CHAPTER 1 - UNDERSTANDING THE SUPPLY CHAIN

Faculty of International Economic Relations

University of Economics and Law

‹#› Het begint met een idee

CONTENTS

▪ The supply chain

▪ The objective of a supply chain
▪ The importance of supply chain decisions
▪ Decision phases of a supply chain
▪ Process view of a supply chain
▪ Logistics vs supply chain management

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THE SUPPLY CHAIN

Supply chain consists of all links/stages

involved directly or indirectly in
fulfilling customer’s request /order

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DETERGENT SUPPLY CHAIN

Paper Packaging
Timber Company
Manufacturer Company

Retailers
FMCG
Wholesalers (Wal-Mart, Customers
(P&G, Unilever)
Carrefour)

Chemical Plastic
Manufacturer Producer

Source: Chopra and Meindl (2016)

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SUPPLY CHAIN MANAGEMENT

“The planning and management of all activities

involved in sourcing and procurement, conversion and
all logistics management activities. Importantly, it also
includes coordination and collaboration with channel
partners, which can be suppliers, intermediaries, third-
party service providers and customers.” (CSCMP)

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SUPPLY CHAIN MANAGEMENT = MANAGING FLOWS

▪ Flows of goods
▪ Flows of funds
▪ Flows of information

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THE OBJECTIVES OF A SUPPLY CHAIN

▪ Integrating supply chain players involved

▪ Minimizing system-wide costs, while meeting customer requirements
▪ Maximizing supply chain value

Supply Chain Surplus = Customer Value - Supply Chain Cost

Customer Surplus = Customer Value – Selling Price
Supply Chain Profitability = Selling Price – Supply Chain Cost
Supply Chain Surplus = Customer Surplus + Supply Chain Profitability

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WHY IS SUPPLY CHAIN COMPLEX?

▪ All parties involved in fulfilling a customer request: trade-offs &

conflicting objectives
▪ Dynamic flows: variations
▪ Geographically dispersed complex network: risks
▪ VUCA world

→ Supply chain decisions are important!

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DECISIONS PHASES OF A SUPPLY CHAIN

▪ Supply chain strategy or design

o How to structure the supply chain over the next several years
▪ Supply chain planning
o Decisions over the next quarter or year
▪ Supply chain operation
o Daily or weekly operational decisions

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SUPPLY CHAIN STRATEGY OR DESIGN

▪ Strategic supply chain decisions

o Locations and capacities of facilities
o Outsource or perform in house
o Products to be made or stored at various locations
o Modes of transportation
o Information systems
▪ Supply chain design must support strategic objectives
▪ Supply chain design decisions are long-term and expensive to
reverse

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SUPPLY CHAIN PLANNING

▪ Fixed by the supply configuration from previous phase that

establishes constraints for planning
▪ Supply chain planning decisions
o A forecast of demand in the coming year
o Which markets will be supplied from which locations
o Subcontracting
o Inventory policies
o Timing and size of market promotions
o Demand uncertainty, exchange rates, competition

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SUPPLY CHAIN OPERATION

▪ Decisions regarding individual customer orders

▪ Supply chain configuration is fixed and operating policies are
determined
▪ 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
▪ Uncertainty more or less?

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PROCESS VIEW OF A SUPPLY CHAIN

▪ Cycle view: supply chain processes divided into a series of cycles

▪ Push/Pull view: supply chain processes divided into two categories
o Push: processes executed in anticipation of customer orders
o Pull: processes executed by a customer order

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CYCLE VIEW OF SUPPLY CHAINS

Customer

Customer Order Cycle

Retailer

Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier

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PUSH/PULL VIEW OF SUPPLY CHAINS

▪ Useful in considering strategic decisions relating to supply chain

design
▪ Push/pull boundary separates push processes from pull processes

Source: Chopra and Meindl (2016)

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LOGISTICS VS SUPPLY CHAIN MANAGEMENT

▪ Logistics is responsible for the movement of raw materials, work-in-

process, finished inventories from suppliers through an
organization to customers.
▪ “Logistics management is that part of supply chain management
that plans, implements, and controls the efficient, effective forward
and reverse flow and storage of goods, services, and related
information between the point of origin and the point of
consumption in order to meet customers’ requirements.” (CSCMP)

→ Logistics is a subset of supply chain

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LOGISTICS VS SUPPLY CHAIN MANAGEMENT

Logistics Supply chain management

Logistics basically consists of activities within SCM refers to network among organizations
an organization (intra-organization). coordinating to deliver products to markets
(inter-organization)

Logistics focuses on transport, inventory SCM consists of logistics activities, marketing,

management, warehousing, etc. new product introduction, finance, customer
service

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LOGISTICS VS SUPPLY CHAIN MANAGEMENT

Source: Rushton et al. (2014)

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 CHAPTER 1 - UNDERSTANDING THE SUPPLY CHAIN

THANK YOU!

‹#› Het begint met een idee