1. Foundations of Supply Chain Management

International SCM manages value-adding activities involving more than one company.

It coordinates information and material flows and covers the optimization of value chains.

the Goal: to satisfy customer needs through an appropriate balance of agility, flexibility and efficiency.

Logistics originated as a military discipline in the 18th and 19th centuries.

Military operations depend on receiving people, food, equipment and ammunition at the correct place and time.

Without supply, an army cannot continue operating.

1. Transport, Handling and Storage logistics — THS

2. Coordination logistics

3. Process logistics

4. Supply Chain Management

The scope grows from optimizing individual activities to integrating complete inter-company networks.

THS means:

• Transportation: moving goods between locations

• Handling: sorting, picking, packing or rearranging goods

• Storage: keeping goods until they are needed

1. Geographical differences are solved through transport.

2. Differences in quantity, type or arrangement are solved through handling.

3. Differences in time are solved through storage and buffering.

The objective was cost reduction within individual logistics functions.

Transport, handling and storage were optimized separately. The effects on other activities and on total logistics costs were not fully considered.

Logistics costs are interdependent. Reducing one cost may increase another.

For example, faster transport may increase transport costs but reduce inventory and warehouse costs.

The company should not minimize each logistics cost separately. It should minimize the total cost of the logistics system.

Total costs include transport, warehouse, inventory, packing, order-processing and batch costs.

In coordination logistics Logistics becomes a cross-functional discipline that coordinates material flows across:

• Inbound logistics

• Production logistics

• Outbound logistics

The main objectives were:

• Minimize total logistics costs

• Secure the ability to supply or availability

Process logistics used a process-oriented management approach.

Instead of optimizing departments separately, it managed complete flows across purchasing, production, logistics and sales.

Process logistics expanded the focus from total cost and availability to:

• Service level

• Order lead time

• Material throughput time

• Cash-to-cash cycle

• Competitive advantage

Activities were managed across departmental boundaries. Procurement, production and logistics became integrated around the complete fulfilment process.

A higher service level may increase customer satisfaction and revenue, but it normally also increases costs.

The objective is to find the optimum service level, not simply the highest one.

• Ability to supply

• Delivery reliability or On-Time Delivery

• Delivery quality

• Delivery flexibility

Ability to supply: asks whether the company can confirm the customer’s requested delivery date.

On-Time Delivery — OTD: asks whether the company delivers on the date it confirmed.

It represents the complete process from receiving a customer order until payment is received.

It includes three flows:

• Information flow - Upstream and downstream flow

• Material flow - downstream

• Liquidity or cash flow - upstream

Long processes cause higher inventory, slower customer service and more tied-up capital.

Therefore, companies try to reduce order lead time, throughput time and the cash-to-cash cycle.

SCM integrates the design, planning, operation and optimization of value chains across several independent companies.

It considers the complete network from raw-material suppliers to the final customer.

The main objectives is to increase competitiveness and Satisfy final-customer requirements by imporving the SC efficiency, agility and flexibility

Process logistics integrates processes mainly inside one company.

SCM extends the integration across suppliers, manufacturers, distributors, retailers and customers.

Three main flows connect the companies:

• Information

• Materials

• Liquidity or finance

Material normally moves downstream, while orders, demand information and payments often move upstream.

Companies normally have several suppliers and customers.

They may also participate in several supply chains at the same time.

Therefore, the relationships form a complex network rather than a simple line.

A partner may make a decision that benefits itself but harms the whole chain. Incentives must encourage every partner to improve the overall performance of the supply chain.