Unit 1

Introducing Supply Chain

Management
Topics

1. Supply chain Concept

2. Objectives/Goals of Supply Chain
3. Decision phases in a SC
4. Process Views of SC
5. Logistics Vs Supply Chain Management

- Chopra: Chapter 1
- What Is the Right Supply Chain for
Your Product by Marshall Fisher, HBR
The Glass of Milk we had Who brought
that glass of
today morning milk to us?
Who brought you the glass of
milk today morning?

A Supply Chain consists of all parties

(directly or indirectly) involved in
fulfilling a customer request

Source: Mahadevan, 2015

 If you visualize this example you will notice
three distinctive set of activities …

• Procurement of raw milk from milk cooperatives

• Procurement of raw milk from milk cooperatives In-bound supply chain
and transporting them to the processing plant. In-bound supply chain
• and transporting them to the processing plant.
Sourcing, Procurement and Supply Management
• Sourcing, Procurement and Supply Management

• Processing milk and producing a number of

• Processing milk and producing a number of In-house supply chain
variants of products. In-house supply chain
variants of products.
• Materials Management
• Materials Management

• Distribution of these products to the end

• Distribution of these products to the end Out-bound supply chain
customer. Out-bound supply chain
• customer.
Logistics and Distribution
• Logistics and Distribution
Sourcing, Procurement and Supply Management
(In-bound supply chain)
Tier structure: Automotive Industry ISSUES
Supplier Development
Strategic Sourcing
Supply Management

Wiring Auto
Upholstery Transmission Tier 1
Harness Electrical

Which is easier, increasing profits through

Spindles & Insulators &
increasing
Armatures sales or through
Bushes
Castings reduction
Gears in

procurement costs? Tier 2

Copper Plates Spindles & Forging
Wires Shafts Blanks

Copper Iron & Steel

Manufacturers Manufacturers Tier 3
In-house supply chain ISSUES
Material Management ISSUES
Forecasting,
Forecasting,
Inventory Management,
Inventory Management,
Master Scheduling
Master Scheduling
MRP
MRP
Core Manufacturing Layer Layout
Layout
Pre-manufacturing Materials handling
Materials handling
Machining Fabrication PPC
PPC
Quality
Assembly Testing Quality

Manufacturing Support Layer

Quality IT Maintenance Planning

Material Design Costing

Logistics and Distribution
An illustration using a Soap Manufacturer

Soap Manufacturing Factory ISSUES

ISSUES
Transportation
Factory Warehouse
Transportation
Warehousing
Warehousing
Distribution
Distribution &
Distribution &
North East West South Central
Centers Channel
Channel
Management
Sales Management
SD SD SD SD SD SD SD
Delivery
Depots Delivery
Return
Return
Retail
RO RO RO RO RO RO RO
Outlets
End Customers
 SUPPLY CHAIN
Sustainability Flexibility Responsiveness and Delivery Innovation

Retail
shops

CUSTOMERS
warehouse
s4 Retail
s1 Material
shops
Men Plant & Goods
Energy and Wholesaler
s8 s5 s2 Capital
Facilities
Services
Retail
Information
shops
s6
s3 warehouse
Retail
s7 PRODUCTION shops
Tier 3 Tier 1 PROCESS
Tier 2
Cost, Quality MARKETING
SUPPLIER

Effective Value Stream Mapping

Supply Chain Management (Definitions)
1. Supply chain management is a set of approaches utilized to
efficiently integrate suppliers, manufacturers, warehouses,
and stores, so that merchandise is produced and distributed at
the right quantities, to the right locations, and at the right
time, in order to minimize system wide costs while satisfying
service level requirements. [Simchi-Levi et al., 2016]
2. The design and management of seamless, value-added
process across organizational boundaries to meet the real
needs of the end customer [Institute for Supply Management]
3. Managing supply and demand, sourcing raw materials and
parts, manufacturing and assembly, warehousing and
inventory tracking, order entry and order management,
distribution across all channels, and delivery to the customer.
[The Supply Chain Council]
Mentzer et al. (2001). Defining supply chain management
 SUPPLY CHAIN FLOWS
INFORMATION CAPACITY, PROMOTION PLANS, DELIVERY
SCHEDULES
MATERIAL RAW MATERIALS, INTERMEDIATE
PRODUCTS, FINISHED GOODS
FINANCE CREDITS, PAYMENT TERMS, INVOICE

SUPPLIERS MANUFACTURER DISTRIBUTORS RETAILERS CUSTOMERS

SALES, ORDERS, INVENTORY, PROMOTION INFORMATION

PLANS
RETURNS, REPAIRS, RECYCLING, DISCARD MATERIAL
PAYMENTS, CONSIGNMENT FINANCE

Can we add ‘Man Power’ and ‘Machines’ to the list of SC Flows?

