Unit I: Introducing Supply

Chain Management

G P Kurien
 Syllabus
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: Ch. 1
- Mentzer, J. T., DeWitt, W., Keebler, J. S., Min, S., Nix, N. W., Smith, C. D., &
Zacharia, Z. G. (2001). Defining supply chain management. Journal of Business
logistics, 22(2), 1-25.

5 October, 2016 2
 THE GLASS OF MILK
YOU DRANK TODAY MORNING

5 October, 2016 3
 Nandini
1. Karnataka Milk Federation (KMF) is the
largest Cooperative Dairy Federation
in South India, owned and managed by
milk producers of Karnataka State.
2. KMF has over 2.30 million milk producers
in over 12928 Dairy Cooperative
Societies at village level, functioning
under 14 District Cooperative Milk Unions
in Karnataka State.
3. Procures milk from hundreds of
cooperatives located in several districts of
Karnataka - Primary Dairy Cooperative
Societies (DCS).
4. Quality check is done at DCS, milk
collected in containers, loaded to special
tankers, twice daily
5 October, 2016 4
 Nandini (Contd..)
5. The milk is transported to the Diary,
located about 200 meters from our front
gate, through hundreds of tankers twice a
day.
6. At the plant, it is homogenized,
pasteurized and then stored in special
tanks.

7. Nandini offers a large variety of products:

5. Skimmed, toned, double toned and full cream
milk
6. In half and one liter polythene packs
7. Over a dozen flavors of ice creams
with different packaging and variety.
8. Variety of milk products

5 October, 2016 5
 Nandini (Contd..)

8. Nearly a hundred of its tankers

crisscross Begaluru and supply
milk to over hundread booths
located in the city.
9. Over 400 delivery agents, who
home deliver milk in some
localities and about 500 retail
shops sells in polythene packs.
10. Nandini milk products, sweets, ice
creams, paneer etc are available
at retail stores across the city.

5 October, 2016 6
 Who brought you the glass of
milk today morning?

Who gets the Rs 18 you paid for the

half litre milk packet?

5 October, 2016 7
If you visualize this example you
will notice three distinctive set of
activities.
1. Procurement of raw milk from milk 1. In-bound supply
cooperatives and transporting them chain
to the processing plant.
2. Processing milk and producing a 2. In-house supply
number of variants of products. chain
3. Distribution of these products to the 3. Out-bound
end customer. supply chain

PROCUREMENT MANUFACTURING - DISTRIBUTION

8
 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, INFORMATION

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

Source: Hau L. Lee; 2000, Creating Value through Supply Chain Integration,
September/October 2000 issue of Supply Chain Management Review 9
5 October, 2016 Green Supply Chain Management
 Sorry, I will drink Milk rather than
I do nottolike
listening Milk.
your I drank
b****g TEAon
lecture Kapeesh, You want me to tell
Sugar Supply today
Chain and Tea you about the Sugar Supply
Supply Chains . Chain, Tea Supply Chain in
addition to Milk Supply Chain?

Kapeesh
Roll No. 1528157

Kapeesh learns Supply Chain Management

5 October, 2016 10
5 October, 2016 11
 SUPPLY CHAIN
Delivery Sustainability

Flexibility Responsiveness
Retail
shops

CUSTOMERS
warehouse
s4 Retail
s1 Material
shops
Men Plant & Goods
Energy and Wholesaler
Facilities
s8 s5 s2 Capital 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

5 October, 2016 13
 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)

5 October, 2016 14
 Evolution of Supply Chain Management

Our aim is always to arrange the material

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

I invented nothing new, I simply

assembled the discoveries of other men
whom were centuries of work .

