🚚 Supply Chain Management

Definition and scope of supply chain management (SCM)
Origin of the term and competing definitions
Supply chain visibility, software and reverse flows
Functions, networks and the rise of partnership-based organization
Risks and resilience (COVID-19, Suez Canal)
Historical eras from creation to SCM 2.0
Components, power and reverse supply chains
Business-process integration and key processes
Theories, governance and supply chain centroids
Case study: Wal-Mart strategic sourcing

📦 What Is Supply Chain Management?

Supply chain management (SCM) deals with a system of procurement (purchasing raw materials and components), operations management, logistics and marketing channels, through which raw materials are developed into finished products and delivered to end customers.

Narrow definition

SCM is the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronising supply with demand and measuring performance globally".

This can include the movement and storage of:

Raw materials
Work-in-process inventory
Finished goods
End-to-end order fulfilment, from the point of origin to the point of consumption

Interconnected, interrelated or interlinked networks, channels and node businesses combine to provide the products and services that end customers require.

Scope of activities

SCM is the broad range of activities required to plan, control and execute a product's flow from materials to production to distribution in the most economical way possible.
It covers the integrated planning and execution of processes that optimize the flow of materials, information and capital.
Functions broadly include:
- Demand planning
- Sourcing
- Production
- Inventory management
- Logistics (storage and transportation)

Approach and research agenda

SCM strives for an integrated, multidisciplinary, multi-method approach.
Research focuses on resilience, sustainability and risk management, among others.
Some suggest these topics are underrepresented: the "people dimension" of SCM, ethical issues, internal integration, transparency/visibility, and human capital or talent management.

Minimizing total cost despite conflicts

SCM techniques coordinate all parts of the chain, from supplying raw materials to delivering or resuming products, and try to minimize total costs given the existing conflicts among chain partners.

Example conflict: the sales department wants higher inventory levels to fulfil demand, while the warehouse wants lower inventories to reduce holding costs.

📜 Origin of the Term and Definitions

Timeline of the term

Period	Development
1982	Keith Oliver, a consultant at Booz Allen Hamilton, introduced the term "supply chain management" to the public domain in an interview for the Financial Times
Mid-1990s	The term gained popularity as a flurry of articles and books came out on the subject
Late 1990s	SCM rose to prominence; operations managers began to use it in their titles with increasing regularity

Supply chain versus supply chain management

Supply chains were originally defined as all activities associated with the flow and transformation of goods from raw materials through to the end user, plus the associated information flows.
Mentzer et al. note that the final consumer was included within these early definitions.
SCM was then further defined as the integration of supply chain activities through improved supply chain relationships to achieve a competitive advantage.
A supply chain is a set of firms that move materials "forward", or a set of organizations directly linked by one or more upstream and downstream flows of products, services, finances or information from a source to a customer.
Supply chain management is the management of such a chain.

Commonly accepted definitions

The management of upstream and downstream value-added flows of materials, final goods and related information among suppliers, company, resellers and final consumers.
The systematic, strategic coordination of traditional business functions and tactics across all business functions within a company and across businesses within the supply chain, to improve the long-term performance of the individual companies and the supply chain as a whole.
Hines (2004), a customer-focused definition:
- Strategies require a total systems view of the links in the chain that work together efficiently to create customer satisfaction at the point of delivery.
- Costs must be lowered throughout the chain by driving out unnecessary expenses, movements and handling.
- The focus is on efficiency and added value, or the end user's perception of value; efficiency must increase and bottlenecks be removed.
- Performance measurement focuses on total system efficiency and the equitable monetary reward distribution to those within the chain.
- The system must be responsive to customer requirements.
The integration of key business processes across the supply chain for the purpose of creating value for customers and stakeholders.
CSCMP (Council of Supply Chain Management Professionals): SCM encompasses the planning and management of all activities involved in sourcing, procurement, conversion and logistics management.
- It includes coordination and collaboration with channel partners, who may be suppliers, intermediaries, third-party service providers or customers.
- It integrates supply and demand management within and across companies.
- More recently, the loosely coupled, self-organizing network of businesses that cooperate to provide product and service offerings has been called the Extended Enterprise.

