BUILDING STRATEGIC

FRAMEWORK TO ANALYZE
SUPPLY CHAINS
1.1. UNDERSTANDING THE SUPPLY CHAIN
 1. Building competitive advantage through Value chain
analysis
2. Understand the nature of supply chains and trace
the historical perspectives leading to their
development and growth.
3. Discuss the goal of a supply chain and explain the
impact of supply chain decisions on the success of a
firm.
Outline 4. Identify the three key supply chain decision phases
and explain the significance of each one.
5. Identify the three key supply chain decision phases
and explain the significance of each one.
6. Describe the cycle and push/pull views of a supply
chain.
7. Classify the supply chain macro processes in a firm.
The value chain and value networks
 All stages involved, directly or indirectly, in fulfilling
a customer request

Includes manufacturers, suppliers, transporters,

What is a warehouses, retailers, customers
Supply Chain?

Within each company, the supply chain includes all

functions involved in fulfilling a customer request
(product development, marketing, operations,
distribution, finance, customer service)
A bird’s eye
view of a
typical SC
Some Supply Chain Example I
Some Supply Chain Example 2
 A supply chain is dynamic and involves the constant flow
of information, product, and funds among different
stages.

Customer is an integral part of the supply chain

What is a supply
chain Not only Includes movement of products from suppliers to
manufacturers to distributors, but also includes
movement of information, funds, and products in both
directions
Most supply chains are networks – Supply network or
web.
Supply chain web or network
 Supply chain management, represents the confluence of at least
three main streams of knowledge and practical experience of the
business world, spanning almost 60 years.

The three principal streams are:

◦ Sourcing, procurement, and supply management
◦ set of activities, functions, and processes concerned with
economic procurement and inflow of inputs2 into the
enterprise and an efficient control over flow of funds out of
the company.
Historical ◦ Materials management
◦ functions of forecasting, inventory management, stores
perspective management, warehousing, stock keeping, and scheduling
till it came to include production planning and production
control,
◦ Logistics and distribution
◦ part of the supply chain management process that plans,
implements, and controls the efficient, effective, forward,
and reverse flow and storage of goods, services, and related
information between the point of origin and the point of
consumption in order to meet customers’ requirements..
 Maximize overall value created
Supply chain value: difference between what
the final product is worth to the customer and
The Objective the effort the supply chain expends in filling
the customer’s request
of a Supply Value is correlated to supply chain profitability
Chain (difference between revenue generated from
the customer and the overall cost across the
supply chain)

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 Example: Dell receives $2000 from a customer
for a computer (revenue)
Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
The Objective Difference between $2000 and the sum of all
of a Supply of these costs is the supply chain profit

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

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 Sources of supply chain revenue: the customer
Sources of supply chain cost: flows of
The Objective information, products, or funds between
of a Supply stages of the supply chain
Supply chain management is the
Chain management of flows between and among
supply chain stages to maximize total supply
chain profitability

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 Supply chain strategy or design

Decision Phases
of a Supply Supply chain planning
Chain

Supply chain operation

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 Decisions about the structure of the supply
chain and what processes each stage will
perform
Strategic supply chain decisions
◦ Locations and capacities of facilities
Supply Chain ◦ Products to be made or stored at various
locations
Strategy or ◦ Modes of transportation
Design ◦ 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
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 Definition of a set of policies that
govern short-term operations

Supply Chain Fixed by the supply configuration

Planning from previous phase

Starts with a forecast of demand in

the coming year

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 Planning decisions:
◦ Which markets will be supplied from which
locations
◦ Planned buildup of inventories
Supply Chain ◦ Subcontracting, backup locations
Planning ◦ Inventory policies
◦ Timing and size of market promotions
Must consider in planning decisions demand
uncertainty, exchange rates, competition over
the time horizon

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 Time horizon is weekly or daily
Decisions regarding individual customer orders
Supply chain configuration is fixed and
operating policies are determined

Supply Chain Goal is to implement the operating policies as

effectively as possible
Operation 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)

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 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
Process View of
a Supply Chain
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)

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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.

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 Involves all processes directly involved in
receiving and filling the customer’s order

Customer Customer arrival

Order Cycle Customer order entry

Customer order fulfillment
Customer order receiving

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 All processes involved in replenishing retailer
inventories (retailer is now the customer)

Replenishment Retail order trigger

Cycle Retail order entry

Retail order fulfillment
Retail order receiving

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 All processes involved in replenishing
distributor (or retailer) inventory
Order arrival from the distributor, retailer, or
Manufacturing customer

Cycle Production scheduling

Manufacturing and shipping
Receiving at the distributor, retailer, or
customer

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 All processes necessary to ensure that
materials are available for manufacturing to
occur according to schedule
Manufacturer orders components from
suppliers to replenish component inventories
Procurement However, component orders can be
Cycle determined precisely from production
schedules (different from retailer/distributor
orders that are based on uncertain customer
demand)
Important that suppliers be linked to the
manufacturer’s production schedule

