Welcome to the course

Supply Chain Management

Dr. Ramesh Krishnan

IIM Kozhikode.
Ramesh.Krishnan@iimk.ac.in
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What is your understanding about SCM?

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 Topics to be Discussed

Session Module Topic Chapter

Number
Session 1-2 Introduction Understanding Supply Chain Management Chapter 1, 2
&3
Case 1: What is the right supply chain for your product?
Session 3-4 Inventory The central Role of Inventory, Risk pooling, Quick response, Chapter 11 &
12
Management Postponement, Information Centralization, Tailored Sourcing

Case 2: Wills Lifestyle in India

Session 5-7 Network Distribution network design, Choosing the right supply chain for Chapter 4
Management your product, Direct Shipment, Intermediate inventory storage,
transshipment, cross-docking.

Case 3: The Dabbawalla System: On-Time Delivery, Every Time

Session 8-10 Supply Chain Centralized & Decentralized Supply Chain, coordinated supply Chapter 10
Coordination
chain, joint optimization, supply contracts

Case 4: Barilla Spa (A)

Session 11-12 Purchasing Leveraging suppliers for competitive advantage, Outsourcing Chapter 15
Strategy decisions, Strategic Sourcing

Session 13-14 Supplier Sourcing decisions, Types of relationships and strategic alliance Chapter 15
Management
Session 15-16 Supply Chain Supplier analytics and performance management; Planning Chapter 2
Analytics supply and demand in supply chain 1–3
End Term Examination
Grading Scheme

Evaluation Component Percentage

Quizzes 20%

End term Exam 50%

Class Participation (Case Analysis 15%

& Class Exercises)
Project 15%

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Group formation (7 per group)
• The group should be formed such that each
group consists of people from diverse
background with varied work experience

• Identify a supply chain problem that your/any organization

is facing
• Perform in-depth analysis of problem and identify the key
causes – interview the concerned person.
• Propose your feasible recommendations to address the
problem

Problem Identification – Before 16th February

Problem Analysis – Before 29th of February
Final Report Submission – Before 22nd March
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 Discussion Forum

Supply Chain of Company X

Briefly cover aspects like

1. How does their supply chain function?

2. What makes their supply chain operation better?
3. What are the roles of technology/AI?
4. What is their competitive priority/advantage?
5. How their supply chain aligns with their competitive priority?

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What is a Supply Chain?

“The management of upstream and downstream relationships

with suppliers and customers to deliver superior customer
value at less cost to the supply chain as a whole.”
- (Mangan and Christopher, 2005, p.5).

Customer is an integral part of the supply chain

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Supply Chain Management: A Pictorial Representation
C1

C2

C3

C4

C5

C6

INBOUND INTERFACILITY DISTRIBUTION OUTBOUND

VENDOR PLANTS CUSTOMERS
TRANSPORTATION TRANSPORTATION CENTERS TRANSPORTATION

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Flows in a Supply Chain

Different flows in a supply chain:

 Material Flow Forward or Backward?
 Information Flow
 Financial Flow
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What are the decisions to be made?

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Supply Chain Decisions

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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

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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
– Locations and capacities of facilities
– Outsource supply chain functions
– 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
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Supply Chain Planning
• Definition of a set of policies that govern short-
term operations
• Fixed by the supply configuration from strategic
phase

• Starts with a forecast of demand in the coming

year
• 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
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Supply Chain Operation
• Time horizon is weekly or daily
• 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

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Supply Chain Management: Success Stories
Wal-Mart:
• Walmart operates more than 10,500 stores under 46 banners in 24
countries and e-Commerce websites. Employed approximately 2.3
million associates worldwide (2022)
• One of the largest supply chain in the world - average of $32 billion
in inventory
• Competitive Priority - EDLP
• Highly integrated supply chain – Technology driven SC decisions -
Real-time information sharing
• VMI, CPFR – Strategic Sourcing & Collaboration - Long-term and
high-volume purchases in exchange for the lowest possible prices
• Cross docking
• RFID & Smart Tags
• Automated re-ordering system, etc.
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 Supply Chain Management: The other side
• Cisco: Cisco wrote off 2.2 $ billion worth of inventory in May 2001.
Biggest write-off in history.
– Responded to high order patterns with higher build rates and substantial
inventory accumulation to facilitate the projected shipping rates & lead time
– Dot-com bubble
• Sony: PlayStation II–a lost opportunity
– SONY could supply only 25% of the potential demand for Christmas market
– Shortage of memory chips
• Apple: In 1995, Overstocking of PowerMac Laptop and understocking of PowerMac PCs
resulted in $1 billion-dollar unfulfilled orders
• KFC: In 2018, switched supply chain provider from Bidvest to DHL who had only one
warehouse at Rugby – centre of UK, against six by Bidvest. Road closure and heavy traffic at
Rugby resulted in no stock of chicken at 604 stores out of 870 stores in UK.