Supply chain management versus supply chain orientation

Mentzer et al. distinguish two terms:

Supply chain orientation: a recognition that a business strategy cannot be fulfilled without managing the activities of suppliers and customers upstream and downstream.
Supply chain management: "the actual implementation of this orientation".

👁️ Visibility, Software and Reverse Flows

Supply chain visibility

In its origins, visibility was concerned with knowing the location, production stage and expected delivery date of incoming products and materials, so that production could be planned.
The term has since grown to cover planning orders using knowledge of potential supplies, and tracking post-production processes as far as delivery to customers.
A supply chain control tower reflects the "end-to-end visibility" provided by an air traffic control tower.
- Ashutosh Gupta (writing for Gartner) sees it as combining the capacities of "people, process, data, organization and technology".
- The technology that draws information together from many sources should not be separated from the people and processes it supports.
The UK Government also uses "supply chain visibility", in conjunction with its mandate to ensure potential suppliers have visibility into future supply opportunities.
- Its action note covers obligations and contractual wording requiring prime suppliers to advertise sub-contracting opportunities.
- Prime suppliers must also report on their spend with small and medium-sized enterprises and voluntary/community organisations within their supply chains.

Supply chain management software

Includes tools or modules used to execute supply chain transactions, manage supplier relationships and control associated business processes.
Goal: improve supply chain performance by monitoring the network end to end (suppliers, transporters, returns, warehouses, retailers, manufacturers and customers).

Reverse flows

In some cases a supply chain includes collecting goods after consumer use for recycling, or reverse logistics processes that return faulty or unwanted products to producers up the value chain.

⚙️ Functions of SCM

Why SCM emerged

SCM is a cross-functional approach: it manages the movement of raw materials into an organization, certain aspects of internal processing into finished goods, and the movement of finished goods out toward the end consumer.
Organizations focus on core competencies and become more flexible, so they reduce ownership of raw-material sources and distribution channels.
These functions are increasingly outsourced to firms that can perform them better or more cost effectively.
The effect is more organizations involved in satisfying demand but less managerial control of daily logistics operations.
Less control and more partners lead to the concept of supply chain management, which is concerned with improving trust and collaboration among partners, thus improving inventory visibility and the velocity of inventory movement.

Partnership over ownership

Organizations increasingly rely on effective supply chains or networks to compete in the global market and networked economy.
In Peter Drucker's (1998) new management paradigms, business relationships extend beyond traditional enterprise boundaries and organize entire business processes across a value chain of multiple companies.
Drucker: "the greatest change in corporate culture—and the way business is being conducted—may be the accelerated growth of relationships based not on ownership, but on partnership."
This allows companies to leverage the strengths of various partners to achieve greater efficiency and innovation.

Collaborative supply networks

Globalization, outsourcing and information technology have enabled organizations such as Dell and Hewlett-Packard to operate collaborative supply networks in which each specialized partner focuses on only a few key strategic activities.
This inter-organizational supply network can be seen as a new form of organization.
With complicated interactions among players, the network structure fits neither "market" nor "hierarchy" categories.
It is not clear what performance impacts different network structures have, and little is known about the coordination conditions and trade-offs among players.
Traditionally, companies in a supply network concentrate on the inputs and outputs of processes, with little concern for the internal workings of other players. The choice of an internal management control structure is known to impact local firm performance.

Drivers in the 21st century

Globalization and the proliferation of multinational companies, joint ventures, strategic alliances and business partnerships identified significant success factors, complementing earlier "just-in-time", lean manufacturing and agile manufacturing practices.
Technological change, particularly the dramatic fall in communication costs (a significant component of transaction costs), changed coordination among members of the network.

Names for the new organizational form

"Keiretsu", "Extended Enterprise", "virtual supply chain", "Global Production Network" and "Next Generation Manufacturing System".
General definition: "a group of semi-independent organizations, each with their capabilities, which collaborate in ever-changing constellations to serve one or more markets in order to achieve some business goal specific to that collaboration".

