Welcome

Greetings, and welcome to a fresh new look at Supply Chain Management!

This text has been designed with both students and professors in mind, focusing on readability, classroom engagement, and real-world connections.

Each chapter includes engaging text, lecture notes, recommended classroom activities, discussion topics, quizzes, and practice exercises. If you have ideas on ways to improve what’s being presented here, please reach out to any of the authors so we can incorporate changes into the next version of the text.

To accomplish the above learning objectives, we need to answer two main questions:

– What is a Supply Chain?

– Why should you care?

As we go through the process of answering the first question – what a supply chain is – the second question may seem obvious.

Let’s get started!

What is a Supply Chain?

Hint: Supply Chain is a Peanut Butter and Honey Sandwich.

Tribute to the Greatest Sandwich Ever Made

On Thursday, July 17^th, 2003 in Cedar City, Utah, a young married couple assembled the best sandwich ever made in human existence. The sandwich? Butter, peanut butter, and honey (PB&H) on white bread – butter being the key ingredient.

There are no pictures of the ultimate sandwich, as it was consumed prior to being photographed. Below you will find a picture of a tribute sandwich, assembled for a photo shoot and promptly eaten before the bread could dry out.

[SIPOC]

The main ingredients SUPPLIER was the Walmart Supercenter six minutes south of the apartment where the sandwich was made. Someone had to drive a vehicle to the store, find and purchase the right ingredients, return to the apartment, and store the ingredients until they were needed.

[SIPOC]

The INPUTS to the sandwich included the ingredients, tools, and labor required to construct it:

• JIF Creamy Peanut Butter (a little more than 1 tablespoon)
• Great Value Sweet Cream Butter (room temperature, a little less than 1 tablespoon)
• Clover Honey (1 tablespoon)
• Grandma Sycamore’s White Bread (2 slices)
• Butter Knife (hand-me-down silverware acquired via Sears Catalogue in the 1980s)
• Zip-Lock Sandwich Bag
• 2-5 minutes of labor per sandwich

[SIPOC]

The PROCESS of making the sandwich is not too difficult:

• Start with two slices of bread, coating one side of each slice with *sufficient* butter
• Spread an inappropriate amount of creamy peanut butter on one buttered slice
• Distribute and spread an ideal glob of honey on the other buttered slice
• Merge the pieces together, literally sandwiching the ingredients between the bread in a manner that wastes none of the honey (think of how many bees contributed to your sandwich!).
• Package the sandwich in a zip-lock bag and prepare for transport to the job site.

[SIPOC]

At the end of the process, an OUTPUT was generated: the sandwich, ready to ship.

We can describe the output in a number of ways:

• the cost of materials and labor (about $0.65)
• the sandwich weight (about 3.5 ounces)
• the sandwich size dimensions (1.25”x 4.5” x 6”)
• the caloric content per sandwich (400 calories)
• the flavor and texture (best sandwich ever made)
• the price paid by the customer ($0.00)

It might be interesting to know that there were two sandwiches made that day, nearly identical, both packaged in individual zip-lock bags and then placed in a brown paper bag. One of the sandwich makers took this bag of PB&H sandwiches to work, with the intent to eat both of them for lunch. The bag sat in the hot car from 7am until 11am, until the road construction crew took a break for lunch.

[SIPOC]

The CUSTOMER was intended to be one of the sandwich makers (from a business standpoint, the sandwich maker could be considered an in internal customer). However, in the middle of July where a residential road was being constructed by a crew of overworked men and women in orange vests and white hard hats, one of the crewmen forgot to bring a lunch. The hungry, handlebar-mustached crewmate of the sandwich maker gratefully accepted one of the car-warmed sandwiches for lunch (the crewmate was an external customer).

How do we know it was the best sandwich ever made? After consuming the sandwich, the crewmate exclaimed “that was the best sandwich ever made!” The following day, the crewmate became the supplier, making his own version of the PB&H as a way to thank the sandwich maker for his kindness in sharing the epic, best-ever-made sandwich in his moment of need.

