After you have read the above resource, name a local business in your ?community and describe how they could balance responsiveness and ?efficiency to maximize how well the company's s

11 Jan After you have read the above resource, name a local business in your ?community and describe how they could balance responsiveness and ?efficiency to maximize how well the company’s s

Posted at 00:36h in Business & Finance / Management by

After you have read the above resource, name a local business in your community and describe how they could balance responsiveness and efficiency to maximize how well the company's supply chain serves its market. No national companies (Apple, Netflix, Amazon, Coke, Nike, etc.)

Essentials_of_Supply_Chain_Management_—-_Chapter_1_Key_Concepts_of_Supply_Chain_Management.pdf

Chapter 1

Key Concepts of Supply Chain Management

After reading this chapter you will be able to

●● Appreciate what a supply chain is and what it does

●● Understand where your company fits in the supply chains it participates in and the role it plays in those supply chains

●● Discuss ways to align your supply chain with your business strategy

●● Start an intelligent conversation about the supply chain management issues in your company

T his book is organized to give you a solid grounding in the “nuts

and bolts” of supply chain management. The book explains the es-

sential concepts and practices and then shows examples of how to

put them to use. When you finish you will have a solid foundation in

supply chain management to work from.

The first three chapters give you a working understanding of the key

principles and business operations that drive any supply chain. The next

four chapters present the techniques, technologies, and metrics to use to

improve your internal operations and coordinate more effectively with

your customers and suppliers in the supply chains your company is a part of.

Chapter 7 presents specific ideas for using technologies such as social media

and real-time simulation gaming to promote supply chain collaboration.

Hugos, Michael H.. Essentials of Supply Chain Management, John Wiley & Sons, Incorporated, 2011. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/broward-ebooks/detail.action?docID=697991. Created from broward-ebooks on 2023-01-10 20:01:46.

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2 EssEntials of supply Chain Management

The last three chapters show you how to find supply chain oppor-

tunities and respond effectively to best capitalize on these opportunities.

Case studies are used to illustrate supply chain challenges and to present

solutions for those challenges. These case studies and their solutions

bring together the material presented in the rest of the book and show

how it applies to real-world business situations.

Supply chains encompass the companies and the business activities

needed to design, make, deliver, and use a product or service. Businesses

depend on their supply chains to provide them with what they need to

survive and thrive. Every business fits into one or more supply chains

and has a role to play in each of them.

The pace of change and the uncertainty about how markets will

evolve has made it increasingly important for companies to be aware

of the supply chains they participate in and to understand the roles that

they play. Those companies that learn how to build and participate in

strong supply chains will have a substantial competitive advantage in

their markets.

Nothing Entirely New…Just a Significant Evolution

The practice of supply chain management is guided by some basic under-

lying concepts that have not changed much over the centuries. Several

hundred years ago, Napoleon made the remark, “An army marches on

its stomach.” Napoleon was a master strategist and a skillful general and

this remark shows that he clearly understood the importance of what we

would now call an efficient supply chain. Unless the soldiers are fed, the

army cannot move.

Along these same lines, there is another saying that goes, “Amateurs

talk strategy and professionals talk logistics.” People can discuss all sorts

of grand strategies and dashing maneuvers but none of that will be poss-

ible without first figuring out how to meet the day-to-day demands of

providing an army with fuel, spare parts, food, shelter, and ammunition.

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Key Concepts of supply Chain Management 3

It is the seemingly mundane activities of the quartermaster and the sup-

ply sergeants that often determine an army’s success. This has many ana-

logies in business.

The term “supply chain management” arose in the late 1980s and

came into widespread use in the 1990s. Prior to that time, businesses

used terms such as “logistics” and “operations management” instead.

Here are some definitions of a supply chain:

• “A supply chain is the alignment of firms that bring products

or services to market.”—from Lambert, Stock, and Ellram.

(Lambert, Douglas M., James R. Stock, and Lisa M. Ellram,

1998, Fundamentals of Logistics Management, Boston, MA: Irwin/

McGraw-Hill, Chapter 14).

