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Syrian Virtual University (SVU) Supply Chain Management (SCM) SCM Principles

Bassam Badran, Ph.D.

First Lecture

Contents
Supply Chain Management (SCM).
Definitions. Supply Chain (SC) Elements. Concept of Supply Chain and Existence. SCM Components.

SC Integration.

Why Should systems be integrated? Type of Integration (Internal, External, value chain Integration). Supply Chain Business Process Integration.

Definitions
The following definitions are helpful for the study of course: Supply Chain (SC). It refers to the flow of materials, information, payments, and services from raw materials suppliers, through factories and warehouses, to the end customers. A SC also includes the organizations and processes that create and deliver products, information, and services to the end customers. It is a network of activities that delivers a finished product or service to the customer. It includes many tasks such as purchasing, payment flow, materials handling, production planning and control, logistics and warehousing, inventory control, and distribution and delivery.

The Concept of SC Example


Downstream Motion
Finished goods

Source

Manufacturer

DC

Retail

Upstream Motion

See the movie SCM - Improve profitability - Increase revenue growth

Definitions
Supply Chain Management. The function of supply chain management (SCM) is to plan, organize, and coordinate all of the supply chains activities. Today, the concept of SCM refers to a total systems approach to managing the entire supply chain. It has been defined by the Global Supply Chain Forum (GSCF) as: Supply Chain Management is the integration of key business processes from end-user through original suppliers that provides products, services, and information that add value for customers and other stakeholders

Definitions
SCM Software. SCM software refers to software that supports specific segments of the supply chain, especially in manufacturing, inventory control, scheduling, and transportation. This software is designed to improve decision making, optimization, and analysis. Virtual Supply Chain (VSC). When a supply chain is managed electronically, usually with Web-based software, it is referred to as an VSC.

SC Elements
A simple supply chain is made up of several elements that are linked by the movement of products along it. The supply chain starts and ends with the customer. 1. Customer: The customer starts the chain of events when they decide to purchase a product that has been offered for sale by a company. The customer contacts the sales department of the company, which enters the sales order for a specific quantity to be delivered on a specific date. If the product has to be manufactured, the sales order will include a requirement that needs to be fulfilled by the production facility.

SC Elements
2. Planning: The requirement triggered by the customers sales order will be combined with other orders. The planning department will create a production plan to produce the products to fulfil the customers orders. To manufacture the products the company will then have to purchase the raw materials needed. 3. Purchasing: The purchasing department receives a list of raw materials and services required by the production department to complete the customers orders. The purchasing department sends purchase orders to selected suppliers to deliver the necessary raw materials to the manufacturing site on the required date.

See the movie Keeping the Global SC Moving Moving

SC Elements
4. Inventory: The raw materials are received from the suppliers, checked for quality and accuracy and moved into the warehouse. The supplier will then send an invoice to the company for the items they delivered. The raw materials are stored until they are required by the production department 5. Production: Based on a production plan, the raw materials are moved from inventory to the production area. The finished products ordered by the customer are manufactured using the raw materials purchased from suppliers. After the items have been completed and tested, they are stored back in the warehouse prior to delivery to the customer. 6. Transportation: When the finished product arrives in the warehouse, the shipping department determines the most efficient method to ship the products so that they are delivered on or before the date specified by the customer. When the goods are received by the customer, the company will send an invoice for the delivered products.

See the movie Polestar's Carbon Journey Revealed

The Concept of SC

Primary Sector, Extraction and Raw Materials

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Secondary Sector

Tertiary Sector (resale and services

The process starts with several external suppliers that move milk, cardboard, and plastic to the processing plant. After the milk is processed and packaged, it is delivered to retailers, who sell it to customers. Not shown in the picture are alternative delivery systems, such as delivery from a warehouse directly to customers homes. Note that in service industries, no physical flow of materials occurs, but there is flow of documents (hard and soft copies). These, according to the definition given previously, are to be considered supply chains, because the information flow and financial flow still exist

SC Milk Example

Customer

Customer

Customer

Customer

Value Supply Chain

Distribution center

Distribution center

Manufacturer

Tier 1

Tier 2

Tier 3

12 Legend

Supplier of services

Supplier of materials

the supply chain for a car manufacturer includes hundreds of suppliers, dozens of manufacturing plants (for parts) and assembly plants (for cars), dealers, direct business customers (fleets), wholesalers (some of which are virtual), customers, and support functions such as product engineering and purchasing.

SCM Existence
Supply chain management is a cross-functional approach to manage the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and then the movement of finished goods out of the organization toward the end-consumer. As organizations strive to focus on core competencies and becoming more flexible, they have reduced their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts.