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 Recent Issues?
• Covid 19
– Supply disruption for most of the products
– Lack of resources - labors, machine hours, etc.
• Semiconductor Shortage
• Suez Canal Blockage
– The Suez Canal handles around 12% of global trade, making it an essential
point of passage. Each day of blockage disrupts more than $9 billion worth of
goods, according to Lloyd's List, which translates to about $400 million per
hour
• Russia Ukraine War
– Ukraine and Russia are the world's 'breadbaskets' producing more than 30%
of the world's wheat and barley, 20% of the global maize produce, and more
than 50% of the world's sunflower oil.
– Sharp rise in the prices of commodities, including petrol and diesel
– Russia, the biggest supplier of crude oil to India

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The Objective of a Supply Chain

Maximize overall value generated

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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.

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Cycle View
of Supply
Chain Processes

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Cycle View of
Supply Chain Processes

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Push/Pull View of Supply Chains

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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

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Push/Pull View – L.L. Bean – Fashion Retail

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Push/Pull View – IKEA- Furnitures

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Postponement
• To meet varying customer demands with
minimal inventory in the supply chain
• Aggregate forecasts than individual product
forecasts
• Individual forecasts is required close to the
time of sale when demand is known with
greater accuracy
• Modular Design

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Component Commonality

Maruti Suzuki
Same Engines & Platforms
for multiple models 
Common components

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• How do we decide about
– the level of inventory to maintain?
– the mode (truck/ ship/ flight) of transportation to
use?
– the location for facilities?
– the suppliers to outsource the manufacturing or
service process?

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Achieving Strategic Fit

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Competitive and Supply Chain Strategies
• Competitive strategy defines the set of customer
needs a firm seeks to satisfy through its products and
services
• Supply chain strategy determines the nature of
material procurement, transportation of materials,
manufacture of product or creation of service,
distribution of product

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Achieving Strategic Fit
• Strategic fit – competitive and supply chain
strategies have aligned goals
• The design of the overall supply chain and the role of
each stage must be aligned to support the supply
chain strategy.
• A company may fail because of a lack of strategic fit
or because its processes and resources do not provide
the capabilities to execute the desired strategy

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How is Strategic Fit Achieved?

1. Understanding the customer and supply

chain uncertainty
2. Understanding the supply chain capabilities
3. Achieving strategic fit

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Step 1: Understanding the Customer and
Supply Chain Uncertainty
• Desired rate of innovation in the product
• Variety of products needed
• Service level required
• Response time (Lead time) customers will
tolerate
• Price of the product
• Quantity of product needed in each lot

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Step 1: Understanding the Customer and
Supply Chain Uncertainty

• Demand uncertainty – The customers’ demand for a

product has a degree of uncertainty attached to it. It is
called “demand uncertainty”. Demand uncertainty
reflects the uncertainty of customer demand for a
product.

• Implied demand uncertainty - The business will have

planned a specific supply chain to satisfy a portion of
the “demand”, i. e. the target market. “Implied demand
uncertainty” is the resulting uncertainty for the supply
chain, which is based on the portion of demand the
supply chain must handle and is regarded as produced
by the desire of the customers.

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Customer Needs and
Implied Demand Uncertainty
Customer Need
Range of quantity required increases
Lead time decreases
Variety of products required increases
Number of channels through which
product may be acquired increases
Rate of innovation increases
Required service level increases
Causes Implied Demand Uncertainty to …
Increase because a wider range of the quantity required
implies greater variance in demand
Increase because there is less time in which to react to
orders
Increase because demand per product becomes less
predictable
Increase because the total customer demand per channel
becomes less predictable
Increase because new products tend to have more
uncertain demand
Increase because the firm now has to handle unusual
surges in demand
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Implied Uncertainty and Other Attributes
1. Products with uncertain demand are often less mature and have less
direct competition. As a result, margins tend to be high.
2. Forecasting is more accurate when demand has less uncertainty.
3. Increased implied demand uncertainty leads to increased difficulty in
matching supply with demand. For a given product, this dynamic can lead
to either a stockout or an oversupply situation.
4. Markdowns are high for products with greater implied demand uncertainty
because oversupply often results.

