Introduction to

Supply Chain Management

Syed Tabish Hussain

Iqra University
Tel: 03212971409
E-mail: Syed_tabishh@hotmail.com
©Copyright 2002 D. Simchi-Levi
 Introduction
• Materials - any commodities used
directly or indirectly in producing
a product or service.
– Raw materials, component parts,
assemblies, finished goods, and
supplies
• Supply chain - the way materials
flow through different
organizations from the raw
material supplier to the finished
 What is a Supply Chain?
• All stages involved, directly or
indirectly, in fulfilling a customer
request
• 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 4
 What is a Supply Chain?
• Customer is an essential part of the
supply chain
• Includes movement of products from
suppliers to manufacturers to
distributors, but also includes
movement of information, funds, and
products in both directions
• Typical supply chain stages: customers,
retailers, distributors, manufacturers,
suppliers
• All stages may not be present in all 5
supply chains.
Supply Chain Management ---A
River

©Copyright 200
 Customers,
Field demand
Sources: Regional Warehouses: centers
plants Warehouses: stocking sinks
vendors stocking points
ports points

Supply

Inventory &
warehousing
costs
Production/
purchase Transportation Transportation
costs costs costs
Inventory &
warehousing
costs
SC, if not managed effectively…
Reduced Profitability Higher Costs Lower Revenue
Poor Quality
Poor
Availability

Poor
Service
High Inventory High Inventory

Long Lead Times for Innovations

And, many more……

 New-age Supply Chain
Vendor Inbound Manufacturing Primary Warehousing Secondary Customer
Transportation Transportation Transportation

I n v e n t o r y MI n gv me nt .t o r y F l o Cw os s t I n f o r m a t i o n FR l ios wk P la n n in g R e la tio n s h
P i p e l i n e I n St ee r ag ma tli eo sn s / V Li sai bn lde e d C o s St h a r e d S h a r e dS C T e a m AF po pc ru os a oc nh l a

Vendor Intermediaries Customer

Product
Information
 Supply Chain Management in a
Manufacturing Plant
Raw
Materials,
Finished Inspection,

Customers
Suppliers

Receiving Parts, and

Goods Packaging,
and In-process Production
Ware- And
Inspection Ware-
housing Shipping
Housing

Materials Management
Warehousing
Shipping
Purchasin Production and
and
g Control Inventory
Traffic
Control
Physical materials flow
Information flow
 INTRODUCTION
• Supply chain management is the
configuration, coordination and
improvement of a sequentially
related set of operations
• With supply chain management,
the idea of satisfying an entire
chain of customers becomes
reality
 Flows in a Supply Chain
Information

Product
Customer
Funds

Supply Chain

12
 Supply Chain Management
• Definition:
 Supply Chain Management is primarily
concerned with the efficient integration of
suppliers, factories, warehouses and stores so
that merchandise is produced and distributed
in the right quantities, to the right locations
and at the right time, and so as to minimize
total system cost subject to satisfying service
requirements.
• Notice:
– Who is involved
– Cost and Service Level
– It is all about integration
 Supply Chain Management
• Refers to all the management functions related to the
flow of materials from the company’s direct
suppliers to its direct customers.
• Includes purchasing, traffic, production control,
inventory control, warehousing, and shipping.
• Two alternative names:
– Materials management
– Logistics management

 Cross-Functional Linkages
Finance MIS
Budgeting.
What IT solutions Human
to make it all work
Analysis. together? Resources
Funds. Skills? Training?
# of Employees?

Design Operations and

Sustainability.
Quality. Supply Chain Marketing
Manufacturabi
lity. What products?
Accounting What volumes?
Costs? Quality?
Performance measurement systems.
Delivery?
Planning and control.

15
 Decision Phases of a Supply
Chain

• Supply chain strategy or design

• Supply chain planning
• Supply chain operation

16
 Supply Chain Strategy or Design

• Decisions about the structure of the supply chain and

what processes each stage will perform.
• Strategic supply chain decisions
– Locations and capacities of facilities
– What SC’s configuration will be , how resources
will be allocated and what process each stage
will perform
– Products to be made or stored at various locations
– Modes of transportation
– Information systems
• Supply chain design must support strategic objectives
• Supply chain design decisions are long-term and expensive
to reverse – must take into account market uncertainties
 Supply Chain Planning
• Definition of a set of policies that
govern short-term operations
• Fixed by the supply configuration
from previous phase
• Starts with a forecast of demand in
the coming year

18
 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
• Must consider in planning decisions
demand uncertainty, exchange rates, 19
 Supply Chain Operation
• Time horizon is weekly or daily
• Decisions regarding individual customer
orders
• Supply chain configuration is fixed and
operating policies are 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 20
©Copyright 2002 D. Simchi-Levi
 Sequential Optimization vs.
Global Optimization
Sequential Optimization

Procurem Manufact Distributi

ent uring on Demand
Planning Planning Planning Planning
Global Optimization

Supply Contracts/Collaboration/Information Systems and DSS

Procurem Manufactu Distributio

ent ring n Demand
Planning Planning Planning Planning
 Global Optimization
1.Supply chain is complex network


