U N D ER S TANDING

S U P P LY
CHAIN
WHAT IS A SUPPLY
CHAIN?
• Supply chain goal
–Fulfilling a customer request
• Supply chain components
– Across companies (stages)
• Manufacturers, suppliers, transporters, warehouses, retailers,
customer
– Within each company
• Product development, marketing, operations, distribution, finance,
customer service
– Customer is also an integral part of the supply chain
• Flows
–Movement of product from suppliers to customers
–Movement of information, funds, and products in both
directions
DETERGENT SUPPLY CHAIN (WAL-MART)
“SUPPLY NETWORK” OR “SUPPLY WEB”
OBJECTIVES

OF SUPPLY CHAIN
• Maximize overall value (surplus) created
• Supply chain value
– Difference between what the final product is worth to the customer
and the effort the supply chain expands in filling the customer’s
request
• Values is correlated to supply chain profitability
– Difference between revenue generated from the customer and the
overall cost across the supply chain
• Supply chain profitability
– Total profit to be shared across all stages of the supply chain
– Supply chain success should be measured by total supply chain
profitability, not profits at an individual stage
• Revenue and cost structure
– Sources of supply chain revenue: the customer
– Sources of supply chain cost: flows of information, products, or
funds between stages of the supply chain
 • Supply chain management
• Management of flows between and among supply chain
stages to maximize total supply chain profitability

Intra-
Organizational
optimization Supplier Manufacturer Retailer Customer

Inter-organizational optimization
DECISION PHASE OF
SUPPLY CHAIN
• Supply chain strategy or design
– Long-term planning
• Supply chain planning
– Mid-range planning
• Supply chain operation
– Short-term planning and control
Uncertainty and variability
Decision-making in terms of impact on surplus
 e.g., retailing in U.S. and India
• Supply chain strategy or design
– Decision about the structure of the supply chain and what
processes stage will perform
– Strategic supply chain decision
• Locations and capabilities 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 decision are long-term and expensive to
reverse – must take into account market uncertainty
• Supply chain planning
– Definition of a set policies that govern short-term operations
– Fixed by the supply configuration from previous phase
– Starts with a forecast of demand in the coming year
– Planning decisions
• Which market 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
– Implement the operating policies as effectively as possible
• Allocate orders to inventory or production
• Set order due dates
• Generate pick list 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 A SUPPLY CHAIN
• Cycle view
– Process in a supply chain are divided into a series of cycles, 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 A SUPPLY CHAIN

Supplier stage Buyers returns reverse

Markets products flow to supplier or
third party

Buyer stage places Buyer stage

order receives order

Supplier stage Supplier stage

Receives order supplies order
• Push/pull view of supply chains
– Pull (reactive)
• Execution is initiated in response to a customer order
– Push (speculative)
• Execution is initiated in anticipation of customer orders
• Push/pull view of supply chains
 Push /pull boundary
 Useful in considering strategic decisions relating to supply
chain design
• More global view of how supply chain processes relate to
customer orders
 The relative proportion of push and pull processes can have an
impact on supply chain performance
SUPPLY CHAIN MACRO PROCESSES
IN A FIRM
• Customer relationship management (CRM)
• Internal supply chain management (ISCM)
• Supplier relationship management (SRM)
EXAMPLES OF SUPPLY CHAIN

• Gateway
• Zara
• McMaster Carr / W.W. Grainger
• Toyota
• Amazon / Borders / Barnes and Noble
• Webvan / Peapod / Jewel
KEY DEFINITIONS

• Porter – Michael Eugene Porter is the founder of the modern

strategy field and one of the world's most influential thinkers on
management and competitiveness.
• Value – total amount buyers are willing to pay for a firm’s product
• Chain – pertains to how the activities are connected
VALUE CHAIN
• A set of activities that a firm operating in a specific industry
performs in order to deliver a
valuable product (i.e., good and/or service) for the market.
(Wikipedia)

• Comprises the steps that involve bringing a product from

conception to distribution, and everything in between.
(Investopedia)
PORTER’S VALUE CHAIN
• The value chain aka Porter’s Value Chain Analysis is a business
management concept that was developed by Michael Porter. In his
book Competitive Advantage (1985),

• Michael Porter explains Value Chain Analysis; that a value chain is a

collection of activities that are performed by a company to create
value for its customers. (toolshero)
PURPOSE
• Used to identify sources of competitive advantage

Specifically:
– Opportunities to secure cost advantages
– Opportunities to create product/service differentiation
‘Margin’ refers to the
difference between the
value and the cost of
performing the
activities of each firm
TYPES OF FIRM ACTIVITIES
STARBUCK’S VALUE CHAIN
Fun Fact: Why
the siren?

