Supply Chain

Management
Gunjan Soni
ITEB G621
LECTURE 1

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 UNIT -1

 UNDERSTANDING THE SUPPLY CHAIN

 SUPPLY CHAIN PERFORMANCE:

ACHIEVING A STRATEGIC FIT

 SUPPLY CHAIN DRIVERS AND

METRICES

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 GOAL of the UNIT

 To provide a strategic framework to analyze

the design, planning , and operational
decisions in SC’s

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 Supply Chain
Management
Chapter 1
Understanding the Supply Chain

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Traditional Supply Chain

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 Terminology

 Physical Distribution Management

 Materials Management
 Logistics Management
 Supply Chain Management (SCM)

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 PDM
 It is a term employed in manufacturing and
commerce to describe the broad range of activities
concerned with efficient movement of finished
products from end of production line to the consumer
or
The movement of raw materials from the source of
supply to the beginning of production line .

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 Logistics Management
While logistics management “ is that part of the
supply chain management process that plans,
implements, controls the efficient, effective
forward and reverses flow, storage of goods,
services, and related information between the
point of origin and the point of consumption in
order to meet customer requirements” .

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 Logistics
 Term logistics has been used to describe the
component of warfare associated with the
transport of soldiers, industrialism, & the
modern market system
 At the beginning of century “ physical
distribution” was used to define the activities
 Over course of century it was called as
Business Logistics, logistics of distribution &
materials management

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 Logistics in pre-historic times
 Early logistics aroused due to surplus grains,
raw materials, or manufacture could be
traded for scarcer commodities
 Market demand occurred in barter form

 Transaction occurred in bulk and purchaser

made arrangement for movement
 Logistics were simpler with consumer and
producer interacting directly
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 Modern Industrial Era
 Before industrial rev. products were unique hand crafted
objects
 Later products got standardized & improvement in
finance, law, & commercial structures
 Producers lost their primary character & got involved in
problems of production
 Mass prodn. , economies of scale & mass customization
of standardized goods got essential
 Growth boosted by new national & international markets
 Producer & consumer got distant

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 Logistics got important!!!!
 Separation by time & space of producer
& consumer
 Specialized middleman & transportation
services grew
 Alternate modes of distribution
developed
 Structure of commercial exchange
emerged involving wholesaler, retailer
& customer 12
 Pre-1970 Business Environment
Some of the characteristics of the pre-1970s business
environment are:
 Protected domestic markets
 Regulated financial markets
 Stable exchange rates
 Regulated labor markets with relatively low levels of
unemployment
 Relatively stable government fiscal and monetary
 Two major economic power bases ( Europe and North
America)
 Successful industrialized economies
 Complex organizational structures
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 Post-1970 Business environment
 Companies have become more specialized and search for
suppliers who can provide low cost, quality materials rather
than own their source of supply.
 Mutual benefit
 Increased national and international competition
 Realization by companies that maximizing performance of one
department or function may lead to sub optimization.
 Greater sharing of information between vendors and customers
 Shift from mass production to customized products
 Increased reliance on purchased materials and outside
processing with a simultaneous reduction in number of
suppliers
 Necessary to coordinate processes across many sites
 Employee empowerment and the need for rules- based real time
decision support systems
 Competitive pressure to introduce new products more quickly
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Logistics Management

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Supply chain management (SCM)
According to counsel of logistics management (CLM)
SCM is “an integrating function with primary
responsibility for linking major business functions and
business processes within and across companies into a
cohesive and high-performing business model. It includes
all of the Logistics Management activities noted earlier,
as well as manufacturing operations, it drives
coordination of processes activities within and across
marketing, sales, product design, finance and information
technology"

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Logistics : A subset of SCM
SUPPLY CHAIN MANAGEMENT
•Managing relationship
•Integration through IT
•Collaborative alliance
•Vendor evaluation
•Purchasing strategies
•Outsourcing
•B2B & B2C transactions

Logistics
Procurement
Manufacturing
Distribution
Waste disposal

Drivers
Transportation
Inventory
Facilities
Information
Sourcing 17
Pricing
Evolution of Logistics towards Supply Chain

Ballou (2005)

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Traditional View: Logistics in the
Manufacturing Firm
Profit
 Profit 4% Logistics
Cost

 Logistics Cost 21% Marketing

Cost

 Marketing Cost 27%

Manufacturing
Cost
 Manufacturing Cost 48%
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 Supply Chain
Management: Chapter-1
Lecture-2
10/01/08

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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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 What is a Supply Chain?
Customer wants
P&G or other Spencers or third Spencers
detergent and goes
manufacturer party DC Supermarket
to Jewel

Chemical
Plastic Tenneco
manufacturer
Producer Packaging
(e.g. Oil Company)

Chemical
Paper Timber
manufacturer
Manufacturer Industry
(e.g. Oil Company)

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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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Fields of Research in SCM

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 Fields of Research (Contd.)

