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Chapter One Understanding the Supply Chain

Q-01: What is Supply Chain?

Answer: A Supply Chain is the alignment of firms that bring products or services to market.

  • - Lambert, Stock and Ellram “Fundamental of Logistics Management”, 1998.

A supply chain consists of all stages involved directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturers and suppliers, but also transporters, warehouses, retailers and customers themselves.

  • - Chopra, Sunil and Peter Meindi “Supply Chain Management”, 2003.

A Supply Chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products and distribution of these finished products into customers.

  • - Ganeshan and Harriso “An Introduction to Supply chain Management”, 1995.

The term supply chain comes from a picture of how organizations are linked together. If we begin with a purchasing department as a starting point and work down the supply side, it has a number of suppliers, each of which, in turn, has its own set of suppliers and so on. The result is a supply network or series of chains.

Q-02: What is supply chain management?

Answer: Supply chain management is one of the hot topics in business today. The idea is to apply a total systems approach to managing the entire flow of information, materials and services from raw materials suppliers through factories and warehouses to the end customers. The focus is on those core activities that a business must operate each day to meet demand.

The goals of supply chain management are to reduce uncertainty and risks in the supply chain, thereby positively affecting inventory levels, cycle time, and processes and ultimately end customer service levels. The focus is on system optimization.

“The systemic strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across business within supply chain, for the purpose of improving the long term performance of the individuals companies and the supply chain as a whole”.

  • - Mentzer. De Witt, Keebler-2001 “Defining Supply Chain Management” “Journal of Business Logistics”.

Supply chain management is the coordination of production, inventory, location and transportation among the participants in supply chain to achieve the best mix of responsiveness and efficiency for the market being served.

Q-03: What is logistics?

Answer: Logistics typically refers to activities that occur within the boundaries of a single organization. Traditional logistics focuses on activities such as a procurement, distribution, maintenance and inventory management.

Q-04: What are the different between supply chain and logistics?

Answer: The different between supply chain and logistics are given below:-

Supply chain

Logistics

1. Supply chains refer to network of companies that

  • 1. Logistics typically refers to activities that occur within

work together and coordinate their action to deliver a

the boundaries of a single organization.

product to market. 2. Supply chain management acknowledges all of

  • 2. Traditional logistics focuses on activities such as a

traditional logistics and also includes activities such as marketing, new product development, finance and customer service.

procurement, distribution, and maintenance and inventory management.

Q-05: What are the stages of supply chain?

Raw Materials Company Transportation Company Manufacturing Company Independent Distributor Independent Retailer Fragmente d Fast- Moving Market
Raw Materials
Company
Transportation
Company
Manufacturing
Company
Independent
Distributor
Independent
Retailer
Fragmente
d Fast-
Moving
Market

In its simplest form, a supply chain is composed of a company and the suppliers and

customers of that company. This is the basic group of participants who create a simple

supply chain.

In any supply chain there is some combination of companies who performs different functions. There are companies who are manufacturers, distributors, retailers, and

companies or individuals, who are the customers of a product.

Manufacturers

Fig.: 1-1 The Stages of Supply Chain.

Producers or manufacturers are organizations that make a product. This includes companies that are produces of raw materials and the companies that are produces of finished goods. Producers of raw materials are organizations that mine for materials, drill of oils, and gases and cut timber. It also includes organizations that farm the land, raise animals or catch seafood. Producers of finished goods use the raw materials and subassemblies made by other producers to create their product.

Distributors

Distributors are companies that take inventory in bulk from producers and deliver a bundle of related product lines to customers. Distributors are also known as whole-sellers. They typically sell to other business and they sell products in large quantities than an individual’s customer would usually buy. Distributors buffer the producers from fluctuation in product demand by stocking

inventory and doing much of the sales work to find and services customers. For the customer, distributors fulfill the “Time and Place” function- they deliver products when and where the customer wants them.

