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SCM-LN-060213
Operation of an Organization
Random Fluctuations
Inputs
Late Deliveries
[Transformed
Resources] Staff Turnover
The
Transformation Outputs Customers
Process
1. Facilities
2. Energy &
Utilities Services Internal
3. Technology Government
4. Staff
Regulations etc.
Inputs
Environment
[Transforming
A general Input – Transformation Process–
Resources]
Output Operations model
Supply Chain Management [SCM] 2
Computer
Raw material
Supplier
Computer Show Room
Distributor Customer
Manufacturer [Retailer]
Component
Supplier
Toilet Soap
Fuel
Vehicle Repair
Raw material
Supplier
Vehicle Spares Service Centre
Customer
Manufacturer Distributor [Retailer]
Component
Supplier
Pest Control
Maintenance
Raw material Pest control products Pest control products
Supplier Manufacturer Distributor
Company Customer
[Retailer]
Electricity Home
Water Customer
[Nature]
Generating Station Distribution Company Commercial
[Producer] [Retailer] Customer
Fuel
Supplier Industrial
Customer
Supply Chain Management [SCM] 4
Supply
The Customer expects that there will be supply of
Products / Services whenever the need arises.
Chemical
Plastic Tenneco
manufacturer
Producer Packaging
(e.g. Oil Company)
Chemical
Paper Timber
manufacturer
Manufacturer Industry
(e.g. Oil Company)
Supply Chain Management [SCM] 5
Supply Chain
The buying process begins with customer order and ends when the
satisfied customer pays for the product / service. It has the following
typical entities / stages:
•Customers
•Retailers
•Wholesalers / Distributors
•Transporters
•Manufacturers / Producers
•Component / Raw material Suppliers
These entities are connected to each other along a chain. Hence the
name Supply Chain system.
Objectives of Organizations
Supplier – Producer – Customer are connected by Product, Information & Payment Flows
Supply Chain
Organizations:
•Supplier – materials / energy / services / components
•Producer – finished products / services
•Retailer – receives finished products and delivers to
customers
Jones and Riley (1987) – SCM techniques deal with the planning and control of total materials
flow from suppliers to through end users.
Ellram (1991) – An integrative approach to dealing with the planning and control of the
materials flow from suppliers to end users.
Christopher (1992) – SCM is the management of a network of organizations that are involved,
through upstream and downstream linkages, in the different processes and activities that
produce value in the form of products and services in the hands of the ultimate customer.
Ayers (2000) – SCM is the design, maintenance and operation of supply chain processes for
satisfaction of end users.
Sunil Chopra and Peter Meindl (2001) – SCM involves the management of flows between
and among stages in a supply chain to maximize total profitability.
Supply Chain Management [SCM] 10
A generalized SC Model
Distribution Tier 2
Distribution Tier 1
Retailer Customer
Raw Materials
Supplier Supplier
Distributor Retailer Customer
Tier 2 Tier 1
Manufacturer
Supplier Supplier
Tier 2 Tier 1 Distributor Retailer Customer
Components
Retailer Customer
Supply Chain Management [SCM] 10A
Types of Supply Chain
1 – Horizontal (lateral) integration
The stages of SC [Physical Supply, Manufacturing & Physical] are
carried out by different organizations – discussed earlier.
2 – Vertical Integration
Bringing the SC inside one organization
Ford motor company pursued this strategy for their famous model
T - car.
Ownership
Management What Ford practised. Later divested.
Marketing / Sales
Finance
Distribution
Plant
Now horizontal integration
Component Production
is the favoured approach.
Raw material Extraction
Supply Chain Management [SCM] 11
Lacks clear internal definitions and goals – No external links other than transactional ones
Supply Chain Management [SCM] 12
Information
Supplier Customer
Production Marketing /
Purchasing Logistics Distribution
Control Sales
Supplier Customer
Improving efficiency, effectiveness, quality etc within functional areas – No overlap / consulting in
decision making from one department to another – Department wise Maximising
Supply Chain Management [SCM] 13
ERP
Supplier Customer
Production Marketing /
Purchasing Logistics Distribution
Control Sales
Supplier Customer
Breaks down silo walls and brings functional areas together in processes such as Sales &
Operations Planning (S&OP), CPFR – Company wide processes rather than individual functions
– late 1980s to early 1990s. MRP(1950s) – MRPII(1960s) – ERP(1990s).
Supply Chain Management [SCM] 13A
Integration of internal network with selected SCM partners’ internal network to improve efficiency,
quality of products / services.
5.2. The Objectives of a Supply Chain
Retailer
Replenishment Retail Order Trigger Retail Order Receiving
Cycle
Retail Order Entry Retail Order Fulfilment
Distributor
Order Arrival from D/R/C Receiving by D/R/C
Manufacturing
Cycle
Production Scheduling Manufacturing & Shipping
Manufacturer
Procurement Order from Manufacturer Receiving at Manufacturer
Cycle
Supplier Supplier Prodn Scheduling RM / Comp. Mfg & Shipping
Push/Pull View of Supply Chains
Procurement, Customer Order
Manufacturing and Cycle
Replenishment cycles
Customer
Order Arrives
Supply Chain Management [SCM] 24A
PULL PULL
Process Process
Customer Order
Cycle
Cust Order & Mfrg
Customer order arrives
Cycle
Procurement Procurement
Cycle Cycle
PUSH PUSH
Process Process
Supply Chain Macro Processes in a Firm
• Facilities
– places where inventory is stored, assembled, or fabricated
– production sites and storage sites
• Inventory
– raw materials, WIP, finished goods within a supply chain
– inventory policies
• Transportation
– moving inventory from point to point in a supply chain
– combinations of transportation modes and routes
• Information
– data and analysis regarding inventory, transportation, facilities
throughout the supply chain
– potentially the biggest driver of supply chain performance
A Framework for Structuring Drivers
Efficiency Responsiveness
Drivers
Supply Chain Decisions: Structuring
Drivers
Strategy
(Design)
Planning
Operation
Facilities
• Role in the supply chain
– the “where” of the supply chain
– manufacturing or storage (warehouses)
• Role in the competitive strategy
– economies of scale (efficiency priority)
– larger number of smaller facilities
(responsiveness priority)
• Example 3.1: Toyota and Honda
• Components of facilities decisions
Components of Facilities Decisions
• Location
– centralization (efficiency) vs. decentralization
(responsiveness)
– other factors to consider (e.g., proximity to customers)
• Capacity (flexibility versus efficiency)
• Manufacturing methodology (product focused
versus process focused)
• Warehousing methodology (SKU storage, job lot
storage, cross-docking)
• Overall trade-off: Responsiveness versus
efficiency
Inventory
• Role in the supply chain
• Mode of transportation:
– air, truck, rail, ship, pipeline, electronic transportation
– vary in cost, speed, size of shipment, flexibility
• Route and network selection
– route: path along which a product is shipped
– network: collection of locations and routes
• In-house or outsource
• Overall trade-off: Responsiveness versus
efficiency
Information
• Role in the supply chain