SCM Part 1 Introduction to Supply Chain Mgmt AY 25-26 - LESSON 1.pdf

# Introduction to supply chain management This section provides a foundational understanding of supply chain management (SCM), its strategic importance, and the various levels of decision-making involved. ### 1.1 The definition and scope of a supply chain A supply chain encompasses all entities involved, directly or indirectly, in fulfilling a customer request. This includes manufacturers, suppliers, transporters, warehouses, retailers, and crucially, the end customers. Within an individual company, the supply chain comprises all functions contributing to fulfilling a customer request, such as product development, marketing, operations, distribution, finance, and customer service. Both customers and suppliers are considered integral parts of a company's supply chain [47](#page=47). A supply chain can also be described as interconnected or interlinked networks, channels, and node businesses that collaborate to provide products and services to end customers. It includes the movement of products from suppliers to manufacturers and then to distributors (wholesale, retail, e-commerce). Furthermore, it involves the bidirectional flow of information, funds/capital, and products. The term "supply network" may be a more accurate description given its complexity. Typical stages in a supply chain include customers, retailers, wholesalers/distributors, manufacturers, and component/raw material suppliers, though not all stages may be present in every supply chain [44](#page=44) [48](#page=48). > **Tip:** Think of a supply chain as the entire ecosystem from the origin of raw materials to the final delivery and satisfaction of the customer. A simple illustration of a supply chain involves entities like flour, yeast, salt, sugar, and butter suppliers, a manufacturer (bakery), and a grocery store as a retailer, ultimately serving the customer. The flows within a supply chain include goods flow, information flow, and money flow [17](#page=17) [19](#page=19). ### 1.2 Supply chain management (SCM) Supply chain management (SCM) is defined as the management of the flow of goods and services, involving the movement and storage of raw materials, work-in-process inventory, and finished goods from their point of origin to the point of consumption. SCM has been defined as 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, synchronizing supply with demand and measuring performance globally". SCM draws heavily from fields such as industrial engineering, systems engineering, operations management, logistics, procurement, information technology, and marketing, aiming for an integrated approach. Marketing channels also play a significant role in SCM. Current research in SCM addresses topics like sustainability and risk management, with some suggesting the "people dimension," ethical issues, internal integration, transparency/visibility, and human capital management being underrepresented areas [44](#page=44). Logistics, a component of SCM, focuses on the detailed organization and implementation of complex operations. In a business context, logistics is the management of the flow of items between the point of origin and point of consumption to meet customer or corporate requirements. The resources managed in logistics can include tangible items (food, materials, animals, equipment, liquids) and intangible items (time, information). Logistics management specifically involves planning, implementing, and controlling the efficient and effective forward and reverse flow and storage of goods, services, and related information between the origin and consumption points to meet customer needs [45](#page=45). > **Tip:** While logistics focuses on the efficient movement and storage of goods, SCM takes a broader, more integrated view of the entire network and its strategic alignment. ### 1.3 The supply chain as part of a competitive business strategy A company's supply chain strategy is intrinsically linked to its overall competitive business strategy. The competitive strategy defines the customer needs a firm aims to satisfy and how it will generate profit. Other functional strategies, such as product development, marketing, and sales, must align with and support the supply chain strategy to collectively achieve the company's overarching business objectives [20](#page=20). > **Tip:** A well-defined business strategy provides the "WHAT" and "HOW" for the company, and the supply chain strategy must be a direct enabler of this. There is no single, universally correct supply chain strategy; rather, it must be tailored to the specific business strategy. For a given competitive business strategy, multiple supply chain strategies may exist, necessitating optimization efforts [23](#page=23). ### 1.4 Value strategies and their impact Companies compete by satisfying customer needs and achieving profitability. The objective of every supply chain is to