Understanding the

1 Supply Chain

PowerPoint presenta-on
to accompany
Chopra and Meindl
Supply Chain Management,
6e 11
––
 Learning Objec:ves
1. Discuss the goal of a supply chain and explain the impact of
supply chain decisions on the success of a Jrm.
2. Iden:fy the three key supply chain decision phases and
explain the signiJcance of each one.
3. Describe the cycle and push/pull views of a supply chain.
4. Classify the supply chain macro processes in a Jrm.

Copyright © 2016 Pearson Educa:on, Inc. 1–2

What it takes to get Nutella:

-
-

-
Apple iphone supply chain:
0000 o
 *

What is a Supply Chain?

• All stages involved, o
-
directly or indirectly, in fulJlling a
customer request
① ② ③
• Includes manufacturers, suppliers, transporters, 6
stages
- -

warehouses, retailers, and customers

--⑥
• Within each company, the supply chain includes all I

func:ons involved in fulJlling a customer request (product

development, marke:ng, opera:ons, distribu:on, Jnance,
2 3 & 5
customer service)
3

>
-
supply chain includes:
stages
& within
company includes
each
stages (functions)
:

to fulfill a
customers .
request

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 What is a Supply Chain?
• Customer is an-
integral part of the supply chain: primary purpose is
O the customer needs
-

to sa:sfy
-

-
--
-
• Includes movement of products from suppliers to manufacturers to
distributors and informa:on, funds, and products in both direc:ons
-
-

• May be more accurate to use the term “supply network” or

-
I
A chain
supply features
:

“supply web”
a constant

flow of: into , products &

-
funds.

• Typical supply chain stages:

I • customers,
-

2
• retailers,
-

•
>3 •
wholesalers/distributors,
-

& manufacturers,
-

5
• component/raw material suppliers
-
-

• All stages may not be present in all supply chains (e.g., no retailer
or distributor for Dell)
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 What is a Supply Chain?
Packaging material

Low-:er suppliers

chemicals plas:c
FIGURE 1-1: stages of a detergent supply chain

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 Flows in a Supply Chain
-

- -
= -
- -

00000
-

-
-

-
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 The②
Objec:ve of a Supply Chain
• Maximize overall value generated
• Value== Supply Chain Surplus

Supply Chain Surplus = Customer Value – Supply Chain Cost

-
-

value -
cost

SCS = CV -
SCC

CS
SCS =
Scp +

profit + surplus

Copyright © 2016 Pearson Educa:on, Inc. 1–9

 The Objec:ve of a Supply Chain
• Example: a customer purchases a wireless router from Best Buy for $60
(revenue)

• Customers value the router at $60 or more=> customer value

• Customer value – price= customer surplus

• Supply chain incurs costs (informa:on, storage, transporta:on, produce

components, assembly, etc.)

• Dieerence between $60 and the sum of all of these costs is the supply chain
proJt

• Supply chain surplus=supply chain proJt +customer surplus

• Supply chain proJtability is total proJt to be shared across all stages of the
supply chain

• ·
Success should be measured by total supply chain proJtability, not proJts at
an individual stage
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 The Objec:ve of a Supply Chain
• O
Customer the only source of revenue
=>

• Sources of cost include gows of informa:on, products, or -

-

funds between stages of the supply chain

- - -

• Eeec:ve supply chain management is the management of -

=
supply chain assets and product, informa:on, and fund
gows to grow the total supply chain surplus
-

assets & products

management -
:
chain
to
grow total
supply surplus .
~
into a fund flows

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supply chain
:

management of flows

Close

connection !
Importance of
design success

Supply Chain Decisions

-
• Close connec:on between supply chain design and
-
management E
of supply chain gows and supply chain success.
• Wal-Mart: cluster of stores around distribu:on centers, $1
-
-

billion sales in 1980 to $469 billion in 2013

• Seven-Eleven Japan: responsive supply chain, ¥1 billion sales in
1974 to ¥1.9 trillion in 2013
• Webvan: large grocery warehouses for home delivery, folded
in two years
• Borders, $4 billion in 2004 to $2.8 billion in 2009, ajacked by
Amazon
• Dell, sales of $56 billion in 2006, adopted new supply chain
strategies
Copyright © 2016 Pearson Educa:on, Inc. 1 – 12
 Key Point

