Module 1: What is Supply Chain Management? (ASU-WPC-SCM) - ASU's W. P. Carey School

Summary

This engaging video script demystifies supply chain management, using the example of a bottle of water to illustrate the complexity and costs involved beyond material costs. It emphasizes the multifaceted role of supply chain managers in procuring, manufacturing, distributing, and servicing products efficiently and sustainably, while ensuring profitability. The script also highlights the applicability of supply chain principles to service industries, like hotels, demonstrating the broad relevance of supply chain management skills.

Takeaways

• 🧐 Supply Chain Management (SCM) is often misunderstood by consumers who equate product cost with material cost, but business executives and entrepreneurs must consider the entire process.
• 💧 The example of a bottle of water highlights the complexity behind the production and distribution of even a simple product, involving negotiations, logistics, and various costs beyond just the materials.
• 📦 Packaging and transportation are crucial components of SCM, with processes like shrink wrapping, palletizing, and the use of forklifts and trucks incurring additional costs.
• 🏭 Production facilities, such as water bottling plants, involve costs for employees, machinery, utilities, and maintenance, which are often overlooked by consumers.
• 🛑 The supply chain includes not only the production and distribution of physical goods but also the provision of services, such as customer support through call centers.
• 🛍️ Retail stores are part of the supply chain, requiring staff, inventory management, and additional services like security and insurance.
• 💼 Beyond the production floor, SCM encompasses roles in finance, accounting, marketing, human resources, and IT, all of which contribute to the overall costs and operations.
• 🌐 The supply chain is a global endeavor, with components sourced, manufactured, and sold across different regions, requiring efficient coordination and management.
• 🌿 SCM also faces the challenge of sustainability, needing to ensure that materials, energy, and methods are used responsibly and efficiently.
• 🛠️ Supply chain managers must possess a diverse skill set to ensure the seamless operation of the supply chain, balancing customer needs, production efficiency, and profitability.
• 🏢 Even in a service economy, the principles of SCM apply, as seen in industries like hospitality, which 'manufacture' experiences through the coordination of various services and resources.

Q & A

What is the common misconception about product cost discussed in the script?

The common misconception is that product cost is equal to material cost. However, the script explains that business costs include much more than just the materials, such as transportation, labor, and overheads.

What are some of the costs involved in the supply chain of a bottle of water?

Some of the costs include purchasing empty bottles and caps, transportation (including trucks, fuel, and insurance), label design and printing, bottling plant operations (including employees, machines, and energy), and distribution to retail stores.

What role does a supply chain manager play in a company?

A supply chain manager is responsible for ensuring that all aspects of the supply chain run efficiently and cost-effectively, from purchasing raw materials to delivering the final product to the customer while maintaining profitability.

Why is it important for a supply chain manager to think beyond consumer perspective?

It's important because a supply chain manager needs to consider all the business aspects such as production costs, logistics, and operational efficiency, which go beyond just the material cost that a consumer might consider.

What are some of the everyday items used at a bottling plant mentioned in the script?

The script mentions light bulbs, garbage bags, machine parts, janitorial supplies, and toilet paper as some of the everyday items used at a bottling plant.

How does the script illustrate the complexity of supply chain management?

The script uses the example of a simple product, a bottle of water, to show the numerous steps and costs involved in the supply chain, highlighting the complexity of managing each aspect from production to delivery.

What does the script suggest about the role of supply chain management in service industries?

The script suggests that supply chain management is equally important in service industries, such as hotels, where services like lodging, dining, and spa experiences are 'manufactured' and require efficient supply chain operations.

What are some of the service experiences that hotels 'manufacture' according to the script?

Hotels 'manufacture' lodging experiences, dining experiences, spa experiences, and overall vacation and conference experiences.

How does the script redefine the term 'supply chain management' to make it more approachable?

The script rephrases 'supply chain management' as 'the management of the chain of supplies' to simplify the concept and emphasize the interconnected nature of the supply chain process.

What is the significance of the script's mention of the U.S. being the number one exporter of manufactured goods as of 2008?

The mention signifies that even in a service economy, manufacturing and supply chain management play a crucial role in the economy and that service industries also rely on supply chain principles.

What are some of the service tasks that hotels perform in their supply chain according to the script?

Hotels perform tasks such as housekeeping, meal preparation, massage services, event organization, making reservations, organizing events, making wake-up calls, and cleaning and pressing clothes.

Outlines

00:00

💼 Introduction to Supply Chain Management

The first paragraph introduces the concept of supply chain management using the example of a bottle of water. It dispels the common misconception that product cost is merely the cost of materials, emphasizing the various other costs involved in the production and distribution process. The paragraph outlines the numerous steps and costs associated with bringing a product to market, from raw materials and manufacturing to transportation, storage, and customer service. It highlights the role of supply chain managers in coordinating these processes to deliver products efficiently and cost-effectively, while also considering sustainability.

