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Management of the Supply Chain

Case of Danfoss District Heating Business Area

Written by E. Klemencic

Paper category

Master Thesis


Business Administration>Supply Chain & Logistics




Master Thesis: What is supply chain management 2.1. The definition of supply chain Today, many organizations are forced to increase their global market share in order to survive and maintain growth goals. At the same time, these organizations must protect their domestic market share from international competitors. The challenge is how to expand the global logistics and distribution network to deliver products to customers in need through dynamic and rapidly changing channels. Strategic positioning of inventory is essential so that products can be provided when customers need them (Handfield et al., 2002, p. 38). Domenica (2002, p. 8) also claimed that the supply chain should actually be efficient and effective. In this case, the effective method is to minimize the use of resources to achieve specific results; and effective, in terms of designing distribution channels. Efficiency is measured by delivery performance, product quality, stock-outs and inventory levels, while effectiveness is measured by service quality and service demand. Therefore, long-term competitiveness depends on the company's ability to meet customer preferences in terms of service, cost, quality, and flexibility by designing a more effective and efficient supply chain than its competitors. For companies that are part of the supply chain network, optimizing this balance is an ongoing challenge, as shown in Figure 2-1. To be able to optimize this balance, many strategic decisions must be made and many activities must be coordinated. This requires careful management and design of the supply chain. The design of the supply chain represents a company's unique way of innovation, differentiation and value creation (Longitudes 04, 2004, p. 8). The challenge of supply chain design and management lies in the ability to design and combine assets, organization, skills, and capabilities. It includes teams, partners, products, and processes. To understand the term supply chain management in depth, we must first explain the term supply chain, not the role of management and management as the basis for a complete definition of supply chain management. According to Mentzer et al. (2001, p. 5) The definition of "supply chain" is more uniform as the definition of supply chain management. In his paper, he tried to make a general definition of supply chain based on comprehensive research conducted by several co-authors. They proposed the following definition: "Supply chain is defined as a group of three or more entities (organizations or individuals) directly involved in products, services, finances and/or information from one source to one customer." An enterprise's supply chain consists of an upstream supplier network and downstream distribution channels (see Figure 2-2). Organizations can be part of many supply chains. For example, Danfoss is part of the supply chain of district heating components, district heating stations and HVAC components. On the other hand, Alfa Laval can find that Danfoss is a supplier in one supply chain, a partner in another supply chain (developing components for their substation), a competitor in the fourth station supply chain, and as a heat exchanger Supplier’s customer chain. According to the complexity of the supply network, Mentzer (2001, p. 22) defines three types of supply chains: 1. Direct supply chain, which consists of companies, suppliers and customers. 2. Extend the supply chain, including suppliers of direct suppliers and customers of direct customers. 3. The ultimate supply chain, including all organizations involved in all upstream and downstream processes. 2.2. Definition of management In fact, regardless of whether it is managed or not, there are different supply chains every day. If no organization will actively implement any supply chain management concepts further explained in the paper, the supply chain will still exist as a commercial phenomenon, but it may not act in a rational and coordinated manner. Therefore, supply chain management requires active management of organizations within the supply chain. What is an organization? Lipovec (1987, p. 35) defines organization as a combination of relationships between people, through which people become members of established social units. The organization ensures the existence and specific characteristics of social units and the reasonable realization of goals. According to Rozman (2000, p. 15), there are three processes in an organization that can ensure reasonable achievement of goals: the organization process, the coordination process, and the decision-making process. The organizational process is defined as a goal-oriented process to ensure the rationality of people's actions and behaviors and the reasonable realization of the goals of social units. Reason is achieved through coordination. Coordination is carried out by dealing with problems and making appropriate decisions. Coordination in this situation is the essence of achieving rational behavior within the organization. It includes coordination of activities, goals, interests, and relationships. At the company level, we discuss the coordination of business functions, business units, and projects. Read Less