CHAPTER 5 The Supply Chain Management Concept

Learning Objectives
To learn about supply chains and their management To appreciate the attributes affecting supply chain management implementation To consider potential barriers to supply chain management implementation To examine supply chain integration

2008 Prentice Hall

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The Supply Chain Concept

Key Terms

Key Terms
Partnerships Perfect order Process Classification Framework (PCF) Supply chain Supply chain analytics Supply chain collaboration Supply chain management (SCM)
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Agile supply chain Bullwhip effect Fast supply chain Fourth-party logistics (lead logistics provider) Global Supply Chain Forum (GSCF) model Leagility Lean supply chain

2008 Prentice Hall

The Supply Chain Concept

Key Terms
Supply Chain Operations Reference (SCOR) model Third-party logistics (logistics outsourcing; contract logistics)

2008 Prentice Hall

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Evolution of Supply Chain Management

Relatively new concept rarely mentioned prior to 1990 Recognition grew when value could be found in coordinating various business functions SCM philosophy: Coordinate not only within organizations, but across organizations

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About Supply Chains

A supply chain encompasses all activities associated with the flow and transformation of goods from the raw material stage (extraction), through to the end user, as well as the associated information flows.

Source: Robert B. Handfield and Ernest L. Nichols, Jr., Introduction to Supply Chain Management

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Different Supply Chain Configurations: Direct Supply Chain

Supplier

Organization

Customer

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Different Supply Chain Configurations: Extended Supply Chain

Supplier Suppliers

Organization

Customer

suppliers

Customers customers
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Different Supply Chain Configurations: Ultimate Supply Chain

3rd Party Logistic Supplier

Supplier Ultimate

Organization

Customer

supplier

Ultimate customer
Financial Provider Market Research
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Supply Chain

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Supply Chain Management

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.
CSCMP

Logistics
CSCMP (Council of Supply Chain Management Professionals) definition: Logistics is that part of the Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers requirements.
Source: clm1.org 2008 Prentice Hall 1-12

Successful Supply Chains have

Enterprise-to-enterprise point of view Systems approach across all organizations in the supply chain
Companies recognize interdependencies Goals and objectives are compatible

2008 Prentice Hall

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SCM Models
Models identify business processes that help organizations implement and evaluate processes.
Supply Chain Operations Reference (SCOR) Supply Chain Council Global Supply Chain Forum (GSCF) - Supply Chain Management Institute Process Classification Framework (PCF) - APQC

The Supply-Chain Operations Reference (SCOR) Model

Process reference models integrate the well-known concepts of business process reengineering, benchmarking, and process measurement into a crossfunctional framework. A Process Reference Model Contains:
Standard descriptions of management processes A framework of relationships among the standard processes Standard metrics to measure process performance Management practices that produce best-in-class performance Standard alignment to features and functionality

http://supply-chain.org/f/SCOR%2090%20Overview%20Booklet.pdf
http://archive.supply-chain.org/galleries/defaultfile/SCOR%2080%20Overview%20Booklet2.pdf

The Supply-Chain Operations Reference (SCOR) Model

SCOR Process Plan Definitions Processes that balance aggregate demand and supply to develop a course of action which best meets sourcing, production, and delivery requirements Processes that procure goods and services to meet planned or actual demand Processes that transform product to a finished state to meet planned or actual demand Processes that provide finished goods and services to meet planned or actual demand, typically including order management, transportation management, and distribution management

Source Make Deliver

Return

Processes associated with returning or receiving returned products for any reason. These processes extend into post-delivery customer support

The Supply-Chain Operations Reference (SCOR) Model

2008 Prentice Hall http://archive.supply-chain.org/galleries/defaultfile/SCOR%2080%20Overview%20Booklet2.pdf

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The Global Supply Chain Forum (GSCF) Model

Customer Relationship Management (CRM) Customer Service Management Demand Management Order Fulfillment Manufacturing Flow Management Supplier Relationship Management Product Development and Commercialization Return Management

http://findarticles.com/p/articles/mi_qa3705/is_200501/ai_n13632938/?tag=content;col1

Process Classification Framework (PCF)

http://meilleradvisoryservices.com/yahoo_site_admin1/assets/images/APQC-PCF_w-logo.260172250_std.jpg

Process Classification Framework (PCF)

http://modelle-frameworks.cw-innovations.de/files/2011/03/American-Productivity-and-Quality-Center-APQC-Process-ClassicationFramework-PCF-with-Corporate-Modeler-2.jpg

