TOPIC: SUPPLY CHAIN MANAGEMENT

Expected Learning Outcomes

By the end of this lesson, you should be able to:

Explain the main elements of supply chain management and

their relationship to the value chain and value networks

Discuss the potential of information systems to support supply

chain management and the value chain.

Lesson Overview

This lesson examines the relationship a firm has with the

suppliers of its inputs. Maintaining successful supply chain
relationships enhances the competitive advantage of a firm.

What Is Supply Chain Management?

A Supply Chain is a network of supplier, manufacturing,

assembly, distribution, and logistics facilities that perform the
functions of procurement of materials, transformation of these
materials into intermediate and finished products, and the
distribution of these products to customers. Supply chains arise
in both manufacturing and service organizations. Supply Chain
Management (SCM) is a systems approach to managing the
entire flow of information, information, materials, and services
from raw materials suppliers
through factories and warehouses to the end customer. SCM is
different from Supply Management which emphasizes only the
buyer-supplier relationship.
 Supply chain management has emerged as the new key to
productivity and competitiveness of manufacturing and service
enterprises. Supply chain management is a major application
area for Internet Technologies and Electronic Commerce
(ITEC).  Technology is vital to supply chain management since
managing relationship with customers, suppliers and
intermediaries is based on the flow of information and the
transactions between these parties. The main strategic thrust of
enhancing the supply chain is to provide a superior value
proposition to the customer.

Supply Chain Management Strategy Process

It is a strategic plan on how a firm will improve its relationships

with its key strategic partners. The process follows the following
approaches

 Situational analysis- this involves internal assessment of current

approaches to the supply chain and the external analysis of market
place trends and customer opportunities

 Objective setting- this is the definition of required target returns and

release of shareholder value

 Strategy – involves development of supply chain strategies to achieve

the objectives

 Tactics- the firm prioritizes the operational improvement strategies

that will lead the firm towards goal achievement.

 Action- this involves implementation of the chosen strategy.

 Control- measure the outcome in order to determine whether the
desired outcome has been achieved.

Progress Assessment

Discuss ways in which a firm can improve its relationship with

its key stake holders?

FOCUS ON THE VALUE CHAIN

Before a firm develops a supply chain strategy it needs to

determine its value chain. A value chain is interlinked value-
adding activities that convert inputs into outputs which, in turn,
add to the bottom line and help create competitive advantage.
According to Michael E. Porter a value chain can be split into
two categories: primary activities and support activities.

Primary activities include the following:

 Inbound logistics: This refers to everything involved in receiving,

storing and distributing the raw materials used in the production
process.

 Operations: This is the stage where raw products are turned into the
final products.

 Outbound logistics: This is the distribution of the final product to

consumers.

 Marketing and sales: This stage involves activities like advertising,

promotions, sales-force organization, selecting distribution channels,
pricing, and managing customer relationships of the final product to
ensure it is targeted to the correct consumer groups.
 Service: This refers to the activities that are needed to maintain the
product's performance after it has been produced. This stage
includes things like installation, training, maintenance, repair,
warranty and after-sales services.

The support activities help the primary functions and

comprise the following:

 Procurement: This is how the raw materials for the product are

obtained.

 Technology development: Technology can be used across the board

in the development of a product, including in the research and
development stage, in how new products are developed and
designed, and process automation.

 Human resource management: These are the activities involved in

hiring and retaining the proper employees to help design, build and
market the product.

 Firm infrastructure: This refers to an organization's structure and its

management, planning, accounting, finance and quality-control
mechanisms.

Goals and outcomes

Ideally, the value chain analysis will help a company identify

areas that can be optimized for maximum efficiency and
profitability. 
 MEMBERS OF THE VALUE NETWORK OF AN
ORGANISATION

1. Supply side partners (upstream supply chain) such as

suppliers, business to business exchanges, wholesalers and
distributors.

2. Partners who fulfill primary or core value chain activities.

3. Sell side partners (downstream supply chain) such as business

to business exchanges, wholesalers, distributors and
customers

4. Value chain integrators or partners who supply services that

mediate the internal and external value chain.

Information system can be used to impact supply chain

management in a number of ways:

1. Increased efficiency of individual processes. The cycle time to

complete a process and the resources needed to execute it are
reduced.

2. Reduced complexity of the supply chain. The firm will offer its
customers the facility of buying products directly from the firm web
site rather through distributors or retailers.

3. Improved data integration between elements of the supply chain.

4. Reduced costs through outsourcing certain services

5. Innovation. It is possible to offer new products or new ways of

ordering and servicing products to customers.
Two Faces of Supply Chain Management

SCM has two major faces to it. The first can be called loosely
as the back-end and comprises the physical building blocks
such as the supply facilities, production facilities, warehouses,
and distributors, retailers, and logistics facilities. The back-end
essentially involves
production, assembly, and physical movement. Major decisions
here include:

1. Procurement (supplier selection, optimal procurement

policies, etc.)

2. Manufacturing (plant location, product line selection,

capacity planning, production scheduling, etc.)

3. Distribution (warehouse location, customer allocation,

demand forecasting, inventory management, etc.)

4. Logistics (selection of logistics mode, selection of

ports, direct delivery, vehicle scheduling, etc.)

5. Global Decisions (product and process selection,

planning under uncertainty, real-time monitoring and
control, integrated scheduling)

Stochastic models (Markov chains, queuing networks),

optimization models (LP, ILP, MILP, heuristics), and simulation
provide the basis for the above decisions.
 The second face (which can be called the front-end) is where
IT and ITEC play a key role. This face involves processing and
use of information to facilitate and optimize the back-end
operations. Key technologies here include: EDI (for exchange
for information across different players in the supply chain);
Electronic payment protocols; Internet auctions (for selecting
suppliers, distributors, demand forecasting, etc.); Electronic
Business Process Optimization; E-logistics; Continuous tracking
of customer orders through the Internet; Internet-based shared
services manufacturing; etc.

Lesson Summary

Managing supply chain relationship is key to ensure a firm

achieves it a competitive edge over its competitors. The supply
chain stakeholders include suppliers, intermediaries who
provide certain essential services etc.

Revision Questions

1. Describe the value chain of an Organization?

2. What are the benefits of proper supply chain management?