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Supply Chain Management:
From Vision to Implementation
Chapter 1: Supply Chain Management and
Competitive Strategy
Chapter 1: Learning Objectives
1. Define supply chain management and
identify how supply chain collaboration can
improve performance.
2. Discuss the extent to which supply chain
strategies are being implemented.
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Chapter 1: Learning Objectives
3. Define strategic management and discuss
how supply chain management supports the
development and execution of a winning
competitive strategy.
4. Identify the four process steps involved in
designing and implementing a supply chain
strategy.
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Theory of Supply Chain Management
Companies seek to design business models that
meet customer needs better than competitors.
Success depends on the ability to
Design, Make, and Deliver
innovative, high quality, low cost products and
services that customers demand.
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Theory of Supply Chain Management
 Supply chain management allows companies
to focus on their unique skill sets.
 Supply chain management requires a common
understanding of supply chain objectives and
individual roles, an ability to work together,
and a willingness to adapt in order to create
and delivery the best products and services
possible.
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Supply Chain: Manufacturing Example
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Supply Chain: Manufacturing Example
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Supply Chain: Service Example
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Supply Chain: Service Example
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Supply Chain Management Defined
Supply chain management is the design and
management of seamless, value-added
processes across organizational boundaries to
meet the real needs of the end customer.
- Institute for Supply Management
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Supply Chain Integration
 Internal Process Integration: increase collaboration
among the company’s functional groups.
 Backward Process Integration: collaboration with
1st-tier and 2nd-tier (leading companies) suppliers.
 Forward Process Integration: collaboration with 1sttier customers.
 Complete Integration: collaboration from the
“suppliers’ supplier to the customers’ customer.”
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Supply Chain Integration
Common
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Internal Value Chain Elements
 Executive Management defines company strategy and
allocates resources to achieve it.
 Supply Management coordinates the upstream supply base,
finding the right suppliers and building the right relationships
with them.
 Operations transforms the inputs acquired from suppliers into
more highly valued products.
 Logistics moves and stores materials so they are available
when and where they are needed.
 Marketing manages the downstream relationships with
customers, identifying their needs and communicating to
them how the company can meet those needs.
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Internal Value Chain Elements
 Human Resources designs the systems used to hire, train, and
develop the company’s employees.
 Accounting maintains business records that provide
information needed to control operations.
 Finance acquires and controls the capital required to operate
the business.
 Information Technology builds and maintains the systems
needed to capture and communicate information among
decision makers.
 Research and Development (R&D) is responsible for new
product design.
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Internal Value Chain: Local Focus
Executive
Management
R&D
Information
Technology
Operations
Supply
Management
Logistics
Marketing
Finance
Accounting
Human
Resource
Management
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Internal Value Chain: Company Focus
Executive
Management
R&D
Information
Technology
Upstream
Suppliers
Operations
Supply
Management
Logistics
Downstream
Customers
Marketing
Finance
Accounting
Human
Resource
Management
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Internal Value Chain: Company Focus
Executive
Management
R&D
Information
Technology
Upstream
Suppliers
Operations
Supply
Management
Logistics
Downstream
Customers
Marketing
Finance
Accounting
Human
Resource
Management
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SCM: Linked Value Chains
Executive
Management
R&D
Information
Technology
Executive
Management
Executive
Management
R&D
Information
Technology
Operations
Supply
Logistics
Management
Supply
Management
Finance
Finance
Accounting
Human
Resource
Management
Supplier’s
Supplier
Executive
Management
R&D
Information
Operations
Technology
Supply
Management
Operations
Logistics
Marketing
Marketing
Accounting
Human
Resource
Management
Executive
Management
R&D
R&D
Information
Operations
Technology
Information
Technology
Supply
Supply
Management
Logistics
Management
Operations
Logistics
Logistics
Finance
Marketing
Finance
Accounting
Human
Resource
Management
Finance
Marketing
Supplier
Focal Human
Customer
Resource
Accounting
Firm Management
Marketing
Accounting
Human
Resource
Management
Customer’s
Customer
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Supply Chain Integration
Common
Theoretical Ideal
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Supply Chain Management Problems
 The goal of supply chain management is to
use technology and teamwork to build
efficient and effective processes that create
value for the end customer.
 The goal is compromised when processes,
value chain elements, and/or companies work
toward local rather than global optimum.
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The Bullwhip Effect
 Variation in demand is exaggerated as
information moves upstream away from the
point of use.
 Variation in demand is exaggerated due to
infrequent demand and/or inventory level
information exchange and order batching.
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The Bullwhip Effect
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The Bullwhip Effect
 Bullwhip effect costs can be as high as 12 to
25%
 Bullwhip can be effectively mitigated by:
 Sharing point of sale data
 Collaborative forecasting
 Collaborative future product promotion planning
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Integrating SCM and Strategy
What makes Dell and Wal-Mart successful? It’s
the business model, and supply chain is an
enabler. That’s why you’re seeing this growing
importance of supply chains. People realize this
is the weapon of the future.
- Robert W. Moffat Jr., IBM
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Strategy
 Strategy is the basis from which a consistent
allocation of resources is made to achieve
some objective.
 The objective of “for-profit” organizations is
to make money; the best way to achieve this
objective may be to focus on satisfying the
customer.
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Contingency Theory
 Contingency theory recognizes the need for
managers to consider the relationship between
a changing environment, managerial decisionmaking, and performance.
 Situational awareness is key to effectively
