Supply Chain ManagementModule -1 (Syllabus heads

‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ - Supply Chain - Objectives - Importance - Decision phases - Process view - Competitive and supply chain Strategies - Achieving Strategic Fit - Supply chain drivers-

Syllabus heads ( . Continued)
‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ - Obstacles - Frame Work - Facilities - Inventory -Transportation - Information - sourcing - Pricing

SC - Simple definition 
All activities involved in the transformation of goods from the RM stage to FP stage, when the goods and services reach the end customer.  Involves planning, design and control of Flow of material , Information and Finance .  To deliver superior value to end customers.

SC Concept ± Stages of Detergent Supply Chain
Timber Co Paper Manufa cturer Tenneco Packaging Wall Mart Stores

P& G Transporter

Wall Mart


Chemical Mfr

Plastic Mfr

Supply Chain Stages Supply Chain Stages include: ‡ Customers ‡ Retailers ‡ Wholesalers/ Distributers ‡ Manufacturers ‡ Suppliers Products Funds/Information .

Product. . Information and funds in order to maximize total SC profitability.Fund exchange in SC ‡ Effective SCM involves Mgt of assets.Source of Revenue and Cost ‡ Only one source of Revenue for all Customer ‡ All other cash flows .

Flexibility Innovation & Value Flow to Customer Supplier¶s Supplier Supplier Manufacturer Customer Customer¶s Customer 3 1 2 Demands for low pricing.Production & 3.Value added 1. Delivery Simplified SC: Delivery of a supplier Value: Quality. high Quality: Customer-Supplier Integration across responsive and flexible SC .Supply. 2.

Distributor fills Retailer stocks .direct supply( Del).What Flows? Who stocks? ‡ Flow of Products . Customer order initiates manufacture ‡ Intermediate stage. Information & funds ‡ Customer s need and the role played by each stage of SC ‡ In . Retailer builds stock (LL Bean) ‡ Wholesaler.

I.Objectives ‡ To maximize the overall value generated ‡ Value of SC = What the final product is worth to customer & the SC cost in filling customers request ‡ To look for source of revenue and cost.F) to result in SC total profitability . product and Funds ‡ Appropriate management of these the key to success of SC ‡ Management of assets and 3 flows ( P.Only Customer ‡ Flow of Information.

SC Surplus and Distributors ‡ SC decisions Vs Impact on SC surplus ‡ SC structure of fast moving consumer items in US and India ‡ US distributers play small role. where as opposite in India .

local distribution by small vans ‡ Transportation cost to be low ‡ When the retailing in India. No room to distributer. begins to consolidate-the role of distributers will diminish .Aggregating and consolidating ‡ Retailing is consolidated in US. ‡ Millions of small retail outlets prevail in India ‡ These outlets limit their inventories. Large chains buy sufficient Scale from manufacturers. requires frequent replenishments ‡ These replenishments equal(=) weekly grocery shopping for a family in US ‡ One truck load delivery.

Quaker Oates acquired Snapple (1994).businesses ± Web van .Importance of Supply Chain Decisions Successful SCs built by: .Seven Eleven Japan ( Functional Fit) Failure of e.Mart (Invest in Transport.Dell Computer ( Direct supply) .but failed Reason for Success/ Failure: SC design and Planning. Information) .Wal. Operation of SC .

sells directly to customers ‡ Strength-Understanding customers needs.World s largest PC mfr ‡ 2004 Income of $ 2. & Developing better fore casts .6 Billion.Success stories of SC ‡ Wal-mart -1980 Annual Sales $1 Billion 2004 Annual Sales -$250 Billion ‡ Income 9 Billion Annual compounded Growth Rate 26% ‡ Dell Computer. Sales $41B ‡ Dell by passes Distributors.

Revenue 9 billion ± Compounded growth rate 26% . achieved ‡ Sales: ‡ ‡ ‡ ‡ ± 1 billion in 1980. 250 billion in 2004.Wal-mart Operations Investment on Transportation and Information Clusters of stores around distribution centers to facilitate Frequent replenishment Sharing Information with suppliers.Product availability and low cost.

Dell ran biz on others M ‡ New products reach customer fast ± Intel s new chip-reaches customer immediate. picks up from Dells Austin. NIL Inventory for Dell ‡ Transporter operates from suppliers premises ± Transporter co. Texas plants and monitors from Sony s factory in Mexico .Dell s Operations ‡ Dell Centralized Manufacturing and Inventories ‡ Large varieties of PC configurations with low Inventory 5 days stock Cash conversion cycle minus 36 days Inv ‡ Price drop. no much impact ± Sony s monitors.

on receipt of Order Large variety of PCs.Dell s Operations ‡ ‡ ‡ ‡ ‡ Dell. with less than 5 days Inventory . understands needs Centralization of manufacturing and Inventory Postponing final assembly. became world s largest PC manufacturer Close interaction with customer.