maximize the perceived value for the customer and the short- and long-term value for the company (turnover minus costs equals profit). This optimization is required at strategic, tactical, and operational levels, often involving the resolution of conflicting interests between different departments or stakeholders (e.g., Sales vs. Production, Customer vs. Company). Key performance indicators (KPIs) like Return on Investment (ROI) are crucial for tracking progress [20](#page=20) [24](#page=24) [25](#page=25). Porters' Generic Business Strategies identify targets (broad/narrow) and advantages (cost/product orientation). Treacy and Wiersema's Value Strategies categorize approaches into three main pillars [26](#page=26): * **Product Leadership:** Focuses on technological innovation, superior brand image, and fast time-to-market [27](#page=27). * **Customer Intimacy:** Emphasizes strong customer satisfaction, optimal customer service, and customer integration systems [27](#page=27). * **Operational Excellence:** Aims for high reliability, a limited range of product variations, and low total cost of ownership [27](#page=27). The structural setup of a supply chain must align with the chosen value strategy [27](#page=27). > **Example:** A company pursuing operational excellence might design its supply chain for efficiency and low cost, while a product leadership-focused company might prioritize speed and innovation, even at a higher cost. ### 1.5 Trade-offs in the supply chain Strategic decisions involve necessary trade-offs, requiring careful consideration to make the "right" choices. These classic trade-offs often revolve around balancing "better – faster - cheaper" [29](#page=29). **Efficient vs. Responsive Supply Chains:** | Feature | Efficient Supply Chains | Responsive Supply Chains | | :----------------- | :-------------------------------------------------------- | :---------------------------------------------------------- | | Primary goal | Supply demand at the lowest cost | Respond quickly to demand | | Product design | Maximize performance at minimum product cost | Create modularity for postponement of differentiation | | Pricing strategy | Lower margins (price is a prime customer driver) | Higher margins (price is not a prime customer driver) | | Manufacturing | Lower costs through high utilization | Maintain capacity flexibility to buffer uncertainty | | Inventory strategy | Minimize inventory to lower cost | Maintain buffer inventory for demand/supply uncertainty | | Lead-time strategy | Reduce, but not at the expense of costs | Reduce aggressively, even if costs are significant | | Supplier strategy | Select based on cost and quality | Select based on speed, flexibility, reliability, and quality | These strategies often align with Porter's (Cost Leadership, Product Leadership) and Treacy & Wiersema's (Operational Excellence, Product Leadership, Customer Intimacy) value strategies [30](#page=30). ### 1.6 Achieving strategic fit in the value chain Achieving strategic fit within the value chain requires several critical alignments [32](#page=32): 1. **Functional Strategy Alignment:** The competitive strategy and all functional strategies must interlock to form a coordinated overall strategy, with each functional strategy supporting others and contributing to the competitive goal [32](#page=32). 2. **Process and Resource Alignment:** The different functions within a company must structure their processes and resources appropriately to execute these strategies successfully [32](#page=32). 3. **Supply Chain Design Alignment:** The design of the overall supply chain and the role of each stage must align with the supply chain strategy [32](#page=32). > **Tip:** Consciously choose the company's value strategy and deeply understand the customer to achieve this alignment. Factors essential for achieving strategic fit include: the quantity of product needed per lot, customer response time tolerance, product variety, required service level, product price, and desired rate of product innovation [33](#page=33). ### 1.7 Levels of decision-making in SCM SCM involves decision-making at three interdependent levels: * **Strategic Level:** Focuses on "doing the right things". This is the domain of thinkers and leadership, involving policy setting, providing direction, and determining what the right course of action is. Strategic decisions include defining markets, segments, value propositions, channels, and infrastructure (e.g., push/pull systems, manufacturing/warehousing). This level typically involves yearly strategic exercises and budgeting, with the leadership (CEO) as the owner, coordinated by the CEO, Finance, and SCM (#page=34, 37). The outcome is a strategic plan for 3-5 years and a yearly budgeting plan [34](#page=34) [35](#page=35) [36](#page=36) [37](#page=37). * **Tactical Level:** Focuses on "doing things right". This is the domain of controllers, managing how things should