410-MCC-UM
Course Instructor : Manish Chauhan
1 •INTRODUCTION TO SCM
2 •SCM Macro Processes
3 •SCM Drivers
4 •Performance Indicators
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https://www.youtube.com/watch?v=AwemFfdD6VI 3
Materials manager
Buyer/purchaser
Inventory planner
Business analyst
Logistic agent
SAP supply chain consultant
https://www.youtube.com/watch?v=AwemFfdD6VI 4
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Source: Operations Management 101
In reality, a manufacturer may receive material from several
suppliers and then supply several distributors.
Thus, most supply chains are actually networks. It may be
more accurate to use the term supply network or supply web
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Source: Operations Management 101
Traditional Views:
Logistics in the Manufacturing Firm
Profit 4% Profit
Logistics
Logistics Cost 21% Cost
Marketing
Marketing Cost 27% Cost
Manufacturing Cost 48% Manufacturing
Cost
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Traditional Views
Logistics in the US Economy
2006 2007 years
Freight Transportation $809 $856 Billion
Inventory Expense $446 $487 Billion
Administrative Expense $50 $54 Billion
Total Logistics Costs $1.31 $1.4 Trillion
Logistics Related Activity 10% 10.1% of GNP
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The Magnitude in the Traditional View
Estimated that the grocery industry could save $30
billion (10% of operating cost) by using effective
logistics and supply chain strategies
•A typical box of cereal spends 104 days from
factory to sale
•A typical car spends 15 days from factory to
dealership
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True Magnitude in the Traditional View
Compaq estimates it lost $.5 billion to $1 billion in
sales in 1995 because laptops were not available
when and where needed
When the 1 gig processor was introduced by AMD,
the price of the 800 mb processor dropped by 30%
Boeing aircraft, one of America's leading capital
goods producers, was forced to announce write
downs of $2.6 billion in October 1997, due to “Raw
material shortages, internal and supplier parts
shortages…”.
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The Potential
Procter & Gamble estimates that it saved retail
customers $65 million through logistics gains over
the past 18 months.
“According to P&G, the essence of its approach lies
in manufacturers and suppliers working closely
together …. jointly creating business plans to
eliminate the source of wasteful practices across the
entire supply chain”.
(Journal of business strategy, Oct./Nov. 1997)
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The Potential
In 10 years, Wal-Mart transformed itself by
changing its logistics system. It has the highest sales
per square foot, inventory turnover and operating
profit of any discount retailer.
Dell Computer has outperformed the competition
in terms of shareholder value growth over the eight
years period, 1988-1996, by over 3,000% (see
Anderson and Lee, 1999) using
Direct business model
Build-to-order strategy.
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A supply chain consists of all parties involved, directly or
indirectly, in fulfilling a customer request.
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https://www.youtube.com/watch?v=lZPO5RclZEo
Supply Chain Management is the backbone of global trade and
economic growth. It is the key to companies like Amazon and Wal-
Mart; and a strong enabler of future growth.
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Source: Operations Management 101
“Supply chain management encompasses the planning and
management of all activities involved in sourcing and
procurement, conversion, and all logistics
management activities. Importantly, it also includes
coordination and collaboration with channel partners, which
can be suppliers, intermediaries, third party service providers,
and customers. In essence, supply chain management
integrates supply and demand management within and across
companies.” – Supply Chain Council
Supply Chain Management is really about the end-to-end
coordination of processes, activities and players along a network
of interconnected value chains
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Source: apicardami
“A supply chain is a system of organizations, people,
activities, information, and resources involved in
moving a product or service from supplier to
customer.” – Wikipedia
The purpose of any supply chain is to satisfy a
customer’s need in the most cost-efficient and
effective way. In a way, supply chain try to maximize
the total value generated, which equates to the
difference between what the customer pays for a
product/service and the total effort (cost and time)
incurred by the supply chain to fulfill the order.
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Source: apicardami
A traditional view of supply chains describes the flow
of orders and goods between the following players:
Customer
Retailers
Wholesaler / Distributor
Manufacturer / Producer
Component / Raw-Material Supplier
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Source: apicardami
There are multiple ways to view a supply chain. Each
perspective provides additional context and depth.
Only through a combination of multiple perspective
we can obtain a holistic understanding of a supply
chain, and how it connects the flow of information,
activities, goods and services between a network of
interconnected firms, all the way to the end
customer.
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Source: apicardami
Perspective #1: Supply
Chain Operations
Reference Model (SCOR)
The SCOR Model,
developed by the Supply
Chain Council, describes
the supply chain as
composed of five core
management processes:
Plan
Source
Make
Deliver
Return
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Source: apicardami
Perspective #2:
Process Cycle View
The Process Cycle view
describes supply chains
as a series of
interconnected cycles:
◦ Customer Order Cycle
◦ Replenishment Cycle
◦ Manufacturing Cycle
◦ Procurement Cycle
In this model, we can observe how the
supply chain begins with the arrival of a
customer order, which then sequences a
series of activities up the stream between
retailers, distributors, manufacturers and
suppliers
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Source: apicardami
Perspective #3: Macro-Process
The Macro-Process perspective divides a firm’s supply chain
activities into three core areas:
◦ Supplier Relationship Management (SRM)
◦ Internal Supply Chain Management (ISCM)
◦ Customer Relationship Management (CRM)
This perspective
groups upstream
interactions with
suppliers, and
downstream
interactions with
customers.
