Page 275 - DMGT501_OPERATIONS_MANAGEMENT

Unit 13: Supply Chain Management and JIT

The concept of a supply chain is shown in Figure 13.1. Though many stages are shown in the Notes
figure, each stage need not be present in a supply chain. The number of stages included should
meet the primary purpose for the existence of the supply chain, i.e., to satisfy customer needs. It
is in the process that the organization generates profits for itself.
'Supply Chain Management' can be defined as the active management of supply chain activities
to maximize customer value and achieve a sustainable competitive advantage. It represents a
conscious effort by the supply chain firms to develop and run supply chains in the most effective
and efficient ways possible.
Within each organization, such as a manufacturer, the supply chain includes all functions involved
in receiving and filling a customer request. The functions that are involved include but are not
limited to, new product development, marketing, operations, distribution, finance, and customer
service. The decisions are trade off between price, inventory, and responsiveness.
Its activities begin with a customer order and ends when a satisfied customer has paid for his or
her purchase. Generally, more than one player is involved at each stage. A manufacturer may
receive materials from several suppliers and then supply several distributors. Thus, most supply
chains are actually networks.

Supply chain is an integral part of the value chain. According to Michael Porter, who first
articulated the value chain concept in the 1980s, the value chain is comprised of both the primary
and support activities. The supply chain consists only of the primary activities or the operational
part of the value chain. The supply chain, therefore, can be thought of as a subset of the value
chain. In other words, while everyone in the same organization works in the value chain, not
everyone within the organization works in the supply chain.
The value a supply chain generates is the difference between what the final product is worth to
the customer and the effort the supply chain expends in filling the customer's request. The
supply chain profitability is based on the effort involved in the appropriate management of the
flows between and among stages in a supply chain. Unlike the traditional measure of
organizational success in terms of the profits at an individual stage, supply chain success is
measured in terms of supply chain profitability.
Figure 13.2: Supply Chain is Part of the Value Chain

Firm Infrastructure
Support Activities Human Resource Management
Technology Development
Procurement
S3 C2 C3
S3 S2 Inbound Marketing Customer C3
S3 S2 Suppliers Logistics Operations Outbound and Sales Service Customers C2 C3
Logistics
S3 C3
S3 S2 C2 C3
S3 C3
Value Chain Primary Activities/Supply Chain

Materials/Supply Management Physical Distribution/Channel Management

Extended Value Chain/Total Supply Chain/Total Logistics Management

The objective of every supply chain is to maximize the overall value generated so that the final
price of the good covers all of the costs involved plus a profit for each participant in the chain.
Figure 13.2 shows the supply chain as a network and also as a part of the value chain.

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