National Semiconductors:
• Production:
– Produces chips in six different locations:
four in the US, one in Britain and one in
Israel
– Chips are shipped to seven assembly
locations in Southeast Asia.
• Distribution
– The final product is shipped to hundreds
of facilities all over the world
– 20,000 different routes
– 12 different airlines are involved
– 95% of the products are delivered within
 Global Optimization
2. Different facilities
 in the supply
chain frequently have different conflicting
objectives
3. Dynamic system of supply


chain
 buying power increase or decrease
4. System variation over time
 due
to seasonal fluctuation , advertisement ,
promotion and change in pricing strategies of
the competitor
©Copyright 2002 D. Simchi-Levi
 SCOR is structured around five distinct
management processes
Plan

Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source

Return Return Return Return Return

Return Return Return

Your Company Customer’s

Suppliers’ Supplier Customer
Customer
Supplier
Internal or External Internal or External

SCOR Model

Building Block Approach

Processes Metrics
Best Practice Technology

©Copyright 2002 D. Simchi-Levi

 Supply-Chain Operations Reference-model
(SCOR) 5.0 - Processes
Plan P1 Plan Supply Chain

P2 Plan Source P3 Plan Make P4 Plan Deliver P5 Plan Returns

Source Make Deliver

Suppliers

Customers
S1 Source Stocked Products M1 Make-to-Stock D1 Deliver Stocked Products

D2 Deliver MTO Products

S2 Source MTO Products M2 Make-to-Order

S3 Source ETO Products M3 Engineer-to-Order D3 Deliver ETO Products

Return Return
Source Deliver

Enable

©Copyright 2002 D. Simchi-Levi

 Supply Chain Management
Requires Many Different Functions
Purchasing Logistics
Engineerin
Distributio Operation Procure
g
n s ment
Information Transporta
Systems tionMarketing
Materials
Warehousin
Production
g
Store
©Copyright 2002 D. Simchi-Levi
 Process View of a Supply Chain
• Cycle view: processes 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) 28
Cycle View of Supply Chains
Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle

Manufacturer
Procurement Cycle
Supplier
29
 Cycle View of a Supply Chain
• Each cycle occurs at the interface between
two successive stages
• Customer order cycle (customer-retailer)
• Replenishment cycle (retailer-distributor)
• Manufacturing cycle (distributor-
manufacturer)
• Procurement cycle (manufacturer-supplier)
• Cycle view clearly defines processes involved
and the owners of each process. Specifies
the roles and responsibilities of each
member and the desired outcome of each
30
process.
Push/Pull View of Supply Chains
Procurement, Customer Order
Manufacturing and Cycle
Replenishment cycles

PUSH PROCESSES PULL PROCESSES

Customer
Order Arrives
31
 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 32
processes from pull processes
 Push/Pull View of
Supply Chain Processes
• Useful in considering strategic decisions
relating to supply chain design – more
global view of how supply chain
processes relate to customer orders
• Can combine the push/pull and cycle
views
– L.L. Bean
– Dell
• The relative proportion of push and pull
processes can have an impact on 33
Supply Chain Macro Processes in a
Firm
• Supply chain processes discussed in the
two views can be classified into:
– Customer Relationship
Management (CRM)
– Internal Supply Chain Management
(ISCM)
– Supplier Relationship Management
(SRM)
• Integration among the above three
macro processes is critical for 34
 Gateway: A Direct Sales
Manufacturer
•
• Why did Gateway have multiple production
facilities in the US? What advantages or
disadvantages does this strategy offer relative
to Dell, which has one facility?
• What factors did Gateway consider when deciding
which plants to close?
• Why does Gateway not carry any finished goods
inventory at its retail stores?
• Should a firm with an investment in retail stores
carry any finished goods inventory?
• Is the Dell model of selling directly without any
retail stores always less expensive than a
supply chain with retail stores? 35
•
7-Eleven
What factors influence decisions of opening and
closing stores? Location of stores?
• Why has 7-Eleven chosen off-site preparation of fresh
food?
• Why does 7-Eleven discourage direct store delivery
from vendors?
• Where are distribution centers located and how
many stores does each center serve? How are
stores assigned to distribution centers?
• Why does 7-Eleven combine fresh food shipments by
temperature?
• What point of sale data does 7-Eleven gather and
what information is made available to store 36
managers? How should information systems be
 Toyota
• Where should plants be located, what degree
of flexibility should each have, and what
capacity should each have?
• Should plants be able to produce for all
markets?
• How should markets be allocated to plants?
• What kind of flexibility should be built into the
distribution system?
• How should this flexible investment be valued?
• What actions may be taken during product
design to facilitate this flexibility?
37
Conflicting Objectives in the Supply
Chain
1. Purchasing
 • Stable volume requirements
 • Flexible delivery time
 • Little variation in mix
 • Large quantities
2. Manufacturing

 • Long run production

 • High quality
 • High productivity
 • Low production cost
©Copyright 2002 D. Simchi-Levi
Conflicting Objectives in the Supply
Chain
3. Warehousing
 • Low inventory
 • Reduced transportation costs
 • Quick replenishment capability
4. Customers