Retailers

Retailers stock inventory and sell in small quantities to the general public. This organization also closely tracks the preference and demands of the customers that it sells to. It advertises to its customers and often uses some combination of price, product selection and convenience as the primary draw to attract customers for the products it sells. Discount department stores attract customer using price and wide product selection. Upscale especially stores offer a unique line of products and high levels of service. Fast food restaurants use convenience and low prices as their draw.

Customers

Customers are any organization that purchase and uses a product. A customer organization may purchase a product in order to incorporate it into another product that they in turn sell to other customers. Or a customer may be the final end user of a product who buys the product in order to consume it.

Q-06: Write down the objectives of supply chain?

Answer: The objectives of supply chain are given below:

To maximize the over all generated.

Effective supply chain management involves the management of supply chain assets and product, information and found flow to maximize total supply chain profitability.

To increase sales of goods and services to the final end use customer while the same time reducing both inventory and operating expenses.

Q-07: What are the importance of logistics in organization?

Answer: Logistics is essential for every organization. Christopher says that, “Logistics has always been a central and essential feature of all economic activity”. Shapiro and Heskett agree, saying that, “there are few aspects of human activity that do not ultimately depend on the flow of goods from point of origin to point of consumption”. Without logistics, no materials move, no operations can be done, no products are delivered, and no customers are served.

Q-08: what are the functions of logistics?

Answer:

Purchasing materials

Inward transport

Receiving materials

Warehousing or store materials

Stock control

Order picking

Material handling

Outward transport

Physical distribution management

Recycling, returns and waste disposal

Location

Communication

Q-09: Draw the figure operation creating outputs.

Inputs

 Recycling, returns and waste disposal  Location  Communication Q-09: Draw the figure operation creating
Operations
Operations

Outputs

 Recycling, returns and waste disposal  Location  Communication Q-09: Draw the figure operation creating

People

 

Manufacture

 

Goods

Buildings

Serve

Services

Raw materials

Supply

Profit

Equipments

Transport

Waste

Information

Sell

Wages

Investment

Train

Etc

Etc

Etc

Fig.: 1-2 Operation Creating Outputs.

Q-10: Draw the fig. cycle of supply and demand. Customers External Supplier Operation within the organization
Q-10: Draw the fig. cycle of supply and demand.
Customers
External Supplier
Operation within the organization
External customer

Supply of

 

Demand for

products

products

   

Operations

Supply of Demand for products products Operations Other outputs

Other outputs

 

Other inputs

Fig.: 1-3 cycle of Supply and Demand.

Q-11: Draw the figure the role of logistics.

Answer:

Inbound logisticsMaterial Management

Logistics

Outbound logistics

Fig.: 1-4 The role of Logistics Q-12: What are Inbound/Inward logistics and Outbound/Outward logistics? Answer: Moving

Fig.: 1-4 The role of Logistics

Q-12: What are Inbound/Inward logistics and Outbound/Outward logistics?

Answer: Moving material into the organization from suppliers is called inbound/inward logistics. Moving material out to the customer is called outbound/outward logistics.

Q-13: Show in figure activity in a supply chain.

Answer:

Fig.: 1-4 The role of Logistics Q-12: What are Inbound/Inward logistics and Outbound/Outward logistics? Answer: Moving
Fig.: 1-4 The role of Logistics Q-12: What are Inbound/Inward logistics and Outbound/Outward logistics? Answer: Moving

Final customer

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Fig.: 1-4 The role of Logistics Q-12: What are Inbound/Inward logistics and Outbound/Outward logistics? Answer: Moving
Fig.: 1-4 The role of Logistics Q-12: What are Inbound/Inward logistics and Outbound/Outward logistics? Answer: Moving

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Third tier customer

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Second tier customer

--------------------------------------------------------------------------------------------------

First tier customer

Organization
Organization

Down stream activities

First tier supplier ------------------------------------------------------------------------------------------------- Second tier supplier ------------------------------------------------------------------------------------------------- Third tier supplier ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- Initial supplier Fig.:

First tier supplier

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Second tier supplier

-------------------------------------------------------------------------------------------------

Third tier supplier

-------------------------------------------------------------------------------------------------

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Initial supplier

Fig.: 1-5 Activities in a supply chain

Up stream activities

Up stream activities

Up stream activities

Q-14: Show in figure activities in supply chain around a manufacturer.

