Chapter 1: Overview and Development of

Supply Chain Management

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
marketplace.
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
landscape:
globalization
technology
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

concept
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
suboptimization
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

Management

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 todays 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
appropriately.

Chapter 1 Summary (cont.)

Transportation management and security have become increasingly

important in the twenty-first century because of changes that have
occurred.
Supply chains are boundary spanning and require managing three
flowsproducts, 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.