Supply chain Definition and Stages Integration of all business activities is important to achieve a smooth flow of goods or products

. Supply chain is defined as a process that begins at the raw material stage and ends at the consumption stage. Returns initiate the reverse supply process. Chopra and Meindl (2001) define supply chain as a process that involves all parties that contribute directly and indirectly to fulfil consumers need. It includes manufacturers, suppliers, transporters, warehouses, retailers and customers. The process integrates all functions of an organisation to fulfil the needs of their immediate customer. The functions are new product development, marketing, operations, distribution, finance, and customer service Plastic Producer Chemical Manufacturer P & G or Other Manufacture Wal-Mart or Third Party DC Wal-Mart Store Customer at Wal-Mart Tenneco Packaging Paper Manufacturer Timber Company Figure 1.1: Stages of a Detergent Supply chain:

DC: Distribution Centre The above figure shows a supply chain or a detergent. Wal-Mart is the retailer and the distribution centre as well. The supply chain is triggered by the consumer’s need for detergent. Wal-Mart stocks the inventory of detergent through their Distribution centre of warehouse. The Warehouse could be managed by Wal-Mart or any third party distributor. The distributor stocks from manufacturer like P&G or Unilever or any other manufacturer. P&G or other manufacturers will in turn get materials from other suppliers. In this case, P&G get raw material supplies from variety of suppliers (in turn these could get their supplies from lower tier suppliers). For example Tenneco packaging provides packaging material to P&G but in turn gets its materials from Lower tier suppliers. Supply chains are dynamic in nature and involve constant flow of information, product and funds between different stages. As per the illustrations Wal-Mart Provide product and price information to the consumer, consumer pays for the product he procured. Similarly Wal-Mart conveys point of sales data and replenishment order information to the warehouse or distributor, who transfers the replenishment order’s to Wal-Mart through trucks. The distributor sends the pricing information and delivery schedules to Wal-Mart. Wal-Mart pays in accordance to the contract signed. Transfer of funds and materials is seen at every supply chain stage. Let us see another example of Dell System. Consumer’s order for a Dell system online. This supply chain includes consumers, Dell’s Website that takes the order, Dell assemble plant and suppliers. The website provides pricing information to its consumers. It also informs the variety and product availability. Once the consumer chooses the product and pays for it, the information is transferred to assemble unit, which in turn procures the materials at intervals to build the laptop or desktop. Consumer could check the status of order on the website at every stage of a supply chain. Similar to the detergent chain, we see the transfer of information, product and funds at every stage of the supply

FMCG product’s supply chain will include all the stages of a supply chain. If we look at LL Bean. Wholesalers/Distributors 4. Component/Raw material Suppliers In reality a manufacturer has multiple suppliers for raw materials. Manufacturers 5. The supply chain stages are: 1. Similarly there are many distributors who buy goods from manufacturers to sell them to the retailers present in the market. wholesaler or distributor is not present in their supply chain. Figure 1. It is seen as a supply network (As seen in the figure below) Every Supply Chain would not have all the stages as shown in the figure. they do not respond to the customer order’s directly. This adds a retailer in comparison to dell supply chain. Retailers 3. Depending on the customer needs and roles of the stage the supply chain is designed.3: Stages of Supply Chain Objectives of supply chain/Supply chain flows One of the most important objectives of a supply chain is to maximise the overall value generated by . Primary purpose is to meet the consumer needs. Dells sells directly to consumers hence retailer.chain Figure 1:2 Supply chain Definition Material Flow Customers Distributors Operations Procurement Suppliers Requirements in Information Flow Transfer of Funds Materials management Distribution Logistics Management Supply Chain Management The examples indicate that consumers are an integral part of a supply chain. a mail order company. which in turn generates profits. They stock up the product. These making a supply chain a network of organisations that work together to meet the consumer’s need. Customers 2.