SCM Existence
Supply chain management must address the following problems:
Distribution Network Configuration: Number, location and network missions of suppliers, production facilities, distribution centers, warehouses, cross-docks and customers. Distribution Strategy: Including questions of operating control (centralized, decentralized or shared); delivery scheme (e.g., direct shipment, pool point shipping, Cross docking, DSD (direct store delivery), closed loop shipping); mode of transportation (e.g., motor carrier, including truckload, LTL, parcel; railroad; intermodal, including TOFC and COFC; ocean freight; airfreight); replenishment strategy (e.g., pull, push or hybrid); and transportation control (e.g., owner-operated, private carrier, common carrier, contract carrier, or 3PL). Trade-Offs in Logistical Activities

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SCM Existence
The above activities must be coordinated well together in order to achieve the least total logistics cost. Trade-offs exist that increase the total cost if only one of the activities is optimized. For example, full truckload (FTL) rates are more economical on a cost per pallet basis than less than truckload (LTL) shipments. If, however, a full truckload of a product is ordered to reduce transportation costs there will be an increase in inventory holding costs which may increase total logistics costs. It is therefore imperative to take a systems approach when planning logistical activities. Several major types of supply chains can be classified into four major categories: integrated make to stock, build to order, continuous replenishment, and channel assembly.

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SCM Existence
Integrated Make to Stock. The integrated make-to-stock supply chain model focuses on tracking customer demand in real time, so that the production process can restock the finishedgoods inventory efficiently. Build to Order One begins the assembly of the customers order (from components) almost immediately upon receipt of the order. This requires careful management of the component inventories and delivery of needed supplies along the supply chain. One way to accomplish this is to utilize many common components across several production lines and in several locations.

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Continuous Replenishment The idea of the continuousreplenishment supply chain model is to replenish the inventory constantly by working closely with suppliers and intermediaries. However, if the replenishment process involves many shipments, the cost could be too high, causing the supply chain to collapse. Therefore, tight integration is needed between the order-fulfillment process and the production and acquisition processes. Real-time information about demand changes is required in order for the production process to maintain the desired replenishment schedules and levels. Channel Assembly The parts of the product are gathered and assembled as the product moves through the distribution channel. This is accomplished through strategic alliances with third-party logistics (3PL) firms. A channel assembly might have low or zero inventories and can achieve a faster market response time; it is popular in the computer technology industry.

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SCM Components
Supply chain management (SCM) is the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service and deliver it to customers. The following are five basic components of SCM. 1. Plan: This is the strategic portion of SCM. You need a strategy for managing all the resources that go toward meeting customer demand for your product or service. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers.

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SCM Components
2. Source: Choose the suppliers that will deliver the goods and services you need to create your product. Develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. And put together processes for managing the inventory of goods and services you receive from suppliers, including receiving shipments, verifying them, transferring them to your manufacturing facilities and authorizing supplier payments. 3. Make: This is the manufacturing step. Schedule the activities necessary for production, testing, packaging and preparation for delivery. As the most metric-intensive portion of the supply chain, measure quality levels, production output and worker productivity.

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SCM Components
4. Deliver: This is the part that many insiders refer to as logistics. Coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments. 5. Return: Create a network for receiving defective and excess products back from customers and supporting customers who have problems with delivered products This is the part that many insiders refer to as logistics. Coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments.

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SCM Components
Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. It is said that the ultimate goal of any effective supply chain management system is to reduce inventory (with the assumption that products are available when needed). As a solution for successful supply chain management, sophisticated software systems with Web interfaces are competing with Web-based application service providers (ASP) who promise to provide part or all of the SCM service for companies who rent their service. Supply chain management flows can be divided into three main flows: The product flow: It includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs. The information flow: It involves transmitting orders and updating the status of delivery. The finances flow: It consists of credit terms, payment schedules, and consignment and title ownership arrangements.

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Contents
Supply Chain Management (SCM).
Definitions. Supply Chain (SC) Elements. Concept of Supply Chain and Existence. SCM Components.

SC Integration.

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Why Should systems be integrated? Type of Integration (Internal, External, value chain Integration). Supply Chain Business Process Integration.

WHY SHOULD SYSTEMS BE INTEGRATED?


Sandoe et al. (2001) list the following major benefits of systems integration: Tangible benefits: Inventory reduction, personnel reduction, productivity improvement, order management improvement, financial-close cycle improvements, IT cost reduction, procurement cost reduction, cash management improvements, revenue/profit increases, transportation logistics cost reduction, maintenance reduction, and ontime delivery improvement. Intangible benefits: Information visibility, new/improved processes, customer responsiveness, standardization, flexibility, globalization, and business performance

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Type of Integration
between applications and databases inside a company. For example, one may integrate the inventory control with an ordering system, or a Customer Relationship Management (CRM) suite with the database of customers. External integration refers to integration of applications or databases among business partners; for example, the suppliers catalogs with the buyers e-procurement system. External integration is especially needed for B2B and for partners relationship management (PRM) systems.

