Understanding Supply

Chain Management

By- Prof Janak Suthar

Soda can –
supply chain
• Customer, retailers ,
wholesalers /distributions,
manufacturers and component /
raw material suppliers
What Is a Supply Chain?

Figure 1-1 Stages of an Automotive Supply Chain

 Understanding Supply Chain
Management
 A supply chain includes everyone who helps meet a customer's needs,

either directly or indirectly.

 This includes manufacturers, suppliers, transporters, warehouses, retailers,

and, notably, the customers themselves.

 Within each organization, the supply chain involves various functions,

such as new product development, marketing, operations, distribution,

finance, and customer service.

 The supply chain also involves the movement of products, information,

and funds in different directions, making it a complex and interconnected

Flows in a Supply Chain

Figure 1-2 The Three Flows in a Supply Chain

The Integral Customer in the Supply Chain
1 The Customer's Active Role
The customer plays a crucial role in the
supply chain. They actively influence and
shape the demand for products and
services. Their preferences and choices
have a significant impact on the entire
supply chain network.
2 The Feedback Loop
Customer feedback is essential for
businesses to improve their products
and services. This loop of feedback from
the customer to the manufacturer is vital
for a seamless and efficient supply chain.
Supply Chain as a Network
1 Complex Interactions
The supply chain is like a web of
interconnected entities. It represents the
relationships and interactions within the
supply chain.
2 Interconnected Operations
In a supply chain network, operations
are interconnected. Each link in the
chain relies on others for the smooth
flow of products, information, and
resources.
The Objective of a Supply Chain

Supply Chain Surplus = Customer Value − Supply Chain Cost

Maximize net value generated

Example: a customer purchases a wireless router from Best Buy for $60 (revenue)Supply chain incurs costs (convey
information, produce components, storage, transportation, transfer funds, etc.)

Difference between $60 and the sum of all of these costs is the supply chain profitability

Success should be measured by total supply chain surplus, not profits at an individual stage

Customer the only source of revenue

Walmart's Powerful
Supply Chain Concepts

Walmart's supply chain is renowned for its effectiveness and

innovation. The company has introduced several concepts that have
become industry standards. Let's delve into the most impactful supply
chain concepts pioneered by Walmart.
Efficient Data Exchange with Suppliers
Electronic Data Enhanced Control and Inventory Data Sharing
Interchange (EDI) Coordination
Walmart's collaboration
Walmart's utilization of Through electronic links, with suppliers, sharing
EDI with suppliers Walmart gains a high level inventory data, results in
enables efficient and of control and better stock levels and
productive handling of coordination in more accurate forecasts,
product orders and scheduling and receiving ultimately contributing to
invoices, reducing product deliveries, superior supply chain
transaction costs and ensuring a steady and management.
enhancing operational reliable flow of products
efficiency. to its distribution centers.
Everyday Low Prices and Demand
Forecasting
Consistent Low Prices
Walmart's everyday low prices assure its
customers of the best prices, thus
eliminating the need to search elsewhere
or wait for special sales, leading to
increased customer loyalty.
Steady and Predictable Demand
By smoothing out demand swings and
making demand more predictable,
Walmart's low-price strategy contributes to
more efficient demand forecasting and
supply chain planning.
Technological Innovations in Supply
Chain Management
1 Strategic Technology
Investments
Walmart's significant investment in
technology, including RFID
tracking, centralized database, and
innovative patent filings, reflects
its commitment to leveraging
technology for operational
excellence.
2 Enhanced Communication
and Forecasting
The implementation of the Retail
Link database facilitates improved
communication with suppliers and
enhances inventory forecasting,
positioning Walmart for sustained
efficiency.
Seven-Eleven Japan, ¥1 billion sales
in 1974 to ¥2.7 trillion in 2016

7-Eleven analyzed daily

routines, weather, and Understand the story Customer behavior is
affordability for precise behind data for crucial in the 21st
inventory success. century.
management.
Importance of Supply Chain
Decisions

Webvan folded in two years- food delivery

Borders, $4 billion in 2004, declared bankruptcy in 2010

Dell, $56 billion in 2006, adopted new supply chain strategies

Decision Phases in a Supply Chain

1 2 3
Supply chain strategy or Supply chain planning Supply chain operation
design • Decisions over the next • Daily or weekly operational
• How to structure the supply quarter or year decisions
chain over the next several
years
Supply Chain Strategy

Definition: Like a game plan for delivering products to customers.

Example: A pizza restaurant focuses on fast delivery, using fewer suppliers for quick and reliable
service.

Decide how the supply chain will work, where resources go, and what each part will do.

Strategic decisions include outsourcing tasks, choosing facility locations, and deciding on
transportation methods.

Supply chain strategy are big and not easy to change quickly
Supply Chain Planning
Creating a detailed plan to ensure smooth supply chain operations.

Example: The pizza restaurant plans daily pizza production, orders the right
ingredients, and schedules efficient delivery routes.
Decide where to make and deliver pizzas for each market.

Plan inventories, subcontracting, and promotions wisely.

Consider factors like demand changes, currency rates, and competition in the pizza
planning process
Supply Chain Operations
The day-to-day activities to produce and deliver products according to the plan.

Example: In the pizza restaurant, the chef makes pizzas, the delivery team ensures timely delivery,
and the manager oversees smooth operations.
Plan for short periods, like a day or week."

Manage individual pizza orders efficiently with a set supply chain.

