CHAPTER 5

The Supply Chain Management

Concept

Learning Objectives

• To learn about supply chains and their management

• To appreciate the attributes affecting supply chain management implementation

• To consider potential barriers to supply chain management implementation

• To examine supply chain integration

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The Supply Chain Concept

• Key Terms– Agile supply chain– Bullwhip effect– Fast supply chain– Fourth-party logistics

(lead logistics provider)– Global Supply Chain

Forum (GSCF) model– Leagility– Lean supply chain

• Key Terms– Partnerships– Perfect order– Process Classification

Framework (PCF)– Supply chain– Supply chain analytics– Supply chain collaboration– Supply chain management

(SCM)

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The Supply Chain Concept

• Key Terms– Supply Chain Operations

Reference (SCOR) model– Third-party logistics

(logistics outsourcing; contract logistics)

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Evolution of Supply Chain Management

• Relatively new concept – rarely mentioned prior to 1990

• Recognition grew when value could be found in coordinating various business functions

• SCM philosophy:• Coordinate not only within organizations, but

across organizations

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About Supply Chains…

• A supply chain “encompasses all activities associated with the flow and transformation of goods from the raw material stage (extraction), through to the end user, as well as the associated information flows.”

2-6Source: Robert B. Handfield and Ernest L. Nichols, Jr., Introduction to Supply Chain Management

Different Supply Chain Configurations:Direct Supply Chain

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Supplier Organization Customer

Different Supply Chain Configurations:Extended Supply Chain

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Supplier Organization Customer

Supplier’ssuppliers

Customer’scustomers

Different Supply Chain Configurations:Ultimate Supply Chain

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Supplier Organization Customer

Ultimatesupplier

Ultimatecustomer

Financial Provider Market Research

3rd Party Logistic Supplier

Supply Chain

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Supply Chain Management

Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all Logistics Management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies.

CSCMP

Logistics

• CSCMP (Council of Supply Chain Management Professionals) definition:“Logistics is that part of the Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers’ requirements.”

© 2008 Prentice Hall 1-12Source: clm1.org

Successful Supply Chains have…

• Enterprise-to-enterprise point of view

• Systems approach across all organizations in the supply chain– Companies recognize interdependencies– Goals and objectives are compatible

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• Models identify business processes that help organizations implement and evaluate processes.– Supply Chain Operations Reference (SCOR) -

Supply Chain Council– Global Supply Chain Forum (GSCF) - Supply Chain

Management Institute– Process Classification Framework (PCF) - APQC

SCM Models

• Process reference models integrate the well-known concepts of business process reengineering, benchmarking, and process measurement into a cross-functional framework.

• A Process Reference Model Contains:– Standard descriptions of management processes– A framework of relationships among the standard processes– Standard metrics to measure process performance– Management practices that produce best-in-class performance– Standard alignment to features and functionality

The Supply-Chain Operations Reference (SCOR) Model

http://archive.supply-chain.org/galleries/default-file/SCOR%2080%20Overview%20Booklet2.pdf

http://supply-chain.org/f/SCOR%2090%20Overview%20Booklet.pdf

The Supply-Chain Operations Reference (SCOR) Model

SCOR Process

Definitions

Plan Processes that balance aggregate demand and supply to develop a course of action which best meets sourcing, production, and delivery requirements

Source Processes that procure goods and services to meet planned or actual demand

Make Processes that transform product to a finished state to meet planned or actual demand

Deliver Processes that provide finished goods and services to meet planned or actual demand, typically including order management, transportation management, and distribution management

Return Processes associated with returning or receiving returned productsfor any reason. These processes extend into post-delivery customer support

The Supply-Chain Operations Reference (SCOR) Model

© 2008 Prentice Hall 2-17http://archive.supply-chain.org/galleries/default-file/SCOR%2080%20Overview%20Booklet2.pdf

• Customer Relationship Management (CRM)• Customer Service Management• Demand Management • Order Fulfillment• Manufacturing Flow Management• Supplier Relationship Management• Product Development and Commercialization• Return Management

The Global Supply Chain Forum (GSCF) Model

http://findarticles.com/p/articles/mi_qa3705/is_200501/ai_n13632938/?tag=content;col1

Process Classification Framework (PCF)

http://meilleradvisoryservices.com/yahoo_site_admin1/assets/images/APQC-PCF_w-logo.260172250_std.jpg

Process Classification Framework (PCF)

http://modelle-frameworks.cw-innovations.de/files/2011/03/American-Productivity-and-Quality-Center-APQC-Process-Classication-Framework-PCF-with-Corporate-Modeler-2.jpg

