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C H A P T E R 6
Supply chain management
Table of contents
Learning outcomes 78
Management issues 78
Chapter at a glance 79
Learning outcomes
After completing this chapter the reader should be able to:
Identify the main elements of supply chain management and their relationship to the value
chain and value networks
Assess the potential of information systems to support supply chain management and the
value chain
Management issues
The issues for the manager:
Which technologies should we deploy for supply chain management and how should they
be prioritised?
Which elements of the supply chain should be managed within and beyond the organisation
and how can technology be used to facilitate this?
What are the practical issues with online supply chain management?
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Chapter at a glance
Main topics
What is supply chain management?
Focus on
The value chain
Case studies
6.2 Argos uses e-supply chain management to improve customer convenience
6.3 RFID: keeping track starts its move to a faster track
Suggested teaching and learning approaches
Supply chain management (SCM) is a significant topic within operations management courses
and modules, but students may have limited exposure to this topic. Given this, the approach here
1. Benefits and challenges of digital technology supported supply chain management.
Introduce through Box 6.1, Figure 6.1 and Table 6.1.
2. What is the supply chain?
Figure 6.2 can be used to illustrate the elements of a simple supply chain, with Figure 6.3 and
Figure 6.5 introducing more complexity, but not showing the role of second and third tier
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3. Restructuring the supply chain.
IT-enabled options for restructuring the supply chain are summarised in Figure 6.10.
4. The role of IS in revising SCM.
This can be illustrated in a meaningful way to students by presenting Figure 6.12. These show
the adoption of digital business applications. In a seminar, students could be asked to relate
Case studies
Case study 6.1 Shell Chemicals redefines its customers supply chains
Questions
1. The SIMON system supports both upstream and downstream business
relationships. Explain how this relates to Figure 6.5 and whether you would consider
it an e-commerce system or a digital business system.
The upstream relationships with suppliers equate to the buy-side e-commerce on the left side of
Figure 1.2 and the downstream relationships with customers are equivalent to the sell-side e-
commerce on the right side of Figure 1.2. The SIMON system can be best considered as two
2. Draw a table summarising the before and after implementation roles for Shell and
their customers (downstream side).
See table below
Before
A
fte
r
Customer manages danger stock levels Shell manages danger stock levels
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3. This description of SIMON is explained from the Shell perspective. Using your
answer to Question 2, state whether you think the customer truly benefits, or is Shell
transferring some of its workload to the customer?
4. Visit the Shell Chemicals website (www.shellchemicals.com). How are the benefits of
these facilities explained?
At the time of writing, only limited online sales support via email was available from the
Case study 6.2 Argos uses e-supply chain management to improve
customer convenience
Questions
1. Explain how Argos uses supply chain management to improve the proposition for its
customers.
The elements of the proposition mentioned include:
2. What do you think are the factors that have made Argos successful within its
multichannel retail strategy?
It has a planned approach with clear responsibilities for managing the multichannel proposition.
Case study 6.3 RFID: keeping track starts its move to a faster track
Question
Select a manufacturing sector and then evaluate the benefits and risks of applying RFID
in this sector.
Benefits may include:
Improved accuracy of inventory management enables lower inventory levels to be
managed.
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Better track can reduce fraudulent loss.
Questions for debate
Debate 6.1 New value chain models
The traditional value chain model of Michael Porter (Figure 6.8(a)) is no longer useful as a
framework for value chain management. Instead, Figure 6.8(b) is more appropriate.
Summary of arguments for:
Customer focused driven by market research
Debate 6.2 Virtual integration and outsourcing of core processes
The success of companies such as Dell in outsourcing core business processes and
virtual integration suggests that all companies need to adopt this model in order to be
competitive.
Summary of arguments for:
Success in marketplace Dell has outperformed rivals such as Lenovo, IBM and HP,
which originally had the largest market share
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Summary of arguments against:
Exercises
Self-assessment questions
1. Define supply chain management; how does it relate to:
logistics;
the value chain concept;
value networks?
Supply chain management (SCM)
The coordination of all supply activities of an organisation from its suppliers and partners to its
customers.
Logistics large overlap according to definition from Institute of Logistics and Transport: Logistics
2. What is the difference between a push orientation to the value chain and pull
orientation?
A change in supply chain thinking, and also in marketing communications thinking is the move
from push models of selling to pull models or combined pushpull approaches. The push model
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3. How can information systems support the supply chain?
Information systems are used to increase the efficiency of information flow by:
Delivering it more rapidly (e.g. reduced lead times in e-procurement).
4. What are the key strategic options in supply chain management?
How to restructure supply chain (vertical integration/disintegration/virtual integration).
Essay and discussion questions
1. How does electronic communications enable restructuring of the value chain
network?
