Supply Chain Management (3rd Edition) Ch1 Summary

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Traditional View: Logistics in the Economy (1990, 1996)

Supply Chain Management (3rd Edition)
Chapter 1 Understanding the Supply Chain

Freight Transportation Inventory Expense Administrative Expense Logistics Related Activity

$352, $455 Billion $221, $311 Billion $27, $31 Billion 11%, 10.5% of GNP

Source: Cass Logistics

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Traditional View: Logistics in the Manufacturing Firm
Profit Logistics Cost Marketing Cost Manufacturing Cost 4% 21% 27% 48% Manufacturing Cost Profit Logistics Cost Marketing Cost

Supply Chain Management: The Magnitude in the Traditional View Estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics and supply chain strategies – A typical box of cereal spends 104 days from factory to sale – A typical car spends 15 days from factory to dealership

Laura Ashley turns its inventory 10 times a year, five times faster than 3 years ago

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Supply Chain Management: The True Magnitude
Compaq estimates it lost $.5 billion to $1 billion in sales in 1995 because laptops were not available when and where needed When the 1 gig processor was introduced by AMD, the price of the 800 mb processor dropped by 30% P&G estimates it saved retail customers $65 million by collaboration resulting in a better match of supply and demand

Outline
What is a Supply Chain? Decision Phases in a Supply Chain Process View of a Supply Chain The Importance of Supply Chain Flows Examples of Supply Chains

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What is a Supply Chain?
Introduction The objective of a supply chain

What is a Supply Chain?
All stages involved, directly or indirectly, in fulfilling a customer request Includes manufacturers, suppliers, transporters, warehouses, retailers, and customers Within each company, the supply chain includes all functions involved in fulfilling a customer request (product development, marketing, operations, distribution, finance, customer service) Examples: Fig. 1.1 Detergent supply chain (WalMart), Dell 1-7 © 2007 Pearson Education 1-8

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What is a Supply Chain?
Customer is an integral part of the supply chain Includes movement of products from suppliers to manufacturers to distributors, but also includes movement of information, funds, and products in both directions Probably more accurate to use the term “supply network” or “supply web” Typical supply chain stages: customers, retailers, distributors, manufacturers, suppliers (Fig. 1.2) All stages may not be present in all supply chains (e.g., no retailer or distributor for Dell) © 2007 Pearson Education 1-9

What is a Supply Chain?
P&G or other manufacturer Jewel or third party DC Jewel Supermarket Customer wants detergent and goes to Jewel

Plastic Producer

Tenneco Packaging

Chemical manufacturer (e.g. Oil Company)

Chemical manufacturer (e.g. Oil Company)

Paper Manufacturer

Timber Industry

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Flows in a Supply Chain
Information Product

The Objective of a Supply Chain
Maximize overall value created Supply chain value: difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customer’s request Value is correlated to supply chain profitability (difference between revenue generated from the customer and the overall cost across the supply chain)

Customer
Funds

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The Objective of a Supply Chain
Example: Dell receives $2000 from a customer for a computer (revenue) Supply chain incurs costs (information, storage, transportation, components, assembly, etc.) Difference between $2000 and the sum of all of these costs is the supply chain profit Supply chain profitability is total...
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