00
Supply chain design, planning, and opera:on

⑧
decisions play a signiJcant role - -
in the success or
failure of a Jrm. To·
-
-
stay compe::ve, supply chains
-

must adapt to changing technology and customer

-

expecta:ons.
-

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 Decision Phases in a Supply Chain
1. Supply chain①
strategy or design
How to structure the supply chain over the next
- -

several years
-

• Outsource or in-house produc:on

- -
-

&
• Loca:ons and capaci:es of produc:on and
-
-

warehouse facili:es
-
-

• Products
- to be-
manufactured
-

-
• Transporta:on modes -

• Type of informa:on system

-
v

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 Decision Phases in a Supply Chain
2. Supply chain② planning
-o
Decisions over the next quarter or year

• Which markets supplied from which loca:ons

•
-

-v
Subcontrac:ng for manufacturing
-

• Inventory policies to be followed -

-

• -
Timing and size
-
of marke:ng and price promo:ons

Copyright © 2016 Pearson Educa:on, Inc. 1 – 15

 Decision Phases in a Supply Chain
·
3. Supply chain opera:on
00-
Daily or weekly opera:onal decisions

• Decisions regarding individual customer orders -

-
-

• Allocate
- inventory or produc:on
- to orders
• Set a date by which an order to be Jlled -
-

• Generate pick lists at a warehouse -

-
-

• Allocate orders to a par:cular shipping mode and

-
-

shipment L
-

• Set delivery schedules of trucks -

-

• Place replenishment orders-

-

Copyright © 2016 Pearson Educa:on, Inc. 1 – 16

 Key Point

Supply chain decision phases may be categorized as

① ③
design, planning, or opera:onal, depending on the
Strategic

:me frame during which the decisions made apply.

Design decisions constrain or enable good
planning, which in turn constrains or enables
eeec:ve opera:on.

design enables -
planning enables -
operational

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 Process Views of a Supply Chain
• A supply chain is a -
sequence of processes and gows that take place
-e
within and between dieerent stages and combine to Jll a customer
- -

need for a product.

-

• Can be viewed in6

two ways:
1. Cycle View: The processes in a supply chain areO
- divided into a series of -

cycles, each performed at the interface between two successive stages of

-
- -

the supply chain.

-

2. Push/Pull View: The processes in a supply chain are divided into two
-
Pull
categories, depending on whether they are executed in response to a -

push
customer order or in an:cipa:on of customer orders. Pull processes are
-
-

ini:ated by a customer order, whereas push processes are ini:ated and

performed in an:cipa:on of customer orders.
push you just push the product to the customer ready made to
changes
* :
its sell (No
Copyright © 2016 Pearson Educa:on, Inc. 1 – 18
.

;
 CO R M P
Cycle View
-
- -

I
of Supply Co2
stages

Y
chain .

:
Chain
Processes Ra of occurs at the

between those
-

interface

z
stages.

↓
• Four cycles
• Each consist of six subprocesses

procurment nufactury a replenishing customer order

↑
.

Sup+ Manu-dist-retail - cust

FIGURE 1-3: cycle view of supply chain

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 Cycle View of
Supply Chain Processes
- -

-
-

-
-

- -

- -

FIGURE 1-4: Supply chain subprocesses

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 Key Point

A cycle view of the supply chain clearly deJnes the

processes involved and the owners of each process. This
ge

&
stage
view is useful when considering opera:onal decisions
because it speciJes the roles and responsibili:es of
each member of the supply chain and the desired
outcome for each process.