Other notes

SCM supports organizational learning: firms with geographically more extensive supply chains connecting diverse trading cliques tend to become more innovative and productive.
Security management for supply chains is described in ISO/IEC 28000 and ISO/IEC 28001 and related standards.
SCM draws heavily from operations management, logistics, procurement and information technology, and strives for an integrated approach.

⚠️ Supply Chain Risks and Resilience

Risks

SCM proved crucial in the 2019-2020 fight against the COVID-19 pandemic.
Governments with effective domestic supply chain management had enough medical supplies for their needs and surplus to donate to front-line health workers in other jurisdictions.
The COVID-19 crisis in the US turned many sectors upside down, including the logistics industry. Some organizations quickly developed foreign supply chains to import needed medical supplies.
Cross-border supply chains can increase political risk.

Supply chain resilience

Resilience is defined as "the capacity of a supply chain to persist, adapt, or transform in the face of change".

Interpretation	Notion	Meaning
Engineering resilience (robustness)	Persistence	Long the prevailing interpretation in SCM; "bounce back"
Ecological resilience	Adaptation	Accept a "new normal" state and act accordingly
Social-ecological resilience	Transformation	Question basic assumptions and envision alternatives

A popular implementation of the persistence idea measures the time-to-survive and time-to-recover of the chain, which identifies weak points.
The APICS Certified Supply Chain Professional (CSCP) program emphasizes managing risks and enhancing resilience; a robust supply chain is vital to manage global interruptions and preserve operational continuity.
In the newer view, a supply chain is a social-ecological system that, like an ecosystem (e.g. a forest), constantly adapts to external environmental conditions.
Public policy can increase the resilience of supply chains.

Example: the 2021 Suez Canal obstruction

A ship blocked the canal for several days.

Persistence: remove the ship as quickly as possible to allow "normal" operations.
Adaptation: accept a "new normal", for example by redirecting ships around the African cape or using alternative modes of transport.
Transformation: question the assumptions of globalization, outsourcing and linear supply chains, which could lead to local and circular supply chains that no longer need global transportation routes.

🕰️ Historical Developments

Six major movements can be observed in the evolution of SCM studies: creation, integration, globalization, specialization (phases one and two), and SCM 2.0.

Creation era

The term was first coined by Keith Oliver in 1982, but the concept mattered long before, in the early 20th century, especially with the creation of the assembly line.
Characteristics: need for large-scale changes, re-engineering, downsizing driven by cost reduction programs, and widespread attention to Japanese management practices.
The term became widely adopted after the 1999 book Introduction to Supply Chain Management by Robert B. Handfield and Ernest L. Nichols, Jr., which published over 25,000 copies and was translated into Japanese, Korean, Chinese and Russian.

Integration era

Highlighted by the development of electronic data interchange (EDI) systems in the 1960s, and by enterprise resource planning (ERP) systems through the 1990s; it continued into the 21st century with Internet-based collaborative systems.
Characterized by increasing value-added and reducing costs through integration.
A supply chain can be classified as a stage 1, 2 or 3 network:

Stage	Description
Stage 1	Production, storage, distribution and material control are not linked and are independent of each other
Stage 2	These are integrated under one plan, and ERP is enabled
Stage 3	Vertical integration with upstream suppliers and downstream customers (example: Tesco)

Globalization era

The third movement: attention to global systems of supplier relationships and expansion of supply chains beyond national boundaries into other continents.
Global sourcing can be traced back several decades (e.g., the oil industry), but only in the late 1980s did a considerable number of organizations start integrating global sources into their core business.
Goal: increase competitive advantage, add value and reduce costs through global sourcing.

Specialization era (phase I): outsourced manufacturing and distribution

In the 1990s companies focused on "core competencies" and specialization: they abandoned vertical integration, sold off non-core operations and outsourced those functions.
The supply chain extended beyond the company walls, and management was distributed across specialized partnerships.
Original equipment manufacturers (OEMs) became brand owners needing visibility deep into their supply base, controlling the chain "from above, instead of from within".
Contract manufacturers had to manage bills of material with different part-numbering schemes from multiple OEMs and support requests for work-in-process visibility and vendor-managed inventory (VMI).
The model creates networks of individual supply chains specific to producers, suppliers and customers that work together to design, manufacture, distribute, market, sell and service a product. The partner set may change by market, region or channel, producing a proliferation of trading partner environments.

