Evolution of Supply Management and Supply Chain Management

Evolution of  Supply Chain Management

Supply Chain Strategies and Initiatives of Top Global Companies

The evolution and future of logistics and supply chain management

Ronald H. Ballou
Case Western Reserve University
Prod. vol.16 no.3 São Paulo Sept./Dec. 2006

Nissan Creates New Supply Chain Management Division


Tokyo – Nissan Motor Co., Ltd. today announced establishment of a new Supply Chain Management (SCM) Division, effective December 1, 2001.   The new division was created to shorten lead-time from order taking to delivery, lowering inventory level and reducing costs throughout the supply chain.  The SCM Division will be part of the Manufacturing function and headed by Tadao Takahashi, senior vice president. The move is part of Nissan’s drive to reduce costs while enhancing customer satisfaction,  a company-wide goal.

By integrating SCM operations that used to be undertaken separately by several divisions into a single division, logistics of parts and vehicles and information flow from customers will be controlled more efficiently.  The new organization consists of four departments: SCM Planning Department, Vehicle and Parts Logistics Department, Overseas KD (re-assembly) Production Department, and Service Parts Logistics Department.  The first is a newly created department and the other three transferred from the Manufacturing & Industrial Engineering Division.

As part of this new organization, the group to support Douki-Seisan (simultaneous production) for suppliers has been moved from the Purchasing function and integrated into the SCM Division in the Manufacturing. This move will enable the company to better manage the supply chain.

Making Supply Chain Management Work: Design, Implementation, Partnerships, Technology, and Profits
1st Edition
James B. Ayers
Auerbach Publications
Published December 13, 2001
Reference – 752 Pages – 102 B/W Illustrations

New world of supply chain management.

Ever since retailers equipped their cash registers with bar code scanners, we’ve been promised a brave new world of supply chain management. Stores would automatically track the flow of goods and electronically transmit precise replenishment orders. Suppliers would synchronize their production schedules to real-time demand data.
The Achilles’ heel of supply chain management By: Raman, A, DeHoratius, N, Ton, Z, HARVARD BUSINESS REVIEW, HBR, 2000, , Vol. 79, Issue 5

Introduction to Supply Chain Management
Robert B. Handfield, Michigan State University
Ernest L. Nichols, Jr., University of Memphis
©1999  Pearson

Lambert et al., 1998 – Eight key sub-processes for supply chain management.

Based on collaboration with industry leaders, Lambert et al. (Lambert et al., 1998) defined eight key sub-processes for supply chain management. These are (1) customer relationship management, (2) customer service management, (3) demand management, (4) order fulfillment, (5) manufacturing flow management, (6) supplier relationship management, (7) product development and commercialization, and (8) returns management. Taken together, they represent supply chain management in its entirety. These processes are to be coordinated through collaboration and relationship management throughout the various echelons of the supply channel, from initial suppliers to end consumers.

Lambert, Douglas M.; Martha C. Cooper, and Janus D. Pagh (1998), “Supply Chain Management: Implementation and Research Opportunities,” The International Journal of Logistics Management, v. 9, n. 2, p. 1-19.


Europe, 1994
When suppliers and retailers collaborate to share information, the results can be positive if the overall implementation of a project is successful. However, if the process produces negative results, it can cause issues in the sector as a whole.

This report presents the findings of industry research commissioned by the Europe Council to analyze the issue of supplier-retailer collaboration in supply chain management in Europe. Read more in the report to find out how to leverage this industry research. Report can be downloaded from the link given below.

Beyond Logistics: Supply Chain Management

By alfred j. battaglia – November 1, 1994

Complex SCM process works best when it is coordinated by a senior-level executive who reports directly to the CEO or to the senior operating officer.  This SCM  executive must have a broad range of expertise, enabling him or her to interact with the sales, marketing, and information technology functions. The new executive’s work with IT personnel may be particularly important, because most companies don’t yet have systems and platforms in place to support supply chain integration.

