1. Introduction to supply chain management
What is supply chain ?It consists of all parties involved directly or indirectly in fulfilling a customers request
Define supply chain“a supply chain is a network of facilities & distribution options that performs the functions of procurement of materials transformation of these materials into intermediate & finished products & distribution of these finished products to customers
Meaning of supply chain management
Definition of SCM:It is the management of a network of all
business processes and activities involving procurement of raw materials, manufacturing and distribution management of Finished Goods.
SCM is also called the art of management of providing the Right Product, At the Right Time, Right Place and at the Right Cost to the Customer.
Other definition of SCM
• Oliver and Webber (1982) – SCM covers the flow of goods from supplier through manufacturing and distribution channels to end user.
• Ayers (2000) – SCM is the design, maintenance and operation of supply chain processes for satisfaction of end users.
• Ellram (1991) – An integrative approach to dealing with the planning and control of the materials flow from suppliers to end users.
• Sunil Chopra and Peter Meindl (2001) – SCM involves the management of flows between and among stages in a supply chain to maximize total profitability.
Objectives of supply chainEfficient supply chain
1. To maximize overall value generated2. To look for Sources of Revenue and Cost3. Improving the visibility of the demand4. Improving the quality5. Minimizing the time6. Reduces the transportation cost7. Reduces warehousing cost8. Expanding width/depth of distribution9. Product Life cycle support10. Rationalize supplier base 11. Service orientation
Supply Chain Management [SCM] 19
Importance / Benefits of SCM• To achieve economies of scale and scope – Costs
are significant
• To improve business focus and expertise
• Customer Expectations are increasing
• Supply and Distribution Lines are lengthening with complexity
• Adds Significant Customer value
• Customers Increasingly Want Quick & Customised Response
• Supply chain is important to strategy
DECISION PHASES IN SUPPLY CHAIN MANAGEMENT
• successful scm requires many decisions relating to the flow of information, product,& funds
• These decision falls into 3 categories/phases depending on the frequency of each decisions & timeframe
1. Supply chain strategy or design2. Supply chain planning3. Supply chain operation
DECISION PHASES IN SUPPLY CHAIN MANAGEMENT
Supply chain strategy or design:During this phase , A company decides how to structure the supply
chain over the next several years. it decides the supply chain configuration will be,
how resources will be allocated Decision includes whether to perform or outsource
functions Decisions regards to warehousing facilities & modes
of the transportation & types of information utilized Decision regarding products to be manufactured or
stored at various location
DECISION PHASES IN SUPPLY CHAIN MANAGEMENT
Supply chain planningIn this phase decision includes• Definition of a set of policies that govern short-term
operations• Starts with a forecast of demand in the coming year• The inventory policies to be followed• Timing & size of marketing promotion• The subcontracting of manufacturing• The goal of planning to maximize supply chain
surplus• In this phase, companies must include uncertainty
in demands, exchange rate & competition
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 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)
Process view of 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 Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer
Retailer
Distributor
Manufacturer
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.
Push/Pull View of Supply Chains
Procurement,Manufacturing andReplenishment cycles
Customer OrderCycle
CustomerOrder ArrivesPush-Pull boundary
PUSH PROCESSES PULL PROCESSES
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 demandPull:In this execution is initiated in response to a customer order (reactive)It operate in an environment in which customer demand is knownTherefore, at time of execution of a pull process ,demand is known with certainty
• Push:In this execution is initiated in anticipation of
customer orders (speculative or forecast)In this execution process ,customer demand
is not yet known & must be forecast• Push/pull boundary separates push
processes from pull processes• The relative proportion of push and pull
processes can have an impact on supply chain performance
Push/Pull View of Supply Chains
Procurement,Manufacturing andReplenishment cycles
Customer OrderCycle
CustomerOrder Arrives
PUSH PROCESSES PULL PROCESSES
Supply Chain Management [SCM]
Customer Order
Cycle
Repl & Mfrg
Cycle
Procurement
Cycle
PUSH Process
PULL
Process
LL Bean
Cust Order & Mfrg
Cycle
Procurement
Cycle
PUSH Process
PULL
Process
DELL
Customer order arrives
Customer order arrives
Process View of a Supply Chain: Push – Pull View
Pull Push
Execution initiated in response to a customer order
Execution initiated in anticipation of customer order
At time execution of pull, customer demand is known with certainty
At time execution of pull, customer demand is not known and must be forecasted
Its also called as reactive process It is called as speculative process
Competitive/supply chain strategy
Competitive strategy: defines the set of customer needs a firm seeks to satisfy through its products and services
Product development strategy: specifies the portfolio of new products that the company will try to develop
Marketing and sales strategy: specifies how the market will be segmented and product positioned, priced, and promoted
Supply chain strategy: determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of productConsistency and support between supply chain strategy, competitive strategy, and other functional strategies is important
Competitive & supply chain strategies
A company's competitive strategy defines, relative to its competitors, the set of customer needs that it seeks to satisfy through its products & services
Supply chain strategy It specifies what the operations, distribution, & service functions ,whether performed in house or outsourced.
