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Understanding the Supply

Chain

Chapter 1 Chopra/Meindl& Kapoor

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Describe the Cycle and push /pull views of a supplychain.

Classify the supply chain macro process in a firm.

Identify the three key supply chain decision phases

and explain the significance of each one.

Discuss the goal of a supply chain and explain theimpact of supply chain decision on the success of a firm.

Learning Objectives

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A supply chain consists of all parties involved , directly or indirectly,A supply chain consists of all parties involved , directly or indirectly,

in fulfilling a customer request.in fulfilling a customer request.

The supply chain not only includes the manufacturer and suppliers,The supply chain not only includes the manufacturer and suppliers,

but also transporters, wholesalers, retailers, and customersbut also transporters, wholesalers, retailers, and customers

themselves.themselves.

Supply chain includes all functions involved in receiving andSupply chain includes all functions involved in receiving and

fulfilling customer request.fulfilling customer request.

These functions include, but are not limited to, new productThese functions include, but are not limited to, new product

development, marketing, operations, distribution, finance, anddevelopment, marketing, operations, distribution, finance, andcustomer service.customer service.

A supply chain is a dynamic and involves the constant flow ofA supply chain is a dynamic and involves the constant flow of

information, product, and funds between different stages.information, product, and funds between different stages.Stages of supply chain is illustrated in Fig- 1.1 & Fig- 1.2Stages of supply chain is illustrated in Fig- 1.1 & Fig- 1.2 (Chopra)(Chopra)

1.1 What is a Supply Chain

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Demand forecasting

Purchasing

Requirements planning

Production planning

Manufacturing inventory

Warehousing

Material handling

Packaging

Finished goods inventory

Distribution planning

Order processing

Transportation

Customer service

Strategic planning

Information services

Marketing/sales

Finance

Supply Chain

Management

Supply Chain

Management

Logistics

Purchasing/

Materials

Management

Physical

Distribution

Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+

Demand forecasting

Purchasing

Requirements planning

Production planning

Manufacturing inventory

Warehousing

Material handling

Packaging

Finished goods inventory

Distribution planning

Order processing

Transportation

Customer service

Strategic planning

Information services

Marketing/sales

Finance

Supply Chain

Management

Supply Chain

Management

Logistics

Purchasing/

Materials

Management

Physical

Distribution

Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+

Evolution of Supply Chain

Management

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Supply Chain Schematic

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Logistics

Materials Management Physical Distribution Management

Manufacturing and supply service Customer Service

Suppliers

Raw Materials

Sub-assemblies

Manufactured

parts

Packaging

material

In bound

Materials

flowWorkin

progress

Production

Finished

goods

Out bound

Finished

goods

Inventory

in the field

Transit depot Intermediary

CustomerOther equipment

manufacturersEnd users

Government

Fig: Components of Logistics.

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Warehousing

Warehousing

Transportation

Transportation

Vendors/plants/ports

Transportation

Factory

Transportation Customers

Information

flows

The Immediate Supply Chain for an Individual Firm

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Scope of the Supply Chain for Most Firms

Physical distributionPhysical supply(Materials management)

Business logistics

Sources ofsupply

Plants/operations

Customers

Transportation Inventory maintenance Order processing Acquisition

Protective packaging Warehousing Materials handling Information maintenance

Transportation Inventory maintenance Order processing Product scheduling

Protective packaging Warehousing Materials handling Information maintenance

Focus firms internal supply chain

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Difference between Supply Chain Management and LogisticsDifference between Supply Chain Management and Logistics

SCMSCM Not only seeks to create single planNot only seeks to create single plan

for flow of goods and informationfor flow of goods and information

through business, but also aims tothrough business, but also aims to

achieve linkages and co-ordinationachieve linkages and co-ordination

between process of other entities inbetween process of other entities in

the chain, like suppliers, customersthe chain, like suppliers, customersan so forth.an so forth.

Defined as management ofDefined as management of

downstream and upstreamdownstream and upstream

relationships to ensure superiorrelationships to ensure superior

customer satisfaction to thecustomer satisfaction to theorganization.organization.

Logistics Seeks to create a single plan for

flow of product and information

through business. But it is planning

oriented.

It is defined as process of planning,

implementing and controlling theefficient, cost-effective flow and

storage of raw material, in process

inventory, finished goods and

related information from point of

origin to the point of consumptionto fulfill customer requirement.

Kapoor - 07

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Supply Chain Management (SCM)Supply Chain Management (SCM)

Objective of a well-planned supply chain system helps anObjective of a well-planned supply chain system helps an

organization to achieve:organization to achieve:

Lower costLower cost More salesMore sales Prompt deliveryPrompt delivery Increased goodwillIncreased goodwill Improved customer confidenceImproved customer confidence Competitive edge & supply chain profitabilityCompetitive edge & supply chain profitability

SCM Entails: Management of flow of goods from supplier to final user;

System-wide co-ordination of product and information flows; and

Development of relationships and information of all activities that

provide customer value through distribution channel.

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1. Supply chain strategy or designCompany decides how to structure the supply chain over the

next several years. Which includes: Chain configuration Resource allocation & location analysis and capacities Process each stage will perform

1. Supply chain planning

Planning phase starts with a forecast for a time frame(quarter to a year) of demand in different market. Also include: Which market will be supplied from which location. The subcontracting Inventory policies

Timing and size of marketing promotion

1. Supply chain operationCompanies make decision and carry out activities regarding

]individual customer orders on weekly or dailybasis. Includes:

Allocate inventory, set a date to fill order, order for shipment, pick list ata warehouse, delivery schedule of transports, etc.