05:01

🚀 The Broader Scope of Supply Chain Management

The second paragraph expands on the concept of supply chain management by discussing its application beyond physical products to include services as well. Using the hotel industry as an example, it illustrates how supply chain principles apply to the creation and delivery of service experiences. The paragraph explains the various aspects of supply chain management relevant to services, including purchasing, manufacturing (or service provision), transportation, sales, and after-sales service. It concludes by reinforcing the importance of supply chain management skills in both manufacturing and service sectors, suggesting that these skills are universally applicable and valuable.

Keywords

💡Supply Chain Management

Supply Chain Management (SCM) is the coordination and management of activities involved in the production and delivery of a product or service. It encompasses the movement and storage of goods and services from raw material sourcing to the end consumer. In the video, SCM is the central theme, illustrating how a simple product like a bottle of water involves complex processes from sourcing materials to delivering the final product to consumers.

💡Profit

Profit refers to the excess of revenues over the costs in producing goods or services. The script uses the example of a bottle of water to highlight the misconception that the retail price is mostly profit, when in reality, many costs are involved in the supply chain before any profit is realized.

💡Cost

Cost in the context of the video refers to the expenses incurred at various stages of the supply chain, from raw materials to the final product delivery. It includes not only the material costs but also labor, transportation, storage, and operational costs, which are essential to understand for effective SCM.

💡Material Cost

Material cost is the expense associated with the raw materials used in production. The video script points out that the cost of a bottle of water is not solely its material cost, emphasizing that other costs like transportation and labor must also be considered.

💡Bottled Water Business

The bottled water business is used in the script as a practical example to discuss the complexities of SCM. It shows that the perceived simplicity of the product belies the intricate supply chain processes involved, from sourcing bottles and caps to delivering the final product.

💡Sustainability

Sustainability in SCM refers to the use of materials, energy, and methods that are environmentally friendly and economically viable over the long term. The script mentions the need for companies to operate sustainably, indicating the importance of considering environmental impact alongside profitability.

💡Efficiency

Efficiency in the context of SCM is the optimal use of resources to minimize waste and maximize productivity. The video emphasizes that supply chain managers must strive for efficiency to reduce costs and improve the overall supply chain performance.

💡Distribution Centers

Distribution centers are facilities used to store and manage the movement of goods from the manufacturer to the end consumer. In the video, they are part of the supply chain for bottled water, highlighting the importance of these centers in the logistics of product delivery.

💡Retail Stores

Retail stores are the point of sale where consumers can purchase products. The script mentions retail stores as the final destination for the bottled water, where the supply chain culminates in the product reaching the end consumer.

💡Service Economy

A service economy is an economic system where the service sector is the primary driver of economic activity. The video script challenges the notion that service economies do not involve manufacturing, using the hotel industry as an example of how services can be 'manufactured' and managed through SCM principles.

💡Manufacturing

Manufacturing refers to the process of creating goods or products from raw materials. In the video, the term is broadened to include the 'manufacturing' of services, such as those provided by hotels, which also require SCM to be delivered effectively.

Highlights

Introduction to supply chain management with a humorous approach to common misconceptions about product costs.

Explanation of the difference between product cost and material cost in business.

The importance of thinking like a business executive or entrepreneur in supply chain management.

The detailed process of how a bottle of water gets from production to the consumer's hands.

The various costs involved in packaging, transportation, and logistics for a product like bottled water.

The necessity of designing, printing, and shipping labels for products.

The operational costs of a bottling plant, including employees, machinery, and utilities.

The role of purification and bottling machines in the production process.

The logistics of distribution from the plant to retail stores.

The costs and processes involved in retail operations, including stocking and energy use.

The importance of customer service, including call centers for product inquiries.

The challenges supply chain managers face in balancing cost, efficiency, and sustainability.

The role of supply chain management in both manufacturing and service industries.

How supply chain management skills can be applied to service experiences like hotels.

The comprehensive nature of supply chain management, from purchasing to service and maintenance.

The need for world-class skills and knowledge in supply chain management for success.

The humorous conclusion that encapsulates the dream of becoming a supply chain manager.

