Supply Chain Management

Chapter-01
Managing Chain

introducing

SCM
Prof. Manoj K Srivastava
mks@mdi.ac.in Operations Management Area
mks
http://www.mks507.vistapanel.net Management Development Institute-Gurgaon
Part

00 Teaser
 1. Apple
2. Procter & Gamble
3. Cisco Systems
4. Wal-Mart Stores
5. Dell
6. PepsiCo
Top 20 7.
8.
Samsung Electronics
IBM
Supply Chains 9.
10.
Research In Motion
Amazon.com
11. McDonald’s
12. Microsoft
13. The Coca-Cola Company
14. Johnson & Johnson
15. Hewlett-Packard
16. Nike
17. Colgate-Palmolive
2009 18. Intel
19. Nokia
20. Tesco

Source: AMR research, 2009 http://www.amrresearch.com

If Supply Chain Management
is the answer…..

What is the question?

 Quantity?
Why Implementing Supply Chain?

Va
rie
d?

ty
ee

?
Sp
 Time
Product
Volume Delivery
Mix Reliability Delivery Time Place
Lead time
Flexibility
Inventory
Level

The right
Product
+ The right
Quantity
+ The right
Time
+ The right
Price
+ The right
Store
+ The right
Customer
= Higher
Profits
Forecasting

Location

Optimization
Optimization
Delivery

Reach
Quality
Quality
Design
Design

Cost
Cost
Fit
 Direction for Business Innovation
Products: Create new products and services
Platforms: Create modular platforms and strategic control points
Solutions: End-to-end solution for customers
Customers: Find new customer segments or unmet customer needs
Customer Experience: Change how customers interact with you
Revenue Model: Change how you get paid
Processes: Innovate on operating processes
Value Chain: Change position or scope of value chain participation
Logistics/Supply Chain: Change the way you source & ship products
Channels: Change how you go to market with your products
Networking: Change how you connect with customers or products
R&D: Create new technologies, materials, products or processes
Part

01 Understand it
 Today’s Challenges…

• To achieve economies of scale and scope – Costs are significant

• To improve business focus and expertise

• Customer Expectations are increasing

• Supply and Distribution Lines are lengthening with complexity

• Adds Significant Customer value

• Customers Increasingly Want Quick & Customised Response

A supply chain consists of the flow of products and services from:
– Raw materials manufacturers
– Intermediate products manufacturers
– End product manufacturers
– Wholesalers and distributors and
– Retailers
entities…activities…problem spots…linkages…?
Connected by transportation and storage activities, and

Integrated through information, planning, and integration

activities
SCM is a set of approaches –
 To integrate Suppliers, Manufacturing Centers , Warehouses,
Dist. Centers, Retail Outlets

 Merchandise is produced & distributed

 Right quantities, to right locations, at right time

wishes are unlimited…resources are not..?
 Aim: To minimize system-wide cost, while satisfying
service level requirements
 Some more definitions of SCM
Oliver and Webber (1982)
SCM covers the flow of goods from supplier through manufacturing and distribution channels to
end user.
Jones and Riley (1987)
SCM techniques deal with the planning and control of total materials flow from suppliers to
through end users.
Christopher (1992)
SCM is the management of a network of organizations that are involved, through upstream and
downstream linkages, in the different processes and activities that produce value in the form of
products and services in the hands of the ultimate customer.
Ayers (2000)
SCM is the design, maintenance and operation of supply chain processes for satisfaction of 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.
 Vehicle Repair
Raw material
Supplier
Vehicle Spares Service Centre
Customer
Manufacturer Distributor [Retailer]
Component
Supplier
Pest Control

Raw material Pest control products Pest control products Maintenance

Supplier
Customer
Manufacturer Distributor Company [Retailer]

Electricity Home
Water Customer
[Nature]
Generating Station Distribution Company Commercial
[Producer] [Retailer] Customer
Fuel
Supplier Industrial
Customer
 3rd Tier 2nd Tier 1st Tier 1st Tier 2nd Tier 3rd Tier
Supplier Supplier Supplier Customer Customer Customer
Focal
Company
Oil Chemical Cereal
Company Processor Manufacturer
Internal
Upstream Downstream
Flour Cereal Grocery Retail
Farmer Consumer
customer / consumer / client
Processor Manufacturer Distributor Grocer

manage relationship with whom….in which order? CRM???

