SCIM FUNDAMENTALS

Supply chain – consists of all parties involved, directly or indirectly, in the procurement of a
product or raw material
Supply chain management (SCM) – involves the management of information flows between and
among stages in a supply chain to maximize total supply chain effectiveness and profitability
The supply chain has 3 main links:
1. Materials flow from suppliers and their upstream suppliers at all levels
2. Transformation of materials into semi-finished and finished products
3. Distribution of products to customers and their downstream customers at all levels

SUPPLY CHAIN DRIVERS

An organization’s goals and strategic objectives should determine its overall SCM strategy. The
SCM strategy in turn determines how the supply chain will perform with respect to efficiency and
effectiveness.
An organization can use these four drivers in varying measure to push it toward either a supply
chain strategy focusing on efficiency or effectiveness.
1. FACILITIES
A facility processes or transforms inventory into another product or it stores the inventory before
shipping it to the next facility. Three components should be considered
Location: where to locate the facilities
- Efficiency: Centralize to gain EOS efficiency >< far from customer
- Effectiveness: Decentralize to be closer to the customers >< increase costs through
additional facilities
Capacity: demand planning SCM software can help an organization determine capacity. An
organization must determine the performance capacity level for each of its facilities
- Efficiency: minimal amounts of excess capacity  lower holding costs
- Effectiveness: large amount of excess capacity  provides the flexibility to respond to
wide swings in demand
Operational design: an organization must determine if it wants a product focus or a functional
focus for its facilities operational design
- Efficiency: single product focus (produce only a certain type of product)
- Effectiveness: multiple product focus (facility performs a specific function on many
different products)
Facility Related Matrices
• Capacity
• Utilization
• Production cost per unit
• Theoretical flow/cycle time of production
• Actual average flow
• Flow time efficiency
• Product variety
• Processing/setup/down/idle time
• Quality losses
• Average production batch size
• Production service level

2. INVENTORY
Why carry Inventory?
a) Unexpected changes in customer demand: Customer demand has always been hard to predict
and uncertainty in customer demand has increased in the last few years due to short life cycle of
an increasing number of products and the presence of many competing products in the
marketplace. This proliferation of products makes it increasingly difficult to predict demand for a
specific model
b) The presence in many situations of a significant uncertainty in the quantity and quality of the
supply, supplier costs and deliver times
c) Lead times: even if there is no uncertainty in demand or supply, there is a need to hold
inventory due to deliver lead times
d) Economies of scale offered by transportation companies: that encourage firms to transport large
quantities of items and therefore hold large inventories. Incentives provided by manufacturers to
distributors and retailers motivate buyers to purchase large quantities during manufacturers’
promotional periods and hence, lead to high inventory levels
Companies require inventory to offset any discrepancies between supply and demand but
inventory is a major cost in any supply chain
- Efficiency: maintain low levels of inventory in a single inventory storage location
- Effectiveness: locate large amount of inventory in many facilities close to its customers
Inventory management and control software – provides control and visibility to the status of
individual items maintained in inventory. This software provides the supply chain with
information from a variety of sources:
• Current inventory and order status
• Cost accounting
• Sales forecasts and customer orders
• Manufacturing capacity
• New product introductions
Two primary inventory strategies:
 Cycle inventory: the average amount of inventory held to satisfy customer demands
between inventory deliveries
 Safety inventory: the extra inventory held in the event demand exceeds supply
Objectives of Inventory Management
- Provide desired customer service level: Percentage of orders shipped on schedule
- Provide for cost-efficient operations:
• Buffer stock for smooth production flow
• Maintain a level work force
- Minimize inventory related investments: Achieve high inventory turnover
Symptoms of Poor Inventory Management
• An increase in backorders
• Constant stream of backorders
• Higher customer turnover
• More cancelled customer orders
• Insufficient storage space
• Unnecessary obsolete products
Inventory Related Matrices
• Cash-to-cash cycle time
• Average inventory
• Inventory turns
• Products with more than a specified number of days of inventory
• Average replenishment batch size
• Average safety inventory
• Seasonal inventory
• Fill rate (order/demands met on time)
• Fraction of time out of stock (Zero inventory)
• Obsolete inventory

3. TRANSPORTATION
An organization can use many different methods of transportation to move its inventories between
the different stages in the supply chain
- Efficiency: reduced speed of delivery, reduced cost of delivery and ship products to a
distributor
- Effectiveness: use transportation to increase the price of products by using faster, more
costly transportation methods
There are 2 primary facets of transportation an organization should consider when determining its
strategy
a) Method of transportation: truck, rail, ship, air, pipeline and electronic
Global inventory management system – provides the ability to locate, track, and predict the
movement of every component or material anywhere upstream or downstream in the supply chain
b) Transportation route
Transportation planning software: tracks and analyses the movement of materials and products to
ensure the delivery of materials and finished goods at the right time, the right place and lowest
cost
Distribution management software: coordinates the process of transporting materials from a
manufacturer to distribution centres to the final customer

4. INFORMATION
Information is a driver whose importance has grown as companies use it to become both more
effective and efficient. Two things to consider about information in the supply chain:
a) Information sharing
An organization must determine what information it wants to share with its partners throughout
the stages of the supply chain
- Efficiency: freely share lots of information to increase the speed and decrease the costs of
supply chain processing
- Effectiveness: share only selected information with certain individuals to decrease the
speed and increase the costs of supply chain processing
b) Push vs Pull Information strategy
- Efficiency: pull (receive or request information) since organization does not have to undertake
the costs associated with sending information
- Effectiveness: push (send out info)  organization has control over exactly what information is
shared and when the information is shared
Information Related Matrices
• Forecast horizon
• Frequency of update
• Forecast error
• Seasonal factors
• Variance from plan
• Ratio of demand variability to order variability
FUTURE TRENDS
The functionality in SCM systems is becoming more and more sophisticated as SCM matures.
The next stages of SCM will incorporate more functions such as marketing, customer service and
product development. This will be achieved through more advanced communication, adoption of
more user-friendly decision support systems and availability of shared information to all
participants.
Fastest growing SCM components are:
Supply chain event management (SCEM) – enables an organization to react quickly to resolve
supply chain issues
Selling chain management – applies technology to the activities in the order life cycle from
inquiry to sale
Collaborative engineering – allows an organization to reduce the costs required during the design
process of a product
Collaborative demand planning – helps organizations reduce their investment in inventory, while
improving customer satisfaction through product availability