5 October, 2016 15
 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)

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

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.
5 October, 2016 16
 The Evolution of Supply Chain
Management
The Dell Supply Chain (1995 - 2005)
Global Suppliers who were always on test
What Changed?
Use of IT for SC integration.
1. Product variety Customers can configure their PCs
2. Inventory Levels
3. Set up Time/The Toyota Supply
Response Time Chain (1960 -1970)
Lean Production Systems
4. Risks
Keirestu Model: Bulk of the components were sourced
5. Ownership
from a(control) to integration
large number of suppliers with interlocking , long
(contracts) term business relationships

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.
5 October, 2016 17
Definitions
Supply Chain Management deals with the management of
materials, information, and financial flows in a network
consisting of suppliers, manufacturers, distributors and
customers.
Stanford Supply Chain Forum

Supply chain management is the design and management of

seamless, value added processes across organizational
boundaries to meet the real needs of the end customer.

19
 More Definitions
Supply Chain Management is primarily concerned with
the efficient integration of suppliers, factories,
warehouses and stores so that merchandise is
produced and distributed in the right quantities, to the
right locations and at the right time, and so as to
minimize total system cost subject to satisfying service
requirements.
Simchi-Levi

Call it distribution or logistics or supply chain

management. By whatever name, it is the strenuous,
gritty, and cumbersome process by which companies
move, materials, parts, and products to customers.
Fortune (1994)
20
10/5/2016
 The Reverse Supply Chain

Reject, Repair, Recycle, Reuse, Reduce

New Product Return

End of Life Product Return
Starwood Supply
Chain
5 October, 2016 21
 The SCM Network

5 October, 2016 22
 Key Observations
1. Every facility that impacts costs need to be considered
Suppliers suppliers
Customers customers
2. Efficiency and cost-effectiveness throughout the
system is required
System level approach
3. Multiple levels of activities
Strategic Tactical Operational
4. Challenging to minimize system costs and
maximize system service levels
5. Inherent presence of uncertainty and risk

5 October, 2016 23
 What does the Supply Chain Include?

A chain of entities involved in planning, procurement,

design, production and distribution of Products &
services to the end customer and its return.
A unique combination of these entities makes up a
value stream
The Three/ Five flows: 1. Material; 2. Information; 3.
Finance; 4. Manpower; 5. Equipment

Supply Chain Management is the integration of key

business processes from end user through original
suppliers that provides products, services and information
that add value for customers and other stakeholders.

5 October, 2016 24
 Why Supply Chain Management?
1. Manage proliferation of product lines
HUL has 1200 Stock Keeping Units (SKUs).
How do you ensure that right products are available at right
places at the right time.
2. Shorter product life cycle
PC/ Laptop industry work with a life cycle of 6 months.
Dell has inventory of 7 days, compared to industry average of
37 days -> Most competitors of Dell write off huge amounts of
stocks every year as obsolete.
3. Higher level of out sourcing.
4. Globalization It is not the companies which
are competing today;
5. Sustainability Competition is between SCs.
Do you agree??
6. Value Chain
7. Lower risks of doing business
5 October, 2016 25
 Tracing back the dress you are wearing

5 October, 2016 26
5 October, 2016 27
 Globalization
Rubber from Thailand or
Malaysia

Metal from China or

Mozambique

Soft wood from Sweden or

South Africa

Graphite from Brazil or

Mexico
 Three principal streams of a SC

1. Sourcing, Procurement and Supply

Management
2. Materials Management
3. Logistics and Distribution

5 October, 2016 29
 The Objective of a Supply Chain

Maximize overall value generated

Supply Chain Surplus

= Customer Value Supply Chain Cost

5 October, 2016 30
 The Objective of a Supply Chain
An Example:

I just had a veg Thali for lunch at Aman Rasoi for Rs. 40.
I feel an ordinary thali will cost about Rs. 60.
My students at L1 did a project to find out the Total Supply
Chain Costs for one Thali and estimated it as Rs. 30.

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?

