Definitions of Supply Chain Management

Supply Chain Management is the integration of key business processes

from end user though original supplier that provides products, services and
information that adds value for customers and other stakeholders
The Eight Essential Supply Chain Management Processes by Douglas
M. Lambert,

Supply Chain Management is an integrating function with primary

responsibility for linking major business functions and processes within and
across companies into a cohesive and high-performing business model.
Council for Supply Chain Management Professionals (CSCMP)

Supply Chain
Management Concept
Strategy

Suppliers

Operations

Supply Chain Management

Finance

Customers

Supply Chain Management Concept

Strategy

Operations

Suppliers

Customers

Supply Chain Management

Finance

Acquisition
Management
Logistics
Management

Demand
Management
Disposal
Management

Performance Management

Supply Chain Management Process Model

GLOBAL SUPPLY CHAIN FORUM: BUSINESS PROCESS MODEL *
Products
/ Services

Demand Management
Order Fulfillment

Returns Management

Customer
Service
Management

CUSTOMERS

Manufacturing Flow
Management

Supplier Relationship
Management

SUPPLIERS

Product Development & Commercialization

Customer Relationship Management

Cash
Information
The Eight Essential Supply Chain Management Processes by Douglas M. Lambert,
Graphical Illustration developed based on understanding of process content

FINANCIAL MEASURES OF SUPPLY CHAIN

PERFORMANCE

Financial Measures

Market share
Stock
Valuation
Profits
ROI
Inventory Turns

Financial measures are lagging metrics, a result of

past decisions
Operational, non-financial measures are excellent
indicators of process health

OPERATIONAL,
NON-FINANCIAL MEASURES

Cycle time
Customer service level

order fill rate

stockout rate
backorder level
probability of ontime delivery

Inventory levels
Resource utilization
Capacity/Throughput

OPERATIONAL,
NON-FINANCIAL MEASURES

Quality
Reliability
Dependability/Performability
Flexibility

volume
product mix
routing
delivery time

COMPONENTS OF
SUPPLY CHAIN LEAD TIME

Procurement lead time

Manufacturing lead time
Distribution lead time
Logistics lead time
Setup times
Waiting times
Decision-making times
Synchronization times

FUNDAMENTAL LAWS OF
LEAD TIME REDUCTION
First Law: Little's Law

Average Inventory is the product of average

waiting time and throughput rate
Inventory reduction and optimal utilization of
resources is the key to lead time reduction
Throughput and lead time are negatively
correlated (classical queueing theory)
Load balancing and optimal resource allocation
will help

FUNDAMENTAL LAWS OF LEAD TIME

REDUCTION
Second Law: Pollaczek-Khintchine Formula

Waiting times are positively correlated to

variance of arrival and processing times
Input control
Process control
Fluctuation smoothing

Controlled arrivals can significantly reduce lead

times
closed mode operation better than open mode

Strict control of processing times reduces lead

times considerably

FUNDAMENTAL LAWS OF LEAD TIME

REDUCTION
Third Law: Forrester Effect

Inventories grow in successive echelons of the

supply chain as demands get amplified in the
upstream direction
Inventory expansion leads to rising levels of lead
time
Accurate forecasting and intelligent use of
information are key to reducing the effects of this

FUNDAMENTAL LAWS OF LEAD TIME

REDUCTION
Fourth Law: Taguchi's Loss

Taguchi's loss function is decided by variability

and also bias (deviation from optimal nominal)
Do not always try to eliminate variation, but
minimize the effects of variability
Find robust operating points (nominals)

FUNDAMENTAL LAWS OF LEAD TIME

REDUCTION

Fifth Law: Use the Internet

Availability and intelligent use of critical
information is a key requirement
Use of Internet and Ecommerce
Technologies can help dramatically in this
Synchronization between the front-end
and back-end is critical

A SIX SIGMA FRAMEWORK

Six Sigma Quality: A process is considered to

be of six sigma quality if there are no more than
3.4 non-conformities per million opportunities
(3.4 ppm) in the presence of typical sources of
variation.
Analysis and Synthesis are based on:

Characterizing product-process quality using

process capability indices Cp and Cpk
Use of statistical tolerancing techniques to reduce
lead times

WHERE CAN WE APPLY THIS?

Due Date Setting
Selection of Supply Chain Resources
Make-to-stock versus make-to-order
versus build-to-order
Resource Allocation
Selecting logistics providers
Select Robust Operating Points