Introduction to Supply Chain Management

CHAPTER 1

Introduction to Supply Chain

Management

1

1.1 WHAT IS SUPPLY CHAIN MANAGEMENT?

F ierce competition in today’s global markets, the introduction of products with

shorter life cycles, and the heightened expectations of customers have forced business

enterprises to invest in, and focus attention on, their supply chains. This, together with

continuing advances in communications and transportation technologies (e.g., mobile

communication, Internet, and overnight delivery), has motivated the continuous

evolution of the supply chain and of the techniques to manage it effectively.

In a typical supply chain, raw materials are procured and items are produced at one

or more factories, shipped to warehouses for intermediate storage, and then shipped to

retailers or customers. Consequently, to reduce cost and improve service levels,

effective supply chain strategies must take into account the interactions at the various

levels in the supply chain. The supply chain, which is also referred to as the logistics

network, consists of suppliers, manufacturing centers, warehouses, distribution

centers, and retail outlets, as well as raw materials, work-in-process inventory, and

finished products that flow between the facilities (see Figure 1-1).

In this book, we present and explain concepts, insights, practical tools, and

decision support systems important for the effective management of the supply chain.

But what exactly is supply chain management ? We define it as follows:

Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manu-facturers, warehouses, and stores, so that merchandise is produced and distributed at the right

quantities, to the right locations, and at the right time, in order to minimize systemwide costs

while satisfying service level requirements.

This definition leads to several observations. First, supply chain management takes

into consideration every facility that has an impact on cost and plays a role in

making the product conform to customer requirements: from supplier