Supply Chain Management

Rakesh Jain

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Outline
• What is a Supply Chain?
• Decision Phases in a Supply Chain
• Process View of a Supply Chain
• The Importance of Supply Chain Flows
• Examples of Supply Chains

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What is a Supply Chain?

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What is Supply Chain?
• Flow of information, products, funds in upstream
and downstream
• May consist of more than one players at each
tier/stage
• May be a chain or group of chains called supply
network or supply web
• Not necessary that all the players exist in a supply
chain

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Flows in a Supply Chain

Information

Product
Customer
Funds

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Components of Supply Chain

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The Objective of a Supply Chain
• Maximize overall value created
• Supply chain value: difference between what the
final product is worth to the customer and the
effort the supply chain expends in filling the
customer’s request
• Value is correlated to supply chain profitability
(difference between revenue generated from the
customer and the overall cost across the supply
chain)

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 The Objective of a Supply Chain
• Example: Dell receives Rs. 60,000 from a customer for
a laptop (revenue)
• Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
• Difference between Rs.60,000 and the sum of all of
these costs is the supply chain profit
• Supply chain profitability is total profit to be shared
across all stages of the supply chain
• Supply chain success should be measured by total
supply chain profitability, not profits at an individual
stage
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The Objective of a Supply Chain
• Sources of supply chain revenue: the customer
• Sources of supply chain cost: flows of information,
products, or funds between stages of the supply
chain
• Supply chain management is the management of
flows between and among supply chain stages to
maximize total supply chain profitability

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Decision Phases of a Supply Chain

• On the basis of frequency with which they are

SUPPLY CHAIN STRATEGY OR DESIGN

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Supply Chain Strategy or Design
• Decisions about the structure of the supply chain and
what processes each stage will perform
• Strategic supply chain decisions like:
• Locations and capacities of facilities
• Products to be made or stored at various locations
• Modes of transportation
• Information systems
• Supply chain design must support strategic objectives
• Supply chain design decisions are long-term and
expensive to reverse – must take into account market
uncertainty
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More SC strategic decisions
• Chain’s configuration
• Resource allocation
• Processes at each stage
• Sourcing
• Location of facilities
• Product allocation regarding manuf. & storing
• Modes of transportation
• Type of information system

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Supply Chain Planning
• Definition of a set of policies that govern short-term
operations
• Fixed by the supply configuration from previous phase
• Starts with a forecast of demand in the coming year
• Time frame is quarter to an year
• Define set of operating policies that govern short-
term operations.
• Must consider in planning decisions demand
uncertainty, exchange rates, competition over the
time horizons

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SC Planning Decisions
• Market allocation
• Subcontracting of manufacturing
• Inventory policies
• Timing & Size of marketing and pricing promotions
• Level of flexibility to be incorporated

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 Supply Chain Operation
• Time horizon is weekly or daily
• Decisions regarding individual customer orders
• Supply chain configuration is fixed and operating
policies are determined
• Goal is to exploit reduction in uncertainty and optimize
performance
• Allocate orders to inventory or production, set order
due dates, generate pick lists at a warehouse, allocate
an order to a particular shipment, set delivery
schedules, place replenishment orders
• Much less uncertainty (short time horizon)
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SC Operation
• Inventory & Production allocation to orders
• Scheduling of orders
• Generate pick list at the warehouse
• Order allocation to shipping mode & shipment
• Setting delivery schedule
• Placing replenishment orders

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Process View of a Supply Chain
• Cycle view: processes in a supply chain are divided
into a series of cycles, each performed at the
interfaces between two successive supply chain
stages

• Push/pull view: processes in a supply chain are

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Cycle View of Supply Chains
Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle

Manufacturer
Procurement Cycle
Supplier
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 Cycle View of a Supply Chain
• Each cycle occurs at the interface between two
successive stages
• Customer order cycle (customer-retailer)
• Replenishment cycle (retailer-distributor)
• Manufacturing cycle (distributor-manufacturer)
• Procurement cycle (manufacturer-supplier)
• Cycle view clearly defines processes involved and
the owners of each process. Specifies the roles
and responsibilities of each member and the
desired outcome of each process.
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Customer Order Cycle
• Involves all processes directly involved in receiving
and filling the customer’s order
• Customer arrival
• Customer order entry
• Customer order fulfillment
• Customer order receiving

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Replenishment Cycle
• All processes involved in replenishing retailer
inventories (retailer is now the customer)
• Retail order trigger
• Retail order entry
• Retail order fulfillment
• Retail order receiving

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Manufacturing Cycle
• All processes involved in replenishing distributor (or
retailer) inventory
• Order arrival from the distributor, retailer, or
customer
• Production scheduling
• Manufacturing and shipping
• Receiving at the distributor, retailer, or customer

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 Procurement Cycle
• All processes necessary to ensure that materials are
available for manufacturing to occur according to
schedule
• Manufacturer orders components from suppliers to
replenish component inventories
• However, component orders can be determined
precisely from production schedules (different from
retailer/distributor orders that are based on uncertain
customer demand)
• Important that suppliers be linked to the
manufacturer’s production schedule

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Push/Pull View of Supply Chains
Procurement, Customer Order
Manufacturing and Cycle
Replenishment cycles

PUSH PROCESSES PULL PROCESSES

Customer
Order Arrives
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Push/Pull View of
Supply Chain Processes
• Supply chain processes fall into one of two
categories depending on the timing of their
execution relative to customer demand
• Pull: execution is initiated in response to a
customer order (reactive)
• Push: execution is initiated in anticipation of
customer orders (speculative)
• Push/pull boundary separates push processes from
pull processes

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Push/Pull View of
Supply Chain Processes
• Useful in considering strategic decisions relating to
supply chain design – more global view of how
supply chain processes relate to customer orders
• Can combine the push/pull and cycle views
• L.L. Bean
• Dell
• The relative proportion of push and pull processes
can have an impact on supply chain performance

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Examples of Supply Chains
• Dell / Compaq
• Toyota / GM / Ford
• Amazon
• Zara
• Amul/Saras

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Toyota
• Where should plants be located, what degree of
flexibility should each have, and what capacity should
each have?
• Should plants be able to produce for all markets?
• How should markets be allocated to plants?
• What kind of flexibility should be built into the
distribution system?
• How should this flexible investment be valued?
• What actions may be taken during product design to
facilitate this flexibility?

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 Amazon.com
• Why is Amazon building more warehouses as it grows? How many
warehouses should it have and where should they be located?
• What advantages does selling books via the Internet provide? Are
there disadvantages?
• Why does Amazon stock bestsellers while buying other titles from
distributors?
• Does an Internet channel provide greater value to a bookseller like
Borders or to an Internet-only company like Amazon?
• Should traditional booksellers like Borders integrate e-commerce
into their current supply?
• For what products does the e-commerce channel offer the
greatest benefits? What characterizes these products?

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Summary of Learning Objectives
• What are the cycle and push/pull views of a supply
chain?
• How can supply chain macro processes be
classified?
• What are the three key supply chain decision
phases and what is the significance of each?
• What is the goal of a supply chain and what is the
impact of supply chain decisions on the success of
the firm?

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