners at an ever increasing rate . While
products from large ERP vendors like SAPs Advanced Planner and Optimizer (APO) can
perform many or all of these tasks, because each industrys supply chain has a unique set of
challenges, many companies decide to go with targeted best of breed products instead, even
if some integration is an inevitable consequence.
Its worth mentioning that the old adage about systems only being as good as the information that they
contain applies doubly to SCM. If the information entered into a demand forecasting application is not
accurate then the outcome will be an inaccurate forecast. Similarly, if employees bypass the supply chain
systems and try to manage things manually, systems will provide an incomplete picture.

Business to Business (B2B) & E

Commerce in S C M
B 2 B Supply Chain E-Basics A production supply chain refers to the flow of physical goods and associated
information from the source to the consumer. Key supply chain activities include production planning, purchasing,
materials management, distribution, customer service, and sales forecasting. These processes are critical to the
success of any operation whether theyre manufacturers, wholesalers, or service providers. Electronic commerce
and the Internet are fundamentally changing the nature of supply chains, and redefining how consumers learn
about, select, purchase, and use products and services. The result has been the emergence of new business-tobusiness supply chains that are consumer-focused rather than product-focused. They also provide customized
products and services. ( The UKZN - HHMI experience)
The traditional Supply Chain is a "Push" Model where the raw material suppliers are at one end of
the supply chain. They are connected to manufacturers and distributors, which are in turn
connected to a retailer and the end customer. Although the customer is the source of the profits, they are
only part of the equation in this "push" model. The order and promotion process, which involves customers,
retailers, distributors and manufacturers, occurs through time-consuming paperwork. By the time customers
needs are filtered through the agendas of all the members of the supply chain, the production cycle ends up
serving suppliers every bit as much as customers.
E-Commerce Supply Chain "Pull" Model - Driven by e-commerces capabilities to empower clients,
many companies are moving from the traditional "push" business model, where manufacturers, suppliers,
distributors and marketers have most of the power, to a customer-driven "pull" model. This new business model is
less product-centric and more directly focused on the individual consumer and service . To succeed in the
business environment, companies have recognized that there is an ongoing shift in the balance of
power throughout commerce from suppliers to customers. In thePull model, customers use electronic
connections to pull whatever they need out of the system.

B 2 B & E Commerce in S C
M (cont.)
The old "push" model involves a linear flow of commerce that keeps many the supply chain
players relatively isolated from end users. With the new customer-driven pull model, it is no longer
a linear process. The new supply chain has each participant scrambling to establish direct
electronic connections to the end consumer. The result is that electronic supply-chain connectivity
gives end customers the opportunity to become better informed through the ability to research
and give direction to suppliers.
Ultimately, customers have a direct voice in the functioning of the supply chain resulting in greater
efficiency that benefits both customers and manufacturers. Companies can better serve customer
needs, carry less inventory and become more responsive to their markets more quickly. Thus Ecommerce continues to impact supply chain management in a variety of key ways.
By making more information available about the commercial side of companies, businesses will
make their web site a place where customers will not only get detailed information about the
services the company offers, but also where they can actually conduct business directly with the
company. Ultimately, web sites can provide a universal, self-service system for customers.
Customers can manage the increasingly complex movement of products and information through
the supply chain.
E-commerce will help companies deliver better services to their customers,
accelerate the growth of the e-commerce initiatives that are critical to their business,
and lower their operating costs. E-commerce will also allow users to establish an account and
obtain real-time information for the end customer to track progress and to perform other supply
chain management and decision support functions.

S C M application in Facilities
Management

THE APPLICATION OF SUPPLY CHAIN MANAGEMENT IN THE DELIVERY OF

FACILITIES MANAGEMENT SERVICES

The application of SCM to Facilities Management is still a nascent science and largely confined to
academic analysis and debate and limited esoteric research.

SCM is seen to help organisations to execute strategic purchasing for sustainable market position in
a rapidly changing and competitive environment. Facilities would seem able be more effectively
managed by adopting strategic alliances in SCM with FM suppliers through faster service delivery,
increased flexibility with better service efficiency and cost savings.

Limitations and future implications Very little literature is available on SCM in FM, underlining
the current limited application and a need for care in considering the appropriatness of use of
critical aspects that can be adopted to ensure success of SCM in the context of FM service delivery.

Construction supply-chain management offers new approaches to reduce the cost of and increase
the reliability and speed of facility construction. Supply-chain management takes a systems view of
the production activities of autonomous production units (subcontractors and suppliers in
construction) and seeks global optimization of these activities. Limited studies in construction
suggest that poor supply-chain design regularly increases project cost by ten percent (Bertelsen,
1993), and this estimate is probably conservative.
Thus whereas current construction methods
tend to support the fragmentation that plagues construction, supply-chain management promises
an engineering basis to design, plan, and manage construction projects in a collaborative manner.
The need for improved linking of costs to production performance places priority on research and
client and supplier cash flow.

S C M application in Facilities
Management (cont)
Turnkey Project Management versus S C M For years organisations have struggled to deliver
effective projects on-time and within budget, particularly in the complex construction arena. But with
today's challenges to achieve more with less, organisations have to justify, plan, monitor and control
their projects and programs more closely than ever before. (The accidental project manager can be a
very expensive way of executing key initiatives). Organisations can no longer count on having the
right people with the right experience using the right approach available at all times. In order to stay
competitive and effectively deliver on strategy, many organisations work with P M Partners as an
external project management partner to offer significant value to their business. This service places
the end-to-end responsibility of running key projects with PM Partner professionals across the project
supply chain in a structured but efficient and effective manner, optimising the resources, considering
the complex and ever changing economic environment and most importantly, ensuring the entire
process is as transparent as possible through a robust system of communication and control.
In Conclusion
The full use of Supply ChainManagement Principles and practice for facilfities management is seemingly
a long way from direct application he immediate future; however the potential is clearly there. A
parallel with SCM applications can however be drawn with our construction projectsand project
management, especially in terms of large scale Turnkey Project management as indicated.

Thank You

Acknowledgements and
References

Wikipedia definitions on S C M
Mentzer, J.T. et al. (2001): Defining Supply Chain Management, in: Journal of Business Logistics, Vol. 22, No. 2, 2001,
pp.125
Harland, C.M. (1996) Supply Chain Management, Purchasing and Supply ...
Scott Fernie & David Root - SUPPLY CHAIN MANAGEMENT - THEORETICAL CONSTRUCTS FOR CONSTRUCTION,
Management Research Unit, Department of Civil and Building Engineering, Loughborough University,
Keivan Zokaei & Peter Hines, Achieving Consumer Focused Supply Chains, International Journal of Physical Distribution &
Logistics Management, Vol. 37,
www.supply -chain.org
Supply Chain Management Best PracticesBy David Blanchard
The Application of Supply Chain management in the Delivery of Facilities Management Services M N M Noor & S
Kumpaisal (Liverpool John Moores University)
Construction Supply-Chain Management: A Vision for Advanced Coordination, Costing, and Control - Dr. William J.
OBrien1, Assistant Professor, Department of Civil Engineering, University of Florida