be done. Tactical decisions involve setting inventory levels, production batch sizes, defining frozen periods, establishing supplier agreements, and planning operational improvement projects. SCM typically owns this level, and it is executed through monthly cycles like the Demand & Supply cycle (forecasting and planning). This level often involves a monthly rolling forecast, typically for a three-month rolling period. Tactical SCM is a critical lever for the business, integrating customer segmentation, demand management, purchasing, manufacturing, logistics, and distribution, all measured by Key Performance Indicators (KPIs) [34](#page=34) [35](#page=35) [36](#page=36) [38](#page=38). * **Operational Level:** Focuses on "doing" or execution. This is the domain of doers, determining who does what, when, and what resources are required. Operational decisions include daily manufacturing planning, order dispatching, order management, delivery planning and execution, and managing operational staff (hiring, overtime). This level is owned by operational functions like Logistics and Sales, with follow-up and adjustments managed by SCM [34](#page=34) [35](#page=35) [36](#page=36). > **Example:** A strategic decision might be to expand into a new market; a tactical decision could be to increase inventory of a product expected to be in high demand in that market; and an operational decision would be scheduling the specific production runs and shipments to fulfill individual customer orders in that market. ### 1.8 The importance and impact of SCM Companies increasingly compete through their supply chains, which are the answer to globalization, digitalization, demanding customers, and fierce competition (#page=39, 40). Effective SCM leads to improvements in planning speed, reaction to unplanned events, integration across the value chain, system visibility, partnerships with customers and suppliers, cost reduction, enabling growth, and improved market responsiveness [39](#page=39) [40](#page=40). The financial potential of supply chain optimization is significant, with "best in class" companies often achieving substantially higher percentages of revenue spent on supply-chain activities compared to the average. Differentiation from competition can be achieved through speed, extra service, and cost efficiency [41](#page=41). > **Tip:** Companies that excel in SCM gain a significant competitive advantage by delivering value more effectively and efficiently than their rivals. Dell's supply chain model, for instance, highlights a shift towards more client-specific assembly and a different factory and inventory strategy compared to traditional PC supply chains, demonstrating strategic choices in SCM (#page=42, 43) [42](#page=42) [43](#page=43). --- # Course structure and evaluation This section outlines the course's objectives, its modular structure, the expected student commitment, and the detailed evaluation methods for the 2025-2026 academic year. ### 2.1 Course objectives and build-up The primary objectives of this course are to: * Impart fundamental knowledge of Supply Chain Management (SCM) [3](#page=3). * Provide an in-depth understanding of the commercial aspects of the supply chain, including its processes, trends, and technologies [3](#page=3). * Enhance students' comprehension of the connection between SCM and general company management [3](#page=3). * Clarify the impact and role of the marketing department on the Supply Chain [3](#page=3). The course is structured into three main parts: * **Part 1:** Introduction to Supply Chain Management [3](#page=3). * **Part 2:** Forecasting [3](#page=3). * **Part 3:** Distribution channels [3](#page=3). ### 2.2 ECTS file content The ECTS file content is detailed as follows [4](#page=4): * **Supply chain management:** 1. A dive into supply chain management [4](#page=4). 2. Trends within supply chain management [4](#page=4). 3. Growing broader within supply chain management [4](#page=4). 4. Conclusion [4](#page=4). * **Forecasting:** 1. Objectives of forecasting [4](#page=4). 2. Requirements for good forecasting [4](#page=4). 3. Forecasting models [4](#page=4). * **Distribution channels:** 1. Role of distribution channels [4](#page=4). 2. Different types of distribution channels [4](#page=4). 