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SCM Seminar 1.

2012-09-10 Rita Berggren & Feven Kidane

SCM Seminar 1: Understanding the Supply Chain

Q1. In the literature you find several definitions of SCM. Elaborate and describe what parts that normally are a part of a SCM definition and what its constituents are? Chopra & Meindl (2012) and Stadtler (2008) agree that a supply chain are the parties that through their processes are a part of fulfilling the end customers request. The parties in a supply chain can be connected through material, information and financial flows which would mean that the end customer is a part of the supply chain (Stadtler, 2008). The aim within a supply chain according to Stadtler (2008) is to increase competitiveness and that this is achieved through a higher degree of integration and coordination. These activities are closely linked to management and Stadtler (2008) define supply chain management (SCM) as the task of integrating organizational units along a supply chain and coordinating material, information and financial flows in order to fulfill (ultimate) customer demand with the aim of improving the competitiveness of a supply chain as a whole. Effective SCM can be considered as the management that lead to the maximum surplus for the whole chain (Chopra & Meindl, 2012). To manage the flow of information, material and finances in the best way there are many decisions to make, Chopra and Meindl (2012) present three categories of decisions; supply chain strategy or design, supply chain planning and supply chain operation. These three decision categories can also be found within the House of SCM presented by Stadtler (2008). For example, the integration pillar is to a large extent the supply chain design and the coordination pillar is mostly supply chain planning. The house of SCM also has competitiveness and customer service as the roof and the foundation is closely related to the decisions of supply chain operation.

Q2.Consider the purchase of a can of soda at a convenience store. Describe the various stages in the supply chain and the different flows involved. A typical supply chain contain customers, retailers, distributors, manufacturers and suppliers and each part is connected through flows of products, information and funds (Chopra & Meindl, 2012). This applied on the chain for buying a can of soda can be described as follows. The suppliers get orders on for example aluminium, sugar, flavours etc. These are delivered to the manufacturer.

SCM Seminar 1. 2012-09-10 Rita Berggren & Feven Kidane

The manufacturer receives the different raw materials and can produce the soda. The soda will likely be sent in bulk to a distribution centre. The distributor will get orders from the retailers and send them their goods. The retailer, in this case a convenience store will stock the goods and sell the cans to thirsty customers.

All stages will have a flow of money and information. Each stage will need to pay to receive the goods in question and get paid when they have delivered. Every stage will also need information on order quantities, delivery dates etc. There will also be a flow of material between all stage in the chain, both internally and externally.

3. Why should a firm like Dell take into account total supply chain profitability when making decisions? The supply chain of Dell includes only three parties, these are; suppliers, manufacturers and customers. The reason for Dell to choose such a supply chain is to maximize the total supply chain profitability. Three factors like information, fund and products are involved in every supply chain and these need to be effectively managed to result in the highest possible supply chain surplus (Chopra & Meindl, 2012). The information flow connected to orders in Dells supply chain is a pull process which helps the company to get the customers requirements and expectation. And of course Dell websites as the same time let their suppliers to see the customers demand and expectation. Dell computers are not stocked in a warehouse and waiting to be ordered, the company has low, even zero inventories and has traditionally made most computers on order. The more inventory kept in Dells supply chain, the more cost that will generate. Therefore, it would result in a high cost to both suppliers and manufacturers, and finally, a high price to the customers. Because the products are made to order, the inventory can be kept in a relatively low level and the cash flow will be also in a low level. To cut out the distributor and retailer of the chain as Dell has done will lead to fewer parties having to share the total supply chain surplus and fewer parties that will add to the cost.

4. Consider the supply chain involved when a customer purchases a book at a bookstore. Identify cycles in this supply chain and the location of the push/pull boundary. All supply chain processes can be broken down into four processes cycles that can combine the five stages of a supply chain (Chopra & Meindl, 2012). These are Customer order cycle, Replenishment cycle, Manufacturing cycle, Procurement cycle. These five stages indicate the work and involvement of many individual parties in the chain. Chopra and Meindl (2012) present how the cycles connect the different parties in the supply chain as follows. The customer order cycle connects the customer with the retailer. The Replenishment cycle connects the retailer with the distributors and is set off by the retailers needs and demands. The manufacturing cycle connects the distributors and the manufacturer.

SCM Seminar 1. 2012-09-10 Rita Berggren & Feven Kidane

When the demand for the book is recognized or identified, that is when demand on the market is high and the retailer needs to restock its books. The retailer will be part of the replenishment cycle and if the distributor also needs to restock it will trigger the manufacturing and procurement cycle. As the procurement cycle connects the manufacturer and the supplier. The manufacturers request their supplier to get materials in order to publish and print new books to their distributors. The supply chain goes like that throughout the process. Definition of push/pull (Chopra & Meindl, 2012): Pull Process: Execution is initiated in response to a customer order. Push Process: Execution is initiated in anticipation to a customer order. The push/pull boundary in any supply chain separates push processes from pull processes. The push/pull boundary for the bookstore carries out a place between the customer order cycle, the procurement cycle, manufacturing, and replenishment cycles. The customer order cycle is a pull process because all processes in the customer order cycle are executed only after the information from the customer arrives and before that everything is done on a push flow. On the other hand many products in a bookstore are also available in the inventory built up on anticipation of customer orders and therefore the whole chain could be considered to have a push flow and not really have a push/pull boundary. Consider instead a online-retailer like Amazon that can be viewed as the retailer and distributor. The push/pull boundary exist between Amazon and the supplier in the break between a joint customer and replenishment cycle and the manufacturing cycle. Amazon order products from the supplier when their warehouse needs to be restocked and unless the warehouse is empty the customer order can be fulfilled and shipped as the order arrives. In this case the pull flow is part of the order fulfillment, shipping, billing, returns and the push flow is part of the production, stock replenishments and supplier payment.

Suggestion of topic for discussion Chopra & Meindl (2012) state that effective SCM is that which result in the largest supply chain surplus. This doesnt have to mean that the customer will get part of the surplus since the surplus could originate from an unfair price. With that in mind, to what extent is the ultimate customer a part of the supply chain really?

SCM Seminar 1. 2012-09-10 Rita Berggren & Feven Kidane

Chopra, S & Meindl, P.(2012) Supply Chain Management Strategy, Planning, and Operation.

Stadtler,H. (2008) Supply Chain Managament An Overview Book chapter in Supply Chain Management and Advanced Planning Concepts, Models, Software and Case Studies.