• “A supply chain consists of all stages involved, directly or indi-

rectly, in fulfilling a customer request. The supply chain not only

includes the manufacturer and suppliers, but also transporters,

warehouses, retailers, and customers themselves.”—from Chopra

and Meindl (Chopra, Sunil, and Peter Meindl, 2003, Supply

Chain, Second Edition, Upper Saddle River, NJ: Prentice-Hall,

Inc., Chapter 1).

• “A supply chain is a network of facilities and distribution op-

tions that performs the functions of procurement of materials,

transformation of these materials into intermediate and finished

products, and the distribution of these finished products to cus-

tomers.”—from Ganeshan and Harrison (Ganeshan, Ram, and

Terry P. Harrison, 1995, “An Introduction to Supply Chain

Management,” Department of Management Sciences and Infor-

mation Systems, 303 Beam Business Building, Penn State Uni-

versity, University Park, Pennsylvania).

If this is what a supply chain is then we can define supply chain

management as the things we do to influence the behavior of the supply

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4 EssEntials of supply Chain Management

chain and get the results we want. Some definitions of supply chain

management are:

• “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 perfor-

mance of the individual companies and the supply chain as a

whole.”—from Mentzer, DeWitt, Keebler, Min, Nix, Smith, and

Zacharia (Mentzer, John T., William DeWitt, James S. Keebler,

Soonhong Min, Nancy W. Nix, Carlo D. Smith, and Zach G.

Zacharia, 2001, “Defining Supply Chain Management,” Journal

of Business Logistics, Vol. 22, No. 2, p. 18).

• “Supply chain management is the coordination of production,

inventory, location, and transportation among the participants in

a supply chain to achieve the best mix of responsiveness and ef-

ficiency for the market being served.”—my own words.

There is a difference between the concept of supply chain manage-

ment and the traditional concept of logistics. Logistics typically refers to

activities that occur within the boundaries of a single organization and

supply chains refer to networks of companies that work together and

coordinate their actions to deliver a product to market. Also, traditional

logistics focuses its attention on activities such as procurement, distri-

bution, maintenance, and inventory management. Supply chain manage-

ment acknowledges all of traditional logistics and also includes activities

such as marketing, new product development, finance, and customer

service.

In the wider view of supply chain thinking, these additional activities

are now seen as part of the work needed to fulfill customer requests.

Supply chain management views the supply chain and the organizations

in it as a single entity. It brings a systems approach to understanding

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Key Concepts of supply Chain Management 5

and managing the different activities needed to coordinate the flow of

products and services to best serve the ultimate customer. This systems

approach provides the framework in which to best respond to busi-

ness requirements that otherwise would seem to be in conflict with

each other.

Taken individually, different supply chain requirements often have

conflicting needs. For instance, the requirement of maintaining high lev-

els of customer service calls for maintaining high levels of inventory, but

then the requirement to operate efficiently calls for reducing inventory

levels. It is only when these requirements are seen together as parts of

a larger picture that ways can be found to effectively balance their dif-

ferent demands.

Effective supply chain management requires simultaneous improve-

ments in both customer service levels and the internal operating ef-

ficiencies of the companies in the supply chain. Customer service at its

most basic level means consistently high order-fill rates, high on-time

delivery rates, and a very low rate of products returned by customers for

whatever reason. Internal efficiency for organizations in a supply chain

means that these organizations get an attractive rate of return on their

investments in inventory and other assets and that they find ways to

lower their operating and sales expenses.

There is a basic pattern to the practice of supply chain management.

Each supply chain has its own unique set of market demands and oper-

ating challenges and yet the issues remain essentially the same in every

case. Companies in any supply chain must make decisions individually

and collectively regarding their actions in five areas:

1. Production—What products does the market want? How much

of which products should be produced and by when? This

activity includes the creation of master production schedules

that take into account plant capacities, workload balancing,

quality control, and equipment maintenance.