3. Decisions regarding management of distribution channels [4](#page=4). ### 2.3 Student commitment and expectations Active engagement is strongly recommended and expected throughout the course [5](#page=5). * **Lectures:** * Attendance and active participation are highly recommended [5](#page=5). * Students should have their course materials readily available [5](#page=5). * Lectures will cover course components with practical cases and assignments [5](#page=5). * Students are expected to actively participate, present requested results, and complete necessary preparatory work [5](#page=5). * **Guided work sessions (e.g., Business Game):** * Attendance is mandatory [5](#page=5). * Students must bring their course materials to class [5](#page=5). * Assignments will be completed and discussed during these sessions [5](#page=5). * Active participation, presentation of results, and completion of preparatory work are required [5](#page=5). * Students who do not prepare will be denied access to guided work sessions [5](#page=5). ### 2.4 Learning materials The primary learning materials for the course include: * **Base:** Toledo (course documents) [8](#page=8). * **Illustrative:** Press articles [8](#page=8). * **Personal:** Own notes from class sessions and self-study [8](#page=8). * **Business Game Access:** Individual access code for the SCM Business Game ‘The Fresh Connection’ (a payment invitation email will be sent) [8](#page=8). A non-mandatory reference textbook is also available: “Supply Chain Management - Strategy, Planning and Operation” by S. Chopra & P. Meindl, Global edition, 2019, Pearson, ISBN: 978-1-292-25790-7 [8](#page=8). ### 2.5 Evaluation methods (2025-2026 PE1) The evaluation for the academic year 2025-2026 consists of three components, totaling 100% of the final grade [6](#page=6). | Component | Description | Individual/Group | Evaluator | Timing Briefing | Timing Test/Deadline | Evaluation Criteria | Points (Total 80) | % (100%) | | :------------------- | :-------------------------------------------- | :--------------- | :------------ | :-------------- | :------------------- | :------------------ | :---------------- | :------- | | **PE1: Knowledge test** | Exam via ANS | Individual | Lecturer | Week 1 | Week 7 | All topics in course| 12 | 15% | | **PE2: Assignment** | Business Game "TFC" Report/Presentation | Group | Board group | Week 1 & 8 | Week 10 | Knowledge course & cases | 12 | 15% | | **Written Exam** | (OPEN BOOK) Presentation to Board | Individual | Lecturer | Week 11 | Examination period | All topics (week 1-12) | 56 | 70% | #### 2.5.1 Information on Permanent Evaluation (PE) tasks * **Late Submittal:** Late submission of assignments will result in a zero mark unless it is due to certified absence [7](#page=7). * **Late Enrollees:** Students who enroll later must complete any missed assignments. They are responsible for informing the lecturer within the week of their enrollment at the latest [7](#page=7). * **Group Assignments:** Each group member is accountable for the content and their contribution to the assignment. This contribution is monitored and can affect individual grades for the PE [7](#page=7). #### 2.5.2 PE2 Business Game Payment * **Payment Invitation:** An individual payment invitation email for the PE2 Business Game will be sent to your UCLL inbox [9](#page=9). * **Sender:** Financial office MenT Leuven [9](#page=9). * **Subject:** Betaling/Payment: Access code for SCM Business Game “The Fresh Connection” [9](#page=9). * **Amount:** 35 euros [9](#page=9). * **Deadline:** Payment must be completed no later than Monday, October 20, 2025 [9](#page=9). * **Consequences of Non-Payment or Late Payment:** * Only those who pay on time will be allowed to participate in the PE2 Business Game [9](#page=9). * If payment is not received or is too late, the student will irrevocably not participate in the PE2 Business Game [9](#page=9). * The student will automatically score zero for PE2, with no opportunity for catch-up or replacement tasks [9](#page=9). * Students who pay too late will be refunded the amount [9](#page=9). > **Tip:** Ensure you monitor your UCLL inbox for the payment invitation email and pay the 35 euros by the specified deadline to secure your participation in the PE2 Business Game. Late payments have severe consequences, including a zero score for PE2. --- # Examples and news in supply chain management This section delves into real-world applications and recent developments in supply chain management, demonstrating its practical significance and evolving trends [10](#page=10) [11](#page=11) [12](#page=12). ### 3.1 The impact of COVID-19 on vaccine supply chains The COVID-19 pandemic underscored the critical importance of robust supply chain management, particularly in the context of vaccine distribution. Ensuring the timely and efficient delivery of vaccines globally presented immense logistical challenges that highlighted the need for resilient and adaptive supply chains [11](#page=11). ### 3.2 IKEA's supply chain initiatives IKEA has been actively implementing innovative supply chain strategies. One notable initiative is their furniture resale and buyback program, which aims to promote sustainability and a circular economy by giving products a second life [12](#page=12). > **Example:** IKEA's buyback program encourages customers to return used IKEA furniture, which can then be resold or recycled, thereby reducing waste and extending the lifecycle of their products [12](#page=12). In response to global logistics crises, IKEA has also taken proactive steps by purchasing its