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Introduction to supply chain management

What is supply chain ? It consists of all parties involved directly or indirectly in fulfilling a customers request Define supply chain a supply chain is a network of facilities & distribution options that performs the functions of procurement of materials transformation of these materials into intermediate & finished products & distribution of these finished products to customers

Meaning of supply chain management

Definition of SCM: It is the management of a network of all business processes and activities involving procurement of raw materials, manufacturing and distribution management of Finished Goods. SCM is also called the art of management of providing the Right Product, At the Right Time, Right Place and at the Right Cost to the Customer.

Other definition of SCM

Oliver and Webber (1982) SCM covers the flow of goods from supplier through manufacturing and distribution channels to end user. Ayers (2000) SCM is the design, maintenance and operation of supply chain processes for satisfaction of end users. Ellram (1991) An integrative approach to dealing with the planning and control of the materials flow from suppliers to 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.

Objectives of supply chain

Efficient supply chain

1. To maximize overall value generated 2. To look for Sources of Revenue and Cost 3. Improving the visibility of the demand 4. Improving the quality 5. Minimizing the time 6. Reduces the transportation cost 7. Reduces warehousing cost 8. Expanding width/depth of distribution 9. Product Life cycle support 10. Rationalize supplier base 11. Service orientation

Supply Chain Management [SCM] 19

Importance / Benefits of SCM

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

Supply chain is important to strategy


successful scm requires many decisions relating to the flow of information, product,& funds
These decision falls into 3 categories/phases depending on the frequency of each decisions & timeframe 1. Supply chain strategy or design 2. Supply chain planning 3. Supply chain operation


Supply chain strategy or design:

During this phase , A company decides how to structure the supply chain over the next several years. it decides the supply chain configuration will be, how resources will be allocated Decision includes whether to perform or outsource functions Decisions regards to warehousing facilities & modes of the transportation & types of information utilized Decision regarding products to be manufactured or stored at various location


Supply chain planning In this phase decision includes Definition of a set of policies that govern short-term operations Starts with a forecast of demand in the coming year The inventory policies to be followed Timing & size of marketing promotion The subcontracting of manufacturing The goal of planning to maximize supply chain surplus In this phase, companies must include uncertainty in demands, exchange rate & competition

Supply Chain Operation

Time horizon is weekly or daily Decisions regarding individual customer orders Supply chain configuration is fixed and operating policies are determined Goal is to implement the operating policies as effectively as possible 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 Much less uncertainty (short time horizon)

Process view 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 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)

Cycle View of Supply Chains

Customer Order Cycle

Replenishment Cycle

Manufacturing Cycle

Procurement Cycle


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.

Push/Pull View of Supply Chains

Procurement, Manufacturing and Replenishment cycles
Customer Order Cycle



Customer Order Arrives Push-Pull boundary

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: In this execution is initiated in response to a customer order (reactive) It operate in an environment in which customer demand is known Therefore, at time of execution of a pull process ,demand is known with certainty

Push: In this execution is initiated in anticipation of customer orders (speculative or forecast) In this execution process ,customer demand is not yet known & must be forecast Push/pull boundary separates push processes from pull processes The relative proportion of push and pull processes can have an impact on supply chain performance

Push/Pull View of Supply Chains

Procurement, Manufacturing and Replenishment cycles
Customer Order Cycle



Customer Order Arrives

Supply Chain Management [SCM] Process View of a Supply Chain: Push Pull View

LL Bean
PULL Process
Customer Order Cycle



Cust Order & Mfrg

Customer order arrives


Repl & Mfrg Cycle

Customer order arrives


Procurement Cycle


PUSH Process

PUSH Process

Execution initiated in response to a customer order

Execution initiated in anticipation of customer order

At time execution of pull, customer demand is known with certainty

At time execution of pull, customer demand is not known and must be forecasted

Its also called as reactive process

It is called as speculative process

Competitive/supply chain strategy

Competitive strategy: defines the set of customer needs a firm seeks to satisfy through its products and services

Product development strategy: specifies the portfolio of new products that the company will try to develop

Marketing and sales strategy: specifies how the market will be segmented and product positioned, priced, and promoted

Supply chain strategy: determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important

Competitive & supply chain strategies A company's competitive strategy defines, relative to its competitors, the set of customer needs that it seeks to satisfy through its products & services
Supply chain strategy It specifies what the operations, distribution, & service functions ,whether performed in house or outsourced. This strategy determines the nature of procurement of raw materials, transportation of materials , manufacture of the product & distribution of the product to customer, along with any follow up service

Achieving strategic fit

Introduction How is strategic fit achieved? Other issues affecting strategic fit Strategic fit:
Competitive and supply chain strategies have the same goals or aligned goals In other words strategic fit require that a firm achieve balance between responsiveness& efficiency in its supply chain which meets the needs of company's competitive strategy

A company may fail because of a lack of strategic fit or because its processes and resources do not provide the capabilities to execute the desired strategy Example of strategic fit -- Dell

How is Strategic Fit Achieved?

Step 1: Understanding the customer and supply chain uncertainty

Step 2: Understanding the supply chain

Step 3: Achieving strategic fit

How is Strategic Fit Achieved? Step 1: Understanding the Customer and Supply Chain Uncertainty

Identify the needs of the customer segment being served Quantity of product needed in each lot Response time customers will tolerate Variety of products needed Service level required Price of the product Desired rate of innovation in the product

Demand uncertainty & Implied Demand Uncertainty

Demand uncertainty reflects the uncertainty of customer demand for product.