5 October, 2016 31
Green Supply Chain Management

Even a simple product like a banana has a complex supply chain: hundreds
of farms with different agricultural practices, a variety of trucks and ocean
vessels, multiple logistics flows and distances, varying time spent at
refrigerated storage, and multiple sources of electricity at stores and
warehouses 32
5 October, 2016
 What Constitutes Value of a Product ?
1. Use Value/ The Properties, features, and qualities which
Functional accomplish the use, the work or service
value causing the 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 The Properties, features, and qualities which
Value 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
5 October, 2016 33
 The Objective of a Supply Chain
1. Maximize overall value generated
2. Supply chain profitability is total profit to
be shared across all stages of the supply
chain
3. Success should be measured by total
supply chain profitability, not profits at an
individual stage
4. Customer the only source of revenue

5 October, 2016 34
 Effective supply chain management is the
management of supply chain assets and
product, information, and fund flows to grow the
total supply chain surplus.

5 October, 2016 35
 Supply chain design, planning, and operation
decisions play a significant role in the success
or failure of a firm.

To stay competitive, supply chains must adapt

to changing technology and customer
expectations.

5 October, 2016 36
 ISSUES
In-bound supply chain Supplier Development
Tier structure: Automotive Industry Strategic Sourcing
Supply Management

Wiring Auto
Upholstery Transmission Tier 1
Harness Electrical

Spindles & Insulators &

Castings Gears
Armatures Bushes
Tier 2
Copper Plates Spindles & Forging
Wires Shafts Blanks

Copper Iron & Steel

Manufacturers Manufacturers Tier 3
In-house supply chain ISSUES

An illustration
Master Scheduling
MRP
Layout
Materials handling
Quality
Core Manufacturing Layer

Pre-manufacturing

Machining Fabrication

Assembly Testing

Manufacturing Support Layer

Marketing IT Maintenance Planning

Quality Material Design Costing

Out-bound Supply Chain ISSUES
Warehousing
An illustration using a Soap Manufacturer Distribution &
Channel
Management
Delivery
Return
Soap Manufacturing Factory

Factory Warehouse

Distribution
North East West South Central Centers

Sales
SD SD SD SD SD SD SD Depots

Retail
RO RO RO RO RO RO RO Outlets

End Customers
 Efficient vs Responsive Supply Chain
Efficient Supply Chain Responsive Supply Chain

Primary goal Supply demand at the lowest cost Respond quickly to demand

Product design strategy Maximise performance at a minimum product cost Create modularity to allow postponement of
product differentiation

Pricing Strategy Lower margins because price is a prime Higher margins because price is not a prime
customer driver customer driver
Manufacturing strategy Lower costs through high utilization Maintain capacity flexibility to buffer against
demand/ supply uncertainty

Inventory Strategy Minimize inventory to lower cost Maintain buffer inventory to deal with demand
supply uncertainty

Lead time strategy Reduce, but not at the expense of costs Reduce aggresively, even if the costs are
significant
Supplier strategy Select based on cost and quality Select based on speed, flexibility, reliability and
quality
 Quiz 1 (State TRUE/ FALSE)
1 A supply chain could be more accurately described TRUE
as a supply network or supply web.
2 All stages of an enterprise are involved, either
directly or indirectly, in fulfilling a customer request. TRUE

3 A supply chain includes only the organizations

directly involved in supplying components needed for FALSE
manufacturing.
4 The objective of every supply chain is to maximize TRUE
the overall value generated
5 The difference between the value of the product and
its price remains with the customer as consumer TRUE
surplus.

5 October, 2016 41
 DECISION PHASES IN A
SUPPLY CHAIN

5 October, 2016 42
 Decision Phases in a Supply Chain

1. Supply chain strategy or design

How to structure the supply chain over the next
several years
2. Supply chain planning
Decisions over the next quarter or year
3. Supply chain operation
Daily or weekly operational decisions

5 October, 2016 43
 Supply Chain Strategy or Design
1. Decisions about the configuration of the supply chain,
allocation of resources, and what processes each stage
will perform
2. Strategic supply chain decisions
Outsource supply chain functions
Locations and capacities of facilities
Products to be made or stored at various locations
Modes of transportation
Information systems
3. Supply chain design must support strategic objectives
4. Supply chain design decisions are long-term and
expensive to reverse must take into account market
uncertainty
5 October, 2016 44
 Supply Chain Planning
1. Definition of a set of policies that govern short-term
operations
Goal is to maximize supply chain surplus given established
constraints
2. Fixed by the supply configuration from strategic phase
3. Supply Chain Planning Decisions
Starts with a forecast of demand in the coming year
Costs and prices in different markets
Sub contracting, inventory policies
Target production quantities at each plants
4. Must consider demand uncertainty, exchange rates,
competition over the time horizon in planning decisions

