Supply Chain Managment

Introduction

This chapter establishes the strategic importance of logistics to achieving business success by creating value throughout domestic and global supply chains. The initial chapter scopes the current business attention to supply chain management. The supply chain provides the framework within which logistical strategies are developed and executed

Resume

As recently as the 1990s, the average time required for a company to process and deliver merchandise to a customer from warehouse inventory ranged from 15 to 30 days, some- times even longer. The typical order-to-delivery process involved order creation and trans- fer, which was usually via telephone, fax, electronic data interchange (EDI), or public mail; followed by order processing, which involved the use of manual or computer systems, credit authorization, and order assignment to a warehouse for processing; followed by ship- ment to a customer. When everything went as planned, the average time for a customer to receive items ordered was lengthy. When something went wrong, as it often did, such as in- ventory out-of-stock, a lost or misplaced work order, or a misdirected shipment, total time to service customers escalated rapidly. To support this lengthy and unpredictable time to market, it became common practice to accumulate inventory.

These accepted business practices of the 20th century, as well as the distribution chan- nel structure used to complete delivery, evolved from years of experience dating from the industrial revolution. Today’s consumers want a wide range of product and source options they can configure to their unique specifications. Transporta- tion capacity and operational performance have increasingly become more economical and reliable. Today’s transportation is supported by sophisticated information systems that fa- cilitate predictable and precise delivery. Massive change has occurred as a result of available information technology. During the decade of the 1990s, the world of commerce was irrevocably impacted by computerization, the Internet, and a range of inexpensive information transmission capabilities.

In this initial chapter, the supply chain management business model and value proposi- tion is introduced as a growing strategic posture of contemporary firms. The chapter re- views the development of the supply chain revolution in business practice. Next, the supply chain concept is presented in a strategic framework

The Supply Chain Revolution

Supply chain management consists of firms collaborating to leverage strategic posi- tioning and to improve operating efficiency.

For each firm involved, the supply chain rela- tionship reflects a strategic choice. A supply chain strategy is a channel arrangement based on acknowledged dependency and collaboration.

In contrast to supply chain management, logistics is the work required to move and po- sition inventory throughout a supply chain.

The fundamental focus of this book is integrated logistics management. However, to study logistics, a reader must have a basic understanding of supply chain management. Supply chain decisions establish the operating framework within which logistics is per- formed.

At first blush, supply chain management may appear to be a vague concept. A great deal has been written on the subject without much concern for basic definition, structure, or common vocabulary.

To overcome challenges of comercial trading,firms developed business relationships with other product and service companies to jointly perform essential activities. Such ac- knowledged dependency was necessary to achieve benefits of specialization.

Because of the high visibility of different types of businesses, the early study of channel arrangements was characterized by classification based on specific roles performed during the distributive process. The bonding feature of channel integration was a rather vague concept that all involved would enjoy benefits as a result of cooperating.

Generalized Supply Chain Model

The general concept of an integrated supply chain is typically illustrated by a line diagram that links participating firms into a coordinated competitive unit. Figure 1.1 illustrates a generalized model adapted from the supply chain management program at Michigan State University.

The context of an integrated supply chain is multifirm collaboration within a framework of key resource flows and constraints. Within this context, supply chain structure and strat- egy results from efforts to operationally align an enterprise with customers as well as the supporting distributive and supplier networks to gain competitive advantage. Business op- erations are therefore integrated from initial material purchase to delivery of products and services to customers.

The integrated supply chain perspective shifts traditional channel arrangements from loosely linked groups of independent businesses that buy and sell inventory to each other toward a managerially coordinated initiative to increase market impact, overall efficiency, continuous improvement, and competitiveness. Another factor that serves to add complexity to understanding supply chain structure is the high degree of mobility and change observable in typical arrangements.

The overarching enabler of supply chain management is information technology. In addition to information technology, the rapid emergence of supply chain arrangements is being driven by five related forces: (1) integrative management, (2) responsiveness, (3) financial sophistication, (4) globalization, and (5) digital transformation.

Integrative Management

Across all aspects of business operations, attention is focused on achieving improved inte- grative management. The challenge to achieving integrated management results from the long-standing tradition of performing and measuring work on a functional basis. Since the industrial revolution, achieving best practice has focused managerial attention on func- tional specialization.6 The prevailing belief was the better the performance of a specific function, the greater the efficiency of the overall process.

In terms of management, firms have traditionally been structured into departments to facilitate work focus, routinization, standardization, and control. Accounting practices were developed to measure departmental performance. Most performance measurement focused on individual functions.

The fundamental challenge of integrated management is to redirect traditional emphasis on functionality in an effort to focus

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