Session 3 and 4

Session # 3

Supply Chain Perspectives

Process View and Push-Pull View of
Supply Chain
 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
Push-Pull View
Mixed Strategy with specific push-pull
point
Push/Pull Strategies

Push-
Pull
Boundary

Push Strategy Pull Strategy

Raw
Materia Generic Product Customized Product
ls

End
Supply Chain Timeline Consumer5
 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 Type of product
o Cost
o Type of customer
o Profit margin
o 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
Session # 4

Supply Chain Strategy

&
Drivers of Supply Chain
 Hierarchy of Structure

Business
Strategy

Organizational
Strategy

Supply Chain
Strategy
 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 decisionsdemand 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).

 Product
Characteristics
Functional Innovative

Demand Predictable Unpredictable

Life Cycle Long (> 2 years) Short (< 1 year)

Margin 5 % to 20 % 20 % to 60 %

Variety Low (10 20) High

Error at Production About 10% 10 % to 40 %

Average Stockout 1 % to 2 % 10 5 to 40 %
Rates
Forced Mark down 0% 10 % to 25 %

Lead time for MTO 6 months to 1 year 1 day to 2 weeks

Supply Chain Objective Efficiency Match Supply and

Demand
 Efficient vs Responsive
Supply Chain

Efficient Supply Chains Responsive Supply Chains

Product design strategy Maximize Create modularity to
performance at a allow postponement of
minimum product product differentiation
cost
Pricing strategy Lower margins Higher margins
because price is not a
prime customer driver
Manufacturing strategy Lower cost through Flexible capacity to
high utilization buffer against
demand/supply
uncertainty
Inventory strategy Minimize inventory Maintain buffer
inventory
Lead-time strategy Reduce, but not at Reduce aggressively,
the expense of even if costs are
cost significant
Supplier strategy Select based on Select based on speed,
Cost-Responsiveness Efficient Frontier

Figure 2-3
 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 Make Deliver Buy

Uncertainty is inherent to every supply chain

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

30
 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.
cross-docking)
How many cross-dock points are needed?
Cost/Benefits of different strategies

Integration and Strategic How can integration with partners be achieved?

Partnering What level of integration is best?
What information and processes can be shared?
What partnerships should be implemented and in which
situations?

Outsourcing & Procurement What are our core supply chain capabilities and which are
Strategies not?
Does our product design mandate different outsourcing
approaches?
Risk management
31
Source:
Product Simchi-Levi
Design How are inventory holding and transportation costs
Thank You