Lecture 1 Examples of Supply Chains

Examples of Supply Chains
• Gateway and Apple

• Zara
• W.W. Grainger and McMaster-Carr
• Toyota
• Amazon
• Macy's
Copyright © 2016 Pearson Education, Inc. 1–1

Gateway and Apple
1. Why did Gateway choose not to carry any finished-product
inventory at its retail stores? Why did Apple choose to carry
inventory at its stores?
2. Should a firm with an investment in retail stores carry any
finished-goods inventory? What are the characteristics of
products that are most suitable to be carried in finished-goods
inventory? What characterizes products that are best
manufactured to order?
3. How does product variety affect the level of inventory a retail
store must carry?
4. Is a direct selling supply chain without retail stores always less
expensive than a supply chain with retail stores?
5. What factors explain the success of Apple retail and the failure
of Gateway country stores?

Zara
1. What advantage does Zara gain against the competition by having
a very responsive supply chain?
2. Why has Inditex chosen to have both in-house manufacturing and
outsourced manufacturing? Why has Inditex maintained
manufacturing capacity in Europe even though manufacturing in
Asia is much cheaper?
3. Why does Zara source products with uncertain demand from local
manufacturers and products with predictable demand from Asian
manufacturers?
4. What advantage does Zara gain from replenishing its stores
multiple times a week compared to a less frequent schedule? How
does the frequency of replenishment affect the design of its
distribution system?
5. Do you think Zara’s responsive replenishment infrastructure is
better suited for online sales or retail sales?
W.W. Grainger and McMaster-Carr
1. How many DCs should be built and where should they be
located?
2. How should product stocking be managed at the DCs? Should
all DCs carry all products?
3. What products should be carried in inventory and what
products should be left with the supplier to be shipped
directly in response to a customer order?
4. What products should W.W. Grainger carry at a store?
5. How should markets be allocated to DCs in terms of order
fulfillment? What should be done if an order cannot be
completely filled from a DC? Should there be specified backup
locations? How should they be selected?

Toyota
1. Where should the plants be located, and what
degree of flexibility should be built into each? What
capacity should each plant have?
2. Should plants be able to produce for all markets or
only for specific contingency markets?
3. How should markets be allocated to plants and how
frequently should this allocation be revised?
4. How should the investment in flexibility be valued?

Amazon
1. Why is Amazon building more warehouses as it grows? How
many warehouses should it have and where should they be
located?
2. Should Amazon stock every product it sells?
3. What advantage can bricks-and-mortar players derive from
setting up an online channel? How should they use the two
channels to gain maximum advantage?
4. What advantages and disadvantages does the online channel
enjoy in the sale of shoes and diapers relative to a retail
store?
5. For what products does the online channel offer the greater
advantage relative to retail stores? What characterizes these
products?

Macy's
1. Should online orders be filled from stores or
fulfillment centers?
2. How should store inventories be managed in an
omni-channel setting?
3. Should returns be kept at a store or sent to a
fulfillment center?

Summary of Learning Objectives
1. Discuss the goal of a supply chain and explain the
impact of supply chain decisions on the success of a
firm.
2. Identify the three key supply chain decision phases
and explain the significance of each one.
3. Describe the cycle and push/pull views of a supply
chain.
4. Classify the supply chain macro processes in a firm.

Understanding the
1 Supply Chain
Course instructor:
Dr. Mohamed Shamout

PowerPoint presentation
to accompany
Chopra and Meindl
Supply Chain Management, 6e
Learning Objectives
firm.
chain.
Copyright © 2016 Pearson Education, Inc. 1 – 10

What is a Supply Chain?
• All stages involved, directly or indirectly, in fulfilling a
customer request
• Includes manufacturers, suppliers, transporters,
warehouses, retailers, and customers
• Within each company, the supply chain includes all
functions involved in fulfilling a customer request
(product development, marketing, operations,
distribution, finance, customer service)

• Customer is an integral part of the supply chain
• Includes movement of products from suppliers to
manufacturers to distributors and information,
funds, and products in both directions
• May be more accurate to use the term “supply
network” or “supply web”
• Typical supply chain stages: customers, retailers,
wholesalers/distributors, manufacturers,
component/raw material suppliers
• All stages may not be present in all supply chains
(e.g., no retailer or distributor for Dell)
Supply Chain Management