Groceries stored and delivered to customers by local trucks.Web Vans Failure in SC Design ‡ Web van and Kozmo s inability to design appropriate NW ‡ Large W/Hs in several cities of US. cost) ‡ Traditional Supermarkets. by full truck loads.(more transp. Web van folded with in 2. (more carrying cost) ‡ In 2001. made available all items to customers.5 years .

manufacturing 2. bottled and Natured drinks such as Tea. ‡ Major motivation of merger potential synergy between 2 distribution systems ‡ Causes: 1.Gatorade in South and Southwest of USA.most successful.Synergizing 2 distribution Systems ‡ 1994 Quaker Oats purchased Snapple.functioned in North East and West coast-Us ‡ Quaker had already manufacturing set-up for sport drink . Customer type .

where as Snapple s beverage.5%) Reason: Inability to synergize . Sold to Triarc companies at $300 USD ( purchase price @ $1700 @17. Snapple s beverage by Restaurants and retailers ‡ After 28 months. ‡ Quaker Oaks sold thro : Supermarkets & Grocery stores.Two SCs Synergy Reason for failure ‡ Gatroda was manufactured by Quaker Oats s own plant.outside plants. by contract.

Design: ± How to structure SC next few years? ± How resources will be allocated? ± Out source or In house? ‡ 2. Goal is to maximize Sc surplus. SC Planning: ± ± ± ± ± ± Time frame Quarter to one year. Demand in different markets? Which market to be supplied from which location? Make or buy? Inventory? Timing? Size of Market? Price and Promotions? .Decision Phases in SC ‡ 1.

Decision Phases in SC (contd) ‡ SC Operation: ± Configuration is fixed. or plan production against individual orders. to be handled with at most care ± Allocate stock. planning and operation of SC have strong impact on overall profitability& success . ± Design. policies are defined. ± Incoming orders. set delivery schedule of trucks and place replenishment orders.

Process Views of SC ‡ Sequence of processes and flows take place between different stages. Whether the order is executed against response to Customer Order or against anticipation of customer order . Cycle view: Processes are divided into series of cycles. Push / Pull View: ± a. ‡ 1. each performed in 2 successive stages of SC ‡ 2.

Replenishment Cycle 6 3 4 5 6 4 5 6 4. Cycles 2. Manufacturer 1. Procurement Cycle . Manufacturing cycle 2 1 3 2 1 3. Distributer 2. Stages 2 1 1 3 4 5 3. Supplier 1.Cycle View 3 4 5 2 4.Retailer 5. Customer 4. Customer Order Cycle 1 6 5.

Stages of SC Varies Each cycle occurs at the interface between 2 successive stages of SC 5 Stages results in 4 SC Process Cycles Grocery SC: Customer -Retailer Distributer ± Manufacturer .-Customer .( 2 Stages ) .( 4 Stages) Dell : Manufacture.

Supplier receives the Order 4. Buyer receives the Materials 6. Return of recycled materials 6 5 4 1 2 3 . Supplier offers the product to Customer 2.Sub Processes in Each SC Each Cycle consists of 6 Processes 1. Supplier supplies the materials 5. Buyer places the Order 3.

Goals of Buyers and sellers in Sub Process ‡ Buyer ‡ Economies of scale in Ordering ‡ To reduce the cost of receiving ‡ Arranging reverse flow returning defects. recycling materials ‡ Seller ‡ Ensures Product availability ‡ Forecast demand ‡ Order fulfillment process ‡ Cost of transport & delivery .

. multiplies from user to meager dealer. demand is placement is uncertain external.uncertain forecasted ‡ Scale of an Order: ‡ Order Quantity-gradually Customer requirement. Specifies roles and responsibilities each member and desired outcome for each process.Differences between Cycles ‡ In Customer Order ‡ In other cycles. Order Cycle. distributor to compared to other SC manufacturer members A cycle view of SC defines processes and the owners of each. dealer to distributor.

Push and Pull View of the SC ‡ ‡ Push / Pull Boundrey Push Process Pull Process P1 P2 P3 K K1 N-1 N Customer order Arrives .

Pull Process ‡ Execution is initiated in response to customer order ‡ Customer demand is known with certainty ‡ Reactive process. demand is unknown ‡ Constrained by Inventory & Capacity decision A boundary line separates µ Pull and Push¶ processes. and must be forecasted ‡ Speculative process. they respond to forecast rather than actual demand ‡ Operates. because they react to customers demand ‡ Operates. No concern on Capacity utilization 2. . Push Process ‡ Execution is in anticipation of customer order ‡ Customer demand is not known.Push and Pull View of SC Process 1. when demand is known ‡ No inventory.