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6 EssEntials of supply Chain Management

2. Inventory—What inventory should be stocked at each stage in a

supply chain? How much inventory should be held as raw mat-

erials, semifinished, or finished goods? The primary purpose of

inventory is to act as a buffer against uncertainty in the supply

chain. However, holding inventory can be expensive, so what

are the optimal inventory levels and reorder points?

3. Location—Where should facilities for production and inventory

storage be located? Where are the most cost efficient locations

for production and for storage of inventory? Should existing

facilities be used or new ones built? Once these decisions are

made they determine the possible paths available for product to

flow through for delivery to the final consumer.

4. Transportation—How should inventory be moved from one

supply chain location to another? Air-freight and truck delivery

are generally fast and reliable but they are expensive. Shipping

by sea or rail is much less expensive but usually involves longer

transit times and more uncertainty. This uncertainty must be

compensated for by stocking higher levels of inventory. When

is it better to use which mode of transportation?

5. Information—How much data should be collected and how

much information should be shared? Timely and accurate

information holds the promise of better coordination and bet-

ter decision making. With good information, people can make

effective decisions about what to produce and how much, about

where to locate inventory, and how best to transport it.

The sum of these decisions will define the capabilities and effective-

ness of a company’s supply chain. The things a company can do and the

ways that it can compete in its markets are all very much dependent on

the effectiveness of its supply chain. If a company’s strategy is to serve

a mass market and compete on the basis of price, it had better have a

supply chain that is optimized for low cost. If a company’s strategy is to

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Key Concepts of supply Chain Management 7

serve a market segment and compete on the basis of customer service

and convenience, it had better have a supply chain optimized for respon-

siveness. Who a company is and what it can do is shaped by its supply

chain and by the markets it serves.

How the Supply Chain Works

Two influential source books that define principles and practices of

supply chain management are The Goal (Goldratt, Eliyahu M., 1984,

The Goal, Great Barrington, MA: The North River Press Publishing

Corporation); and Supply Chain Management, Fourth Edition by Sunil

Chopra and Peter Meindl. The Goal explores the issues and provides

answers to the problem of optimizing operations in any business system,

whether it be manufacturing, mortgage loan processing, or supply chain

management. Supply Chain Management, Fourth Edition is an in-depth

presentation of the concepts and techniques of the profession. Much of

the material presented in this chapter and in the next two chapters can

be found in greater detail in these two books.

Alexander the Great based his strategies and campaigns on his army’s unique capabilities and these were made possible by effec- tive supply chain management.

in the spirit of the saying, “amateurs talk strategy and professionals talk logistics,” let’s look at the campaigns of alexander the Great. For those who think that his greatness was only due to his ability to dream up bold moves and cut a dashing figure in the saddle, think again. alexander was a master of supply chain management and he could not have succeeded otherwise. the authors from Greek and Roman times who recorded his deeds had little to say about something so apparently unglamorous as how he secured supplies

In The Real WoRld

(Continued)

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8 EssEntials of supply Chain Management

for his army. Yet, from these same sources, many small details can be pieced together to show the overall supply chain picture and how alexander managed it. a modern historian, Donald Engels, has investigated this topic in his book Alexander the Great and the Logistics of the Macedonian Army (Engles, Donald W., 1978, Alexander the Great and the Logistics of the Macedonian Army, los angeles, Ca: University of California Press).

He begins by pointing out that given the conditions and the technol- ogy that existed in alexander’s time, his strategy and tactics had to be very closely tied to his ability to get supplies and to run a lean, efficient organization. the only way to transport large amounts of material over long distances was by oceangoing ships or by barges on rivers and canals. Once away from rivers and seacoasts, an army had to be able to live off the land over which it traveled. Diminishing returns set in quickly when using pack animals and carts to haul supplies, because the animals themselves had to eat and would soon consume all the food and water they were hauling unless they could graze along the way.

