Introduction to Supply Chain
smi8239X_ch01_001-026.qxd
2/27/07
11:22 PM
Page 1
CHAPTER 1
Introduction to Supply Chain
Management
1.1 WHAT IS SUPPLY CHAIN MANAGEMENT?
Fierce 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
Figure 1-1 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, manufacturers, 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
2/27/07
11:22 PM
Page 1
CHAPTER 1
Introduction to Supply Chain
Management
1.1 WHAT IS SUPPLY CHAIN MANAGEMENT?
Fierce 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
Figure 1-1 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, manufacturers, 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