1.

(a)Decision stages in a supply chain:

There are three phases:

1. Supply chain strategy or design

2. Supply chain planning and

3. Supply chain operation

(b) All processes in supply chain fall into one of two categories:

• 1. push process and

• 2. pull process

In pull process, execution is initiated in response to a customer order.

In push process, execution is in anticipation of customer order

At the time of execution of a pull process, demand is known with certainty whereas at the time
execution of a push process demand is not known but forecasted

A push/pull view of the supply chain is useful when considering strategic decisions relating to
supply chain design

This view facilitates a more global consideration of supply chain processes as they relate to a
customer order.

Pull process may be regarded as reactive process as they react to customer demand

Push process may be regarded as speculative process as they respond to forecast (speculative)
demand rather than actual demand

The push/pull boundary in a supply chain helps to separate, push process from pull process.

Ex. In computer manufacturing firm, the beginning of assembly process represents the push/pull
boundary

All processes carried out prior to assembly are push processes and

All processes carried out after and including assembly are pull processes, because they are
initiated in response to a customer order.

(c) Importance of SCM: of late SCM is gaining importance. Reasons:

1. the total time for material to travel through the entire supply chain can be quite long (say
6months to an year).
 SCM can reduce waiting time in various stages leading to reduction in inventory, increase
flexibility, reduce costs, reduce cycle time and better deliveries

2. Many companies have improved their internal operations and now find it necessary to
consider relations with external customers and suppliers in supply chain to gain further
improvements in operations

3. Supply chain thinking is an application of systems thinking and provides a basis for
understanding processes that cut across a company’s internal departments and processes that
extend outside company as well.

4. the goals of SCM is to reduce uncertainty and risks in the supply chain, positively affecting
inventory levels, cycle time, processes and ultimately end-customer service levels. Focus is on
system optimization

5. the design, planning and operation of a supply chain have a strong impact on overall
profitability and success

6. SCM has become a hot competitive advantage as companies struggle to get the right stuff to
the right place at right time

7. All the TQM, JIT, “reengineering”, “team work” and “delighting customers” depends on the
relationships with suppliers and distributors who are part of the supply chain

8. SCM includes transportation vendors, suppliers, distributors, banks, credit and cash transfers,
bills payable and receivable, warehousing and inventory levels, order fulfillment and sharing
customer, forecasting and production information

9. As firms strive to increase their competitiveness via product customization, high quality, cost
reductions and speed-to-market, they place added emphasis on SCM

10. SCM build chain of suppliers that focus on both waste and maximizing value to the ultimate
customer

The key to SCM is to make suppliers “partners” in the firm’s strategy to satisfy the ever-changing
market place

2. (a) Competitive and 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 and services.

The firm’s competitive strategy will be defined based on its customers’ priorities

Competitive strategy targets one or more customer segments and aims to provide products and
services that satisfy these customers
 To see the relationship between competitive and supply chain strategies, start with the value
chain for a firm.

The value chain begins with a new product development which creates specifications for the
product

(b) Supply chain macro process in a firm:

All the supply chain processes can be classified into three macro processes

1. customer relationship management (CRM) all processes that focus on the interface between
the firm and its customers

2. internal supply chain management (ISCM) all processes that are internal to the firm

3. supplier relationship management (SRM) all processes that focus on the interface between
firm and its suppliers

The three macro processes manage flow of information, product and funds required to
generate, receive and fulfill customer request

CRM aims to generate customer demand and facilitate the placement and tracking of orders
(marketing department)

It includes marketing, pricing, sales, order management, and call center management,

For manufacturing unit, CRM includes catalogs, marketing material, management of website and
provides service through call center

ISCM aims to fulfill demand generated by CRM in timely manner at lowest cost (manufacturing
department)

It includes planning of production, storage, preparation of demand supply plans and fulfillment
of actual orders

The ISCM process in a manufacturing unit include planning of location and size of warehouse in
addition to maintaining the level and movement of inventories

SRM aims to arrange for and manage supply sources for various goods and services (purchasing
department)

It includes evaluation and selection of suppliers, negotiation of terms and communication

regarding new products and orders with suppliers

For a manufacturing unit it includes selection of supplier for various products, negotiation of
pricing and delivery terms with supplier, sharing demand and supply plans, in addition to
placement of replenishment of orders
 All the three macro processes are to be synchronized to serve the customers effectively

(c) How is strategic fit achieved: three basic steps:

1. understanding the customer and supply chain uncertainty: first the company must
understand the customer needs for each targeted segment and uncertainty the supply chain
faces in satisfying these needs

These needs help company define the desired cost and service requirements

The supply chain uncertainty helps the company identify the extent of unpredictability of
demand, disruption and delay the supply chain must be prepared for.

