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Supply chain Definition and Stages Integration of all business activities is important to achieve a smooth flow of goods or products.

Supply chain is defined as a process that begins at the raw material stage and ends at the consumption stage. Returns initiate the reverse supply process. Chopra and Meindl (2001) define supply chain as a process that involves all parties that contribute directly and indirectly to fulfil consumers need. It includes manufacturers, suppliers, transporters, warehouses, retailers and customers. The process integrates all functions of an organisation to fulfil the needs of their immediate customer. The functions are new product development, marketing, operations, distribution, finance, and customer service Plastic Producer Chemical Manufacturer P & G or Other Manufacture Wal-Mart or Third Party DC Wal-Mart Store Customer at Wal-Mart Tenneco Packaging Paper Manufacturer Timber Company Figure 1.1: Stages of a Detergent Supply chain:

DC: Distribution Centre The above figure shows a supply chain or a detergent. Wal-Mart is the retailer and the distribution centre as well. The supply chain is triggered by the consumers need for detergent. Wal-Mart stocks the inventory of detergent through their Distribution centre of warehouse. The Warehouse could be managed by Wal-Mart or any third party distributor. The distributor stocks from manufacturer like P&G or Unilever or any other manufacturer. P&G or other manufacturers will in turn get materials from other suppliers. In this case, P&G get raw material supplies from variety of suppliers (in turn these could get their supplies from lower tier suppliers). For example Tenneco packaging provides packaging material to P&G but in turn gets its materials from Lower tier suppliers. Supply chains are dynamic in nature and involve constant flow of information, product and funds between different stages. As per the illustrations Wal-Mart Provide product and price information to the consumer, consumer pays for the product he procured. Similarly Wal-Mart conveys point of sales data and replenishment order information to the warehouse or distributor, who transfers the replenishment orders to Wal-Mart through trucks. The distributor sends the pricing information and delivery schedules to Wal-Mart. Wal-Mart pays in accordance to the contract signed. Transfer of funds and materials is seen at every supply chain stage. Let us see another example of Dell System. Consumers order for a Dell system online. This supply chain includes consumers, Dells Website that takes the order, Dell assemble plant and suppliers. The website provides pricing information to its consumers. It also informs the variety and product availability. Once the consumer chooses the product and pays for it, the information is transferred to assemble unit, which in turn procures the materials at intervals to build the laptop or desktop. Consumer could check the status of order on the website at every stage of a supply chain. Similar to the detergent chain, we see the transfer of information, product and funds at every stage of the supply

chain Figure 1:2 Supply chain Definition Material Flow Customers Distributors Operations Procurement Suppliers

Requirements in Information Flow Transfer of Funds Materials management Distribution Logistics Management Supply Chain Management The examples indicate that consumers are an integral part of a supply chain. Primary purpose is to meet the consumer needs, which in turn generates profits. The supply chain stages are: 1. Customers
2. Retailers 3. Wholesalers/Distributors 4. Manufacturers 5. Component/Raw

material Suppliers

In reality a manufacturer has multiple suppliers for raw materials. Similarly there are many distributors who buy goods from manufacturers to sell them to the retailers present in the market. These making a supply chain a network of organisations that work together to meet the consumers need. It is seen as a supply network (As seen in the figure below) Every Supply Chain would not have all the stages as shown in the figure. Depending on the customer needs and roles of the stage the supply chain is designed. Dells sells directly to consumers hence retailer, wholesaler or distributor is not present in their supply chain. If we look at LL Bean, a mail order company, they do not respond to the customer orders directly. They stock up the product. This adds a retailer in comparison to dell supply chain. FMCG products supply chain will include all the stages of a supply chain. Figure 1.3: Stages of Supply Chain