Supply Chain: Manufacturing Example
Lumber Corrugated
Forest Provider Manufacturer
Products and Services
Cash
Information
Demand
Supply
 CUSTOMER

CONSUMER
CRM???
understand context and hence the relative preference accordingly….
CLIENT
 THE FOCAL COMPANY'S ALTERNATIVES FOR INVOLVEMENT WITH LINK 2

Alternative 1)
Company Integrate with and actively manage Link 2.
B
Link 2

Link 1 Link 2
Alternative 2)
Focal Company Company Monitor the procedures of Company A and
Company A Company B for integrating and managing Link 2.
B

When to monitor…
Link 2
when to let them own.. When to dictate…?
Company Alternative 3)
B Not involved, leave the integration and
management up to Company A and Company B.
 The
Imm. Suppliers Imm. Customer Supply Chain
Firm

Extended Supply Chain

2nd Tier 1st Tier The 1st Tier 2nd Tier

Suppliers Suppliers Firm Customer Customer

can we manage ultimate supply chain?

Ultimate Supply Chain

nth Tier
…......
2nd Tier 1st Tier The 1st Tier 2nd Tier
…......
nth Tier
Suppliers Suppliers Suppliers Firm Customer Customer Customer
 Supply Chains Components
 The supply chain involves THREE segments:
 UPSTREAM, where sourcing or procurement from external suppliers occur
 INTERNAL, where packaging, assembly, or manufacturing take place
 DOWNSTREAM, where distribution or dispersal take place, frequently by
external distributors.
in which industry, which segment to be focused more?
 movement of information and money and the procedures supporting the
movement of a product or a service.

 Organizations and individuals are also part of the chain

 Supply Chain Flows
Supply chain refers to the flow of materials, information, payments, and services
from raw material suppliers,
through factories and warehouses (Value Chain),
to the final consumer (Demand Chain).
It includes tasks such as purchasing, payment flow, materials handling, production planning & control, logistics &
warehousing, inventory control, and distribution. When it is managed electronically it is referred to as an e-supply chain.
 Supply Chain Flows
 Materials flows are all physical products, new materials, and supplies that
flow along the chain.
flow speed?... quantum?... precedence?
 Information flows relates to all data associated with demand, shipments,
orders, returns and schedules.

 Financial flows include all transfers of money, payments, credit card

information, payment schedules, e-payments and credit-related data.
 UPSTREAM INTERAL DOWNSTREAM

why it should not be termed as demand chain management?

Supply Chain Value Chain Demand Chain

Most companies are working to create
seamless processes within their own
The Firm Common
Purchasing Production Marketing
four walls. (47%) R&D Logistics
Supply Chain
Many companies house Integration
SCM in purchasing & The
focus on integration with Key Suppliers Firm
first-tier suppliers (34%)
Some companies house
SCM in
The
Firm Key Customer marketing & focus on
rare makes a difference…. integration
but needs a with key customers. (11%)
delicate balance among sensitive relations?
Few companies systematically The
integrate up & downstream Key Suppliers Firm Key Customer
(8%)

Key Suppliers The Key Customer Customer

Suppliers Firm
Collaboration from suppliers' supplier to customers' customer is a vision not yet fully realized!!!
Rare
 Customer Customer
requirements From the customer’s perspective – 8% satisfaction satisfaction
100 N
8
20 From the operations
perspective – 90% satisfaction
Product/ service Y N
appropriate? 80 10 N
40 N
Product/ service N Y
Y 1
available? 70 50 10 N
Y
Y 9 1
Meets price and N Y
delivery 20 8
requirements? 10
Customer N
orders? Y
10 1
making false impression…promotion tactics? N
Produced as Y
promised? 9
1