2. understanding the supply chain capabilities: There are many types of supply chains, each of
which is designed to perform different tasks well.

A company must understand what its supply chain is designed to do well

3. achieving strategic fit: if a mismatch exist between what supply chain does particularly well
and desired customer needs, the company will either need to restructure the supply chain to
support the competitive strategy or alter its competitive strategy

Understanding the customer and supply chain uncertainty: to understand the customer the
company must identify the needs of the customer segment being served.
 The quantity of the product needed in each lot: an emergency order for material needed
to repair a production line is likely to be small. An order for material to construct new
production line is likely to be large

The response time that customers are willing to tolerate: the tolerable response time for
the emergency order is likely to be short, whereas the allowable response time for the
construction order is apt to be long

The variety of products needed : a customer may place a high premium on the
availability of all parts of an emergency repair order from a single supplier. This may not
be the case for construction order

The service level required: A customer placing an emergency order expects high level of product
availability. This customer may go elsewhere if all parts of the order are not immediately
available. This may not happen in case of a construction order for which long lead time is likely

The price of the product: customer placing emergency order is less sensitive to price than
customer placing construction order

The desired rate of innovation in the product: customers at high end department store expect a
lot of innovation and new designs in the store’s apparel. Customers at wal-mart may be less
sensitive to new product innovation

Each customer in a particular segment tend to have similar needs, where as customers in a
different segment can have very different needs

The goal is to identify one key measure for all the attributes of consumer needs to define supply
chain design

Implied demand uncertainty: at first glance it may appear that each of the customer need
categories to be viewed differently, but in a very fundamental sense, each customer need can
be translated into the metric of implied demand uncertainty

Implied demand uncertainty is demand uncertainty due to the portion of demand that the
supply chain is targeting not the entire demand

Demand uncertainty reflects the uncertainty of customer demand for a product

3 (a) Distribution network design

1. manufacturer storage with direct shipping

2. manufacturer storage with direct shipping and in-transit merge

3. distributor storage with package carrier delivery

4. distributor storage with last-mile delivery

 5. manufacturer/distributor storage with customer pick up

6. retail storage with customer pickup

(b) Factors influencing distribution network design: at the highest level performance of distribution
network should be evaluated along two dimensions;

• 1. Customer needs that are met

• 2. Cost of meeting customer needs

• Thus a firm must evaluate the impact on customer service and cost as it compares different
distribution network options

• The customer needs that are met influence the company’s revenues, which along with cost
decide the profitability of the delivery network

• Issues that are influenced by structure of distribution network:

• 1. response time 2. product variety

• 3. product availability 4. customer experience, 5. time to market , 6. order visibility

• 7. returnability

• Response time is the amount of time it takes for a customer to receive an order

• Product variety is number of different products/ configuration that are offered by distribution
network

• Product availability is the probability of having a product in stock when a customer order arrives

• Customer experience includes ease with which customers can place and receive orders and to
the extent to which this is customized. It includes purely experiential aspects, such as possibility
of getting a cup of coffee and the value that the sales staff provides

• Time to market is the time it takes to bring a new product to the market

• Order visibility is the ability of customer to track their orders from placement to delivery

• Returnability is the ease with which a customer can return unsatisfactory merchandise and the
ability of the network to handle such returns

• It may seem that a customer always wants the highest level of performance along all these
dimensions

• In practice this is not the case. Customers ordering book at amazon.com are willing to wait
longer than those who drive to a nearby Borders store to get the same book
 • In contrast customers find a much large variety of books at amazon compared to Borders store

(c) Distributor storage with last-mile delivery: last mile delivery refers to the distributor/ retailer
delivering the product to the customer’s home instead of using a package carrier

• Last mile delivery is suitable for relatively fast-moving items for which disaggregation does not
lead to a significant increase in inventory (grocery in thickly populated cities)

