Supply Chain Management
What is a Supply Chain?
What is a supply chain?
• A supply chain consists of all the parties involved,
directly or indirectly, in fulfilling a customer
request.
• Supply chain management is a set of approaches
utilized to efficiently integrate suppliers,
manufacturers, warehouses, and stores, so that
merchandise is produced and distributed at the
right quantities, to the right locations, and at the
right time, in order to minimize system-wide costs
while satisfying service level requirements.
Supply Chain
Supplier Manufacture Distributor Retailer Customers
r
The definition implies……
• First, supply chain management takes into consideration
every facility that has impact on cost and plays a role in
making the product confirm to customer requirements.
• From supplier and manufacturing facilities through
warehouses and distribution centers to retailers and
stores.
• In supply chain analysis, it is necessary to account for the
suppliers’ suppliers and the customers’ customers
because they have an impact on supply chain
performance.
The definition implies……
• Second, the objective of the supply chain
management is to be efficient and cost-
effective across the entire system.
• Total system-wide costs, from transportation
and distribution to inventories of raw
materials, work in process, and finished goods
are to be minimized.
The definition implies……
• Thus the emphasis is not on simply minimizing
transportation cost or reducing inventories, but
rather, on taking a systems approach to supply chain
management.
• Finally, because supply chain management revolves
around efficient integration of suppliers,
manufacturers, warehouses and stores, it
encompasses the firm’s activities at many levels,
from strategic to the tactical and finally to the
operational level
Then there are other terms for SCM
• Logistics Management
• Value Chain management
• Demand Chain management
Typical Supply Chain Involves
• Typical SC involves variety of stages and they
are:
– Customers
– Retailers
– Wholesalers
– Manufacturers
– Raw material/OE manufacturers or Suppliers
A Supply Chain Example…
Keethi Stores
Nilgiris
RK Canteen
Big B
GOA
Coke Hotel Sagar
Heritage
End customer
.
HUL KAR HP Retail
Kellogs Navami
DELHI
P&G
WB
Tier 1
suppliers
State Local stores
distributors Super market
chains
Supply Chain Management
Supply Chain Management is
the design and management of processes
across organizational boundaries
with the goal of matching supply and demand
in the most cost effective way.
Supply Demand
Mission impossible: Matching Supply and Demand
What makes Supply Chain Management
Difficult?
• Supply Chain strategies cannot be determined in isolation.
They are directly affected by another chain that most
organizations have, the development chain that includes
the set of activities associated with new product
introduction.
• At the same time, supply chain strategies also should be
aligned with specific goals of the organization, such as
maximizing market share or increasing profit.
• It is challenging to design and operate a supply chain so
that total system-wide costs are minimized, and system-
wide service levels are maintained.
What makes Supply Chain Management
Difficult?
• Indeed, it is frequently difficult to operate a single
facility so that costs are minimized and service level is
maintained.
• The difficulty increases exponentially when an entire
system is being considered. The process of finding the
system-wide strategy is known as global optimization.
• Uncertainty and risk are inherent in every supply chain,
• Customer demand can never be forecast exactly, travel
times will never be certain, and machines and vehicles
will breakdown.
What makes Supply Chain Management
Difficult?
• Recent industry trends like outsourcing, off-
shoring, and lean manufacturing that focus on
reducing supply chain costs, significantly
increase the level of risk in the supply chain.
• Thus, supply chain needs to be designed and
managed to eliminate as much uncertainty
and risk as possible as well as deal effectively
with the uncertainty and the risk that remain.
The Development Chain
• The development chain is the set of activities
and processes associated with new product
information
The Development Chain
• Specifically, the development chain includes
decisions such as:
» product architecure
» Make and buy decisions
» Supplier selection
» Early supplier involvement
» Strategic partnerships
Enterprise development and supply chains
Product Architecture
Plan/Design Make/Buy
Early Supplier development
Strategic Partnerships
Source Supplier Selection
Supply Contracts
Supply Produce Distribute Sell
Supply Chain
Global Optimization – Factors that make it a
challenging proposition
1. The supply chain is a complex network of
facilities dispersed over a large geography
and in many cases all over the globe.
