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Chapter 1: Supply Chain Management:
An Overview
Learning Objectives
After reading this chapter, you should be able to do the following:
• Discuss the major change drivers in our economy and in the global
• Understand the rationale for the development of supply chain
management in leading organizations.
• Appreciate the importance and role of supply chain management
among private and public organizations.
Learning Objectives (cont.)
Understand the contributions of a supply chain approach to organizational
efficiency and effectiveness.
Analyze the benefits that can accrue from implementing effective supply
chain practices.
Understand the major challenges and issues facing organizations
developing and implementing supply chain strategies.
Five major external forces seem to drive the rate of
change and shape our economic and political
organizational consolidation
the empowered consumer
government policy and regulation
Physical supply
materials management
inbound logistics
Physical distribution
outbound logistics
Development of the Supply Chain Concept
Started in the 1960s with the development of the physical distribution
Initial focus on physical distribution or outbound logistics was logical
since finished goods
During the 1980s, the logistics or integrated logistics management
concept developed in a growing number of organizations
The underlying logic of the systems or total cost concept was also the
rationale for logistics management
Supply chain management can be viewed as a pipeline or conduit for
the efficient and effective flow of products/materials, services,
information, and financials
Major Supply Chain Issues
Supply Chain Networks
 The network facilities and supporting transportation is important
 Increased complexity for organizations is a problem
 Inventory Deployments
 inventory duplication
 the bullwhip effect
 Collection and storage of vast amounts of data
 Cost/Value
 efficiency (cost) and effectiveness (value) prevention of
 Organizational Relationships
 Tradeoffs and optimization
 Performance Measurement
 Why and how
Major Supply Chain Issues
 Technology
challenge is to evaluate and successfully
implement the technology
 Transportation
right product, right time, right quantity, right quality,
right cost, right destination
 Supply
Chain Security
concern and potential challenge since 9/11
Chapter 1 Summary
Cash flow has become one of the most important measures of
financial viability in today’s global markets. Supply chains are an
important determinant of improved cash flow since they impact order
cycle time to customers.
Supply chains are an important determinant of capital consumption
since they impact working capital, inventory levels, and other assets
such as warehouses.
Efficient and effective supply chains can free up valuable resources
and improve customer fulfillment systems so as to increase return
on investment or assets and improve shareholder value.
The rate of change in our economy has accelerated the necessity of
continuing changes in organizations or even transformation to
remain competitive.
Chapter 1 Summary (cont.)
The rate of change has been driven by a set of external forces
including but not limited to globalization, technology, organizational
consolidation and shifts in power in supply chains, an empowered
consumer, and government policy and regulations.
The conceptual basis of the supply chain is not new. In fact,
organizations have evolved from physical distribution management
to logistics management to supply chain management.
Supply chains need to focus on the customers at the end of the
supply chain and be flexible and responsive.
Technology is important to facilitate change, but it must follow a
process and educate people to address problems and issues
Chapter 1 Summary (cont.)
Transportation management and security have become increasingly
important in the twenty-first century because of changes that have
Supply chains are boundary spanning and require managing three
flows—products, information, and financials (cash).
Supply chain management is a journey, not a goal, and there are no
“silver bullets” since all supply chains are unique.
Information is power, and collaborative relationships internally and
externally are a necessary ingredient for success.
The performance of supply chains must be measured in terms of
overall corporate goals for success.