Foreword

With the continuous development of blockchain technology, its potential applications in the field of supply chain management are gaining increased attention. Supply chain management is a crucial aspect of successful business operations, encompassing a series of activities, organizations, resources, and technologies that deliver raw materials to the final products or services to meet consumer demand. The emergence of blockchain technology facilitates the optimization of different links in the supply chain, enhancing transparency and efficiency.
This course will introduce the basics of supply chain management, allowing you to learn about inventory management, network planning, information integration, and the division of labor and cooperation among different enterprises. Following that, we will explore the challenges and limitations faced by supply chain management and how blockchain technology can solve these issues through digital intelligence management, decentralization, and innovative integration.

In the rapidly changing global market, the challenges of supply chain management are increasing, with the complexity, diversity, uncertainty, and volatility of the industrial structure growing, making traditional Electronic Data Interchange (EDI) no longer sufficient to meet the demand. The application of blockchain technology, however, may present more innovative solutions in terms of data tracking, tracing, sharing, and verification.

Introduction to Supply Chain Management

A supply chain is a network of multiple interconnected organizations, businesses, or entities aimed at transferring raw materials, products, or services from suppliers to end customers. It encompasses all participants, activities, resources, information, and technologies involved in achieving the global flow of goods, cash, information, and businesses from suppliers to consumers.

The primary goal of supply chain management is to ensure the right products or services are delivered to the end customers at the right time, place, quantity, and cost while maximizing the supply chain surplus. Supply chain surplus refers to the additional economic value remaining after deducting the total cost incurred in fulfilling customer orders from the payments made by customers.

The components of a supply chain involve various stages, including raw material procurement, manufacturing, logistics and transportation, inventory management, distribution, and sales. Entities participating in the supply chain can include suppliers, manufacturers, wholesalers, retailers, and end customers.

Effective supply chain management is crucial for a company’s operations and competitiveness, covering aspects such as procurement, manufacturing, logistics, supply chain planning, as well as information analysis and financial management.

Establishing a well-managed supply chain can help companies achieve higher efficiency and productivity, reduce costs, improve customer service and satisfaction, and provide faster market responsiveness. However, supply chain management also faces various challenges such as inventory management, supplier relationships, demand fluctuations, logistics, and transportation, to ensure the synchronized operation of the supply chain.
In the context of economic globalization, the scope of supply chain management further expands to cover areas such as production outsourcing, strategic procurement, risk management, and sustainability. It not only focuses on the coordination of operations within and between companies but also extends to the operation of the entire industry and value chain in the global market.

Supply Chain Cycle Diagram

The supply chain cycle diagram depicts the interaction between different stages and participants in the supply chain. It consists of a series of interconnected steps or stages, including the Customer Order Cycle, Replenishment Cycle, Manufacturing Cycle, and Procurement Cycle, covering the complete process from raw material procurement, product manufacturing, transportation and distribution, inventory management, order processing to the final product delivery.

Each cycle represents a key step or stage in the supply chain, enabling us to understand the relationships between information flow, logistics, and capital flow in the supply chain. This allows managers to gain a clearer understanding of the roles and contributions of each stage in the supply chain, and identify activities and processes corresponding to suppliers, retailers, distributors, manufacturers, customers, and other participants. Additionally, this facilitates them to discover problems and find solutions for improved efficiency and optimized business operations.

Source: http://ocw.aca.ntu.edu.tw/ntu-ocw/ocw/cou/099S131

Value Chain

In order to establish a distinctive competitive advantage, companies must strive to generate higher added value for their goods and services, with activities across various stages tightly interconnected. By employing specialization and division of labor, participants continuously enhance the value of products or services, and this series of value-adding processes is commonly known as the “value chain”.

Activities in the value chain can be categorized into two main types: primary activities and support activities.

Primary activities encompass the actual creation, production, and delivery process of products or services, including raw material procurement, manufacturing, logistics, sales, and after-sales services. Primary activities directly impact the quality, cost, and value of products or services.

Support activities, on the other hand, provide support and foundations for primary activities. They include internal infrastructure, human resource management, technology development, and supplier management. Support activities supply the necessary resources, technology, and support to primary activities and can influence their efficiency.

Generally, supply chain management is often seen as a part of the value chain, with its activities and decisions focused on raw materials, manufacturing, and distribution levels, directly impacting the value creation and delivery process within the value chain. However, supply chain management must be accompanied by demand chain management, which involves proper adjustments through demand forecasting, marketing, and customer-oriented collaboration to meet market demands and provide excellent customer experience.

In the process of supply chain management, the push and pull strategies are two different approaches to managing the flow of goods.

Push strategy: Forecast market demand. Upstream supply dominates
Push strategy is a predictive production model that maintains a certain product inventory regardless of whether customers demand it or not.