Objectives of supply chain/Supply chain flows One of the most important objectives of a supply chain is to maximise the overall value generated by

the supply chain. The value is the one for which the consumers pay. Commercial supply chains link value to supply chain profitability. This is the difference between the price the customer paid and the overall cost across the supply chain. The supply chain costs are cost of components, storage and inventory cost, transportation and transactions cost. Supply chain profitability is the total profit that is shared across all supply chain stages. Performance of a supply chain should be on the basis of supply chain profitability and not profit at individual stages. In a Supply chain the source of funds is only from the consumer. Let us use the Wal-Mart Detergent example to demonstrate the same. A end user pays money to Wal-Mart for the detergent purchased. This is the only positive cash flow. Wal-Mart would transfer a part of this fund to the suppliers. All transactions between two parties in a supply chain generate cost (transactions could be information, funds or products). Key to supply chain success is to manage these flows effectively. Management of flows between and among supply chain stages to maximise total supply chain profitability is called supply chain management. Decision Phases in a Supply Chain For a supply chain to be successful decisions on flows (information, product, funds) needs to be taken accurately. Decision phases are set out on the basis of its frequency. 1. Supply chain Strategy of Design
a. b.

Companies would design or structure their supply chain to be efficient for several years Supply chain configurations are designed (They design how resources will be allocated and what process will be performed by each stage)


Locations of resources and processes to be taken place at each stage are set out
d. Locations,

capacities of production, warehousing, facilities, products to be

manufactured or stored at various locations, modes of transports to be used along the chain and type of information system used are few strategic decisions taken in this phase

Supply chain configuration should support its strategy, eg Dells decision on location and capacity of manufacturing facilities, warehouses and supply sources are all supply chain design or strategic decisions.

f. g. h.

These decisions are long term in nature Expensive to alter on short notice Uncertainty of market conditions over the future period should be taken into consideration


Supply chain Planning

a. b.

Decisions made are for a quarter year Planning has to work in conjunction to the strategic decisions made as they cannot be amended.

c. d.

Planning starts with forecasting of market demand for a year Decisions on which market will be supplied from which location, inventory polices to be followed, subcontracting of manufacturing, inventory polices to be followed, time and size of marketing promotions are part of planning


Planning sets out parameters within which supply chain should function over a specific period of time


Companies should include uncertainty of demand, exchange rates and competition over a specified period of time

g. h.

Given the shorter time the forecasts are better when compared to the design phase Firms try to incorporate flexibility into the supply chain design in the planning phase to exploit optimize performance.


Operating polices are set out to govern short term operations


Supply Chain operation

a. b. c. d. e.

The time periods here are weekly or daily basis Decisions on individual consumer orders are taken Supply chain configuration is fixed and planning policies are defined Aim if supply chain operations is to efficiently handle customer orders Allocation of inventory or production to individual orders, deadline for order filling, pick list at a warehouse, order allocation to be shipped (Shipment and shipping mode), delivery schedules of trucks and placement of replenishment orders are activities of daily supply chain operations

f. g.

Due to the time frame the uncertainty is less in terms of demand Configurations and planning policies are constraints for daily operations of a supply chain.


Reduction of the effects of uncertainty and optimisation of performance is the main objective of a supply chain operation

All the three phases set out the performance of supply chain in totality. Management concepts and methodologies could be used to improve each of the phases (Design, Planning and operation) Process View Of Supply Chain A supply chain is built with the help of processes that help the firms to maintain the flows of products, information and funds efficiently and meet the consumer demand 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) Cycle View of Supply Chain Process All supply chain process can be broken down to four process cycles. Each cycle occurs at the interface between two successive stages 1. Customer order cycle (customer-retailer) 2. Replenishment cycle (retailer-distributor) 3. Manufacturing cycle (distributor-manufacturer) 4. Procurement cycle (manufacturer-supplier) Figure 1.4 Cycle View of Supply Chain Process

There is an interface between each successive stages of a supply chain. Each supply need not have all the cycles of a chain Supply chain Process Cycles: Cyclic view helps in considering operational decisions. There is visibility in terms of roles and responsibilities. It allows us to identify the infrastructure required for every process. Process ownership and objectives are defined clearly when building on information system. Lets see each process in detail Customer order fulfilment Customer order Entry Customer order Receiving Customer Arrival Customer Order Cycle: This process occurs at customer-retailer interface. It involves all the activities like receiving and filling the customers order. Triggers at retailer site and involves filling customer demand. The process involves customer arrival, customer order entry, customer order fulfilment and customer order receiving.

