Chapter 1

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Understanding the Supply Chain

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Learning Objectives

• Discuss the goal of a supply chain, and explain the

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impact of supply chain decisions on the success of a firm.

• Identify the three key supply chain decision phases, and

explain the significance of each one.

• Describe the cycle and push/pull views of a supply chain.

• Classify the supply chain macro processes in a firm.

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 What is a Supply Chain?

• All stages involved, directly or indirectly, in fulfilling a

customer request.

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• 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).

Contd…

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 What is a Supply Chain?
• 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.

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• May be more accurate to use the term “supply network” or “supply
web”.
• Typical supply chain stages: customers, retailers,
distributors,
manufacturers, suppliers.
• All stages may not be present in all supply chains (e.g., no retailer or
distributor for Dell).

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Flows in a Supply Chain

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Figure 1-2

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 The Objective of a Supply Chain

• Customer is the only source of revenue.

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• Sources of cost includes flows of
information, products, or funds between
stages of the supply chain.

. There are mainly two objectives of Supply Chain

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 The Objective of a Supply Chain

. Maximize the value of supply chain surplus

Supply chain surplus = Customer value – Supply chain cost

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• Example: A customer purchases a wireless router from Best Buy
for 60 tk (revenue).

• Supply chain incurs costs 20 tk

(information,storage,transportation,components, assembly, etc.).

• Difference between 60 tk and the sum of all of these costs is the

supply chain profit.

Contd…

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 The Objective of a Supply Chain

• Effective supply chain management is the management of

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flows between and among supply chain stages to maximize total
supply chain surplus.

• Effective Fund Management that means effective money

management

• Effective Information Management I have to use a perfect use

of Information . True and on time information .

• Effective Product/service Management

• Effective HR Management
Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Importance of Supply Chain Decisions

• Profitability

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• Growth

• Competitiveness

• Sustainability

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Decision Phases of a Supply Chain

• Supply chain strategy or design

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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

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Supply Chain Strategy or Design

• Decisions about the structure of the supply chain and

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what
processes each stage will perform.

• Strategic supply chain decisions

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

Supplyexpensive to Planning,
Chain Management: Strategy, reverse—must take
and Operation, 5/e Authors: Sunilinto
Chopra, account market
Peter Meindl and D. V. Kalra
 Supply Chain Planning

• Definition of a set of policies that govern short-term operations.

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• Fixed by the supply configuration from previous phase.

• Starts with a forecast of demand in the coming year

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Supply Chain Planning

• Planning decisions:

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Which markets will be supplied from which locations
Planned buildup of inventories
Subcontracting, backup locations
Inventory policies
Timing and size of market promotions

• Must consider in planning decisions—demand

uncertainty, exchange rates, competition over the time horizon

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Supply Chain Operation

• Time horizon is weekly or daily.

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• Decisions regarding individual customer orders.

• Supply chain configuration is fixed and policies are

operating
determined.
• Goal is to implement the operating policies as effectively as
possible.

• 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).

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Process View of a Supply Chain

• Cycle view: processes in a supply chain are divided into a series

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of cycles, each performed at the interfaces between two successive
supply chain stages.

• Push/Pull view: processes in a supply chain are divided into two

categories depending on whether they are executed in response to
a customer order (pull) or in anticipation of a customer order
(push).

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Supply Chain Macro Processes

• Supply chain discussed in the two views can be

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processes
classified into:
Customer Relationship Management (CRM)
Internal Supply Chain Management
(ISCM) Supplier Relationship Management
(SRM)

• Integration among the above three macro processes is critical for

effective and successful supply chain management.

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Supply Chain Macro Processes

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Figure 1-8

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra
 Summary of Learning Objectives

• Discuss the goal of a supply chain and explain the

Copyright © 2013 Dorling Kindersley (India) Pvt. Ltd.

impact of
supply chain decisions on the success of a firm.

• Identify the three key supply chain decision phases and explain
the significance of each one.

• Describe the cycle and push/pull views of a supply chain.

• Classify the supply chain macro processes in a firm.

Supply Chain Management: Strategy, Planning, and Operation, 5/e Authors: Sunil Chopra, Peter Meindl and D. V. Kalra