Business Intelligence Wiki

What is a supply chain

"a supply chain consists of all parties involved, directly and indirectly, in fulfilling a customer request. The supply chain includes not only the manufacturers and suppliers, but also transporters, warehouses, retailers, and even customers themselves." Smil Chopra, Peter Meindl

Supply Chain Management - what it stands for

From a business perspective, SCM is as its name suggests the management of supply chains. From a Business Intelligence solution perspective, SCM means the partial management of all supply chains that cross the boundaries of the targeted organization, meaning the internal supply chains(ISCM), the relationships with the suppliers(SRM) and the customers(CRM), but alternatevely also other integrated parts of the supply chain that occur at partner stages.

We will further discuss SCM from both perspectives, as the two meanings are strictly correlated and every statement involving one is relevant for the other.

Characteristics of supply chains

dynamic - constant flow of information, products, funds and even the parts involved
runs across several stages - e.g. raw materials supplier - manufacturer - distributor - retailer - customer; in some supply chains some stages have been left out, leading to the simplification and the performance of the whole supply chain
flows in both directions
has a cost and a capacity
has as objective the maximization of its value - the difference between the revenue generated from the customer and the overall cost of the supply chain(and not just a part of it, which might lead to the loss of value for the entire chain and subsequently to the respective stages)
its success or failure is determined by its design and management

Levels in SCM design

	strategy	planning	operation
duration	several years	one quarter to a full year	weekly or daily
starter	marketing and pricing plan for a product(or set of products)	forecast for the coming year(or the time frame in question) of the damand for the product on different markets	fixed supply chain configuration
goal	increase the supply chain surplus	incorporate flexibility, optimize performance	handle incoming customer orders in the best possible manner
decisions	very expensive to alter and thus must take into consideration uncertainty whether to outsource or perform a supply chain function in-house location and capacity of production and warehousing facilities the products to be manufactured or stored at various locations the modes of transportation to be made available along different shipping legs type of information system to be used choice and contract of supply sources	must include uncertainty in demand, exchange rates, competition which markets will be supplied from which locations subcontracting of manufacturing inventory policies to be followed timing and size of marketing and price promotions	made under less uncertainty allocate inventory or production to individual orders set a date that an order is to be filled generate pick lists at a warehouse allocate an order to a particular shipping mode and shipment set delivery shedules of trucks place replenishment orders

SCM - The cycle view

We can think of the supply chain as a series of cycles of communication occuring between each two consecutive stages. The cycles share the same type of communication, since there will always be a buyer and a supplier.

The further we go from the customer, the bigger the scale of the transactions.

Supply Chain Management: cycle view - figure adaptation after 1., pag 11

The cycle that surely presents uncertainty to the supply chain is the customer cycle, since it contains an external buyer agent(the customer). Other risks are present when the supply chain includes several organizations, and are strictly related with the supplier strategies. Such, for example, in the case of bottleneck products, the risk of not being able to fullfill a demand must be countered by securing supply sources.

Strategy Characteristics	Partnership	Competitive bidding	Secure supply	Category management and e-procurement solutions
Objective	create mutual commitment in the long-term relationship	obtain "best-deal" for short term	secure short- and long-term supply; reduce supply risk	reduce logistic complexity; improve operational efficiency; reduce number of suppliers
Suitable for	strategic products	leverage products	bottleneck products	routine products
Activities	accurate forecast of future requirements supply risk analysis careful supplier selection 'should cost' analysis rolling materials shedules effective change-order procedure vendor rating	improve product/market knowledge search for alternative products/suppliers rellocate purchasing volumes over suppliers optimize order quantities 'target-pricing'	accurate forecast of future requirements supply risk analysis determine ranking in supplier's client list develop preventative measures(buffer stock, consigned stock, transportation) seearch for alternative products/suppliers	subcontract per product group/product family standardize product assortment design effective internal order delivery and invoicing procedures delegate order handling to internal user
Decision Level	board level and cross-functional approach	board level and purchasing	purchasing and cross-functional approach	purchasing and cross-functional approach

Supplier strategies in buying products - figure adaptation after 2., pag 153

SCM - pull/push view

As we have already mentioned, the customer cycle is the only cycle that involves external demand. The rest of the supply chain should react to that customer demand and fulfill it. The problem is, that the process of bringing a product from the "raw material" stage to the "all wrapped up and ready to be served" one, takes time, enough maybe to make the demand dissapear together with your organization. This is why, across all other stages, speculations of the possible future demand are made. The fewer the speculations, the less decisions are made under uncertain conditions.

The reactive processes are also called pull processes, and the speculative - push processes. Even when we are dealing with pull processes, there is still no guarantee that demand will be fulfilled, since they are constrained by the decisions made in the push phase(stock policy, transport policy, warehouse capacity etc).

Bibliography

"Supply Chain Management - Strategy, Planning& Operation"; Third Edition; Smil Chopra, Peter Meindl
"Purchasing& Supply Chain Management - Analysis, Strategy, Planning& Practice"; Fourth Edition; Ajan J. Van Weele