Assign orders, set due dates/time, and organize deliveries smoothly.

Less uncertainty in the short term for effective pizza operations.

Process Views of a Supply Chain

• Cycle View: The supply chain works like a series of connected cycles. Imagine each cycle as a step
happening between two stages of the supply chain. It's like a smooth handover of tasks between
different parts of the process.

• Push/Pull View: The processes in a supply chain are divided into 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, whereas push processes are initiated and performed in
anticipation of customer orders.
 Cycle View of Supply Chain Processes (1 of 2)

Figure 1-3 Supply Chain Process Cycles

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)

• Push/pull boundary separates push processes from pull processes

Figure 1-5 Push/Pull View of Supply Chains
 Push/Pull View – L.L. Bean

Figure 1-6 Push/Pull Processes for the L.L. Bean Supply Chain
 Push/Pull View – Ethan Allen

Figure 1-7 Push/Pull Processes for Ethan Allen Supply Chain for Customized
Furniture
Supply Chain Macro Processes

•Supply chain processes discussed in the two views can be classified into

• 1. Customer Relationship Management (C R M):

• all processes at the interface between the firm and its customers

• Example: Booking tickets, handling inquiries, and providing travel information.

• 2. Internal Supply Chain Management (I S C M):

• all processes that are internal to the firm

• Managing train schedules, coordinating maintenance, and optimizing crew assignments.

• 3. Supplier Relationship Management (S R M):

• all processes at the interface between the firm and its suppliers
Summary of Learning Objective 3 (2 of 2)

•All supply chain processes within a firm can be classified into three macro
processes: C R M, I S C M, and S R M. The C R M macro process consists of all
processes at the interface between the firm and the customer that work to
generate, receive, and track customer orders. The I S C M macro process
consists of all supply chain processes that are internal to the firm and work to
plan for and fulfill customer orders. The S R M macro process consists of all
supply chain processes at the inter- face between the firm and its suppliers
that work to evaluate and select suppliers and then source goods and services
from them. Integration among the three macro processes is crucial for
successful supply chain management.
Examples of Supply Chains

• Gateway and Apple

• Zara
• W.W. Grainger and McMaster-Carr
• Toyota
• Amazon
• Macy's
Gateway and Apple

• Why did Gateway choose not to carry any finished-product inventory at its retail stores?
Why did Apple choose to carry inventory at its stores?
• What are the characteristics of products that are most suitable to be carried in finished-
goods inventory in a retail store? What characterizes products that are best
manufactured to order?
• How does product variety affect the level of inventory a retail store must carry?
• Is a direct selling supply chain without retail stores always less expensive than a supply
chain with retail stores?
• What factors explain the success of Apple retail and the failure of Gateway Country
stores?
Zara

• What advantage does Zara gain against the competition by having a very
responsive supply chain?
• Why has Inditex chosen to have both in-house manufacturing and outsourced
manufacturing? Why has Inditex maintained manufacturing capacity in Europe
even though manufacturing in Asia is much cheaper?
• Why does Zara source products with uncertain demand from local manufacturers
and products with predictable demand from Asian manufacturers?
• What advantage does Zara gain from replenishing its stores multiple times a
week compared to a less frequent schedule?
• Do you think Zara’s responsive replenishment infrastructure is better suited for
online sales or retail sales?
Toyota

• Where should the plants be located, and what degree of flexibility should
be built into each? What capacity should each plant have?
• Should plants be able to produce for all markets or only for specific
contingency markets?
• How should markets be allocated to plants and how frequently should this
allocation be revised?
• How should the investment in flexibility be valued?
Amazon

• Why is Amazon building more warehouses as it grows? How many warehouses

should it have, and where should they be located?
• Should Amazon stock every product it sells?
• What advantage can online players derive from setting up a brick-and-mortar
location? How should they use the two channels to gain maximum advantage?
• What advantages and disadvantages does the online channel enjoy in the sale of
shoes and diapers relative to a retail store?
• For what products does the online channel offer the greater advantage relative to
retail stores? What characterizes these products?
Supply Chain Logistics and Stages
Diverse Stages
The supply chain encompasses multiple
stages, starting from the customers' needs to
the manufacturer, suppliers, distributors,
wholesalers, and retailers, forming a
comprehensive network of operations.
Efficient Movement
The smooth movement of products, funds,
and information across these stages is
essential for a well-functioning supply chain,
highlighting the critical role of logistics in the
process.
Environmental Sustainability in Supply Chain

1 Green Initiatives
Companies are adopting sustainable practices in the supply chain, such as eco-
friendly packaging, efficient transport, and reduced emissions.

2 Supply Chain Transparency

Ensuring transparency in sourcing, production, and logistics promotes
accountability and ethical practices, catering to the environmentally conscious
consumer.
Technology Integration in Supply Chain

1 Automation 2 Big Data Analytics

Automated processes streamline Data analysis provides insights into
operations, reduce errors, and cut consumer behavior, forecasting,
costs, improving supply chain and optimization, enabling data-
efficiency. driven decision-making.

3 Blockchain Technology
Blockchain ensures secure and transparent transactions, enhancing trust and
traceability in the supply chain.
Innovations in Supply Chain

1 IoT Applications 2 Collaborative Partnerships

Using smart devices for real-time Working together with different supply
monitoring of products, reducing risks, chain stages and technology providers to
and improving supply chain visibility. create innovative solutions.