SCM465 CH3 - Supply Chain Management
Chapter 3: Supply Chain Management
Specific Objectives for Class Participants
Explain and diagram a basic supply chain.
List and explain the parts and functions of a supply chain.
Discuss the risks that can potentially create challenges in supply chains.
Identify current trends impacting modern supply chains.
List and explain risks created by these trends.
Importance of Supply Chain Management
Every organization moves materials: No organization operates in isolation, emphasizing the interconnectedness of supply chains.
Linking suppliers to customers: Supply chains connect suppliers to final customers, and risks in one part affect the entire chain.
Flow structure example: Supplier → Factory → Warehouse → Customer.
Definition of Supply Chain
General Definition: A supply chain consists of a series of activities and organizations that materials move through from initial suppliers to final customers. Supply chain encompasses the flow of:
Materials
Goods
Information (including financial flows)
Facilitators Involved: Relationships, processes, activities, and integrated information systems are the facilitators that link these flows across organizations.
Source Reference: Peck (2006).
Understanding Materials in the Supply Chain
Types of Materials:
Tangible Materials:
Examples include coal, wheat, garments, computers.
Intangible Materials:
Examples include information, software, knowledge, and services.
Application in Modern Business: Companies like Netflix and telecom services leverage both tangible and intangible materials in their supply chains.
Supply Chain Structure and Tiering
Logistics Process:
Inward logistics: Materials moving inwards from suppliers.
Outward logistics: Materials moving outwards to customers.
Tiers in Supply Chain:
First-tier Supplier: Delivers materials directly to the organization.
Second-tier Supplier: Supplies materials to first-tier suppliers.
Third-tier Supplier: Supplies to second-tier suppliers.
Customer View:
First-tier Customer: Receives product directly from the organization.
Second-tier Customer: Receives from a first-tier customer.
Third-tier Customer: Receives from a second-tier customer, etc., up to the final customer.
Supply Chain Management (SCM)
Definition: SCM is the management of flows between and among supply chain stages to maximize total supply chain profitability.
Operational Goals:
Recognizes the significance of planning, implementing, and controlling supply chain operations as efficiently as possible.
Integration and organization of information and logistics activities across firms create and deliver goods and services that provide value to customers.
Aims of Supply Chain Management
Objectives of SCM:
Achieve high customer satisfaction.
Utilize resources efficiently.
Minimize total costs across the supply chain.
Classic SCM Phrase: Right product, right place, right time, right cost.
Logistics Concepts
Logistics Defined:
The process of planning, implementing, and controlling the efficient, cost-effective flow and storage of goods and information from point of origin to consumption, meeting customer requirements.
Focuses on getting the right amount, right quality of the right products to the right place at the right time from the best source at the lowest price.
Logistics Management
Definition:
Organizing the cost-effective flow of raw materials, in-process inventory, finished goods, and related information from point of origin to consumption to satisfy customer needs.
Customer Satisfaction and Logistics
Factors Influencing Customer Satisfaction:
Availability of products.
Delivery time.
Damage prevention.
Price.
Reliability of delivery.
Influence of Logistics: Logistics directly impacts all the above factors contributing to customer satisfaction.
Core Activities of Logistics
Key Activities Include:
Procurement.
Inbound transportation.
Warehousing.
Inventory control.
Material handling.
Outbound transportation.
Reverse logistics.
Information flow management.
Complexity of Modern Supply Chains
Characteristics of Complexity:
Thousands of organizations involved.
Various product types.
Global reach across multiple countries.
Flow Types in Supply Chains:
Materials.
Information.
Financial flow.
Activities of Logistics
Key Activities Include:
Supply chain design.
Procurement or purchasing.
Inward transportation or traffic management.
Warehousing or store logistics.
Stock control.
Outward transportation.
Recycling, returns, and waste disposal.
Communication throughout the supply chain.
Common Supply Chain Risks
Identified Risks Across Studies:
Late deliveries.
Damaged goods during transit.
Increases in costs.
Capacity constraints affecting operations.
Longer lead times caused by disruptions.
Key Inquiry: Consider which risks are most common in today's landscape.
Vulnerabilities in the Supply Chain
Key Points Reflecting Why Vulnerabilities Exist:
Different terminologies across firms complicate communication.
Supply chains exist to interconnect all parties from raw materials to consumers.
Supply chains are lengthy and often complex networks.
Organizations are interconnected and do not operate in isolation.
Balancing customer service with cost is essential for efficiency.
Many firms assume multiple roles in the supply chain.
Additional Causes of Vulnerability
Key Issues Identified:
Long lead times complicating operations.
Global sourcing patterns developing risks.
Lean systems leading to low inventory levels.
Reliance on single sourcing increases dependency risks.
Information delays contributing to disruptions.
Most Common Supply Chain Risks Today
Types of Risks Include:
Demand Volatility: Sudden changes driven by economic factors, warfare, policies, and market conditions.
Supplier Capacity Constraints: Disruptions at lower tiers (Tier 2 & Tier 3) can impact the entire supply chain.
Transportation Delays: Issues like port congestion and shortages of key transportation elements.
Cost Escalation Risk: Rising costs from fuel, labor, interest rates, and compliance expenses affect margins.
Geopolitical & Regulatory Risks: Sanctions and trade restrictions complicate operations.
Climate Risks: Extreme weather events affecting supply stability and transport.
Conclusion: Modern supply chains exhibit both high efficiency and fragility, often leading to frequent disruptions rather than rare catastrophic failures.
Case Study: Pharmaceutical Supply Chain Risk
Illustrative Example:
Vaccine demand may surge due to crises or health emergencies.
A pharma company responded by increasing production capacity, but issues arose because glass vial suppliers couldn’t meet the unexpected demand.
The glass vial suppliers prioritized existing large clients, which meant vaccines could not be delivered despite the pharma firm’s readiness to produce.
Takeaway: The bottleneck occurred in packaging, illustrating the complex interdependencies in a supply chain.
Key Lessons from Supply Chain Vulnerabilities
Main Points:
A supply chain is only as robust as its weakest link; weaknesses often exist upstream in Tier 2 or Tier 3 suppliers.
Problems at one supplier can quickly escalate to firm-level or societal crises.
Achieving efficiency without sufficient backup harms resilience.
Effective Supply Chain Risk Management (SCRM) requires comprehensive mapping of critical components and suppliers, extending beyond just core operations.
Discussion Question: Consider strategies a firm could adopt to mitigate future risks, such as:
Implementing dual sourcing strategies.
Establishing capacity reservation contracts.
Maintaining safety stocks of critical components like vials.
Exploring alternative packaging options.