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Source: apicardami
Perspective #4: Traditional Functional
The traditional functional perspective divides and organizes
supply chains into distinct functions; each with well-defined
processes, roles, and responsibilities.
◦ Customer Service
◦ Transportation
◦ Order Processing
◦ Material Handling
◦ Inventory Management
◦ Warehousing
◦ Purchasing
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Source: apicardami
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CUSTOMER
Customer Order Cycle
Distribution of Costs
Demand Information
Supply Information
RETAILER
Customer Value
Replenishment Cycle
DISTRIBUTOR
Manufacturing Cycle
MANUFACTURER
Procurement Cycle
SUPPLIER
The supply chain is an interconnected series of cycles 26
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https://www.youtube.com/watch?v=_aeAtSiRpF0
CUSTOMER
PULL Customer Order Cycle
Distribution of Costs
Demand Information
Supply Information
RETAILER
Customer Value
PUSH Replenishment Cycle
DISTRIBUTOR
Manufacturing Cycle
MANUFACTURER
Procurement Cycle
SUPPLIER
Examples: grocery, store front merchandise, catalogs 29
Customer wants
P&G or other Provigo or third Provigo
detergent and goes
manufacturer party DC Supermarket to Provigo
Chemical
Plastic Tenneco
manufacturer
Producer Packaging
(e.g. Oil Company)
Chemical
Paper Timber
manufacturer
Manufacturer Industry
(e.g. Oil Company)
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CUSTOMER
Customer Order Cycle
Distribution of Costs
Demand Information
Supply Information
RETAILER
Customer Value
PULL
Replenishment Cycle
DISTRIBUTOR
Manufacturing Cycle
PUSH
MANUFACTURER
Procurement Cycle
SUPPLIER
Example: Amazon.com 31
CUSTOMER
Customer Order Cycle
Distribution of Costs
Demand Information
Supply Information
RETAILER
Customer Value
Replenishment Cycle
DISTRIBUTOR
PULL
Manufacturing Cycle
MANUFACTURER
PUSH Procurement Cycle
SUPPLIER
Example: Dell, Wal-mart 32
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Source: Supply Chain Academy
PUSH PROs PUSH CONs
Enable customer impulse purchase High risk of customer forecasting –
inventory costs are highly
Use manufacturing economies of dependent on demand forecasting
scale and supply lead-times
Lose customization opportunity
PULL PULL
Firm customer order trigger Lose customer impulse purchase
Customization opportunity Lose manufacturing economies of
scale
High risk of customer demand
acceleration & deceleration
Push vs. Pull becomes a strategic decision 34
The value chain was introduced by Michael S.
Porter in 1985
"Value chain" is used to analyze the flow of
value-adding activities from the raw material
supplier to the end customer.
The model looks at what value each link adds
the company and thereby uncovers the
company's competitiveness.
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Support Activities
Primary Activities
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Source: http://www.flixabout.com/porters-value-chain
providing the customer with
information about the products purchase product enhances or
excellence which should lead to preserves value for the
a sale, determining the customer the service could
products distribution Channel, include advice in-person or
pricing promotion, personal online repairs customer
training ongoing maintenance
Primary Activities
selling etc
Order processing packaging shipping everything
which deals with the distribution of the finished
product to buyers
Transforming raw materials and
components into new products
Receiving goods , Inspection storage,
Receiving returned Goods etc 37
Source: http://www.flixabout.com/porters-value-chain
•Recruitment
•Training Supports primary, support
•Retention activities and Other activities
•Motivation e.g, Management, Planning,
Quality Management and
Finance etc.
Support Activities
•Function of purchasing not the physical input
•supports all the primary activities
•Overview: Products are in stock , delivery time
•ERP systems:
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Source: http://www.flixabout.com/porters-value-chain
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Source: http://www.flixabout.com/porters-value-chain
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Source: http://www.flixabout.com/porters-value-chain
The objective of every supply chain should be to maximize
the overall value generated.
◦ The value also known as supply chain surplus
Supply Chain Surplus = Customer Value – Supply Chain Cost
A growth in supply chain surplus increases the size of the
total pie, allowing contributing members of the supply chain
to benefit.
The customer is the only one providing positive cash flow for
the Wal-Mart supply chain.
◦ All other cash flows are simply fund exchanges that occur within the
supply chain, given that different stages have different owners. When Wal-
Mart pays its supplier, it is taking a portion of the funds the customer
provides and passing that money on to the supplier.
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