Supply Chain Management

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Timber Paper Pactiv

Company Manufacturer Corporation
Walmart
P&G or Other Walmart
or Third Customer
Manufacturer Store
Party DC
Chemical Plastic
Manufacturer Producer
FIGURE 1-1 Stages of a Detergent Supply Chain

FIGURE 1-1
by a third party. The distributor, in turn, is stocked by the manufacturer (say, Procter & Gamble
[P&G] in this case). The P&G manufacturing plant receives raw material from a variety of sup-
pliers,Education,
Copyright © 2016 Pearson whichInc.may themselves have been supplied by lower-tier suppliers. For example, packag-
1 – 15
M01_CHOP3952_05_SE_C01.QXD 10/10/11 5:15 PM Page 3
Flows in a Supply Chain

Chapter 1 • Understanding the Supply C
Supplier Manufacturer Distributor Retailer Customer
FIGURE 1-2 Supply Chain Stages
Each stage in Figure 1-2 need not be present in a supply chain. As discussed in Chapter 4, the FIGURE
appro-1-2
priate design of the supply chain depends on both the customer’s needs and the roles played by the
stages involved. For example, Dell has two supply chain structures that it uses to serve its customers.
For its corporate clients and also some individuals who want a customized personal computer (PC),
CopyrightDell builds
© 2016 Pearsonto order;Inc.that is, a customer order initiates manufacturing at Dell. For these customers, Dell 1 – 16
Education,
The Objective of a Supply Chain
• Maximize overall value generated

Supply Chain Surplus
= Customer Value – Supply Chain Cost

• Example: a customer purchases a wireless router
from Best Buy for $60 (revenue)
• Supply chain incurs costs (information, storage,
transportation, produce components, assembly, etc.)
• Difference between $60 and the sum of all of these
costs is the supply chain profit
• Supply chain profitability is total profit to be shared
across all stages of the supply chain
• Success should be measured by total supply chain
profitability, not profits at an individual stage

• Customer the only source of revenue
• Sources of cost include flows of information,
products, or funds between stages of the
supply chain
• Effective supply chain management is the
management of supply chain assets and
product, information, and fund flows to grow
the total supply chain surplus

Importance of
Supply Chain Decisions
• Wal-Mart, $1 billion sales in 1980 to $469 billion in
2013
• Seven-Eleven Japan, ¥1 billion sales in 1974 to ¥1.9
trillion in 2013
• Webvan folded in two years
• Borders, $4 billion in 2004 to $2.8 billion in 2009
• Dell, $56 billion in 2006, adopted new supply chain
strategies

Key Point
Supply chain design, planning, and

operation decisions play a significant role
in the success or failure of a firm. To stay
competitive, supply chains must adapt to
changing technology and customer
expectations.

Decision Phases in a Supply Chain
1. Supply chain strategy or design
How to structure the supply chain over the next
several years
2. Supply chain planning
Decisions over the next quarter or year
3. Supply chain operation
Daily or weekly operational decisions

Supply Chain Strategy or Design
• Decisions about the configuration of the supply chain,
allocation of resources, and what processes each
stage will perform
• Strategic supply chain decisions
– Outsource supply chain functions
– 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
strategic phase
• Goal is to maximize supply chain surplus given
established constraints
• Starts with a forecast of demand in the
coming year

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

Supply Chain Operation
• Time horizon is weekly or daily
• Decisions regarding individual customer orders
• Supply chain configuration is fixed and planning
policies are defined
• Goal is to handle incoming customer orders 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)
Key Point
Supply chain decision phases may be

categorized as design, planning, or
operational, depending on the time frame
during which the decisions made apply.
Design decisions constrain or enable good
planning, which in turn constrains or
enables effective operation.

Process Views of a Supply Chain
1. Cycle View: The processes in a supply chain are
divided into a series of cycles, each performed at
the interface between two successive stages of the
supply chain.
2. Push/Pull View: The processes in a supply chain are
divided into two categories, depending on whether
they are executed in response to a customer order
or in anticipation of customer orders. Pull processes
are initiated by a customer order, whereas push
processes are initiated and performed in
anticipation of customer orders.

