1. CHAPTER 2 The Supply Chain Management Concept

2. Learning Objectives To learn about supply chains and their management
To understand differences between transactional and relational exchanges
To realize the importance of leveraging technology
To appreciate barriers to supply chain management
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3. The Supply Chain Concept
Key Terms
Agile supply chain
Bullwhip effect
Contract logistics
Data mining
Fast supply chain
Fourth-party logistics (4PL)
GSCF model
Key Terms
Partnerships
Perfect order
SCOR model
Supply chain
Supply chain collaboration
Supply chain management
Third-party logistics (logistics oursourcing)
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4. 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

5. Different Supply Chain Configurations: Direct Supply Chain
Supplier
Organization
Customer

6. Different Supply Chain Configurations: Extended Supply Chain
Supplier’s
suppliers
Supplier
Organization
Customer
Customer’s
customers

7. Different Supply Chain Configurations: Ultimate Supply Chain
3rd Party Logistic Supplier
Supplier
Organization
Customer
Ultimate
supplier
customer
Financial Provider
Market Research

8. 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

9. Logistics: What It Is?
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.”
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Source: clm1.org

10. 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
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11. 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 cross-functional 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

12. The Supply-Chain Operations Reference (SCOR) Model
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13. 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

14. 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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15. Key Attributes of Supply Chain Management
Customer power
Fast and agile supply chain
Long-term orientation
Relational exchanges
Transactional exchanges
Leveraging technology
Computer and Internet
Enhanced communication across organizations
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16. Key Attributes of Supply Chain Management
Inventory control
Bullwhip effect
JAZ
Interorganizational Collaboration
Supply chain councils
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17. 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
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18. Supply Chain Management and 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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19. Supply Chain Management and Integration
Third-Party Logistics (3PL)
Logistics outsourcing
Contract logistics
Fourth-party logistics (4PL) primarily used in global companies
Lead logistics provider (LLP)
Supply chain software
© 2008 Prentice Hall

20. Case 2-1 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

21. Case 2-1 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 Company’s present policies for handling returned items.
#2: Answer question 1, but from the standpoint of an individual interested in marketing.

22. Case 2-1 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?

23. Case 2-1 Johnson Toy Company
I. HIGH VOLUME CUSTOMERS (defined as purchasing $75,000 of merchandise from Johnson’s per year) A. Functionally damaged goods may be returned to Johnson’s plant at Johnson’s 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).

24. Case 2-1 Johnson Toy Company
II. LOW VOLUME CUSTOMERS
 Functionally damaged goods may be returned to Johnson’s plant via Johnson’s salesperson with a full refund.
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 Johnson’s salesperson.
Slow moving items: NO RETURNS 
Non-moving items (for reasons other than physical damage)

25. Case 2-1 Johnson Toy Company
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 non-resellable items under the following conditions:
Retailer must pay for the returned merchandise to reach Johnson’s plant.
Retailer’s 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 Johnson’s plant; credit will be void after 30 days.

26. Case 2-1 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.

27. Case 2-1 Johnson Toy Company
Discussions:
#7: Assume that you are Cheryl Guridi, the firm’s 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?

28. Case 2-2 Wyomo Grocery Buyers’ Cooperative
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

29. Case 2-2 Wyomo Grocery Buyers’ Cooperative
Company Facts:
Located Billings, Montana
Owned by member grocery stores
Board of Directors (elected) hired the General manager
Logistics Facts:
Serving 150 food stores (longest ~450 miles)
All dry groceries were shipped from warehouse in Billings, once or twice a week
Produce shipped from Billing, Cheyenne, Great Falls two or three times a week
Owns 15 tractors, 19 trailers, 6 trucks/refrigerated

30. Case 2-2 Wyomo Grocery Buyers’ Cooperative
Co-op Facts:
Charges members cost + 23%
Profit sharing: 20% to members (proportional to orders)
Warehouse carries 8,000 SKUs, small grocery stores carry 1,000~2,000 SKUs, Large members carry 6,000~8,000 SKUs
Issues at hand:
Growing competition from chain stores
Warehouse reaching capacity
Proposal to build a larger warehouse (10,500 SKUs)
Motion: to limit SKUs to 8,000

31. Case 2-2 Wyomo Grocery Buyers’ Cooperative
Discussions:
#1: Co-op members presently pay for goods “on the basis of cost to the co-op plus 23% to cover warehousing and transportation from the warehouses to the members’ retail stores.” Is this a fair way to cover warehousing costs? Can you think of a better way? If so, describe it.
#2: Answer the problem posed in question 1 with respect to transportation costs.
#3: Toward the end of the case, Bright described how some manufacturers pay bribes to get shelf space in retail stores. Should retailers accept such bribes? Why or why not?

32. Case 2-2 Wyomo Grocery Buyers’ Cooperative
Discussions:
#4: The case says, “Stores were responsible for placing orders with the co-op, although a co-op representative would call on a weekly basis, and one of her/his functions was to help some store operators complete their order forms.” Is this a function that the co-op should be performing? Why or why not?
#5: The case mentions that some of the larger stores that belonged to the co-op sometimes threatened to form their own co-op. Assume that you are hired by some of them to study the feasibility of such a move. List the various topics that you would include in your study.

33. Case 2-2 Wyomo Grocery Buyers’ Cooperative
Discussions:
#6: How would you vote on Hardy’s motion? Why?
#7: Would it make a difference whether you represented a large or small store? Why?
#8: Are there other strategies that the co-op might pursue to overcome this problem? If so, describe.