Copyright © 2016 Pearson Educa:on, Inc. 1 – 21

 Push/Pull View of Supply Chains
Raw material

Customer
•Pull processes: Reac8ve Processes >
-
request exp apple
Based on customer ,
:
,
tesla , restaurants·

•Push processes: Specula8ve Processes ready

- comes exp
to take as it is ,
: .
cola

•Push/pull boundary separates push processes from pull processes

↓
Both

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: When its make to stock :
Push/Pull View – L.L. Bean
would
-your push process
be
acquiring
the
supplies, Make to stock strategy -
push
manufacturing
&
them

replenishing them (cause

.

your going pushing

to be

these supplies either

ways
at the customer

would
-
pull process only
be the customer order

detailer

Copyright © 2016 Pearson Educa:on, Inc. 1 – 23

 (Pull)
Push/Pull View – Ethan Allen
:
When its build to order :

the process would

Build to order strategy -
pull
-

only push

be the material to
acquiring
make the
product ;
because

making that product needs

the same whether it was

suplies
push or
pull (He
.

only diff would

be the customization
- then build it off to
customer
specifications. (pull)
-

customer order * No
replenishment cycle .

manufacturing

Copyright © 2016 Pearson Educa:on, Inc. 1 – 24

 Key Point

A push/pull view of the supply chain categorizes

processes based on whether they are ini:ated in
response to a customer order (pull) or in an:cipa:on
of a customer order (push). This view is useful when

-
considering strategic decisions rela:ng to supply chain
design.

Copyright © 2016 Pearson Educa:on, Inc. 1 – 25

 Supply Chain Macro Processes
Supply chain processes discussed in the two views can be
d d

classiJed into: Cycle view Push/pull view

firm - customers

1. Customer RelaGonship Management (CRM):

• all processes at the interface between the Jrm and its
-
- -

customers
-

internal

2. Internal Supply Chain Management (ISCM):

• all processes that are internal to the Jrm
- -

+ suppliers
firm

3. Supplier RelaGonship Management (SRM):

• all processes at the interface between the Jrm and its
suppliers
Copyright © 2016 Pearson Educa:on, Inc. 1 – 26
 Key Point

Within a Jrm, all supply chain ⑳

ac:vi:es belong to one of

Go
three macro processes: CRM, ISCM, and SRM. Integra:on
among the three macro processes is crucial for successful
supply chain management.

Copyright © 2016 Pearson Educa:on, Inc. 1 – 27

e
S
Supply Chain Macro Processes

- -
-

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-

- - -

-
- -

- -
-

• CRM: aims to generate customer demand and facilitate the placement and
- - - -

tracking of orders Corder managment

-

• ISCM: aims to fulJll demand generated by the CRM process in a :mely manner
- -
-

and at the lowest possible cost

-
-

• SRM: aims to arrange for and manage supply sources for various goods and
-
-

services
-
Copyright © 2016 Pearson Educa:on, Inc. 1 – 28
 Examples of Supply Chains
• Gateway and Apple
• Zara
• W.W. Grainger and McMaster-Carr
• Toyota
• Amazon
• Macy's

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 A

Gateway and Apple

Gateway was founded in 1985 as a direct sales manufacturer of PCs
with no retail footprint. In 1996, Gateway was one of the Jrst PC
manufacturers to start selling PCs online. Arer many years of selling
its PCs without a retail infrastructure, however, Gateway introduced
an aggressive strategy of opening Gateway retail stores throughout
the United States in the late 1990s. Its stores carried no Jnished-
goods inventory and were primarily focused on helping customers
select the right conJgura:on to purchase. All PCs were manufactured
to order and shipped to the customer from one of the assembly
plants.

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 Gateway and Apple
Ini:ally, investors rewarded Gateway for this strategy and raised the
stock price to more than $80 per share in late 1999. However, this
success did not last. By November 2002, Gateway shares had dropped
to less than $4, and Gateway was losing a signiJcant amount of
money. By April 2004, Gateway had closed all its retail outlets and
reduced the number of conJgura:ons oeered to customers. In
August 2007, Gateway was purchased by Taiwan’s Acer for $710
million. By 2010, Gateway computers were sold through more than
20 dieerent retail outlets, including Best Buy and Costco. As one can
imagine, this was quite a transi:on for the company to experience.

