BMMW 3363

Chapter 1:
Introduction to Supply Chain Management

Prof Madya Ts Dr Wan Hasrulnizzam Wan Mahmood

Timbalan Dekan (Akademik)
hasrulnizzam@utem.edu.my
013-6188280
Live chicken
 UNDERSTANDING SCM CONCEPT

Examples
Macro
SCM Objectives Key Phases SC Process of SCM
Processes
Definition of SCM of SCM View Framework
of SCM
/ Structure
 SCM DEFINITION
All functions of a company or an organization that are involved in
achieving its objectives; especially in fulfilling customers requests
and demands.

A typical organization supply chain consists of following

functions; product development, marketing, operations,
distribution, finance, customer service.

It also includes the manufacturers, suppliers, transporters,

warehouses, retailers, and customers.
The term supply chain conjures up the image of
product or supply moving from suppliers to
manufacturers to distributors to retailers to
customers along a chain.
•Together with information, funds, and product
flows along both directions of the chain.
SC focuses on the movement of the products from suppliers to
manufacturers to distributors, the movement of the information,
funds, and also products in both directions.

Usually a SC consists of the following basic SC stages; customers,

retailers, distributors, manufacturers, suppliers. However in some
situations, an organization may not have all stages in its SC.
• It may not have retailer or distributor in its SC ; which have
been practiced by Dell
Example of SC Diagram

Product Flow

Supplier Manufacturer Distributor Retailer Customer

Information Flow

Fund Flow
OBJECTIVES OF SCM
A. Maximize
overall value
created

High SC
Value
B. Optimize
the resources
used
• Generate SC Value
SC Value = difference between what the final product is worth
to the customer and the effort the supply chain expends in
filling the customer’s request

• SC Value is connected to the SC Profitability

• SC Profitability = the difference between revenue generated
from the customer and the overall cost across the SC
Example of SC Value and SC Profitability
SP RM 5,990 is the retail price and was received from customer for a newly released bag.

SC Cost The SC total cost was calculated and determined, include all stages of SC that involved.

(Storage, Warehouse, Raw Materials, Transportations, Packaging etc.)

SC Profit = SP - SC Cost

Note:
1. SC Profitablity is the Total Profit that to be SHARED among the stages of the supply chain.

2. The SC success must be measured through the SC Profitability, not by individual stage.
Key Phases of SCM Decisions

P1 : SC Strategic Decision and Design

P2 : SC Planning

P3 : SC Operation
 P1 : SC Strategic Decision and Design

This phase decides on the structure of the SC as well as the

processes details of each SC members will perform

The strategic SC Decisions

• Locations and capacities of facilities
• Products to be made or stored at various locations
• Modes of transportation
• Information systems
 P1 : SC Strategic Decision and Design (con’t)

Things to consider in designing SC Strategic Decisions

• Must correlate and support strategic objectives

• Take into account the market uncertainty ; as SC Strategic
decisions are long-term and extremely costly to reverse
 P2 : SC Planning

Define the set of policies that run and steer the short-term
operations

Fix by the supply configuration from previous phase

Starts with a forecast of demand in the coming year

 P2 : SC Planning (cont)

The SC Planning decisions

• The location that will supply each market
• The inventories planning buildup
• Backups (Subcontracting, Alternatives locations or measures)
• Inventory policies
• Timing and size of market promotions
Take into account the demand uncertainty, exchange rates,
competition over the time horizon
 P3 : SC Operation

Based on weekly or daily time horizon

Supply chain configuration is fixed and operating policies are

determined, usually based on the individual customer orders.