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 Supply chain processes fall into one of two
categories depending on the timing of their
Push/Pull View execution relative to customer demand

of Pull: execution is initiated in response to a

customer order (reactive)
Supply Chain Push: execution is initiated in anticipation of
Processes customer orders (speculative)
Push/pull boundary separates push processes
from pull processes

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 Useful in considering strategic decisions
relating to supply chain design – more global
Push/Pull View view of how supply chain processes relate to
customer orders
of Can combine the push/pull and cycle views
Supply Chain ◦ L.L. Bean
Processes ◦ Dell The relative proportion of push and pull
processes can have an impact on supply
chain performance

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Push and pull
process for the
Dell supply
chain
 Close connection between design and
management of supply chain flows (product,
The information, and cash) and supply chain
Importance of success
Dell: success
Supply Quaker Oats (Snapple): failure
Chain Flows Supply chain decisions can play a significant
role in the success or failure of a firm

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 1. Customer Relationship Management
(CRM): All processes at the interface
between the firm and its customers

Supply chain 2. Internal Supply Chain Management

(ISCM): All processes that are internal to
Macro process the firm

3. Supplier Relationship Management

(SRM): All processes at the interface
between the firm and its suppliers
Gateway and Apple
Zara: Apparel Manufacturing and Retail
Toyota: A Global Auto Manufacturer
Amazon: Online Sales
Jaipur Rugs Company:
Gopaljee—Transforming Traditional Supply Chains

Examples of Supply chains

Summary
1. Building competitive advantage through Value chain analysis

Michel Porter’s Value chain analysis provides insights into how SCM can analyze the
primary and secondary activities of the company and identify sources of competitive
advantage.
2. Understand the nature of supply chains and trace the historical
perspectives leading to their development and growth.

Sourcing, Procurement, and supply management + Materials Management + Logistics

and Distribution = Supply Chain Management
Summary
3. Discuss the goal of a supply chain and explain the impact of supply chain
decisions on the success of a firm.
◦ The goal of a supply chain should be to grow overall supply chain surplus.
◦ Supply chain surplus is the difference between the value generated for the
customer and the total cost incurred across all stages of the supply chain.
◦ Successful supply chains manage flows of product, information, and funds to
provide a high level of product availability to the customer while keeping costs low.
Summary
4. Identify the three key supply chain decision phases and explain the
significance of each one.
◦ Supply chain decisions may be characterized as strategic (design), planning, or
operational, depending on the time period during which they apply.
1. Strategic decisions relate to supply chain configuration.
2. Planning decisions cover a period of a few months to a year and include decisions
regarding production plans, subcontracting, and promotions over that period.
3. Operational decisions span from minutes to days and include sequencing
production and filling specific orders.
◦ Strategic decisions define the constraints for planning decisions, and planning
decisions define the constraints for operational decisions.
Summary
5. Describe the cycle and push/pull views of a supply chain.
◦ The cycle view divides processes into cycles, each performed at the interface
between two successive stages of a supply chain. Each cycle starts with an order
placed by one stage of the supply chain and ends when the order is received from
the supplier stage.
◦ A push/pull view of a supply chain characterizes processes based on their timing
relative to that of a customer order. Pull processes are performed in response to a
customer order, whereas push processes are performed in anticipation of customer
orders.
Summary
6. Classify the supply chain macro processes in a firm.
◦ All supply chain processes can be classified into three macro processes based on
whether they are at the customer or supplier interface or are internal to the firm.
◦ The CRM macro process consists of all processes at the interface between the firm
and the customer that work to generate, receive, and track customer orders.
◦ The ISCM macro process consists of all supply chain processes that are internal to
the firm and work to plan for and fulfill customer orders.
◦ The SRM macro process consists of all supply chain processes at the interface
between the firm and its suppliers that work to evaluate and select suppliers and
then source goods and services from them.
Questions
1. Consider the purchase of a can of soda at a convenience store. Describe the various stages in the supply chain
and the different flows involved.
2.Why should a firm such as Dell take into account total supply chain profitability when making decisions?
3.What are some strategic, planning, and operational decisions that must be made by an apparel retailer such as
Gap?

4.Consider the supply chain involved when a customer purchases a book at a bookstore. Identify the cycles in this
supply chain and the location of the push/pull boundary.

5.Consider the supply chain involved when a customer orders a book from Amazon. Identify the push/pull
boundary and two processes each in the push and pull phases.
6.In what way do supply chain flows affect the success or failure of a firm such as Amazon? List two supply chain
decisions that have a significant impact on supply chain profitability.