products to be manufactured or stored at various locations. This is the only positive cash flow. warehouses and supply sources are all supply chain design or strategic decisions. Decisions made are for a quarter year Planning has to work in conjunction to the strategic decisions made as they cannot be amended. The supply chain costs are cost of components. Supply chain configuration should support its strategy. f. subcontracting of manufacturing. Supply chain profitability is the total profit that is shared across all supply chain stages. inventory polices to be followed. These decisions are long term in nature Expensive to alter on short notice Uncertainty of market conditions over the future period should be taken into consideration 2. funds or products). Locations of resources and processes to be taken place at each stage are set out d. product. c. 1. warehousing. inventory polices to be followed. Management of flows between and among supply chain stages to maximise total supply chain profitability is called supply chain management. time and size of marketing promotions are part of planning e. Decision phases are set out on the basis of its frequency. modes of transports to be used along the chain and type of information system used are few strategic decisions taken in this phase e. Decision Phases in a Supply Chain For a supply chain to be successful decisions on flows (information. Planning starts with forecasting of market demand for a year Decisions on which market will be supplied from which location. b. Performance of a supply chain should be on the basis of supply chain profitability and not profit at individual stages. Companies would design or structure their supply chain to be efficient for several years Supply chain configurations are designed (They design how resources will be allocated and what process will be performed by each stage) c. This is the difference between the price the customer paid and the overall cost across the supply chain. Key to supply chain success is to manage these flows effectively. The value is the one for which the consumers pay. Locations. In a Supply chain the source of funds is only from the consumer. A end user pays money to Wal-Mart for the detergent purchased. d. h.the supply chain. storage and inventory cost. capacities of production. Let us use the Wal-Mart Detergent example to demonstrate the same. All transactions between two parties in a supply chain generate cost (transactions could be information. g. Commercial supply chains link value to supply chain profitability. facilities. funds) needs to be taken accurately. eg Dell’s decision on location and capacity of manufacturing facilities. Supply chain Strategy of Design a. Supply chain Planning a. Planning sets out parameters within which supply chain should function over a specific period of time . transportation and transactions cost. Wal-Mart would transfer a part of this fund to the suppliers. b.

exchange rates and competition over a specified period of time g. Given the shorter time the forecasts are better when compared to the design phase Firms try to incorporate flexibility into the supply chain design in the planning phase to exploit optimize performance. Companies should include uncertainty of demand. i. Operating polices are set out to govern short term operations . h.f.

c. deadline for order filling. information and funds efficiently and meet the consumer demand Cycle view: processes in a supply chain are divided into a series of cycles. Customer order cycle (customer-retailer) 2. pick list at a warehouse. The time periods here are weekly or daily basis Decisions on individual consumer orders are taken Supply chain configuration is fixed and planning policies are defined Aim if supply chain operations is to efficiently handle customer orders Allocation of inventory or production to individual orders. h. 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) Cycle View of Supply Chain Process All supply chain process can be broken down to four process cycles. delivery schedules of trucks and placement of replenishment orders are activities of daily supply chain operations f. Planning and operation) Process View Of Supply Chain A supply chain is built with the help of processes that help the firms to maintain the flows of products. Each cycle occurs at the interface between two successive stages 1. Replenishment cycle (retailer-distributor) 3. Management concepts and methodologies could be used to improve each of the phases (Design.3. d. Reduction of the effects of uncertainty and optimisation of performance is the main objective of a supply chain operation All the three phases set out the performance of supply chain in totality.4 Cycle View of Supply Chain Process . e. Procurement cycle (manufacturer-supplier) Figure 1. Due to the time frame the uncertainty is less in terms of demand Configurations and planning policies are constraints for daily operations of a supply chain. b. g. Manufacturing cycle (distributor-manufacturer) 4. Supply Chain operation a. order allocation to be shipped (Shipment and shipping mode).

on the website the customer selects the product into the shopping cost and moves on ot the next stage. easy to understand for the customer. accurate and the information should be communicated to all other supply chain processes that require it. Customer order fulfilment: This process ensures the customer to receive the product or service they order in the previous stage. calling a tele marketer. Triggers at retailer site and involves filling customer demand. Eg: customer walking into a supermarket. it takes the time to ship the product from the firm’s location to the customer house). Supermarket-consumer collects the product after the bill payment. There is visibility in terms of roles and responsibilities. telemarketing executive get the information from the customer through phone. Contact should be made with the customer to ensure it turns into a customer order. Customer arrival: the activity refers to the customer visiting the retailer to select the product or service required based on his needs and situation. Lets see each process in detail Customer order fulfilment Customer order Entry Customer order Receiving Customer Arrival Customer Order Cycle: This process occurs at customer-retailer interface. customer order entry.There is an interface between each successive stages of a supply chain. It involves all the activities like receiving and filling the customer’s order. . uses of internet shopping portal. customer order fulfilment and customer order receiving. It allows us to identify the infrastructure required for every process. Web merchandise and telemarketing would ship the product to the customer within a set period (Set by the firm. The organisation should ensure this process to be quick. In a super market order entry takes place at the billing counter. The process involves customer arrival. Each supply need not have all the cycles of a chain Supply chain Process Cycles: Cyclic view helps in considering operational decisions. The organisation should work on converting arrivals into orders to ensure more business happens at the retail outlet. Eg. Process ownership and objectives are defined clearly when building on information system. Eg. Customer order Entry: Customer informs the representative the list of products or service he is willing to purchase.