Specialization era (phase II): SCM as a service

Specialization began in the 1980s with transportation brokerages, warehouse management and non-asset-based carriers, and matured into supply planning, collaboration, execution and performance management.
Market forces sometimes demand rapid changes in suppliers, logistics providers, locations or customers, with significant effects on supply chain infrastructure.
Outsourced technology hosting for supply chain solutions debuted in the late 1990s, mainly in transportation and collaboration categories:

Model	Approximate period
Application service provider (ASP)	About 1998 to 2003
On-demand	About 2003 to 2006
Software as a service (SaaS)	In focus today

Example: supply chain collaboration platforms connect multiple buyers and suppliers with financial institutions to conduct automated supply chain finance transactions.

Supply chain management 2.0 (SCM 2.0)

Increasing volatility has characterized supply chains since around 2003, including turbulence around the 2008 financial crisis.
Douglass (2010) described "extreme supply chain management", which "recognizes the need for collective, rather than sequential, risk management and facilitates collaboration on a new scale that is necessary for survival".

🧩 Components

Management components

Cohen and Roussel (Supply Chain Innovation practice at PRTM, now part of PWC) name five "core disciplines" for "top performance":

Recognising a company's supply chain as a strategic asset
An end-to-end approach to the supply chain
Design for performance
Building an appropriate collaboration model
Using metrics to drive business success

SCM components are the third element of the four-square circulation framework. The level of integration of a business process link is a function of the number and level of components added to it.

Lambert and Cooper (2000) identified these components:

Planning and control
Work structure
Organization structure
Product flow facility structure
Information flow facility structure
Management methods
Power and leadership structure
Risk and reward structure
Culture and attitude

Bowersox and Closs (1996) emphasize cooperation as the synergism leading to the highest level of joint achievement, and distinguish channel participants:

Primary-level participant: a business willing to share responsibility for inventory ownership or assume other financial risks.
Secondary-level (specialized) participant: performs essential services for primary participants.
Third-level participants and components support primary-level participants and are the fundamental branches of secondary-level components.

Critique: Lambert and Cooper's framework does not conclude which components are primary or secondary, how they should be structured for a more comprehensive chain, or how to examine the chain as an integrative one.

Power in supply chain management

Andrew Cox, Joe Sanderson and Glyn Watson argue that the power resources of buyers and suppliers should be analyzed to understand how a relationship operates.
- A purchasing firm may hold more power, suppliers may hold more, buyers and suppliers may be interdependent, or neither may have real power.
Maloni and Benton (1998) asked whether asymmetries in inter-firm power could prevent effective supply chain execution, using French and Raven's typology of power sources in the automotive industry.

Power source	Finding
Expert and referent	"significant positive effects" on relationships
Reward	Somewhat beneficial impact
Coercive and legal/legitimate ("completely mediated power strategies")	"significant negative relationships"

They concluded that "prudent use of power" can be beneficial for both the power source and the power target.

Reverse supply chain

Reverse logistics is the process of managing the return of goods and may be considered an aspect of "aftermarket customer services".
Any time money is taken from a company's warranty reserve or service logistics budget, one can speak of a reverse logistics operation.
It includes managing returns from stores: goods go back to the warehouse, which either scraps them or sends them back to the supplier for replacement, depending on the merchandise warranty.

🔗 Business-Process Integration

Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes.

Scenario: a purchasing department places orders as its requirements become known, while marketing, responding to customer demand, talks to several distributors and retailers. Shared information can only be fully leveraged through process integration, e.g., using EDI.
Integration involves collaborative work between buyers and suppliers, joint product development, common systems and shared information.
Per Lambert and Cooper (2000), an integrated chain requires a continuous information flow.