• Goal is to ensure the implementation and execution of the

operating policies as effectively as possible
 P3 : SC Operation (con’t)

E.g 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
SUPPLY CHAIN
 SC Process View
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)
 SC Process View (con’t)
• SC Cycle View

Procurement Manufacturing Replenishment Customer

Cycle Cycle Cycle Order Cycle

Supplier Manufacturer Distributor Retailer Customer

 SC Process View (con’t)
SC Cycle View
• Each cycle occurs at the interface between two successive stages

Cycle View SC Stages

Customer order cycle Customer - Retailer

Replenishment cycle Retailer - Distributor

Manufacturing cycle Distributor - Manufacturer

Procurement cycle Manufacturer - Supplier

 SC Process View (con’t)
• Benefit of SC Cycle View

It clearly determine the processes involved and the owners for

each process.
• With that, it helps in specifying the tasks, roles and responsibilities
of each owner of the process and the desired outcome of each
process in achieving the goals.
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)
 SC Process View (con’t)
• SC Push / Pull View

This type revolves around or on the timing of their execution and to

the customer demand
• The processes are divided based on their timing relatively to the
timing of a customer order

The key difference is the certainty and uncertainty aspect during

the two phases
 PUSH

Supplier Manufacturer Distributor Retailer Customer

Purchase based on
Supply based on Made / Manufacture Inventory Planning Selling Planning based
products available on
Forecast based on Forecast based on Forecast on Forecast
shelves

PULL

Supplier Manufacturer Distributor Retailer Customer

Supply to Order Produce to Order Replenish Warehouse Replenish Stocks Receives customer order
 SC Process View (con’t)
• SC Push / Pull View
• The process execution is initiated in response to a customer
SC Pull order (reactive)
• Mostly practiced by made-to-order company ; eg. Dell.

• Contrary, the process execution is instigated or started in

anticipation of customer orders or forecasted demand
SC Push (speculative)
• Usually used by bulk-production company ; eg. H&M, Levi.

The separator is known as Push / Pull Boundary

Benefit of SC Push / Pull View

• Assists in considering the strategic decisions relating to supply chain design

Broader view of supply chain processes relate to the customer orders.
• Broader view of supply chain processes relate to the customer orders.
Combination of both Push / Pull View can generate a positive
impact on the supply chain performances

Example of organizations that use both Push / Pull View in their SC

process
• L.L. Bean (Figure 1.6)
• Dell (Figure 1.7)
• Example of organizations that use both Push / Pull View in their
SC process

• L.L. Bean (Apparel)

• Ethan Allen (Customized furniture)
 SC Process View (con’t)
• SC Push / Pull View

Procurement Manufacturing Replenishment Customer

Cycle Cycle Cycle Order Cycle

Supplier Manufacturer Distributor Retailer Customer

PUSH PROCESSES PULL PROCESS

Customer Placed Orders

(Push Pull Boundary)
 Procurement Manufacturing Replenishment Customer
Cycle Cycle Cycle Order Cycle

Supplier Manufacturer Distributor L. L. Bean Customer

PUSH PROCESSES PULL PROCESS

Customer Placed Orders

(Push Pull Boundary)
 Procurement Manufacturing Customer
Cycle Cycle Order Cycle

Supplier Manufacturer Ethan Allen Customer

PUSH PROCESSES PULL PROCESS

Customer Order Arrives

 SC Process View (con’t)
• Macro Processes of SCM

The processes mentioned in the previous SC Process View can be

classified as
• Customer Relationship Management (CRM)
• Internal Supply Chain Management (ISCM)
• Supplier Relationship Management (SRM)
Customer Relationship Management (CRM)
• Management of interactions between company and the customers

Internal Supply Chain Management (ISCM)

• Management of the company in providing products to the customers

Supplier Relationship Management (SRM)

• The streamlined process in improving the communication among the
company and its suppliers
• Integration of these three major macro processes is critical in
establishing an effective and successful SC Management for an
organization.
Supplier Firm Customer

SRM ISCM CRM

Source Strategic Planning Market

Negotiate , Evaluate Demand Planning Price
Buy Supply Planning Sell
design Collaboration Fulfillment Call center
Supply Collaboration Field Service Order Management
Inventory
Warehouse
Picking, packing, shipping
ANY QUESTIONS?