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Supply Chain Management:

From Vision to Implementation

Chapter 1: Supply Chain Management and

Competitive Strategy

Chapter 1: Learning Objectives

1. Define supply chain management and
identify how supply chain collaboration can
improve performance.

2. Discuss the extent to which supply chain

strategies are being implemented.

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Chapter 1: Learning Objectives

3. Define strategic management and discuss
how supply chain management supports the
development and execution of a winning
competitive strategy.

4. Identify the four process steps involved in

designing and implementing a supply chain
strategy.

Fawcett et al.(2007) Supply chain management: from vision to implementation. Edited by Dr. Sara Elzarka 3

Objective 1: Define supply chain

management and identify how supply
chain collaboration can improve
performance.

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Theory of Supply Chain Management

Companies seek to design business models that
meet customer needs better than competitors.
Success depends on the ability to

Design, Make, and Deliver

innovative, high quality, low cost products and

services that customers demand.
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Theory of Supply Chain Management

 Supply chain management allows companies
to focus on their unique skill sets.

 Other activities are outsourced to suppliers or

customers that possess the needed skills.

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Theory of Supply Chain Management

 Supply chain management requires a common
understanding of supply chain objectives and
individual roles, an ability to work together,
and a willingness to adapt in order to create
and deliver the best products and services
possible.

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Supply Chain: Service Example

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Supply Chain: Manufacturing Example

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Your Perspective on Supply Chain Management?

“SCM is managing the flow of information and
materials from the suppliers’ supplier to the
customers’ customer”

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A supply chain manager..

 tries to find opportunities to work with
customers and suppliers to reduce costs while
improving service.
 tries to use technology and teamwork to build
efficient and effective processes that create
value for the end customer.

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Supply Chain Management Defined

Supply chain management is the design and

management of seamless, value-added
processes across organizational boundaries to
meet the real needs of the end customer.

- Institute for Supply Management

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The Internal Value Chain

 But before processes can be managed
effectively up and down the supply chain,
they MUST BE MANAGED WELL inside
the focal firm.
 “Value Chain” – Michael Porter
 A variety of functions have responsibility for
making decisions that will determine how
much value is created.
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Internal Value Chain Elements

 Executive Management defines company strategy and
allocates resources to achieve it.
 Supply Management coordinates the upstream supply base,
finding the right suppliers and building the right relationships
with them.
 Operations transforms the inputs acquired from suppliers into
more highly valued products.
 Logistics moves and stores materials so they are available
when and where they are needed.
 Marketing manages the downstream relationships with
customers, identifying their needs and communicating to
them how the company can meet those needs.
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Internal Value Chain Elements

 Human Resources designs the systems used to hire, train, and
develop the company’s employees.
 Accounting maintains business records that provide
information needed to control operations.
 Finance acquires and controls the capital required to operate
the business.
 Information Technology builds and maintains the systems
needed to capture and communicate information among
decision makers.
 Research and Development (R&D) is responsible for new
product design.

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Internal Value Chain: Local Focus

Executive
R&D
Management

Information
Operations
Technology

Supply
Logistics
Management

Finance Marketing

Human
Accounting Resource
Management
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Internal Value Chain: Company Focus

Executive
R&D
Management

Information
Operations
Technology

Upstream Downstream
Supply
Suppliers Logistics Customers
Management

Finance Marketing

Human
Accounting Resource
Management
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SCM: Linked Value Chains

Executive
R&D
Management

Information
Operations
Technology
Executive Executive Executive Executive
R&D R&D R&D R&D
Management Management Management Management

Information Information Information Information

Operations Operations Operations Operations
Technology Technology Technology Technology

Supply Supply Supply Supply Supply

Management Management
Logistics Logistics
Management Logistics
Management
Logistics Logistics
Management

Finance Finance Marketing Marketing Finance Finance

Marketing Marketing

Human Human Human Human

Accounting Resource Accounting Resource Accounting Resource Accounting Resource
Management Management Management Management

Finance Marketing

Supplier’s Supplier Focal Human Customer Customer’s

Accounting Resource
Supplier Firm Management Customer
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What happens when

supply chain
members fail to
communicate and
cooperate?!?!?!