Customer arrival: the activity refers to the customer visiting the retailer to select the product or service required based on his needs and situation. Eg: customer walking into a supermarket, calling a tele marketer, uses of internet shopping portal. Contact should be made with the customer to ensure it turns into a customer order. The organisation should work on converting arrivals into orders to ensure more business happens at the retail outlet. Customer order Entry: Customer informs the representative the list of products or service he is willing to purchase. Eg. In a super market order entry takes place at the billing counter, telemarketing executive get the information from the customer through phone, on the website the customer selects the product into the shopping cost and moves on ot the next stage. The organisation should ensure this process to be quick, easy to understand for the customer, accurate and the information should be communicated to all other supply chain processes that require it. Customer order fulfilment: This process ensures the customer to receive the product or service they order in the previous stage. Eg. Supermarket-consumer collects the product after the bill payment. Web merchandise and telemarketing would ship the product to the customer within a set period (Set by the firm, it takes the time to ship the product from the firms location to the customer house).

This takes place from the retailer inventory. Only build to order frame work it takes place at the manufacturers production line. Objectives of this process is to ensure that the consumers receives the product they order to avoid returns process and associated costs Customer order receiving: This process ensures that the consumer attains the ownership of the product or service he had ordered. Payment could be made earlier or when collecting the product. This ensures that the process of payment and updation of receipt is completed. Eg: At billing counter in the supermarket, at consumers place while ordered through telemarketing and web merchandise. Replenishment cycle: This process occurs at the retailer-distributor interface. All activities involved in replenishment retailer inventory is executed in this cycle. The retailer triggers the process by placing order to meet future demand, It is similar to customer order cycle, here the retailer is the customer. This cycles objective is to replenish retailers inventory at minimum cost and high product availability. The processes of retail order cycle are as follows:

Retail Order Receiving Retail order Trigger

Retail order Fulfilment Retail Order Entry

Retail Order Trigger: Consumption of products at the retailers end would deplete the inventory or stock at the retailers end. Retailer would develop replenishment order policy that would trigger an order to ensure product availability. The retailer would try to ensure maximum level of profitability along with economies of scale, balancing product availability and reduction in cost of holding inventory. This process would generate an order that is passed on to distributor or manufacturer Retail Order Entry: Similar to customer order entry. Here the retailer places the order to the distributor or manufacturer. Retailer becomes the customer. The order is placed and informed to the distributor or manufacturer. The objective of this process is to ensure the order made is accurately entered and conveyed to all associated supply chain process. Retail Order Fulfilment: Similar to customer order fulfilment. Here this takes place at the distributors premises. The replenishment order would be of a larger quantity in comparison to the customer order quantity. The objective here is to ensure cost is low but the order would reach retailer on time. Retail Order Receiving: Retailer receives the replenishment order. The orders should physically reach the retailer and then update all the inventory records. Here we can see product and information flow from distributors to retailer. The funds are moved from retailer to distributor. Manufacturing Cycle: This cycles occurs at the distributors-manufacturer interface or retailermanufacturer interface. The cycle includes the processes that required to replenish the retailer inventory. The process is triggered by customer order (dell) or replenishment order ( from retailer or distributor eg Wal-Mart ordering from P&G) or due to the forecast of customer demand and current product availability at the manufacturers finished goods warehouse. Manufacturing cycle is like an integrated steel mill that collects orders to enable manufacturer to produce in larger quantities. In this case the manufacturer is reacting to the customer demand this is called a pull process. In contrast FMCG firms produce products anticipating consumer demand. This is referred to as push process. The process being pull/push is purely based on the type of product.