Eg: At billing counter in the supermarket. at consumers place while ordered through telemarketing and web merchandise.This takes place from the retailer inventory. here the retailer is the customer. All activities involved in replenishment retailer inventory is executed in this cycle. Manufacturing cycle is like an integrated steel mill that collects orders to enable manufacturer to produce in larger quantities. It is similar to customer order cycle. Manufacturing Cycle: This cycles occurs at the distributors-manufacturer interface or retailermanufacturer interface. Objectives of this process is to ensure that the consumer’s receives the product they order to avoid returns process and associated costs Customer order receiving: This process ensures that the consumer attains the ownership of the product or service he had ordered. The orders should physically reach the retailer and then update all the inventory records. Here the retailer places the order to the distributor or manufacturer. Here this takes place at the distributors premises. Replenishment cycle: This process occurs at the retailer-distributor interface. This process would generate an order that is passed on to distributor or manufacturer Retail Order Entry: Similar to customer order entry. In this case the manufacturer is reacting to the customer demand this is called a pull process. Retailer becomes the customer. This cycle’s objective is to replenish retailer’s inventory at minimum cost and high product availability. The cycle includes the processes that required to replenish the retailer inventory. The retailer triggers the process by placing order to meet future demand. The processes of retail order cycle are as follows: Retail Order Receiving Retail order Trigger Retail order Fulfilment Retail Order Entry Retail Order Trigger: Consumption of products at the retailer’s end would deplete the inventory or stock at the retailer’s end. Here we can see product and information flow from distributors to retailer. The funds are moved from retailer to distributor. The order is placed and informed to the distributor or manufacturer. The retailer would try to ensure maximum level of profitability along with economies of scale. In contrast FMCG firms produce products anticipating consumer demand. The replenishment order would be of a larger quantity in comparison to the customer order quantity. Retailer would develop replenishment order policy that would trigger an order to ensure product availability. This ensures that the process of payment and updation of receipt is completed. Order Arrival Receiving . Retail Order Fulfilment: Similar to customer order fulfilment. The process is triggered by customer order (dell) or replenishment order ( from retailer or distributor eg Wal-Mart ordering from P&G) or due to the forecast of customer demand and current product availability at the manufacturers finished goods warehouse. balancing product availability and reduction in cost of holding inventory. The objective here is to ensure cost is low but the order would reach retailer on time. The objective of this process is to ensure the order made is accurately entered and conveyed to all associated supply chain process. Payment could be made earlier or when collecting the product. Retail Order Receiving: Retailer receives the replenishment order. Only build to order frame work it takes place at the manufacturer’s production line. The process being pull/push is purely based on the type of product. This is referred to as push process.

