You are on page 1of 40

Understanding the Supply Chain

Management

What is a Supply Chain
Two or more parties linked by a flow of
resources – typically material,
information, and money – that
ultimately fulfill a customer request.
Supply Chain try to maximize the total
value generated
= [What customer pays] – [ Total effort
expended to fulfill]

Flows in a supply chain
Information
Product

Customer
Funds

Supply Chain Perspectives

The Supply Chain
Suppliers

Manufacturers

Transportation
Costs
Material Costs

Warehouses &
Distribution Centers

Customers

Transportation
Costs

Manufacturing Costs

Transportation
Costs
Inventory Costs

7

The Supply Chain – Another View

Plan
Plan

Source
Source

Suppliers

Make
Make

Manufacturers

Deliver
Deliver

Buy
Buy

Warehouses &
Customers
Distribution Centers

Transportation
Transportation
Costs
Costs
Transportation
Material Costs
Manufacturing Costs
Inventory CostsCosts
8

Logistics versus Supply Chain
Management

9

What is Supply Chain Management
“Supply chain management deals with
the management of materials,
information, and financial flows in a
network consisting of suppliers,
manufacturers, distributors, and
customers”.
Stanford Supply Chain Forum

Some Definitions
Supply Chain Management encompasses every
effort involved in producing and delivering a
final product or service, from the supplier’s
supplier to the customer’s customer. Supply
Chain Management includes managing supply
and demand, sourcing raw materials and parts,
manufacturing and assembly, warehousing
and inventory tracking, order entry and order
management, distribution across all channels,
and delivery to the customer.
The Supply Chain Council, U.S.A.

Definition of Logistics
Management
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 points of origin and the point
of consumption in order to meet
customers’ requirements.

-- CSCMP

Types of Supply Chain
• Efficient supply chain (cost focus)
• Responsive supply chain (speed
focus)

What Is Supply Chain Management (SCM)?
Plan

Source

Buy

Suppliers
Manufacturers
Warehouses
Distribution centers

So that the product is produced and distributed



Deliver

A set of approaches used to efficiently integrate



Make

In the right quantities
To the right locations
And at the right time

System-wide costs are minimized and
Service level requirements are satisfied
14

Sources of Variability in Supply Chain

• Demand variability (about 60%)
• Process variability (about 30%)
• Supply variability (about 10%)

Decision Phases of a Supply Chain

Supply chain strategy or design
How to structure the supply chain over the next several
years

Supply chain planning
Decisions over the next quarter or year

Supply chain operation
Daily or weekly operational decisions

Supply Chain Strategy or Design

Decisions about the structure of the supply chain and what processes
each stage will perform.

Strategic supply chain decisions
Locations and capacities of facilities
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.

Supply Chain Planning

Planning decisions:
Which markets will be supplied from which locations
Planned buildup of inventories
Subcontracting, backup locations
Inventory policies
Timing and size of market promotions

Must consider in planning decisions—demand uncertainty,
exchange rates, competition over the time horizon

Supply Chain Operation

Time horizon is weekly or daily.

Decisions regarding individual customer orders.

Supply chain configuration is fixed and operating policies are
determined.

Goal is to implement the operating policies 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.

Much less uncertainty (short time horizon).

Process View of Supply Chain
Four primary cycle:
o Customer order cycle
o Replenishment cycle
o Manufacturing cycle
o Procurement cycle
Not every supply chain will have all 4 cycles

Macro Process Perspective
• Supplier Relationship Management
(Sourcing, Negotiation, Buying, Design and Supply
Collaboration)

• Internal Supply Chain Management
(Strategic Planning, Demand Planning, Supply
Planning, Fulfillment)

• Customer Relationship Management
(Marketing, Selling, Call Centers, Order Management)

Supply Chain Macro Processes

Figure 1-8

Traditional Functional Perspective
• Purchase / Procurement
• Inventory Control
• Warehousing

• Material Handling
• Order Processing
• Transportation

• Customer Service

• Planning Group

Supply Chain as a System

Bullwhip Effect

Segmentation for Managing Supply
Chain
o
o
o
o
o

Type of product
Cost
Type of customer
Profit margin
Location etc.

How can I segment my products?
• Physical characteristics
(value, size, density, etc.)

• Demand characteristics
(sales volume, volatility, sales duration, etc)

• Supply characteristics
(availability, location, reliability, etc.)

Segmentation based on type of
customer or supplier








Lead time
Purchase History
Geography
Sales Trends
Strategic Importance
Service Level
Order/Volume
Demographic
Channel Segmentation

Segmentation: Innovative vs.
Functional

Challenges to Effective Supply Chain
Management



Complex supply chain network
Complex product structure
Organizational silos
Increasing pressure for customer service and
asset utilization
• Multiple source of uncertainties

Why Is SCM Difficult?
Plan

Source

Deliver

Buy

Uncertainty is inherent to every supply chain



Make

Travel times
Breakdowns of machines and vehicles
Weather, natural catastrophe, war
Local politics, labor conditions, border issues

The complexity of the problem to globally optimize
a supply chain is significant


Minimize internal costs
Minimize uncertainty
Deal with remaining uncertainty

36

Supply Chain Management – Key Issues

Overcoming functional silos with conflicting goals

Customer Service/
PurchasingManufacturingDistribution
Sales

Low
purchase
price
Multipl
e
vendo
rs
SOURCE

Few
changeovers
Stable
schedul
es
Long
run
lengths
MAKE

Low
inventories
Low
transportati
on
DELIVER

High
inventorie
s
High
service
levels
Regional
stocks

SELL
37

SCM Collaboration and Benefits

CUSTOMERS

MATERIAL
SUPPLIERS

• Reduced inventory
• Increased revenue
• Lower order management
costs
• Higher Gross Margin
• Better forecast accuracy
• Better allocation of
promotional budgets

• Reduced inventory
• Lower warehousing costs
• Lower material acquisition
costs
• Fewer stockout conditions

SERVICE
SUPPLIERS
• Lower freight costs
• Faster and more reliable
delivery
• Lower capital costs
• Reduced depreciation
• Lower fixed costs

• Improved customer service
• More efficient use of human resources

Source: Cohen & Roussel

38

Supply Chain Management – Key Issues
ISSUE

CONSIDERATIONS

Network Planning

• Warehouse locations and capacities
• Plant locations and production levels
• Transportation flows between facilities to minimize cost and time

Inventory Control

• How should inventory be managed?
• Why does inventory fluctuate and what strategies minimize this?

Supply Contracts

• Impact of volume discount and revenue sharing
• Pricing strategies to reduce order-shipment variability

Distribution Strategies

• Selection of distribution strategies (e.g., direct ship vs. crossdocking)
• How many cross-dock points are needed?
• Cost/Benefits of different strategies

Integration and Strategic
Partnering




Outsourcing & Procurement
Strategies

• What are our core supply chain capabilities and which are not?
• Does our product design mandate different outsourcing
approaches?
• Risk management

Product Design

• How are inventory holding and transportation costs affected by
product design?
39
• How does product design enable mass customization?

Source: Simchi-Levi

How can integration with partners be achieved?
What level of integration is best?
What information and processes can be shared?
What partnerships should be implemented and in which situations?

Thank You