alexander’s army was able to achieve its brilliant successes because it managed its supply chain so well. the army had a logis- tics structure that was fundamentally different from other armies of the time. in other armies the number of support people and camp followers was often as large as the number of actual fight- ing soldiers, because armies traveled with huge numbers of carts and pack animals to carry their equipment and provisions, as well as the people needed to tend them. in the Macedonian army the use of carts was severely restricted. soldiers were trained to carry their own equipment and provisions. Other contemporary armies did not require their soldiers to carry such heavy burdens but they paid for this because the resulting baggage trains reduced their speed and mobility. the result of the Macedonian army’s logistics structure was that it became the fastest, lightest, and most mobile army of its time. it was capable of making lightning strikes against an opponent, often before they were even aware of what was

In The Real WoRld (continued)

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Key Concepts of supply Chain Management 9

happening. Because the army was able to move quickly and sud- denly, alexander could use this capability to devise strategies and employ tactics that allowed him to surprise and overwhelm enemies that were numerically much larger.

the picture that emerges of how alexander managed his supply chain is an interesting one. For instance, time and again the historical sourc- es mention that before he entered a new territory, he would receive the surrender of its ruler and arrange in advance with local officials for the supplies his army would need. if a region did not surrender to him in advance, alexander would not commit his entire army to a campaign in that land. He would not risk putting his army in a situation where it could be crippled or destroyed by a lack of provisions. instead, he would gather intelligence about the routes, the resources, and the cli- mate of the region and then set off with a small, light force to surprise his opponent. the main army would remain behind at a well-stocked base until alexander secured adequate supplies for it to follow.

Whenever the army set up a new base it looked for an area that provided easy access to a navigable river or a seaport. then ships would arrive from other parts of alexander’s empire, bringing in large amounts of supplies. the army always stayed in its winter camp until the first spring harvest of the new year so that food supplies would be available. When it marched, it avoided dry or uninhabited areas and moved through river valleys and populated regions whenever possible so the horses could graze and the army could requisition supplies along the route.

alexander had a deep understanding of the capabilities and limita- tions of his supply chain. He learned well how to formulate strate- gies and use tactics that built upon the unique strengths that his logistics and supply chain capabilities gave him, and he wisely took measures to compensate for the limitations of his supply chain. His opponents often outnumbered him and were usually fighting on their own home territory. Yet their advantages were undermined by clumsy and inefficient supply chains that restricted their ability to act and limited their options for opposing alexander’s moves.

In The Real WoRld (continued)

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10 EssEntials of supply Chain Management

The goal or mission of supply chain management can be defined

using Eli Goldratt’s words as “Increase throughput while simultaneous-

ly reducing both inventory and operating expense.” In this definition,

throughput refers to the rate at which sales to the end customer occur.

Depending on the market being served, sales or throughput occur for

different reasons. In some markets, customers value and will pay for high

levels of service. In other markets customers seek simply the lowest price

for an item.

As we saw in the previous section, there are five areas where com-

panies can make decisions that will define their supply chain capa-

bilities: production; inventory; location; transportation; and infor-

mation. Chopra and Meindl define the first four and I add the fifth as

performance drivers that can be managed to produce the capabilities

needed for a given supply chain.

Effective supply chain management calls first for an understanding

of each driver and how it operates. Each driver has the ability to directly

affect the supply chain and enable certain capabilities. The next step is

to develop an appreciation for the results that can be obtained by mix-

ing different combinations of these drivers. Let’s start by looking at the

drivers individually.

Production

Production refers to the capacity of a supply chain to make and store

products. The facilities of production are factories and warehouses.

The fundamental decision that managers face when making produc-

tion decisions is how to resolve the trade-off between responsiveness

and efficiency. If factories and warehouses are built with a lot of excess

capacity, they can be very flexible and respond quickly to wide swings

in product demand. Facilities where all or almost all capacity is being

used are not capable of responding easily to fluctuations in demand. On

the other hand, capacity costs money and excess capacity is idle capacity

Hugos, Michael H.. Essentials of Supply Chain Management, John Wiley & Sons, Incorporated, 2011. ProQuest Ebook

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