CHAPTER 2

The Supply Chain Management

Concept
 Learning Objectives

To learn about supply chains and their

management
To understand differences between transactional
and relational exchanges
To realize the importance of leveraging technology
To appreciate barriers to supply chain management

2008 Prentice Hall 2-2

 The Supply Chain Concept

Key Terms Key Terms

Agile supply chain Partnerships
Bullwhip effect Perfect order
SCOR model
Contract logistics
Supply chain
Data mining
Supply chain collaboration
Fast supply chain Supply chain management
Fourth-party logistics Third-party logistics
(4PL) (logistics oursourcing)
GSCF model

2008 Prentice Hall 2-3

 About Supply Chains

A supply chain encompasses all activities

associated with the flow and
transformation of goods from the raw
material stage (extraction), through to the
end user, as well as the associated
information flows.

Source: Robert B. Handfield and Ernest L. Nichols, Jr., Introduction to 2-4

Supply Chain Management
 Different Supply Chain Configurations:
Direct Supply Chain

Supplier Organization Customer

2-5
 Different Supply Chain Configurations:
Extended Supply Chain

Supplier Organization Customer

Customers
Suppliers customers
suppliers
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 Different Supply Chain Configurations:
Ultimate Supply Chain
3rd Party Logistic Supplier

Supplier Organization Customer

Ultimate
Ultimate customer
supplier Market Research
Financial Provider
2-7
 Supply Chain Management

Supply chain management encompasses the

planning and management of all activities involved
in sourcing and procurement, conversion, and all
Logistics Management activities. Importantly, it
also includes coordination and collaboration with
channel partners, which can be suppliers,
intermediaries, third-party service providers, and
customers. In essence, Supply Chain
Management integrates supply and demand
management within and across companies.

CSCMP
 Logistics: What It Is?

CSCMP (Council of Supply Chain

Management Professionals) definition:
Logistics is that part of the Supply Chain
Management that plans, implements, and
controls the efficient, effective forward and
reverse flow and storage of goods, services,
and related information between the point of
origin and the point of consumption in order
to meet customers requirements.

Source: clm1.org 2008 Prentice Hall 1-9

 Successful Supply Chains
have
Enterprise-to-enterprise point of view
Systems approach across all organizations
in the supply chain
Companies recognize interdependencies
Goals and objectives are compatible

2008 Prentice Hall 2-10

 The Supply-Chain Operations
Reference (SCOR) Model
Process reference models integrate the well-known
concepts of business process reengineering,
benchmarking, and process measurement into a cross-
functional framework.
A Process Reference Model Contains:
Standard descriptions of management processes
A framework of relationships among the standard processes
Standard metrics to measure process performance
Management practices that produce best-in-class performance
Standard alignment to features and functionality

http://supply-chain.org/f/SCOR%2090%20Overview%20Booklet.pdf

http://archive.supply-chain.org/galleries/default-
file/SCOR%2080%20Overview%20Booklet2.pdf
 The Supply-Chain Operations
Reference (SCOR) Model

2008 Prentice Hall

http://archive.supply-chain.org/galleries/default- 2-12

file/SCOR%2080%20Overview%20Booklet2.pdf
 The Global Supply Chain Forum
(GSCF) Model
Customer Relationship Management (CRM)
Customer Service Management
Demand Management
Order Fulfillment
Manufacturing Flow Management
Supplier Relationship Management
Product Development and Commercialization
Return Management

http://findarticles.com/p/articles/mi_qa3705/is_200501/ai_n13632938/?tag=content;col1
 Globalization of Supply Chains
Increasing globalization
Lower priced materials and labor
Global perspective of companies
Development of global competition
Extremely difficult to execute due to differences
Cultural, economic, and technological
Political, spatial, and logistical

2008 Prentice Hall 2-14

 Key Attributes of
Supply Chain Management
Customer power
Fast and agile supply chain
Long-term orientation
Relational exchanges
Transactional exchanges
Leveraging technology
Computer and Internet
Enhanced communication across organizations

2008 Prentice Hall 2-15

 Key Attributes of
Supply Chain Management
Inventory control
Bullwhip effect
JAZ
Interorganizational Collaboration
Supply chain councils

2008 Prentice Hall 2-16

 Barriers to
Supply Chain Management
Regulatory and political considerations
Lack of top management commitment
Reluctance to share, or use, relevant data
Incompatible information systems
Incompatible corporate cultures

2008 Prentice Hall 2-17

 Supply Chain Management and
Integration
Long-term, mutually beneficial agreements
Partnerships
Strategic alliances
Third-party arrangements
Contract logistics
Methods used to integrate
Vertical integration
Formal contracts
Informal agreements
2008 Prentice Hall 2-18
 Supply Chain Management and
Integration
Third-Party Logistics (3PL)
Logistics outsourcing
Contract logistics
Fourth-party logistics (4PL) primarily used
in global companies
Lead logistics provider (LLP)
Supply chain software

2008 Prentice Hall 2-19

 Case 2-1 Johnson Toy Company

Company Facts:
Located Biloxi, Mississippi

Product Facts:
Basic Design Toys: Low profit margin
Unconventional Toys: Risky, High profits if popular
Jungle Jim the Jogger

Market Facts:
Seasonal

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 Case 2-1 Johnson Toy Company

Problems at Hand:
Popular toy turns into unpopular
Production was cancelled
Returns without a clear policy
Discussions:
#1: From the standpoint of an individual concerned with
accounting controls, discuss and evaluate Johnson Toy
Companys present policies for handling returned items.
#2: Answer question 1, but from the standpoint of an
individual interested in marketing.

