The Supply Chain Management module broadens our analytical lens to focus on

operating models that extend beyond an individual firm’s boundaries to include

other firms. A supply chain is a network of organizations, people, resources,
activities, and information that connects suppliers to customers. This course
module introduces some of the key concepts in supply chain design and
management, and looks at the structure of how raw materials and services are
converted into products. The organization of a firm’s supply chain reflects choices
that it makes about what work it will perform itself, and what work it will procure
from other organizations, including its suppliers and partners. These decisions are
often highly dependent on geographic location choices, as different countries offer
distinctive costs and benefits to having a factory situated within their borders.
Supply chain performance is critical to a firm’s overall success. In this module,
we explore how different parts of a supply chain coordinate their actions with each
other, as well as some of the choices and actions that make a supply chain more
efficient or responsive to fluctuating consumer demand. Interdependencies in
gathering information and data and in decision making create opportunities for
sharing and coordination that enable more effective choices.
Chapter 1: Understanding the supply chain
1.1 What is a Supply Chain?
• All stages involved, directly or indirectly, in fulfilling a customer request
• Includes manufacturers, suppliers, transporters, warehouses, retailers, and
customers
• Within each company, the supply chain includes all functions involved in
fulfilling a customer request (product development, marketing, operations,
distribution, finance, customer service)
• Customer is an integral part of the supply chain
• Includes movement of products from suppliers to manufacturers to
distributors and information, funds, and products in both directions
• May be more accurate to use the term “supply network” or “supply web”
• Typical supply chain stages: customers, retailers, wholesalers/distributors,
manufacturers, component/raw material suppliers
• All stages may not be present in all supply chains (e.g., no retailer or
distributor for Dell)
1.2 Flows in a supply chain

1.3 The Objective of a Supply Chain

• Maximize overall value generated
Supply Chain Surplus = Customer Value – Supply Chain Cost
1.4 The importance of supply chain decisions
Supply chain design, planning, and operation decisions play a significant role in
the success or failure of a firm. To stay competitive, supply chains must adapt to
changing technology and customer expectations.
1.5 Decision Phases in a Supply Chain
Supply chain strategy or design
How to structure the supply chain over the next several years
Supply chain planning
Decisions over the next quarter or year
Supply chain operation
Daily or weekly operational decisions
1.6 Process Views of a Supply Chain
Cycle View: The processes in a supply chain are divided into a series of cycles,
each performed at the interface between two successive stages of the supply chain.
Push/Pull View: The processes in a supply chain are divided into two categories,
depending on whether they are executed in response to a customer order or in
anticipation of customer orders. Pull processes are initiated by a customer order,
whereas push processes are initiated and performed in anticipation of customer
orders.
Key Points
Supply chain design, planning, and operation decisions play a significant role in
the success or failure of a firm. To stay competitive, supply chains must adapt to
changing technology and customer expectations.
Supply chain decision phases may be categorized as design, planning, or
operational, depending on the time frame during which the decisions made apply.
Design decisions constrain or enable good planning, which in turn constrains or
enables effective operation.
A cycle view of the supply chain clearly defines the processes involved and the
owners of each process. This view is useful when considering operational
decisions because it specifies the roles and responsibilities of each member of the
supply chain and the desired outcome for each process.
A push/pull view of the supply chain categorizes processes based on whether they
are initiated in response to a customer order (pull) or in anticipation of a customer
order (push). This view is useful when considering strategic decisions relating to
supply chain design.