Answer:

Manufacture r
Manufacture
r
First tier supplier ------------------------------------------------------------------------------------------------- Second tier supplier ------------------------------------------------------------------------------------------------- Third tier supplier ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- Initial supplier Fig.:

Third tier customer

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Second tier Customer

------------------------------------------------------------------------------------------------------

First tier customer

------------------------------------------------------------------------------------------------------

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First tier supplier

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Second tier supplier

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Third tier supplier

------------------------------------------------------------------------------------------------------ Third tier supplier Fig.1-6: Supply chain around a manufacturer. Q-15: What is upstream and downstream

Fig.1-6: Supply chain around a manufacturer.

Q-15: What is upstream and downstream activities?

Answer: Taking one organization’s point of view, activities in front of it- moving materials inwards are called upstream; those after the organization- moving materials outward are called downstream activities.

Q-16: show in figure using intermediaries to simplify the supply chain.

Answer: (a) without a wholesaler

(b) With a wholesaler

32 routes Customer
32 routes
Customer
4
4
Wholesaler
Wholesaler

Factories

routes inward

8
8

routes outward

------------------------------------------------------------------------------------------------------ Third tier supplier Fig.1-6: Supply chain around a manufacturer. Q-15: What is upstream and downstream

Fig.: 1-7 Using intermediaries to simplify the supply chain.

Q-17: What are the benefits of supply chain?

Answer: The benefits of supply chain management are given below:

Improved customer responsiveness.

Higher product quality.

Faster product innovation.

Reduce inventory costs.

More consistent on-time delivery.

# Decision phases in a supply chain

Successful supply chain management requires many decisions relating to the flow of information, product and funds. Each decision should be made to raise the supply chain surplus. These decisions fall into three categories, or phases, depending on the frequency of each decision and the time frame during which a decision phase has an impact.

  • 1. Supply chain strategy or design

  • 2. Supply chain planning

  • 3. Supply chain operation

  • 1. Supply chain strategy or design

During this phase, given the marketing and pricing plans for a product, a company decides how to structure the supply chain over the next several years. It decides what the chain’s configuration will be, how resources will be allocated, and what processes each stage will perform. Strategic decisions made by companies include whether to outsource or perform a supply chain function in- house, the location and capacities of production and warehousing facilities, the products to be manufactured or stored at various locations, the modes of transportation to be made available along different shipping legs, and the types of information system to be utilized. A firm must ensure that the supply chain’s configuration supports its strategic objectives and increases the supply chain surplus during this phase.

  • 2. Supply chain planning

For decisions made during this phase, the time frame considered is a quarter to a year. Therefore, the supply chain’s configuration determined in the strategic phase is fixed. This configuration establishes constrains within which planning must be done. The goal of planning is to minimize the supply chain surplus. That can be generated over the planning horizon given the constrains established during the strategic or design phase. Companies start the planning phase with a forecast for the coming year of demand of different markets.

Planning includes-

  • - Marketing decisions regarding which markets will be supplied from which location.

  • - The sub-contracting of manufacturing.

  • - The inventory policies to be followed.

  • - The timing and size of marketing and price promotions.

Planning establishes parameters within which a supply chain will function over a specified period of time. In the planning phase, companies must include:

  • - Uncertainty in demand

  • - Exchange rates

  • - Competition over this time horizon in their decision.

  • 3. Supply chain operation

    • - The time horizon here is weekly or daily.

    • - During this phase companies make decisions regarding individual customer orders.

At the operational level

  • - Supply chain configuration is considered fixed.

  • - Planning policies are already defined.

The goal of supply chain operations is:

- Planning policies are already defined. The goal of supply chain operations is: - To handle
  • - To handle incoming customer orders 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 lists at a warehouse.

  • - Allocate an order to a particular shipping mode and shipment.

  • - Set delivery schedule of trucks.

  • - Place replenishment orders.

# Process views of supply chains

A supply chain is a sequence of process and flows that take place within and between different stages and combines to fill a customer need for a product.

