Supply Chain

Management
Dr. Gunjan Soni

LECTURE 1

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Traditional Supply Chain

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 Terminology

 Physical Distribution Management

 Materials Management
 Logistics Management
 Supply Chain Management (SCM)

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 PDM
 It is a term employed in manufacturing and commerce
to describe the broad range of activities concerned with
efficient movement of finished products from end of
production line to the consumer
or
The movement of raw materials from the source of
supply to the beginning of production line .

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 Logistics Management
While logistics management “ is that part of the
supply chain management process that plans,
implements, controls the efficient, effective
forward and reverses flow, storage of goods,
services, and related information between the
point of origin and the point of consumption in
order to meet customer requirements” .

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Supply chain management (SCM)
According to counsel of logistics management (CLM) SCM
is “an integrating function with primary responsibility for
linking major business functions and business processes
within and across companies into a cohesive and high-
performing business model. It includes all of the Logistics
Management activities noted earlier, as well as
manufacturing operations, it drives coordination of
processes activities within and across marketing, sales,
product design, finance and information technology"

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Logistics : A subset of SCM

SUPPLY CHAIN MANAGEMENT

•Managing relationship
•Integration through IT
•Collaborative alliance
•Vendor evaluation
•Purchasing strategies
•Outsourcing
•B2B & B2C transactions

Logistics
Procurement
Manufacturing
Distribution
Waste disposal

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Evolution of Logistics towards Supply Chain

Ballou (2005)

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Traditional View: Logistics in the
Manufacturing Firm

 Profit 4% Profit
Logistics
Cost

 Logistics Cost 21% Marketing

Cost

 Marketing Cost 27%

Manufacturing/
Processing
Cost
 Manufacturing Cost 48%
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What is a Supply Chain?

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 What is Supply Chain?
 Flow of information, products, funds in
upstream and downstream
 May consist of more than one players at each
tier/stage
 May be a chain or group of chains called supply
network or supply web
 Not necessary that all the players exist in a
supply chain

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 What is a Supply Chain?
Customer wants
P&G or other Spencers or third Spencers
detergent and goes
manufacturer party DC Supermarket to Distributor or Retailer

Chemical
Plastic Tenneco
manufacturer
Producer Packaging
(e.g. Oil Company)

Chemical
Paper Timber
manufacturer
Manufacturer Industry
(e.g. Oil Company)

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Flows in a Supply Chain

Information

Product
Customer
Funds

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The Objective of a Supply Chain
 Maximize overall value created
 Supply chain value: difference between what the
final product is worth to the customer and the
effort the supply chain expends in filling the
customer’s request
 Value is correlated to supply chain profitability
(difference between revenue generated from the
customer and the overall cost across the supply
chain)
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 The Objective of a Supply Chain
 Example: Dell receives Rs. 60,000 from a
customer for a laptop (revenue)
 Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
 Difference between Rs.60,000 and the sum of all
of these costs is the supply chain profit
 Supply chain profitability is total profit to be
shared across all stages of the supply chain
 Supply chain success should be measured by
total supply chain profitability, not profits at an
individual stage 15
The Objective of a Supply Chain
 Sources of supply chain revenue: the customer
 Sources of supply chain cost: flows of
information, products, or funds between stages
of the supply chain
 Supply chain management is the
management of flows between and among
supply chain stages to maximize total
supply chain profitability

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 Effect of Environment
 Decisions for SCM vary from environment to
environment
 Eg: Different structure of SC will need diverse SC
decisions . FMCG goods SC in US and India have
separate SC structures .

US India
Consolidated Retailing Scattered , large no. of
retailers
Need of distributor is almost Distributor plays a major
nullified role
Large orders, less frequent Small orders, frequent
replenishment replenishment

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Decision Success & Failures: Instances

 Success: Wal-Mart (Daily Commodities), Dell

Computer, 7-11( Fast food & Services), Big-
Bazaar

 Failure: Webwan (Grocery), Quaker Oat’s (Sport

Drink) acquisition of Snapple in 1994,
Peppertap in India (http://www.livemint.com/Companies/vfJHyWYz59rhyyNSxriRQJ/PepperTap-shutting-
down-operations-6-cities-including-Mumba.html

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 Decision Phases of a Supply
Chain
 On the basis of frequency with which they are
made and time frame they take into account

 SUPPLY CHAIN STRATEGY OR DESIGN

 SUPPLY CHAIN PLANNING

 SUPPLY CHAIN OPERATION

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 Supply Chain Strategy or Design
 Decisions about the structure of the supply chain
and what processes each stage will perform
 Strategic supply chain decisions like:
 Locations and capacities of facilities
 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 uncertainty 20
 More SC strategic decisions
 Chain’s configuration
 Resource allocation
 Processes at each stage
 Sourcing
 Location of facilities
 Product allocation regarding manuf. & storing
 Modes of transportation
 Type of information system

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 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
 Time frame is quarter to an year
 Define set of operating policies that govern
short-term operations.
 Must consider in planning decisions demand
uncertainty, exchange rates, competition over
the time horizons 22
 SC Planning Decisions
 Market allocation
 Subcontracting of manufacturing
 Inventory policies
 Timing & Size of marketing and pricing
promotions
 Level of flexibility to be incorporated

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 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 exploit reduction in uncertainty and
optimize performance
 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) 24
 SC Operation
 Inventory & Production allocation to orders
 Scheduling of orders
 Generate pick list at the warehouse
 Order allocation to shipping mode & shipment
 Setting delivery schedule
 Placing replenishment orders

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 Assignment
 Using the videos shown or exhibited, compare
and contrast the supply chain issues at Strategic,
Planning and Operational level for the
respective supply chain

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 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)
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Cycle View of Supply Chains
Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle

Manufacturer
Procurement Cycle
Supplier
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 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 process.
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 Customer Order Cycle
 Involves all processes directly involved in
receiving and filling the customer’s order
 Customer arrival
 Customer order entry
 Customer order fulfillment
 Customer order receiving

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 Replenishment Cycle
 All processes involved in replenishing retailer
inventories (retailer is now the customer)
 Retail order trigger
 Retail order entry
 Retail order fulfillment
 Retail order receiving

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 Manufacturing Cycle
 All processes involved in replenishing
distributor (or retailer) inventory
 Order arrival from the distributor, retailer, or
customer
 Production scheduling
 Manufacturing and shipping
 Receiving at the distributor, retailer, or customer

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 Procurement Cycle
 All processes necessary to ensure that materials
are available for manufacturing to occur according
to schedule
 Manufacturer orders components from suppliers
to replenish component inventories
 However, component orders can be determined
precisely from production schedules (different
from retailer/distributor orders that are based on
uncertain customer demand)
 Important that suppliers be linked to the
manufacturer’s production schedule
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Push/Pull View of Supply Chains
Procurement, Customer Order
Manufacturing and Cycle
Replenishment cycles

PUSH PROCESSES PULL PROCESSES

Customer
Order Arrives
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 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
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 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
 The relative proportion of push and pull
processes can have an impact on supply chain
performance

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 The Importance of Supply
Chain Flows
 Close connection between design and
management of supply chain flows (product,
information, and cash) and supply chain success
 Dell: success
 Quaker Oats (Snapple): failure
 Supply chain decisions can play a significant role
in the success or failure of a firm

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Summary of Learning Objectives
 What are the cycle and push/pull views of a
supply chain?
 How can supply chain macro processes be
classified?
 What are the three key supply chain decision
phases and what is the significance of each?
 What is the goal of a supply chain and what is
the impact of supply chain decisions on the
success of the firm?
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