Unfortunately, it is unclear which half of the young married couple that day actually made the best sandwich ever made, as the sandwiches had been shuffled many times between packing, unpacking, and then sharing with the external customer. Since that time, many sandwiches have been attempted in the same pattern and recipe, and we suspect that many sandwiches have been nearly as good. Since it is very hard to know for sure what the customer experienced for himself, the best sandwich ever made remains elusive.

The SIPOC representation of the sandwich maker’s supply chain is shown in the figure. We can see the components listed under each category.

In mapping a larger picture of the supply chain using the SIPOC structure, we can start to see where the SIPOC structures overlap. As you see in the next figure, we are showing SIPOC diagrams for the sandwich maker’s supplier, Walmart, as well as for Walmart’s supplier of peanut butter, Jif.

The diagram shows how the supplier’s outputs become inputs for the next downstream member of the supply chain.

Industrial Supply Chains

If you can recognize the connection of just three entities from the supply chain for a peanut butter and honey sandwich, you will have no trouble seeing the supply chain structure that forms most organizations and businesses.

For nearly every product or service being sold today, there are Suppliers that provide Inputs, Processes that transform those Inputs into valuable Outputs, and, hopefully, Customers that purchase the Outputs.

Because of the complexity of today’s global supply chains, the interconnected system of Suppliers, Inputs, Processes, Outputs, and Customers tend to resemble a supply network, or supply web, instead of a simple chain.

Expanding our view of the sandwich supply chain, we can imagine the complexity here is still not even close to representing the full set of interconnected supply chain partners.

Productivity Means Business

Now that you understand the SIPOC structure and the complexity of today’s supply chains, let’s introduce the basics of supply chain management. To manage your supply chain well, you need to start by looking to the center of the SIPOC structure: Inputs -> Processes -> Outputs.

Dentist offices transform cavities into healthy, pain-free teeth (a service output) by successfully using dental tools, techniques, and other supplied inputs.

Carmakers transform steel, computer chips, tires, plastic, and other inputs into functional, desirable automobiles (a manufactured output).

Smartphone makers transform their own industry-specific inputs: silicon chips, touch screens, wires, camera lenses, and other electronic components, into desirable outputs. The better they do this, the more customers want to buy their devices. The same goes for carmakers, dentists, and virtually every other organization that provides products or services to either internal or external customers.

If your supply chain can successfully transform inputs into compelling and desirable outputs, your supply chain has created value for its customers. This is why we call supply chain management the value-generating engine of the organization.

A simple way to measure this value-generating engine is by calculating its productivity.

Definition: productivity – the rate at which inputs are converted into outputs, or the rate at which value is generated in a supply chain.

To illustrate, suppose I made you a peanut butter and honey sandwich, but I used poor tools, purchased the most expensive ingredients, made a mess doing it, and I worked for an hour.

EXAMPLE:

Output: 1 sandwich (actually, you’ll want two)

Output: 2 PB&H sandwiches (this is the value being generated)

Inputs:

• Butter @ $1.12 ($0.10 worth of butter on the sandwiches, $1.02 worth of butter smeared on the counter)
• Honey @ $0.55 ($0.30 worth of honey on the sandwiches, $0.25 worth of honey wasted in the sink)
• Peanut Butter @ $0.75 ($0.50 worth of peanut butter on the sandwiches, $0.25 worth of peanut butter disappeared or was consumed by sandwich maker)
• Bread @ $1.50 ($1.00 for four slices of bread, $0.50 for two slices of bread which were dropped on the ground and then thrown away)
• Labor @ $20.00 (for 1 full hour of work, but during that hour I also cleaned up my mess and chatted with the neighbor about using his swimming pool for my birthday party next week).
• TOTAL COST OF INPUTS: $1.12 + $0.55 + $0.75 + $1.50 + $20.00 = $23.92 for two sandwiches
• TOTAL HOURS OF LABOR: 60 minutes for two sandwiches.