1. Internal vs. External integration in the SC. Internal Integration is referred to the integration between applications or

2. Value Chain Integration.


The most obvious integration is that of the segments of the supply chain and the information that flows among the segments and it is called the integration of the value chain. It is as a process of collaboration that optimizes all internal and external activities involved in delivering greater perceived value to the ultimate customer.

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Type of Integration
A supply chain transforms into an integrated value chain when it: Extends the chain all the way from sub-suppliers (tier two, three, etc.) to customers. Integrates back-office operations with those of the front office. Becomes highly customer-centric, focusing on demand generation and customer service, as well as demand fulfillment and logistics. Seeks to optimize the value added by information and utility-enhancing services. Is proactively designed by chain members to compete as an extended enterprise, creating and enhancing customer-perceived value by means of cross-enterprise collaboration.

3. Product- development Integration.

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Another example of supply chain integration is product-development systems that allow suppliers to dial into a clients intranet, pull product specifications, and view illustrations and videos of a manufacturing process.

Supply Chain Business Process Integration


Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. An example scenario: the purchasing department places orders as requirements become appropriate. Marketing, responding to customer demand, communicates with several distributors and retailers as it attempts to satisfy this demand. Shared information between supply chain partners can only be fully leveraged through process integration.

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Supply Chain Business Process Integration


Lambert stated several processes: Customer Relationship Management (CRM). Customer Service Management. Supplier Relationship Management (SRM). Demand Management. Order fulfilment. Manufacturing Flow Management. Product Development & Commercialization. Returns Management (Reverse Logistics Management RLM).

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Source: Douglas M. Lambert, Editor, Supply Chain Management: Processes, Partnerships, Performance, Third Edition, Sarasota, FL: Supply Chain Management Institute, 2008, p. 8.

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Supply Chain Business Process Integration


One could suggest other key critical supply business processes combining these processes stated by Lambert such as: Customer Service Management. CRM concerns the relationship between the organization and its customers. Customer service provides the source of customer information. It also provides the customer with real-time information on promising dates and product availability through interfaces with the company's production and distribution operations. Successful organizations use following steps to build customer relationships: 1) determine mutually satisfying goals between organization and customers, 2) establish and maintain customer rapport, 3) produce positive feelings in the organization and the customers.

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Supply Chain Business Process Integration


Procurement. Strategic plans are developed with suppliers to support the manufacturing flow management process and development of new products. In firms where operations extend globally, sourcing should be managed on a global basis. The desired outcome is a win-win relationship, where both parties benefit, and reduction times in the design cycle and product development are achieved. Also, the purchasing function develops rapid communication systems, such as electronic data interchange (EDI) and Internet linkages to transfer possible requirements more rapidly. Activities related to obtaining products and materials from outside suppliers requires performing resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling and quality assurance, many of which include the responsibility to coordinate with suppliers in scheduling, supply continuity, hedging, and research into new sources or programmes.

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Supply Chain Business Process Integration


Product development and commercialization. Here, customers and suppliers must be united into the product development process, thus to reduce time to market. As product life cycles shorten, the appropriate products must be developed and successfully launched in ever shorter time-schedules to remain competitive. According to Lambert and Cooper (2000), managers of the product development and commercialization process must 1) coordinate with customer relationship management to identify customer-articulated needs, 2) select materials and suppliers in conjunction with procurement, and 3) develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product/market combination.

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Supply Chain Business Process Integration


Manufacturing flow management/support. The manufacturing process is produced and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be flexible to respond to market changes, and must accommodate mass customization. Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency of demand to customers. Activities related to planning, scheduling and supporting manufacturing operations, such as work-in-process storage, handling, transportation, and time phasing of components, inventory at manufacturing sites and maximum flexibility in the coordination of geographic and final assemblies postponement of physical distribution operations.

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Supply Chain Business Process Integration


Physical distribution. This concerns movement of a finished product/service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product/service is a vital part of each channel participant's marketing effort. It is also through the physical distribution process that the time and space of customer service become an integral part of marketing, thus it links a marketing channel with its customers (e.g. links manufacturers, wholesalers, retailers). Performance measurement. Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability. By taking advantage of supplier capabilities and emphasizing a long-term supply chain perspective in customer relationships can be both correlated with firm performance. As logistics competency becomes a more critical factor in creating and maintaining competitive advantage, logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes more narrow.

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Supply Chain Business Process Integration


Outsourcing/partnerships. This is not just outsourcing the procurement of materials and components, but also outsourcing of services that traditionally have been provided in-house. The logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage and everything else it will outsource. This movement has been particularly evident in logistics where the provision of transport, warehousing and inventory control is increasingly subcontracted to specialists or logistics partners. Also, to manage and control this network of partners and suppliers requires a blend of both central and local involvement. Hence, strategic decisions need to be taken centrally with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level.

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