Supply Chain Management

Chapter 1
Understanding the Supply Chain

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 Importance of Supply Chain
Decisions – Wal-Mart
 Leader in using supply chain design, planning, and operation.

 Heavy investment on transportation and information infrastructure to

facilitate the effective flow of goods, information and funds.

 Supply chain is designed with clusters of stores around distribution centers

to facilitate frequent replenishment in a cost-effective manner.

 Frequent replenishment allows stores to match supply and demand more

effectively.

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 Importance of Supply Chain
Decisions – Wal-Mart

 Leader in sharing information and collaborating with suppliers to bring

down costs and improve product availability.

 Results are impressive:

– Annual Sales in 1980: $ 1 Billion
– Annual Sales in 2018: $ 495.76 Billion

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 Importance of Supply Chain
Decisions – Webvan
 Large warehouses in several major cities in the United States with no
retail outlets.

 Groceries were delivered to customer homes from those warehouses.

 This design could not compete with traditional supermarket supply

chains in terms of cost.

 Traditional supermarkets bring product to a supermarket close to the

consumer using full truckloads, resulting in very low transportation
costs.

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 Importance of Supply Chain
Decisions – Webvan

 Traditional supermarkets turn their inventory relatively fast and let

the customer perform most of the picking activity in the store.

 Webvan turned its inventory marginally faster than supermarkets but

incurred much higher transportation costs for home delivery and high
labor costs to pick customer orders.

 The result was a company that folded in 2001 within two years of a
very successful initial public offering.

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 Decision Phases of a Supply Chain
 Successful Supply Chain Management requires many decisions
relating to the flow of Information, Product and Funds.

 Each decision should be made to raise the Supply Chain Surplus.

 Three categories or phases, depending on the frequency and time

frame of the decision:

1. Supply chain strategy or design

2. Supply chain planning
3. Supply chain operation

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 1. Supply Chain Strategy or
Design
 Company decides how to structure the Supply Chain over the next
several years based on the marketing and pricing plans of a
product.

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

 Strategic Decisions include:

– Outsource or In-house Supply Chain.
– Location and Capacities.
– Products to be made or stored at various locations.
– Modes of transportation.
– Information Systems.

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 1. Supply Chain Strategy or
Design

 Supply chain configuration must support its strategic objectives

and increase the Supply Chain surplus.

 Supply chain design decisions are long-term and expensive to

reverse on short notice.

 Uncertainty in anticipated market conditions need to be

considered.

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 2. Supply Chain Planning

 Definition of a set of policies that govern short-term

operations

 Time frame considered is from quarter to a year.

 Planning must be done within the constraints created

in the Strategic Phase.

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 2. 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

 Planning establish parameters within which a supply chain will

function over a specified period of time.

 Result is defined set of operating policies that govern short-

term operations.
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 3. Supply Chain Operation
 Time horizon is weekly or daily.

 Decisions regarding individual customer orders.

 Supply chain configuration is considered fixed and planning policies

already 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)

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 Examples of Supply Chain
 Gateway and Apple: Two Different journeys into retailing

 Zara: Apparel manufacturing and retail

 W.W. Grainger and Mcmaster-Carr: MRO suppliers

 Toyota: a global auto manufacturer

 Amazon: Online sales

 Macy’s: Omni-Channel retailing

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