Chapter 2: Supply Chain Operations: Planning and Sourcing

2.1 Model of Supply Chain Operations
Plan: mean all operations needed to plan and organize the operations in the other
three categories
Soure: the activities necessary to acquire the inputs to create products or services
Make: the operations required to develop and build the products and services that
a supply chain provises
Delivery: the activities that are part of receiving customer orders and delivering
products to customers
2.2 Demand Forecasting and Planning
All forecasts deal with four major variables.
Supply: is determined by the number of producers of a product and by the lead
times that are associated with a product
Demand: refers to the overall market demand for a group of related products or
services
Product characteristics: includes the features of a product that influence
customer demand for the product.
Competitive environment: refers to the actions of a company and its
competitors.
Forecasting method
There are four basic methods to use when forecasting:
Qualitative: these method rely upon a person’s intuition or subjective opinions
about a market
Causal: assume that demand is strongly related to environmental or market
factors
Time series: are the most common form of forecasting. They are based on
assumption that historical patterns of demand are a good indicator or future
demand
Simulation: use combinations of causal and time series methods to imitate the
behavior of consumers under different circumstances
2.3 Source: Procurement
a. Purchasing:
Routine activities of issuing purchasing orders
Two types of orders are made: direct or strategic materials for production and
indirect or MRO (maintenance, repair, and operations)
b. Consumption Mgt:
Understand what categories of product are being bought throughout the company
Set expected levels of consumption
When consumption is irregular, bring this to the attention of authorities.
c. Vendor selection
Understand the current purchasing situation
Search for suppliers who have both products and service capabilities needed
Narrow down the number of suppliers to do business with.
d. Contract negotiation
Work out specific items, prices, and service levels
Simplest negotiations are for contracts to purchase indirect products
Complex negotiations are for contracts to purchase direct materials.
e. Contract Mgt
Measure and manage vendor performance
Track performance of suppliers and hold them accountable to meet the service
levels
Routinely collect data about performance of suppliers.

Chapter 3: Transportation in a supply chain

3.1 The Role of transportation in a supply chain
 Movement of product from one location to another
 Products rarely produced and consumed in the same location
 Significant cost component
 Shipper requires the movement of the product
 Carrier moves or transports the product
3.2 Modes of Transportation and Their Performance Characteristics
3.2.1 Air
3.2.2 Package carriers
3.2.3 Truck
3.2.4 Rail
3.2.5 Water
3.2.6 Pipeline
3.2.7 Intermodal
3.3 Design options for a transportation network
When designing a transportation network:
3.3.1 Should transportation be direct or through an intermediate site?
3.3.2 Should the intermediate site stock product or only serve as a cross-
docking location?
3.3.3 Should each delivery route supply a single destination or multiple
destinations (milk run)?
Trade-offs in Transportation Design:
3.3.4 Transportation and inventory cost trade-off
3.3.5 Transportation cost and responsiveness trade-off
Key point:
When selecting a mode of transportation, managers must account for unit costs
and cycle, safety, and in-transit inventory costs that result from using each mode.
Modes with high transportation costs can be justified if they result in significantly
lower inventory costs.

Chapter 4: Inventory in supply chain management

4.1 Supply Chain Inventory
In the supply chain, inventory plays different roles:
 Improve supply chain reliability through safety stocks
 Allow flexibility of volume, mix or location
 Reduce purchasing/transport cost through batching
 Improve customer service with buffers
 Mitigate capacity or delivery constraints
4.2 SC characteristics
The volume and positioning of supply chain inventory depends on the intended
objectives:
 Delivery speed
 Delivery reliability
 Capacity and volume flexibility
 Product range and mix
 Unit cost
 Customer service
 Also depends on the process complexity
 Product/process structure
4.3 Types of SC inventory
 Cycle Inventory
Average inventory in supply chain due to purchasing or producing in lot sizes
larger than that required to satisfy immediate customer demand. How much and
when to order.
 Safety stock
Inventory surplus that a company holds to protect against uncertainty in demand,
lead time and supply
 Anticipation Inventory
Inventory used to absorb uneven rates of demand or supply.
 Pipeline inventory
Inventory moving from point to point in the supply chain

4.4 Inventory management models

 ABC analysis

 EOQ (Economic Order Quantity)

 POQ (Production Oder Quantity)

Chapter 5: Supply chain drivers and metrics
5.1 Financial Measures Of Performance

From a shareholder perspective, return on equity (ROE) is the main summary

measure of a firm’s performance

Net Income
ROE 
Average Shareholder Equity

Return on assets (ROA) measures the return earned on each dollar invested by
the firm in assets

Earnings before interest

ROA 
Average Total Assets
Net Income  Interest Expense  (1 – Tax Rate)

Average Total Assets

Two measures not part of financial statements

Markdowns: discounts required to convince customers to buy excess inventory
Lost sales: represent customer sales that did not materialize because of the
absence of products the customer wanted to buy
5.2 Drivers of Supply Chain Performance
Facilities
The physical locations in the supply chain network where product is stored,
assembled, or fabricated
Inventory
All raw materials, work in process, and finished goods within a supply chain
Transportation
Moving inventory from point to point in the supply chain
Information
Data and analysis concerning facilities, inventory, transportation, costs, prices,
and customers throughout the supply chain
Sourcing
Who will perform a particular supply chain activity
Pricing
How much a firm will charge for the goods and services that it makes available in
the supply chain