Source: Hau L. Lee; 2000, “Creating Value through Supply Chain Integration”, September/October 2000 issue
of Supply Chain Management Review
13
 Supply Chain Management is the
Who design and management
brought of of
you the glass
seamless,
milk todayvalue-added
morning? process
across organizational boundaries
to meet the real needs of the end
customer
Definition by Institute for Supply Management

A Supply Chain consists of all parties

(directly or indirectly) involved in
fulfilling a customer request

Managing supply and demand, sourcing raw

materials and parts, manufacturing and
assembly, warehousing and inventory tracking,
order entry and order management,
distribution across all channels, and delivery to
the customer. [The Supply Chain Council]
 Kapeesh, You want me to tell
I do not like Milk. I drank TEA
today you about the Sugar Supply
Chain, Tea Supply Chain in
addition to Milk Supply
Chain?

Kapeesh
Reg No 1827755

Kapeesh learns Supply Chain Management

Wednesday, October 13, 2021 15
Wednesday, October 13, 2021 16
 Sorry, I will drink Milk rather than
listening to your boring lecture on
Sugar Supply Chain and Tea
Supply Chains !
How will I survive another
60 hrs on this ….

Kapeesh

Kapeesh learns Supply Chain Management

Wednesday, October 13, 2021 17

Quiz
Q1. Is ‘Customers’ part of a Supply Chain?
Ans. Yes.
Even Customer’s Customer is also part of the SC.
Customer is the only one source of Revenue – So,
most important
Q2. What is Customer looking for from a Supply
Chain Manager? (What is it that as a Supply Chain
Manager providing to the Customer?)
Ans. 1. Responsiveness and Delivery; 2. Customer
Surplus (= Value – Price)
The Beginning ….

“Management is on the verge of a major breakthrough in understanding

how industrial company success depends on the interactions between the
flows of information, materials, money, manpower, and capital equipment.
The way these five flow systems interlock to amplify one another and to
cause change and fluctuation will form the basis for anticipating the effects
of decisions, policies, organizational forms, and investment choices.”
(Forrester 1958, p. 37)

19
Evolution of Supply Chain Management

“Our aim is always to arrange the material and

Quiz
machinery and to simplify the operations so that
practically no orders are necessary. Our finished
Who said inventory is in transit. So is most of our raw material
this? inventory. Our production cycle is about eighty-one
hours from the mine to the finished machine
(automobile) in the freight car.”
Henry Ford
1910s

“I invented nothing new, I simply assembled the

discoveries of other men whom were centuries of
work …….

20
The Evolution of Supply Chain Management

The Dell Supply Chain (1995 - 2005)

Global Suppliers who were always on test
Use of IT for SC integration.
Customers can configure their PCs

The Toyota Supply Chain (1960 -1970)

Keirestu Model: Bulk of the components were sourced from a large
number of suppliers with interlocking, long –term business
relationships. Lean Production Systems.

The Ford Supply Chain (1910 -1920) Deliver a car

Tightly integrated chain, Owned the entire SC, Rigid from mine to
The Ford Supply Chain would offer you any colour as long as it was the retailer in
black; … would offer you any model as long as it was Ford T Model. just 81 hours
Source: Shah, J. (2009) 21
The Evolution of Supply Chain Management

The Dell Supply Chain (1995 - 2005)

Global Suppliers who were always on test
What Use Changed?
of IT for SC integration.
Customers can configure their PCs
1.Product variety
2.Inventory Levels
The Toyota Supply Chain (1960 -1970)
3.Use ofLeaninformation, analytics
Production Systems
Keirestu Model: Bulk of
4.Risks, the components were sourced from a large
Flexibility
number of suppliers with interlocking, long –term business
5.Ownershiprelationships
(control) to integration
(contracts)
The Ford Supply Chain (1910 -1920)
Tightly integrated chain, Owned the entire SC, Rigid
The Ford Supply Chain would offer you any colour as long as it was
black; … would offer you any model as long as it was Ford T Model.
22
The Evolution of Supply Chain Management

The Dell Supply Chain (1995 - 2005)

