Institutionen för ekonomisk och industriell utveckling 581 83 Linköping www.iei.liu.se
Basics of
Supply Chain Management
Erik Sandberg, Assistant Professor
Division of Logistics Management
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Agenda
1. What is SCM?
2. SCM vs. Logistics
3. SCM in practice
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Supply Chain Management (SCM) =
The management of a supply chain…
Focal
company
Supplier
Customer
Customer’s
customer
Supplier’s
supplier
Information and Payments
(Order, forecasts, etc)
Physical flow of goods
Raw material
Final consumer
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Definitions of SCM
A search at Google.com for ”supply
chain management definition” gives
about 2730 hits…
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
SCM spans over several disciplines
• Purchasing and supply literature
• Logistics and transportation literature
• Marketing literature
• Organisational behaviour, industrial organisation, transaction
cost economics and contract view literature
• Contingency theory
• Institutional sociology
• System engineering literature
• Network literature
• Best practices literature
• Strategic management literature
• Economic development literature
Croom et al. (2000)
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Academic definitions of SCM… (I)
“The management of upstream and downstream
relationships with suppliers and customers to
deliver superior customer value at less cost to the
supply chain as a whole.”
Martin Christopher , 1998
”Supply chain management is defined here as
managing the entire chain
of raw material supply,
manufacture, assembly and distribution to the
end
customer
”
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Academic definitions of SCM… (II)
”supply chain management is an
integrative approach
to
using
information to manage inventory
throughout the
channel, from source of supply to end-user.”
Ellram, 1991
“Supply Chain Management encompasses the
planning
and management
of all activities involved in sourcing and
procurement, conversion, and all logistics management
activities. Importantly, it also includes
coordination and
collaboration with channel partners
, which can be
suppliers, intermediaries, third-party service providers,
and customers. In essence, supply chain management
integrates supply and demand management within and
across companies.”
Council of Supply Chain Management Professionals, CSCMP
Institutionen för ekonomisk och industriell utveckling 581 83 Linköping www.iei.liu.se
How senor Ortega, founder of
Inditex, express it:
”Touch the factories and customers with two hands.
Do everything possible to let one hand help the other.
And whatever you do, don’t take your eyes off the
product until it sold”
(Ferdows, et.al. 2004)
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
SCM: We are all in the same boat…
I’m sure glad
the hole isn’t
in our end...
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
No chain is stronger than its
weakest link…
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
An observation
IKEA, H&M, Zara (Inditex)
WalMart, Lidl, Aldi
Dell Computer, Nokia
Mats Abrahamsson
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
SCM is not a new idea…
”Physical distribution planning must be
channel-wide in perspective
”
Bowersox, Smykay, LaLonde, 1968
” … the time element in manufacturing
stretches
from the moment the
raw material
is separated
from the earth to the moment the
finished product
is delivered
to the ultimate consumer”
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Traditional supply chain vs. SCM (I)
(Based on Cooper & Ellram, 1993, p. 16)
Element
Traditional
Supply chain management
Cost approach
Minimize the own
costs
Channel-wide cost efficiencies, i.e
total cost approach
Time Horizon
Short term,
“Supplier with the
lowest price wins
the order”
Long strategic thinking
- possibility to make investments
- improvements on production,
- continuous rationalisation,
- knowledge about each other
and the products,
- stepwise expansion
Information sharing
Orders,
“afraid of giving away
company secrets”
Whatever needed:
- Point of sales data
- Production planning
- Forecasts
- Strategic information, plans
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Traditional chain vs supply chain (II)
Element
Traditional
Supply chain management
Coordination and
integration
Single contact for the
transaction between
channel pairs
Multiple contacts between levels
in firms and levels of channel
Collaboration
Not needed
A necessary prerequisite
Channel Leadership Not needed
Needed for coordination focus
Joint Planning
Transaction-based,
operational
On-going, operational as well as
strategic
Breadth of Supplier
Base
Large to increase
competition and spread
risk
Small to increase coordination
Amount of Sharing
of Risks and
Rewards
Each member takes their
own risks and rewards
Risks and rewards
shared over the long term
(win-win)
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Traditional chain vs supply chain (III)
Element
Traditional
Supply chain management
Inventory
management
Independent efforts
Joint reduction in
channel inventories,
“The supply chain is seen as one
single entity”
Compability of
Corporate
Philosophies
Not relevant
Compatible,
“supply chains are competing with
other supply chains”
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Benefits of SCM
• Improved customer service
• Reduced lead times
• Different types of cost reductions
• Reduced inventories
• Reduced risks in the supply chain
• Reach the market faster
• Increased competitiveness for a whole
chain
• …and many more
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
SCM literature from different
perspectives
Sandberg, 2005
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
SCM is an umbrella term…
• SCM is NOT one standardised business concept,
ready to be implemented by consultants
• We have seen many business concepts through the
years… (TQM, TBM, BPR…)
• However, SCM incorporates many of the issues
addressed in the concepts:
- Produce to customer order (TQM)
- Process orientation (TQM and BPR)
- Focus on processes (BPR)
- Lead time based design of structures (TBM)
- IT and POS-information (BPR)
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
SCM and IT
• SCM is NOT only about advanced IT systems.
Organisational problems/challenges can not be
solved by IT
• But it can be an important TOOL for competitive
advantage:
“Many of our advantages are due to the fact that we
have not considered what an IT-system can do for us
and adapted us, but what we want to do and make
the IT-system adapt to how we work”
(Marketing manager, Dustin Group AB)
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
SCM and IT
• IS/IT enables:
- Make the supply chain transparent
- Collect Point of Sales information and move it
backwards
- Execute the the supply chain activities
- Optimise the supply chain processes
-> A new information system must result in more than
just a new system:
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Philosophy AND management practices
SCM as a philosophy: Supply Chain Orientation
A “set of beliefs” for how to manage relationships in the supply
chain, or a specific “mindset”.