The flow within the supply chain is driven by upstream links, pushing products down to downstream links. Production planning is done in advance based on demand forecasts, and products are pushed into the market rather than being based on actual customer orders.

Pull strategy: Actual demand (customer orders) from downstream activities dominates
The pull strategy involves a make-to-order production model, where goods are produced based on customer demand.

The flow within the supply chain is driven by the actual demand from downstream links. Production and supply activities are triggered only when products are needed in downstream links.

In general, products with accurate forecasts and relatively stable demand can use the push strategy for early production and stock preparation. For products with high demand fluctuations and unpredictable changes, the pull strategy can be used to trigger production and supply based on actual demand. Choosing the appropriate strategy helps meet customer demands, reduce inventory costs, and enhance the responsiveness of the company.

Bullwhip Effect

The bullwhip effect refers to the phenomenon in a supply chain where small changes in consumer demand or incomplete information flow can lead to significant fluctuations and variations upstream in the supply chain.

When consumer demand signals are transmitted upstream in the supply chain, the signals may experience errors and delays along the way, causing amplified demand and increased order fluctuations at various links in the supply chain. Market forecasting inaccuracies can result in rising inventory costs, reduced supply chain efficiency, and decreased customer satisfaction.

A typical case of bullwhip effect is a study on the production of baby diapers by the company Pampers in the United States. Despite the known annual population growth rates in different regions that allow for accurate assessment of baby diaper market demand, seasonal promotions by retailers and hoarding by consumers caused order quantities to fluctuate significantly. This led suppliers to be misled into believing that demand was increasing or decreasing drastically, causing adjustments to raw material procurement and production scale, resulting in upstream suppliers needing to hold inventory to cope with the volatile demand changes.

The bullwhip effect arises due to information asymmetry, inadequate collaboration, and lack of proper demand management measures among different links in the supply chain. This effect exists in many industries, particularly in sectors with short product lifecycles and rapid demand changes.

Source: https://transportgeography.org/contents/chapter7/logistics-freight-distribution/bullwhip-effect-supply-chains/

Implied Demand Uncertainty

Implied demand uncertainty is a concept related to the bullwhip effect and is used to describe the level of uncertainty in the demand for products or services. It refers to the uncertainty that exists in accurately predicting and determining the actual demand at different links in the supply chain due to market demand signals’ uncertainty or incomplete information.

Customer demand expectations can influence implied demand uncertainty. Factors such as fluctuations in market prices, changes in lead times, expectations for diversified products, strategies of potential competitors, the introduction of new products, variations in service levels, and uncertainty in consumer behavior all contribute to implied demand uncertainty.

Implied demand uncertainty can have implications on the operation of the supply chain, potentially leading to issues such as inventory buildup, supply chain instability, and challenges in production planning.

In general, products with large-scale mass production, low unit prices, and non-cyclical demand tend to have lower implied demand uncertainty. On the other hand, products that are highly customized, have high unit prices, and require strict adherence to timeframes tend to have higher implied demand uncertainty.

Levels of Implied Demand Uncertainty for different products, an example taken from https://docplayer.net/5857832-Supply-chain-performance-achieving-strategic-fit-and-scope.html

Responsiveness

Responsiveness refers to the supply chain’s ability to rapidly adjust and respond to changes in market demand and other external factors. In the process of supply chain planning, there is often a trade-off between being highly efficient and being highly responsive.

A highly efficient supply chain prioritizes cost-effectiveness and resource utilization, providing the required products or services without wasting company resources to maximize production margins.

On the other hand, a highly responsive supply chain emphasizes the ability to quickly respond to changes in market demand, achieving rapid delivery and flexible production through more flexible capacity adjustments, thus creating additional market premiums through added value.

Source: http://ocw.aca.ntu.edu.tw/ntu-ocw/ocw/cou/099S131

Strategic Fit Zone

Strategic fit refers to the alignment between a company’s competitive strategy and its supply chain strategy, with the objective of achieving strategic fit involving three steps:

1. Understand the uncertainty of customers and demand.
2. Understand the chosen supply chain configuration.
3. Achieve strategic fit.
   When dealing with deterministic demand, a cost-focused approach is used, and strategic fit is achieved through a highly efficient supply chain. As demand uncertainty increases and time efficiency becomes more critical, the strategic fit zone shifts towards a highly responsive supply chain approach.
   
   Source: http://ocw.aca.ntu.edu.tw/ntu-ocw/ocw/cou/099S131

The main differences between an efficient supply chain and a responsive supply chain are shown in the table below:

Drivers

Based on different business requirements, supply chain drivers can be adjusted to emphasize responsiveness or efficiency. Generally, these drivers can be divided into the following five categories:

1. Production
   Responsiveness: Establishing factories with significant excess capacity and utilizing flexible manufacturing technologies to produce a wide variety of items.
   Efficiency: Establishing factories with minimal excess capacity and optimizing production for a limited range of items. Further efficiency can be achieved by centralizing production in large-scale facilities to obtain better economies of scale, even though it may result in longer lead times.

