Supply Chain Management Key Concepts.

This is an overview of supply chain management key concepts. We will start with the basics and then increase the complexity. Many of the terms you will find below are taught in top MBA supply chain programs. We made this overview so that whether you are new to supply chain or an experienced professional you can get something out of it. If you are new to supply chain it is going to take you longer to grasp the concepts. Be patient and watch the videos multiple times if needed. Start with the definitions below and go from there. There are a variety of definitions out there for supply chain so listed a few below. If you are an experienced supply chain professional jump right in and start watch the videos.

Supply Chain Defined in Various Ways

General Business Definition: A supply chain is the network of all the individuals, organizations, resources, activities, and technology involved in the creation and sale of a product, from the delivery of source materials from the supplier to the manufacturer, through to its eventual delivery to the end user.
Operational Management Definition: In operational terms, a supply chain refers to the integrated system that coordinates the flow of goods, services, information, and finances as they move from supplier to manufacturer to wholesaler to retailer to consumer.
Academic Definition: A supply chain is the entire sequence of processes and entities involved in the production and distribution of a commodity, including the stages of raw material extraction, production, processing, transportation, warehousing, and final sale. It encompasses both the upstream (supplier-related) and downstream (customer-related) aspects of production and distribution.

Supply Chain Overview by Topic

To jump right in the supply chain overview below starts off with a video providing a basic explanation of supply chain and then provides further detail based on your experience.

