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

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 segmentsProduct life cycleCompetitive changes over time

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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– production sites and storage sites

• Inventory– raw materials, WIP, finished goods within a supply chain– inventory policies

• 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– potentially the biggest driver of supply chain performance

• Sourcing– functions a firm performs and functions that are outsourced

• Pricing– Price associated with goods and services provided by a firm to the supply chain