2. Inventory
   Responsiveness: Maintaining high levels of inventory for a variety of products. By storing inventory in multiple locations close to customers and readily available, responsiveness is increased.
   Efficiency: Achieving inventory management efficiency by reducing inventory levels for all items, especially those that are sold infrequently. Additionally, cost savings and economies of scale can be realized by storing inventory in only a few central locations (e.g., regional distribution centers).

3. Transportation
   Responsiveness: Utilizing fast and flexible transportation methods, such as trucks and airplanes, to provide a high level of responsiveness. Some logistics companies (e.g., Amazon) have their exclusive transportation services in high-demand markets to enhance responsiveness.
   Efficiency: Improving the cost-effectiveness of transportation through bulk transportation and selecting efficient transportation modes like ships and railways.

4. Location
   Responsiveness: Establishing multiple locations where there gathers a large number of customers. For instance, fast-food chains respond quickly to customer demands by opening numerous outlets in high-demand markets.
   Efficiency: Achieving operational efficiency by operating in a few locations and consolidating activities in common areas. For example, e-commerce retailers serve markets across the globe from only a few centralized warehouse locations.

5. Information
   The power of information has been amplified with technological advancements and can be applied to enhance the performance of other drivers. Collecting and sharing accurate and timely data can improve both the responsiveness and cost-effectiveness of the supply chain. The supply chain in the electronics industry is an example, where manufacturing and sales companies respond rapidly to ever-changing market demands by collecting and sharing data.

Little’s Law

Little’s Law is a theorem based on queuing theory, widely used in operations management, supply chain management, and analysis of queuing systems. The mathematical formula is:

L = λW

Where L represents the long-term average number of customers, indicating the average flow or capacity existing in the system; λ is the number of customers arriving at the system per unit of time, representing the system’s effective arrival rate on average; and W is the average waiting time for customers, representing the average time customers spend in the system.

Little’s Law proves that in a stable system, the average flow (L) is the product of the arrival rate (λ) and the waiting time (W). It is extensively applied in supply chain management and operations management to analyze productivity in production systems, turnover rate in inventory management, and waiting time in service systems. By extending Little’s Law, we derive the following formula:

Inventory = Flow time * Throughput

This formula reveals that the quantity of inventory is determined by the flow time and throughput of the supply chain system. Reducing the flow time can effectively decrease the inventory cost in the supply chain.

Limitations of Traditional Supply Chain Management

Traditional supply chain management usually aims at minimizing costs and often overlooks other aspects of the supply chain, such as sustainability, resilience, and scalability.

Lack of Digitization and Intelligent Integration

Traditional supply chain management lacks the tools and capabilities for digitization and intelligent integration, making it challenging to effectively monitor and adjust the overall operation of the supply chain and respond promptly to crises and risks. This limits transparency, collaboration, and efficiency within the supply chain.

Excessive Centralization

Traditional supply chain management heavily relies on single regions or countries for production and procurement, leading to a fragile and unstable supply chain, as well as increased costs related to carbon emissions and energy consumption. This hinders the diversification, localization, and green practices of the supply chain and the reduction of risks and costs.

Inadequate Innovation, Research, and Development

Traditional supply chain management fails to fully leverage the potential of innovative technologies and research and development, resulting in the inability to enhance the added value of products and services and adapt to changing market and consumer demands. This restricts differentiation, customization, and high-quality offerings of products or services, as well as their competitiveness in the market.

Higher Friction Costs

In the supply chain, there are often many hidden friction costs in different links and enterprises. Due to insufficient information exchange and self-interest, it often leads to a lot of unnecessary waste of resources and an inefficient supply chain network. In addition, the reliance on financial intermediaries for cash flow transactions lowers the supply chain profitability.

Poor Sustainability

The pursuit of cost minimization often leads to neglecting the importance of sustainability in the supply chain, making it less competitive and credible when facing ESG (Environmental, Social, and Governance) demands from customers, investors, or regulators.

Potential Advantages of Blockchain Technology in Supply Chain Management
Blockchain technology can be applied to various links in a supply chain, alleviating many challenges in supply chain management through its features of distributed records, immutability, consensus mechanisms, smart contracts, data transparency, and decentralization.

Strengthen Digital Intelligent Management

Blockchain technology offers digital and intelligent solutions, enhancing data collection, monitoring, and analytical capabilities in supply chain management. This helps improve transparency, collaboration, and efficiency within the supply chain while supporting better data-driven decision-making and optimized operations.