 • Short order lead time

 • High in stock
 • Enormous variety of products
 • Low prices
•
©Copyright 2002 D. Simchi-Levi
 The Dynamics of the Supply Chain
Order Size

Customer
Demand

Retailer
Retailer Orders
Orders
Distributor
Distributor Orders
Orders

Production
ProductionPlan
Plan

Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
©Copyright 2002 D. Simchi-Levi
 The Dynamics of the Supply Chain
Order Size

Customer
Demand

Production
ProductionPlan
Plan

Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
©Copyright 2002 D. Simchi-Levi
 Supply Chain: The Magnitude
•In 1998, American companies spent
$898 billion in supply-related
activities (or 10.6% of Gross Domestic
Product).
– Transportation 58%
– Inventory 38%
– Management 4%
•Third party logistics services grew in
1998 by 15% to nearly $40 billion
•
•
©Copyright 2002 D. Simchi-Levi
 Supply Chain: The Magnitude
(continued)

•It is estimated that the grocery industry

could save $30 billion (10% of
operating cost) by using effective
logistics strategies.
– A typical box of cereal spends 104 days
getting from factory to supermarket.
– A typical new car spends 15 days
traveling from the factory to the
dealership.
–

©Copyright 2002 D. Simchi-Levi

 Supply Chain: The Magnitude
(continued)

• Compaq computer estimates it lost $500 million

to $1 billion in sales in 1995 because its
laptops and desktops were not available when
and where customers were ready to buy them.
• Boeing Aircraft, one of America’s leading capital
goods producers, was forced to announce
writedowns of $2.6 billion in October 1997.
The reason? “Raw material shortages, internal
and supplier parts shortages…”. (Wall Street
Journal, Oct. 23, 1997)
•
•
©Copyright 2002 D. Simchi-Levi
 Supply Chain: The Potential

• Procter & Gamble estimates that it saved retail

customers $65 million through logistics gains
over the past 18 months.

“According to P&G, the essence of its

approach lies in manufacturers and suppliers
working closely together …. jointly creating
business plans to eliminate the source of
wasteful practices across the entire supply
chain”.
(Journal of Business Strategy, Oct./Nov.
1997) ©Copyright 2002 D. Simchi-Levi
 Supply Chain: The Potential

• Dell Computer has outperformed the

competition in terms of shareholder value
growth over the eight years period, 1988-
1996, by over 3,000% (see Anderson and
Lee, 1999) using
 - Direct business model
 - Build-to-order strategy.

©Copyright 2002 D. Simchi-Levi

 Supply Chain: The Potential
•In 10 years, Wal-Mart transformed
itself by changing its logistics
system. It has the highest sales
per square foot, inventory
turnover and operating profit of
any discount retailer.

©Copyright 2002 D. Simchi-Levi

 Supply Chain Challenges
• Achieving Global Optimization
– Conflicting Objectives
– Complex network of facilities
– System Variations over time
–

©Copyright 2002 D. Simchi-Levi

 Supply Chain Challenges
• Achieving Global Optimization
– Conflicting Objectives
– Complex network of facilities
– System Variations over time
• Managing Uncertainty
– Matching Supply and Demand
– Demand is not the only source of
uncertainty
–
©Copyright 2002 D. Simchi-Levi
 Supply Management’s Impact on Net
Income and the Bottom Line

Increased Sales:
• Faster to Market
• Improved Quality
• Pricing Flexibility
• Innovation
Lower Total Cost:
• Acquisition Cost
• Processing Cost
• Quality Cost
• Downtime Cost
• Risk Cost
• Cycle Time Cost
• Conversion Cost
• Non-value Added Cost
• Supply Chain Cost
• Post Ownership Cost

1-50 World Class Supply ManagementSM, ISBN 0-07-229070-6, Copyright © 2003 by The McGraw-Hill Companies, Inc. All rights reserved.
 What’s New in Logistics?

•Global competition
•Shorter product life cycle
•New, low-cost distribution
channels
•More powerful well-informed
customers
•Internet and E-Business strategies
©Copyright 2002 D. Simchi-Levi
 New Concepts
•Push-Pull strategies
•Direct-to-Consumer
•Strategic alliances
•Manufacturing postponement
•Dynamic Pricing
•E-Procurement

©Copyright 2002 D. Simchi-Levi

 Operations and Supply Chain
Management and You
Some of the many career positions
• Analyst • Sourcing Analyst
• Commodity Manager • Logistics and Material
• Customer Service Planner
Manager • Systems Support
• International Logistics Manager (MIS)
Manager • Transportation
• Logistics Services Manager
Salesperson • Process Analyst
• Production Manager • Scheduler
• Purchasing Agent
53

Operations and Supply Chain Activities
• Process selection, design, and
improvement
• Forecasting for decision making
• Capacity planning for capital investment
and resource levels
• Inventory management for amount and
location
• Planning and control for work
scheduling and meeting demand
• Purchasing, managing supplier 54