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• 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
 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

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
 How to derive Supply Chain Strategy from
Business Strategy

A. What is the B. Determine the C. Create a

nature of your nature of your Strategic Fit
product’s Demand supply certainty

Framework developed by Marshal Fisher, modified by Hau Lee.

How to derive Supply Chain Strategy from
Business Strategy

A. What is the B. Determine the C. Create a

nature of your nature of your Strategic Fit
product’s Demand supply certainty
 Nature of product’s demand
• Stable, predictable demand. Less variety, Cost
Functional Little or no changes in product over time, focused,
longer product life cycles, lower margins,
products • Food and grocery, petrol
efficient
Supply

Innovative • Volatile demand, higher variety, shorter Service

product life cycles, higher margins, quick
products service requirement, smaller lots
focused,
Responsive
(Have higher implied demand uncertainty • Technology products, high fashion
due to the highlighted characterstics) Supply
• In general, products are “largely” functional or “largely” innovative

Purely Purely
Functional Innovative
• The mix of functional & innovative features offered is determined by what is important to the
customer in TG
• Same physical product can be Functional or Innovative due to the nature of offering
• The stage of life cycle of the business or product also affects the decision on the supply chain
 Implication on Supply Chain Costs
ROLES OF SUPPLY SUPPLY CHAIN
CHAIN COSTS

Mfg. More
Physical Warehousing, Important for
Transportation FUNCTIONAL
PRODUCTS

Loss of Sale, More

Market Mediation Inventory, Important for
Obsolescence INNOVATIVE
PRODUCTS

Why ?
 Exercise
Would the following be a
FUNCTIONAL INNOVATIVE
functional or an innovative
Demand variation Low High product offering & why ?
Product life cycle Long Short 1. Smartphones
Product innovation speed Low High 2. Bottled Water
Product variety/range Low High 3. Fashion Jewelry
4. Electricity
Contribution margin Low High
5. Personal products –
Customer response time More Less Soaps/Shampoos
6. Paints
7. Books
8. Hotel Services
How to derive Supply Chain Strategy from
Business Strategy

A. What is the B. Determine the C. Create a

nature of your nature of your Strategic Fit
product’s Demand supply certainty
 Nature of Supply Certainty
• Any product’s supply processes can have:
– High Supply Certainty (Stable Processes)
– Low Supply Certainty (Unstable Processes)
Supply Certainty – Ability of the
existing supply technology/supply
process to operate in a reliable
manner

Supply disruptions due to unplanned demand variations OR problems specific to a

particular company/situation do NOT mean lower Supply Certainty

Typical causes of supply uncertainty:

• Evolving technology and production processes
• Dependence on vagaries of nature
• Uncertainty in raw material availability
• Dependence on proprietary technology leading to risk of disruption

Examples…. ?
 Classify your supply processes into stable
or unstable supply processes
Would the following products
have a Stable OR unstable
supply process & why ?
Stable Supply Evolving / Unstable supply 1. DVDs
Processes processes 2. Hydro Electric power
Less Breakdowns Vulnerable to breakdowns 3. Wines
4. Shoes
Stable, high yields Variable, low yields
5. Rubber
More Supply sources Limited Supply sources
6. New model of electric car
Reliable Suppliers Unreliable suppliers 7. Books
Dependable lead time Variable lead time 8. Lithium Batteries for cars
How to derive Supply Chain Strategy from
Business Strategy

A. What is the B. Determine the C. Create a

nature of your nature of your Strategic Fit
product offering supply certainty
 Uncertainty Framework
Demand Uncertainty
Low (Functional Products) High (innovative products)

Low
Supply Uncertainty

Groceries, Construction Fashion apparel

(stable process) materials Music CDs / Books

High
Mining products, Some crop High end semiconductors,
(evolving process)
produce Newly developed drugs

Source: Hau L Lee, 2002

 Creating a strategic fit
Demand Uncertainty
Low (Functional Products) High (innovative products)

Low
Supply Uncertainty

Efficient Supply Chain Responsive Supply Chain

(stable process) (Cost Focus) (Service Focus)

High Agile Supply Chain

Risk hedging Supply Chain
(evolving process) (Service Focus + Supply
(Cost Focus + risk mitigation)
side integration)

Source: Hau L Lee, 2002

 Efficient Supply Chain
• Pursue scale economies, large batch sizes.
Manufacturing
• Stress on capacity Utilization. Focus on Cost per Unit.
• Lowest cost supplier base, Outsource to cheaper locations,
Sourcing
• Work jointly for further cost reductions,

Servicing • Predictable Demand pattern – auto replenishments

Planning • Optimization techniques for production / distribution

• Economic lot shipping. SC network to minimize costs.

