Course design

• Supply chain introduction and strategic fit

• Supply chain network design

• Supply chain planning and execution

• Purchasing

• Warehousing and transportation

• Technology in supply chain

 Few things before we start
• Use the combined experience make learning richer
– Share your experience
– Do not hesitate to raise questions, encourage others to discuss

• Provide timely feedback on the sessions.

• You will get a copy of presentations/spreadsheets used in the sessions.

• Do your readings and assignments

• For any support/anything worth sharing: Feel free to approach me at

nilendra.pawar@spjimr.org, +91 98739 34374
Textbooks : Supply Chain management

• Supply Chain Management, by Sunil Chopra, Peter Meindl, D.V. Kalra

• Supply Chain Logistics Management, by Donald J. Bowersox, David J. Closs

SUPPLY CHAIN – INTRODUCTION & STRATEGIC FIT
 Defining Supply Chain
• All elements involved in delivery of goods and services
– Suppliers
– Raw materials manufacturers Ancillary firms – 3PL, SC software
– Intermediate goods manufacturers providers
– Finished goods manufacturers
– Distributors and wholesalers
– Retailers A firm may restrict itself to only
– Customers few activities in the supply chain

• Internal definition of Supply chain may vary across firms

Supplier Manufacturer Distributor Retailer Customer

• Supply Chain involves flow of:

– Goods & services
– information
– funds
 Supply Chain in manufacturing sector
• Key role in determining customer satisfaction as well as profitability
Functions

• Long term planning

Planning • Annual planning, Sales and Operations planning

• Sourcing
Procurement • Purchasing / Supply Management

• Internal facilities
Manufacturing • Contract manufacturers

• Placement of Inventory, customer servicing

Distribution • Warehousing
• Transportation
 Supply Chain in Retail
• Critical for customer satisfaction, profitability as well as key competitive edge
Functions

Sourcing • Wide range of merchandise / assortment

• Work closely with category teams

Replenishment • Determine inventory positioning and levels

• Supply Chain network design (warehouse network and

Warehousing material flow)
• Managing 3PL (Third party Logistics service providers)
relationships, Warehousing costs, responsiveness

Transportation • Inbound & Outbound

• Complexities of last mile delivery / OmniChannel
 Supply Chain in Service Industry
• Backbone of service operations, often hidden from customer

• Critical role in
– Banking : Cash management, Credit cards, Loan applications etc.
– Hospitality : Consumables management, Material management for projects, Maintainance
materials (MRO supplies)
– Healthcare : Hospital consumables, medicines, Equipment and MRO items
– Telecom: high value procurement, managing networking equipment, Sim cards
– ……

• Same principles of SCM applied in service operations as well

 Supply Chain: Value Potential

• Supply chain costs control largest proportion of organization’s

spend (Materials, Mfg, Logistics, Inventory…)

• Share of GDP…….……12-13 %

Major Elements are ( Percentage of Total)

• Transportation : 35%
• Inventories: 25%
• Packaging: 11%
• Handling & Warehousing: 9%
• Others & Losses: 14%

• Supply chain cost reductions add value to the firm,

industry..
 Building blocks of supply chain
• Physical supply chain (Infrastructure and Supply chain partners)
– Suppliers
– Manufacturing units
– Warehouses
– Distribution channel

• Supply chain structure and processes (Rules and policies that govern the flow), e.g.
– Org structure and division of responsibilities
– Demand planning, Aggregate planning, S&OP
– Ordering policies
– Inventory policies
– Lot size policies
– Transportation policies

• Supply Chain systems (process automation, decision support systems, connectedness), e.g.
– Demand planning software
– Production planning software
– Reverse auction platforms
– Transportation management systems

Fourth building block: People (appropriate skills, numbers), not mentioned explicitly
above.
 Supply Chain Costs
ROLES OF SUPPLY SUPPLY CHAIN
CHAIN COSTS
Manufacturing
Physical delivery Warehousing,
of goods Transportation,
Handling

Market Loss of Sale,

Mediation: Inventory
Matching Supply carrying costs,
to Demand Obsolescence
 Complexities in managing supply chain
1. Geographically dispersed complex network – growing trend

Coordinating with multiple entities

Higher Lead times

Multiple operating standards & laws

Higher uncertainty in costs & supply

(Jacket mfd by Li & Fung in Thailand)

 Complexities in managing supply chain
2. Conflicting priorities & objectives within Supply Chain

e.g. Furniture manufacturing and retailing firm

Purchasing Plants Warehousing Stores Customer

• Low prices • Large production • Mfg • High range & • High availability
batches responsiveness depth availability
• Large shipments • Large variety of
• Instant
• Stable volume • High quality • Low inventory replenishment products
requirements
• High productivity • Few DCs • Low inventory • Low prices
• Flexible delivery
time
• Low production cost • Low delivery costs • Quick delivery

How are the conflicts resolved ?

 Complexities in managing supply chain

3. Uncertainty and risk factors

Market Economic Regulatory Natural disturbances

uncertainties Uncertainties uncertainties & calamities
• Technology • Commodity prices: • Changes in tariffs • Hurricanes,
upgrade Fall in petroleum earthquakes, floods
prices • Changes in export /
• Changing customer • High fluctuations in import laws across • Excessive rains,
preferences prices of input raw countries droughts, crop
materials failures
• Competition • Need for quick • Taxation changes:
activities renegotiation, re- GST
costing and re-
pricing of products
 Complexities in managing supply chain

4. Information distortion

Supplier Manufacturer Distributor Retailer Customer

Bullwhip effect
 Expected role of SC stages vs. BW effect
• Various stages in SC carry buffer inventory to smoothen demand fluctuations, and
protect upstream operations from variations.