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 Case 2-1 Johnson Toy Company

Discussions:
#3: Propose a policy for handling returns that should be
adopted by the Johnson Toy Company. Be certain to list
circumstances under which exceptions would be allowed.
Should it apply to the Jungle Jim dolls?

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 Case 2-1 Johnson Toy Company

I. HIGH VOLUME CUSTOMERS (defined as purchasing

$75,000 of merchandise from Johnsons per year)

A. Functionally damaged goods may be returned to Johnsons

plant at Johnsons expense with a full refund.

B. High volume customers will receive a straight 2% deduction

off of the wholesale selling price to cover defectives
whether defectives are classified as cosmetically damaged
or slow moving items, except when unable to sell due to
special circumstances (see Section III).

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 Case 2-1 Johnson Toy Company

II. LOW VOLUME CUSTOMERS

A. Functionally damaged goods may be returned to Johnsons
plant via Johnsons salesperson with a full refund.
B. Low volume customers will NOT receive an automatic
deduction for defectives. Instead, the damage or defect must
be defined:
Cosmetically damaged goods (classified as functionable
and sellable): a 25% discount granted upon inspection by
Johnsons salesperson.
Slow moving items: NO RETURNS
Non-moving items (for reasons other than physical
damage)
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 Case 2-1 Johnson Toy Company

III. SPECIAL CIRCUMSTANCES When product is not

resellable for reasons other than being functionally damaged
or just a slow mover in the off season, such as when the
product receives bad press (as in the case of Jungle Jim and
Jogger Dolls), Johnson will allow return of all such non-
resellable items under the following conditions:
A. Retailer must pay for the returned merchandise to reach Johnsons
plant.
B. Retailers account will be credited for the full amount of said
purchase.
C. Credit is to be used within 30 days of receipt of returned goods at
Johnsons plant; credit will be void after 30 days.

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 Case 2-1 Johnson Toy Company

Discussions:
#4: Should this policy, if adopted, be printed and
distributed to all of the retailers who handle Johnson Toy
Company products? Why or why not? If it should not be
distributed to them, who should receive copies?
#5: Assume that it is decided to prepare a statement on
returns to be distributed to all retailers and that it should
be less than a single double-spaced page. Prepare such
a statement.
#6: On the basis of the policy in your answer to question
3, develop instructions for the Johnson Toy Company
distribution and accounting departments with respect to
their roles and procedures in the handling of returns.
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 Case 2-1 Johnson Toy Company

Discussions:
#7: Assume that you are Cheryl Guridi, the firms logistics
manager. Do you think that the returns policy favored by
the logistics manager would differ from what would be
best for the firm? Why or why not?
#8: Until the policy you recommend in your answer to
question 3 takes effect, how would you handle the
immediate problem of retailers wanting to return unsold
Jungle Jim the Jogger dolls?

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 Case 2-2 Wyomo Grocery
Buyers Cooperative
Company Facts:
Located Biloxi, Mississippi

Product Facts:
Basic Design Toys: Low profit margin
Unconventional Toys: Risky, High profits if popular
Jungle Jim the Jogger

Market Facts:
Seasonal

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 Case 2-2 Wyomo Grocery
Buyers Cooperative
Company Facts:
Located Billings, Montana
Owned by member grocery stores
Board of Directors (elected) hired the General manager
Logistics Facts:
Serving 150 food stores (longest ~450 miles)
All dry groceries were shipped from warehouse in Billings,
once or twice a week
Produce shipped from Billing, Cheyenne, Great Falls two
or three times a week
Owns 15 tractors, 19 trailers, 6 trucks/refrigerated

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 Case 2-2 Wyomo Grocery
Buyers Cooperative
Co-op Facts:
Charges members cost + 23%
Profit sharing: 20% to members (proportional to orders)
Warehouse carries 8,000 SKUs, small grocery stores
carry 1,000~2,000 SKUs, Large members carry
6,000~8,000 SKUs
Issues at hand:
Growing competition from chain stores
Warehouse reaching capacity
Proposal to build a larger warehouse (10,500 SKUs)
Motion: to limit SKUs to 8,000

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 Case 2-2 Wyomo Grocery
Buyers Cooperative
Discussions:
#1: Co-op members presently pay for goods on the
basis of cost to the co-op plus 23% to cover warehousing
and transportation from the warehouses to the members
retail stores. Is this a fair way to cover warehousing
costs? Can you think of a better way? If so, describe it.
#2: Answer the problem posed in question 1 with respect
to transportation costs.
#3: Toward the end of the case, Bright described how
some manufacturers pay bribes to get shelf space in
retail stores. Should retailers accept such bribes? Why or
why not?

1-31
 Case 2-2 Wyomo Grocery
Buyers Cooperative
Discussions:
#4: The case says, Stores were responsible for placing
orders with the co-op, although a co-op representative
would call on a weekly basis, and one of her/his functions
was to help some store operators complete their order
forms. Is this a function that the co-op should be
performing? Why or why not?
#5: The case mentions that some of the larger stores that
belonged to the co-op sometimes threatened to form their
own co-op. Assume that you are hired by some of them
to study the feasibility of such a move. List the various
topics that you would include in your study.

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 Case 2-2 Wyomo Grocery
Buyers Cooperative
Discussions:
#6: How would you vote on Hardys motion? Why?
#7: Would it make a difference whether you represented
a large or small store? Why?
#8: Are there other strategies that the co-op might pursue
to overcome this problem? If so, describe.

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