1.2 Decision Phases in a Supply Chain

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A supply chain is a sequence of processes and flows that take

place within and between different stages.

1. Cycle view Fig 1.3

a) Customer order cycleOccurs at the customer/retailer interface and includes all processes

directly involved in receiving and filling the customers order.

a) Replenishment cycleOccurs at the retailer/distributors interface and includes all

processes involved in replenishing retailer inventory.

c) Manufacturing cycle

Occurs at the distributors/manufacturer interface and includes allprocesses involved in replenishing distributor inventory.

d) Procurement cycleOccurs at the manufacturer/supplier interface and includes all

processes to ensure that materials are available for manufacturing

to occur according to schedule.

1.3 Process View of a Supply Chain

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2. Push/Pull view Fig 1.8 & 1.10 With pull processes, execution is initiated in response to the customer

order. Also referred to as reactive process because they react to

customers demand. With push processes, execution is initiated in anticipation of the

customer order. Also referred to as speculation processes because

they respond to speculated( or forecasted) rather than actual demand.

2. Supply Chain Macro Processes in a firm Fig 1.11a. Customer relationship management (CRM)

All processes that focus on the interface between the firm and its

Customers.

a. Internal supply chain management (ISCM)All processes that are internal to the firm.

a. Supplier relationship management (SRM)

All processes that focus on the interface between the firm and its

Suppliers.

1.3 Process View of a Supply Chain

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Demand Characteristics

1.Population(spread fixed costs as large market)1.Population(spread fixed costs as large market)2.Income(more dis.income, more demand)2.Income(more dis.income, more demand)

3.Demand variation(more demand, more PD.)3.Demand variation(more demand, more PD.)

Product characteristics1.Value of the product(high value, high inventory1.Value of the product(high value, high inventoryand trans.cost)and trans.cost)

2.Seasonality of the product(high seasonality,2.Seasonality of the product(high seasonality,high trans.cost)high trans.cost)

3.Product line (related vs. unrelated)3.Product line (related vs. unrelated)

Dynamic environment

Marketing Force Affecting SCM & Physical Distribution

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Total cost perspectiveTotal cost perspectiveUnderstanding of relevant trade-offsUnderstanding of relevant trade-offsThe notion of zero sub-optimizationThe notion of zero sub-optimizationTotal system perspectiveTotal system perspective

Total cost perspectiveTotal cost perspective

TDC=TDC= Transport cost + Facilities cost + Communication cost

+ Inventory cost + Protective packaging cost + Distributionmanagement cost.

Understanding of relevant trade-offsUnderstanding of relevant trade-offsIntra-activity trade-offIntra-activity trade-offInter-activity trade-offInter-activity trade-offInter-functional trade-offInter-functional trade-offInter-organizational trade-offInter-organizational trade-off

The SCM & Physical Distribution Concept: A total system perspective

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R l t t d ff

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Intra-activity trade-offIntra-activity trade-off

Decision to use ones own trucks or of a transportation company is an intra-activityDecision to use ones own trucks or of a transportation company is an intra-activitytrade-off. Decisions between choosing public and private warehousing can be atrade-off. Decisions between choosing public and private warehousing can be agood example of this trade-off.good example of this trade-off.

Inter-activity trade offInter-activity trade off

Use of air freight might increase the transportation cost but would help reduce theUse of air freight might increase the transportation cost but would help reduce theinventory and warehousing cost.inventory and warehousing cost.

Af=TC IC or WCAf=TC IC or WC

Xerox- emergency shipmentXerox- emergency shipment

Inter-functional trade-offInter-functional trade-off

Packaging of a product is used for protecting the product and transporting andPackaging of a product is used for protecting the product and transporting andpromoting the product.promoting the product.

Packaging= Protecting + Transporting + PromotingPackaging= Protecting + Transporting + Promoting

A classic example is Pringles Chips. Here the company changed the packagingA classic example is Pringles Chips. Here the company changed the packagingstructure from conventional vacuum packs to temper-proof packs, to increasestructure from conventional vacuum packs to temper-proof packs, to increase

customer satisfaction and decrease damage during transportation.customer satisfaction and decrease damage during transportation.Inter-organizational trade-offInter-organizational trade-off

Manufacturer and other organizationManufacturer and other organization involved in the creation of place, possessioninvolved in the creation of place, possessionand time utilities for the manufacturer, i.e. intermediaries, transport contractors,and time utilities for the manufacturer, i.e. intermediaries, transport contractors,shipping and warehouse agents. Thus, management should ensure co-ordination toshipping and warehouse agents. Thus, management should ensure co-ordination toall the external organizations and capitalize on trade-off opportunities.all the external organizations and capitalize on trade-off opportunities.

Relevant trade-offs

The SCM & Ph sical Distrib tion Concept: A total s stem perspecti e

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The SCM & Physical Distribution Concept: A total system perspective

M+2P = 4000---(3)

M+P = 3000---(4)

M+P = 5000---(5)

M = 2500---(1)

P=2000---(2)

Mango

Possible PD programs and restrictionsPineapple

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The SCM & Physical Distribution Concept: A total system perspective

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The SCM & Physical Distribution Concept: A total system perspective

Mango

Possible PD programs and restrictions

Pineapple

Lines of equal profit

5P+3M = profit

$750$6

50

$550

y

x

M = 2500---(1)

P=2000---(2)

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