• However, BW effect suggests that exactly the opposite happens,

 Bullwhip effect
Production Plan
Order Size

Retailer Orders

Customer
Demand

Distributor
Orders

Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
 Bullwhip effect in Supply Chains
What causes Bullwhip effect ?
 Bullwhip effect mitigation
• Bullwhip effect caused by
– Different nodes in SC working with different views of future.
• Lack of transparency on end customer demand
• Low collaboration on arriving at future demand

– High Lead time between stages

• Lead time plays a multiplier role in bullwhip effect

• Mitigating Bullwhip effect through

– Reducing Lead time between stages

– Higher visibility of future demand, collaborative forecasting

• Use of IT
 Process views of Supply chain

While analysing a supply chain, there are two important ways to

look at the various stages in the supply chain:

• Cycle view

• Push / Pull view

 Cycle View of Supply Chain Processes
Cycle view defines the
processes and the owner
of each process Customer Order
Customer Order Cycle Fulfillment team
• Each cycle is
triggered by preceding
cycle Planning team
Replenishment Cycle
• The size of orders and
order predictability
varies across cycles
Manufacturing team
• Predominant view for Manufacturing Cycle
ERP systems –
clearly defines
process boundaries
Procurement Cycle Purchasing team
and its owners
 Subprocesses in Each Cycle

Buyer
Supplier markets Buyer may return
the product the product

Buyer places Buyer receives

an order the order

Supplier receives Supplier supplies

the order the order

Supplier
 Cycle View of Supply Chain Processes
Customer Order Process
1. Customer Order Entry
2. Customer Order Fulfillment
3. Product Receiving Cycle view useful in:
4. Payment Receiving Customer Order Cycle
Replenishment Process • Designing process
1. Retail Order Trigger flows in ERP
2. Retail Order Entry
3. Retail Order Fullfillment Replenishment Cycle
4. Retail Order Receiving • Workflow design &
Manufacturing Process documentation
1. Order Arrival
2. Production Scheduling
3. Manufacturing/Shipping
Manufacturing Cycle • Determining handoffs
4. Receiving between various
Procurement Process processes
1. Purchase Order Arrival Procurement Cycle
2. Order placement
3. Order Shipping
4. Component Receiving & Payment
 Push / Pull view of Supply Chain
• Each Supply chain processes is either Pull or Push process

• In Push process, work is done based on plan, derived from demand

forecasts
– produces inventory to meet actual demand in short time
– acts proactively, without waiting for downstream requirement to arise

• In Pull processes, work is initiated only after requirement from the

customer are received
– Acts reactively on a trigger from customer
• Output of the initiated work may not be used for servicing the customer requirements (it may go
toward stock replenishment, however, the pull process is initiated by a customer order trigger.
– If output of pull process is used to service the customer
• It may cause long delivery lead times
• It helps in customizing, reducing inventory

Examples… ?
Push/Pull View of Supply Chains

PUSH PULL
PROCESSES PROCESSES

Customer Order Arrives

Push-Pull boundary
 Push Pull boundary in cycle view
Where is the push pull
boundary ?

Customer Order Cycle

Replenishment Cycle

Why is location of push-

Manufacturing Cycle pull boundary
important?

Procurement Cycle
 Push/Pull View of processes

• Critical in strategic designs of supply chains. It may determine the final offering to
the customer

• Determines the way adjacent processes interact – forecast vs. confirmed orders

• Positioning of inventory, storage requirements , Batch sizes, and processing

capacities at each stage are determined by Push/Pull classification

• Any analysis of typical SC problems e.g. inventory, customer servicing etc. must
have clarity on process type (Push vs. Pull)
 Moving the push-pull boundary

• Case 1: Products supplied from company to distributor basis targets for sales
teams, with no correlation to the order from retailers to distributors
• Case 2: Products supplied from Company warehouse to distributor based on
replenishing the inventory depleted by retailer orders

Raw material Company

Mfg operation
procurement warehouse
PUSH driven PUSH driven PUSH driven
CASE2 Boundary

Consumer Retailer Distributor

PULL driven PULL driven

PUSH
CASE1 –Boundary
• Benefits: Reduced bullwhip effect,
– Orders placed on the company reflect end customer demand
– Lower inventory at distributor. Less variability for the company
Achieving Strategic fit of Supply
Chain
 Decision Phases in a Supply Chain
TYPICAL TIME DECISION
DECISIONS ELEMENTS
FRAME TYPE
• Supply chain network design (How many plants?
Product mix at each plant Location and capacities of
3 – 10
Strategic plants and warehouses?)
years
• Supply chain strategies (Sell direct or through
retailers? Outsource or in-house? Focus on cost or
customer service?)
• Capacity enhancements
• Annual Operating Plan, monthly S&OP
Planning • Workforce & Production planning
1 month - • Inventory policies (safety stock level)
1year • Which locations supply which markets

• Production scheduling
Weekly - Operational • Placing replenishment orders
daily execution • Warehouse activity planning
 Competitive strategy
• Choosing how will we win over others.

– Differentiated offering
– Cost leadership
– Focusing on niche markets
• Examples ?

Building Strategy involves choosing what particular

activities we should seek to do better than others.
AND what activities we will NOT seek to do better
than others.

Strategic choice requires the company to do

exceptionally well along one dimension, while
offering the minimum necessary along others
 Supply Chain Strategy

• Business strategy determines the choice of SC strategy

– Quality
– Cost
– Delivery
– Flexibility
– Speed to bring out New Products and features
…………..

• SC Strategy: CHOOSING how will we procure, transport, manufacture and

distribute products to serve the business strategy.
– Strategic choice reflects where we want to operate on the efficient frontier