Transcripts

welcome to supply chain management and i

know most of you have spent your

childhood evenings

dreaming of taking your first supply

chain management course but for those

handful of you who might not know what

supply chain management is

let me provide you a brief explanation

let's take a simple product like a

bottle of water

clean water a plastic bottle a plastic

cap and a label

buying them at the store or vending

machine might cost you about a dollar

fifty

how much of that do you think is profit

nope

wrong

wrong again

not likely

water

a plastic bottle and a label that

couldn't cost more than 50 cents and if

you buy them in bulk

how could each bottle not give you at

least a dollar in profit

seriously if you think you can make one

dollar per bottle you should drop out of

college right now and get into the

bottled water business

you see

this right here illustrates one of the

most common consumer misconceptions

product cost is not equal to material

cost and in business you don't have the

luxury of thinking only as a consumer

you need to think like a business

executive or better yet an entrepreneur

so

in order to figure out where all that

profit went we need to imagine what it

took for that bottle of water to get

into your hands

first you need to negotiate the purchase

of the empty bottles and caps those

bottles will be much easier to transport

if they're in boxes

we'll need to shrink wrap those bottles

so they don't fall out of the box we can

move a whole lot of boxes quickly if

they're all put on pallets in order to

move the pallets you'll need a forklift

which means you'll need a forklift

driver that forklift will then take the

pallet and put it into a truck which

will require a truck driver fuel and

insurance also you'll need a label for

that bottle of water therefore you need

to design the label print the label and

get the label shipped to the plant

another truck driver more fuel and

insurance

our water bottling plant won't be free

and neither will the energy it uses

in our bottling plant we'll have

employees

and bottling machines and let's not

forget the day-to-day items like light

bulbs garbage bags machine parts

janitorial supplies toilet paper and

anything else that will be used at the

plant by the employees

oh yeah

and we'll also need access to the

drinking water machines will then purify

the water

other machines will bottle the water and

affix the labels to the bottles and

still another set of machines will box

shrink wrap and then palletize the

bottles in order to move those pallets

again you'll need a forklift which means

we'll need another forklift driver that

forklift will then take the pallets and

put them into trucks headed to the

distribution centers and

as we've seen

those trucks will require drivers fuel

and insurance those distribution centers

will also require employees forklifts

and energy from the distribution center

they'll head out to retail stores and

still another truck which will require a

driver fuel and insurance

that store will need employees to unload

the truck stock the bottles of water on

the shelf or refrigerator if you have a

refrigerator you'll of course need

energy

if we want to secure our stock we may

get a security guard or a security

system and of course the store will

likely get insurance

also imagine the costs associated with

returning and replacing bottles that are

damaged oh

and for some reason even bottles of

water sometimes have 1-800 numbers which

means you'll need a staffed call center

to answer the customer's questions about

your bottle of water

wow

all those materials

boxes people machines buildings energy

fuel and vehicles

they cost money those things weren't

free and they probably weren't used

efficiently and it's likely that several

bottles didn't survive the journey to

the consumer

oh and by the way the employees at the

water company you know the ones that

work in finance accounting marketing

human resources and i.t

they want a paycheck too

so through that simple example of a

super simple product we're beginning to

see that companies face challenges when

they buy things

make things

move things sell things and service

things which includes repair and

maintenance oh and let's not forget

companies need to do all these things

using sustainable materials

energy and methods

guess whose job it is to make sure that

all these things happen flawlessly with

minimal effort and of course at minimal

cost

you guessed it supply chain managers the

supply chain manager needs to be able to

do all of these things they need to give

the customer the product they want when

they want it as often as they want it

for a reasonable price while still

managing to make a profit

this requires world-class skills and

knowledge in the study of supply chain

management

there's that scary term again supply

chain management

let me try to make it friendlier by

shuffling around the words

there you go the management of the chain

of supplies for some reason that just

seems a whole lot easier to understand

doesn't it but it also helps us

understand the complex nature of supply

chain management

i mean the management of the chain of

supplies

now let's think of other products and

what their supply chains might encompass

hamburgers

sweaters

coffee

tables

cars

and airplanes

now i know many of you are saying but i

live in a service economy

i won't be manufacturing anything

wrong again

as of 2008 the u.s was still the number

one exporter of manufactured goods okay

maybe not for long so let's talk about

service economy supply chains let's

think of something you're probably

familiar with the hotel industry

what do hotels manufacture

lodging experiences

dining experiences spa experiences which

all together make up vacation and

conference experiences

in order to do all these things

effectively and efficiently what's

required

hotels need to buy things like beds

furniture televisions cable food soaps

towels they also make things or in this

case manufacture services like

housekeeping meals massages and special

events

hotels also move things like

transporting clean towels and food to

and from the rooms as well as

transporting guests and their luggage to

and from the airport they even sell

things

like in-room movies internet services

and tickets to events

and finally they also provide services

such as making reservations organizing

events making wake-up calls and even

cleaning and pressing clothes

once again

we see that the fundamental skills

learned in supply chain management can

be used to manufacture service

experiences as much as they aid in

manufacturing products

well i hope that this has given you an

idea of what supply chain management is

all about you see

this

is the reason why little kids all around

the world want to be supply chain

managers

they want to take part in manufacturing

the best products and services on earth

so again welcome to supply chain

management where all of your childhood

supply chain dreams

are about to come true

you