Introduction to SCM

Richard Pibernik
Lehrstuhl für Logistik und Quantitative Methoden

Christian Heinrich
Lehrstuhl für BWL und Wirtschaftsinformatik

1
 Learning Objectives

• After this part of our lecture you should be confident about

answering the following questions:

• What are Supply Chains?

• What are important decisions to be taken by Supply Chain Management?

• What are key planning tasks and how are related

• Finally: Understand what this whole course is about and how we organized the
different sessions

2
 Some Supply Chain Examples

• Automotive Supplier

• Chemicals

• High-tech

• Fashion

3
 Example 1: Injection Valve Supply Chain

Chrome- Customer
Lathe T T Assemble T Store T
plate processes

USA v5,1 USA

v3,1 v5,2
v5,3
v5,4 Brazil
v1,1 v3,2
Brazil v5,8 v5,5
v5,9 v5,6
v2,1 v5,7
D v5,10
D v1,2 v5,11
v5,12
v3,3 v5,13
D
v1,3 D
EU v5,14
v4,1 v5,15
v5,16
China
v5,17
v3,4 v5,18
v5,19
v3,5 v5,20
v2,2
USA Japan v5,21
USA
v1,4 v5,22 v5,23 China
v3,6
Mexico v5,24
South Korea v5,25
South Korea
v5,26
v3,7 Australia
v5,27
Australia v5,28
v5,29

4
 Questions

• What does the company want to achieve with this Supply Chain?
What are key objectives?

• What are the key decisions that have to be taken in this Supply
Chain, in the
• long term?
• medium term?
• short term?

5
Example 2: iPhone Supply Chain

6
 iPhone Supply Chain –
The succes of the iPhone

Distribution of the iPhone worldwide (quarterly, in 1,000s)

Total

Source: „Welt kompakt“, 26.01.2012, p. 19

7
 the iPhone 3
Components of
iPhone Supply Chain –
Structure and components

Source: http://www.idevicenews.org/wp-content/uploads/2011/06/components.jpg
8

(Copyright © iSuppli)
 iPhone Supply Chain –
Touch Sensor Module Supply Chain

Source: http://www.saturna.com/navigator/charts.noindex/20111201-countries.gif
9

(Copyright © 2011 Saturna Capital Corporation)

 iPhone Supply Chain –
Global Supply Chain (selection)

Source: http://public.tableausoftware.com/views/iPhone4GlobalSupplyChain/Dashboard1?:embed=yes&:toolbar=yes&:tabs=no 10
 iPhone Supply Chain –
Supply Chain (USA)

1
2 5
3
4

Company Head office Part

1 Intel Portland Radio Frequency (Memory)

2 Omnivision Santa Clara Camera
3 Broadcom Corp. Irvine GPS, WiFi, Bluetooth
4 Texas Instruments Corp. Dallas Touch Screen Controller

5 Skyworks Woburn Radio Frequency (Radio Modules) 11

 iPhone Supply Chain –
Supply Chain (Asia)

3 4

Company Head office Part

1 LG Seoul Display
2 Chimei Innolux Miaoli Touch Screen
3 Foxconn Shenzhen Assembly Operations
4 Suppliers from Taiwan Chip Foundry, Assembly Operations etc.

12
 Supplier
Part
iPhone Supply Chain –
Suppliers and cost structure
Cost (in US-$)

Source:
http://public.tableausoftware.com/views/iPhone4GlobalSupplyChain/Dashboard1?:embed=yes&:toolbar=yes&:tabs=n
 iPhone Supply Chain –
Distribution of value (2010)

Source: Kraemer et al. (2011), p. 5

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 Questions

• What does Apple want to achieve with this Supply Chain? What are
key objectives?

• What are the main differences compared to the previous example

(i.e. the SC for injection valves)?

• What are the key decisions that have to be taken in this Supply
Chain, in the
• long term?
• medium term?
• short term?

• Who takes these decisions?