Evolution of Supply Management

World-class Supply Management.

McKinsey Quarterly
Buying your way to the top
August 1993

Mark Keough

Too long the “forgotten” function, purchasing can—with the right strategic approach—powerfully enhance a company’s economic performance. |

“World-class supply management.” Leading companies in the automotive and electronics industries have come to realize that competitive advantage is shifting from world-class manufacturing (10 to 20 percent of cost) to world-class suppliers (60 to 70 percent of cost). Once a company’s manufacturing operation attains a world-class standard, the task is to help suppliers get there as well, and thus dramatically improve the cost base. Purchasing at this stage is characterized by strategic supplier selection, long-term relationship design, supplier network management, supplier collaboration on new technologies, selective equity investment, and cross-functional supplier development teams.

Purchasing managers should increasingly be viewed as the architects of an organization’s supplier network, responsible for the selection, development, measurement, and, ultimately, competitiveness of the supplier base. Indeed, these days a high-powered purchasing manager has more influence on the value-added across a company’s supply chain than does the head of manufacturing.

Effective Supply Chain Management

Tom Davis, MIT Sloan Management Review: Summer 1993

The article explain work at Hewlett Packard in the area of SCM.

Supply Chain – Analytical Model
From an analytical point of view, a supply chain is simply a network of material processing cells with the following characteristics: supply, transformation, and demand (see Figure 1). This model applies at many levels. One can view a factory in this way just as easily as one can view an individual process step within that factory. In both cases, the central manufacturing process —whether it’s called “automobile assembly” or “spot-welding station 109a” — requires raw materials from some supplier external to the process. Those materials are then transformed in some manner that adds value, creating a stock of finished goods (though a JIT process might have an empty stockpile). Finally, there is demand from external customers for the goods produced. An important aspect of our approach is that we model material handling and distribution functions in the same way as more traditional “manufacturing” processes.

The reason we keep inventory is insurance — protection against life in an uncertain world. To meet our objectives for customer service, we keep a little extra material around (in what we call “safety stocks”) so that service won’t be adversely affected when something in the upstream process goes wrong.

Managing Supply Chain Inventory: Pitfalls and Opportunities

(Very good paper)
Magazine: Spring 1992  Research Highlight
Hau L. Lee and Corey Billington

Hau L. Lee is professor, Department of Industrial Engineering and Engineering Management, Stanford University. Corey Billington is manager, Strategic Planning and Modeling HP Product Processes, Hewlett-Packard Company.

Managing a supply chain is very different from managing one site. The inventory stockpiles at the various sites, including both incoming materials and finished products, have complex interrelationships. Efficient and effective management of inventory throughout the supply chain significantly improves the ultimate service provided to the customer. In the  paper,  many pitfalls of managing supply chain inventories were identified and  opportunities for improving management and control were suggested.  The discussion was based on the  knowledge and experience of supply chain management at electronics, computer, and automobile companies of the authors.

Papers cited

M.A. Cohen and H.L. Lee, “Strategic Analysis of Integrated Production-Distribution Systems: Models and Methods,” Operations Research 36 (1988): 216–228; and

M.A. Cohen and H.L. Lee, “Resource Deployment Analysis of Global Manufacturing and Distribution Network,” Journal of Manufacturing and Operations Management 2 (1989): 81–104.

A. Federgruen, “Methodologies for the Evaluation and Control of Large Scale Production/Distribution Systems under Uncertainty,” in Logistics: Where Ends Have to Meet, ed. C.F.H. van Rijn (Elmsford, New York: Pergamon Press, 1989), pp. 143–157.

Houlihan, JB., 1987. “International Supply Chain Management”, International Journal of Physical Distribution and Materials Management, vol. 17, no. 2, 51-66.