Distribution
• Eliminating steps in distribution

IT • Accurate/timely information to minimize costs

Productivity • Value Engineering, JIT, automation, scale economies, facility lay

tools out/workflow streamlining, LEAN
 Supply Chain Strategies
Demand Uncertainty
Low (Functional Products) High (innovative products)

Low
Supply Uncertainty

Efficient Supply Chain Responsive Supply Chain

(stable process) (Cost Focus) (Service Focus)

High Agile Supply Chain

Risk hedging Supply Chain
(evolving process) (Service Focus + Supply
(Cost Focus + risk mitigation)
side integration)
 Responsive supply chain
• Flexible manufacturing, with capacity buffers. Mass
Manufacturing customization. Focus on Response time to orders
• Postponement strategy, Built to Order, modular product design
• Closely located and tightly controlled supplier base
Sourcing
• Collaborative working for higher flexibility, quick changeovers

Servicing • Quick customer response

Planning • Flexible planning systems, ability to replan and redeploy quickly

• Warehouse network for quick customer response / OR central

Distribution inventory for higher product availability
• Shipping to reduce servicing time
• Real time capturing of customer trend, support quick replanning
IT across supply chain

Tools • SMED, Flexible Mfg Systems

 Supply Chain Strategies
Demand Uncertainty
Low (Functional Products) High (innovative products)

Low
Supply Uncertainty

Efficient Supply Chain Responsive Supply Chain

(stable process) (Cost Focus) (Service Focus)

High Agile Supply Chain

Risk hedging Supply Chain
(evolving process) (Service Focus + Supply
(Cost Focus + risk mitigation)
side integration)
 Risk Hedging Supply Chain
• Product offering has stable demand, however, supply uncertainty is high.
• Usually seen in natural products dependent on weather or mined products.

• Supply risk mitigation through:

– Inventory Buffers
– Capacity Buffers
– Alternate supply sources / Alternate materials
– Close coordination for capturing leading signals of disruption
 Supply Chain Strategies
Demand Uncertainty
Low (Functional Products) High (innovative products)

Low
Supply Uncertainty

Efficient Supply Chain Responsive Supply Chain

(stable process) (Cost Focus) (Service Focus)

High Agile Supply Chain

Risk hedging Supply Chain
(evolving process) (Service Focus + Supply
(Cost Focus + risk mitigation)
side integration)
 Agile Supply Chain
• Product has uncertain demand, AND high supply uncertainty.
• Usually seen in high technology products, introducing new and untested
functionalities
• Supply Chain needs to be responsive to demand variation – plus provide means to
mitigate supply uncertainties.

• Working very closely with suppliers and downstream companies – extended

enterprise
• Joint product design and development
• Combine teams for product prototyping and launch
• Closely situated facilities and trust based working
• Transparency in information flow – reduced layers for speed
 Strategic fit viewed on
Cost-Responsiveness Efficient Frontier
• Cost efficiency and Responsiveness
Tradeoffs
• For any operation, all
A1
combinations of best possible C
B
Responsiveness / Cost efficiencies
= Efficient Frontier A A2

• Trade offs : Movement along the

efficient frontier curve
D
• Movement of the efficient frontier
curve.
– By technological advances
 Dual strategy

• Involves not adopting a

unipolar approach towards
Differentiation -> Responsive SC
following cost leadership, OR
differentiation, instead Dual Strategy  Clear
guidance to SC on
Cost / Performance
expectations
• Strike a balance: Adequately
priced (not lowest priced)
Cost Leadership 
product/service with Efficient SC
appropriate level of
differentiation
 A Framework for
Structuring Drivers
Competitive Strategy

Supply Chain
Strategy Desired Balance of efficiency and
responsiveness
Supply chain structure

Logistical Drivers

Facilities Inventory Transportation

Information Sourcing Pricing

Cross Functional Drivers

Poor strategic choices cannot be compensated through stronger execution on a
sustainable basis
 Takeaways
• Business Strategy specifies the competitive priorities for the company
• Supply Chain & Operations priorities flow from the company’s priorities

• One method of developing SC & Ops strategy is to:

– Define the nature of product (Functional vs. Innovative)
– Understand the nature of supply processes (Stable vs. Unstable)
– Build a supply chain appropriately (Efficient / Responsive / Risk hedging / Agile)

• ALL elements of the supply chain – processes / people / systems / facilities / capacities /
equipment / org str / inventory policies / suppliers etc. should be configured to enhance
the competitive edge.
• Any part of supply chain that is not aligned with the strategic objective dilutes the
competitive edge.

• Implications for
– Senior leadership (Strategize & Communicate),
– Functional Managers (Understand & reemphasize communication)
– Young managers (Know your business strategy, and align your efforts to the strategy)
 Assignment: Rapidfire Fulfillment - ZARA
• Founded by Amancio Ortega. First
store in 1975
• From very humble beginnings, Zara
has emerged to be a leading
Industry innovator.

• Lead with the concept of “Fast

Fashion”, offering it significant
competitive edge

• Brought about a disruptive

innovation through unique
management practices in product
development, sourcing,
manufacturing and distribution
 Apparel Industry
Seasons in Apparel Industry

• Key to profitability: Sell Various functions in

through (% of merchandise Apparel Supply Chain
sold)
– At Full Price (50% - 70%), and • Buyers
– for the Season ((80% - 95%) • Sourcing
• Production
• Design
• Planning
• Transportation &
Warehousing
• Stores
Typical Planning Calendar for Apparel
Season
 Rapidfire Fulfillment – Group Assignment
1. What is the Competitive Strategy of Zara ? How does Zara’s supply chain strategy
support it’s competitive strategy (explain using the Supply Chain Uncertainty
framework) ?

2. How do the following supply chain elements support Zara’s competitive strategy ?
a. Product Design/Development
b. Manufacturing & Vertical integration
c. Distribution & Supply processes (design-sourcing-mfg-delivery)
d. Organization Structure, office setting and culture

3. How does the strategy enable Zara to deliver superior Financial Performance ?

4. Can this strategy be used by all apparel companies ? Why/Why not ?

(4 slides maximum)