2. Different facilities in the supply chain
frequently have different, conflicting
objectives
Global Optimization – Factors that make it a
challenging proposition
• The supply chain is a dynamic system that evolves
over time. Customer demand characteristic changes
over time, supplier capabilities change over time
• Even the supply chain relationships change over
time.
• Customer power increases with increased demands
for quality, variety and customization
Global Optimization – Factors that make it a
challenging proposition
• System variations over time – even when
demand is certain (purchase agreements etc.)
the planning process needs to account for
demand and cost parameters varying over
time due to impact of seasonal fluctuations,
trends, advertising and promotions,
competitor’s pricing strategies and so forth.
These variations make it difficult to develop
the most effective supply chain system.
Managing Uncertainty and Risk
• Matching supply and demand is a major challenge
• Inventory and back-order levels fluctuate
considerably across the supply chain
• Forecasting does not solve the problem
• Demand is not the only source of uncertainty –
delivery lead times, manufacturing yields,
transportation times and component availability also
can have significant impact on supply chain
Key issues in Supply Chain management
• Distribution Network • Product design
Configuration • Information Technology and
decision support systems
• Supply Contracts • Customer value
• Distribution strategies • Smart Pricing
• Supply chain integration • Local Issues
and strategic partnering • Inventory control
• Production sourcing
• Outsourcing and Off-
shoring strategies
The Objective of the Supply Chain
• The objective of the supply chain should be to maximize
the overall value generated.
• The value a supply chain generates is the difference
between what the final product is worth to the customer
and the costs the supply chain incurs in filling the
customer’s request.
• For most commercial supply chains, value will be strongly
correlated with supply chain profitability (also known as
supply chain surplus)
• Supply chain profitability or surplus is the total profit that
is shared across all supply chain stages or intermediaries.
• The higher the supply chain profitability, the more
successful is the supply chain.
The importance of supply chain decisions
• There is a close connection between the design and
management of supply chain flows (product, information and
funds) and the success of a supply chain.
• Also failure can also be attributed to the failure is supply chain
design.
• Many Indian retail outlets have busted or have truncated their
business because of inefficiencies that were existing in their
supply chain design which led to a negative supply chain
surplus.
– Wal-Mart, Dell Computer are few examples of companies that have
built their success on superior design, planning and operation of the
supply chain.
Decision Phases in a Supply Chain
• Successful Supply Chain management requires
many decisions relating the flow of
information, product and funds.
• Supply chain design or strategy
– During this phase, given the marketing and pricing
plans for a product a company decides how to
structure the supply over the next several years.
Decision Phases in a Supply Chain
• Supply chain planning
– For decisions made during this phase, the time frame considered
is quarter to a year. This configuration establishes constraints
within which the planning must be done.
– The goal of planning is to maximize the supply chain surplus that
can be generated given the constraints established during the
during the strategic phase or the design phase.
– Companies start the planning phase with a forecast for the
coming year (or comparable time frame.) of demand in different
markets.
– Planning includes making decisions regarding which markets will
be supplied by which locations, whether subcontracting will be
employed or which type inventory policy will be adopted etc
Decision Phases in a Supply Chain
• Supply chain planning
– In the planning phase the companies must include
uncertainty in demand, exchange rates, and competition
over this time horizon in their decisions.
– Given a shorter time frame and better forecasts than the
design phase, companies in the planning phase try to
incorporate any flexibility built into the supply chain in the
design phase and exploit it to optimize operations.
Decision Phases in a Supply Chain
• Supply Chain Operations
– The time horizon here is weekly or daily, and during this
phase companies make decisions regarding individual
customer orders.