Received as Y
Taking a customer perspective of supply performance promised? 8
can lead to very different conclusions
 Actual Inputs
Within the firm

Supplier Performance =
INPUT Expected Inputs
Value Added EFFICIENCY
Process
Input Used
Utilization =
OUTPUT Input Available
EFFECTIVENESS
Actual Outputs
Productivity =
PERFORMANCE Inputs Used

Productivity Actual Outputs

Outside the firm

Performance =
OUTCOME Planned Outputs
impact assessment analysis…
Actual Inputs
Customer Satisfaction =
IMPACT EFFICACY Expected Inputs

Source: Mentzer, J. T., Supply Chain Management, Response Books, New Delhi,
 Automotive
Supply Chain
managing so many flows…yet at the time they are needed..
 Porter’s
Value
Chain
Model

buyer’s mkt vs seller’s mkt…shrinking profit margins?

The Activity System
Primary and Support Activities
is it not blurring boundaries of concepts in present?
 Historical Evolution of the Supply Chain
 First Revolution: (Ford Motor Co. 1910–1920)
 Single product, that is, no product variety
 Vertical integration
 Second Revolution: (Toyota Motor Co. 1960–1970)
 Wide Variety always existed a leader there
to make footprint on sand of supply chain landscape …?
 Long-term relationship with suppliers

 Third Revolution: (Dell Computers 1995–Current)

 Customized products
 Medium-term relationship with suppliers
 Suppliers have to maintain technology and cost leadership
 Major Issues in SCM
1. Location
2. Transportation and Logistics
3. Inventory and Forecasting
4. Marketing and Channel Restructuring
5. Sourcing and Supplier Management
6. Information and Electronic Mediated Environments
7. Product Design and New Product Introduction
learn
8. what constitutes
Service in total
and After known
Sales as supply chain management ?
Support
9. Reverse Logistics and Green Issues
10. Outsourcing and Strategic Alliances
11. Metrics and Incentives
12. Global Issues.

Source: Pyke, D.F., A Framework for Teaching Supply Chain Management, 2000
 Views 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
basis of views…why…how…
 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)
 in anticipation of a customer order (push)
 Cycle View of Supply Chains
Customer
Customer Order Cycle
Retailer
Replenishment Cycle

predictability of orders
Distributor
can they be synchronized them….
Manufacturing Cycle
quanitywise…timewise….anticipationwise…?
size of order
Manufacturer
Procurement Cycle
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.
 Each cycle occurs at the interface between two successive stages
 Customer order cycle (customer-retailer) The supply chain is a concatenation of cycles with each cycle at
the interface of two successive stages in the supply chain. Each cycle involves the customer stage placing an order and
receiving it after it has been supplied by the supplier stage.
 One difference is in size of order. Second difference is in predictability of orders - orders in the procurement cycle are
predictable once manufacturing planning has been done.
 This is the predominant view for ERP systems. It is a transaction level view and clearly defines each process and its owner.

 Replenishment cycle (retailer-distributor)

 Manufacturing cycle (distributor-manufacturer)
 Procurement cycle (manufacturer-supplier)
 In Push systems, work release is based on downstream
demand forecasts will you push the rope or pull it…?
– Keeps inventory to meet actual demand
depends…
– Acts proactively Making generic job application resumes today
Produces using a forecast of sales and moves them to points of sale where they are
stored as finished goods inventory.

 In Pull systems, work release is based on actual demand

or the actual status of the downstream customers
– May cause long delivery lead times
– Acts reactively Making a specific resume for a company after talking to the recruiter

produces only in response to customer demand signals

 Push/Pull View of Supply Chains

Procurement, Manufacturing, Replenishment cycles Customer Order cycles

Boundary
Push/Pull
PUSH PROCESSES PULL PROCESSES

Customer Order Arrives

 Supply Chain Push-Pull Systems and
Boundaries

Where to pin decoupling point… ?

