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A supply chain consists of all stages involed directly, or indirectly, in fulfilling a customer request for
a product in an economy. Thus it includes customers who give the requests, transporters, retailers,
wholesalers, warehoues, manufacturers, and component, service as well as raw material suppliers.
Within an organization there is a supply chain that includes all functions involved a filling a customer
request as well as the order. The functions carried out within an organization include marketing, new
product development, operations, distribution, finance and customer service.
In a supply chain there is constant flow of information, product and funds between stages. Usually
supply chain is imagined as product moving from suppliers to manufacturers and from there to
wholesalers and retailers and then further to customers. But supply chains have two way
movements and also involve movement of information and fund apart from the product.
Customer is an integral part of the supply chain and the primary purpose of a supply chain is
satisfying customer needs and generating profit for itself in the process.
The routine supply chain activities begin with a customer order and end when a satisfied customer
has paid for his purchase.
In a supply chain, number of customers are there, number of retailers are there, number of
transporters are there and number of manufacturing plants can be there. Hence a supply chain is
actually a network or a web. Hence supply network and supply web also describe a supply chain.
The objective of every supply chain is to maximize the overall value generated. Supply chain
management involves the management of flows between and among stages in a supply chain to
maximize total profitability.
Supply Chain Design, Plan and Operation are identified as three significant decision phases by
Chopra and Meindl.
Supply Chain Design: Supply chain strategy is another word used for this phase. Supply chain design
decisions or strategy decisions include products to be manufactured, location and capacities of
manufacturing plants and warehouses, modes of trasport to be utilized and information system to
be utilized.
Supply Chain Planning: Planning, typically done for an year, establishes parameters within which a
supply chain will function over a specified period of time.
Supply Chain Operation: In this phase the time horizons are small, monthly, weekly and daily. The
decisions driven by customer order and are related to invidual customer orders. There are also
decision related to individual production facilities, warehouses and transporters.
In cycle view, the supply chain processes are divided into cycles that are performed at the interface
between two successive stages of a supply chain and one describes the following cycles.
Replenishment cycle
Manufacturing cycle
Procurement cycle
Normally occurs at the retailer place between the customer and the retailer.
Activities involved
Customer arrival, Customer order entry, Customer order fulfilment, Customer order receiving,
Customer funds payment
B. Replenishment cycles
Activities involved
Retai order trigger, Retail order entry, Retail order fulfilment, Retail order receiving, Funds payment
C. Manufacturing cycle
Activities involved
Order arrival, Production scheduling, Manufacturign and shipping, Receiving by the person ordered,
Funds payment
D. Procurement cycle
2. Push/Pull View
In this view, pull processes and push processes are categorized and identified in the supply chain.
Each supply chain will have some pull processes and push processes. The activities initiated
by customers' orders form pull process activities. The activities initiated and carried out in
anticipation of customer demand are push process activities.
Flow of information, material and product and cash are important for supply chain functioning and
fulfilment of its objectives.
Information is key to produce as per customers' order and also to forecast in case of made-to-stock
supply chains.
Supply Design, Planning and Operation Related Questions. One will find answers to these questions
in various chapters of the Supply Chain Management Book which we are summarising chapter-wise.
1. Why a company outsources some assembly activities and does some within its assembly plant?
What characteristics of the product or order characterize outsourced activities?
2. When does a company have only one manufacturing location for the entire country or world?
When does it have multiple plants?
3. Why certain orders are despatched via couriers for overnight delivery or one day delivery and why
certain other orders are sent via trucks on full load or part load basis?
4. How inventories are determined for components and finished goods?
A company's competitive strategy clearly spells out the set of customer needs that it seeks to satisfy
through its products and services having a defined set of attributes.
The supply chain design or supply chain strategy must be in alignment with competitive strategy. A
supply chain design can be taken up only after the competitive strategy is finalised and a supply
chain needs to be redesigned or modified whenever there is a change in competitive strategy.