retailer or customer based on a forecast of future demand and current level of inventories. Retailer/ distributor orders on the basis of uncertain customer demand by the manufacturer can precisely identify the quantity of components required for a production schedule. storage and fund transfers are also part of this process. This relationship is quite similar to that of distributors and manufacturer but has a difference. Timely delivery of goods and maintaining quality standards and keeping costs low is the objective of this process. If the lead time is long. The manufactured product is shipped to customer. Production Scheduling: This is similar to the order entry process is the replenishment cycle. This demand is conveyed to the manufacturer depending on the company’s supply chain design the order is processed by either a customer. Order is triggered from warehouse. distributor. distributor. Manufacturer produces in accordance to production schedule. Manufacturer order’s components and raw materials from its suppliers that would help replenish the inventories. The objective of this process is to maximise the preparation of orders filled on time while minimizing the costs. Cyclic view on process would define process in clarity.Manufacturing and shipping Production Scheduling Order Arrival comes from the finished goods warehouse. Similar to retail order trigger process in the replenishment cycle. Manufacturing and Shipping: This process is equivalent to the order fulfilment process of the replenishment cycle. Transfer of funds could be based on the service level agreement made between the two parties. where inventory is allocated to an order. It also is done to ensure the availability of products and a future demand forecasted. Production schedule is very important for this process. This helps in improving operational decisions as it specifies roles and responsibilities of each supply chain member including the outcome desired. Hence suppliers need to be integrated into the production schedule. retailer or customer to the manufacturer. Production sequence should be set on the basis of quantity required of each product. distributor or finished goods warehouse depending on the supply chain design. distributor or finished goods warehouse (to stock up). Production scheduling process and order (Into forecasted ones) are accumulated into a production plan. retailer or customer receiving the goods and inventory levels being updated. Procurement Cycle: This process takes place at the manufacturer supplier interface. then they need to manufacturer based on forecast as the production schedule of the manufacturer which is not fixed in advance. retailer. Receiving: This stage characterizes the process of the warehouse. Push/Pull View of Supply Chain Process . This process ensures that manufacturer would have sufficient material for production and operation. In real time there may be several levels of suppliers that are linked to the manufacturer. If the production set up has multiple lines the manufacturer should decide line to be allocated to each product. retailer.

Orders are filled with the products manufactured in anticipation of demand. A boundary in a supply chain separates push and pull process (Push/Pull Boundary). In this supply chain we would have only 2 cycles one customer order and manufacturing cycle and procurement cycle as seen in the figure below . Push Process is triggered in anticipation of customer demand. Dell does not sell through reseller or distributor but directly to the consumer. Demand is not filled by finished product inventory. This may aid in changing pull to push process and vice versa. Pull Process ensures known customer demand in contrast push process the demand is unknown and should be forecasted. In the LL Bean Supply Chain the processes are divided into push and pull process as seen in the figure below. This view triggers globalisation of supply chain with respect to supply chain process as related to the customer order. Manufacturing and procurement cycle are of the same nature. Pull Process are reactive in nature and push is speculative in nature (Since it’s forecasted). Let us discuss the push/pull view of supply chain process using a mail order firm and dell supply chain In the below example we can see that all processes after customer order arrival are pull in nature. Pull Process is triggered by response to consumer demand. Responsibilities could be transferred to next stage. but by production.Supply chain processes can be divided into two categories based on the time of executions relative to a customer order. Eg: L L Bean Supply Chain Eg Dell: Dell is a built to order computer manufacturing firm. The replenishment and manufacturing cycle aims at ensuring product availability when a customer order arrives. The Manufacturing cycle thus becomes a part of customer order fulfilment process in customer order cycle. Push-Pull view of supply chain aids in building strategic decisions in relation to the supply chain design. RM like fabric is purchased six to nine months before customer demand is expected. All the processes in the replenishment are push in nature as they are stocked in anticipation of demand. Eg At Dell beginning of PC assembly represent the push-pull boundary before this point are push process and after the point the pull process including assembly. Eg.

order management and call centre management are part of CRM functions ISCM aims at fulfilling customer demand Includes planning of internal production and storage of demand and supply plans and internal fulfilment ● SRM aims at arranging for the and manage supply sources for various goods and service ● ● ● ● ● Competitiveness and supply chain Strategies Competitive strategy of a company defines the set of customer needs that it seeks to satisfy through its products and services ● Defined based on how customer prioritises product cost. information and fund’s flow CRM aims at generating customer demand and facilitate the placement and tracking of orders Marketing. Supplier Relationship Management (SRM): All processes that focus on the interface between the firm and its suppliers Figure 1. delivery time. Supply Chain Macro Processes in a firm 1. The difference between both the examples are that Dell supply chain has higher no of pull process is comparison to LL bean supply chain. Customer Relationship Management (CRM): All processes that focus on the interface between the firm and its customers 2. This view of supply chain helps in decisions with respect to supply chain strategy.All processes in customer order and manufacturing cycle are pull process and the process within the procurement cycle are push in nature because they respond to a forecast. variety and quality ● Targets one or more customer segments and aims to provide products and services that satisfy these customer’s needs ● Some company’s competitive strategies are defined around the following . Internal Supply Chain Management (ISCM): All processes that are internal to the firm 3. sales.5 Supply Chain Macro Processes in a Firm These activities manage the product.

