SUPPLY CHAIN

MANAGEMENT
MODULE 1
What is supply chain?
 Consist of all parties involved directly or indirectly, in fulfilling a customer
request.
 Includes:
1. Manufacturers
2. Suppliers
3. Transporters
4. Warehouses
5. Retailers
6. Customers
E.g.
Timber Paper Tenneco
company manu. packaging

Wal-mart or
P & G or Wal-mart
third party Customer
other manu store
DC

Chemical Plastic
manu. producer
What is supply chain?
All activities associated with the flow and
transformation of goods from raw materials to end
users.
The term supply chain refers to the entire network
of companies that work together to design , produce,
deliver and service products.
Objective of a supply chain
1. To maximize the overall value generated.

2. To increase the supply chain profitability

Importance of SCM
Reduce Proper
uncertainty inventory
along the levels in the
chain chain

Importance
Provide Eliminate
good rushed
customer (unplanned)
service activities

Minimize
delays
Examples
Examples:
A. Wal Mart-
1. Leader at using supply chain design, planning & operation to achieve success
2. Invested in transportation & information infrastructure to facilitate the effective flow
of goods & information
3. Designed its supply chain with clusters of stores around distribution centers to
facilitate frequent replenishment at its retail stores.
4. Collaborated with suppliers to bring down costs & improve product availability.
B. Dell:
1. World’s largest personal computer manufacturer in a short span of time.
2. Bypasses distributors and retailers & sells directly to customers.
3. Centralizes manufacturing & inventories in a few location and postpone final assembly
until orders arrive.
4. Dell provides real time data to suppliers on the current state of demand.
5. Dell has created customized web pages for its major suppliers.
6. Maintains a low levels of inventory.
Decision phases in a supply chain:
1. 2.
Supply chain Supply chain
strategy or design planning

Decision
phases

3.
Supply chain
operation
Process views of a supply chain
Cycle views: Processes in a supply chain are divided
into 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)
Cycle views of a supply chain
Customer Customer order
cycle

Retailer Replenishment
cycle

Distributor
Manufacturing
cycle

Manufacturer

Supplier Procurement
cycle
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.
Push/Pull view of the supply chain

Push / pull boundary

Push processes Pull processes

Process Process Process Process Process Process

Process 1
2 3 k k+1 N -1 N

Customer order arrives

Push / pull view of supply chain processes
Supply chain processes fall into one or two categories
depending on the timing of their execution relative to
customer demand
Pull / BTO: Execution is initiated in response to a
customer order (reactive)
Push / BTS: Execution is initiated in anticipation of
customer orders (speculative)
Push / pull boundary separates push processes from
pull processes
Competitive and supply chain strategies
Competitive strategy: The set of customer needs that
it seeks to satisfy through its products & services.

Finance, accounting, information technology,

Human resources
Mktg
New product
& Operations Distribution Service
development Sales
Achieving strategic fit
1. Understanding the customer & supply chain
uncertainty:

2. Understanding the supply chain capabilities

3. Achieving strategic fit

Achieving strategic fit
 Understanding the customer & supply chain uncertainty:

 E.g.:

 Customer demand from different segments varies along several attributes as

follows:
1. The quantity of the product needed in each lot
2. The response time that customers are willing to tolerate
3. The variety of products needed
4. The service level required
5. The price of the product
6. The desired rate of innovation in the product
Achieving strategic fit
Understanding the supply chain capabilities:
 Supply chain responsiveness includes a supply chain’s ability to do the following:
1. Respond to wide ranges of quantities demanded
2. Meet short lead times
3. Handle a large variety of products
4. Build highly innovative products
5. Meet a high service level
6. Handle supply uncertainty

Responsiveness
High

Low
High Low
Achieving strategic fit
Achieving strategic fit

Responsive supply chain

Responsiveness spectrum

Efficient supply chain

Certain Implied Uncertain

demand Uncertainty demand
Spectrum
Achieving strategic fit
Achieving strategic fit

Supplier absorbs Manufacturer Retailer absorbs most

the least implied absorbs less implied of the implied
uncertainty and uncertainty and uncertainty and must
must be very efficient must be some what efficient be very responsive
Supplier Manufacturer Retailer
Supply chain I