In this example, we’ll compute the total dollar productivity and the total labor productivity:

Total Dollar productivity = (# outputs) / (total $ cost of inputs and labor)

= 2 sandwiches / $23.92

= .084 sandwiches per dollar

This means that if my supply chain makes your sandwiches, it generates less than 1/10^th of a sandwich for every dollar that the supply chain uses. Inversely, the dollar productivity shows that the supply chain generates one sandwich for every $11.96 used in the supply chain.

For total labor productivity, we want to measure how well our total hours of labor generated value, ignoring all other factors.

Total Labor productivity = (# outputs) / (total labor hours)

= 2 sandwiches / 60 minutes of labor

= 0.0333 sandwiches per minute of labor

This means my supply chain only generates 0.0333 sandwiches for every minute of labor. We can also look at this as an inverse to see that 1 sandwich required 30 minutes of labor.

A BETTER SANDWICH MAKING PROCESS
Of course, this represents a terribly unproductive supply chain. In reality, I can make 2 PB&H sandwiches in about 2 minutes with little to no waste, provided I have the right inputs (especially pre-softened butter, a honey squeeze bottle, and a wide-mouth peanut butter jar – all of these are available to purchase if I choose the right suppliers!).

Recalculating my productivity under improved, ideal conditions gives the following figures (assuming no wasted ingredients, and a reduced 2-minute working time):

Total Dollar Productivity= (# outputs) / (total $ cost of inputs)

= 2 sandwiches / ($0.10 + $0.30 + $0.50 + ($20.00 * 2 min / 60 min))

= 2 / $2.57

    = 0.78 sandwiches per dollar

Total Labor Productivity= 2 sandwiches / 2 minutes labor

= 1 sandwich per minute

In this case, when my sandwich supply chain is operating with ideal conditions, productivity is massively improved: instead of 0.08 sandwiches per dollar, we are generating 0.78 sandwiches per dollar – almost ten times more sandwiches per dollar used. And instead of one sandwich in 30 minutes, the ideal approach can create 30 sandwiches in the same 30 minutes.

The sandwich example is meant to illustrate how the productivity metric measures a supply chain’s ability to generate value for the customer. We can use the productivity calculation as a baseline, so if we make improvements or the supply chain changes, we can see how things have gotten better or worse.

Improving Productivity: 3 Pillars of Supply Chain

In the previous examples, we used the productivity calculation to roughly measure how efficiently each supply chain generated value for their customers. How could you improve productivity in these examples? Thinking bigger, how could you improve productivity in ANY supply chain?

In most supply chains, we can categorize the efforts into three key areas of supply chain management, where each supply chain management area fulfills specific roles to ensure that maximum value is being generated. The three main areas are: procurement, operations, and logistics.

Procurement

The procurement function requires a wide variety of skill sets, tools, and techniques. Procurement sits right where SIPOC begins, between the Suppliers and the Inputs.

Procurement efforts include finding and researching possible suppliers for every single input used across the entire supply chain. They look across the region, country, and globe to find the inputs that meet their needs, and then they take all the steps necessary to negotiate and agree on prices, set up contracts, build relationships with long-term suppliers, and coordinate with product and service designers to ensure the inputs meet all the specifications needed by the supply chain.

One of my favorite phrases from the procurement side of supply chain is GIGO: Garbage In, Garbage Out. If the procurement function for my sandwiches acquired stale, crystalized honey, margarine instead of butter, and organic/bland peanut butter, then there would be no way to create the best sandwich ever made – the bad ingredients would result in bad sandwiches.

We rely on the procurement function to find and secure the inputs we need to 1) operate competitively in our supply chain now, 2) quickly adjust to changes on the horizon, and 3) continue successfully as an organization for years to come.