Key processes (Lambert, 2004)

Customer relationship management
Customer service management
Demand management
Order fulfillment
Manufacturing flow management
Supplier relationship management
Product development and commercialization
Returns management

Demand management: best-in-class traits

Internal and external collaboration
Initiatives to reduce lead time
Tighter feedback from customer and market demand
Customer-level forecasting

Customer relationship and service management

Customer relationship management concerns the relationship between an organization and its customers.
Customer service is the source of customer information and gives customers real-time information on scheduling and product availability through interfaces with production and distribution.
Steps used to build customer relationships:
- Determine mutually satisfying goals for organization and customers
- Establish and maintain customer rapport
- Induce positive feelings in the organization and the customers

🎯 Business-Strategy Integration

Effective integration requires continuous communication and strategic coordination across departments and partner companies. It improves agility, helps businesses respond quickly to changes in demand and improves customer satisfaction.

Inventory management

Ensures the right stock at the right levels, in the right place, at the right time and the right cost. It entails inventory planning and forecasting; forecasting helps planning inventory.

Procurement process

Strategic plans with suppliers support manufacturing flow management and new product development. Global firms may manage sourcing globally.
Desired outcome: a relationship where both parties benefit and the time for design and development is reduced.
Purchasing may develop rapid communication systems such as EDI and internet linkage.
Activities include resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling and quality assurance, often coordinating with suppliers on scheduling, supply continuity (inventory), hedging and research into new sources.
Procurement has recently been recognized as a core source of value, driven by outsourcing trends and global changes requiring stronger buyer-seller relationships.

Product development and commercialization

Customers and suppliers must be integrated into product development to reduce time to market; shorter product life cycles require ever-shorter launch schedules.
Per Lambert and Cooper (2000), managers must:
- Coordinate with customer relationship management to identify customer-articulated needs
- Select materials and suppliers in conjunction with procurement
- Develop production technology in manufacturing flow to integrate into the best supply chain flow for the product and market
Integrating suppliers had a major impact on product target cost, quality, delivery and market share. Using suppliers as a source of innovation requires technology sharing and managing intellectual property issues.

Manufacturing flow management

Produces and supplies products to distribution channels based on past forecasts; must be flexible and accommodate mass customization.
Orders run on a just-in-time (JIT) basis in minimum lot sizes.
Changes lead to shorter cycle times (cycle time compression), meaning better responsiveness and efficiency.
La Londe and Masters (1994) found that improved SCM and cycle time compression were complementary strategies among forward-looking US businesses.
It manages planning, scheduling and supporting manufacturing operations, such as work-in-process storage, handling, transportation, time phasing of components and inventory at manufacturing sites.

Physical distribution

Concerns moving a finished product or service to customers; the customer is the final destination of a marketing channel.
Through it, the time and space of customer service become an integral part of marketing, linking manufacturers, wholesalers and retailers with customers.

Fleet management

Oversees a company's fleet of vehicles: trucks and vans, but also ships, planes and specialized machinery.
Goals: efficient and safe operation, maintenance schedules and cost control, particularly fuel consumption.
Modern fleet management is a key component of fleet digitalization, relying on telematics and vehicle tracking for real-time data on location, driver behavior and engine diagnostics. This data optimizes routes, schedules predictive maintenance and enhances visibility and control of the distribution network.

Outsourcing and partnerships

Covers outsourcing both materials procurement and services traditionally provided in-house.
Logic: focus on value-chain activities with a distinctive advantage and outsource everything else. This is especially evident in logistics (transport, storage and inventory control).
Managing the partner network needs a blend of central and local involvement: strategic decisions are taken centrally, while supplier performance monitoring and day-to-day liaison with logistics partners are best managed locally.

Performance measurement

Experts found a strong relationship between supplier and customer integration and market share and profitability.
As logistics competency becomes critical to competitive advantage, measuring logistics performance matters more because the difference between profitable and unprofitable operations narrows.
A.T. Kearney Consultants (1985): firms with comprehensive performance measurement improved overall productivity.
Internal measures: cost, customer service, productivity, asset measurement and quality.
External measures: customer perception measures and "best practice" benchmarking.

Warehousing management

Concerned with storage, reducing manpower cost, dispatching authority with on-time delivery, loading and unloading facilities with proper area, and inventory management systems, in order to reduce cost and expenses.

Workflow management

Integrating suppliers and customers tightly into a workflow (business process) to achieve an efficient and effective supply chain is a key goal.