Strategy and Supply Chain Key Concepts

ABC Analysis: divides inventory into three categories—”A products” with very tight control and accurate records, “B products” with less tightly controlled and good records, and “C products” with the simplest controls possible and minimal records.
Balanced Scorecard: a strategic management tool that helps organizations track and improve their performance across four key areas, rather than just focusing on financial results. It gives a more “balanced” view by considering multiple perspectives.
Beer Game: This is probably not what you are thinking. The beer game outlines the importance of information sharing, supply chain management and collaboration throughout s supply chain process.
Blockchain: Instead of giving a definition of blockchain will provide an example used in supply chain. Blockchain technology is being used to allow retailers and consumers to track food products from their origins to stores and restaurants to be sure there is no issues that contaminate the food.
Blue Ocean Strategy: helps make strategic moves to create new value for the company by creating new demand.
Bullwhip effect: Unexpected changes in demand patterns will continue to escalate further up the supply chain. Problems tend to escalate in supply chains where communication is minimal between supply nodes. A small wave in the middle of the ocean may end up as a tidal wave near the shore.
Continuous Improvement (Lean, Kaizen, Six Sigma, TPS, Agile…): Continuous improvement includes many tools and philosophies.
Core Competencies: the unique strengths and abilities that give a company a competitive advantage. These are things the company does exceptionally well, better than its competitors, and that are hard for others to copy.
Cost Management: analyzing the costs of purchased goods in order to develop strategies to lower costs while improving supplier relationships.
Demand Forecasting: Demand forecasting is the process of using historical data, market trends, and other variables to predict future customer demand. Accurate forecasting helps businesses plan production, manage inventory levels, and allocate resources efficiently, reducing the risk of excess stock or stockouts.
Demand Management is a planning methodology used to forecast, plan and manage the demand for products and services.
Design Thinking is focusing on the people the product/service is being created for, which will lead to a better designed product.
Distribution: Distribution refers to the entire process of getting products from the manufacturer or warehouse to the end customer. It involves transportation, warehousing, and handling activities. Efficient distribution networks help companies meet customer expectations for timely delivery while minimizing transportation and storage costs.
Gemba is a Japanese word meaning “the actual place.” Gemba is part of lean manufacturing. A gemba walk is going out on the floor and helping where you can. It is very similar to the concept of Management By Walking Around (MBWA) “When you are out observing on the gemba, do something to help them. if you do, people will come to expect that you can help them and will look forward to seeing you again on the gemba.” ~Taiichi Ohno.
Industry 4.0 is short for the fourth industrial revolution. Industry 4.0 is using smart technology to have machines talking to machines. Predictions are a focus in Industry 4.0 because with IoT everything is monitored and analyzed. For example, an autonomous fork lift will know when it needs to be serviced based on the analysis of its own system.
Innovators of Supply Chain: Sam Walton (Walmart), Jeff Bezos (Amazon), Henry Ford (Ford), Taiichi Ohno (Toyota) and more.
Internet of Things (IoT) describes the network of physical objects (refrigerators, cars, phones, machinery…) that are embedded with sensors, software, and other technologies for the purpose of connecting and exchanging data with other devices and systems over the Internet.
Inventory Management is the approach taken for managing raw material, work in process, and finished inventory.
Just in Time (JIT) is a way to manage inventory by receiving product only when needed. This decreases inventory costs. Many people wonder why doesn’t everyone do JIT? It takes a great deal of discipline to do it right.
Kanban is part of lean methodology. Work items are visualized on a Kanban board to give participants a view of progress. Work is pulled as capacity permits. May also want to look at the differences between Pull vs Push.
Key Performance Indicators (KPIs): Tools to measure and track the effectiveness and efficiency of supply chain operations. Examples include order fulfillment rates, inventory turnover ratios, and on-time delivery performance.
Last Mile is a term used in supply chain and logistics to describe the movement from a the transportation hub to the final delivery. When a person receives product from Amazon they are at the end of the last mile.
Just-in-Time (JIT): JIT is a lean manufacturing and inventory strategy designed to reduce waste by receiving materials and producing goods only as needed. JIT minimizes inventory costs, but it requires precise coordination with suppliers and the ability to respond quickly to changes in demand or supply disruptions.
Kaizen: A Japanese term meaning “continuous improvement.” It involves making small, incremental changes to improve processes and eliminate inefficiencies.
Lean Manufacturing: Focuses on eliminating waste and improving process efficiency. Key principles include value stream mapping, 5S (Sort, Set in order, Shine, Standardize, Sustain), and Just-In-Time (JIT) production.
Location Analysis for Distribution/Fulfillment Center.
Min-Max Inventory: Min value is the order point when inventory is low, and Max is the inventory needed. The simple calculation of subtracting the Min quantity from the Max quantity is the reorder quantity.
Order Fulfillment: Order fulfillment refers to the entire process of receiving, processing, and delivering customer orders. It includes order picking, packing, shipping, and handling returns. Effective order fulfillment is crucial for customer satisfaction, as it ensures that customers receive the correct products in a timely manner.
Outsourcing is when a company hires another company to be responsible for actions that could be done internally. Outsourcing the call center to India is an example.
Pareto Principle: The simplest way to describe the Pareto Principle is the 80/20 rule. For example, 80% of a companies profits will generally come from 20% of the customers.
Postponement: Waiting as long as possible to put the finishing touches on a product. For example: HP would wait to put in its power cord until it knew if it was being sold in the US or abroad.
Porter’s Five Forces is a method for analyzing competition of a business. Michael Porter of Harvard University.
Procurement Process: Procurement involves identifying, sourcing, and acquiring goods, services, or raw materials needed by a business. It includes selecting suppliers, negotiating contracts, and ensuring that purchased items are delivered on time and meet the necessary quality standards. Strategic procurement helps organizations minimize costs while ensuring a reliable supply of materials.
Push vs Pull. Make to Order vs. Make to Stock.
Reverse Logistics: Reverse logistics involves managing the return of products from customers to the company, whether for returns, repairs, recycling, or disposal. It includes handling customer returns, warranty claims, product recalls, and recycling programs. An efficient reverse logistics process can improve customer service and reduce waste.
Six Sigma: A data-driven approach for improving processes by identifying and removing the causes of defects and minimizing variability. It uses DMAIC (Define, Measure, Analyze, Improve, Control) methodology.
Supplier Relationship Management (SRM): Strategies and tools for managing and improving relationships with suppliers to ensure better quality, reduced costs, and timely delivery.
Supply Chain Resilience: ensuring companies can survive and thrive in the face of disruptions (COVID 19, geopolitical matters).
Supplier Selection is the process to identify, rate, develop and do business with suppliers.
SWOT Analysis is strengths, weaknesses, opportunities and threats.
Taiichi Ohno: considered the father of the Toyota Production System (TPS), which introduced revolutionary supply chain concepts like Lean Manufacturing and Just-in-Time inventory management. His methods minimized waste and optimized processes, leading to greater efficiency, cost savings, and higher quality.
Theory of Constraints (TOC) is a management philosophy introduced in the book “The Goal” by Eliyahu M. Goldratt. There is always at least one constraint to be worked. Some people call it the “long pole in the tent.” A constraint is the primary driver sub-optimizing the system. Constraints can be internal or external to the system.
The Goal is a book written in 1984 and a very easy read. When people talk about supply chain books this is at the top of the list. “This theory provided a persuasive solution for factories struggling with production delays and low revenues.” –Harvard Business Review.
Third-Party Logistics (3PL): A third-party logistics provider (3PL) is an external company that manages all or part of a business’s logistics operations. 3PLs offer services such as transportation, warehousing, inventory management, and order fulfillment. Outsourcing logistics to a 3PL can help companies reduce costs and focus on their core competencies.
Total Cost of Ownership (TCO) is the cost of the product starting from the initial planning stage to the ultimate disposal of the product.
Total Quality Management (TQM): An organization-wide approach to continuously improving the quality of products and services by involving all employees and focusing on customer satisfaction.
Value Chain is a set of actions a company performs to delivery a product. This is a concept by Michael Porter of Harvard University.
Value Stream Mapping: A visual tool for analyzing and designing the flow of materials and information required to bring a product or service to a consumer. It helps identify bottlenecks and areas for improvement.
Variability refers to the uncertainty in a supply chain. Reducing variability increases consistency which is critical for supply chain.
Warehousing: Warehousing involves storing goods in a controlled environment until they are needed for production or delivery to customers. Warehouses play a critical role in supply chain management by ensuring product availability, supporting order fulfillment, and enabling bulk purchasing. Different types of warehouses include distribution centers, fulfillment centers, and storage warehouses.
3D Printing and Additive Manufacturing: On-demand manufacturing will gain traction, reducing lead times, inventory costs, and environmental impact.