Chopra and Meindl use the concept of strategy to refer to what each function will try to do
particularly well. They indicate that product strategy specifies the portfolio of products that will be
offered for sale by the company and product development strategy specifies the portfolio of new
products that the company will develop. A marketing and sales strategy specifies how the market
will be segmented and the products of the company are positioned, priced and promoted. The
supply chain strategy determines the procurement process of the raw materials, transportation of
materials, manufacture of the product, distribution channels, warehousing and transportation of
the products, and the follow-up services.
The supply chain strategy includes supplier strategy, operations strategy, and logistics strategy.
Design decisions regarding inventory, transportation, operating facilities, and information flows in
the supply chain of a company are all part of supply chain strategy.
Strategic fit between competitive strategy and supply chain strategy refers to the consistency
between the customer needs that the competitive strategy aims to satisfy and the supply chain
capabilities that the supply chain strategy aims to build. Chopra and Meindl stated an important
point: no one function can ensure the chain's success. However, failure at one function may lead to
failure of the overall chain.
The quantity of the product needed in each lot purchased. Preferred purchase quanity of the
customer.
The response time from customer's enquiry.
The variety of products needed (applicable in case of a retail store, restaurant etc.).
The service level required (shortage of items)
The price of the product or service.
The desired rate of innovation.
Chopra and Meindl argued that while there are many attributes of the supply system which are to be
understood from customer point of view and built into the supply chain, one key measure captures
the variation for many of these attributes. That measure according to them is implied demand
uncertainty. It is different from demand uncertainty. Demand uncertainty reflects the uncertainty of
customer demand for a product. Implied demand uncertainty is uncertainty for a specific supply
chain for the portion of the demand (target market) it caters to.
Implied demand uncertainty is defined in the context of multiple supply chains supplying the same
product. Multiple supply chains come due to different attributes that they satisfy. An example is a
firm supplying a product, say medicines, 24 hours versus a firm that supplies during normal day
hours. The implied demand uncertainty for the 24 hour firm can be high as on some days there is
heavy demand and some days very less demand and also the demand for specific medicines can be
high on some days and can be even zero on some days.
A spectrum can be visualized in terms of implied demand uncertainty from low uncertainty to high
uncertainty and a firm can be placed on this line or spectrum at some point.
A supply chain can be described initially by two characteristics responsiveness and efficiency.
Supply chain responsiveness is measured by the abilities of the chain to do the following:
Supply chain efficiency is the cost of making and delivering a product to the customer. Increase in
costs lower efficiency.
It is a chart or graph with cost on the X-axis (origin is high cost) and Responsiveness on the Y axis
(origin is low responsiveness). See Example
The frontier shows the minimum cost for a given responsiveness. If a company is operating within
the frontier, at a higher cost, it can decrease the cost by appropriate actions but keep the
responsiveness same. When it is operating on the efficient frontier, any increase in responsiveness
can only come by incurring extra cost.
The frontier curve is a short-run phenomena and companies continually try to improve their supply
chain by reducing cost further and increasing responsiveness and thus change the frontier over each
period.
The greater the implied demand uncertainty, the more responsive a supply chain has to be. More
responsive supply chains are more costly supply chains. When compared directly with less
responsive but more efficient supply chains, their costs may look excessive. But the fit demands that
for target markets with greater implied demand uncertainty, more responsive supply chain is to be
employed.
Therefore it is to be emphasized that there is no right supply chain strategy independent of the
competitive strategy. For a given competitive, a right supply chain can be specified.
Multiple Target Markets: Most companies may serve two or more target markets and the supply
chain has to serve them both. In this case some tailoring has to be done by having common facilities
and in some supply chain activities and dedicated facilities in some supply chain activities so that
economies of scale where exist can be utitlized without deterioration in service for either target
markets.
Product Life Cycle: As the product is new, implied demand uncertainty is high and as it matures,
implied demand uncertainty is low. Hence supply chain design has to change over the life cycle of
the product.
Competitive situation: As the product matures, more competitors emerge and implied demand
uncertainty keeps chaging.