Global Suppliers who were always on test
CurrentUseTrends (2019)
of IT for SC integration.
Customers can configure their PCs
1.Analytics / Big Data
2.Sustainability / responsible business
The Toyota Supply Chain (1960 -1970)
3.Social media, Mobile Computing,
Lean Production Systems Cloud
Keirestu
4.EModel: Bulk of the
– Market components were sourced from a large
space
number of suppliers with interlocking, long –term business
5.3PL, 4PL, 5PL,relationships
…… 10PL?
6.Tracking/ visibility
7.
TheSC Performance
Ford measurement
Supply Chain (1910 -1920)
Tightly integrated chain, Owned the entire SC, Rigid
The Ford Supply Chain would offer you any colour as long as it was
black; … would offer you any model as long as it was Ford T Model.
23
The Evolution of Supply Chain Management

The Dell Supply Chain (1995 - 2005)

Global Suppliers who were always on test
FutureUseTrends (2020)
of IT for SC integration.
Customers can configure their PCs
1.Internet of Things (IOT)
2.3D Printing/ 3D Manufacturing
The Toyota Supply Chain (1960 -1970)
3.Block Chain Leanbased businesses
Production Systems
Keirestu Model: BulkIntelligence
4.Artificial of the components
(AI)were sourced from a large
number of suppliers with interlocking, long –term business
5.Behavioural Operations
relationships
Management
6.Fully transparent supply chains
7.Sustainable SC /(1910
The Ford Supply Chain Positive
-1920)footprints
Tightly integrated chain, Owned the entire SC, Rigid
The Ford Supply Chain would offer you any colour as long as it was
black; … would offer you any model as long as it was Ford T Model.
24
The Objective of a Supply Chain

Maximize overall value generated

Supply Chain Surplus

= Customer Value – Supply Chain Cost

Source: Chopra and Meindl (2012)

 The Objective of a Supply Chain
An Example:
Yesterday, I had a veg thali for lunch at Aman
Rasoi for Rs. 60.
I feel an ordinary thali will cost about Rs. 70
and budgeted that amount for my lunch. My
students at MBA Class did a project to find out
the ‘Total Supply Chain Costs’ for one Thali and
estimated it as Rs. 45.
1.What is ‘Supply Chain Surplus’?
2.What is ‘Supply Chain Profit’?
3.What is ‘Customer Surplus’?
4.Who gets to keep the ‘SC Profit’?
5.What is ‘Customer Value’?
26
 The Objective of a Supply Chain

An Example:
Yesterday, I had a veg thali for lunch at Aman Rasoi for Rs. 60.
I feel an ordinary thali will cost about Rs. 70 and budgeted that amount
for my lunch. My students at MBA Class did a project to find out the
‘Total Supply Chain Costs’ for one Thali and estimated it as Rs. 45.

Customer Value = Rs 70
Customer Price = Rs 60
Supply Chain Price = Rs 45

1. Supply Chain Surplus = (Customer Value – SC Cost) = 70 – 45 = Rs. 25

2. Supply Chain Profit’ = (Customer Price – SC Cost) = 60 – 45 = Rs. 15
3. Customer Surplus’ = (Cust. Value – Price) = 70 – 60 = Rs. 10
4. Who gets to keep the ‘SC Profit’?
27
 What Constitutes Value of a Product ?
Value is something which the customer is willing to pay for

1. Use Value/ The Properties, features, and qualities which

Functional accomplish the use, the work or service – causing the
value item to perform or serve an end
2. Esteem Value The Properties, features, or attractiveness which cause
us to earn to possess it – causing the item to sell
3. Exchange Value The Properties, features, and qualities which enable us
to sell the item for something else we want
4. Cost Value The total of material, labour, energy and other costs
that have to be incurred to produce the item

Is customer value limited to the above list?

Ease of shopping – Likelihood of availability of the product – Payment options –
Product comparison and visibility – Green/Sustainable
28
 Business Operations exists to create ‘Value’
for their products and services.
Value is something which the customer is willing to pay for

But can Businesses alone create ‘Value’ for their

products and services?

1. Firms can only create value propositions.

2. Customers co-create values.
The Objective of a Supply Chain

1. Maximize overall value generated – Maximize

Supply Chain Surplus
 Supply chain profitability is total profit to be shared
across all stages of the supply chain
 Success should be measured by total supply chain
profitability, not profits at an individual stage
 Customer the only source of revenue
2. Effective supply chain management is the management of
supply chain assets and product, information, and fund
flows to grow the total supply chain surplus.
SC Influences:
1. Value; 2. Revenue; 3. Cost; 4. Sustainability
30
Focal Firms
1. The Firm that provides identity to the product –
brand
2. Design/ influence the incentive system in the
entire SC
3. Strategic centre of the SC
4. Shift in power structure
 Closer to customer
Questions?
Thank you …. .. .