Introduction
Business strategy
Supply Chain Engineering selecting market(s) to compete
level of investment
allocation of resources
functional area strategy
marketing 2
finance
production and operations
Chapter 1
Operations and Supply Chain Strategy
Understanding the Supply Chain decisions related to production, storage, distribution of goods
Guoqing Zhang and services
2
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Traditional View: Logistics in the
Hierarchical Strategic Planning Manufacturing Firm
Profit 4% Profit
Logistics
Cost
Logistics Cost 21%
Marketing
Cost
Marketing Cost 27%
Manufacturing Cost 48% Manufacturing
Cost
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Outline 1. What is a Supply Chain?
What is a Supply Chain? Introduction
Decision Phases in a Supply Chain
Process View of a Supply Chain The objective of a supply chain
The Importance of Supply Chain Flows
Examples of Supply Chains
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What is a Supply Chain? Example: Detergent Supply Chain
All stages involved, directly or indirectly, in fulfilling
Timber Paper Pactiv
a customer request Company Manufacturer Corporation
Includes manufacturers, suppliers, transporters,
Wal-Mart
warehouses, retailers, and customers P&G or Other
or Third
Wal-Mart
Customer
Manufacturer Store
Party DC
Within each company, the supply chain includes all
functions involved in fulfilling a customer request
Chemical Plastic
(product development, marketing, operations, Manufacturer Producer
distribution, finance, customer service)
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What is a Supply Chain? Example: HP
Customer is an integral part of the supply chain
Suppliers IC Mfg USA
Retailer Customer
DCs
Europe
Suppliers PC Board FAT Retailer Customer
DCs
Asian
Typical supply chain stages: customers, retailers, Suppliers Subassembly DCs
Retailer Customer
distributors, manufacturers, suppliers (Fig. 1.2)
Suppliers
All stages may not be present in all supply chains
(e.g., no retailer or distributor for Dell) FAT = Final assembly & test
IC Mfg = Integrated circuit manufacturing
PC Board = Printed circuit board 1-10
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Example: Dell Flows in a Supply Chain
Monitors by SONY (Mexico)
Keyboards by Acer (Taiwan) Dell Customers order
Assembly computers on
CPU by Intel (USA) Plant
Other components
Dell is significantly revamping its entire supply chain strategy and, in
large measure, abandoning its make-to-order model [April, 2008]
Figure 1-2 The Three Flows in a Supply Chain
Supply Chain Flows The Objective of a Supply Chain (1 of 3)
Value-Added Services Maximize net value generated
Supplier Manufacturer Distributor Retailer Customer
Supply Chain Net Profit (Surplus, Profitability)
=
Material/Product Flow
Funds/Demand Flow
Information Flow
Returns/Recylcing
The Objective of a Supply Chain The Objective of a Supply Chain
Supply chain profitability Supply chain profitability is total profit to be shared
across all stages of the supply chain
Example:
Dell receives $2000 from a customer for a computer (revenue) Supply chain success should be measured by total
Supply chain incurs costs (information, storage, transportation, supply chain profitability, not profits at an individual
components, assembly, etc.) stage
Difference between $2000 and the sum of all of these costs is
the supply chain profit
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The Objective of a Supply Chain 2. Decision Phases of a Supply Chain
Sources of supply chain revenue: the customer Supply chain strategy or design
Sources of supply chain cost: flows of information, Supply chain planning
products, or funds between stages of the supply chain Supply chain operation
Supply chain management is the management of
flows between and among supply chain stages to
maximize total supply chain profitability
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Supply Chain Strategy or Design Supply Chain Planning
Decisions about the structure of the supply chain and Definition of a set of policies that govern short-term
what processes each stage will perform operations
Strategic supply chain decisions Fixed by the supply configuration from previous
Locations and capacities of facilities phase
Products to be made or stored at various locations
Starts with a forecast of demand in the coming year
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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Supply Chain Planning Supply Chain Operation
Planning decisions: Time horizon is weekly or daily
Which markets will be supplied from which locations
Planned buildup of inventories Decisions regarding individual customer orders
Subcontracting, backup locations
Inventory policies Supply chain configuration is fixed and operating
Timing and size of market promotions policies are determined
Must consider in planning decisions demand
uncertainty, exchange rates, competition over the time Goal is to implement the operating policies as
horizon effectively as possible
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Decision Phases in a Supply
Supply Chain Operation Chain
TIME FRAME TYPE TYPICAL DECISIONS
Operation Decisions: Supply chain network design (How many plants?
Allocate orders to inventory or production, set order years
Location and capacities of plants and warehouses?)
Strategic Supply chain strategies (Sell direct or through
due dates, generate pick lists at a warehouse, allocate retailers? Outsource or in-house? Focus on cost or
an order to a particular shipment, set delivery customer service?)
Product mix at each plant
schedules, place replenishment orders
Workforce & Production planning
Much less uncertainty (short time horizon) Tactical Inventory policies (safety stock level)
3 mo.- 1year Which locations supply which markets
Transportation strategies
Production scheduling
daily Operational Decisions regarding individual orders
Place replenishment orders
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3. Process View of a Supply Chain Cycle View of Supply Chains
Cycle view: processes in a supply chain are divided Customer
into a series of cycles, each performed at the Customer Order Cycle
interfaces between two successive supply chain stages
Retailer
Push/pull view: processes in a supply chain are
Replenishment Cycle
divided into two categories depending on whether
they are executed in response to a customer order Distributor
(pull) or in anticipation of a customer order (push) Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
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Cycle View of a Supply Chain Push/Pull View of Supply Chains
Each cycle occurs at the interface between two successive
Procurement, Customer Order
stages Manufacturing and Cycle
Customer order cycle (customer-retailer) Replenishment cycles
Replenishment cycle (retailer-distributor)
Manufacturing cycle (distributor-manufacturer)
Procurement cycle (manufacturer-supplier)
PUSH PROCESSES PULL PROCESSES
Cycle view clearly defines processes involved and the
owners of each process. Specifies the roles and
responsibilities of each member and the desired outcome Customer
of each process. Order Arrives
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Decoupling point Decoupling point
Strategic inventory
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Push/Pull View of Push/Pull View of
Supply Chain Processes Supply Chain Processes
Supply chain processes fall into one of two categories Useful in considering strategic decisions relating to
depending on the timing of their execution relative to supply chain design more global view of how
customer demand supply chain processes relate to customer orders
Pull: execution is initiated in response to a customer Can combine the push/pull and cycle views
order (reactive) L.L. Bean (Figure 1.6)
Push: execution is initiated in anticipation of customer Dell (Figure 1.7)
orders (speculative) The relative proportion of push and pull processes can
Push/pull boundary separates push processes from have an impact on supply chain performance
pull processes
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Push/Pull Processes for Supply Chain Macro Processes
the Supply chain of Dell
in a Firm
Supply chain processes discussed in the two views can
be classified into (Figure 1.8):
Customer Relationship Management (CRM)
Internal Supply Chain Management (ISCM)
PULL Supplier Relationship Management (SRM)
Integration among the above three macro processes is
Customer
Customer Order Cycle and
critical for effective and successful supply chain
Manufacturing Cycle management
Manufacturer
Procurement Cycle
PUSH
Supplier
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