Decentralization and Diversification

Blockchain technology can establish a decentralized supply chain network, facilitating direct communication and cooperation among multiple participants in the supply chain. It reduces over-reliance on a single region or country, effectively enhancing the resilience, diversity, and risk mitigation capabilities of the supply chain.

Innovative Integration Activities

Blockchain technology can drive innovation, research, and development in the supply chain by enabling smart contracts and transparent sharing of supply chain data. This leads to product or service differentiation, customization, and higher quality, thereby enhancing market competitiveness.

Reduce Friction Costs

By improving tracking and data transparency, it is possible to effectively identify which links in the supply chain are causing waste. Enterprises can then adopt cost-saving measures through the redistribution of overall economic interests among different companies. Blockchain technology also facilitates direct value exchange between enterprises, reducing fees charged by intermediaries such as banks and payment processors.

Sustainability Management and Verification

Blockchain technology supports sustainability management, ensuring traceability and compliance of products or services in the supply chain. Through the immutable and secure nature of blockchain, better sustainability management and practices can be achieved, responding to various stakeholders’ demands for sustainability in enterprises.

Conclusion

In this course, we have learned the fundamentals of supply chain management, whose goal is to achieve precise delivery of products or services and maximize the supply chain surplus. The supply chain consists of various participants in different stages, and addressing challenges such as the bullwhip effect, demand uncertainty, and high friction costs between different cycles are essential tasks in supply chain management.
During the supply chain planning process, it is crucial for achieving strategic fit and enhancing efficiency and responsiveness to understand customers and demands, consider different supply chain drivers, and explore compatible supply chain configurations. Additionally, we have learned the implications of Little’s Law in supply chain management, the challenges in traditional supply chain management, and how to leverage the power of blockchain technology to overcome these limitations.
Through this course, you have established a foundational understanding of supply chain management. In the next lesson, we will briefly review blockchain technology and explore specific use cases of blockchain in supply chain management.

Takeaways

1. The goal of supply chain management is to deliver the right products or services to the end customers at the appropriate time, place, quantity, and cost while maximizing supply chain surplus.
2. The supply chain involves several different stages, including raw material procurement, production manufacturing, logistics transportation, inventory management, distribution, and sales. Participants in the supply chain include suppliers, manufacturers, wholesalers, retailers, and end customers.
3. The supply chain cycle diagram depicts the relationship between different stages and participants in the supply chain, including customer order cycle, replenishment cycle, manufacturing cycle, and procurement cycle.
4. The value chain refers to a series of activities where an enterprise adds value to products or services through specialization and division of labor. It includes primary activities and support activities. Primary activities encompass the creation, production, and delivery process of products or services, while support activities provide necessary resources, technology, and support to influence the efficiency of primary activities.
5. In supply chain management, push and pull strategies are two different approaches to managing the flow of goods. The push strategy is a predictive production model where production and inventory are prepared in advance based on predictive demand, while the pull strategy is a make-to-order approach where goods or services are provided only based on actual demand.
6. The bullwhip effect refers to the phenomenon where small fluctuations in demand or incomplete information flow downstream in the supply chain can lead to significant fluctuations and changes upstream.
7. Implied demand uncertainty describes the uncertainty level of demand for products or services, which can lead to issues such as inventory accumulation, supply chain instability, and challenges in production planning.
8. Strategic fit refers to the alignment between a company’s competitive strategy and its supply chain strategy. The essential steps to achieve strategic fit involves understanding customer demand uncertainty and the chosen supply chain configuration.
9. For deterministic demand, which is cost-oriented, achieving strategic fit involves adopting a highly efficient supply chain. For uncertain demand, which is time efficiency-oriented, achieving strategic fit leans more towards a highly responsive supply chain.
10. In supply chain planning, there is a trade-off between efficiency and responsiveness. Efficiency aims for cost-effectiveness and resource utilization, while responsiveness emphasizes the ability to respond quickly to market demand changes.
11. Common supply chain drivers include production, inventory, transportation, location, and information. The selection of different drivers can impact the supply chain’s responsiveness and efficiency.
12. Little’s Law describes the relationship between the long-term average flow (L) in a stable system and the arrival rate (λ) and waiting time (W). Little’s Law has broad applications in operations management and supply chain management and can be used to analyze productivity, inventory turnover, waiting times, etc.
13. Traditional supply chain management has some issues and limitations, including a lack of digitization and intelligent integration, excessive centralization, inadequate innovation and research and development, high friction costs, and poor sustainability.
14. Blockchain technology has potential applications in supply chain management, including strengthening digital intelligent management, decentralization and diversification, innovative integration activities, reducing friction costs, and sustainability management and verification.