5 October, 2016 45
 Supply Chain Operation
1. Time horizon is weekly or daily
2. Decisions regarding individual customer orders
3. Supply chain configuration is fixed and
planning policies are defined
4. Goal is to handle incoming customer orders as
effectively as possible
5. 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
6. Much less uncertainty (short time horizon)
5 October, 2016 46
 Supply chain decision phases may be
categorized as design, planning, or operational,
depending on the time frame during which the
decisions made apply.

Design decisions constrain or enable good planning,

which in turn constrains or enables effective operation.

5 October, 2016 47
 Process Views of a Supply Chain

There are two ways to view the processes

performed in a SC:

1. Cycle View

2. Push/Pull View

5 October, 2016 48
 Cycle View
1. The processes in a
supply chain are divided
into a series of cycles,
each performed at the
interface between two
successive stages of the
supply chain.
2. Four or less no. of
cycles.
3. Each Cycle divided into
SC Processes

5 October, 2016 49
 Cycle View: Supply Chain Processes

Objectives of the Buyer:

1. Ensure product availability

2. Take benefit of economies
of scale
3. Minimise cost of the
receiving processes

Objectives of the Supplier:

1. Forecast buyers demand

2. Improve efficiency of
fulfilling process
3. Minimise cost of the
delivery processes

5 October, 2016 50
 Similar SC Processes exist in all
the cycles; but what is the
difference between the Cycles?
1. Forecasting Order
placement uncertainty
decreases as we move
towards supplier end
2. No. of orders No of orders
gets consolidated as we move
towards supplier end
3. Information sharing
Increased info sharing
possible as we move towards
supplier end

5 October, 2016 51
 A cycle view of the supply chain
Clearly defines the Useful when
processes involved considering
and the owners of operational
each process decisions

Specifies the roles

Most of ERP
and responsibilities
packages consider
of each member of
Cycle View of SC
the supply chain
5 October, 2016 52
Push/Pull View of Supply Chains
1. The processes in a supply chain are divided into two categories,
depending on whether they are executed in response to a
customer order or in anticipation of customer orders.
2. Pull processes are initiated by a customer order, whereas push
processes are initiated and performed in anticipation of customer
orders.
 Push/Pull View of Supply Chains
1. Supply chain processes fall into one of two categories depending
on the timing of their execution relative to customer demand
2. Pull: execution is initiated in response to a customer order
(reactive)
3. Push: execution is initiated in anticipation of customer orders
(speculative)
4. Push/pull boundary separates push processes from pull processes

5 October, 2016 54
 Map Push / Pull Process for L. L. Bean
1. L.L.Bean, is an American, privately held e-commerce,
mail-order, and retail company. It specializes in clothing
and outdoor recreation equipment.
2. L.L.Bean executes all processes in the customer order
cycle after customer places an order. Order fulfilment
takes place from product in inventory that is built up in
anticipation of customer orders. All processes in
replenishment, manufacturing and procurement are
performed in anticipation of demands.
3. Map the Push/ Pull View and identify Push/pull
boundary.

5 October, 2016 55
 Push/Pull View L.L. Bean

5 October, 2016 56
 What are the implications of push / pull
boundary?

1. Inventory levels
2. Forecasting
3. Response time
4. Information system
5. Logistics

5 October, 2016 61
 Logistics Vs Supply Chain Management

1. Business Logistics supply chain process

that plans, implements, and controls the
efficient, effective flow of goods, services,
and related information from the point of
origin to the point of use or consumption in
order to meet customer requirements.
5 October, 2016 62
 1. Logistics Interfaces with
Operations/Manufacturing
2. Logistics Interfaces with Marketing
3. Logistics Interfaces with Other Areas

How??

5 October, 2016 63