Order Arrival Receiving

Manufacturing and shipping Production Scheduling

Order Arrival comes from the finished goods warehouse, distributor, retailer or customer to the manufacturer. Order is triggered from warehouse, distributor, retailer or customer based on a forecast of future demand and current level of inventories. This demand is conveyed to the manufacturer depending on the companys supply chain design the order is processed by either a customer, retailer, distributor or finished goods warehouse (to stock up). It also is done to ensure the availability of products and a future demand forecasted. Similar to retail order trigger process in the replenishment cycle. Production Scheduling: This is similar to the order entry process is the replenishment cycle, where inventory is allocated to an order. Production scheduling process and order (Into forecasted ones) are accumulated into a production plan. Production sequence should be set on the basis of quantity required of each product. If the production set up has multiple lines the manufacturer should decide line to be allocated to each product. The objective of this process is to maximise the preparation of orders filled on time while minimizing the costs. Manufacturing and Shipping: This process is equivalent to the order fulfilment process of the replenishment cycle. Manufacturer produces in accordance to production schedule. The manufactured product is shipped to customer, retailer, distributor or finished goods warehouse depending on the supply chain design. Timely delivery of goods and maintaining quality standards and keeping costs low is the objective of this process. Receiving: This stage characterizes the process of the warehouse, retailer or customer receiving the goods and inventory levels being updated, storage and fund transfers are also part of this process. Transfer of funds could be based on the service level agreement made between the two parties. Procurement Cycle: This process takes place at the manufacturer supplier interface. This process ensures that manufacturer would have sufficient material for production and operation. Manufacturer orders components and raw materials from its suppliers that would help replenish the inventories. This relationship is quite similar to that of distributors and manufacturer but has a difference. Retailer/ distributor orders on the basis of uncertain customer demand by the manufacturer can precisely identify the quantity of components required for a production schedule. Production schedule is very important for this process. Hence suppliers need to be integrated into the production schedule. If the lead time is long, then they need to manufacturer based on forecast as the production schedule of the manufacturer which is not fixed in advance. In real time there may be several levels of suppliers that are linked to the manufacturer. Cyclic view on process would define process in clarity. This helps in improving operational decisions as it specifies roles and responsibilities of each supply chain member including the outcome desired.

Push/Pull View of Supply Chain Process

Supply chain processes can be divided into two categories based on the time of executions relative to a customer order. Pull Process is triggered by response to consumer demand. Push Process is triggered in anticipation of customer demand. Pull Process ensures known customer demand in contrast push process the demand is unknown and should be forecasted. Pull Process are reactive in nature and push is speculative in nature (Since its forecasted). A boundary in a supply chain separates push and pull process (Push/Pull Boundary). Eg At Dell beginning of PC assembly represent the push-pull boundary before this point are push process and after the point the pull process including assembly. Push-Pull view of supply chain aids in building strategic decisions in relation to the supply chain design. This view triggers globalisation of supply chain with respect to supply chain process as related to the customer order. Responsibilities could be transferred to next stage. This may aid in changing pull to push process and vice versa. Let us discuss the push/pull view of supply chain process using a mail order firm and dell supply chain In the below example we can see that all processes after customer order arrival are pull in nature. Orders are filled with the products manufactured in anticipation of demand. The replenishment and manufacturing cycle aims at ensuring product availability when a customer order arrives. All the processes in the replenishment are push in nature as they are stocked in anticipation of demand. Manufacturing and procurement cycle are of the same nature. Eg, RM like fabric is purchased six to nine months before customer demand is expected. In the LL Bean Supply Chain the processes are divided into push and pull process as seen in the figure below. Eg: L L Bean Supply Chain

Eg Dell: Dell is a built to order computer manufacturing firm. Dell does not sell through reseller or distributor but directly to the consumer. Demand is not filled by finished product inventory, but by production. The Manufacturing cycle thus becomes a part of customer order fulfilment process in customer order cycle. In this supply chain we would have only 2 cycles one customer order and manufacturing cycle and procurement cycle as seen in the figure below

All processes in customer order and manufacturing cycle are pull process and the process within the procurement cycle are push in nature because they respond to a forecast. The difference between both the examples are that Dell supply chain has higher no of pull process is comparison to LL bean supply chain. This view of supply chain helps in decisions with respect to supply chain strategy.

