Chapter 1:

Supply Chain Management

Chapter 1 Management of Business Logistics, 7
th
Ed. 2
Learning Objectives - After reading this
chapter, you should be able to do the following:
Understand the development of supply chain
management in leading corporations.
Appreciate the importance and role of supply
chain management among private and public
organizations.
Understand the contributions of a supply
chain approach to organizational efficiency
and effectiveness.
Chapter 1 Management of Business Logistics, 7
th
Ed. 3
Learning Objectives
Analyze the benefits that can accrue from
implementing effective supply chain practices.
Understand the major challenges and issues
facing organizations developing and
implementing supply chain strategies.
Discuss the major change drivers in our
economy and in the global marketplace.
Chapter 1 Management of Business Logistics, 7
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Logistics Profile:
SAB Distribution
SAB, a central Pennsylvania food wholesaling
company, had grown to $180 million over the years.
Current management were dealing with flat sales and
profit profiles and had cut costs to the point where
further cuts were counterproductive.
The market had changed and SAB was unable to
respondmanagement had questions but no answers.
What happened?
Where does SAB fit in the supply chain?
What should SAB do?
Chapter 1 Management of Business Logistics, 7
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Ed. 5
Supply Chain Management:
Introduction
Supply chain management now part of the
business vocabulary.
Impact of global marketplace drastically
changed the landscape of business.
Change was rapid and continuous in the
1990s.
Doing business in the comfort zone was no
longer synonymous with success.
Chapter 1 Management of Business Logistics, 7
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Ed. 6
The Changing Business
Landscape: Five Driving Forces
The Empowered Consumer
Power Shift in the Supply
Chain
Deregulation
Globalization
Technology
Chapter 1 Management of Business Logistics, 7
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The Changing Business Landscape:
Five Driving Forces
The Empowered Consumer
Impact on logistics is more direct.
Informed consumers have low tolerance
for poor quality in products and services.
Changing demographics commands 24/7
service.
Increased customer service increases the
importance of logistics and supply chains.
Chapter 1 Management of Business Logistics, 7
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The Changing Business Landscape:
Five Driving Forces
Power Shift in the Supply Chain
Large retailers more demanding and
commanding.
Focus upon distribution costs and their
impact on everyday low prices.
Changing logistics and supply chain
strategies resulted from shifts in the
balance of economic power.
Chapter 1 Management of Business Logistics, 7
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The Changing Business Landscape:
Five Driving Forces
Deregulation
Changing economic controls empowered creativity
and competition.
Changes in transportation fewer or no economic
controls over rates and services.
Change in financial institutions blurred traditional
differences and increased competition.
Change in the communications industry also resulted
in more competition.
Changes in the utility industry allows more
competition.
Chapter 1 Management of Business Logistics, 7
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The Changing Business Landscape:
Five Driving Forces
Globalization
Global marketplace concept
Global network sourcing, manufacturing,
marketing and distribution
Global alternatives have blossomed
No geography --- access available to the world
Supply chain challenges
Wal-Marts challenges
New supply sources
Chapter 1 Management of Business Logistics, 7
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The Changing Business Landscape:
Five Driving Forces
Technology
Information Age provides new and
unrestricted access to the place aspect of
business.
My time, my place Doing business in the
Internet era
Warehouse technology has changed
dramatically with computer devices in use
from the office space to the forklifts.
Chapter 1 Management of Business Logistics, 7
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On the Line:
Extreme Enterprise
Integrating new enterprise and supply chain
management solutions allowed Columbia Sportswear
to keep up with sales that increased from $3 million in
1984 to $470 million in 1999.
With one store and a handful of outlets, distribution to
its customers is where the rubber meets the road.
Columbias president was determined not to let
distribution restrain growth, and backed it with money.
A 1 million square foot distribution center receives
more than 2 million units/month and set a record by
shipping 172,000 items in one day, and more than 2
million items in a month.

Chapter 1 Management of Business Logistics, 7
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The Changing Business Landscape:
The Supply Chain Concept
Development of the Concept
Business Case for Supply Chain Management
Characteristics of Supply Chain Management
Chapter 1 Management of Business Logistics, 7
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Ed. 14
The Changing Business Landscape:
The Supply Chain Concept
Development of the Concept
Total systems cost - remains an important
element of logistics analysis.
Outbound logistics - was the initial focus with
higher value finished goods.
Inbound logistics deregulation allowed new
focus on coordination of inbound and outbound
movements.
Value chain analysis integrated logistics activities.
Terminology growing as supply chain concept
matures.

Chapter 1 Management of Business Logistics, 7
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Ed. 15
Figure 1-1
A View of Business Logistics in a Firm
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Figure 1-2
Integrated Logistics Management
Chapter 1 Management of Business Logistics, 7
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Figure 1-3
(M. Porters) Generic Value Chain
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Figure 1-4
Logistics Supply Chain
Chapter 1 Management of Business Logistics, 7
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The Changing Business Landscape:
The Supply Chain Concept
Business Case for Supply Chain Management: Why so
much attention on supply chain management?
ECR and Best-in-class studies (see next two slides)
Complexity of the supply chain
Extended enterprise concept
Two-way flow of:
Products
Information
Cash
Inventory visibility
Chapter 1 Management of Business Logistics, 7
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Figure 1-5: Comparison of Average Throughput
Time of Dry Grocery Chain before and after ECR
Implementation
Chapter 1 Management of Business Logistics, 7
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Figure 1-6: Total Supply Chain
Management Cost --- All Sectors
0
2
4
6
8
10
12
14
1996 1997
Best-in-class
Median


R
e
v
e
n
u
e

%

Chapter 1 Management of Business Logistics, 7
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Ed. 22
Figure 1-7:
Integrated Supply Chain
Chapter 1 Management of Business Logistics, 7
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Figure 1-8:
Running Lean
0
5
10
15
20
25
30
35
40
45
50
1996
Qtr 4
1997
Qtr 1
1997
Qtr 2
1997
Qtr 3
1997
Qtr 4
Compaq
Dell


Number of times Dell and
Compaq turn inventory over
in each quarter, calculated
at an annual rate.
Chapter 1 Management of Business Logistics, 7
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Ed. 24
The Changing Business Landscape:
The Supply Chain Concept
Characteristics of Supply Chain Management
Inventory
Visibility
Pull systems
Landed Cost
Companies must realize that their strategies
may affect the total landed cost.
Coordination of supply chain activities may
lower the total landed cost.
Chapter 1 Management of Business Logistics, 7
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Ed. 25
The Changing Business Landscape:
The Supply Chain Concept
Characteristics of Supply Chain Management
Real-time two way information flows
Customer service
levels must be tailored to each customer
not all customers require the same service
Supply chain relationships
Collaborative planning
Share risks and rewards