all the functions play a role and each must develop its own strategy Supply chain strategy determines ○ The nature of procurement of raw materials. Understanding the supply chain capabilities 3. along with any follow-up service This strategy includes what many traditionally include ○ Supplier strategy ○ Operations strategy. Understanding the customer. The variety of products needed 4. transportation. The service level required 5. ○ Transportation of materials to and from the company. Achieving strategic fit Understanding the Customer and Supply Chain Uncertainty To understand the customer. availability and responsiveness – eg: McMaster Carr – MRO items . The response time that customers are willing to tolerate 3.● ● ● ● High availability of a variety of reasonable quality products at low prices – eg: WalMart ○ Better customer convenience. The price of the product 6. The desired rate of innovation in the product Implied Demand Uncertainty Demand uncertainty reflects the uncertainty of customer demand for product Implied demand uncertainty is the uncertainty in meeting a portion of customer demand and it is the uncertainty the supply chain faces. It is mainly due to the attributes the customer desires Illustration As a supply chain raises its service level.000 items through catalogue and web site ○ Better customisation and variety at reasonable cost – eg: Dell To execute a competitive strategy of a company. and ○ Logistics strategy Decisions regarding inventory.over 200. and information flows in the supply chain are all part of supply chain strategy ○ Achieving Strategic Fit Strategic fit means that both the competitive and supply chain strategies have the same goal It refers to consistency between – The customer priorities that the competitive strategy hopes to satisfy and – The supply chain capabilities that the supply chain strategy aims to build Major task of chief executive officer (CEO) is aligning all of the core strategies with the overall competitive strategy to achieve strategic fit During the supply chain design a key consideration is the strategic fit A company’s success or failure closely linked to the Following 1. it must be able to meet a higher and higher percentage of . The quantity of the product needed in each lot 2. ○ manufacture of the product or operations to provide the service. a company must identify the needs of the customer segment being served Customer demand from different segments may vary along several attributes: 1. operating facilities. Different functions in a company must appropriately structure their process and resources to be able to execute these strategies successfully Basic steps to achieve strategic fit 1. and supply chain uncertainty 2. and ○ Distribution of the product to the customer. The competitive strategy and all functional strategies must fit together to form a coordinated overall strategy 2.

companies should move their competitive strategy (and resulting implied uncertainty) and supply chain strategy (and resulting responsiveness) towards the zone of strategic fit To achieve complete strategic fit.actual demand.Supply chains range from those that focus solely on being responsive to those that focus on a goal of producing and supplying at the lowest possible cost Achieving Strategic Fit: Strategic fit is achieved if what the supply chain does particularly well is consistent with the targeted customer’s needs and the uncertainty of the supply chain For high level of performance. and in the other end highly uncertain supply and demand Understanding the supply chain Important supply chain characteristics are responsiveness and efficiency Supply chain responsiveness includes a supply chain’s ability to do the following ● Respond to wide range of quantities demanded ● Meet short lead time ● Handle a large variety of products ● Build highly innovative products ● Meet a very high service level ● Handle supply uncertainty Supply chain efficiency is the cost of making and delivering a product to the customer Cost-responsiveness efficient frontier is the curve showing the lowest possible cost for a given level of responsiveness Shows the cost-responsiveness performance of the best supply chain Firms on the efficient frontier are also continuously improving their processes and changing technology to shift the efficient frontier itself ● Responsiveness spectrum . Product demand uncertainty and various customer needs that the supply chain tries to fill affect implied demand uncertainty The following customer needs increases implied demand uncertainty – Range 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 Correlation between implied demand uncertainty and other attributes Following supply source capabilities increase the supply uncertainty and hence high implied demand uncertainty ● Frequent breakdown ● Unpredictable and low yields ● Poor quality ● Limited supply capacity ● Inflexible supply capacity ● Evolving production process Implied uncertainty spectrum shows in one end predictable supply and demand. a firm must consider all functional strategic within the value chain Other Issues Affecting Strategic Fit ● Multiple products and customer segments . Thus raising the service level increases the implied demand uncertainty even though the product’s underlying demand uncertainty does not change. forcing it to prepare for rare surges in demand.