This strategy determines the nature of procurement of raw materials, transportation of materials ,manufacture of the product & distribution of the product to customer, along with any follow up service
Achieving strategic fit• Introduction• How is strategic fit achieved?• Other issues affecting strategic fit Strategic fit: – Competitive and supply chain strategies have the same
goals or aligned goals– In other words strategic fit require that a firm achieve
balance between responsiveness& efficiency in its supply chain which meets the needs of company's competitive strategy
• A company may fail because of a lack of strategic fit or because its processes and resources do not provide the capabilities to execute the desired strategy
• Example of strategic fit -- Dell
How is Strategic Fit Achieved?
• Step 1: Understanding the customer and supply chain uncertainty
• Step 2: Understanding the supply chain
• Step 3: Achieving strategic fit
How is Strategic Fit Achieved?Step 1: Understanding the Customer and
Supply Chain Uncertainty
Identify the needs of the customer segment being served
Quantity of product needed in each lotResponse time customers will tolerateVariety of products neededService level requiredPrice of the productDesired rate of innovation in the product
Demand uncertainty & Implied Demand Uncertainty
Demand uncertainty reflects the uncertainty of customer demand for product.
Implied demand uncertainty is the demand uncertainty due to the portion of demand that supply chain is targeting ,not the entire demand
Impact of Customer Needs on Implied Demand Uncertainty
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Customer Need Causes implied demand uncertainty to increase because …
Range of quantity increases Wider range of quantity implies greater variance in demand
Lead time decreases Less time to react to orders
Variety of products required increases
Demand per product becomes more disaggregated
Number of channels increases Total customer demand is now disaggregated over more channels
Rate of innovation increases New products tend to have more uncertain demand
Required service level increases Firm now has to handle unusual surges in demand
Levels of Implied Demand Uncertainty
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Predictable supply and
demand
Salt at a supermarket
A new communication
device
Highly uncertain supply and demand
Figure 2.2: The Implied Uncertainty (Demand and Supply) Spectrum
Predictable supply and uncertain demand or uncertain supply and predictable demand or somewhat
uncertain supply and demand
An existing automobile
model
Step 2: Understanding the Supply Chain
• How does the firm best meet demand?• Dimension describing the supply chain is
supply chain responsiveness
• Supply chain responsiveness -- ability to– respond to wide ranges of quantities demanded– meet short lead times– handle a large variety of products– build highly innovative products– meet a very high service level– Handle supply uncertainties
• achieving responsiveness however comes at cost
• Supply chain efficiency: cost of making and delivering the product to the customer
• Increase in cost lower efficiency.• Increasing responsiveness results in higher
costs that lower efficiency• Second step to achieving strategic fit is to
map the supply chain on the responsiveness spectrum
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Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier
High Low
Low
High
Responsiveness
Cost
Step 3:achieving strategic fitAfter mapping level of implied uncertainty & understanding supply chain position on responsiveness spectrum,The third & final step is to ensure that the degree of supply chain responsiveness is consistent with implied uncertainty,The goal is to target high responsiveness for a supply chain facing high implied uncertainty,&high efficiency for a supply chain facing low implied uncertainty
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Achieving Strategic Fit Shown on the Uncertainty/Responsiveness Map (Fig. 2.5)
Implied uncertainty spectrum
Responsive supply chain
Efficient supply chain
Certain demand
Uncertain demand
Responsiveness spectrum Zone of
Strategic Fit
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Comparison of Efficient and Responsive Supply Chains
Efficient Responsive
Primary goal Lowest cost Quick response
Product design strategy Min product cost Modularity to allow postponement
Pricing strategy Lower margins Higher margins
Mfg strategy High utilization Capacity flexibility
Inventory strategy Minimize inventory Buffer inventory
Lead time strategy Reduce but not at expense of greater cost
Aggressively reduce even if costs are significant
Supplier selection strategy Cost and low quality Speed, flexibility, quality
Transportation strategy Greater reliance on low cost modes
Greater reliance on responsive (fast) modes
Other Issues Affecting Strategic FitMultiple products and customer segmentsDecreasing Product life cycleCompetitive changes over timeGlobalizationLack of knowledgeLack of supply chain visibilityFragmentation of supply chain ownershipDifficulty in executing new strategiesLack of trust