🧠 Theories

There are gaps in the SCM literature. Halldorsson et al., Ketchen and Hult (2006) and Lavassani et al. (2009) have tried to provide theoretical foundations using organizational theories, which may include:

Resource-based view (RBV)
Transaction cost analysis (TCA)
Knowledge-based view (KBV)
Strategic choice theory (SCT)
Agency theory (AT)
Channel coordination
Institutional theory (InT)
Systems theory (ST)
Network perspective (NP)
Materials logistics management (MLM)
Just-in-time (JIT)
Material requirements planning (MRP)
Theory of constraints (TOC)
Total quality management (TQM)
Agile manufacturing
Time-based competition (TBC)
Quick response manufacturing (QRM)
Customer relationship management (CRM)
Requirements chain management (RCM)
Dynamic Capabilities Theory
Dynamic Management Theory
Available-to-promise (ATP)
Supply Chain Roadmap
Optimal Positioning of the Delivery Window (OPDW)

The unit of analysis of most of these is not the supply chain but another system, such as the firm or the supplier-buyer relationship. Among the few exceptions is the relational view (Dyer and Singh, 1998), which treats dyads and networks of firms as a key unit of analysis for explaining superior individual firm performance.

🏛️ Organization and Governance

Managing supply chains poses specific challenges in organizing relationships among partners along the value chain.
Formal and informal governance mechanisms are central, and particular combinations may impact relational dynamics within the chain.
Academics have pointed out the need for interdisciplinarity in SCM research.

📍 Supply Chain Centroids

In mathematics and physics, a centroid is the arithmetic mean position of all the points in a plane figure.
In SCM, a centroid is a location with a high proportion of a country's population and manufacturing, generally within 500 mi (805 km).
In the US, two major centroids are defined: one near Dayton, Ohio, and one near Riverside, California.

The Dayton centroid

Closest to the population center of the US and Canada.
Within 500 miles of 60% of US population and manufacturing capacity, and 60% of Canada's population.
Includes the I-70 and I-75 interchange, one of the busiest in the nation: 154,000 vehicles per day, of which 30-35% are trucks hauling goods.
The I-75 corridor holds the busiest north-south rail route east of the Mississippi River.

Supply chain and distribution channel

A supply chain is the network of all individuals, organizations, resources, activities and technology involved in creating and selling a product, from delivery of source materials from the supplier to the manufacturer through to delivery to the end user. The segment that gets the finished product from manufacturer to consumer is the distribution channel.

🛒 Case Study: Wal-Mart Strategic Sourcing

Direct sourcing (2010)

Wal-Mart announced a big change in 2010. Previously it bought only 20% of its stock directly and the rest through intermediaries, which increased supply chain costs.
It dropped intermediaries and began sourcing directly from suppliers. Eduardo Castro-Wright, then a Vice President, set a goal of buying 80% of goods directly.
It started with fruits and vegetables on a global scale, later engaging suppliers of cloth and home electronics directly and eliminating importing agents.
Benefits:
- The buyer can direct suppliers on how to make products acceptable to consumers, giving quality consistency; agents source from varied manufacturers, causing inconsistent quality.
- Costs cut by 5-15% as middlemen markups were removed, saving approximately $4-15 billion.
- Less time to source and stock products; intermediaries lengthened procurement and sometimes led to delays and empty shelves.

Centralized procurement

Wal-Mart centralized procurement by setting up four global merchandising points for general goods and clothing, including an office in Mexico City and Canada.
Suppliers bring products to these points, where the procurement team assesses quality, buys the goods and distributes them to regional markets. This helped consolidate suppliers.
A pilot combining fresh apple purchases across the United States, Mexico and Canada saved about 10%, so the company intended to centralize North American procurement of all fresh fruits and vegetables.

Strategic vendor partnerships

To ensure consistent quality, steady supply and lower cost, Wal-Mart created strategic partnerships with selected suppliers who met its demand and offered the best prices.
It offered long-term, high-volume purchases in exchange for the lowest possible prices, sourcing in bulk from the same suppliers at lower prices.
This lets Wal-Mart offer competitive prices and keep a competitive advantage over competitors whose goods are more expensive.

Supply Chain Management: Business Study Notes