Supply Chain Macro Processes in a firm 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 the firm and its suppliers Figure 1.5 Supply Chain Macro Processes in a Firm

These activities manage the product, information and funds flow CRM aims at generating customer demand and facilitate the placement and tracking of orders Marketing, sales, order management and call centre management are part of CRM functions ISCM aims at fulfilling customer demand Includes planning of internal production and storage of demand and supply plans and internal fulfilment SRM aims at arranging for the and manage supply sources for various goods and service

Competitiveness and supply chain Strategies Competitive strategy of a company defines the set of customer needs that it seeks to satisfy through its products and services Defined based on how customer prioritises product cost, delivery time, variety and quality Targets one or more customer segments and aims to provide products and services that satisfy these customers needs Some companys competitive strategies are defined around the following

High availability of a variety of reasonable quality products at low prices eg: WalMart Better customer convenience, availability and responsiveness eg: McMaster Carr MRO items - over 200,000 items through catalogue and web site Better customisation and variety at reasonable cost eg: Dell To execute a competitive strategy of a company, all the functions play a role and each must develop its own strategy Supply chain strategy determines The nature of procurement of raw materials, Transportation of materials to and from the company, manufacture of the product or operations to provide the service, and Distribution of the product to the customer, along with any follow-up service This strategy includes what many traditionally include Supplier strategy Operations strategy, and Logistics strategy Decisions regarding inventory, operating facilities, transportation, and information flows in the supply chain are all part of supply chain strategy

Achieving Strategic Fit Strategic fit means that both the competitive and supply chain strategies have the same goal It refers to consistency between The customer priorities that the competitive strategy hopes to satisfy and The supply chain capabilities that the supply chain strategy aims to build Major task of chief executive officer (CEO) is aligning all of the core strategies with the overall competitive strategy to achieve strategic fit During the supply chain design a key consideration is the strategic fit A companys success or failure closely linked to the Following 1. The competitive strategy and all functional strategies must fit together to form a coordinated overall strategy 2. Different functions in a company must appropriately structure their process and resources to be able to execute these strategies successfully Basic steps to achieve strategic fit 1. Understanding the customer, and supply chain uncertainty 2. Understanding the supply chain capabilities 3. Achieving strategic fit Understanding the Customer and Supply Chain Uncertainty To understand the customer, a company must identify the needs of the customer segment being served Customer demand from different segments may vary along several attributes: 1. The quantity of the product needed in each lot 2. The response time that customers are willing to tolerate 3. The variety of products needed 4. The service level required 5. The price of the product 6. The desired rate of innovation in the product Implied Demand Uncertainty Demand uncertainty reflects the uncertainty of customer demand for product Implied demand uncertainty is the uncertainty in meeting a portion of customer demand and it is the uncertainty the supply chain faces. It is mainly due to the attributes the customer desires Illustration As a supply chain raises its service level, it must be able to meet a higher and higher percentage of

actual demand, forcing it to prepare for rare surges in demand. Thus raising the service level increases the implied demand uncertainty even though the products underlying demand uncertainty does not change. Product demand uncertainty and various customer needs that the supply chain tries to fill affect implied demand uncertainty The following customer needs increases implied demand uncertainty Range quantity required increases Lead time decreases Variety of products required increases Number of channels through which product may be acquired increases Rate of innovation increases Required service level increases Correlation between implied demand uncertainty and other attributes Following supply source capabilities increase the supply uncertainty and hence high implied demand uncertainty Frequent breakdown Unpredictable and low yields Poor quality Limited supply capacity Inflexible supply capacity Evolving production process Implied uncertainty spectrum shows in one end predictable supply and demand, and in the other end highly uncertain supply and demand Understanding the supply chain Important supply chain characteristics are responsiveness and efficiency Supply chain responsiveness includes a supply chains ability to do the following Respond to wide range of quantities demanded Meet short lead time Handle a large variety of products Build highly innovative products Meet a very high service level Handle supply uncertainty Supply chain efficiency is the cost of making and delivering a product to the customer Cost-responsiveness efficient frontier is the curve showing the lowest possible cost for a given level of responsiveness Shows the cost-responsiveness performance of the best supply chain Firms on the efficient frontier are also continuously improving their processes and changing technology to shift the efficient frontier itself