What is…

Train by Primary SCM Process

Plan it: What is Supply Chain Planning and Strategy?
Buy it: What is Supplier Management and Procurement?
Store it: What is Distribution, Warehouse and Inventory Management?
Make it: What is Manufacturing?
Ship it: What is Transportation, Logistics and Shipping?
Return it: What is Return and Reverse Logistics?

Business Strategy Concepts

Supply Chain Quotes

“There comes a time when you ought to start doing what you want. Take a job that you love. You will jump out of bed in the morning. I think you are out of your mind if you keep taking jobs that you don’t like because you think it will look good on your resume. Isn’t that a little like saving up sex for your old age?” ~ Warren Buffet
“If you don’t understand how to run an efficient operation, new machinery will just give you new problems of operation and maintenance. The sure way to increase productivity is to better administrate man and machine.” ~W. Edwards Deming
“A leader’s job is not to do the work for others, it’s to help others figure out how to do it themselves, to get things done, and to succeed beyond what they thought possible.” ~Simon Sinek
“Leaders win through logistics. Vision, sure. Strategy, yes. But when you go to war, you need to have both toilet paper and bullets at the right place at the right time. In other words, you must win through superior logistics.” ~Tom Peters.
“Supply chains are everywhere. From the biggest company in the world to running your household. We all have supply chain experience even if we don’t know it.” ~Dave Waters.
“If supply chain had an arch enemy it would be called ‘bad communication’.” ~EverythingSupplyChain.com
“Never continue in a job you don’t enjoy. If you’re happy in what you’re doing, you’ll like yourself, you’ll have inner peace. And if you have that, along with physical health, you will have had more success than you could possibly have imagined.” ~ Johnny Carson