Attributes Affecting SCM Implementation

Customer power Long-term orientation
Relational exchanges Transactional exchanges

Leveraging technology Enhanced communication across organizations

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Attributes Affecting SCM Implementation

Inventory control
Reduction of the bullwhip effect Reduction of inventory in the supply chain

Interorganizational collaboration Use of supply chain facilitators

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Supply Chain Facilitators

Third-Party Logistics (3PL)
Logistics outsourcing Contract logistics

Fourth-party logistics (4PL) primarily used in global companies

Lead logistics provider (LLP)

Supply chain software

Pearson Education, Inc. publishing as Prentice Hall

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Barriers to Supply Chain Management

Regulatory and political considerations Lack of top management commitment Reluctance to share, or use, relevant data Incompatible information systems Incompatible corporate cultures Globalization

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Globalization of Supply Chains

Increasing globalization
Lower priced materials and labor Global perspective of companies Development of global competition

Extremely difficult to execute due to differences

Cultural, economic, and technological Political, spatial, and logistical
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Supply Chain Integration

Long-term, mutually beneficial agreements
Partnerships Strategic alliances Third-party arrangements Contract logistics

Methods used to integrate

Vertical integration Formal contracts Informal agreements
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Case 5-1 Johnson Toy Company

Company Facts: Located Biloxi, Mississippi Product Facts:

Basic Design Toys: Low profit margin Unconventional Toys: Risky, High profits if popular
Jungle Jim the Jogger

Market Facts: Seasonal

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Case 5-1 Johnson Toy Company

Problems at Hand: Popular toy turns into unpopular Production was cancelled Returns without a clear policy

Discussions: #1: From the standpoint of an individual concerned with accounting controls, discuss and evaluate Johnson Toy Companys present policies for handling returned items. #2: Answer question 1, but from the standpoint of an individual interested in marketing.
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Case 5-1 Johnson Toy Company

Discussions: #3: Propose a policy for handling returns that should be adopted by the Johnson Toy Company. Be certain to list circumstances under which exceptions would be allowed. Should it apply to the Jungle Jim dolls?

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Case 5-1 Johnson Toy Company

I. HIGH VOLUME CUSTOMERS (defined as purchasing $75,000 of merchandise from Johnsons per year) A. Functionally damaged goods may be returned to Johnsons plant at Johnsons expense with a full refund. B. High volume customers will receive a straight 2% deduction off of the wholesale selling price to cover defectives whether defectives are classified as cosmetically damaged or slow moving items, except when unable to sell due to special circumstances (see Section III).
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Case 5-1 Johnson Toy Company

II. LOW VOLUME CUSTOMERS A. Functionally damaged goods may be returned to Johnsons plant via Johnsons salesperson with a full refund. B. Low volume customers will NOT receive an automatic deduction for defectives. Instead, the damage or defect must be defined: Cosmetically damaged goods (classified as functionable and sellable): a 25% discount granted upon inspection by Johnsons salesperson. Slow moving items: NO RETURNS Non-moving items (for reasons other than physical damage)
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Case 5-1 Johnson Toy Company

III. SPECIAL CIRCUMSTANCES When product is not resellable for reasons other than being functionally damaged or just a slow mover in the off season, such as when the product receives bad press (as in the case of Jungle Jim and Jogger Dolls), Johnson will allow return of all such nonresellable items under the following conditions:
Retailer must pay for the returned merchandise to reach Johnsons plant. B. Retailers account will be credited for the full amount of said purchase. C. Credit is to be used within 30 days of receipt of returned goods at Johnsons plant; credit will be void after 30 days. A.

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Case 5-1 Johnson Toy Company

Discussions: #4: Should this policy, if adopted, be printed and distributed to all of the retailers who handle Johnson Toy Company products? Why or why not? If it should not be distributed to them, who should receive copies? #5: Assume that it is decided to prepare a statement on returns to be distributed to all retailers and that it should be less than a single double-spaced page. Prepare such a statement. #6: On the basis of the policy in your answer to question 3, develop instructions for the Johnson Toy Company distribution and accounting departments with respect to their roles and procedures in the handling of returns.
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Case 5-1 Johnson Toy Company

Discussions: #7: Assume that you are Cheryl Guridi, the firms logistics manager. Do you think that the returns policy favored by the logistics manager would differ from what would be best for the firm? Why or why not? #8: Until the policy you recommend in your answer to question 3 takes effect, how would you handle the immediate problem of retailers wanting to return unsold Jungle Jim the Jogger dolls?

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