Key Point
A cycle view of the supply chain clearly

defines the processes involved and the
owners of each process. This view is useful
when considering operational decisions
because it specifies the roles and
responsibilities of each member of the
supply chain and the desired outcome for
each process.

Push/Pull View of Supply Chains

push processes. The same holds true for processes in the manufacturing and procurement
cycles. In fact, raw material such as fabric is often purchased six to nine months before
customer demand is expected. Manufacturing itself begins three to six months before the point
Push/Pull View of Supply Chains

of sale. The processes in the L. L. Bean supply chain break up into pull and push processes, as
shown in Figure 1-6.
Push/Pull Boundary
Push Processes Pull Processes
Process Process Process Process Process Process Process

1 2 3 k k"1 N!1 N
Customer Order Arrives

FIGURE 1-5 Push/Pull View of the Supply Chain
FIGURE 1-5

What is a Push System vs a Pull
System?
• In a push-based supply chain, products are
pushed through the channel from production
up to the retailers. This means that production
happens based on demand forecast.
• In a pull-based supply chain, procurement,
production, and distribution are demand-
driven rather than based on predictions.
Goods are produced in the amount and time
needed.

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

Push/Pull View of
Supply Chain Processes
• Push Strategy:
– Involves convincing intermediary channel
members to “push” the product through the
cannel to the ultimate consumer.
• Pull Strategy:
– Attempts to get consumers to “pull” the
product from the manufacturing company
through the marketing channel.

Push-based supply chain advantages
1. Long-term forecasts and planning are used.
2. Inventory is stored and kept on hand. When products are
standard, customization and enhancements can be
satisfied quickly and in a timely manner.
3. Can lead to economies of scale in purchasing and
production
4. Allows for planning and controlling
5. Good way to test new products in the market

Disadvantages of the Push Strategy
• The distributor may source alternative products (cheaper,
faster delivery) once your product has established the
market need.
• Distributors may not organise a formal contract, so no
guarantee of regular orders.
• Distributors may demand financial contribution towards
promotion.
• Distributors may demand lower prices to fit in with their
promotional campaign.
• Distributors can establish dependence and then request
price reductions
• Distributors can demand lengthy credit terms.

Pull-based supply chain advantages
• Direct contact with customers.
• Instant payment as customers do not have credit
facilities and pay online or in store at the checkout.
• Greater margins as no discount needed.
• Customers can generate ideas for new product
development.
• Ideal for premium priced products

Disadvantages of the Pull Strategy
• Greater administration required in-house to
fulfil customers’ orders.
• Many smaller and one-off orders.

Key Point
A push/pull view of the supply chain

categorizes processes based on whether
they are initiated in response to a
customer order (pull) or in anticipation of
a customer order (push). This view is
useful when considering strategic
decisions relating to supply chain design.

Supply Chain Macro Processes
Supply chain processes discussed in the two
views can be classified into
1. Customer Relationship Management (CRM):
all processes at the interface between the firm
and its customers
2. Internal Supply Chain Management (ISCM):
all processes that are internal to the firm
3. Supplier Relationship Management (SRM):
all processes at the interface between the firm
and its suppliers

Key Point
Within a firm, all supply chain activities

belong to one of three macro processes:
CRM, ISCM, and SRM. Integration among
the three macro processes is crucial for
successful supply chain management.

classified into the following three macro processes, as shown in Figure 1-8:
1. Customer Relationship Management (CRM): all processes that focus on the interface
Supply Chain Macro Processes

between the firm and its customers
2. Internal Supply Chain Management (ISCM): all processes that are internal to the firm
3. Supplier Relationship Management (SRM): all processes that focus on the interface
between the firm and its suppliers
Supplier Firm Customer
SRM ISCM CRM
• Source • Strategic Planning • Market

• Negotiate • Demand Planning • Price
• Buy • Supply Planning • Sell
• Design Collaboration • Fulfillment • Call Center
• Supply Collaboration • Field Service • Order Management
FIGURE 1-8 Supply Chain Macro Processes
FIGURE 1-8