Terry Heckler,
the original
How
sketch artist for
Starbuck’s
the logo, wanted
uses Porter’s
to go with a
Value Chain in
nautical theme
achieving
because of the
Competitive
nautical-themed
Advantage
name of the
company
(“Starbuck” is
the first mate in
Moby-Dick).
LINKS
• https://www.isc.hbs.edu/about-michael-porter/Pages/default.aspx
• https://www.toolshero.com/management/value-chain-analysis-porter/
• https://www.slideshare.net › monishrm › value-chain-analysis-23849383
• https://www.investopedia.com/terms/v/valuechain.asp
• https://en.wikipedia.org/wiki/Value_chain
• https://www.marketing91.com/value-chain-porter/
• https://www.investopedia.com/articles/investing/103114/starbucks-example-
value-chain-model.asp
• https://www.logoworks.com/blog/siren-starbucks-logo-design/
SUPPLY CHAIN DRIVERS
LOGISTICAL
DRIVERS:
FACILITIES
Actual physical locations in the supply chain network
where product are stored.

Two major types of facilities

• Production Sites
• Storage Sites
LOGISTICAL
D R I V E R S : FA C I L I T Y -
PRODUCTION
1. Product Focus - a factory that takes a product focus performs the range of
different operations required to make a given product line from fabrication of different
product parts to assembly of these part.

2. Functional Focus - concentrates on performing just a few

operations such as only making a selec group of parts.
LOGISTICAL
D R I V E R S : FA C I L I T Y -
WA R E H O U S E
1. Stock keeping unit (SKU) - all of a given type of product is stored.

2. Job lot storage - all of different products related to the needs of a

particular job are stored together.

3. Crossdocking - product is not actually warehoused in the facility,

instead the facility is used to house a process where trucks from
suppliers arrive and unload large quantities of diff. products.
LOGISTICAL
DRIVERS:
INVENTORY
encompasses all the raw materials, work in process
and finished goods within a supply chain.
LOGISTICAL
DRIVERS:
I N V E N T O RY
1. Cycle Inventory - amount of inventory needed to satify demand for the in the
period between purchases of product.

2. Safety Inventory - held as a buffer against uncertainty.

3. Seasonal Inventory - built up in anticipation of predictable

increases in demand that occur at certain times of the year.
LOGISTICAL
DRIVERS:
TRANSPORTATION
entails moving inventory from point to point in the
supply chain
LOGISTICAL
DRIVERS:
T R A N S P O R TAT I O N
1. Ship - very cost efficient but also the slowest mode of transport.

2. Rails - also very cost efficient but can be slow.

3. Pipelines - very efficient but are restricted to commodities that are
liquid of gases such as water, oil and natural gas.
- quick & very flexible mode of tranport.
- very fast mode of tranport and are very responsive.
- fastest mode of transport and very flexible.
CROSS-FUNCTIONAL
DRIVERS
INFORMATION
serves as the connection between various stages of a
supply chain, allowing the to coordinate & maximize
total supply chain profitability.
CROSS- FUNCTIONAL
D R I V E R S : I N F O R M AT I O N
1. Coordinating daily activities related to the functioning
of other supply chain drivers: facility, inventory and
transportation
CROSS- FUNCTIONAL
D R I V E R S : I N F O R M AT I O N
2. Forecasting & planning to anticipate & meet
future demands.
CROSS- FUNCTIONAL
D R I V E R S : I N F O R M AT I O N
3. Enabling technologies: many technologies exist
to share & analyze information in the supply chain.
CROSS- FUNCTIONAL
DRIVERS: SOURCING
1. In-House or outsouce:The most significant sourcing
decision for a firm is whether to perform a task in-house
or outsource it to a third party.
CROSS- FUNCTIONAL
DRIVERS: SOURCING
2. Supplier selection: It must be decided on the number
of suppliers they will have for a particular activity.
CROSS- FUNCTIONAL
DRIVERS: PRICING
Components of Pricing Decisions:
• Fixed Price versus Menu pricing: A firm must decide whether
it will charge a fixed price for its supply chain activities or
have a menu with prices that vary with some other attribute,
such as response time or location of delivery
• Every day low pricing versus High-Low pricing