Low Implied High Implied

Uncertainty Uncertainty
Product margin Low High
Average forecast error 10% 40% to 100%
Average stockout rate 1% to 2% 10% to 40%
Average forced season-end 0% 10% to 25%
markdown
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Impact of Supply Source Capability

Supply Source Capability Causes Supply Uncertainty to...

Frequent breakdowns Increase
Unpredictable and low yields Increase
Poor quality Increase
Limited supply capacity Increase
Inflexible supply capacity Increase
Evolving production process Increase

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Implied Uncertainty
(Demand and Supply) Spectrum

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Step 2: Understanding Supply Chain
Capabilities

• How does the firm best meet demand?

• Supply chain responsiveness is the ability to
– Respond to wide ranges of quantities demanded
– Meet short lead times
– Handle a large variety of products
– Build highly innovative products
– Meet a high service level
– Handle supply uncertainty
• The more of these abilities a supply chain has,
the more responsive it is.
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Step 2: Understanding Supply Chain Capabilities

• Responsiveness comes at a cost. Because?

• Supply chain efficiency is the inverse to the

cost of making and delivering the product to
the customer
• The cost-responsiveness efficient frontier curve
shows the lowest possible cost for a given
level of responsiveness

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Cost-Responsiveness Efficient Frontier

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Responsiveness Spectrum

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Step 3: Achieving Strategic Fit
• Ensure that the degree of
supply chain responsiveness is
consistent with the implied
uncertainty
• Assign roles to different
stages of the supply chain that
ensure the appropriate level of
responsiveness
• Ensure that all functions
maintain consistent strategies
that support the competitive
strategy
• Target high responsiveness for
a supply chain facing high
implied uncertainty and
efficiency for a supply chain
facing low implied uncertainty
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 But, how to decide whether my product is
having high implied demand uncertainty or
not?

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What is the Right Supply Chain for Your Product?

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What is the Right Supply Chain for Your Product?

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What is the Right Supply Chain for Your Product?

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What is the Right Supply Chain for Your Product

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What is the Right Supply Chain for Your Product

• Move out of Top-Right – Frequent new

product introduction due to competition but
continued focus on physical efficient process
for delivery. Ex. Computer Industry
• Move to Top-Left – a product line
characterized by frequent introduction of new
offerings, great variety, and low profit margins.
Ex. Toothpaste
• Single strategy for all product segment? Sports
car vs normal cycle?

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What is the Right Supply Chain for Your Product

• Efficient Supply of Functional Products

– More than cost cutting aim for improving coordination
– Campbell Soup – Functional Product – Price Sensitive
• Electronic Data Interchange (EDI)
• Upper and Lower Inventory based demand forecasting
• Continuous replenishment everyday
• Negative impact of price promotions on physical efficiency
• Forward Buying & carrying inventory year long
• Waive forward buying using Every Day Low Price (EDLP)
• EDLP will be equal to average price received during promotional
deals or discount will be given for genuine increase in sales
• Resulting in predictable demand to Campbell
• Reduced 4 to 2 week inventory for Retailer
• More shelf space for Campbell products increased sales
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What is the Right Supply Chain for Your Product

• Responsive Supply of Innovative Products

– Accept Inherent Uncertainty
– Reduce uncertainty using new data, component commonality,
postponement, modular design
– Avoid uncertainty by cutting lead times & increasing supply
chain flexibility
– Hedge against residual uncertainty using buffers of inventory or
excess capacity
– National Bicycle – Innovative product – Sports Cycle
• Shifted focus from functional product (Cycle) to innovative products
• Develop a responsive chain to supply sport bikes – modular design
– Sport Obermeyer – Innovative product – Fashion Skiwear
• 95% new product every year
• Early orders from 25 largest retailers - <10% forecast error
• Express mail for quick information sharing from design to production
house
• Average of six member committee’s forecasts.
• Accurate Response
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