The Objective of a Supply Chain

Maximize overall value created Supply chain value: difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customers request Value is correlated to supply chain profitability (difference between revenue generated from the customer and the overall cost across the supply chain) Also, known as supply chain surplus. Example: Dell receives $2000 from a customer for a computer (revenue) Supply chain incurs costs (information, storage, transportation, components, assembly, etc.) Difference between $2000 and the sum of all of these costs is the supply chain profit

The Objective of a Supply Chain

Supply chain profitability is total profit to be shared across all stages of the supply chain Supply chain success should be measured by total supply chain profitability, not profits at an individual stage Sources of supply chain revenue: the customer Sources of supply chain cost: flows of information, products, or funds between stages of the supply chain

Supply chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability

Decision Phases of a Supply Chain

Supply chain strategy or design Supply chain planning Supply chain operation

Supply Chain Strategy or Design

Decisions about the structure of the supply chain and what processes each stage will perform Strategic supply chain decisions Locations and capacities of facilities Products to be made or stored at various locations Modes of transportation Information systems Supply chain design must support strategic objectives Supply chain design decisions are long-term and expensive to reverse must take into account market uncertainty

Supply Chain Planning

Definition of a set of policies that govern short-term operations Fixed by the supply configuration from previous phase Starts with a forecast of demand in the coming year Planning decisions: Which markets will be supplied from which locations Planned buildup of inventories Subcontracting, backup locations Inventory policies Timing and size of market promotions Must consider in planning decisions demand uncertainty, exchange rates, competition over the time horizon

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 a 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
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor
Manufacturing Cycle

Manufacturer
Procurement Cycle

Supplier

Supplier Stage Markets Product

Buyer Returns Reverse Flows to Supplier or Third Party

Buyer Stage Receives Supply

Buyer Stage Places Order

Supplier Stage Receives Order

Supplier Stage Supplies Order

Sub-processes in Each Supply Chain Process Cycle

Cycle View of a Supply Chain

Each cycle occurs at the interface between two successive stages o Customer order cycle (customer-retailer) o Replenishment cycle (retailer-distributor) o Manufacturing cycle (distributor-manufacturer) o 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. The view is useful in case of setting up the information system to support supply chain operations. Useful when considering operational decisions.

Cycle View of a Supply Chain

Not every supply chain will have all four cycles clearly separated. Each cycle consists of six sub-processes. Within each cycle, the goal of the buyer is to ensure product availability and to achieve economies of scale in ordering. Differences between Cycles Difference 1: In the customer order cycle, demand is external to the supply chain and thus uncertain. In all other cycles, order placement is uncertain but can be projected based on policies followed by the particular supply chain stage.

Differences between Cycles (Contd.) Difference 2: (Scale of an order) As we move from the customer to supplier, the number of individual orders declines and the size of each order increases. A customer buys a single car whereas, a dealer orders multiple cars at a time.

Push/Pull View of Supply Chains

Procurement, Manufacturing and Replenishment cycles
Customer Order Cycle

PUSH PROCESSES

PULL PROCESSES

Customer Order Arrives

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: execution is initiated in response to a customer order (reactive) Push: execution is initiated in anticipation of customer orders (speculative) Push/pull boundary separates push processes from pull processes Useful in considering strategic decisions relating to supply chain design more global view of how supply chain processes relate to customer orders This view forces a more global consideration of supply chain processes as they relate to a customer order This view may induce some of the processes to become a pull process.

Push/Pull View
S No.

1
2 3

Push They are executed in anticipation of customer orders Demand is not known and must be forecast.

Processes

Pull Execution is done in response to customer orders

At the time of execution, demand is known with certainty Referred to as Referred to as reactive speculative processes processes because they react because they respond to customer demand to speculated (or forecast) rather than actual demand.

Push/Pull Processes for a store SC

All processes that are part of the customer order cycle are pull processes. Order fulfillment takes place from product inventory that is built up in anticipation of customer orders. The goal of replenishment cycle is to ensure product availability when a customer arrives. All processes in the replenishment cycle are push processes. The processes in the manufacturing and procurement cycle are also push processes.

Customer

Customer Order Cycle

Pull Processes

Customer Order Cycle Store

Customer Order Arrives Push Processes

Replenishment and Manufacturing Cycle

Manufacturer
Procurement Cycle

Procurement , Manufacturing, Replenishment Cycle

Supplier

Push/Pull Processes for a store SC

Push/Pull Processes of Dell Supply Chain

The arrival of a customer order triggers production in final assembly. The manufacturing cycle is thus part of the customer order fulfillment process in the customer order cycle. Thus there are only two cycles. All the processes in the customer order and manufacturing cycle at Dell are pull processes initiated by customer arrival. Dell does not place component order in response to a customer order. Inventory is replenished in anticipation of customer demand. All processes in the procurement cycle are push processes because they are response to a forecast. Dell Supply chain has fewer stages and more pull processes.

Customer Order and manufacturing Cycle

Customer Order Arrives

Pull Processes

Customer Customer Order and Manufacturing Cycle Manufacturer Procurement Cycle

Procurement Cycles

Push

Processes

Supplier

Push/Pull Processes of Dell Supply Chain

Push/Pull View of Supply Chain Processes

Can combine the push/pull and cycle views L.L. Bean Dell The relative proportion of push and pull processes can have an impact on supply chain performance

Supply Chain Macro Processes in a Firm

The emergence of SCM has broadened the scope across which companies make decisions. The scope has expanded from trying to optimize performance across the division, to the enterprise, and to the entire supply chain. The broadening of scope emphasizes the importance of including processes all along the SC. Supply chain processes discussed in the two views can be classified into Customer Relationship Management (CRM) Internal Supply Chain Management (ISCM) Supplier Relationship Management (SRM) Integration among the above three macro processes is critical for effective and successful supply chain management

Supplier
Supply Relationship Management (SRM)

Firm
Internal Supply Chain Management (ISCM)

Customer
Customer Relationship Management (CRM)

Transaction Management Foundation (TMF)

Source Negotiate Buy Design Collaboration Supply Collaboration Strategic Planning Demand Planning Supply Planning Fulfilment Field Service Market Price Sell Call Centre Order Management

Supply Chain Macro Processes

Supply Chain Macro Processes

Customer Relationship Management (CRM): Processes that focus on downstream interactions between the enterprise and its customers. Internal Supply Chain Management (ISCM): Processes that focus on internal operations within the enterprise. Supplier Relationship Management (ISCM): Processes that focus on upstream interactions between the enterprise and its suppliers. There must be strong integration between the ISCM and CRM macro processes There is a natural fit between ISCM and SRM processes

Supply Chain Macro Processes

Customer Relationship Management (CRM): Processes that focus on downstream interactions between the enterprise and its customers. Internal Supply Chain Management (ISCM): Processes that focus on internal operations within the enterprise. Supplier Relationship Management (ISCM): Processes that focus on upstream interactions between the enterprise and its suppliers. There must be strong integration between the ISCM and CRM macro processes There is a natural fit between ISCM and SRM processes

The Transaction Management Foundation

Enterprise software systems (ERP) Earlier systems focused on automation of simple transactions and the creation of an integrated method of storing and viewing data across the enterprise Real value of the TMF exists only if decision making is improved

The extent to which the TMF enables integration across the three macro processes determines its value