 Supply Chain Macro Processes in a Firm
 Supply chain processes discussed in the two views can be
classified into
 Supplier Relationship Management (SRM)
 Internal Supply Chain Management (ISCM)
 Customer Relationship Management (CRM)

 Integration among the above three macro processes is critical

for effective and successful supply chain management
Part
Role of Logistics

02 in Supply Chain
 Logistics Defined
Logistics Management is that part of Supply Chain Management
that plans, implements, and controls the efficient, effective
forward and reverse flow and storage of goods, services and
related information between the point of origin and the point of
consumption in order to meet customers' requirements.
Four Subdivisions of Logistics
 Business logistics
 Military logistics
 Event logistics
 Service logistics
Value-Added Roles of Logistics
The five principal types of economic utility
which add value to a product or service :
Form
Time what?
Place
where?
Quantity when?
Possession

why?

How much?

While form and possession utility are not specifically related to logistics, neither would be possible
without getting the right items needed for consumption or production to the right place at the right time
and in the right condition at the right cost. These "five rights of logistics," credited to E. Grosvenor
Plowman, are the essence of the two utilities provided by logistics: time and place utility.
 Logistics in the Firm:
Factors Affecting the Cost and Importance of Logistics

 Competitive Relationships
 Inventory / order cycle length.
 Inventory / lost sales effect
 Transportation / lost sales effect

 Product Relationships
 Product dollar value / logistics costs.
 Weight density / logistics costs.
 Susceptibility to loss & damage / logistics costs.

 Spatial Relationships
 Inventory / lost sales effect

Inventory/order cycle length

1 2
Inventory level
Transportation/lost sales effect

3
 Weight density / logistics costs

5
Product dollar value / logistics costs

4
Susceptibility to loss & damage/logistics costs

6
Spatial Relationships:

Spatial Relationships are extremely significant to logistics is spatial relationships, the

location of fixed points in the logistics system with respect to demand and supply
points. Spatial relationships are very important to transportation costs, since these
costs tend to increase with distance.
Part

03 Type of Supply Chain

Typology of Supply Chain
• On the basis of decoupling point (ETO, MTO, ATO, MTS) supply chain
• Push vs. Pull supply chain
• Lean vs. Agile supply chain
• Efficient vs. Responsive supply chain
P:D ratios and differences

P-time (Production time)

The time it takes to pass a product or service through supply chain
including the time needed to procure the longest lead time parts and the total manufacturing time

P-time = customer raises order deliver product to customer

D-time (Demand time)

The time for which a customer is willing to wait to have their demand fulfilled
Short D-times face increased supply chain challenges compared with those who have long D-times.

D-time [expected minimum, expected maximum]

P:D ratios and differences
 Practices to cope when P-time ≥ D-time

• Control  Optimizing throughput and improving process capability

• Simplify  Untangling process flows and reducing product complexity

• Compress  straightening process flows and reducing batch sizes

• Integrate  Improving communications and implementing teams

• Coordinate  Adding customer-specific parts as late as possible

• Automate  Using robots and IT systems

On the basis of OPP / Decoupling point

Source Make Assemble Deliver

Supplier Raw Material WIP Finished Goods

Customer Customer Customer

Decoupling Point Decoupling Point Decoupling Point

ETO MTO ATO MTS

Schedule Orders Schedule Modules Schedule Finished Goods

Long Customer Lead Time Short

 Design Customer receives product
Lead Time
Procurement Production Delivery Order
Lead Time Lead Time Lead Time Lead Time
Fab Assembly

MTS
Stocked Locally

MTS
Stocked Centrally

ATO

MTO
Stocked Materials

MTO
Purchased Materials

ETO

Total Fulfillment Lead Time

Long Short
Push-Pull Strategy
Push / Pull Boundary
Furniture SC
Grocery SC
Traditional PC Industry
Dell - the Pull-Push boundary
 PC SUPPLY CHAINS

