INTRODUCTION TO SUPPLY

CHAIN MANAGEMENT
 SUPPLY CHAIN
• A supply chain consists of all parties involved,
directly or indirectly, in fulfilling a customer
requirement.
• All facilities, functions, activities, associated with
flow and transformation of goods and services from
raw materials to customer, as well as the associated
information flows.
• An integrated group of processes to “source,”
“make,” and “deliver” products.
 Customers,
Field demand
Sources: Regional Warehouses: centers
plants Warehouses: stocking sinks
vendors stocking points
ports points

Supply

Inventory &
warehousing
costs
Production/
purchase Transportation Transportation
costs costs costs
Inventory &
warehousing
costs
• Supply chain management (SCM) is the
management of the flow of goods

• The goal or mission of supply chain

management can be defined using Mr.
Goldratt’s words as “Increase throughput
while simultaneously reducing both
inventory and operating expense”
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 Supply Chain Management
• Definition:

Supply Chain Management is primarily concerned

with the efficient integration of suppliers, factories,
warehouses and stores so that merchandise is
produced and distributed in the right quantities, to
the right locations and at the right time, and so as to
minimize total system cost subject to satisfying
customer service requirements.
 Continue
• Supply chain management has been defined as
the "design, planning, execution, control, and
monitoring of supply chain activities with the
objective of creating net value, building a
competitive infrastructure, leveraging
worldwide logistics, synchronizing supply
with demand and measuring performance
globally.
 What is a supply chain?
Customer wants
P&G or other Jewel or third Jewel
detergent and goes
manufacturer party DC Supermarket
to Jewel

Chemical
Plastic Tenneco
manufacturer
Producer Packaging
(e.g. Oil Company)

Chemical
Paper Timber
manufacturer
Manufacturer Industry
(e.g. Oil Company)
 Supply Chain Illustration
Copyright 2006 John Wiley &
10-8
Sons, Inc.
 Benefits of SCM

Reduces This positively Contributes

affects inventory to overall
uncertainty levels, cycle
& risks in increase in
time, business profitability
the supply processes &
chain. customer &
service. competitive
advantage.

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 SUPPLY CHAIN STAGES

• Customers
• Retailers
• Wholesalers/Distributors
• Manufacturers
• Component/ Raw material suppliers

– It is not compulsory that all the stages should be

present in a supply chain

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What Is Supply Chain Management (SCM)?
Plan Source Make Deliver Buy

• A set of approaches used to efficiently integrate

– Suppliers
– Manufacturers
– Warehouses
– Distribution centers
• So that the product is produced and distributed
– In the right quantities
– To the right locations
– And at the right time
• System-wide costs are minimized and
• Service level requirements are satisfied

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History of Supply Chain Management
• 1960’s - Inventory Management Focus, Cost
Control
• 1970’s - MRP & OM - Operations Planning
• 1980’s - MRPII, JIT - Materials Management,
Logistics
• 1990’s - SCM - ERP - “Integrated” Purchasing,
Financials, Manufacturing, Order Entry
• 2000’s - Optimized “Value Network” with
Real-Time Decision Support; Synchronized &
Collaborative Extended Network for SCM.
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 Objectives
• Satisfy the customer needs.
• Maximize the overall value generated.
• Increase supply chain surplus.
• High supply chain profitability.

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 SUPPLY CHAIN DECISIONS

• Design>planning> execution >

control>monitoring.
• Ensure effective flow of goods and information
• Clusters of store near the distribution center.
• Collaboration with suppliers.
• Active efforts to steer customer at real time.
• Centralized manufacturing

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• Worth of inventory.
• Manage cash flow
• Should be flexible.

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 DECISION PHASES IN SUPPLY
CHAIN
1. Supply chain strategy or design
• How to structure for next several years
• What is the chain configuration
• How resources allocated
• What process each stage will perform
• Out sourcing
• In house functions

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• Locations and capacities of production and
ware houses
• Mode of transportation
• Type of information system
2. Supply chain planning
• for several months.
• Forecast for the coming year
• Analyses demand in different markets
• Which market? Location?

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• Sub contracting
• Inventory policies
• Timing
• Size of marketing
• Price promotions
3. Supply chain operations
• weekly or daily operation decisions
• Individual customer orders
• Allocation of inventory and production
• Set dates for activities
• Generate lists for warehouses
• Allocation of shipments
• Schedules of trucks.
 PROCESS VIEWS OF SUPPLY
CHAIN
1. CYCLE VIEW
• Process divided in to series of cycles. Each
cycle occurs at the interface between two
successive stages of the supply chain.
• Customer order cycle
• Replenishment cycle
• Manufacturing cycle
• Procurement cycle
• A cycle view of supply chain clearly define
the process involved and the owners of each
process.
• This view is very useful when considering
operational decisions because it specifies the
roles and responsibilities of each member of
supply chain and the desired outcome of each
process.
 PUSH PULL VIEW OF SUPPLY
CHAIN
• Divided in to two categories..
1. Executed in response to a customer order(pull
process)
2. Executed in anticipation of customer
orders(push process)
 A push vs pull view of the SC operations
Categorizes SC processes based on whether they are initiated
in response to a customer order (pull) or in anticipation of a
customer order (push).
Examples:
• Compaq: All processes except for those involved in
customer order cycle are of “push” type.
• Dell: Dell assembles its computers to order and therefore,
all processes except for those involved in the procurement
cycle are “pull”.