aligning company resources in a changing
competitive environment.
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Industrial Organization Theory
 Market forces constrained by the power of
suppliers, buyers, existing rivals, potential
rivals, and providers of substitute
products/services should drive decisionmaking.
 Industrial Organization core questions:
1. Where does market power exist?
2. What are the sources of that power?
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Resource-Based Theory
 Resource-based theory emphasizes
management of internal sources to establish a
unique skill set.
 Unique skills/processes (core competence)
lead to competitive advantage, the ability to
deliver distinctive products/services in a way
that adds value in the eyes of the customer.
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Four Decision Areas for Strategy
1. Environment
 Internal – company culture, functional
relationships, reward and measurement system
 External – competitive, economic, legal, and
political environments
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Environmental Considerations
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Four Decision Areas for Strategy
1. Environment
 Internal – company culture, functional
relationships, reward and measurement system
 External – competitive, economic, legal, and
political environments
2. Resources – all assets a firm can bring to
bear, including: people, technology,
infrastructure, materials, and money.
 Success requires investment in knowledge and
processes
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Four Decision Areas for Strategy
3. Objectives – unifies decision-making throughout a
company.
 Focusing on the right objectives is the key to a winning
business strategy.
4. Feedback –input to the control mechanism, insuring
the company strategy adapts to a changing
competitive environment.
 Marketplace – custom expectations, company capabilities,
and competitor actions
 General – exchange rates, government policies,
technologies, weather and other natural occurrences
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Strategic Thinking: Traditional View
A valid business model must answer two
questions:
1. What is our business?
 Who are our customers?
 What is the real value that we offer them?
2. How can we do it better than anyone else?
 Unique organizational capabilities
 Almost always process based
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Supply Chain Strategy
 Seeks to leverage the resources and skills of
diverse companies in the supply chain to
deliver exceptional value to the end customer.
 Addresses:
 How the capabilities of other chain members can
be used to create value for the end customer
 How their own strategy and actions impact the
ability of the supply chain to create value for
the end customer
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Supply Chain Strategy
Rather than “What is our business?” the SC
strategist inquires:
 What is the overall supply chain’s value
proposition?
 How does our company uniquely help the
chain deliver on its value proposition?
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Supply Chain Strategy
Rather than “How can we do it better than anyone else?” the SC
strategist asks:
 What valued capabilities do other members of the chain
possess?
 How can we bring these complementary competencies
together in a way customers value?
 What type of relationships should we maintain with other
members of the supply chain?
 Are any customer-valued competencies missing? If so, who is
best positioned to develop them?
 How much of the value-added process should we control?
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SCM Impact on Strategic Thinking
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SCM Impact on Strategic Thinking
Great firms will fight the war for dominance in the
marketplace not against individual competitors in their
field but fortified by alliances with wholesalers,
manufacturers, and suppliers all along the supply chain.
In essence, competitive dominance will be achieved by
an entire supply chain, with battles fought supply chain
versus supply chain.
- Roger Blackwell
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The Supply Chain Road Map
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The Supply Chain Road Map
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A Return to the Opening Story
Based on what you have now read and discussed:
1. Wal-Mart, Dell, and Honda each take different and
unique approaches to SCM. How would you define
SCM for the purpose of Doug’s presentation?
2. How would you suggest Doug organize his
presentation to capture senior management’s
imagination?
3. Looking ahead, what do you think Doug’s biggest
challenge is?
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Supply Chain Management:
From Vision to Implementation
Supplement A: The Beer Game
Beer Game Layout
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General Information
 Developed by MIT to simulate a simple 6-tier
single product supply chain.
 The game is played in a series of periods;
each period corresponds to one week.
 Each order has a two-week delay and each
shipment has a two-week delay.
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Beer Game Layout
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General Information
 There is cost associated with having too much
inventory (i.e., inventory carrying costs) and
too little inventory (i.e., backlogs, lost sales,
lost customers).
 To hold a unit of inventory for one week costs
$1.00.
 Each unit of backlog costs $2.00 per week.
 Inventory and backlog levels are tracked
during the game on a form.
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Order Entry Form
Week
Inventory
Backlog
Order
1
2
3
Backlog = previous period backlog + current period demand – amount shipped in current period
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Game Sequence
1.
Receive Inventory and Transport Orders – products in shipping delay
boxes are advanced one position on the game board.
2.
Look at and Fill Incoming Orders – receive incoming order and ship the
requested number of units (plus any existing backlog), if possible, into
the empty shipping delay box that was created during step 1. If you don’t
have enough inventory, ship as much as you can and add any unfilled
orders to your backlog.
3.
Record Inventory or Backlog Levels – count your inventory or calculate
your backlog and record it.
4.
Place an Order – decide how many units to order from your immediate
supplier. Advance your previous period’s order from the order placed
box into the supplier’s incoming order box and place your new order in
the order placed box. Place orders face down so they cannot be seen by
your supplier.
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Rules of the Game

You may NOT communicate with your supplier or any other
tier in the supply chain. The only communication that takes
place between the is through the order cards that are passed
face down along the supply chain.

Customer demand is determined in advance. Retailers are
not allowed to share this information with other tiers.

Each step in the game sequence must be completed by each
of the tiers for the current period before the next period can
be started.
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