Customer Customer
PULL

Virtual Integration
Distribution
Channels
PULL
Dell
PUSH
Manufacturer

Suppliers PUSH
Suppliers

Typical PC Supply Chain Dell Supply Chain

(Compaq, HP, IBM, etc.)
Efficient supply chain Responsive supply chain
Parts replenishment made Assembly made on accurate
on forecast customer demands

MTS ATO
Lean vs Agile Strategy
 Supply chain dynamics

Supply chains with different end objectives need to be

managed in different ways

Match product characteristics with supply chain characteristics

Designing the Supply Chain

• Efficient supply chains are designed for efficiency and

low cost by minimizing inventory and maximizing
efficiencies in process flow. (Lean)

• Responsive supply chains focus on flexibility and

responsive service and are able to react quickly to
changing market demand and requirements. (Agile)
 Nature of demand
Functional products Innovative products
Predictable Unpredictable
Few changes Many changes
Low variety High variety
Price stable Price markdowns
Long lead-times Short lead-times
Low margin High margin
Minimum inventory
Low-cost suppliers
Efficient
Supply chain objectives

High utilization

Lean
Mismatch
Low cost

supply chain
management
Low throughput times

Deployed inventory
Flexible suppliers
Responsive

Agile
High utilization

Mismatch supply chain

management

Matching the supply chain with market requirements

 Low implied Somewhat Somewhat High implied
demand uncertainty certain demand uncertain demand demand uncertainty

Purely functional: e.g. Established goods: e.g. New models of existing goods: Entirely new product: e.g. fashion
petrol soap powder e.g. new TV set item

Highly Somewhat Somewhat Highly

efficient efficient responsive responsive

Traditional apparel Vertically integrated apparel Quick response manufacturer of

Textile mill
manufacturer manufacturer fashion apparel
Product Characteristics

Campbell's Soup Fashion Apparel

Life cycle
Contribution margin
Variety
Forecast error
Stock-out rate
Forced markdowns
Make-to-order LT
Product Life-Cycle: Soup

1969 1979 1989

1999 2009
Product Life-Cycle: Fashion

Fall Winter Spring

Margins?

Retail Price: $1.39

< Retail Price: $139.50
 Variety? New Design?

<
Unchanged over years, only 5% Differed in color, size, style, etc.,
95% new
Forecasting Error?

Highly predictable, service

< High forecast error, 40-100%
level of 98% error
Stockout Rate?

<
Markdowns?

Rare
<
Deep discount in the end of the season
Two Types of Products

Functional Products Innovative Products

(Soup) (Fashion clothing)
Demand Uncertainty Low (forecast error) High (forecast error)

Life Cycle Long Short

Risk of Obsolescence Low High

Profit Margin Low High

Variety Low High

Demand volume High Low

Efficient vs Responsive
 ENVIRONMENTS BEST SUITED FOR EFFICIENT AND RESPONSIVE SUPPLY CHAINS
Factor Efficient Supply Chains Responsive Supply Chains
Predictable, low forecast
Demand errors Unpredictable, high forecast errors

Low cost Development speed, fast delivery times

Competitive priorities consistent quality Customization, volume flexibility
on-time delivery variety, top quality

New-service/product
introduction Infrequent Frequent

Contribution margins Low High

Product variety Low High
Factor Efficient Supply Chains Responsive Supply Chains

Make-to-stock or standardized Make-to-order, or customized service

Operation strategy services or products; emphasize
or products; emphasize variety
high volumes

Capacity cushion Low High

Inventory
investment Low; enable high inventory turns If needed to enable fast delivery time

Lead time Shorten, but do not increase costs Shorten aggressively

Emphasize fast delivery time,

Emphasize low prices, consistent
Supplier selection customization, variety, volume
quality, on-time delivery
flexibility, top quality
Lean vs Agile
Distinguishing attributes Lean supply Agile supply
Typical products Commodities Fashion goods
Marketplace demand Predictable Volatile
Product variety Low High
Product life cycle Long Short
Customer drivers Cost Availability
Profit margin Low High
Dominant costs Physical costs Marketability costs
Stockout penalties Long-term contractual Immediate and volatile
Purchasing policy Buy materials Assign capacity
Information enrichment Highly desirable Obligatory
Forecasting mechanism Algorithmic Consultative
  