– At the operational level, supply chain configuration is
considered fixed and planning policies are already defined.
– The goal of supply chain operations is to handle incoming
customer orders in the best possible manner
– During this phase, firms allocate inventory or productions
to individual orders, set a date than an order is to be filled.
Decision Phases in a Supply Chain
• Supply Chain Operations
– Generate pick up lists at a warehouse, allocates an order
to a particular shipping mode and shipment, set delivery
schedules of trucks, and place replenishment orders.
– Because operational decisions are being made in the
short term (minutes, hours or days), there is less
uncertainty about demand information
– Given the constraints established by the configuration
and planning policies the goal during the operation phase
is to exploit the reduction of uncertainty and optimize
performance.
Process of Views of Supply Chain
• Cycle View: The processes in the supply chain are
divided into a series of cycles each performed at the
interface between two successive stages of the
supply chain.
• Push/Pull view: The processes in the supply chain are
divided into two categories depending on whether
they are executed in response to a customer order or
in anticipation of the customer order.
Process of Views of Supply Chain
• Pull processes are initiated by a customer
order. Whereas push processes are initiated
and performed in the anticipation of customer
orders.
Cycle View of a Supply Chain
• The processes in a supply chain are divided
into a series of cycles, each performed at the
interface between two successive stages.
Cycle View of Supply Chain Processes
• Customer order cycle Customer order
cycle
• Replenishment cycle Replenishment
Cycle
• Manufacturing cycle Manufacturing
Cycle
• Procurement Cycle
Procurement
Cycle
Push/Pull View
• The processes in a supply chain are divided
into two categories depending on whether
they are executed in response to a customer
order or in anticipation of customer orders.
• Pull processes are initiated on customer order,
whereas push processes are initiated and
performed in anticipation of customer orders.
Push/Pull Processes
Customer order Customer
cycle Pull
Processes
Retailer
Replenishment and
Manufacturing Cycle
Manufacturer
Push
Processes
Procurement Cycle
Process View of Supply Chain
• Each cycle occurs at the interface between
two successive stages of the supply chain
• Which means that there are four supply chain
process between five stages.
• Not every supply chain will have all the four
cycles clearly separated
Process View of Supply Chain
Customer
Customer order
cycle
Retailer
Replenishment
Cycle
Distributor
Manufacturing
Cycle
Manufacturer
Procurement
Cycle
Supplier
Sub-Process in each Supply Chain Process
Cycle
• Within each cycle, the goal of the buyer is to ensure product
availability and to achieve economies of scale in ordering.
• Even though each cycle has the same basic sub-processes, there
are few differences between cycles.
• In the customer order cycle, demand is external to the supply
chain and thus uncertain
• In all other cycles order placement is uncertain but can be
projected based on policies followed by the particular chain
stage.
• The difference across cycles relate to the scale of an order.
– For example, in the procurement cycle, a tire supplier to an automotive
manufacturer is known.
Sub-Process in each Supply Chain Process
Cycle
• The cycle view clearly specifies the roles of
each member of the supply chain.
• The detailed process description of a supply
chain in the cycle view forces a supply chain
designer to consider the infrastructure
required to support these processes
Sub-Process in each Supply Chain Process
Cycle
• Each cycle consists of six sub-processes
Supplier Stage markets products Buyer returns reverse flows to
supplier or third party
Buyer Stage
Buyer Stage places order
Receives Supply
Supplier Stage receives order Supplier Stage supplies order
Supply Chain Macro Process in a firm
• Two process views can be viewed into three
macro process and they are:
– Customer Relationship Management (CRM)
– Internal SCM (ISCM)
– Supplier Relationship Management (SRM)
• Source, Negotiate, Buy/Make
SRM • Design, Supplier Collaboration
• Strategic , Demand & Supply Planning
ISCM • Fulfillment, Field Service
• Market, Price, Sell
CRM • Call Center & Order Management
