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Supply Chain Management

Chapter 1
Understanding the Supply Chain
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Outline
What is a Supply Chain?
Decision Phases in a Supply Chain
Process View of a Supply Chain
The Importance of Supply Chain Flows
Examples of Supply Chains
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What is Supply Chain?
A supply chain consists of all parties involved directly
or indirectly, in fulfilling a customer request.
The supply chain includes not only the manufacturer
and supplier but also transporters, warehouses,
retailers and even customers themselves.
Within each organization the supply chain includes all
functions involved in receiving and filling a customer
request.
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What is Supply Chain?
Martin Christopher, Emeritus Professor of Marketing and
Logistics at Cranfield School of Management, suggests
that the supply chain is the network of organizations that
are involved, through upstream (supplier end of the
supply chain) and downstream (customer end of the
supply chain) linkages, in the different processes and
activities that produce value in the form of products and
services in the hands of the ultimate consumer.
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Vertical Integration Vs Supply
Chain
Vertical integration implies ownership or at least
control of upstream suppliers and downstream
entities, whereas SCM does not necessarily imply any
such ownership or control of supply chain partners.
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What is a Supply Chain?
All stages involved, directly or indirectly, in fulfilling a
customer request
Suppliers,
manufacturers,
wholesalers/distributers,
retailers,
Customers
as well as transporters.


Examples: Wal-Mart, Dell
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Supply Chain
Supplier Manufacturer
Wholesaler/
Distributer
Retailer Customer
I nformation
Product
Funds
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What is a Supply Chain?
Customer is an integral part of the supply chain

Includes movement of information, funds, and
products in both directions

Probably more accurate to use the term supply
network or supply web

All stages may not be present in all supply chains
(e.g., no retailer or distributor for Dell)
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Stages of Detergent Supply Chain
Customer wants
detergent and goes
to Wall Mart
Wall Mart
Supermarket
Wall Mart or
Third party DC
P&G or other
manufacturer
Plastic
Producer
Chemical
manufacturer
(e.g. Oil Company)
Tenneco
Packaging
Paper
Manufacturer
Timber
Industry
Chemical
manufacturer
(e.g. Oil Company)
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Supply chain management
Supply chain management is the management of
flows between and among supply chain stages to
maximize total supply chain profitability.
Or
Supply chain management (SCM) is the management
across a network of upstream and downstream
organizations of material, information and resource
flows that lead to the creation of value in the form of
products and/or services.

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The Objective of a Supply Chain
Maximize overall value created by the SC.

Supply chain value=
worth of the final product to the customer
- supply chain costs of in filling the customers request

Value is correlated to supply chain profitability (difference
between revenue generated from the customer and the overall
cost across the supply chain)

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The Objective of a Supply Chain
Example: Dell receives $2000 from a customer for a computer
(revenue)
Supply chain incurs costs (information, storage, transportation,
components, assembly, etc.)
Difference between $2000 and the sum of all of these costs is
the supply chain profit.
Supply chain profitability is total profit to be shared across all
stages of the supply chain
Supply chain success should be measured by total supply chain
profitability, not profits at an individual stage!
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The Objective of a Supply Chain
Sources of supply chain revenue: the customer

Sources of supply chain cost: flows of information,
products, or funds between stages of the supply chain

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Decision Phases of a Supply Chain


Supply chain strategy or design
Supply chain planning
Supply chain operation
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Supply Chain Strategy or Design
Decisions about the structure of the supply chain and what
processes each stage will perform over the next several years.
Strategic supply chain decisions
Locations and capacities of facilities
Products to be made or stored at various locations
Modes of transportation
Information systems
Supply chain design must support strategic objectives
Supply chain design decisions are long-term and expensive to
reverse must take into account market uncertainty
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Supply Chain Planning
Definition of a set of policies that govern short-term
operations