There are two different ways to view the processes performed in a supply chain.

  • 1. Cycle view

  • 2. Push/pull view

Cycle view of supply chain processes

The processes in a supply chain are divided in to a series of cycles, each performed at the interface between two successive stages of a supply chain.

In the five stages of supply chain, all supply chain processes can broken down into following four process cycle:

Customer order cycle

Replenishment cycle

Manufacturing cycle

Procurement cycle

Each cycle occurs at the interface between two successive stages of the supply chain. The five stages thus result in four supply chain process cycle.

Customer Customer order cycle Retailer Replenish ment cycle Distributor Manufact uring cycle
Customer
Customer
order
cycle
Retailer
Replenish
ment
cycle
Distributor
Manufact
uring
cycle
Manufacturer Procurem ent cycle Supplier
Manufacturer
Procurem
ent cycle
Supplier

Fig.1-8: Supply chain process cycle.

Each cycle consist of six sub processes. Each cycle starts with the supplier marketing the product to customer. A buyer then places an order that received by the supplier. The supplier supplies the order, which is received by the buyer. The buyer may return some of the product or other recycled material to the supplier or a third party. The cycle of activities then begins all over again.

Supplier Stage

Markets product

Supplier Stage Markets product Buyer Stage Place order Supplier Stage Received Order

Buyer Stage

Place order

Supplier Stage Markets product Buyer Stage Place order Supplier Stage Received Order

Supplier Stage

Received Order

Manufacturer Procurem ent cycle Supplier Fig.1-8: Supply chain process cycle. Each cycle consist of six sub
Manufacturer Procurem ent cycle Supplier Fig.1-8: Supply chain process cycle. Each cycle consist of six sub

Buyer return reverse flows to supplier or third party

Buyer stage Receive supply Supplier stage Supplies order

Buyer stage

Receive supply

Buyer stage Receive supply Supplier stage Supplies order

Supplier stage

Supplies order

Manufacturer Procurem ent cycle Supplier Fig.1-8: Supply chain process cycle. Each cycle consist of six sub

Fig.1-9: Sub processes in each supply chain process cycle.

Within each cycle, the goal of the buyer is to ensure product availability and to achieve economies of scale in ordering. The suppliers try to forecast customer order and reduce the cost of receiving the order. The supplier then works to fill the order on time and improve efficiency and accuracy of the order fulfillment process. The buyer then works to reduce the cost of the receiving process. Reverse flows are managed to reduce cost and meet environmental objectives.

A cycle view of supply chain is very useful when considering operational decisions because it clearly specifies the role of each member of the supply chain. The detailed process description of a supply chain in a cycle view forces a supply chain designer to consider the infrastructure required to support these process. The cycle view is useful, the example when setting up information systems to support supply chain operations.

Push/pull view of supply chain

All processes in supply chain fall in to one of two categories depending on the timing of their execution relative to end customer demand.

  • - -pull/push boundaries

Pull process

  • - -customer order arrive

Push process

With pull processes, executing is initiated in response to a customer order. With push processes, execution in initiated in an anticipation of customer orders.

Therefore at the time of execution of a pull process, customer demand is known with certainty, whereas at the time of execution of a push process, demand is not known and must be forecasted.

Pull processes may also be referred to as reactive processes, because they react to customer demand. Push processes may also be referred to as speculative processes, because they respond to speculated or forecasted rather than actual demand.

Pull/push boundary

The pull/push boundary in a supply chain separated push processes from pull processes. Push processes operate in an uncertain environment in which customer demand is not yet known, pull processes operate in environment in which customer demand is known. They are, however, often constrained by inventory and capacity decisions that were made in the push phase.

Push/pull boundary Pull process
Push/pull boundary
Pull process

Push process

Process 1 Process 2 Process K Process K+1 Process N-1 Process N
Process 1
Process 2
Process K
Process K+1
Process N-1
Process N

customer order arrive

With pull processes, executing is initiated in response to a customer order. With push processes, execution

Fig. 1-10: Push/pull view of supply chain.