15
 iPhone Supply Chain –
Sources and additional reading
• Kraemer, K.L.; Linden, G.; Dedrick, J. (2011): Capturing Value in Global
Networks: Apple ’s iPad and iPhone, available online:
http://pcic.merage.uci.edu/papers/2011/Value_iPad_iPhone.pdf
(06.03.2012)
• Interactive world map with the entire supply network of the iPhone:
http://public.tableausoftware.com/views/iPhone4GlobalSupplyChain/Dash
board1?:embed=yes&:toolbar=yes&:tabs=no

• Additional reading (optional):

Dedrick, J.; Kraemer, K.L.; Linden, G. (2009): Who profits from innovation
in global value chains?: a study of the iPod and notebook PCs,
Industrial and Corporate Change, Vol. 19 (1), p. 81-116

16
Example 3: H&M Supply Chain

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 H&M Supply Chain –
Countries with Shops

Source: „Markencheck: H&M“ (ARD)

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 H&M Supply Chain –
Asian countries with production sites

Source: „Markencheck: H&M“ (ARD)

19
 H&M Supply Chain
25-30 days1

1 Includes cutting, production, quality check, packaging for

shipment and all the above stages
Source: H&M 20
 H&M Supply Chain

Product • H&M does not have any factories of its

manufacturing own; instead, it entrusts around 750
in Asia suppliers to manufacture products for
them (the bigger part in Asia; the
remaining part in Europe, e.g. in
Romania & Turkey).

• Responsiveness based on local

Product production in Europe
manufacturing
in Europe • One distribution centre (DC) situated in
every country
DC
• Continuous and efficient collection of
Retailers information along the supply chain

Legend: Fabric manufacturing (Pre-production)

Final products manufacturing
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 Questions

• What does H&M want to achieve with this Supply Chain? What are
key objectives?

• What are the main differences compared to the previous example

(i.e. the iPhone SC)?

• What are the key decisions that have to be taken in this Supply
Chain, in the
• long term?
• medium term?
• short term?

• Who takes these decisions?

22
 H&M Supply Chain –
Sources
• Hasan, M.R.; Alim, M.A. (2010): Factors Affecting Supply Chain
Management Efficiency in Cross Border Outsourcing: A case study of
H&M and its Outsourcing Operations in Bangladesh

• H&M, Head office

• „Markencheck: Der H&M-Check“ (ARD, 23.01.2012)

23
 Example 4: Chemical Supply Chain

Source: http://www.basf.com/group/corporate/de/about-basf/profile/verbund/verbund-sites 24
 Planning in complex product structures

Erdöl-Raffinerie Ammoniak- Salpetersäure- Hydroxylamin- Schwefelsäure- Polyamid-Sortiment

Fabrik Fabrik Fabrik Fabrik

Aromaten- Cyclohexan- Anolon-/Keton Caprolactam- Polyamidproduktion Polyamidproduktion

Anlage Fabrik Fabrik Fabrik (Polymerisation) (Konfektionierung)

Kraftwerk Düngemittel-Fabrik

Source: BASF 25
 Stages from raw material to end-customer

Company D Execution
Planning
- Commodity -
- Relocation
Company A Company B Company C Styrodur Factory ,
- Tank Germany, Italiy, ...

CHEM CHEM CHEM CHEM CHEM

Ethyl- Poly- Styrodur-

Benzol Styrol
benzol styrol platten

Pipeline
Sales - - Buy
Exxon, Shell, ...
Isover G+H, ...
Raffinerie Construction
Distributor materials Constructor
trade

Naphtha Product Product

Lieferung
portfolio portfolio

Source: BASF 26
 Where do you see complexity?

Sales in North America Raw material product 2

Sales in Europe with
with external customers Europe - Asia
external customers
Sales in Asia
with external customers
APO-DP APO-DP APO-DP
APO-DP
Europe
• Product 1 E-XYZ Asia/Location 2
North America • Product 2 E-JKL • Product 3 A-MNO
Product 1 N-XYZ • Product 3 E-GHI • Product 4 A-MNO
Product 2 N-ABC • Product 4 E-DEF
Product 3 N-ABC
Product 4 N-ABC
Asia/Location 1
Raw material product 2 • Product 2 A-MNO
APO-DP Location 1 and 2
Raw material product 2 in Asia
North America - Asia

Usage of APO-DP for customer demands and transfers between regions

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 Questions

• What does BASF want to achieve with its Supply Chain? What are
key objectives?