Intracompany Intraoperation scope: The most limited scope over which strategic fit and optimization
can be attempted is one with one operation within a functional area in a company. For example each
warehouse of the company has its own goal.
Intracompany Intrafunctional scope: If the competitive strategy and supply chain strategy are
aligned across all the supply chain activities (supplier strategy, operations strategy, and logistics
strategy ) or functions of the company and optimization is attempted in an integral manner
including the raw material inventory, manufacturing operations, finished goods inventory and
warehouse, and transportation, the scope is extended to intracompany intrafuctional level.
Intracompany Interfunctional scope: At this level of scope, the entire company's activities are viewed
and modeled as one single system, and optimization is done and company profit is maximized.
Intercompany Interfunctional scope: The Maximum Supply Chain Surplus view: At this level of
optimization and fit making, the entire supply chain (including various different organizations) is
modeled as a system and optimization and fit is designed so that supply chain surplus is maximized.
Flexible Intercompany interfunctional scope: The flexibility refers to dynamic situation. Physically,
the participants in the supply chain keep changing, products keep changing, technologies keep
changing, facilities keep changing. Mathematically, there are changes in number of variables and
variable values. A supply chain capable of optimizing and fit making dynamically over time is a
flexible intercompany interfuctional scope supply chain.
Supply chain managers have to take research and development efforts to improve both
responsiveness and efficiency of their supply chains on a continuous basis. In the past there were
technological and managerial breakthroughs which improve one of them without any deterioration
in the other and also improvement in both dimensions simulataneously. Actual economic theory
tells, new technologies (capital investments) are adopted for capital productivity. Capital
productivity in the context of supply chains comes through improvement in responsiveness and
efficiency.
But at a certain point in time, there can be tradeoffs between responsiveness and efficiency. Hence
supply chain designers come with supply chains that give various combinations of responsiveness
and efficiency (responsiveness - efficiency frontier) and the optimal combination is chosen based on
the competitive strategy considerations.
Inventory: It consists of all raw material, work in process, and finished goods within a supply chain.
Transportation: It involves moving inventory from one point in the supply chain to another point.
Facilities: A facility is a place where inventory is stored, manufactured or assembled. Hence facilities
can be categorised into production facilities and storage facilities.
Information: It consists of data and results of analysis regarding inventory, transportation, facilities,
customer orders, customers, and funds.
Inventory
Inventory is maintained in the supply chain because of mismatches between supply and demand.
Cycle inventory: This results due to producing or buying larger lots to minimize acquisition costs
related to processing each purchase order or production order.
Increasing inventory gives higher responsiveness but results in higher inventory carrying cost.
Transportation
Decisions
Mode of Transportation
Air
Truck (Road)
Rail
Ship
Pipeline
Electronic transportation (the newest mode for music, documents etc)
Network is a set of facilities or destinations which can be used for transportation of goods. Route is a
specific selection of facilities or destinations through which goods move.
Facilities
Location
Capacity
Manufacturing Methodology or Technology
Warehousing methodology
Information
Information does not have a physical presence. It is likely to be overlooked. But it deeply affects
every part of supply chain. Information is the connection between various stages in a supply chain
and allows them to coordinate actions and increase the maximum supply chain profitability. It is also
essential in daily operations. The stocks available in warehouses must have visibility so that when a
customer wants an item, it can be delivered to him.
Increasing Variety of Products:In the era of mass customization production variety is increasing.
The customers becoming increasingly demanding. Today's customers are demanding faster
fulfillment, better quality, and better performing products for the same price that they are paying
today.
The supply chain is getting fragmented. At one time vertical integration was the order of the day. But
the present trend is to concentrate on core competence and outsource more activities. Thus the
supply chain is more fragmented now.
Globalization is creating global supply chains and hence physical distance is increasing between a
company and its suppliers and a company and its customers.
While creating a strategy is difficult, executing it is much more difficult. Many companies understand
Toyota Production System now, but still find it difficult to implement and operate