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 Gateway and Apple
In contrast, Apple has enjoyed tremendous success since it opened its
Jrst retail store in 2001. By 2013, Apple had more than 415 stores
worldwide, with sales of over $20 billion. Unlike Gateway, Apple has
always carried product inventory at its stores. Given its product
designs, Apple carries rela:vely lijle variety in its stores. In 2012,
average revenue per Apple retail store was $51.5 million, a 19 percent
increase over 2011.

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 Gateway and Apple
1. Why did Gateway choose not to carry any Jnished-product inventory at
its retail stores? Why did Apple choose to carry inventory at its stores?

2. Should a Jrm with an investment in retail stores carry any Jnished-goods

inventory? What are the characteris:cs of products that are most suitable
to be carried in Jnished-goods inventory? What characterizes products that
are best manufactured to order?

3. How does product variety aeect the level of inventory a retail store must
carry?

4. Is a direct selling supply chain without retail stores always less expensive
than a supply chain with retail stores?

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Zara
1. What advantage does Zara gain against the compe::on by having a
very responsive supply chain?
2. Why has Inditex chosen to have both in-house manufacturing and
outsourced manufacturing? Why has Inditex maintained manufacturing
capacity in Europe even though manufacturing in Asia is much
cheaper?
3. Why does Zara source products with uncertain demand from local
manufacturers and products with predictable demand from Asian
manufacturers?
4. What advantage does Zara gain from replenishing its stores mul:ple
:mes a week compared to a less frequent schedule? How does the
frequency of replenishment aeect the design of its distribu:on system?
5. Do you think Zara’s responsive replenishment infrastructure is
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2016 Pearsonsuited
Educa:on, Inc.for online sales or retail sales? 1 – 34
W.W. Grainger and McMaster-Carr
1. How many DCs should be built and where should they be located?
2. How should product stocking be managed at the DCs? Should all DCs
carry all products?
3. What products should be carried in inventory and what products
should be ler with the supplier to be shipped directly in response
to a customer order?
4. What products should W.W. Grainger carry at a store?
5. How should markets be allocated to DCs in terms of order fulJllment?
What should be done if an order cannot be completely Jlled from a DC?
Should there be speciJed backup loca:ons? How should they be
selected?

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Toyota
1. Where should the plants be located, and what degree of
gexibility should be built into each? What capacity should
each plant have?
2. Should plants be able to produce for all markets or only
for speciJc con:ngency markets?
3. How should markets be allocated to plants and how
frequently should this alloca:on be revised?
4. How should the investment in gexibility be valued?

Copyright © 2016 Pearson Educa:on, Inc. 1 – 36

 Amazon
1. Why is Amazon building more warehouses as it grows? How
many warehouses should it have and where should they be
located?
2. Should Amazon stock every product it sells?
3. What advantage can bricks-and-mortar players derive from
setng up an online channel? How should they use the
two channels to gain maximum advantage?
4. What advantages and disadvantages does the online channel
enjoy in the sale of shoes and diapers rela:ve to a retail
store?
5. For what products does the online channel oeer the greater
advantage rela:ve to retail stores? What characterizes
these products?
Copyright © 2016 Pearson Educa:on, Inc. 1 – 37
 Macy's
1. Should online orders be Jlled from stores or
fulJllment centers?
2. How should store inventories be managed in an omni-
channel setng?
3. Should returns be kept at a store or sent to a
fulJllment center?

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 Summary of Learning Objec:ves
1. Discuss the goal of a supply chain and explain the impact of
supply chain decisions on the success of a Jrm.
2. Iden:fy the three key supply chain decision phases and
explain the signiJcance of each one.
3. Describe the cycle and push/pull views of a supply chain.
4. Classify the supply chain macro processes in a Jrm.

Copyright © 2016 Pearson Educa:on, Inc. 1 – 39