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The Bullwhip Effect

 Variation in demand is exaggerated as
information moves upstream away from the
point of use.

 Variation in demand is exaggerated due to

infrequent demand and/or inventory level
information exchange and order batching.

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The Bullwhip Effect

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The Bullwhip Effect

 Bullwhip effect costs can be as high as 12 to
25%

 Bullwhip can be effectively mitigated by:

 Sharing point of sale data
 Collaborative forecasting
 Collaborative future product promotion planning

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Objective 2: Discuss the extent to

which supply chain strategies are
being implemented.

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Supply Chain Management in Practice

 Companies have always been members of a
chain HOWEVER most companies still view
themselves as separate entities.
 They do not effectively work together to
reduce inventory levels and costs up and
down the supply chain.
 Nor do they coordinate decisions to improve
customer service.
And why should they???
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Supply Chain Integration

 Internal Process Integration: increase collaboration
among the company’s functional groups.
 Backward Process Integration: collaboration with
1st-tier and 2nd-tier (leading companies) suppliers.
 Forward Process Integration: collaboration with 1st-
tier customers.
 Complete Integration: collaboration from the
“suppliers’ supplier to the customers’ customer.”

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Supply Chain Integration

Common

Theoretical Ideal 27
Fawcett et al.(2007) Supply chain management: from vision to implementation. Edited by Dr. Sara Elzarka

Objective 3: Define strategic

management and discuss how
supply chain management
supports the development and
execution of a winning
competitive strategy.
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Strategy
 The Greek verb
stratego means “to
plan the destruction
of one’s enemies
through the effective
use of resources”
(Bracker, 1980)
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Strategy
 Winning strategies should help the company
do more than just beat the competition; they
should help the company meet the real needs
of customers.

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Strategy
Sun Tzu observed
that “the smartest
strategy in war is the
one that achieves key
objectives without
having to go to
battle”.
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Strategy
“The visible clashing between
companies in the marketplace is a
small fragment of the strategic
whole. Like an iceberg, most of
strategy is submerged,
hidden…beneath the surface where
value gets created, where
competition gets avoided”.

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Integrating SCM and Strategy

What makes Dell successful?
It’s the business model, and
supply chain is an enabler.
That’s why you’re seeing this
growing importance of supply
chains. People realize this is the
weapon of the future.

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Contingency Theory
 Contingency theory recognizes the
need for managers to consider the
relationship between a changing
environment, managerial decision-
making, and performance.

 Situational awareness is key to

effectively aligning company
resources in a changing competitive
environment.
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Resource-Based Theory
 Resource-based theory emphasizes
management of internal sources to
establish a unique skill set.

Unique skills/processes (core competence) lead to

competitive advantage, the ability to deliver
distinctive products/services in a way that adds
value in the eyes of the customer.
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Supply Chain Strategy

 Seeks to leverage the resources and skills of
diverse companies in the supply chain to
deliver exceptional value to the end customer.
 Addresses:
 How the capabilities of other chain members can
be used to create value for the end customer
 How their own strategy and actions impact the
ability of the supply chain to create value for
the end customer
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Objective 4: Identify the four

process steps involved in designing
and implementing a supply chain
strategy.

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Four Decision Areas for Strategy

1. Environment
 Internal – company
culture, functional
relationships, reward and
measurement system
 External – competitive,
economic, legal, and
political environments

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Four Decision Areas for Strategy

2. Resources – all assets a
firm can bring to bear,
including: people,
technology,
infrastructure,
materials, and money.
 Success requires
investment in
knowledge and
processes
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Four Decision Areas for Strategy

3. Objectives – unifies decision-making
throughout a company.
 Focusing on the right objectives is
the key to a winning business
strategy.

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Four Decision Areas for Strategy

4. Feedback –input to the control mechanism,
insuring the company strategy adapts to a
changing competitive environment.
- Wal-Mart uses Retail Link to share historic and
forecast demand information with its supply
partners. Suppliers can monitor sales at every
store on a real-time basis. They can also see
who well they are performing in terms of
delivery and inventory.
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