customers are becoming accustomed to having their individual needs satisfied ○ Competitive focus today is on producing sufficient variety at a reasonable price ● As competitive landscape changes. the strategic fit is expanded to include all operations within a function ● The scope of strategic fit expands to an entire function within a stage of the supply chain Intracompany interfunctional scope: maximise company profit view ● Different functions may have conflicting objectives ● Functional strategies are developed to support both each other and the competitive strategy Intercompany interfunctional scope: maximise supply chain surplus view ● Intracompany interfunctional scope leads to each stage of the supply chain trying to maximise its own profits. intracompany interfunctional strategy performs badly . customer segments and supply sources ● Several possible routes a company can take ○ One route – set up independent supply chains for each different product or customer segment Feasible if each segment is large enough to support a dedicated supply chain ○ Preferable strategy is to tailor the supply chain to best meet the needs of each product’s demand ● Tailoring the supply chain requires some links in the supply chain with some products.all functional areas within all stages of the supply chain device strategy jointly with a common objective Intracompany intraoperation scope: minimises local cost view ● Strategic fit is considered in one operation within a functional area within a company ● Resulting collection of strategies will most likely not come close to maximising supply chain profit –conflicting local objectives ● Practices during 1950s and 1960s Intracompany intrafunctional scope: minimise functional cost view ● Given that many operations together form each function within a firm. while having separate operations for other links considering efficiency and responsiveness Product Life Cycle ● As product go through their life cycle. the corresponding supply chain strategy should. in general. the demand characteristics and the needs of the customer segments being served change ● As product mature.operation within a function devices independent strategy ● Other extreme . a firm is forced to alter its competitive strategy –result in change in supply chain strategy Expanding strategic scope ● Scope of strategic fit refers to the function and stages that devices an integrated strategy with a shared objective ● One extreme . move from being responsive to being efficient ● ● Competitive Change over Time ● Competitor can change the landscape of the market ○ Growth of mass customisation – competitors flood the marketplace with product variety.Product life cycle Competitive change over time Multiple Products and Customer Segments ● Firms often sells multiple products and serves customer segments with very different needs ● Different products and segments have different implied demand uncertainty ● Key issue for company is to create a supply chain that balances efficiency and responsiveness given its portfolio of products. which does not necessarily result in the maximisation of supply chain surplus ● When company uses speed as their primary competitive advantage to succeed in the marketplace. managers recognised the weakness of the intracompany intraoperation scope ● With the intracompany intrafunction scope.

assembled. a company may have to partner with many different firms depending on the product being produced and the customer being served – strategic fit should have agile intercompany scope Drivers of Supply Chain Performance ● Facilities ○ places where inventory is stored.The impediment to create level of speed that customers are demanding lies to a degree within their own boundaries ○ Managing these interfaces becomes a key to providing speed to customers ● Intercompany scope forces every stage of the supply chain to look across the supply chain and evaluate the impact of its action on other stages as well as on the interfaces ● This means treating stages in the supply chain that a company does not own as belonging to the company ○ Agile intercompany interfunctional scope ● Till now the discussion was on strategic fit under static context – players in supply chain and customers do not change over time ● Dynamics exits – product life cycle get shorter and companies try to satisfy the changing needs of individual customers ● In such situations. facilities throughout the supply chain ○ potentially the biggest driver of supply chain performance ● Sourcing ○ functions a firm performs and functions that are outsourced ● Pricing ○ Price associated with goods and services provided by a firm to the supply chain A Frame Work for Structuring Drivers . finished goods within a supply chain ○ inventory policies ● Transportation ○ moving inventory from point to point in a supply chain ○ combinations of transportation modes and routes ● Information ○ data and analysis regarding inventory. or fabricated ○ production sites and storage sites ● Inventory ○ raw materials. WIP. transportation.