Fixed by the supply configuration from previous
phase

Starts with a forecast of demand in the coming year

Usually time horizon is the quarter of a year.
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Supply Chain Planning
Planning decisions:
Which markets will be supplied from which locations
Planned buildup of inventories
Subcontracting, backup locations
Inventory policies
Timing and size of market promotions
Must consider in planning decisions demand
uncertainty, exchange rates, competition over the time
horizon
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Supply Chain Operation
Time horizon is weekly or daily.
Decisions regarding individual customer orders
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
Supply chain configuration is fixed and operating
policies are determined
Goal is to implement the operating policies as
effectively as possible
Much less uncertainty (short time horizon)
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The goal is to handle incoming customer order in the
best possible manner.
During this Phase
-Firms allocate inventory or production to individual orders
-Set a date that an order is to be filled
-Generate pick list at a warehouse
-Allocate an order to particular shipping mode and shipment
-Set delivery schedules of trucks and
-Place replenishment orders
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Supply Chain Operation
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Process View of a 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)
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Cycle View of Supply Chains
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer
Retailer
Distributor
Manufacturer
Supplier
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Sub-processes in each
Supply Chain
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Supplier Stage
Markets Product
Buyer Stage
Places Order
Supplier Stage
Receives Order
Buyer returns reverse
flow to supplier or third
party
Buyer Stage
Receives Order
Supplier Stage
Supplies Order
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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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Customer Order Cycle
Involves all processes directly involved in receiving
and filling the customers order
Customer arrival
Customer order entry
Customer order fulfillment
Customer order receiving
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Replenishment Cycle
All processes involved in replenishing retailer
inventories (retailer is now the customer)
Retail order trigger
Retail order entry
Retail order fulfillment
Retail order receiving
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Manufacturing Cycle
All processes involved in replenishing distributor (or
retailer) inventory
Order arrival from the distributor, retailer, or customer
Production scheduling
Manufacturing and shipping
Receiving at the distributor, retailer, or customer
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Procurement Cycle
All processes necessary to ensure that materials are
available for manufacturing to occur according to
schedule
Manufacturer orders components from suppliers to
replenish component inventories
However, component orders can be determined
precisely from production schedules (different from
retailer/distributor orders that are based on uncertain
customer demand)
Important that suppliers be linked to the manufacturers
production schedule
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Push/Pull View of Supply Chains
Procurement,
Manufacturing and
Replenishment cycles
Customer Order
Cycle
Customer
Order Arrives
PUSH PROCESSES PULL PROCESSES
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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: execution is initiated in response to a customer
order (reactive). Also called make-to-order
Push: execution is initiated in anticipation of customer
orders (speculative). Also called make-to-stock
Push/pull boundary separates push processes from
pull processes
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Push/Pull View of
Supply Chain Processes
Useful in considering strategic decisions relating to
supply chain design more global view of how
supply chain processes relate to customer orders
Can combine the push/pull and cycle views
L.L. Bean
Dell
The relative proportion of push and pull processes can
have an impact on supply chain performance
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Ex: L.L. Bean, a mail order company
Customer Order Cycle
Replenishment and
Manufacturing Cycle
Procurement Cycle
Customer
L.L.Bean
Manufacturer
Supplier
Customer order
arrives
PULL PROCESSES
PUSH PROCESSES
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Ex: Dell Computers
Customer Order and
Manufacturing Cycle
Procurement Cycle
Customer
Manufacturer
Supplier
Customer order
arrives
PULL PROCESSES
PUSH PROCESSES
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Supply Chain Macro Processes
All SC processes can be classified into three categories.
SRM
Supplier Relationship
Management
ISCM
Internal Supply Chain
Management
CRM
Customer Relationship
Management
Supplier
Firm
Customer
Source
Negotiate
Buy
Design
Collaboration
Supply
Collaboration
Strategic Planning
Demand Planning
Supply Planning
Fulfillment
Field Service
Market
Sell
Call Center
Order Management
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The Importance of Supply
Chain Flows
Supply chain decisions can play a significant role in
the success or failure of a firm

Close connection between design and management of
supply chain flows (product, information and cash)
and supply chain success

Ex:
Dell invested in managing the flows effieiciently: success
Quaker Oats purchased Snapple: failure
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Examples of Supply Chains:
7-Eleven Japan
What factors influence decisions of opening and closing stores?
Location of stores?
Why has 7-Eleven chosen off-site preparation of fresh food?
Why does 7-Eleven discourage direct store delivery from vendors?
Where are distribution centers located and how many stores does
each center serve? How are stores assigned to distribution centers?
Why does 7-Eleven combine fresh food shipments by temperature?
What point of sale data does 7-Eleven gather and what information
is made available to store managers? How should information
systems be structured?
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Summary of Learning Objectives
What are the cycle and push/pull views of a supply
chain?
How can supply chain macro processes be classified?
What are the three key supply chain decision phases
and what is the significance of each?
What is the goal of a supply chain and what is the
impact of supply chain decisions on the success of the
firm?
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Amazon.com
Why is Amazon building more warehouses as it grows? How
many warehouses should it have and where should they be
located?
What advantages does selling books via the Internet provide? Are
there disadvantages?
Why does Amazon stock bestsellers while buying other titles
from distributors?
Does an Internet channel provide greater value to a bookseller like
Borders or to an Internet-only company like Amazon?
Should traditional booksellers like Borders integrate e-commerce
into their current supply?
For what products does the e-commerce channel offer the greatest
benefits? What characterizes these products?