1.

Introduction to supply chain management

What is supply chain ?
It consists of all parties involved directly or
indirectly in fulfilling a customers request

Define supply chain

“a supply chain is a network of facilities &
distribution options that performs the functions
of procurement of materials transformation of
these materials into intermediate & finished
products & distribution of these finished products
to customers
Meaning of supply chain management

Definition of SCM:
It is the management of a network of all
business processes and activities involving
procurement of raw materials, manufacturing
and distribution management of Finished
Goods.

SCM is also called the art of management of

providing the Right Product, At the Right
Time, Right Place and at the Right Cost to the
Customer.
 Other definition of SCM
• Oliver and Webber (1982) – SCM covers the
flow of goods from supplier through
manufacturing and distribution channels to
end user.
• Ayers (2000) – SCM is the design, maintenance
and operation of supply chain processes for
satisfaction of end users.
• Ellram (1991) – An integrative approach to
dealing with the planning and control of the
materials flow from suppliers to end users.
• Sunil Chopra and Peter Meindl (2001) – SCM
involves the management of flows between and
among stages in a supply chain to maximize
total profitability.
 Objectives of supply chain
Efficient supply chain
1. To maximize overall value generated
2. To look for Sources of Revenue and Cost
3. Improving the visibility of the demand
4. Improving the quality
5. Minimizing the time
6. Reduces the transportation cost
7. Reduces warehousing cost
8. Expanding width/depth of distribution
9. Product Life cycle support
10. Rationalize supplier base
11. Service orientation
DECISION PHASES IN SUPPLY CHAIN MANAGEMENT
• successful scm requires many decisions
relating to the flow of information, product,&
funds

• These decision falls into 3 categories/phases

depending on the frequency of each
decisions & timeframe
1. Supply chain strategy or design
2. Supply chain planning
3. Supply chain operation
 DECISION PHASES IN SUPPLY CHAIN MANAGEMENT

Supply chain strategy or design:

During this phase ,
 A company decides how to structure the supply
chain over the next several years.
 it decides the supply chain configuration will be,
how resources will be allocated
 Decision includes whether to perform or outsource
functions
 Decisions regards to warehousing facilities & modes
of the transportation & types of information utilized
 Decision regarding products to be manufactured or
stored at various location
 DECISION PHASES IN SUPPLY CHAIN MANAGEMENT

 Supply chain planning

In this phase decision includes
• Definition of a set of policies that govern short-term
operations
• Starts with a forecast of demand in the coming year
• The inventory policies to be followed
• Timing & size of marketing promotion
• The subcontracting of manufacturing
• The goal of planning to maximize supply chain
surplus
• In this phase, companies must include uncertainty
in demands, exchange rate & competition
 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)
 Process view of 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)
Cycle View of Supply Chains

Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle

Manufacturer
Procurement Cycle
Supplier
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 Cycle View of a Supply Chain
• Each cycle occurs at the interface between two
successive stages
• Customer order cycle (customer-retailer)
• Replenishment cycle (retailer-distributor)
• Manufacturing cycle (distributor-manufacturer)
• Procurement cycle (manufacturer-supplier)

• Cycle view clearly defines processes involved and the

owners of each process. Specifies the roles and
responsibilities of each member and the desired
outcome of each process.

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Push/Pull View of Supply Chains

Procurement, Customer Order

Manufacturing and Cycle
Replenishment cycles

PUSH PROCESSES PULL PROCESSES

Customer
Order Arrives
Push-Pull boundary
 Push/Pull View of
Supply Chain Processes
Supply chain processes fall into one of two
categories depending on the timing of their
execution relative to customer demand
Pull:
In this execution is initiated in response to a
customer order (reactive)
It operate in an environment in which
customer demand is known
Therefore, at time of execution of a pull
process ,demand is known with certainty
• Push:
In this execution is initiated in anticipation of
customer orders (speculative or forecast)
In this execution process ,customer demand
is not yet known & must be forecast
• Push/pull boundary separates push processes
from pull processes
• The relative proportion of push and pull
processes can have an impact on supply chain
performance
Push/Pull View of Supply Chains
Procurement, Customer Order
Manufacturing and Cycle
Replenishment cycles

PUSH PROCESSES PULL PROCESSES

Customer
Order Arrives
 Supply Chain Management [SCM]

Process View of a Supply Chain: Push – Pull View

LL Bean DELL

PULL PULL

Process Process

Customer Order
Cycle
Cust Order & Mfrg
Customer order arrives Cycle

Repl & Mfrg

Cycle
Customer order arrives

Procurement Procurement
Cycle Cycle

PUSH PUSH
Process Process
 Pull Push

Execution initiated in response to a Execution initiated in anticipation of

customer order customer order

At time execution of pull, customer At time execution of pull, customer

demand is known with certainty demand is not known and must be
forecasted

Its also called as reactive process It is called as speculative process

 Competitive/supply chain strategy
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
 Competitive & 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 & services

Supply chain strategy

It specifies what the operations, distribution, & service
functions ,whether performed in house or outsourced.

