SUPPLY AND VALUE CHAINS AND DECISION SUPPORT

8.10 SUPPLY AND VALUE CHAINS AND DECISION SUPPORT

E n t e r p r i s e s y s t e m s r e l a t e d t o t h e s u p p l y c h a i n a n d its m a n a g e m e n t c o n s t i t u t e a s p e c i a l class. I n t h i s s e c t i o n w e p r e s e n t s o m e b a s i c i n f o r m a t i o n o n s u p p l y c h a i n s a n d t h e i r management.

DEFINITIONS AND BENEFITS T h e c o n c e p t o f a s u p p l y c h a i n o r i g i n a l l y r e f e r r e d t o t h e f l o w o f m a t e r i a l s f r o m its

sources (suppliers) toa company and then inside the company to areas where it was needed. Concomitantly there was recognition ofa demand chain that described order

4 3 6 P A R T 111 ' COLLABORATION, COMMUNICATION, ENTERPRISE DECISION SUPPORT SYSTEMS, AND KNOWLEDGE MANAGEMENT

DEFINITIONS A supply chain refers to the flow of materials, information, and services from raw material suppliers through factories and warehouses to the end customers.A supply c h a i n a l s o i n c l u d e s t h e organizations a n d processes that c r e a t e a n d d e l i v e r p r o d u c t s , i n f o r m a t i o n , a n d s e r v i c e s t o t h e e n d - c u s t o m e r s . I t i n v o l v e s m a n y activities, s u c h a s pur-

chasing, m a t e r i a l s h a n d l i n g , p r o d u c t i o n p l a n n i n g a n d c o n t r o l , l o g i s t i c s a n d w a r e h o u s - i n g i n v e n t o r y c o n t r o l , a n d d i s t r i b u t i o n a n d delivery. The function of supply chain management (SCM) is to deliver an effective supply c h a i n a n d d o i t i n a n e f f e c t i v e m a n n e r , n a m e l y , t o plan, o r g a n i z e , a n d c o o r d i n a t e t h e s u p p l y c h a i n ' s activities. G o o d s u p p l y c h a i n m a n a g e m e n t p r a c t i c e s g e n e r a l l y l e a d t o i n c r e a s e d r e v e n u e , a s w e d e s c r i b e i n D S S i n A c t i o n 8.15. For a n o v e r v i e w o f S C M , s e e Hugos (2003), Sheikh (2003), and Handfield and Nichols (1999).

BENEFITS T h e g o a l s o f m o d e r n S C M are t o r e d u c e u n c e r t a i n t y a n d risks i n t h e s u p p l y c h a i n ,

t h e r e b y p o s i t i v e l y a f f e c t i n g i n v e n t o r y levels, c y c l e t i m e , p r o c e s s e s , a n d c u s t o m e r ser- vice. A l l t h e s e c o n t r i b u t e t o i n c r e a s e d p r o f i t a b i l i t y a n d c o m p e t i t i v e n e s s .

The benefits of supply chain management were recognized long ago not only in b u s i n e s s b u t a l s o i n t h e military. I n t o d a y ' s c o m p e t i t i v e e n v i r o n m e n t , e f f i c i e n t a n d e f f e c t i v e s u p p l y c h a i n s a r e critical f o r t h e s u r v i v a l o f m o s t o r g a n i z a t i o n s a n d a r e

greatly dependent on the supporting information systems.

THE COMPONENTS OF THE SUPPLY CHAIN T h e t e r m supply chain c o m e s f r o m a p i c t u r e of h o w p a r t n e r i n g o r g a n i z a t i o n s in a s p e -

c i f i c s u p p l y c h a i n are l i n k e d t o g e t h e r . A s s h o w n i n F i g u r e 8.2, a s i m p l e s u p p l y c h a i n links a c o m p a n y that m a n u f a c t u r e s or a s s e m b l e s a p r o d u c t (in t h e m i d d l e of t h e c h a i n ) w i t h its s u p p l i e r s ( o n t h e l e f t ) a n d its d i s t r i b u t o r s a n d c u s t o m e r s ( o n t h e right). T h e u p p e r part o f t h e p i c t u r e s h o w s a g e n e r i c s u p p l y c h a i n , w h i l e t h e b o t t o m part s h o w s t h e specific example of making wine.

N o t e that t h e s u p p l y c h a i n h a s t h r e e parts: 1 . U p s t r e a m . T h i s part i n c l u d e s t h e s u p p l i e r s ( t h e y c a n b e m a n u f a c t u r e r s a n d / o r

assemblers) and their suppliers. Such relationships can be extended to the left in s e v e r a l tiers, all t h e w a y t o t h e o r i g i n o f t h e m a t e r i a l (e.g., m i n i n g o r e s o r g r o w - ing crops).

2 . I n t e r n a l s u p p l y chain. T h i s part i n c l u d e s all t h e p r o c e s s e s u s e d i n t r a n s f o r m i n g t h e inputs from suppliers to outputs, from the time materials enter an organization to the time the product(s) goes to distribution outside the organization.

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