Operations

Operations is the very heart of SIPOC: Processes. Operations manages all the transformative steps that convert inputs into outputs. Assembling vehicles. Making food in a restaurant. Minting coins for a nation’s treasury. Supporting the wide variety of patient care efforts in a hospital. Designing and improving rollercoaster waiting lines at a theme park. Manufacturing rollercoasters for a theme park. Producing the machines that help to manufacture rollercoasters. [“Machines making machines?! How perverse!” – C3PO, Attack of the Clones]

Operations manages production, process improvement, quality management, scheduling, job assignments, and everything associated with processes in the SIPOC supply chain structure. Operations management is required for every discipline: economics, accounting, marketing, human resources, management, strategy, etc. The tools and techniques associated with operations management can be applied in each of these disciplines across all industries.

Logistics

Logistics is interwoven throughout the SIPOC structure and is concerned with ensuring that everything is in the right place at the right time. One procurement has finalized a supplier for a product, the logistics function makes sure it gets picked up, shipped, stored, organized, protected, and then positioned in the best place for the operation function to do its job.

Within the operations function, logistics is there, supporting the movement and positioning throughout the journey from input to output.

When the finished product or services are ready to be delivered, logistics ensures delivery occurs on schedule, to the right place, with everything in the same condition as when it left the operations function.

Logistics is a lot more than truck drivers, warehouse workers, and fork lift operators. The logistics function helps to design the best way to utilize all of these elements, and more, to save money, improve service, and manage the team to perform consistently day in and day out. Logistics also concerns itself with analysis of the flows and disruptions throughout the entire supply chain. Logisticians may find themselves working with real-time tracking software that monitors movements of incoming and outgoing supplies across the entire planet. They help to plan, coordinate, and direct this complex function.

Why should you care?

We now know what a supply chain is, and we even know how to measure basic productivity.

We know that for Supply Chains to be effective, Procurement, Operations, and Logistics must work together daily.

Procurement works with Logistics to make sure the supplies are delivered to Operations, where Operations strives to generate maximum value. Once Operations is done with the transformation processes, they work with logistics to make sure all the appropriate outputs end up in the right place at the right time. They connect and enable every part of SIPOC.

But why should you care?

Because every organization operates as, or is part of, the SIPOC structure of a supply chain. And beyond the three supply chain pillars, the ENTIRE organization is also part of the supply chain team.

• Economists study the global and regional trends in supply and demand, critical to designing supply chain networks and positioning resources.
• Marketing interacts with customers who want the products and services generated by the supply chain.
• Accounting and finance ensure that financial flows are successfully meeting the organization’s needs throughout the supply chain processes, from procurement to logistics to operations to delivery.
• Human resources helps to find key talent or training solutions to fill skill gaps throughout the supply chain.
• Management Information Systems builds and maintains the software and hardware backbone that carries information and data to all team members and enables technological advancement.
• Engineers and designers create products and services to meet the needs of customers.
• Subject matter experts, skilled service employees, and frontline laborers work to transform inputs into outputs.

All of this is happening in concert with the three supply chain pillars, working to create and deliver value to the marketplace.

Working within a successful supply chain provides opportunities for analysis, teamwork, relationship building, problem solving, leadership, and rewarding personal growth as you make significant impacts on the organization.

We all care about supply chain, because we are ALL part of one.

“You best start believing in ghost stories, Miss Turner, you’re in one!” – Captain Barbossa, Pirates of the Carribean, Disney (C)

WHAT COMES NEXT

Looking ahead to the rest of this textbook, we will explore the field of supply chain management at an introductory level. We will go through the key tasks of supply chain managers in the next chapter, followed by how to work well with people, both in teams and in other supply chain partnerships.

You’ll learn how to work with data at a basic level, and then use your new data skills to try your hand at supply chain analysis, both to predict the future and to manage your product on the shelf so that you can satisfy all of your customers.

Beyond this, you’ll be exploring sustainability, quality and problem solving, the tools of logistics, and risk management.

It is a great set of skills applicable to every major, giving you the leader’s view of a business, from suppliers to customers and everything in between.