This strategy determines

the nature of procurement of raw materials,
transportation of materials ,
manufacture of the product & distribution of the product
to customer, along with any follow up service
 Achieving strategic fit
• Introduction
• How is strategic fit achieved?
• Other issues affecting strategic fit
 Strategic fit:
– Competitive and supply chain strategies have the
same goals or aligned goals
– In other words strategic fit require that a firm
achieve balance between responsiveness& efficiency
in its supply chain which meets the needs of
company's competitive strategy
• A company may fail because of a lack of strategic
fit or because its processes and resources do not
provide the capabilities to execute the desired
strategy
• Example of strategic fit -- Dell
 How is Strategic Fit Achieved?
• Step 1: Understanding the
customer and supply chain
uncertainty

• Step 2: Understanding the supply

chain

• Step 3: Achieving strategic fit

 How is Strategic Fit Achieved?
Step 1: Understanding the Customer and
Supply Chain Uncertainty

Identify the needs of the customer segment

being served
Quantity of product needed in each lot
Response time customers will tolerate
Variety of products needed
Service level required
Price of the product
Desired rate of innovation in the product
Demand uncertainty & Implied Demand
Uncertainty

Demand uncertainty reflects the

uncertainty of customer demand for
product.

Implied demand uncertainty is the demand

uncertainty due to the portion of demand
that supply chain is targeting ,not the entire
demand
 Impact of Customer Needs on Implied Demand Uncertainty
Customer Need Causes implied demand
uncertainty to increase because
…
Range of quantity increases Wider range of quantity implies
greater variance in demand
Lead time decreases Less time to react to orders

Variety of products required Demand per product becomes

increases more disaggregated
Number of channels increases Total customer demand is now
disaggregated over more
channels
Rate of innovation increases New products tend to have
more uncertain demand
Required service level increases Firm now has to handle unusual
surges in demand 2-25
 Levels of Implied Demand Uncertainty

Predictable Predictable supply and uncertain Highly uncertain

supply and demand or uncertain supply and supply and demand
demand predictable demand or somewhat
uncertain supply and demand

Salt at a An existing A new

supermarket automobile communication
model device

Figure 2.2: The Implied Uncertainty (Demand and Supply)

Spectrum

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 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
– handle a large variety of products
– build highly innovative products
– meet a very high service level
– Handle supply uncertainties
• achieving responsiveness however comes at
cost
• Supply chain efficiency: cost of making and
delivering the product to the customer
• Increase in cost lower efficiency.
• Increasing responsiveness results in higher
costs that lower efficiency
• 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
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Step 3:achieving strategic fit
After mapping level of implied uncertainty &
understanding supply chain position on
responsiveness spectrum,
The third & final step is to ensure that the
degree of supply chain responsiveness is
consistent with implied uncertainty,
The goal is to target high responsiveness for
a supply chain facing high implied uncertainty,
&
high efficiency for a supply chain facing low
implied uncertainty
 Achieving Strategic Fit Shown on the
Uncertainty/Responsiveness Map (Fig. 2.5)
Responsive
supply chain

Responsiveness
spectrum

Efficient supply
chain

Certain Implied Uncertain

demand uncertainty demand
spectrum
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 Comparison of Efficient and Responsive Supply Chains
Primary goal
Product design strategy
Pricing strategy
Mfg strategy
Inventory strategy
Lead time strategy
Supplier selection strategy
Transportation strategy
Efficient
Lowest cost
Min product cost
Lower margins
High utilization
Minimize inventory
Reduce but not at expense
of greater cost
Cost and low quality
Greater reliance on low cost
modes
Responsive
Quick response
Modularity to allow
postponement
Higher margins
Capacity flexibility
Buffer inventory
Aggressively reduce even if
costs are significant
Speed, flexibility, quality
Greater reliance on
responsive (fast) modes
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 Other Issues Affecting Strategic Fit
Multiple products and customer segments
Product life cycle
Competitive changes over time
 Multiple Products and
Customer Segments
• Firms sell different products to different
customer segments (with different implied
demand uncertainty)
• The supply chain has to be able to balance
efficiency and responsiveness given its
portfolio of products and customer segments
• Two approaches:
– Different supply chains
– Tailor supply chain to best meet the needs of
each product’s demand
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 Product Life Cycle
• The demand characteristics of a product and
the needs of a customer segment change as a
product goes through its life cycle
• Supply chain strategy must evolve throughout
the life cycle
• Early: uncertain demand, high margins (time
is important), product availability is most
important, cost is secondary
• Late: predictable demand, lower margins,
price is important
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 Competitive Changes Over Time

• Competitive pressures can change over time

• More competitors may result in an increased
emphasis on variety at a reasonable price
• The Internet makes it easier to offer a wide
variety of products
• The supply chain must change to meet these
changing competitive conditions

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 A Framework for
Structuring Drivers

Competitive Strategy

Supply Chain
Strategy
Efficiency Responsiveness
Supply chain structure

Logistical Drivers

Facilities Inventory Transportation

Information Sourcing Pricing

Cross Functional Drivers

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 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

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