Responsiveness spectrum - Supply chains range from those that focus solely on being responsive to those that focus on a goal of producing and supplying at the lowest possible cost

Achieving Strategic Fit: Strategic fit is achieved if what the supply chain does particularly well is consistent with the targeted customers needs and the uncertainty of the supply chain For high level of performance, companies should move their competitive strategy (and resulting implied uncertainty) and supply chain strategy (and resulting responsiveness) towards the zone of strategic fit To achieve complete strategic fit, a firm must consider all functional strategic within the value chain Other Issues Affecting Strategic Fit Multiple products and customer segments

Product life cycle Competitive change over time Multiple Products and Customer Segments Firms often sells multiple products and serves customer segments with very different needs Different products and segments have different implied demand uncertainty Key issue for company is to create a supply chain that balances efficiency and responsiveness given its portfolio of products, customer segments and supply sources Several possible routes a company can take One route set up independent supply chains for each different product or customer segment Feasible if each segment is large enough to support a dedicated supply chain Preferable strategy is to tailor the supply chain to best meet the needs of each products demand Tailoring the supply chain requires some links in the supply chain with some products, while having separate operations for other links considering efficiency and responsiveness Product Life Cycle As product go through their life cycle, the demand characteristics and the needs of the customer segments being served change As product mature, the corresponding supply chain strategy should, in general, move from being responsive to being efficient

Competitive Change over Time Competitor can change the landscape of the market Growth of mass customisation competitors flood the marketplace with product variety, customers are becoming accustomed to having their individual needs satisfied Competitive focus today is on producing sufficient variety at a reasonable price As competitive landscape changes, a firm is forced to alter its competitive strategy result in change in supply chain strategy Expanding strategic scope Scope of strategic fit refers to the function and stages that devices an integrated strategy with a shared objective One extreme - operation within a function devices independent strategy Other extreme - all functional areas within all stages of the supply chain device strategy jointly with a common objective Intracompany intraoperation scope: minimises local cost view Strategic fit is considered in one operation within a functional area within a company Resulting collection of strategies will most likely not come close to maximising supply chain profit conflicting local objectives Practices during 1950s and 1960s Intracompany intrafunctional scope: minimise functional cost view Given that many operations together form each function within a firm, managers recognised the weakness of the intracompany intraoperation scope With the intracompany intrafunction scope, the strategic fit is expanded to include all operations within a function The scope of strategic fit expands to an entire function within a stage of the supply chain

Intracompany interfunctional scope: maximise company profit view Different functions may have conflicting objectives Functional strategies are developed to support both each other and the competitive strategy Intercompany interfunctional scope: maximise supply chain surplus view Intracompany interfunctional scope leads to each stage of the supply chain trying to maximise its own profits, which does not necessarily result in the maximisation of supply chain surplus When company uses speed as their primary competitive advantage to succeed in the marketplace, intracompany interfunctional strategy performs badly

The impediment to create level of speed that customers are demanding lies to a degree within their own boundaries Managing these interfaces becomes a key to providing speed to customers Intercompany scope forces every stage of the supply chain to look across the supply chain and evaluate the impact of its action on other stages as well as on the interfaces This means treating stages in the supply chain that a company does not own as belonging to the company

Agile intercompany interfunctional scope Till now the discussion was on strategic fit under static context players in supply chain and customers do not change over time Dynamics exits product life cycle get shorter and companies try to satisfy the changing needs of individual customers In such situations, a company may have to partner with many different firms depending on the product being produced and the customer being served strategic fit should have agile intercompany scope 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 A Frame Work for Structuring Drivers