Remark: Generally, if possible, a “pull” organization of the

supply chain provides tighter control of inventory costs and
the ability to support higher levels of product customization.
Supply Chain Integration – Push Strategies

• Classical manufacturing supply chain strategy

• Manufacturing forecasts are long-range
– Orders from retailers’ warehouses
• Longer response time to react to marketplace changes
– Unable to meet changing demand patterns
– Supply chain inventory becomes obsolete as demand for
certain products disappears
• Increased variability (Bullwhip effect) leading to:
– Large inventory safety stocks
– Larger and more variably sized production batches
– Unacceptable service levels
– Inventory obsolescence
• Inefficient use of production facilities (factories)
– How is demand determined? Peak? Average?
– How is transportation capacity determined?
• Examples: Auto industry, large appliances, others? 24
Supply Chain Integration – Pull Strategies

• Production and distribution are demand-driven

– Coordinated with true customer demand
• None or little inventory held
– Only in response to specific orders
• Fast information flow mechanisms
– POS data
• Decreased lead times
• Decreased retailer inventory
• Decreased variability in the supply chain and especially at
manufacturers
• Decreased manufacturer inventory
• More efficient use of resources
• More difficult to take advantage of scale opportunities
• Examples: Dell, Amazon
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 Supply Chain Integration – Push/Pull Strategies

• Hybrid of “push” and “pull” strategies to overcome

disadvantages of each
• Early stages of product assembly are done in a “push” manner
– Partial assembly of product based on aggregate demand
forecasts (which are more accurate than individual product
demand forecasts)
– Uncertainty is reduced so safety stock inventory is lower
• Final product assembly is done based on customer demand for
specific product configurations
• Supply chain timeline determines “push-pull boundary”
Push-
Pull
Boundary
“Generic” Product “Customized” Product

Push Strategy Pull Strategy

Raw End
Materials Supply Chain Timeline Consumer 26
Choosing Between Push/Pull Strategies

Pull High Industries where: Where do the following

Industries where:
industries fit in this
• Customization is High • Demand is uncertain model:
• Demand is uncertain • Scale economies are High
• Low economies of scale
Demand Uncertainty

• Scale economies are Low • Automobile?

• Aircraft?
Computer Furniture • Fashion?
equipment • Petroleum refining?
• Pharmaceuticals?
Industries where: Industries where:
• Biotechnology?
• Uncertainty is low • Standard processes are the • Medical Devices?
• Low economies of scale norm
• Push-pull supply chain • Demand is stable
• Scale economies are High

Books, CD’s Grocery,

Push Low Beverages
Low Economies of Scale High

Pull Push
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Source: Simchi-Levi
Characteristics of Push, Pull and Push/Pull Strategies

PUSH PULL
Objective Minimize Cost Maximize Service Level

Complexity High Low

Focus Resource Allocation Responsiveness

Lead Time Long Short

Processes Supply Chain Planning Order Fulfillment

Source: Simchi-Levi 28
 Drivers of supply chain performance
• Aim.. responsiveness and efficiency at lowest
possible cost.
• Drivers are set to improve the supply chain
performance.
• Facilities
• Inventory
• Transportation
• Information
• Sourcing
• Pricing.
 Outline
• Drivers of supply chain performance
• A framework for structuring drivers
• Facilities Logistical drivers
• Inventory
• Transportation
Cross-functional drivers
• Information
• Sourcing
• Pricing

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 Drivers of Supply Chain Performance
• Facilities
– places where inventory is stored, assembled, or fabricated
– production sites and storage sites (distribution facilies (DC))
– Location, capacity, flexibility
– Responsive – several DC close to customer v.s. Efficiency- central few DCs
• Inventory
– raw materials, WIP, finished goods within a supply chain
– inventory policies
– Responsiveness – Large inventories, Efficiency – low inventories
• Transportation
– moving inventory from point to point in a supply chain
– combinations of transportation modes and routes
– Transportation choices make big impact on responsiveness

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 Drivers of Supply Chain Performance
• Information
– data and analysis and sharing regarding inventory, transportation, facilities,
costs, prices, supplier performance, demand forecast throughout the supply
chain
– potentially the biggest driver of supply chain performance, affects all other
drivers directly.
• Sourcing
– Sourcing functions that are outsourced, like production, storage, management
of information etc.
– Motorolla suffered from responsiveness after outsourcing production to
contract manufacturers in china because of long distances, started flying in
some of its cellular phones.
• Pricing
– Price associated with goods and services provided by a firm to the supply
chain
– Affects the behavior of the buyer.
– Transportation company charging based on lead time provided by customer.
Efficiency customers will order early. If the price is not dependent on lead time
early orders are very unlikely.

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 A Framework for
Structuring Drivers
Competitive Strategy

Supply Chain
Strategy
Efficiency Responsiveness
Supply chain structure

Logistical Drivers

Facilities Inventory Transportation

Interacting driver
Information Sourcing Pricing

Cross Functional Drivers

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 Structuring Drivers; Wal-Mart example

• Competitive strategy; every-day-low-price, reliable product

availability, wide-variety.
• Supply chain must be efficient with adequate level of
responsiveness
• Inventory – low levels of inventories, cross-ducking (no storage
at DCs) (efficiency)
• Transportation – owns its fleet of trucks (responsiveness)
• Facilities – Centrally located DCs. Won’t open stores until
demand justifies several of them and a DC to support them.
• Information – High investment on information technology,
sharing sales data directly and timely with its suppliers
• Sourcing – finding efficient suppliers, feeding them with large
orders
• Pricing – Every day low price (no sales season), assuring steady
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demand