What is Supply Chain Management

Bin Jiang

April 2003

Origin of SCM

Two consultants: Oliver and Webber in 1982

But…they stand on Japanese shoulders

Japanese triggered a revolution in 1970s -JIT

Consider a single-product line

Because cost matters, we must consider equipment utilization

Since the line is fed by a procurement process, we must consider raw material inventory, vendor management and purchasing

When we consider customers, lead time, service and finished goods inventory become relevant measures

Since yield loss and rework are often realities, quality is a key performance measure.

Motivation of JIT

Japanese believe:

Production environment is a control

Different perspectives

Traditional JITBelieve setup time is given and try to come up with optimal lot sizes.

Try to eliminate setups and thereby eliminate the lot-sizing problem.

Believe due dates are given and try to optimize the production schedule

Realize that due dates are negotiated with customers

Believe infrequent, expensive deliveries from vendors are given and try to optimize order sizes

Work to set up long-term agreements with a few vendors to make frequent deliveries feasible

Believe quality defects are given Believe quality can be controlled by both vendors and operators

Why did JIT come from Japan

Because of Japanese history of living with space and resource limitations, the Japanese are inclined toward conservation

This has made tight material control policies easier to accept in Japan than in the “throw-away society” of America

Japanese industry is spatially concentrated, so delivery of materials from suppliers several times per day are simply easier in Japan than in America with its wide-open spaces

A Single Magic Bullet

Some people imagine that Toyota has put on a smart new set of clothes, the JIT system, so they go out and purchase the same outfit and try it on.

They quickly discover that they are much too fat to wear it

It took about 25 years for Toyota to reduce setups from 3 hours to 3 minutes

Horrible buzzwords

ITCapacity Planning

BPRMCCF

ECR

ERPISO 9000

MRP II

Benchmarking

3PL

Inventory ControlMass

Customization

Logistics Managemen

t

VMI MRPLean

Manufacturing

Flexible Manufacturing

TQMSQC

SCM

Serious SC competition

Today’s competition is not really company vs. company, but supply chain vs. supply chain.

Warren Hausman, Professor at Stanford University

Where should I look for?

My own production line?

My customer?

My supplier?

My counterparts?

Basic idea of SCM

SCM is concerned with the relationship between a company and its upstream and downstream players

The relationship helps companies:

coordinate (working jointly) with their upstream and downstream players to integrate activities along the supply chain to effectively supply product to customers

Conceptual formula of SCM

Objective:

max (customer satisfaction)

or max (competitive advantages)

Constraint:

SC relationship = f(C,I)

SC relationship = f(C, I)

Integration(I): how closely supply chain entities operate as a single unit --- focus on interfaces (structure)

Coordination(C): how seamlessly information, material and financial flows flow in SC --- focus on movement (process)

Relationship f(C, I): friendly? hostile? grasp the cake? make the cake bigger? Long-term? Short-term? competitive? win-win?

W/o coordination and integration

Inaccurate forecasts

Low capacity utilization

Excessive inventory

Inadequate customer service

W/o C&I, there is a horrible relationship (environment)

Recall the tip of JIT

Production environment is a control

JIT: at right time, at right quantity, at perfect quality

SCM: at right time, at right product, at right place, at competitive price.

From JIT to SCM

From flow-oriented to interfaces-oriented

From plant-oriented to relationship-oriented

From production-oriented to customer service-oriented

Competitiveness(Customer Service)

Integration Coordination

Foundations

OR, POM, IE, OB, Marketing, Logistics, IT…

SCM

??

Integration Coordination

Choice of partners

Inter-org.

Leadership

Process-oriented

IT Tech

Advanced Planning

Don’t put your wrong hand to SCM issues!!!

SCM

IntegrationChoice of partners: costs, future potential, organizational culture, specialized know-how, taxes, exchange rates, etc.

Interorganization network: independent vs. dependent; secret vs. information/know-how sharing; long-term vs. short-term; win-win strategy vs. maximizing own profits, etc.

Leadership: At least some decisions should be made fro the SC as a whole. Aligning strategies along SC requires some form of leadership.

CoordinationUtilization of IT: historical mass data, demand forecast, sharing information instantaneously, EDI, B2B, B2C, etc.

Process orientation: use performance indicators to figure out weaknesses, bottlenecks and waste within a SC. (productivity, cycle time, safety stock, WIP, ROI, etc)

Advanced planning: incorporates long-term, mid-term and short-term planning levels.

FoundationsYou should have relevant knowledge to support your SCM:

• logistics and transportation

• marketing

• operations research and POM

• organizational behavior, industrial organization and transaction cost economics

• purchasing and supply

• …

Takeaway

SCM is not a simple procedure or technique

More or less it is a not quiet coherent management strategy

It is an assortment of attitudes, philosophies, priorities, and methodologies that have been collectively labeled “SCM”

You must have a “chain” perspective