1. Supply Chain Management
CHAPTER 10
Supply Chain Management

2. CHAPTER OUTLINE 10.1 Supply Chains 10.2 Supply Chain Management
10.3 Information Technology Support for Supply Chain Management

3. LEARNING OBJECTIVES
Define the term supply chain, and discuss the three components of a supply chain.
Define supply chain management, and understand its goals.
Identify various problems that can occur along supply chains.
Explain how information technology supports supply chain management.

4. Chapter Opening Case Film camera Digital camera
Clicking on the logo at the top right takes you to the Walt Disney Studios home page.
Movies sent over fiber optic cables
Movies sent with encrypted disks

5. 10.1 Supply Chains

6. Generic Supply Chain
Supply chain: refers to the flow of materials, information, money, and services from raw material
suppliers, through factories and warehouses, to the end consumers.
Upstream component of a supply chain: sourcing or procurement takes place.
Internal component of a supply chain: packaging, assembly, or manufacturing takes place.
Downstream component of a supply chain: distribution takes place.

7. Supply Chain (recall Figure 2.2)
Another look at a supply chain (from Figure 2.2).

8. The Flows of the Supply Chain
Material flows
Information flows
Material flows are the physical products, raw materials, supplies and so forth that flow along
the chain.
Information flows are all data related to demand, shipments, orders, returns and schedules
as well as changes in any of these data.
Financial flows are all transfers of money, payments and credit-related data.
A supply chain involves a product life cycle approach, from “dirt to dust”.
Financial flows

9. 10.2 Supply Chain Management
Supply chain management (SCM)
Interorganizational information system (IOS)
Supply chain management (SCM) is the function of planning, organizing and optimizing
the supply chain’s activities.
Interorganizational information system (IOS) involves information flows among two
or more organizations.

10. See IT’s About Business 10.1.
Clicking on the Inditex logo above will take you to the company’s home page.

11. Push Model
Mass production
Forecast
Salesperson
Happy customer

12. Pull Model
Dell factory
Dell customer order
Dell customer

13. Problems Along the Supply Chain
Poor customer service
Poor quality product
High inventory costs
Loss of revenues
New technologies

14. The Bullwhip Effect Order Quantity Order Quantity Order Quantity Order
Figure 10.2
Time
Time
Time
Time
Customer Sales
Retail Orders
To Wholesaler
Wholesaler
Orders to
Manufacturer
Manufacturer
Orders to
Supplier

15. Solutions to Supply Chain Problems
Using inventories
Just-in-time inventory
Information sharing
Vendor-managed inventory
Just-in-time inventory: a system in which a supplier delivers the precise number of parts to
be assembled into a finished product at precisely the right time.
Vendor-managed inventory: an inventory strategy where the supplier monitors a vendor’s
inventory for a product or group of products and replenishes products when needed.

16. 10.3 Information Technology Support for Supply Chain Management
Electronic data interchange (EDI)
Extranets
Electronic data interchange (EDI) is a communication standard that enables
business partners to exchange routine documents, such as purchase orders,
electronically.
Extranets link business partners to one another over the Internet by providing
access to certain areas of each other’s corporate intranets.

17. EDI Benefits Minimize data entry errors Length of messages are shorter
Messages are secured
Reduces cycle time
Increases productivity
Enhances customer service
Minimizes paper usage and storage

18. EDI Limitations Significant initial investment to implement
Ongoing operating costs are high due to the use of expensive, private VANs
Traditional EDI system is inflexible
Long startup period
Multiple EDI standards exist

19. Comparing Purchase Order Fulfillment Without EDI
See Figure 10.3.

20. Comparing Purchase Order Fulfillment With EDI

21. Extranets
The main goal of extranets is to foster collaboration between business partners.
An extranet is open to selected B2B suppliers, customers and other business partners.

22. The Structure of an Extranet
See Figure 10.4.

23. Types of Extranets A company and its dealers, customers or suppliers
An industry’s extranet
Joint ventures and other business partnerships
A company and its dealers, customers or suppliers – centers around one company.
An industry’s extranet – major players in an industry team up to create an extranet.
Joint ventures and other business partnerships – partners in a joint venture use extranet as a vehicle for communications and collaboration.

24. Chapter Closing Case
Clicking on the Anheuser-Busch logo at the top right will take you to the company’s Web page.