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Chapter 1:
Introduction to
supply chain
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Learning objectives

After completing this chapter, you should

be able to:
• Define supply chain
• Draw and describe the diagram of the generic
supply chain
• Explain the concept of supply chain management
• Explain the components of supply chain
management
• Discuss the elements of supply chain
management
 Learning objectives
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Describe the Understand the

current trends in benefits of
supply chain supply chain
management management

Describe the Explain the

supply chain concept of
performance supply chain
drivers network design

Discuss logistics
management
and its
components
 A supply chain consists of all The supply chain is dynamic

THE SUPPLY parties involved, directly or

indirectly in fulfilling a
customer request.
and involves the constant
flow of information, product
and funds between different

CHAIN stages.

CONCEPT

The objective of the supply

chain is to maximise the
overall value generated.
 The
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supply chain
concept
Figure 1.1 Generic supply chain (Textbook page 2)
 • Customer–supplier characteristics

TYPES • Service chains- implement the mission

statements of organisations which are
concerned with the delivery of services.

OF
• Concentrated chains- are found in
business with few customers and many
suppliers who apply electronic data
interchange (EDI) systems and require

SUPPL JIT deliveries.

• Retail and distribution chains-
Y comprise many customers but relatively
fewer sellers, which apply vendor-
managed inventory (VMI) software.

CHAIN • Batch manufacturer chains- consist

of many customers and suppliers with
complicated relationship webs.

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 SUPPLY CHAIN
MANAGEMENT
• Basic components

• Planning- SCM planning is the process of developing a set of

metrics to monitor the supply chain that it is efficient, costs
less and delivers high quality and value to customers.
• Sourcing- Companies must chose suppliers to deliver the
goods and services they need to create their product.
• Making- supply chain managers schedule activities
necessary for production, testing, packaging and preparation
for delivery.
• Delivering- the company coordinate the receipt of orders
from customers, develop a network warehouses, pick carriers
to get the products to customers and set up an invoicing
system to receive payments.
• Returning- Supply chain planners have to create a
responsive and flexible network for receiving defective and
excess product back and from their customers.
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ELEMENTS OF SUPPLY CHAIN

MANAGEMENT

• Purchasing- purchasing strategies use of many suppliers, competitive bidding and

short-term contracts creating adversarial buyer-supplier relationships with a focus
on product purchase price instead of capabilities.
• Operations- Once the components and materials purchased are delivered to the
assembling or processing of the item into a finished product, ensuring that the right
amount of product is produced, and the finished product meet the specific quality,
costs and customer requirements
• Distribution- When products are completed they are delivered to customers through
a number of modes of transportation.
• Integration- Successful supply chain integration occurs when the participants realise
that the supply management must become part of the firm’s strategic planning
process, where objectives and policies are jointly determined based on the end
consumers’ need.
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Reducing supply chain cost

Improved supply chain

responsiveness
Some
current The greening of the supply
trends in chain

supply
chain More emphasis on visibility
managem
ent Expanding the supply chain
BENEFITS • The following are the benefits accrued in
using a supply chain management
OF A approach:
SUPPLY  Enhanced product and service quality

CHAIN  Improve supply chain communication

and collaboration
 Reduced cost by eliminating waste
activities
 Faster lead times for products
development and delivery-agile supply
 Access to complementary resources and
capabilities
 Improve responsiveness to customer
requirements
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SUPPLY CHAIN NETWORK

DESIGN

Logistics and supply practitioners are

normally faced with decisions regarding
the strategic and operational network and
process designs.

Supply chain networks include the

combination of supplier,
manufacturing plants, warehouses,
consolidation points, service
providers and retailers to bring the
product from the raw material stage
to the end consumer
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SUPPLY CHAIN PERFORMANCE

DRIVERS

Facilities Inventory

Information Sourcing

Pricing Transport
 Supply chain performance drivers
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Figure 1.2 Summary of the supply chain management key

functions (Textbook page 8)
PORTER’S VALUE CHAIN
Logistics management as a
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concept
Figure 1.3 Integrated logistics (Textbook page
10)
PORTER’S VALUE CHAIN AND
COMPETITIVE ADVANTAGE
• Competitive advantage: Creating and sustaining superior
performance.
• Cost advantages and successful differentiation are found in the chain of
activities that a firm performs to deliver value to its customers.
• Advantage or disadvantage can occur at any five primary and four
secondary activities
• The primary activities include inbound logistics, operations (production),
outbound logistics, marketing and sales, and services (maintenance).
• The support (secondary) activities include administrative infrastructure
management, human resource (HR) management, research and
development (R&D), and procurement.
PRIMARY ACTIVITIES

 Inbound logistics includes activities such as receiving, sorting, listing

and grouping inputs to the product.
 Operations include machining, packaging, assembly, maintenance of
equipment, testing, operational management and managing suppliers.
 Outbound logistics refers to such activities as order processing,
warehousing, scheduling transportation and distribution management.
 Marketing and sales are activities that make or convince buyers to
purchase the company’s products.
 Service has to do with maintaining the product after sale, thus
guaranteeing quality and/or adding value in other ways, such as
through installation, training, servicing, providing spare parts or
upgrading.
THE SUPPORT (SECONDARY)
ACTIVITIES
 Procurement. We see procurement as a driving force in the value
and supply chain. This includes activities such as purchasing raw
materials, servicing, supplies, negotiating contracts with suppliers,
securing building leases, and so on.
 Technology development refers to activities such as R&D, product
and/or process improvements, (re)design, developing new services,
and so on.
 Human resource management includes recruitment and
education, as well as compensation, employee retention and other
means so as to fully capitalise on human resources.
 The firm’s infrastructure, such as general management, planning
procedures, finance, accounting, public affairs and quality
management, can make the difference between success and – despite
the best intentions in the world- failure.
LOGISTICS MANAGEMENT AS A
CONCEPT
• Logistics is that part of the supply
chain process that plans,  Logistics communications
implements and controls the
 Materials handling
efficient, effective flow and storage
of goods, services and related  Order processing
information from the point of origin  Packaging
to the point of consumption in
 Parts and service support
order to meet the customer
requirements.  Plant and warehousing site
selection
• The activities of the logistical
systems as summarized below:  Purchasing
 Customer service  Reverse logistics
 Demand forecasting  Traffic and transportation
 Inventory management  Warehousing and storage