• What are the main differences compared to the previous examples

(i.e. the iPhone & the H&M SC)?

• What are the key decisions that have to be taken in this Supply
Chain, in the
• long term?
• medium term?
• short term?

• Who takes these decisions?

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 Summary: What is a Supply Chain? (1)

• All stages involved, directly or indirectly, in fulfilling

a customer request

• Includes manufacturers, suppliers, transporters, warehouses,

retailers, and customers

• Within each company, the supply chain includes all functions

involved in fulfilling a customer request (product development,
marketing, operations, distribution, finance, customer service)

• Customer is an integral part of the supply chain

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 Summary: What is a Supply Chain? (2)

• Includes movement of products from suppliers to manufacturers

to distributors, but also includes movement of information, funds,
and products in both directions

• Probably more accurate to use the term "supply network" or

"supply web"

• Typical supply chain stages: customers, retailers, distributors,

manufacturers, suppliers

• All stages may not be present in all supply chains

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 The Objective of a Supply Chain (1)

• Maximize overall value created

• Supply chain value: difference between what the final product is

worth to the customer and the effort the supply chain expends in
filling the customer’s request

• Value is correlated to supply chain profitability (difference between

revenue generated from the customer and the overall cost across
the supply chain)

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 The Objective of a Supply Chain (2)

Example:

• Dell receives $2000 from a customer for a computer (revenue)

• Supply chain incurs costs (information, storage, transportation,

components, assembly, etc.)

• Difference between $2000 and the sum of all of these costs is the supply
chain profit

• Supply chain profitability is total profit to be shared across all stages of the
supply chain

• Supply chain success should be measured by total supply chain

profitability, not profits at an individual stage – But ???

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 The Objective of a Supply Chain (3)

• Sources of supply chain revenue: the customer

• Sources of supply chain cost: flows of information, products, or

funds between stages of the supply chain

Supply chain management is the management of flows between

and among supply chain stages to maximize total supply chain
profitability

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 Decisions in a Supply Chain (1)

Supply chain strategy or design

• Decisions about the structure of the supply chain and what processes
each stage will perform

• Strategic supply chain decisions

• Locations and capacities of facilities
• Products to be made or stored at various locations
• Modes of transportation
• Information systems

• Supply chain design must support strategic objectives

• Supply chain design decisions are long-term and expensive to reverse –

must take into account market uncertainty
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 Decisions in a Supply Chain (2)

Supply chain planning

• Definition of a set of policies that govern short-term operations

• Fixed by the supply configuration from previous phase

• Starts with a forecast of demand in the coming year

• Planning decisions:
• Which markets will be supplied from which locations
• Planned buildup of inventories
• Subcontracting, backup locations
• Inventory policies
• Timing and size of market promotions

• Must consider in planning decisions demand uncertainty, exchange rates,

competition over the time horizon
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 Decisions in a Supply Chain (3)

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)

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 Process View of a 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

Each cycle occurs at the interface between two successive stages

Customer

Customer Order Cycle

Retailer

Replenishment Cycle

Distributor
Manufacturing Cycle

Manufacturer
Procurement Cycle

Supplier
Chopra/Meindl, 2007, p.11

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 Push/Pull View of Supply Chains

Procurement,
Customer Order Cycle
Manufacturing and
Replenishment Cycles

Push Processes Pull Processes

Customer Order
Arrives
 Push/Pull Boundary Chopra/Meindl, 2007, p.13

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 Push/Pull View of Supply Chain
Processes (1)

• Supply chain processes fall into one of two categories

depending on the timing of their execution relative to
customer demand

• Pull: execution is initiated in response to a customer order

(reactive)

• Push: execution is initiated in anticipation of customer orders

(speculative)

• Push/pull boundary separates push processes from pull processes

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 Push/Pull View of Supply Chain
Processes (2)

• Useful in considering strategic decisions relating to

supply chain design – more global view of how supply chain
processes relate to customer orders

