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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
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.
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.
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
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 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
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
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PUSH PROCESSES
PULL 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 PROCESSES
PULL PROCESSES
Supply Chain Management [SCM] Process View of a Supply Chain: Push Pull View
LL Bean
PULL Process
Customer Order Cycle
DELL
PULL
Process
Cycle
Procurement
Procurement Cycle
Cycle
PUSH Process
PUSH Process
Pull
Execution initiated in response to a customer order
Push
Execution initiated in anticipation of customer order
At time execution of pull, customer demand is not known and must be forecasted
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
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
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
Required service level increases Firm now has to handle unusual surges in demand 2-26
Salt at a supermarket
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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
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
Cost
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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
Responsiveness spectrum
Efficient supply chain Certain demand Implied uncertainty spectrum Uncertain demand
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Efficient
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
Responsive
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
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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
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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
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Information
Pricing
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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)
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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
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
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