Unit 5: Supply chain management

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Covers Course Learning Outcome # 5:
Explore the role of e-business in transforming the business when
supporting supply chain management
Learning Outcomes
After completing this chapter the reader should
be able to:
• Identify the main elements of supply chain
management and their relationship to the value
chain and value networks.
• Assess the potential of information systems to
support supply chain management and the
value chain.
What is a Supply Chain
• A supply chain is a system of organizations, people,
technology, activities, information and resources involved in
moving a product or service from supplier to customer.
What is a Supply Chain Management
• Supply Chain Management (SCM) is the business function
that coordinates all of the network links to coordinate
movement of goods from suppliers to manufacturers to
distributors along with the relevant information.
• In other words Supply chain management is essentially the
optimization of material flows and associated information
flows involved with an organization’s operations.
Supply chain
Extended Supply Chain Elements
Interrelated Concepts of SCM
• Upstream supply chain Transactions between an
organization and its suppliers and intermediaries, equivalent
to buy-side e-commerce .
• Downstream supply chain Transactions between an
organization and its customers and intermediaries equivalent
to sell-side e-commerce
• Logistics is the time-related positioning of resource, or the
strategic management of the total supply chain.
• Inbound logistics: The management of material resources
• entering an organization from its suppliers and other
• Outbound logistics: The management of resources supplied
from an organization to its customers and intermediaries
such as retailers and distributors.
Push Supply Chain
• With a push-based supply chain, products are pushed
through the channel, from the production side up to the
retailer. The manufacturer sets production at a level in
accordance with historical ordering patterns
from retailers.
• It takes longer for a push-based supply chain to respond
to changes in demand, which can result in overstocking or
bottlenecks and delays (the Bullwhip Effect),
unacceptable service levels and product obsolescence.
• In a pull-based supply chain, procurement, production
and distribution are demand-driven rather than to
forecast. An emphasis on using the supply chain to
deliver value to customers who are actively involved in
product and service specification. However, a pull
strategy does not always require a make/ build-to-order
production MTO/BTO.
Pull Supply Chains
• A supply chain is almost always a combination of both
push and pull, where the interface between the pushbased
stages and the pull-based stages is sometimes
known as the push–pull boundary ( decoupling point )
Push –Pull Boundary
(Decoupling Point)
Value Chain
• The value chain is a concept that was first described and
popularized by Michael Porter 1985.
• A value chain is a chain of activities performed in order to
deliver something valuable, it can take place on different
levels: Unit, Firm, Activities, Industry.
• In relation to SCM the value chain is a model that describes
different value-adding activities that connect a company’s
supply side with its demand side.
16 (b) is more appropriate
Value Chain Analysis
• Value Chain Analysis: is the analysis of both the industry
value chain, and the company’s internal & external value
• The industry value chain includes all of the value-creating
activities within the whole industry, beginning with the
basic raw material and finishing with the delivery of the
• The internal value chain of a company includes all the
value creating activities within that specific firm.
• The external value chain (value network) refers to the
links between an organization and its strategic and nonstrategic
partners that form its external value chain.
Virtual Organizations and Supply
• Virtual Organization: an organization which uses
information and communications technology to allow it to
operate without clearly defined physical boundaries
between different functions. It provides customized services
by outsourcing production and other functions to third
• As more activities are outsourced a company moves towards
becoming a virtual organization.
Characteristics of Virtual Organizations
Lack of physical structure
Reliance on knowledge
Use of communications technologies
Mobile work: the traditional office or plant is no longer the
only site where work is carried out
Boundaryless and inclusive (comprehensive): virtual
companies tend to have fuzzy (unclear) boundaries
Flexible and responsive
Options for Restructuring The Supply
Vertical integration
Horizontal integration
Virtual integration
Vertical integration:
• Describes a style of management control where companies
in a supply chain are united through a common owner.
Usually each member of the supply chain produces a
different product or (market-specific) service, and the
products combine to satisfy a common need.
• In other words it is the degree to which a firm owns its
upstream suppliers and its downstream buyers.
Options for Restructuring The Supply
Chain- continued
Options for Restructuring The Supply Chaincontinued
Vertical integration- continued
A) Backward vertical integration:
when a company controls subsidiaries that produce some of
the inputs used in the production of its products. It is
intended to create a stable supply of inputs and ensure a
consistent quality in their final product. It was the main
business approach of Ford
B) Forward vertical integration:
when a company controls distribution centers and retailers
where its products are sold.
Options for Restructuring The Supply Chaincontinued
Horizontal integration
• Occurs when a firm is being taken over by, or merged
with, another firm which is in the same industry and in the
same stage of production as the merged firm.
• For example a car manufacturer merging with another car
manufacturer. In this case both the companies are in the
same stage of production and also in the same industry.
• The goal of horizontal integration is to consolidate
(merge, strengthen) like companies and monopolize an
Options for Restructuring The Supply Chaincontinued
Virtual integration
• The majority of supply chain activities are undertaken and
controlled outside the organization by third parties,
outsourcing core business processes ex: Dell
IT and SCM
IT and SCM- continued
• Electronic communications have played a major role in
facilitating new models of supply chain management.
• Technology applications that have facilitated supply
chain management are:
Web-based ordering
 EDI (Electronic Data Interchange) of invoices and payment
 Web-based order tracking.
• Radio-Frequency Identification (RFID): Microchip-based
electronic tags are used for monitoring anything they are
attached to, whether inanimate products or animate
• RFID tags are a relatively recent innovation in e-SCM that
are already widely used for logistics purposes. They can be
attached to individual product items in a warehouse or in a
retail location.
RFID in SCM- continued
• With appropriate scanning technology they can
then be used to assess stock levels.
• However, there are number of issues involved
with the implementation of RFID which give a
dilemma to managers.
• The main disadvantage of RFID technology is
still seen as its cost.
Benefits of e-Supply Chain Management
in SMEs
• Reduce order-to-delivery time
• Reduce costs of manufacturing
• Manage inventory more effectively
• Improve demand forecasting
• Reduce time to introduce new products
• Improve after-market/post-sales operations
Benefits of e-Supply Chain
Management to a B2B Company
Increased efficiency of individual processes
Reduced complexity of the supply chain
Improved data integration between elements of the
supply chain
Reduced cost through outsourcing
IS Infrastructure for SCM
Supply Chain Visibility: Access to up-to-date, accurate,
relevant information about supply chain processes to
different stakeholders.
The Supply Chain Management Strategy Process
Managing Global Distribution
Actions that manufacturers should follow as they enter new overseas
markets enabled by the Internet:
Select distributors. Do not let them select you.
Look for distributors capable of developing markets rather than those
with new customer contacts.
Treat the local distributors as long-term partners, not temporary
market entry vehicles.
Support market entry by committing money, managers and proven
marketing ideas.
From the start, maintain control over marketing strategy.
Make sure distributors provide you with detailed market and
financial performance data.
Build links among national distributors at the earliest opportunity

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