• Last mile delivery is hard to justify if labour costs are high

Cost factor Performance

Inventory Higher than distributor storage with package carrier delivery

Transportation Very high cost given minimal scale economies. Higher than any other distribution option

Facilities and handling Facilities cost higher than manufacturer storage or distributor storage with package carrier de
retail stores

Information Similar to distributor storage with package carrier delivery

Service factor Performance

Response time Very quick. Same day to next day delivery

 Product variety Somewhat less than distributor storage with package carrier delivery but larger than retail stores

Product availability More expensive to provide availability than any other option except retail stores

Customer experience Very good, particularly for bulky items

Time to market Slightly higher than distributor storage with package carrier delivery

Order traceability Less than an issue and easier to implement than manufacturer storage or distributor storage with package carrier delivery

Returnability Easier to implement than other options. Harder and more expensive than a retail network

6 . Strategic factors: a firm’s competitive strategy has a significant impact on network design decisions
with in the supply chain

Firms that focus on cost leadership tend to find the lowest-cost location for their manufacturing
facilities, even if it is located very far from market they serve

• Ex. In 1980, US apparel manufacturers moved their manufacturing to low labor cost countries to
reduce costs

• With drop of apparel quotas in 2005, most of the manufacturing is now moving into low-cost
countries such as China

• Firms focusing on responsiveness locate their facilities near to the market and may select high
cost location incase firm can react to changing needs of market

• Ex. Zara a Spanish apparel manufacturer has large part of its production facility in Portugal and
Spain in spite of high costs

• Zara is one of the fastest-growing apparel retailers in the world, mainly because its local
capacity allows it to respond quickly to changing fashion trends in Europe

• Convenience store chain aim to provide easy access to customers as apart of their competitive
strategy and have many small stores to cover an area.
• In contrast Sam’s club a discount store use competitive strategy to provide low prices and have
large stores and customers have to travel miles to reach Sam’s club.

• The geographic area covered by Sam’s club may include a dozen of Convenience stores

• Global supply chain networks can best support their strategic objectives with facilities in
different countries playing different roles

• Nike has production facilities at China and Indonesia to focus on cost and produce mass-market
lower priced shoes and has facilities at Korea and Taiwan to focus on responsiveness and
produce higher priced new designs

• This allows Nike to satisfy a wide variety of demands in most profitable manner

• A firm has to identify the mission or strategic role of each facility when designing its global
network

• Kasra Fedrows (1977) suggests following classification of possible strategic roles for various
facilities in global supply chain network:

• 1. Offshore facility: low-cost facility for export production: an offshore facility serves the role of
being a low-cost supply source for markets located outside the country where the facility is
located

• The location selected should have low labor cost etc to facilitate low cost of production

• Many Asian developing countries waive import tariffs if all the output from a factory is exported,
they are preferred sites for offshore manufacturing facilities

• 2. Source facility: low-cost facility for global production: a source facility has low cost as its
primary objective, but its strategic role is broader than that of an offshore facility

• A source facility is often a primary source of product for the entire global network

• Source facilities tend to be located in places where production costs are relatively low,
infrastructure is well developed and skilled work force is available

• Good offshore facilities migrate over time into source facilities

• Many Chinese & Indian apparel manufacturers are attempting to transform into source facilities
since the drop in apparel quota in 2005

• 3. Server facility: regional production facility: a server facility’s objective is to supply the market
where it is located

• A server facility is built because of tax incentives, local content requirement, tariff barriers, or
high logistics cost to supply the region from elsewhere.
• In late 1970’s, Suzuki partnered with Indian government to set up Maruti udyog.

• Initially Maruti was set up as a server facility and produced cars only for Indian market.

• The Maruti facility allowed Suzuki to overcome high tariffs on imported cars in India

• 4. contributor facility: regional production facility with development skills: a contributor facility
serves the market where it is located but also assumes responsibility for product customization,
process improvements, product modifications or product development.

• Most well-managed server facilities become contributor facilities over time

• The Maruti facility in India today develops many new products for the Indian and the overseas
markets and has moved from being a server to a contributor facility in Suzuki network

• Out post facility: regional production facility built to gain local skills: an out-post facility is
located primarily to obtain access to knowledge or skills that may exist within a certain region.

• Given its location, it also plays the role of a server facility

• The primary objective remains one of being a source of knowledge and skills for the entire
network.

• Many global firms have set up outpost production facilities in Japan despite the high operating
cost