Examples of Supply Chains
• Gateway and Apple
• Zara
• W.W. Grainger and McMaster-Carr
• Toyota
• Amazon
• Macy's

Gateway and Apple
1. Why did Gateway choose not to carry any finished-product
inventory at its retail stores? Why did Apple choose to carry
inventory at its stores?
2. Should a firm with an investment in retail stores carry any
finished-goods inventory? What are the characteristics of
products that are most suitable to be carried in finished-goods
inventory? What characterizes products that are best
manufactured to order?
3. How does product variety affect the level of inventory a retail
store must carry?
4. Is a direct selling supply chain without retail stores always less
expensive than a supply chain with retail stores?
5. What factors explain the success of Apple retail and the failure
of Gateway country stores?

Zara
1. What advantage does Zara gain against the competition by having
a very responsive supply chain?
2. Why has Inditex chosen to have both in-house manufacturing and
outsourced manufacturing? Why has Inditex maintained
manufacturing capacity in Europe even though manufacturing in
Asia is much cheaper?
3. Why does Zara source products with uncertain demand from local
manufacturers and products with predictable demand from Asian
manufacturers?
4. What advantage does Zara gain from replenishing its stores
multiple times a week compared to a less frequent schedule? How
does the frequency of replenishment affect the design of its
distribution system?
5. Do you think Zara’s responsive replenishment infrastructure is
better suited for online sales or retail sales?
W.W. Grainger and McMaster-Carr
1. How many DCs should be built and where should they be
located?
2. How should product stocking be managed at the DCs? Should
all DCs carry all products?
3. What products should be carried in inventory and what
products should be left with the supplier to be shipped
directly in response to a customer order?
4. What products should W.W. Grainger carry at a store?
5. How should markets be allocated to DCs in terms of order
fulfillment? What should be done if an order cannot be
completely filled from a DC? Should there be specified backup
locations? How should they be selected?

Toyota
1. Where should the plants be located, and what
degree of flexibility should be built into each? What
capacity should each plant have?
2. Should plants be able to produce for all markets or
only for specific contingency markets?
3. How should markets be allocated to plants and how
frequently should this allocation be revised?
4. How should the investment in flexibility be valued?

Amazon
1. Why is Amazon building more warehouses as it grows? How
many warehouses should it have and where should they be
located?
2. Should Amazon stock every product it sells?
3. What advantage can bricks-and-mortar players derive from
setting up an online channel? How should they use the two
channels to gain maximum advantage?
4. What advantages and disadvantages does the online channel
enjoy in the sale of shoes and diapers relative to a retail
store?
5. For what products does the online channel offer the greater
advantage relative to retail stores? What characterizes these
products?

Macy's
1. Should online orders be filled from stores or
fulfillment centers?
2. How should store inventories be managed in an
omni-channel setting?
3. Should returns be kept at a store or sent to a
fulfillment center?

Summary of Learning Objectives
firm.
chain.

Lecture 1 Examples of Supply Chains

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Examples of Supply Chains

• Gateway and Apple

Copyright © 2016 Pearson Education, Inc. 1–1

Copyright © 2016 Pearson Education, Inc. 1–2

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Copyright © 2016 Pearson Education, Inc. 1–8

Dr. Mohamed Shamout

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What is a Supply Chain?

Timber Paper Pactiv

FIGURE 1-1 Stages of a Detergent Supply Chain

Flows in a Supply Chain

Supplier Manufacturer Distributor Retailer Customer

Supplier Manufacturer Distributor Retailer Customer

Supplier Manufacturer Distributor Retailer Customer

FIGURE 1-2 Supply Chain Stages

• Maximize overall value generated

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Supply chain design, planning, and

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Supply chain decision phases may be

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A cycle view of the supply chain clearly

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Push/Pull View of Supply Chains

Push Processes Pull Processes

Process Process Process Process Process Process Process

Customer Order Arrives

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A push/pull view of the supply chain

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Within a firm, all supply chain activities

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Supply Chain Macro Processes

Supplier Firm Customer

SRM ISCM CRM

• Source • Strategic Planning • Market

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