Characteristic Lean Agile
 
Logistics focus Eliminate waste Customers and markets
 
Partnerships Long-term, stable Fluid clusters
 
Key measures Output measures like productivity Measure capabilities, and focus on
and cost customer satisfaction
 
Process focus Work standardization, conformance Focus on operator self-management to
to standards maximize autonomy
 
Logistics planning Stable, fixed periods Instantaneous response
 
Volumes Predictable volumes and usage Unpredictable volumes and usage patterns
patterns
 
Key drivers Economies of scale - high volumes, Ability to deliver - short and reliable lead
low cost Consolidation of global times
volumes Ability to respond at short notice
 
Customisation Low - generic items High - customized items
 
Supplier positioning Anywhere - search for low costs Close to the integration centre - search for
responsiveness
Part

04 Supply Chain Strategy

 CUSTOMER
ACCEPTANCE
CRITERIA

What to focus? Need or Requirement?

 Fitting the SC to the customer or vice versa?
 Understand the customer Wishes

 Understand the Capabilities of your SC

 Match the Wishes with the Capabilities

 Challenge: How to meet

 extensive Wishes with

 limited Capabilities?
 Achieving Strategic Fit:
Consistent SCM and Competitive strategies

Fit SC to the customer

Understanding the Customer
 Range of demand, pizza hut stable
 Production lot size, seasonal products
 Response time, organ transplantation
 Service level, product availability Implied (Demand)
 Product variety Uncertainty for SC
 Innovation
Implied trouble
 Accommodating poor quality for SC
 Multiple products and customer segments
Issues Affecting Strategic Fit

 Product 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

 Competitive changes over time

Shift from responsiveness to efficiency

increased emphasis on variety

Internet
The Strategic Fit
Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier

High
DELL

Ef

Responsiveness
fic
ien
cy
F ro
n ti e
r

WAL-MART
Low
High Cost (Efficiency) Low
 Achieving Strategic Fit
Uncertainty/Responsiveness Map
Responsive supply Companies try to move
chain Zone of Strategic fit High Cost

INTRODUCTION

Responsiveness
spectrum

MATURING
COMMODITY

Efficient supply Low Cost

chain

Certain demand Implied uncertainty Uncertain demand

spectrum
The Strategic Fit Framework
 A Framework for Structuring Drivers
for achieving strategic fit in Supply Chain Strategy

Competitive Strategy

Supply Chain Strategy

Efficiency Responsiveness
Supply Chain Structure

Facilities Inventory Transportation Information Sourcing Pricing

Cross functional “drivers”

 The role of Information
• Information exchange is necessary for the most extensive modes of
coordination sought in contemporary supply chains. It allows the supply chain
to improve simultaneously its efficiency and responsiveness.

• Information-related decisions
– Push vs. pull
– Extent and modes of information sharing and coordination
– Forecasting and Aggregate Planning schemes
– Pricing and revenue management policies
– Enabling Technologies:
• Electronic Data Interchange (EDI): Enables paperless transactions, primarily for “backend”
operations of the SC.
• The Internet and the WWW.
• Enterprise Resource Planning (ERP): enables transactional tracking and global visibility of
information in the SC.
• Supply Chain Management (SCM) software: decision support tools.
 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
 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)
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)
 Types of Inventory
Inventory Cycle inventory
• Average amount of inventory used to satisfy demand between
shipments
Unexpected changes in customer demand (always
• Depends on lot size
hard to predict, and uncertainty is growing)
Short product life cycles Safety inventory
• inventory held in case demand exceeds expectations
Product proliferation
• costs of carrying too much inventory versus cost of losing
sales
Seasonal inventory
Uncertain supply • inventory built up to counter predictable variability in demand
Quantity • cost of carrying additional inventory versus cost of flexible
Quality production
Costs Opportunistic Inventory:
Delivery time • Takes advantage of “bargains”.