Implied demand uncertainty is the demand uncertainty due to the portion of demand that supply chain is targeting ,not the entire demand

Impact of Customer Needs on Implied Demand Uncertainty

Customer Need Causes implied demand uncertainty to increase because
Wider range of quantity implies greater variance in demand

Range of quantity increases

Lead time decreases

Variety of products required increases Number of channels increases

Less time to react to orders

Demand per product becomes more disaggregated Total customer demand is now disaggregated over more channels New products tend to have more uncertain demand

Rate of innovation increases

Required service level increases Firm now has to handle unusual surges in demand 2-26

Levels of Implied Demand Uncertainty

Predictable supply and demand Predictable supply and uncertain demand or uncertain supply and predictable demand or somewhat uncertain supply and demand Highly uncertain supply and demand

Salt at a supermarket

An existing automobile model

A new communication device

Figure 2.2: The Implied Uncertainty (Demand and Supply) Spectrum


How does the firm best meet demand? Dimension describing the supply chain is supply chain responsiveness Supply chain responsiveness -- ability to
respond to wide ranges of quantities demanded meet short lead times handle a large variety of products build highly innovative products meet a very high service level Handle supply uncertainties

Step 2: Understanding the Supply Chain

achieving responsiveness however comes at cost Supply chain efficiency: cost of making and delivering the product to the customer Increase in cost lower efficiency. Increasing responsiveness results in higher costs that lower efficiency Second step to achieving strategic fit is to map the supply chain on the responsiveness spectrum

Understanding the Supply Chain: CostResponsiveness Efficient Frontier


Low High Low


Step 3:achieving strategic fit

After mapping level of implied uncertainty & understanding supply chain position on responsiveness spectrum, The third & final step is to ensure that the degree of supply chain responsiveness is consistent with implied uncertainty, The goal is to target high responsiveness for a supply chain facing high implied uncertainty, & high efficiency for a supply chain facing low implied uncertainty

Achieving Strategic Fit Shown on the Uncertainty/Responsiveness Map (Fig. 2.5)

Responsive supply chain

Responsiveness spectrum

Efficient supply chain Certain demand Implied uncertainty spectrum Uncertain demand

Comparison of Efficient and Responsive Supply Chains

Primary goal Product design strategy Pricing strategy Mfg strategy Inventory strategy Lead time strategy Supplier selection strategy Transportation strategy Lowest cost Min product cost Lower margins High utilization Minimize inventory Reduce but not at expense of greater cost Cost and low quality Greater reliance on low cost modes

Quick response Modularity to allow postponement Higher margins Capacity flexibility Buffer inventory Aggressively reduce even if costs are significant Speed, flexibility, quality Greater reliance on responsive (fast) modes

Other Issues Affecting Strategic Fit

Multiple products and customer segments Decreasing Product life cycle Competitive changes over time Globalization Lack of knowledge Lack of supply chain visibility Fragmentation of supply chain ownership Difficulty in executing new strategies Lack of trust

Multiple Products and Customer Segments Firms sell different products to different customer segments (with different implied demand uncertainty) The supply chain has to be able to balance efficiency and responsiveness given its portfolio of products and customer segments Two approaches:
Different supply chains Tailor supply chain to best meet the needs of each products demand

Product Life Cycle

The demand characteristics of a product and the needs of a customer segment change as a product goes through its life cycle Supply chain strategy must evolve throughout the 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 Competitive pressures can change over time More competitors may result in an increased emphasis on variety at a reasonable price The Internet makes it easier to offer a wide variety of products The supply chain must change to meet these changing competitive conditions


A Framework for Structuring Drivers

Competitive Strategy Supply Chain Strategy Efficiency Supply chain structure Logistical Drivers Facilities Inventory Transportation Responsiveness


Sourcing Cross Functional Drivers



Drivers of Supply Chain Performance

Facilities places where inventory is stored, assembled, or fabricated & later moved to production sites and storage sites Decision regarding number of facilities & location plays a crucial role in design of supply chain & which impact on responsiveness & efficiency. Inventory All raw materials, WIP, finished goods within a supply chain are inventory inventory policies can impact on supply chain responsiveness & efficiency. 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 & affects each drivers potentially the biggest driver of supply chain performance Sourcing functions a firm performs and functions that are outsourced Its a choice of who will perform supply chain activity as production, storage Pricing Price associated with how much a firm charge for goods and services that it make available in supply chain 3-39

Transportation: Role in the Supply Chain

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


Transportation: Role in the Competitive Strategy

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) Can also consider both inventory and transportation to find the right balance

Components of Transportation Decisions

Mode of transportation:
air, truck, rail, ship, pipeline, electronic transportation vary in cost, speed, size of shipment, flexibility

Route and network selection

route: path along which a product is shipped network: collection of locations and routes

In-house or outsource Overall trade-off: Responsiveness versus efficiency


Information: Role in the Supply Chain 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 Information: Role in the Competitive Strategy Allows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off)


Sourcing: Role in the Supply Chain Set of business processes required to purchase goods and services in a supply chain Supplier selection, single vs. multiple suppliers, contract negotiation

Sourcing: Role in the Competitive Strategy

Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain In-house vs. outsource decisions- improving efficiency and responsiveness

Pricing: Role in the Supply Chain

Pricing determines the amount to charge customers in a supply chain Pricing strategies can be used to match demand and supply
Sourcing: Role in the Competitive Strategy Firms can utilize optimal pricing strategies to improve efficiency and responsiveness Low price and low product availability; vary prices by response times