Operations Management / Supply Chain Management

Module 09: Supply Chain Management

As Rod Tidwell (Cuba Gooding, Jr.) said to Jerry McGuire (Tom Cruise) in the movie Jerry McGuire – “Show me the money!”

This is the message that investors send to the companies they invest in and this is the message that company executives send to their supply chain management function.

The supply chain management function exists to meet customer service requirements and at the same time improve profitability, productivity and asset management.  If this occurs, shareholder value (Return on Invested Capital) will increase, the company’s stock price will increase and the long-term future of the organization will be sustainable.  So, now do I have your attention?

The extended supply chain encompasses such diverse functions as R&D, Purchasing, Planning, Manufacturing, Marketing & Sales, Finances, Customer Support, Warehousing, Transportation, etc. Supply chain management is the management of all the activities involved in the sourcing, making, and distribution of all products and services. It involves not only product and material flows but also information and cash flows.

Thus, supply chain management includes all aspects of the product life cycle – from “cradle to grave”.  Supply chain management includes both forward logistics (providing products & services to customers) and reverse logistics (returning products, service agreements, recycling, etc.). It also includes cash flows, typically from customers to retailers to distributors and from distributors to producers and from producers to suppliers and their suppliers.  Last, it also includes information flows in both directions.

In our constantly changing global economy, the supply chain touches a very diverse set of international customers and suppliers.  Taken together, this all makes for an exciting and challenging career for supply chain professionals like you.  As I like to say it – “the world is surely in your hands.”

The objective of supply chain management is to coordinate activities within the supply chain to maximize the supply chain’s competitive advantage and benefits to the ultimate consumer.
The attached table shows the impact of Supply Chain Management cost on different industries.  It is followed by an example showing the comparison of two different approaches on overall profitability.  One approach is to reduce supply chain cost and the other is to increase sales but keep supply chain costs the same.  Supply Chain cost improvements go direct to the Bottom Line.
Supply Chain Management is of strategic importance to an organization.  It includes the coordination of all supply chain activities, starting with raw materials and ending with a satisfied customer.  This involves suppliers, manufacturers and/or service providers, distributors, wholesalers, retailers, and final customers.
The basic elements of Supply Chain Management will be covered in subsequent sections.