Inventory exists because of a mismatch between supply and demand

Source of cost and influence on responsiveness
If you move your inventory faster, you don’t need as much inventory (inventory velocity)
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: More inventory increases responsiveness, less inventory increases efficiency (reduces cost).
 Excess
Shortage
 Transportation
• 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
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)
Mode(s) of Transportation
Air: fastest but most expensive
Truck: Relatively quick, inexpensive and very flexible mode
Rail: Inexpensive mode to be used for large quantities
Ship: Slowest but often the most economical
Pipeline: Used (primarily) for oil and gas
Electronic transportation: for goods as music and movies
Route and Network Selection
route: path along which a product is shipped
network: collection of locations and routes
Insource or Outsource to some 3PL provider
Transportation
Networks
 Information
• 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
• Allows supply chain to become
more efficient and more
responsive at the same time
(reduces the need for a trade-off)
Push (MRP) versus pull (demand information
transmitted quickly throughout the supply
chain)
Coordination and information sharing
Forecasting and aggregate planning
Extent and modes of information sharing
and coordination
Pricing and revenue management policies
Enabling technologies
EDI
Internet
ERP systems
Supply Chain Management software
 Sourcing
• Set of business processes required
to purchase goods and services in
a supply chain
• Supplier selection, single vs.
multiple suppliers, contract
negotiation
• In-house vs. outsource
• Supplier evaluation and selection
• Procurement process
Pricing
• Pricing strategies can be used to
match demand and supply
• Firms can utilize optimal pricing
strategies to improve efficiency
and responsiveness
• Low price and low product
availability; vary prices by
response times
• Pricing and economies of scale
• Everyday low pricing versus high-
low pricing
• Fixed price versus menu pricing
 Considerations for Supply Chain Drivers

Driver Efficiency (Cost) Responsiveness

Inventory Cost of holding Availability

Transportation Consolidation Speed

Facilities Consolidation/Dedicated Proximity / Flexibility

Information Low cost/slow High cost/streamlined/ reliable

Strategic Scope
 Expanding Strategic Scope
 Scope of strategic fit
 The functions and stages within a supply chain that devise an
integrated strategy with a shared objective
 One extreme: each function at each stage develops its own strategy
 Other extreme: all functions in all stages devise a strategy jointly

 Five categories:
 Intracompany intraoperation scope
 Intracompany intrafunctional scope
 Intracompany interfunctional scope
 Intercompany interfunctional scope
 Flexible interfunctional scope
 Strategic Scope:
Intracompany Intraoperation Scope
Suppliers Manufacturer Distributor Retailer Customer

Competitive
Strategy

Product Dev.
Strategy

Supply Chain
Strategy

Marketing
Strategy
 Strategic Scope:
Intracompany Intrafunctional Scope
Suppliers Manufacturer Distributor Retailer Customer

Competitive
Strategy

Product Dev.
Strategy

Supply Chain
Strategy

Marketing
Strategy
 Strategic Scope:
Intracompany Interfunctional Scope
Suppliers Manufacturer Distributor Retailer Customer

Competitive
Strategy

Product Dev.
Strategy

Supply Chain
Strategy

Marketing
Strategy
 Strategic Scope:
Intercompany Interfunctional Scope
Suppliers Manufacturer Distributor Retailer Customer

Competitive
Strategy

Product Dev.
Strategy

Supply Chain
Strategy

Marketing
Strategy
 Different Scopes of Strategic Fit Across a Supply Chain
Suppliers Manufacturer Distributor Retailer Customer

Competitive
Intracompany
Strategy interfunctional
Intercompany
Product Dev. interfunctional
Strategy

Supply Chain Intracompany

Strategy intrafunctional Intracompany
intraoperation
Marketing
Strategy