Objectives Of Supply Chain Management

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Register to read the introduction… We define it as follows:
Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, 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 and manufacturing facilities through warehouses and distribution centers to retailers and stores. Indeed, in some supply chain analysis, it is necessary to account for the suppliers’ suppliers and the customers’ customers because they have an impact on supply chain performance.
Second, the objective of supply chain management is to be efficient and cost-effective across the entire system; total systemwide costs, from transportation and distribution to inventories of raw materials, work in process, and finished goods, are to be





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logistics costs between 1984 and 2005.
Source: Based on www.dcvelocity.com/articles/20060801/news.cfm.

$898 billion, while in 2005 it was $1.18 trillion. This $1.18 trillion represents an increase of $156 billion over 2004, which is even more striking if one considers that while the U.S. economy slowed down in 2005, logistics costs increased by about
15 percent. This increase was driven, according to the “State of Logistics Report,” by
“high fuel costs, truck driver and rail capacity shortages, offshoring and outsourcing and the costs of security.”
It is also interesting to understand the magnitude of the various cost components
Figure 1-5 that constitute the U.S. logistics costs. These data are presented in Figure 1-5 (taken again from the “State of Logistics Report”), where transportation cost is by far the largest cost component; inventory cost is slightly higher than half of the transportation costs. Both costs have steadily increased in the last few years, except that, until 2003, total logistics costs increased slower than the economy growth, while they

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