Attributes Affecting SCM Implementation

• Customer power

• Long-term orientation– Relational exchanges– Transactional exchanges

• Leveraging technology

• Enhanced communication across organizations

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Attributes Affecting SCM Implementation

• Inventory control– Reduction of the bullwhip effect– Reduction of inventory in the supply chain

• Interorganizational collaboration• Use of supply chain facilitators

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Supply Chain Facilitators

• Third-Party Logistics (3PL)– Logistics outsourcing– Contract logistics

• Fourth-party logistics (4PL) primarily used in global companies– Lead logistics provider (LLP)

• Supply chain software

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Barriers to Supply Chain Management

• Regulatory and political considerations

• Lack of top management commitment

• Reluctance to share, or use, relevant data

• Incompatible information systems

• Incompatible corporate cultures

• Globalization

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Globalization of Supply Chains

• Increasing globalization– Lower priced materials and labor– Global perspective of companies– Development of global competition

• Extremely difficult to execute due to differences– Cultural, economic, and technological– Political, spatial, and logistical

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Supply Chain Integration

• Long-term, mutually beneficial agreements– Partnerships– Strategic alliances– Third-party arrangements– Contract logistics

• Methods used to integrate– Vertical integration– Formal contracts– Informal agreements

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Case 5-1 Johnson Toy Company

• Located Biloxi, Mississippi

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Company Facts:

• Basic Design Toys: Low profit margin• Unconventional Toys: Risky, High profits if popular

– Jungle Jim the Jogger

Product Facts:

Market Facts:• Seasonal

• Popular toy turns into unpopular• Production was cancelled • Returns without a clear policy

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Problems at Hand:

• #1: From the standpoint of an individual concerned with accounting controls, discuss and evaluate Johnson Toy Company’s present policies for handling returned items.

• #2: Answer question 1, but from the standpoint of an individual interested in marketing.

Discussions:

Case 5-1 Johnson Toy Company

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• #3: Propose a policy for handling returns that should be adopted by the Johnson Toy Company. Be certain to list circumstances under which exceptions would be allowed. Should it apply to the Jungle Jim dolls?

Discussions:

Case 5-1 Johnson Toy Company

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Case 5-1 Johnson Toy Company

I. HIGH VOLUME CUSTOMERS (defined as purchasing $75,000 of merchandise from Johnson’s per year)

A. Functionally damaged goods may be returned to Johnson’s plant at Johnson’s expense with a full refund.

B. High volume customers will receive a straight 2% deduction off of the wholesale selling price to cover defectives—whether defectives are classified as cosmetically damaged or slow moving items, except when unable to sell due to special circumstances (see Section III).

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Case 5-1 Johnson Toy Company

II. LOW VOLUME CUSTOMERSA.  Functionally damaged goods may be returned to Johnson’s

plant via Johnson’s salesperson with a full refund.B. Low volume customers will NOT receive an automatic

deduction for defectives. Instead, the damage or defect must be defined:–  Cosmetically damaged goods (classified as functionable

and sellable): a 25% discount granted upon inspection by Johnson’s salesperson.

– Slow moving items: NO RETURNS – Non-moving items (for reasons other than physical

damage)

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Case 5-1 Johnson Toy Company

III. SPECIAL CIRCUMSTANCES When product is not resellable for reasons other than being functionally damaged or just a slow mover in the off season, such as when the product receives bad press (as in the case of Jungle Jim and Jogger Dolls), Johnson will allow return of all such non-resellable items under the following conditions:A. Retailer must pay for the returned merchandise to reach Johnson’s

plant.B. Retailer’s account will be credited for the full amount of said

purchase.C. Credit is to be used within 30 days of receipt of returned goods at

Johnson’s plant; credit will be void after 30 days.

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• #4: Should this policy, if adopted, be printed and distributed to all of the retailers who handle Johnson Toy Company products? Why or why not? If it should not be distributed to them, who should receive copies?

• #5: Assume that it is decided to prepare a statement on returns to be distributed to all retailers and that it should be less than a single double-spaced page. Prepare such a statement.

• #6: On the basis of the policy in your answer to question 3, develop instructions for the Johnson Toy Company distribution and accounting departments with respect to their roles and procedures in the handling of returns.

Discussions:

Case 5-1 Johnson Toy Company

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• #7: Assume that you are Cheryl Guridi, the firm’s logistics manager. Do you think that the returns policy favored by the logistics manager would differ from what would be best for the firm? Why or why not?

• #8: Until the policy you recommend in your answer to question 3 takes effect, how would you handle the immediate problem of retailers wanting to return unsold Jungle Jim the Jogger dolls?

Discussions:

Case 5-1 Johnson Toy Company