Facilities Role in the supply chain the where of the supply chain manufacturing or storage (warehouses) Role in the competitive strategy economies of scale (efficiency priority) larger number of smaller facilities (responsiveness priority) Example Toyota and Honda Components of facilities decisions Components of Facilities Decisions: Location centralization (efficiency) vs. decentralization (responsiveness) other factors to consider (e.g., proximity to customers) Capacity (flexibility versus efficiency) Manufacturing methodology (product focused versus process focused) Warehousing methodology (SKU storage, job lot storage, cross-docking) Overall trade-off: Responsiveness versus efficiency Inventory Role in Supply Chain Inventory exists because of a mismatch between supply and demand Source of cost and influence on responsiveness Impact on material flow time: time elapsed between when material enters the supply chain to when it exits the supply chain throughput rate at which sales to end consumers occur I = RT (Littles Law) I = inventory; R = throughput; T = flow time Example Inventory and throughput are synonymous in a supply chain Role in Competitive Strategy If responsiveness is a strategic competitive priority, a firm can locate larger amounts of inventory closer to customers If cost is more important, inventory can be reduced to make the firm more efficient Trade-off Example Nordstrom

Components of Inventory Decisions Cycle inventory Average amount of inventory used to satisfy demand between shipments Depends on lot size Safety inventory inventory held in case demand exceeds expectations costs of carrying too much inventory versus cost of losing sales Seasonal inventory inventory built up to counter predictable variability in demand cost of carrying additional inventory versus cost of flexible production Overall trade-off: Responsiveness versus efficiency more inventory: greater responsiveness but greater cost less inventory: lower cost but lower responsiveness Transportation Role in Supply Chain Moves the product between stages in the supply chain Impact on responsiveness and efficiency Faster transportation allows greater responsiveness but lower efficiency Also affects inventory and facilities Role in Competitive Strategy If responsiveness is a strategic competitive priority, then faster transportation modes can provide greater responsiveness to customers who are willing to pay for it Can also use slower transportation modes for customers whose priority is price (cost) Can also consider both inventory and transportation to find the right balance Example Laura Ashley Components of Transportation Decisions Mode of transportation: air, truck, rail, ship, pipeline, electronic transportation vary in cost, speed, size of shipment, flexibility Route and network selection route: path along which a product is shipped network: collection of locations and routes In-house or outsource Overall trade-off: Responsiveness versus efficiency Information Role in Supply Chain The connection between the various stages in the supply chain allows coordination between stages Crucial to daily operation of each stage in a supply chain e.g., production scheduling, inventory levels Role in Competitive Strategy Allows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off) Information technology What information is most valuable? Example Andersen Windows Example Dell Components of Information Decisions Push (MRP) versus pull (demand information transmitted quickly throughout the supply chain) Coordination and information sharing Forecasting and aggregate planning Enabling technologies EDI Internet ERP systems

Supply Chain Management software

Overall trade-off: Responsiveness versus efficiency Sourcing Role in Supply chain Set of business processes required to purchase goods and services in a supply chain Supplier selection, single vs. multiple suppliers, contract negotiation Role in Competitive strategy Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain In-house vs. outsource decisions- improving efficiency and responsiveness Example Cisco Components in Sourcing Decisions In-house versus outsource decisions Supplier evaluation and selection Procurement process Overall trade-off: Increase the supply chain profits Pricing Role in Supply Chain Pricing determines the amount to charge customers in a supply chain Pricing strategies can be used to match demand and supply Role in Competitive Strategy Firms can utilize optimal pricing strategies to improve efficiency and responsiveness Low price and low product availability; vary prices by response times Example Amazon Components of Pricing Decisions Pricing and economies of scale Everyday low pricing versus high-low pricing Fixed price versus menu pricing Overall trade-off: Increase the firm profits

Obstacles to Achieving Strategic Fit Increasing variety of products Decreasing product life cycles Increasingly demanding customers Fragmentation of supply chain ownership Globalization Difficulty executing new strategies Simultaneous pursuit of Responsiveness and efficiency Explain the above in one or two lines in your own words and read the examples from the text book.