SCM as management practices
Actions undertaken to realise the SCO, i.e. the philosophy. E.g.
sharing information, joint planning, collaboration etc
Operationalised in a number of business management concepts:
- ECR, Efficient Consumer Response
- VMI, Vendor Managed Inventory
- CPFR, Collaborative Planning, Forecasting and
Replenishment
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Part 2: SCM vs Logistics
• Logistics
• Supply Chains
• Demand Chains
• Supply Networks
• Integrated Supply Chain Management
• Demand Chain Leadership
• International Supply Chain Management
• Value Chain Management
• …
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Don´t be confused by definitions…
(See van Weele, chapter 11)
Customer
Marketing
Manufacturing
and logistics
Purchasing
supplier
1st Tier
2nd Tier
supplier
Physical Distribution
Materials Management
Logistics Management
Business Logistics
Supply Chain Management
Demand Chain Management
Value Chain Management
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Logistics
SCM
“Logistics Manager”
“Supply Chain Manager”
Larson och Halldorsson 2004
Logistics vs. SCM:
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Logistics
SCM
Logistics hires “supply chain analysts” to focus
on cross-functional, inter-organizational issues.
Larson och Halldorsson, 2004
Logistics vs. SCM:
SCM as a sub-unit of logistics
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
SCM
Logistics
SCM = purchasing + logistics + operations + marketing + . . .
Larson och Halldorsson, 2004
Logistics vs. SCM:
SCM as ”everything”
Marketing
Production
xxx
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
SCM
Logistics
Larson och Halldorsson, 2004
Logistics vs. SCM:
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Part 3: SCM practices
1. Improving working processes
2. Information sharing
3. Improving the supply chain orientation
These three tasks are crucial for a
company’s SCM performance!!
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
1. Improving working processes
“a specific ordering of work activities across time
and place, with a beginning, an end, and clearly
identified inputs and outputs, a structure for
action.”
(Cooper et al., 1997, p. 5)
What is a (working) process?
Important: Working with processes
puts focus on end customers!
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Processes stretch across functions
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Important learning
• SCM means working with processes AND functions:
“-What I mean is that independent of what end of the
system you are, you should experience that we are
working with the entirety and that one helps each
other, that one understands each other’s
challenges… That is a balance. To understand the
entirety and at the same time create good results.
That is similar to the matrix thinking that has been
an organisational issue for many decades now.”
(Company Director, BAMA)
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Process orientation – breaking functional silos:
Level 0ne:
Traditional supply chain
Stevens (1989)
• Inventories and poor communication
between departments in the company
• Each department has their own IS/IT
system
• Different strategies in different
departments
• Short time planning
Single activities
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Process orientation – breaking functional silos:
Level two:
Functional integration
• Departments/activities within the same
function is integrated
• Inventory and administrative barriers
between different functions
• Real demand not visible for the
Production
• Tends to be a focus on cost reduction
(customer is not in focus)
Procurement
Production
Distribution
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Process orientation – breaking functional silos:
Level three:
Internal integration
• Everybody in the company have access to all
information
• Tends to be a focus on doing things right
(Rather than doing right things)
• Reactive rather than proactive customer
interaction
Procurement
Production
Distribution
Supplier
Customer
Stevens (1989)
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Process orientation – breaking functional silos:
Level four:
External integration - SCM
• Integration of several organisations
• Customer orientation instead of product
orientation
• In-depth analysis of customer requirements
and the needs (products, culture, market, organisation)
• Collaboration with suppliers and customers
(product development, quality, transports)
Customer
Supplier
Internal Chain
Stevens (1989)
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Creating process orientation in the organisation
- The case of Dustin
Process oriented organisation through smart
responsibility division among departments
Customers
Suppliers
Purchasing
Marketing
Dustin
Pricing
Product
managers
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
2. Information sharing
• Information can reduce logistics costs:
- Information can (to some extent) replace expensive inventories
- Information is a prerequisite to many business concepts
(Vendor Managed Inventory, Efficient Consumer Response, etc)
- Information is needed for proper transportation and route
planning
• Examples of information types shared:
- Inventory levels
- Sales data
- Order status for tracking/tracing
- Sales forecast
- Production/delivery schedule
- Performance metrics
- “Other strategic information”
Institutionen för ekonomisk och industriell utvwckling 581 83 Linköping www.iei.liu.se
Information sharing
- The case of DELL
Make money from sharing information
Full transparency in the supply chain gains all supply chain
members
How to use the shared information is focused
Dell’s factory for
Europe (Ireland)
Information
Hub
Customers
Suppliers
INFO
INFO
INFO
Prod.
Prod.
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Information sharing
- The case of Dustin
Company
customers at
www.dustin.se
Private consumers at
www.dustinhome.se
Dustin’s
IT System
Distributors’
IT Systems
Linked
Order
Order
Distributors’
central
warehouses
transport
Dustin’s
CW
transport
-> Short customer leadtimes
-> Inventory turn over 40 times/year
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3. Supply chain orientation
”A set of beliefs”, a philosophy, that is
based on:
• Trust towards partner/partners
• Commitment
• Interdependence
• Organisational compatibility
• Vision and key processes
• Leader
• Top management support
Mentzer et al. (2001)
Takes time and is
difficult to build!
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