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Multiple Products and Customer Segments
• Firms sell different products to different customer segments (with different implied demand uncertainty)
• The supply chain has to be able to balance efficiency and responsiveness given its portfolio of products and customer segments
• Two approaches:– Different supply chains– Tailor supply chain to best meet the needs of each
product’s demand
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Product Life Cycle• The demand characteristics of a product and
the needs of a customer segment change as a product goes through its life cycle
• Supply chain strategy must evolve throughout the life cycle
• Early: uncertain demand, high margins (time is important), product availability is most important, cost is secondary
• Late: predictable demand, lower margins, price is important
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Competitive Changes Over Time
• Competitive pressures can change over time• More competitors may result in an increased
emphasis on variety at a reasonable price• The Internet makes it easier to offer a wide
variety of products• The supply chain must change to meet these
changing competitive conditions
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A Framework for Structuring Drivers
Competitive Strategy
Supply Chain Strategy
Efficiency Responsiveness
Facilities Inventory Transportation
Information
Supply chain structure
Cross Functional Drivers
Sourcing Pricing
Logistical Drivers
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Drivers of Supply Chain Performance• Facilities
– places where inventory is stored, assembled, or fabricated & later moved to production sites and storage sites
– Decision regarding number of facilities & location plays a crucial role in design of supply chain & which impact on responsiveness & efficiency.
• Inventory– All raw materials, WIP, finished goods within a supply chain are inventory– inventory policies can impact on supply chain responsiveness & efficiency.
• Transportation– moving inventory from point to point in a supply chain– combinations of transportation modes and routes
• Information– data and analysis regarding inventory, transportation, facilities throughout
the supply chain & affects each drivers – potentially the biggest driver of supply chain performance
• Sourcing– functions a firm performs and functions that are outsourced– It’s a choice of who will perform supply chain activity as production, storage
• Pricing– Price associated with how much a firm charge for goods and services that it
make available in supply chain
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Transportation: Role inthe Supply Chain
• Moves the product between stages in the supply chain
• Impact on responsiveness and efficiency• Faster transportation allows greater
responsiveness but lower efficiency• Also affects inventory and facilities
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Transportation: Role in the Competitive Strategy• If responsiveness is a strategic competitive
priority, then faster transportation modes can provide greater responsiveness to customers who are willing to pay for it
• Can also use slower transportation modes for customers whose priority is price (cost)
• Can also consider both inventory and transportation to find the right balance
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Components ofTransportation Decisions
• Mode of transportation: – air, truck, rail, ship, pipeline, electronic
transportation– vary in cost, speed, size of shipment, flexibility
• Route and network selection– route: path along which a product is shipped– network: collection of locations and routes
• In-house or outsource• Overall trade-off: Responsiveness versus
efficiency
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Information: Role inthe Supply Chain
• The connection between the various stages in the supply chain – allows coordination between stages
• Crucial to daily operation of each stage in a supply chain – e.g., production scheduling, inventory levels
• Information: Role in the Competitive Strategy
• Allows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off)
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Sourcing: Role inthe Supply Chain
• Set of business processes required to purchase goods and services in a supply chain
• Supplier selection, single vs. multiple suppliers, contract negotiation
• Sourcing: Role in the Competitive Strategy
• Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain
• In-house vs. outsource decisions- improving efficiency and responsiveness
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Pricing: Role inthe Supply Chain
• Pricing determines the amount to charge customers in a supply chain
• Pricing strategies can be used to match demand and supply
• Sourcing: Role in the Competitive Strategy
•Firms can utilize optimal pricing strategies to improve efficiency and responsiveness•Low price and low product availability; vary prices by response times
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