Introduction to Supply Chain
1.1 WHAT IS SUPPLY CHAIN MANAGEMENT?
Fierce competition in today’s global markets, the introduction of products with shorter life cycles, and the heightened expectations of customers have forced business enterprises to invest in, and focus attention on, their supply chains. This, together with continuing advances in communications and transportation technologies (e.g., mobile communication, Internet, and overnight delivery), has motivated the continuous evolution of the supply chain and of the techniques to manage it effectively. In a typical supply chain, raw materials are procured and items are produced at one or more factories, shipped to warehouses for intermediate storage, and then shipped to retailers or customers. Consequently, to reduce cost and improve service levels, effective supply chain strategies must take into account the interactions at the various levels in the supply chain. The supply chain, which is also referred to as the logistics network, consists of suppliers, manufacturing centers, warehouses, distribution centers, and retail outlets, as well as raw materials, work-in-process inventory, and Figure 1-1 finished products that flow between the facilities (see Figure 1-1). In this book, we present and explain concepts, insights, practical tools, and decision support systems important for the effective management of the supply chain. But what exactly is supply chain management? We define it as follows: Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize systemwide costs while satisfying service level requirements.
This definition leads to several observations. First, supply chain management takes into consideration every facility that has an impact on cost and plays a role in making the product conform to customer requirements: from supplier and manufacturing facilities through warehouses and distribution centers to retailers and stores. Indeed, in some supply chain analysis, it is necessary to account for the suppliers’ suppliers and the customers’ customers because they have an impact on supply chain performance.
Second, the objective of supply chain management is to be efficient and cost-effective across the entire system; total systemwide costs, from transportation and distribution to inventories of raw materials, work in process, and finished goods, are to be
DESIGNING AND MANAGING THE SUPPLY CHAIN
FIGURE 1-1 The logistics network.
minimized. Thus, the emphasis is not on simply minimizing transportation cost or reducing inventories but, rather, on taking a systems approach to supply chain management. Finally, because supply chain management revolves around efficient integration of suppliers, manufacturers, warehouses, and stores, it encompasses the firm’s activities at many levels, from the strategic level through the tactical to the operational level. What about logistics management, or value chain management, or demand chain management? Various companies, consultants, and academics have developed a variety of terms and concepts to stress what they believe are the salient issues in supply chain management. Although many of these concepts are useful and insightful, for the purposes of this text, we will use supply chain management as the generic name for the set of concepts, approaches, strategies, and ideas that we are discussing.
What makes supply chain management difficult? Although we will...
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