inventory can be reduced to make the firm more efficient ● Trade-off ● Example Nordstrom . a firm can locate larger amounts of inventory closer to customers ● If cost is more important. T = flow time Example Inventory and throughput are “synonymous” in a supply chain Role in Competitive Strategy ● If responsiveness is a strategic competitive priority.Facilities ● Role in the supply chain ○ the “where” of the supply chain ○ manufacturing or storage (warehouses) ● Role in the competitive strategy ○ economies of scale (efficiency priority) ○ larger number of smaller facilities (responsiveness priority) ● Example Toyota and Honda ● Components of facilities decisions Components of Facilities Decisions: ● Location ○ centralization (efficiency) vs. cross-docking) ● Overall trade-off: Responsiveness versus efficiency Inventory Role in Supply Chain ● Inventory exists because of a mismatch between supply and demand ● Source of cost and influence on responsiveness ● Impact on ○ material flow time: time elapsed between when material enters the supply chain to when it exits the supply chain ○ throughput rate at which sales to end consumers occur I = RT (Little’s Law) I = inventory. proximity to customers) ● Capacity (flexibility versus efficiency) ● Manufacturing methodology (product focused versus process focused) ● Warehousing methodology (SKU storage.g. R = throughput.. job lot storage. decentralization (responsiveness) ○ other factors to consider (e.

pipeline. production scheduling. truck.. inventory levels Role in Competitive Strategy ● Allows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off) ● Information technology ● What information is most valuable? ● Example Andersen Windows ● Example Dell Components of Information Decisions ● Push (MRP) versus pull (demand information transmitted quickly throughout the supply chain) ● Coordination and information sharing ● Forecasting and aggregate planning ● Enabling technologies ○ EDI ○ Internet ○ ERP systems . electronic transportation ○ vary in cost. ship.Components of Inventory Decisions ● Cycle inventory ○ Average amount of inventory used to satisfy demand between shipments ○ Depends on lot size ● Safety inventory ○ inventory held in case demand exceeds expectations ○ costs of carrying too much inventory versus cost of losing sales ● Seasonal inventory ○ inventory built up to counter predictable variability in demand ○ cost of carrying additional inventory versus cost of flexible production ● Overall trade-off: Responsiveness versus efficiency ○ more inventory: greater responsiveness but greater cost ○ less inventory: lower cost but lower responsiveness Transportation Role in Supply Chain ● Moves the product between stages in the supply chain ● Impact on responsiveness and efficiency ● Faster transportation allows greater responsiveness but lower efficiency ● Also affects inventory and facilities Role in Competitive Strategy ●If responsiveness is a strategic competitive priority. speed. then faster transportation modes can provide greater responsiveness to customers who are willing to pay for it ● Can also use slower transportation modes for customers whose priority is price (cost) ● Can also consider both inventory and transportation to find the right balance ● Example Laura Ashley Components of Transportation Decisions ● Mode of transportation: ○ air. rail.g. size of shipment. flexibility ● Route and network selection ○ route: path along which a product is shipped ○ network: collection of locations and routes ● In-house or outsource ● Overall trade-off: Responsiveness versus efficiency Information Role in Supply Chain ● The connection between the various stages in the supply chain – allows coordination between stages ● Crucial to daily operation of each stage in a supply chain – e.

○ Supply Chain Management software .

.Overall trade-off: Responsiveness versus efficiency Sourcing Role in Supply chain ● Set of business processes required to purchase goods and services in a supply chain ● Supplier selection. multiple suppliers. single vs. contract negotiation Role in Competitive strategy ● Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain ● In-house vs. outsource decisions.improving efficiency and responsiveness ● Example Cisco Components in Sourcing Decisions ● In-house versus outsource decisions ● Supplier evaluation and selection ● Procurement process ● Overall trade-off: Increase the supply chain profits Pricing Role in Supply Chain ● Pricing determines the amount to charge customers in a supply chain ● Pricing strategies can be used to match demand and supply Role in Competitive Strategy ● Firms can utilize optimal pricing strategies to improve efficiency and responsiveness ● Low price and low product availability. vary prices by response times ● Example Amazon Components of Pricing Decisions ● Pricing and economies of scale ● Everyday low pricing versus high-low pricing ● Fixed price versus menu pricing ● Overall trade-off: Increase the firm profits ● Obstacles to Achieving Strategic Fit ● Increasing variety of products ● Decreasing product life cycles ● Increasingly demanding customers ● Fragmentation of supply chain ownership ● Globalization ● Difficulty executing new strategies ● Simultaneous pursuit of Responsiveness and efficiency Explain the above in one or two lines in your own words and read the examples from the text book.

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