• The relative proportion of push and pull processes can have an

impact on supply chain performance

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 Push/Pull Processes for Dell Supply Chain

Customer Pull
Order and Processes
Manufacturing
Cycle Customer Order and
Manufacturing Cycle
Customer
Order
Arrives
Procurement
Cycle Push Procurement Cycle
Processes

Chopra/Meindl, 2007, p.14

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 Supply Chains for Dell vs. Traditional
PC Manufacturer

Customer Customer

Pull Pull
Dell
Retail Store

Chopra/Meindl, 2007, p.99

PC Manufacturer

Supplier Supplier

Dell Supply Chain Traditional PC Supply Chain

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 Competitive and Supply Chain Strategies

• 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 product
• Consistency and support between supply chain strategy, competitive strategy,
and other functional strategies is important

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 Supply Chain Planning - Overview

Strategic Network Design

SC Master Planning
Demand
Planning APS
Planning Horizon

Material Production Distribution

Requirements Planning Planning
Planning
& Transportation Order
Purchasing Scheduling Fulfillment
Planning

Monitoring/Event Management

Materials
Management Production
Planning
Sales & Distribution ERP*
Purchasing

*Relevant modules for Supply Chain Management

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 Strategic Network Design

• Key tasks:
• Determine the structure of the supply chain
• Number of stages
• Number of nodes (e.g. production plants, warehouses) on each stage and
their geographical location
• Potential flows between nodes
• Determine the resource configuration for nodes and links
• Capacity
• Technology
• The tasks are interrelated!

• Key objectives:
• Inputs:
• Outputs:

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 Demand Planning

• Key task: generate long-term, medium-term und short-term

demand forecasts

• Objectives:

• Inputs:

• Outputs:

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 SC Master Planning

• Key task: Determine production, inventory and shipping quantities for the
whole supply chain on a medium term basis (e.g. 12-24 months, with
monthly time buckets)

• Key objectives:

• Inputs:

• Output:

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 Distribution & Transportation Planning

• Key tasks:
• Distribution planning: Allocate finished goods to warehouses/distributions
centers, determine inventory quantities
• Transportation planning:
• generate transportation orders
• allocate transportation orders to resources (e.g. trucks)
• routing

• Key objectives:

• Inputs:

• Outputs:

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 Production Planning & Scheduling

• Key tasks:
• Production planning: Determine optimal lot sizes
• Scheduling: Allocate lots to available resources

• Key objectives:

• Inputs:

• Outputs:

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 Material Requirements Planning and
Purchasing

• Key tasks: generate replenishment orders and schedule their

execution

• Key objectives:

• Inputs:

• Outputs:

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 Order Fulfillment

• Key tasks:
• Receive and handle customer orders
• Allocate customer orders to inventory/capacity
• Quote due date

• Key objectives:

• Inputs:

• Outputs:

52
 Disclaimer

• You have to understand the aforementioned SC planning tasks and

how they are related!

• This course will provide you with details for these planning tasks
and also show you how they interact

• Moreover, you will get a good overview of how these tasks are
executed in practice and how they are supported by modern
Information Systems

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 Course Outline

(1) Introduction to Supply Chain Management

(2) Strategic Network Design
(3) Demand Planning 1
(4) Demand Planning 2
(5) Master Planning 1
(6) Master Planning 2
(7) Order Fulfillment
(8) Industry Presentation
(9) Sales & Operations Planning
(10) Supply Chain Coordination and Collaboration 1
(11) Supply Chain Coordination and Collaboration 2
(12) Questions & Answers
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 Readings

• Chopra/Meindl (2010). Supply Chain Management. 4th Edition, Pearson,

Boston et al.; Chapter 1
• Stadtler/Fleischmann (2012). Hierarchical Planning and the Supply Chain
Planning Matrix. In: Stadtler et al. (eds.): Advanced Planning in Supply
Chains, Springer, Berlin et al.; Chapter 2
• Shapiro (2007). Modeling The Supply Chain. 2nd Edition. Brooks/Cole;
London; Chapter 1

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