The management of the chain of

supply
Module 1.1
“Amateurs
talk strategy and professionals talk logistics.”
 Nothing Entirely New...Just a Significant Evolution

 Industrialization, infrastructural development (railroad,

national highways, seaports, aerospace, new communication
media) expanded market; thus matured the supply chain and
logistics domain
 In the early 1900

 Ford model T
 First moving assembly
line
 Reduced time from 728
hours to 1.5 hours
 Post world war 2

 New world economic order emerged; specifically Germany,

Belgium and France
 In East, it was Japan who changed the rules-Mass to Lean
 Form efficiency and quantity to flexible and quality
 The ideas were six sigma, JIT inventory and TQM
 In 1970

 US superiority was challenged by the companies that

producing quality product at lower cost
 IT boom
 Responsive supply chain
 In 1990

 Mass customization; possible due to internet and

technological advances
 Supply chain: Detergent

Customer wants
P&G or other Wal-Mart or third Wal-Mart
detergent and goes
manufacturer party DC Supermarket
to Wal-Mart

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

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

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 Lets define...

 “A supply chain is the alignment of firms that bring products

or services to market.”

—from Lambert, Stock, and Ellram in their book

Fundamentals of Logistics Management.
 A bit details...

 “A supply chain consists of all stages involved, directly or

indirectly, in fulfilling a customer request. The supply chain
not only includes the manufacturer and suppliers, but also
transporters, warehouses, retailer and customer themselves”

-Chopra and Meindl

 Logistics vs. Supply chain: any difference?

 Some terms like logistics, inbound logistics, material

management, physical distribution/outbound logistics and
supply chain management are used interchangeably.
 Inbound logistics vs. Outbound logistics
 Inbound logistics/procurement logistics: covers the movement of
materials, components and product received from the supplier

 Outbound logistics/ distribution : refers to the outward

movement of the finished goods from the shipping or dispatch
department.
 Material management

 Handling of materials and movement of goods and

components within the factory or firm

 LOGISTICS describes the entire process of materials and

products moving into, through and out of a firm.
 More specifically ...
 The gamut of logistics management includes:

 Order management
 Outbound transportation and distribution management
 Inventory management
 Inbound transportation
 Procurement
 Information management

 Logistics management is oriented towards cost minimization

for the focal firm/group
 Logistics refers only to internal supply chain
management
 Lets make it in this way...

 “Logistic is the process of strategically managing the

procurement, movement and storage of materials, parts and
finished inventory and the related information flows through
the organization and its marketing channels for the cost
effective fulfilment of customers’ order”

-N. Chandrasekaran
Supply chain management: ....is a difference

 Sugar industry India:

 Nestle and coffee:
 Unilever and unprivileged entrepreneur:
 Nestle and coffee
Obtaining a reliable supply of specialized coffees is extremely
challenging, however. Most coffees are grown by small farmers
in impoverished rural areas of Africa and Latin America, who
are trapped in a cycle of low productivity, poor quality, and
environ-mental degradation that limits production volume. To
address these issues, Nestle redesigned procurement. It worked
intensively with its growers, providing advice on farming
practices, guaranteeing bank loans, and helping secure inputs
such as plant stock, pesticides, and fertilizers. Nestle
established local facilities to measure the quality of the coffee at
the point of purchase, which allowed it to pay a premium for
better beans directly to the growers and thus improve their
incentives. Greater yield per hectare and higher production
quality increased growers' incomes, and the environmental
impact of farms shrank. Meanwhile, Nestlé's reliable supply of
good coffee grew significantly.
 Unilever and unprivileged entrepreneur

Hindustan Unilever is creating a new direct-to-home distribution

system, run by underprivileged female entrepreneurs, in Indian
villages of fewer than 2,000 people. Unilever provides micro-
credit and training and now has more than 45,000 entrepreneurs
covering some 100,000 villages cross 15 Indian states. Project
Shakti, as this distribution system is called, benefits communities
not only by giving women skills that often double their household
income but also by reducing the spread of communicable diseases
through increased access to hygiene products. Project Shakti now
accounts for 5% of Unilever's total revenues in India and has
extended the company's reach into rural areas and built its brand
in media-dark regions, creating major economic value for the
company.
Based on the cases...
Primarily, Logistics is inward-looking. In the businesses
discussed above, the process is more logistics cantered, with
inward looking focus of optimizing production from a
satellite area of farming, managing farmers, time window,
process plant, and so on (in the sugar industry)

On the other hand, supply chain management is more

outward-looking and inter-organizational in approach. It
involves collaboration, partnering, and coordination across
entities serving the nodal organization. Relationship
management depends heavily on logistics effectiveness and
efficiency
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 $2000 from a customer for a
computer (revenue)
 Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
 Difference between $2000 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

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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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 Role of Supply Chain Manager

• Supply chain manager must be efficient in managing relationship

within and across organization in the network

• Manager must be more outward-looking and inter-organizational

in approach. This requires good negotiating skills representing
both internal and partners interests

• Ability to drive collaboration, partnering, and coordination across

entities serving the nodal organization.

• Must have strategic, planning and execution orientation with ease

of handling top management on various perspectives
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
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
 Push/Pull View of Supply Chain Processes

 Pull: execution is initiated in response to a customer order

(reactive)
 This concept is reactive but brings value creation to
customers by allowing flexible configuration of products

 Push: execution is initiated in anticipation of customer orders

(speculative)
 This process would be more driven by economies of scale in
operations and for low-value items
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 Process for the L.L. Bean Supply Chain
Cycles in Dell
Supply Chain

Push/Pull
Process for Dell
Supply Chain
 Why push-pull?

 There is a close connection between the design and

management of supply chain flows and the success of a supply
chain.

 Paint industry was entirely based on push process

 Base, mixing of suitable colour and packing-all are performed
in large factories
 Restructured in 1990; mixing of colour done by the retail
store according consumer choice
 Total paint inventories declined
Supply Chain Macro Processes in a
Firm
 Supply chain processes discussed in the two views can be
classified into (Figure 1.8):
 Customer Relationship Management (CRM)
 Internal Supply Chain Management (ISCM)
 Supplier Relationship Management (SRM)
 Integration among the above three macro processes is critical
for effective and successful supply chain management

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The ultimate goal of logistics and SCM

Decreasing Competitive
operational and advantages
inventory cost
Increasing
customer’s
value
Case analysis: Wal-Mart