Extent of implied uncertainty for the supply chain

Supplier Manufacturer Retailer

Supply chain II
Supplier absorbs Manufacturer Retailer absorbs
less implied absorbs most of the the least implied
uncertainty and implied uncertainty uncertainty and
Fit between competitive and functional strategies
Competitive strategy

Supply chain strategy

- Manufacturing
- Inventory
- Lead time
- Purchasing
- Transportation

Information technology strategy

Finance strategy

Human resource strategy

Drivers of supply chain performance
Each driver having the impact on the performance of the
supply chain:
1. Facilities:
• places where inventory is stored , assembled or fabricated
• Production sites and storage sites

2. Inventory:
 Raw materials, WIP, finished goods within a supply chain
 Inventory policies
3. Transportation:
• Moving inventory from point to point in a supply chain
• Combination of transportation modes and routes
4.Information:
• Data and analysis regarding inventory, transportation, facilities, through out the supply
chain
• Potentially the biggest driver of supply chain performance
1. Sourcing
2. Pricing
Framework for structuring drivers
Sdfvccc

Competitive strategy

Supply chain strategy

Efficiency Supply chain structure Responsiveness

Logistical drivers

Facilities Inventory Transportation

Information Sourcing Pricing

Cross – functional drivers

Facilities
Role in the supply chain
Role in the competitive strategy
Components of facilities decisions
1.Role
2.Location
3.Capacity
4.Facility – related metrics
- Capacity
- Utilization
- Theoretical flow/ cycle time of production
- Actual average flow / cycle time
- Flow time efficiency
- Product variety
- Volume contribution of top 20% SKUs and customers
- Processing / set up / down / idle time
- Average production batch size
- Production service level
 Over all trade off: Responsiveness versus efficiency
Inventory
Role in the supply chain
Role in the competitive strategy
Components of inventory decisions
1.Cycle inventory
2.Safety inventory
3.Seasonal inventory
4.Level of product availability
5.Inventory – related metrics
- Average inventory
- Products with more than a specified number of days of
inventory
- Average replenishment batch size
- Average safety inventory
- Seasonal inventory
- Fill rate
- Fraction of time out of stock
 Overall trade –off : Responsiveness versus efficiency
Transportation
Role in the supply chain
Role in the competitive strategy
Components of transportation decisions
1. Design of transportation network
2. Choice of transportation mode
3. Transportation – related metrics
a. Average bound transportation cost
b. Average incoming shipment size
c. Average inbound transportation cost per shipment
d. Average outbound transportation cost
e. Average outbound shipment size
f. Average outbound transportation cost per shipment
g. Fraction transported by mode
 Overall trade- off : Responsiveness versus efficiency
Information
Role in the supply chain
Role in the competitive strategy
Components of information decisions
1.Push versus pull
2.Coordination and information sharing
3.Forecasting and aggregate planning
4.Enabling technologies
5.Information – related metrics
- Forecast horizon
- Frequency of update
- Forecast error
- Seasonal factors
- Variance from plan
- Ratio of demand variability to order variability
 Overall trade –off: Responsiveness versus efficiency
Sourcing
Role in the supply chain
Role in the competitive strategy
Components of sourcing decisions
1.In-house or outcome
2.Supplier selection
3.Procurement
4.Sourcing – related metrics
- Days payable outstanding
- Average purchase price
- Range of purchase price
- Average purchase quantity
- Fraction on – time deliveries
- Supply quality
- Supply lead time
 Over all trade – off: Increase the supply chain profits
Pricing
Role in the supply chain
Role in the competitive strategy
Components of pricing decisions
1. Pricing and economic of scale
2. Everyday low pricing versus high- low pricing
3. Fixed price versus menu pricing
4. Pricing related metrics
- Profit margin
- Days sales outstanding
- Incremental fixed cost per order
- Incremental variable cost per unit
- Average sale price
- Average order size
- Range of sale price
- Range of periodic sales
 Overall trade –off: Increase firm profits
Obstacles in achieving strategic fit
Increasing
variety of
Difficulty products Decreasing
executing new product life
strategies cycles

Obstacles
Increasingly
Globalization demanding
customers

Fragmentation
of supply chain
ownership