Structure:
Review elements of old and new value chain models (Figure 6.8) for context
2. The concept of a linear value chain is no longer tenable with the advent of electronic
commerce. Discuss.
3. Select an industry of your choice and analyse how business-to-business exchanges
will change the supply chain.
Examples that could be chosen include:
Covisint in motor industry (Ford, DaimlerChrysler and GM). Here, former exchanges
created by Ford (AutoXchange) and GM (Tradexchange) have merged. Tait (2000) reports
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An answer to this question should:
Introduce the characteristic nature of procurement in this industry.
List neutral and company-backed exchanges currently available and contrast to use of buy-
4. In the end business all comes down to supply chain vs. supply chain. Discuss.
This question prompts discussion of the significance of SCM in the context of other aspects of
management, in particular corporate strategy and marketing. Marketers argue that the marketing
5. Select a retailer of your choice and analyse their strategy for management of the
upstream and downstream supply chain.
Concepts that should be included are as follows:
Push vs. supply models.
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Examination questions
1. Explain how the concepts of disintermediation, reintermediation and countermediation
apply to the supply chain.
Definition of each of these:
Disintermediation
Reintermediation
The creation of new intermediaries between customers and suppliers, providing services such as
supplier search and product evaluation.
Countermediation
Creation of a new intermediary by an established company.
Explain how they can occur in the upstream supply chain or downstream supply chain, for
example?
2. You have recently been appointed as supply chain manager for a pharmaceutical
company. Summarise the main Internet-based applications you would consider for
communicating with your suppliers.
Direct through EDI.
3. How has the increase in electronic communications contributed to the development
of value networks?
Definition of value network:
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4. What are the characteristics of a virtual organisation? Using examples, explain how
e-commerce can support the virtual organisation.
Definition:
An organisation which uses information and communications technology to allow it to operate
without clearly defined physical boundaries between different functions. It provides customised
5. Explain how information technologies can be employed for different elements of a
purchasersupplier relationship.
This is covered in Chapter 7, see Figure 7.3:
a. Originator request and selection (integration with catalogue systems).
b. Manager authorisation.
6. Using industry examples, summarise three benefits of using e-commerce to
streamline the supply chain.
Main benefits:
1. Increased efficiency of individual processes. Here the cycle time to complete a process and
the resources needed to execute it are reduced. If the B2B company adopts e-procurement,
this will result in a lower cycle time and cost per order as described in Chapter 7.
2. Reduced complexity of the supply chain. This is the process of disintermediation referred to
in Chapter 2. Here the B2B company will offer the facility to sell direct from its e-
commerce site rather than through distributors or retailers.
3. Improved data integration between elements of the supply chain. The B2B company can
share information with its suppliers on the demand for its products to optimise the supply
process.
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4. Reduced cost through outsourcing. The company can outsource or use virtual integration to
transfer assets and costs such as inventory holding costs to third party companies.
Technology is also an enabler in forming value networks, and in making it faster to change
suppliers on the basis of cost and quality.
7. How can electronic commerce be used to support restructuring of the supply chain?
Review options for restructuring, that is:
8. What are the differences and similarities of using information technology to support:
(a) the upstream supply chain;
(b) the downstream supply chain?
Activity answers
Activity 6.1 A supply chain for a typical B2B company
1. Referring to Chapter 2 and the section on disintermediation and reintermediation,
discuss the opportunities for a B2B company to restructure its supply chain as part of
the move to digital business, and the benefits this may bring.
Upstream supply chain:
Disintermediation offers the opportunity to buy direct from the supplier with reduced costs
and shorter cycle times.
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2. How can information systems be used to accomplish the changes you have identified in
Question 1?
Without any restructuring of the supply chain technologies, such as email, web-based ordering,
Activity 6.2 Supply chain models in personal computer manufacture
1. Review the approaches of the two companies illustrated below. Which tends to vertical
integration and which tends to virtual integration?
2. Produce a table summarising the benefits and disadvantages of each approach. Which
do you think is the better approach?
Advantages and disadvantages of vertical integration and virtual integration
A
pp
roach 1. IBM. Vertical inte
g
ration
App
roach 2. Dell. Virtual inte
g
ration
Advantages Disadvantages Advantages Disadvantages
Control of
manufacturing quality
Less pressure on
manufacturing
costs
Excellent control of
costs through
supplier competition
Less direct control on
quality (although can
swap to other suppliers)
3. How can information systems facilitate each approach?
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Activity 6.3 An e-SCM performance management framework
In a large group, each pair of students should take one of the categories of measures and
then discuss:
1. How information systems can help improve performance.
No suggested answer.
2. The constraints that may limit performance improvements.
No suggested answer.