own shipping containers. This strategic move allows them to gain greater control over their transportation and mitigate the disruptions caused by container shortages and shipping delays [12](#page=12). > **Tip:** Companies like IKEA demonstrate how proactive measures, such as investing in critical logistics assets like shipping containers, can be crucial for maintaining supply chain stability during periods of high volatility [12](#page=12). --- ## Common mistakes to avoid - Review all topics thoroughly before exams - Pay attention to formulas and key definitions - Practice with examples provided in each section - Don't memorize without understanding the underlying concepts

| Term | Definition | |------|------------| | Supply Chain Management (SCM) | SCM is the management of the flow of goods and services, encompassing the movement and storage of raw materials, work-in-process inventory, and finished goods from origin to consumption. It involves interconnected networks and businesses that fulfill end-customer requirements, aiming to create net value and build a competitive infrastructure. | | Supply Chain | A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. This includes manufacturers, suppliers, transporters, warehouses, retailers, customers, and all internal functions like product development, marketing, operations, distribution, finance, and customer service. | | Logistics | Logistics is the detailed organization and implementation of complex operations, specifically managing the flow of things between the point of origin and point of consumption to meet customer or corporate requirements. It integrates information flow, materials handling, production, packaging, inventory, transportation, warehousing, and security. | | Competitive Strategy | Competitive strategy defines the set of customer needs a firm aims to satisfy through its products and services to generate profit. It guides decisions on product development, market segmentation, pricing, promotion, and crucially, the supply chain strategy for material procurement, transportation, manufacturing, and distribution. | | Strategic Fit | Achieving strategic fit means ensuring that the competitive strategy and all functional strategies within a company are aligned and coordinated. It also involves structuring processes and resources effectively to execute these strategies and aligning the overall supply chain design with the supply chain strategy. | | Business Strategy | Business strategy defines what the company aims to achieve and how it intends to do so. It encompasses structural choices like those identified by Porter (cost leadership, differentiation) and Treacy & Wiersema (product leadership, customer intimacy, operational excellence), guiding the entire organization's direction. | | Value Chain | The value chain is an integrated approach involving all internal and external partners focused on creating value. It encompasses all stages and functions within a company that contribute to delivering a product or service to the customer, from raw materials to final consumption. | | Strategic Level | Decisions made at the strategic level involve thinking about the right things to do. This includes setting policies, providing leadership, and defining the overall direction for the company, typically through yearly strategic exercises and budgeting. | | Tactical Level | Decisions at the tactical level focus on doing things right and managing processes. This involves planning and execution at a medium-term horizon, such as monthly demand and supply cycles, and is often managed by SCM functions. | | Operational Level | Operational decisions are about doing things, focusing on execution. This involves the daily planning and control of tasks, determining who does what, when, and what resources are required for immediate actions. | | KPI (Key Performance Indicator) | KPIs are measurable values that demonstrate how effectively a company is achieving key business objectives. In Supply Chain Management, they are crucial for monitoring and evaluating performance at different levels, such as ROI. | | Trade-offs | Trade-offs are considerations necessary to make optimal decisions by balancing competing factors. In Supply Chain Management, classic trade-offs include balancing cost, quality, and time to achieve objectives like "better, faster, cheaper." | | Efficient Supply Chains | Efficient supply chains prioritize supplying demand at the lowest possible cost. They focus on high utilization in manufacturing, minimizing inventory, and reducing lead times without significant cost increases, often characterized by lower margins. | | Responsive Supply Chains | Responsive supply chains aim to react quickly to demand changes. They prioritize flexibility in manufacturing, maintain buffer inventory, aggressively reduce lead times even at higher costs, and focus on speed and reliability from suppliers, often commanding higher margins. |