Source: Journal of Supply Chain Management Author: Ellram, Mentzer (2003) 28

Fields of Research

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 Fields of Research

Source: Journal of Supply Chain Management Author: Ellram, Mentzer (2003) 30

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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 Effect of Environment
 Decisions for SCM vary from environment to
environment
 Eg: Different structure of SC will need diverse SC
decisions . FMCG goods SC in US and India have
separate SC structures .

US India
Consolidated Retailing Scattered , large no. of
retailers
Need of distributor is almost Distributor plays a major
nullified role
Large orders, less frequent Small orders, frequent
replenishment replenishment

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Decision Success & Failures: Instances

 Success: Wal-Mart (Daily Commodities), Dell

Computer, 7-11( Fast food & Services)

 Failure: Webwan ( Grocery), Quaker Oat’s

( Sport Drink) acquisition of Snapple in 1994.

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 Decision Phases of a Supply
Chain
 On the basis of frequency with which they are
made and time frame they take into account

 SUPPLY CHAIN STRATEGY OR DESIGN

 SUPPLY CHAIN PLANNING

 SUPPLY CHAIN OPERATION

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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 39
 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
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)
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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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Supply Chain Management
Chapter -1
Lecture -3

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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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 The Importance of Supply
Chain Flows
 Close connection between design and
management of supply chain flows (product,
information, and cash) and supply chain
success
 Dell: success
 Quaker Oats (Snapple): failure
 Supply chain decisions can play a significant
role in the success or failure of a firm

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Macro Process in a Supply Chain
Supplier Internal Supply Customer
Relationship Chain Relationship
Management Management management
Source Strategic Market

Negotiate planning Price

Buy Demand Sell

Design Planning Call Center

Supply Planning
Collaboration Order
Supply Fulfillment
Management
Collaboration Field Service

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 Examples of Supply Chains
 Dell / Compaq
 Toyota / GM / Ford
 McMaster Carr / W.W. Grainger
 Amazon / Borders / Barnes and Noble
 Webvan / Peapod / Jewel

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 Gateway: A Direct Sales
Manufacturer
 Why did Gateway have multiple production facilities in the US?
What advantages or disadvantages does this strategy offer relative
to Dell, which has one facility?
 What factors did Gateway consider when deciding which plants to
close?
 Why does Gateway not carry any finished goods inventory at its
retail stores?
 Should a firm with an investment in retail stores carry any finished
goods inventory?
 Is the Dell model of selling directly without any retail stores always
less expensive than a supply chain with retail stores?
 What are the supply chain implications of Gateway’s decision to
offer fewer configurations?

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 7-Eleven
 What factors influence decisions of opening and closing stores?
Location of stores?
 Why has 7-Eleven chosen off-site preparation of fresh food?
 Why does 7-Eleven discourage direct store delivery from vendors?
 Where are distribution centers located and how many stores does
each center serve? How are stores assigned to distribution centers?
 Why does 7-Eleven combine fresh food shipments by temperature?
 What point of sale data does 7-Eleven gather and what information
is made available to store managers? How should information
systems be structured?

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 W.W. Grainger and McMaster
Carr
 How many DCs should there be and where should they be
located?
 How should product stocking be managed at the DCs? Should
all DCs carry all products?
 What products should be carried in inventory and what
products should be left at the supplier?
 What products should Grainger carry at a store?
 How should markets be allocated to DCs?
 How should replenishment of inventory be managed at various
stocking locations?
 How should Web orders be handled?
 What transportation modes should be used?

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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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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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 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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 Assignment
 Maximum Weight age 20%
 Project in form of single time assignment
 One type of assignment has to be chosen by
student from among the following :
a) Case Study (C)
b) Computer based assignment ( making a software
tool – simulation /optimization tool) (S)
c) Fundamental Research based assignment (F)
d) Mathematical Modeling (M)
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