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Introduction to Introduction to
Supply Chain Need, benefits
elements
challenges
Some Estimates for India
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LOGISTICS SPEND US $ 50 B
SHARE OF GDP 12 - 13 %
and the
Raw materials
Work-in-process (WIP) inventory Transportation Transportation
Costs Costs
Finished products
Material Costs Transportation
Manufacturing Costs Inventory Costs
Costs
Transportation Transportation
Costs Costs
Material Costs Transportation
Manufacturing Costs Inventory Costs Costs
8
What Is Supply Chain Management (SCM)?
Production Distribution
Purchasing Receiving Storage Operations Storage
….No ideal supply chain model
Functional Products v/s innovative
products
Toothpaste
Cars
Soups
Furniture
Mobile phones
Need for Supply Chain
Management
1.Improve operations
2.Increasing levels of outsourcing
3.Increasing transportation costs
4.Competitive pressures
5.Increasing globalization
6.Increasing importance of e-commerce
7.Complexity of supply chains
8.Manage inventories
Benefits of Supply Chain
Management
Lower inventories
Higher productivity
Greater agility
Shorter lead times
Higher profits
Greater customer loyalty
Elements of Supply Chain Management
History of Supply Chain Management
IT Data analysis,e-commerce,RFID
….No ideal supply chain model
Functional Products v/s innovative
products
Toothpaste
Cars
Soups
Furniture
Mobile phones
Supply chain management
Challenges
SCM strategies can not be in isolation, have to align
with another chain- the development chain (new
product introduction) as well as overall org.
objectives.
Achieving the best solution with minimizing costs and
maintaining service levels- Global optimisation
Facing uncertainties and risk – customer demand,
travel time, break downs,
Supply chain management
Challenges - Nike
Challenge 4- Conflict- cost & flexibility – offshore v/s onshore –lead times
Supply chain management
Needs to be efficient and cost effective
Across physical infrastructure
Push/Pull view
Cycle view
Push/Pull view
Customer
Retailer
Replenishment Cycle to
Distributor
to
Manufacturing Cycle
Manufacturer
Procurement Cycle to
Supplier
Supply chain management-Cycle view
Each cycle occurs at the interface between two successive
stages of the supply chain
Not every supply chain will have all four cycles clearly
separated
Raw
Customer
Materials
PC manufacturer
Components Final
( Forecast assembly
based ) (Order based)
Cycles
Pull
Customer Customer arrival
Order Customer order entry
Customer order fulfilment
Customer order receiving
Procurement
Supply chain strategies
Hybrid
Supply chain strategies
Q2 Q4
Pull
Push
Low
High
Economies of Scale
Furniture
Books Pull
Push
Grossary
centrifuges soaps Toys Jewellery
Computer
Garments Watches Water pumps
Demand driven supply chain strategies
Prospector - innovation
- Nike, Leitch Technology?
Competitive Strategy
New Marketing
Product and Operations Distribution Service
Development Sales
Response time customers will tolerate
Variety of products needed
Service level required
Response time
Implied
Service level
Demand
Product variety
Uncertainty
Price
Innovation
Impact of Customer Needs on Implied
Demand Uncertainty
Customer Need Causes implied demand
uncertainty to increase because …
Customer Need
Price Responsiveness
Low High
Examples ?? ??
Step 2: Understanding the
Supply Chain
How does the firm best meet demand?
Dimension describing the supply chain is supply chain
responsiveness
Supply chain responsiveness -- ability to
respond to wide ranges of quantities demanded
meet short lead times
meet a very high service level
Step 2: Understanding the
Supply Chain
There is a cost of achieving responsiveness
Supply chain efficiency: cost of making and delivering
the product to the customer
Increasing responsiveness results in higher costs that
lower efficiency
Figure cost-responsiveness efficient frontier
Figure supply chain responsiveness spectrum
Second step to achieving strategic fit is to map the
supply chain on the responsiveness spectrum
Understanding the Supply Chain: Cost-
Responsiveness Efficient Frontier
Responsiveness
High
Low
Cost
High Low
Responsiveness spectrum
Supplier selection Primarily for cost and quality Primarily for speed, flexibility
and quality
Step 3: Achieving Strategic Fit
o f t
Responsive n e
c Fi
ness Zo tegi
spectrum tra
S
Efficient
supply chain
competitive strategy
Other Issues Affecting Strategic Fit
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
Intracompany
Intraoperational Scope
One operation within a functional area in a
company
Each operation within each stage of the supply
chain devises a strategy independently and
attempts to optimize its own performance
independently
Usually results in different operations having
conflicting objectives – does not maximize total
supply chain profits
Strategic Scope:
Intracompany Intraoperation Scope
Suppliers Manufacturer Distributor Retailer Customer
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
Intracompany
Intrafunctional Scope
Strategic fit is expanded to include all
operations within a function
Attempt to maximize performance for the
entire function
Strategic Scope:
Intracompany Intrafunctional Scope
Suppliers Manufacturer Distributor Retailer Customer
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
Intracompany
Interfunctional Scope
All functional strategies within a company
are developed to support each other and
the company’s competitive strategy
Strategic fit is expanded to include all
functions in a firm
Goal is to maximize company profit
Strategic Scope:
Intracompany Interfunctional
Scope
Suppliers Manufacturer Distributor Retailer Customer
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
Intercompany
Interfunctional Scope
The only positive cash flow for the supply chain occurs
when the customer pays for the product –
all other cash flows are resettling of accounts within
the chain and add to total supply chain cost
Supply chain surplus
Difference between what the customer pays and
supply chain
Intercompany
Interfunctional Scope
Increasing supply chain surplus increases the
amount to be shared
All stages coordinate strategy across all functions
to ensure that they best meet the customer’s
needs and maximize supply chain surplus
Also provides more speed by managing the
interfaces between supply chain stages
Each company must evaluate its actions in the
context of the entire supply chain