L. Manufacturing. Replenishment Cycles Procurement Cycle Supplier Manufacturer customer Customer order Cycle L. Bean s Supply Chain ‡ L.L. L.Bean s SC Pull Process Customer Order cycle Customer Order Arrives Replenishment and Mfg Cycle Push Process Procurement.Bean .L.

procurement circle etc.make to stock ‡ L.L. .. when customer order arrives ‡ The same principle follows in Manufacturing cycle.L Beans executes all processes before customer order arrives (customer order cycle) ‡ Order fulfillment takes place. from built inventory ( Replenishment cycle) ‡ Goal of replenishment cycle is ensure availability. Bean s .L.

cycle Customer order & Manufacturing Cycle customer Dell Customer Order Arrives Procurement Cycle Push Process Procurement.Dell s build to Order Dell s SC Pull Process Customer Order Manufacturing. Cycles .

Procurement Cycle All processes are PULL process Goal is .mfg cycle is part of customer order cycle.Dell s Build-to-Order ‡ Dell supplies computers directly to customers ‡ Demand is filled from production( not fm stk) ‡ Order identify the appropriate Push/Pull boundary. customer order cycle & Mfg cycle ± 2. such away that demand & supply match effectively . ‡ Only 2 cycles work: ± 1.

Adjusting Push /Pull Boundary Usage in SC Strategic decisions: (Case) Until 1990. after customers placing orders(Pull) Color mixing was pushed from Push to Pull . SC restructured Mixing at outlet stores. Processes of paint manufacture was done in large factories Stages: Base mfr color mixing can transportation packing (Push process) Uncertainty in matching supply & demand After 1990.

got reduced-across SC . customers get their specific shades ± 2.Key Point ‡ In response to customer order = Pull ‡ In anticipation of customer order = Push ‡ Advantages: ± 1. paint inventories.

product and funds required to generate. . Internal Supply Chain Management.3 SC Macro Processes ‡ 1. Customer Relationship Management-CRM ± Processes interfacing between Firm & customers ‡ 2.Internal customer ‡ 3. receive & fulfill customer request. Supplier Relationship Management-SRM ± Processes interfacing between Firm & suppliers Managing flow of information.ISCM ± Processes with in the firm.

Supply Chain Macro Process Supplier Firm Customer SRM ISCM CRM  Source  Strategic Planning Negotiate Buy Design Collaboration Supply Collaboration Demand Planning Supply Planning Fulfillment Field Service Market Price Sell Call Center Order Management .

Sourcing of goods & Services.Supply Chain Macro Process ‡ CRM Process includes Marketing. Web site and call center management. timely and at low cost. negotiating terms. fulfillment of actual orders. ‡ SRM Macro process aims. communication on new products to suppliers . Evaluation of suppliers. Pricing. Sales. Order Management. ‡ ISCM aims to fulfill demand generated by CRM. Production-storage demand/supply plans.

for SC success . & SRM).KEY Point  CRM.In charge -Purchase With in a firm.In charge -Marketing. all SC activities belong to one of the 3 (CRM .  ISCM-In charge -Manufacturing  SRM.ISCM. Integration is important.

2. 1 in Malaysia.3 plants in US.retail stores became 280.No finished stock inventory. Gateway Direct Sales Manufacturer ± 1985.Aggressive strategy of opening retail stores ± 1999 . Zara: Spain s largest apparel manufacturing and retailer 3.Business .Examples of Supply Chain ‡ 1.No retail point First Online sale Co.3 plants & all retail out lets closed Sold thro retailers like Best buy & Circuit city. Grainger and Mc Master Carr: MRO suppliers 4.-1990.PCs made to order ± 1990 share price $80-dropped to $4 in 2004 . 1 in Ireland. Amazon com: e. w. 2002.for customer deciding right configuration. w.

at lower cost to customers ‡ McMaster sells MRO (Maintenance. ‡ Mc Master s=emphasis on product variety & response time ‡ Wal-Mart=greater emphasis on Cost . Wal-Mart competitive strategy is different from McMaster s. thro catalogue and a web site) ‡ McMaster does not compete on low price.(400. more varieties. get satisfied through products and services ‡ Wal-mart aim to provide availability of products .Competitive and SC Strategies ‡ Company s competitive strategy relative to its competitors customer needs .Repair.Operations) products.000 products.

limited Same day Price. same day delivery Competitive Strategy is based on how customer prioritizes Product . . Direct ‡ ‡ ‡ ‡ ‡ Customization. thro retailers Customization .Competitive Strategy-based on Customer s Priority Dell Build to order Gateway thro retailer ‡ e Machine PC. Variety and Quality . One week Product Variety and response Mc Master Carr (MRO) ‡ Wal-Mart Product Variety and response ‡ Cost ‡ ‡ ‡ ‡ E Machine PC. Plenty Delivery. Delivery time.

The Value Chain in a Company .

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