Chapter 1: Introduction

Supply chain management, just-in-time production (JIT), quick response manufacturing, vendor management, and other terms such as agile manufacturing all share the goal of improving vendor response to customer demand. All of these philosophies or concepts share the same core values. They attempt to improve customer service by eliminating waste from the system in all of its forms including wasted time. Supply chain management embraces the other philosophies and extends their scope from one firm to all the firms in a supply chain.

There are two forces driving supply chain management. First, is that there is the new communications technology available now that allows managers to actively manage a supply chain. Second, customers are demanding lower prices and better products and services. To meet their customers' demands, firms are optimizing the entire supply chain. Supply chain management allows all the firms in a supply chain to look beyond their own objectives to the objective of maximizing the final customer's satisfaction. The payoff for supply chain members that can do this is increased profits for their shareholders.

The largest barrier to successfully managing a supply chain is perhaps the human element. Failure to correctly manage the issues of trust and communication will abort any attempt to manage the supply chain. When there is a lack of trust and communication, the supply chain's members will soon succumb to greed or suspicion that other members of the supply chain are profiting at their expense. When the communication is not adequate, the supply chain will not improve itsresponse enough to increase profits for its members. Without an increase in profits, the efforts to manage the supply chain will be reduced, because there will be no reward for actively managing it.

Supply chain management requires an unprecedented level of cooperation between the members of the supply chain. It requires an open sharing of information so that all members know they are receiving their full share of the profits. Since many of the firms in a supply chain do not have a history of cooperation, achieving the trust necessary for supply chain management is a time-intensive task.

Another way that the firms in the supply chain can save money is by ensuring that their marketing strategies correspond to the supply chain's capabilities-i.e., from their position in the supply chain they can actually provide what the customer wants. They are also able to gain money by improving the supply chain's capabilities to match the market demand with a decreased level of inventory. Firms are able to do this because they have additional information to forecast needs and as the lead time is reduced, their need to forecast is reduced. This reduced need to forecast reduces the need to carry inventory stocks for the just-in-case scenario.

Collaborative Planning

Many major retailers and large manufacturers have reduced their operating costs through their use of supply chain management techniques. But, there has been little effect on the price of the item to the consumer. Some argue that this occurred because the total amount of inventory in the supply chain was not reduced. Instead, the inventory may have been transferred to the second and third tier suppliers, but not eliminated from the supply chain.

Collaborative planning requires the firm to work with customers and suppliers to ensure that every day all of them have production and delivery schedules that agree with the needs of the customer. This has to be done routinely and not when the supply chain or a member is in a crisis.

Some firms are using Advanced Planning and Scheduling (APS) software to aid their collaborative communication. This is a trend that is just starting, but it may develop into a set of methods by which supply chain partners could have joint sales forecasts and/or production plans in which a revision by one partner would be immediately transmitted to the next partner.

For the APS to be effective for collaborative forecasting and planning throughout the supply chain, it is necessary that a reliable method for passing information between the different APS systems be in use. When a supplier has only one or two major customers, it is possible for them to have the same type of software as their customer. When a supplier has many customers, they cannot have software that matches each of their customer's needs.

How to Implement Supply Chain Management

A firm in the supply chain must initiate the attempt to form partnerships and actively manage the supply chain. Often a firm that has a large amount of market power in the chain will become the leader of the supply chain. This firm needs to justify the effort to manage the supply chain by explaining the benefits that will accrue to each member in the supply chain and to itself. To do this, the supply chain leader must show the partners where the improvements in the supply chain will arise and how these will lead to a gain for everyone. To establish trust among the members of the supply chain, the lead firm...