Understanding Supply Chain

Supply Chain ( SC )

• All stages involved, directly or indirectly, in fulfilling a customer

request

• It includes manufacturers, suppliers, transporters, warehouses,

retailers, and customers

• Within each company, the supply chain includes all functions

involved in fulfilling a customer request (product development,
marketing, operations, distribution, finance, customer service)
 Stages in “supply chain” of a detergent

Customer is a very integral part of the supply chain

 Supply Chain

• Supply chain Includes movement of products from suppliers

to manufacturers to distributors and information, funds, and
products in both directions

• Typical supply chain stages: customers, retailers,

wholesalers/distributors, manufacturers, component/raw
material suppliers

• All stages may not be present in all supply chains (e.g., no

retailer or distributor for Dell)
 Objective of a Supply Chain
• Maximize overall value generated

Supply Chain Surplus = Customer Value – Supply Chain Cost

• eg: a customer purchases an electrical item for Rs 2500/-(revenue)

• Supply chain costs (information, storage, transportation, production, assembly,
etc.)

• Rs 2500 - Supply Chain costs = Supply chain profit

• Success should be measured by total supply chain profitability, not profits at an

individual stage

Effective SCM : management of supply chain assets and product, information, and
fund flows to increase the SC surplus
 Companies benefitted by Supply Chain Decisions

• Wal-Mart, $481b sales in 2013 from $1b sales in 1980 (profits=17b)

• Seven-Eleven Japan, ¥1.9 trillion in 2013 from ¥1 billion in 1974
(profits 222b)
• Dell, $56 billion in 2006, from $300m in 1996 new supply chain
strategies (profits 1.5b)
• Amazon.com ,$177B in 2018 and profit $3.03b
 Decision Phases in a Supply Chain

1. Supply chain strategy or design

Structuring of the supply chain over the next several years
2. Supply chain planning
Decisions over the planning horizon varying from a quarter to a year
3. Supply chain operation
Daily or weekly operational decisions
 Decision Phases in a Supply Chain

SC Strategy/Design
• Decisions about the configuration of the SC, allocation of resources, and
processes that each stage performs
• Typical strategic SC decisions
– Outsource /perform in-house supply chain functions
– Locations and capacities of facilities
– Products to be made or stored at various locations
– Modes of transportation
– Information systems

eg : Indian Pharma ,Chronic – Acute, Sun,Cipla,Lupin

Retail : Reliance(e-tail), Amazon-Kirana stores(IT tools)

Supply chain design decisions are long-term and expensive to reverse –

must take into account market uncertainty
 Decision Phases in a Supply Chain

Supply Chain Planning

• Defining a set of policies that govern short-term operations
• Fixed by the supply configuration from strategic phase
• Goal is to maximize SC surplus given established constraints
• Starts with a forecast of demand in the coming year

Typical planning decisions

– Which markets will be supplied from which locations(eg Arcelor Mittal)

– Planned buildup of inventories
– Subcontracting
– Inventory policies
– Timing and size of market promotions

Must consider demand uncertainty, exchange rates, competition over the time horizon in
planning decisions
 Decision Phases in a Supply Chain

Supply Chain Operation

• Time horizon : weekly / daily
• Decisions regarding individual customer orders
• Supply chain configuration is fixed and planning policies are defined
• Goal is to handle incoming customer orders as effectively as possible

Typical operation decisions:

• allocate orders to inventory or production

• set order due dates,set delivery schedules
• place replenishment orders

The goal of the operation phase is to exploit the reduction of uncertainty & enhance
performance
 Process Views of a Supply Chain

Two ways to view the processes performed in a SC

1. Cycle View: The processes in a supply chain are divided into a series of
cycles, each performed at the interface between two successive stages
of the supply chain

2. Push/Pull View: two categories, depending on whether they are

executed in response to a customer order or in anticipation of customer
orders.
Pull processes are initiated by a customer order,
Push processes are initiated and performed in anticipation of customer orders
 Cycle View of Supply Chain Processes

Each cycle consists of six sub processes as shown in next slide

 Cycle View of Supply Chain Processes

Six sub processes that are part of each cycle

 Push/Pull View of Supply Chain Processes

Supply chain processes fall into one of two categories depending on the timing of
their execution relative to customer demand
• Pull: execution is initiated in response to a customer order (reactive)

• Push: execution is initiated in anticipation of customer orders (speculative)

 Supply Chain Macro Processes
Supply chain processes discussed in the two views can be classified into
1. Customer Relationship Management (CRM):
all processes at the interface between the firm and its customers
2. Internal Supply Chain Management (ISCM):
all processes that are internal to the firm
3. Supplier Relationship Management (SRM):
all processes at the interface between the firm and its suppliers
 egs of Supply Chains

• Gateway and Apple

• Zara
• W.W. Grainger and McMaster-Carr
• Toyota
• Amazon
• Macy's
 Discussion Questions
 
 Consider the purchase of a can of soda at a convenience store. Describe the various stages
in the supply chain and the different flows involved.
 
 Why should a firm such as Dell take into account total supply chain profitability when
making decisions?
 
 What are some strategic planning and operational decisions that must be made by an
apparel retailer such as Gap?
  
 Consider the supply chain involved when a customer purchases a book at a bookstore.
Identify the cycles in this supply chain and the location of the push/pull boundary.
 
 Consider the supply chain involved when a customer orders a book from Amazon. Identify
the push/pull boundary and two processes each in the push and pull phases.

 In what way do supply chain flows affect the success or failure of a firm such as Amazon?
List two supply chain decisions that have a significant impact on supply chain profitability.