Introduction to Supply Chain Management
CHAPTER 1
Introduction to Supply Chain
Management
1.1 WHAT IS SUPPLY CHAIN MANAGEMENT?
F ierce 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
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, manu-facturers, 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 facility that has an impact on cost and plays a role in
making the product conform to customer requirements: from supplier