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Supply Chain Management

Li Jiajing2013.10

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Chapter 1 Introduction of supply chain management

What Is Supply Chain Management?1

Why Supply Chain Management?2

Key Issues in Supply Chain Management3

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1.1 What Is Supply Chain Management?

Fierce competition in today's global markets, the introduction of products with shorter life cycles, and the heightened expectations of customers have forced business enterprises to invest in, and focus attention on their supply chains.

This, together with continuing advances in communications and transportation technologies, has motivated the continuous evolution of the supply chain and of the techniques to manage it effectively.

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1. Introduction

In a typical supply chain, raw materials are procured and items are produced at one or more factories, shipped to warehouses for intermediate storage, and then shipped to retailers or customers.

Consequently to reduce cost and improve service levels, effective supply chain strategies must take into account the interactions at the various levels in the supply chain.

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FIGURE 1 The logistics network

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2. Definition of SCM

Supply Chain Management is a set of approaches utilized to efficiently integrate supplier, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system-wide costs while satisfying service level requirements.

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2. Definition of SCM

供应链管理是在满足服务水平需要的同时，为了使系统成本最小而采用的把供应商、制造商、仓库和商店有效地整合在一起，把正确数量的商品在正确的时间生产并配送到正确地点的一套方法。

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1.2 Why Supply Chain Management?

In the last few years, it has become clear that many companies have reduced manufacturing costs as much as is practically possible.

Many of these companies are discovering that effective supply chain management is the next step they need to take in order to increase profit and market share.

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FIGURE 2 Logistics costs’ share of the U.S. economy

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For 1998 the amount was $898 billion, while in 2005 it was $1.18 trillion. This $1.18 trillion represents an increase of $156 billion over 2004.

It is even more striking that while the U.S. economy slowed down in 2005, logistics costs increased by about 15 percent.

This increase was driven by "high fuel costs, truck driver and rail capacity shortages, offshoring and outsourcing and the costs of security."

The absolute numbers：

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The urgency of supply chain challenges has not diminished over the years with the recent increase in supply chain costs.

With complexity driven by globalization, high transportation costs, poor infrastructure, weather-related disasters, and terrorist threats, managing the supply chain has become even more challenging.

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1.2 Why Supply Chain Management?

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1.3 Key Issuesin Supply Chain Management

These issues span a large spectrum of a firm's activities, from the strategic through the tactical to the operational level: The strategic level deals with decisions that have a

long-lasting effect on the firm. The tactical level includes decisions that are typically

updated anywhere between once every quarter and once every year.

The operational level refers to day-to-day decisions

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Key Issues

Distribution Network Configuration Inventory Control Production Sourcing Supply Contracts Distribution Strategies Supply Chain Integration and Strategic Partnering Outsourcing and Offshoring Strategies Product Design Information Technology and Decision-Support Systems Customer Value Smart Pricing

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TABLE 1 Key Issues

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Chain Global optimization

Managing risk and uncertainty

Distribution Network Configuration Supply Y

Inventory Control Supply Y

Production Sourcing Supply Y

Supply Contracts Both Y Y

Distribution Strategies Supply Y Y

Strategic Partnering Development Y

Outsourcing and Offshoring Development Y

Product Design Development Y

Information Technology Supply Y Y

Customer Value Both Y Y

Smart Pricing Supply Y

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Summary

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What Is Supply Chain Management?1

Why Supply Chain Management?2

Key Issues in Supply Chain Management3

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Discussion questions：In the next section, we shall learn “chapter 2

inventory management and risk pooling”.Discussion questions：

What is the relationship between service and inventory levels?

Suppose you are selecting a supplier. Would you prefer a supplier with a short but highly variable delivery lead time or a supplier with a longer but less variable lead time?

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