Purchasing Must Become Supply Management

Peter Kraljic

In many companies, purchasing function is wedded to routine. They are ignoring or accepting countless economic and political disruptions to their supply of materials. Managements can recognize the extent of supply weakness and treat it with a comprehensive strategy to manage supply

Threats of resource depletion and raw materials scarcity, political turbulence and government intervention in supply markets, intensified competition, and accelerating technological change have created many surprises. Supply and demand patterns can be upset virtually overnight.

Some companies have innovated.

As t purchasing outlays had increased in less than one year from 40% to 70% of the cost of goods sold, one European office-equipment manufacturer started purchasing more from on American and Japanese suppliers, revised its materials planning system to reduce in-process inventories, added  people with foreign language and digital skills in  their purchasing staff.

Through long-term shipping charters and run to 1988 with suppliers in countries as distant as Brazil, the Japanese steel industry has secured an 18% cost advantage over its chief U.S. and European competitors.

Hoechsthas established ties to Kuwait and DuPont recently acquired Conoco as part of their new acquisition strategies. Other chemical companies like Dow Chemical in the United States and BASF in Europe have used such a strategy to good advantage.

Cabot Corporation set up a mineral resources division that developed an overall corporate supply strategy and explored new options, ranging from the purchase of ore in the ground to the start-up of joint ventures for primary metal processing. It  also acquired a London-based trading company to get access to the London metals market.

U.S. auto manufacturers  are  by 1990  will source 35% to 40% of its parts and components from abroad compared to only 5% some time back.

A total change of perspective: from purchasing (an operating function) to supply management (a strategic one) is possible now. Whenever a manufacturer must procure a volume of critical items competitively under complex conditions, supply management is relevant. The greater the uncertainty of supplier relationships, technological developments, and/or physical availability of those items, the more important supply management becomes.

4 Stages in Transition

1. Purchasing Management
2. Materials Management
3. Sourcing Management
4. Supply Management

Shaping the Supply Strategy

To minimize their supply vulnerabilities and make the most of their potential buying power, a number of European companies have successfully used a four-stage approach to devise strategies.

Following this approach, the company first classifies all its purchased materials or components in terms of profit impact and supply risk. Next it analyzes the supply market for these materials. Then it determines its overall strategic supply position. Finally, it develops materials strategies and action plans.

Systems Support
Too often the purchasing department receives information on the company’s business plans and objectives that is incomplete or improperly geared to the tasks and time horizons of strategic supply management. Purchasing executives are usually informed of major expansion and investment projects as well as month-to-month production requirements but often lack adequate operating information with a three- to six-month time horizon, which would provide early warning of short- to medium-term demand fluctuations. The purchasing department needs these data for negotiating prices, rescheduling supply quantities, and balancing raw material inventories in response to cyclical demand swings.

Such support might include:

Improvement of operational flexibility through a rolling demand forecast system with a three- to six-month time horizon, coupled with systematic evaluation of supply market data.
Improved efficiency, shortened through put time, and reduction in costs and manual paperwork through EDP-supported purchasing planning, information, and disposition systems.

Integration of purchasing systems with other corporate systems, such as liquidity planning, and/or with the corresponding planning and disposition systems of key suppliers.

Introduction of proven purchasing analysis approaches, such as commodity analysis or value analysis, to help develop action plans for nonstrategic purchased items with limited supply complexity and risk but up to 15% savings potential.

The company  must foster consistent, cross-functional information flows and demands and induce line managers to supply the required data for the purchasing information system. (One way to reduce their instinctive resistance is to show them that most of the “new” data already exist and need only be recast in an appropriate format.) Finally, management must make certain that any major new systems are user-friendly.

Progress toward effective supply management can only be gradual, and the company will have to surmount many obstacles to implementation along the way.  but enhanced strategic awareness, greater flexibility, and stronger entrepreneurial thinking in the supply area can improve the supply security and lower the input costs of any industrial company.

Mr. Kraljic is a director in the Düsseldorf office of McKinsey & Company, Inc., the international consulting firm.

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SCM Survey

Updated on 3 June 2019,  21 May 2019