Supply Chain definition

Logistics definition
History of Supply Chain
Objectives, Importance, Measuring factors
Principles of Supply Chain
Decision phases in Supply Chain
Process views
Supply Chain Drivers
Supply Chain Macro processes in a firm
Key issues of Supply Chain
Bull Whip Effect
Operation Strategies
Imperatives for Success
Supply Chain collaboration
Emerging Best Practices in SCM

Also referred to as the logistics network

Suppliers, manufacturers, warehouses, distribution
centers and retail outlets facilities
and the
Raw materials
Work-in-process (WIP) inventory
Finished products
that flow between the facilities.

Hence SCM is a network of all parties involved, either

directly (or) indirectly, in fulfilling a customer request.

Supply Chain includes

Material flows
Information flows
Financial flows

LOGISTICS

Physical Distribution Management(1976)

Logistics is the process of planning,
implementing, controlling efficient and
effective flow and storage of goods, services
and related information from the point of
origin to the point of consumption.

Supplier
Customer

Manufacturer
plant

3rd Party Logistics

Providers (3PL)

Material Flow

Information Flow

MDC

WDC

Retail

Suppliers

Manufacturers

Transportation
Costs
Material Costs

Warehouses &
Distribution Centers

Customers

Transportation
Costs

Manufacturing Costs

Transportation
Costs
Inventory Costs

1960s - Inventory Management Focus,

Cost Control
1970s - MRP & BOM - Operations Planning
1980s - MRPII, JIT - Materials
Management, Logistics
1990s - SCM - ERP - Integrated
Purchasing, Financials, Manufacturing,
Order Entry
2000s - Optimized Value Network with
Real-Time Decision Support; Synchronized
& Collaborative Extended Network

Supply Chain objectives

To have the right products in the

right quantities at the right place
at the right moment at minimal
cost.
It is characterized by a sharp focus
on

Maximize the overall profit

Better asset utilization
Cost reduction.

Importance of SC

Reduced inventories along the chain.

Better information sharing among the partners.
Planning being done in consultation rather than in
isolation.
Supply chain design, planning and operation
decisions play a significant role in the success or
failure of the firm

Measuring Factors of SCM

Responsiveness
Efficiency
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Principles of SC

Sourcing, procurement and supply

management

Materials management

Component order arrival

Production scheduling
Receiving

Forecasting, Inventory, stores management,

stock keeping

Logistics and distribution management

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Developing Strategy /
Design

Planning Supply Chain

Supply Chain Operation

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Decisons in Developing a strategy or

Design:
Design
What is the chains
configuration?
How resources will be
allocated?
What process each stages will
perform?
Whether to outsource or perform
in/house?

Decisions in Planning Supply Chain:

Forecasting the demand for the coming year

Which markets will be supplied from which locations?

The inventory policies to be followed

The timing and size of marketing and size of marketing

and pricing promotions

Steps in Supply Chain Operations:

Set delivery schedules of trucks
and placing orders

Set a date that the order to be filled.

Generate pick lists at a warehouse

Allocate a particular order to particular
shipping mode or shipment
Allocate inventory or production to individual
orders.

Cycle view
Push/pull view
Cycle View: The process is divided into a series
of cycles, each performed at the interface
between two successive stages of a supply chain.
Push/Pull view: The process in supply chain
are divided into two categories depending on
whether they are executedin response to the
consumer order or in anticipation of the customer
orders.

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Cycle View:

Given the fivestages of supply chain :

Customer
Customer
order cycle

Manufacturer

Supplier

Replenishme
Retailer
nt
Cycle
Distributor
Manufacturi
ng
cycle

Procuremen
t
Cycle

Sub Process in each cycle:

Supplier
markets
product

Buyer reverse
flows to
supplier or third
party

Buyer places
order

Buyer
receives supply

Supplier
receives
order

Supplier
supplies
order

Classical manufacturing supply chain strategy

Manufacturing forecasts are long-range

Longer response time to react to marketplace changes

Large inventory safety stocks

Larger and more variably sized production batches
Unacceptable service levels
Inventory obsolescence

Inefficient use of production facilities (factories)

Unable to meet changing demand patterns

Supply chain inventory becomes obsolete as demand
for certain products disappears

Increased variability (Bullwhip effect) leading to:

Orders from retailers warehouses

How is demand determined? Peak? Average?

How is transportation capacity determined?

Examples: Auto industry, large appliances, others?

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Demand-driven

None or little inventory held

Coordinated with true customer demand

Only in response to specific orders

Decreased lead times

Decreased retailer inventory
Decreased variability in the supply chain and
especially at manufacturers
Decreased manufacturer inventory
More efficient use of resources
More difficult to take advantage of scale
opportunities
Examples: Dell, Amazon

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Hybrid of push and pull strategies to overcome

disadvantages of each
Early stages of product assembly are done in a
push manner

Partial assembly of product based on aggregate

demand forecasts (which are more accurate than
individual product demand forecasts)
Uncertainty is reduced so safety stock inventory is
lower

Final product assembly is done based on customer

demand for specific product configurations
PushPulldetermines push-pull
Supply chain timeline
Boundary
boundary
Generic Product
Customized Product
Push Strategy

Raw
Materials

Pull Strategy

Supply Chain Timeline

End
Consumer

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PUSH

PULL

Minimize Cost

Maximize Service
Level

High

Low

Resource Allocation

Responsiveness

Lead Time

Long

Short

Processes

Supply Chain
Planning

Order Fulfillment

Objective
Complexity
Focus

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LOGISTICS DRIVERS

Facilities
Inventory
Transport

CROSS- FUNCTIONAL DRIVERS

Information
Sourcing
Pricing
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SUPPLIER

CUSTOMER

SUPPLIER
INTERNAL
CUSTOMER
RELATIONSHI
SUPPLY
RELATIONSHI
P
CHAIN
P
MANAGEMEN MANAGEMEN MANAGEMEN
T
T
T

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Overcoming functional silos with conflicting goals

Purchasing

Low purchase
price
Multiple
vendors

SOURCE

Manufacturing

Few changeovers
Stable
schedules

Distribution

Low
inventories

Customer Service/
Sales

High service
levels
Low costs

Low
transportati
on costs

MAKE

DELIVER

SELL

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ISSUE

CONSIDERATIONS

Network Planning

Warehouse locations and capacities

Plant locations and production levels
Transportation flows between facilities to minimize cost and time

Inventory Control

How should inventory be managed?

Why does inventory fluctuate and what strategies minimize this?

Supply Contracts

Impact of Revenue sharing

Pricing strategies

Strategic Partnering

What information and processes can be shared?

What partnerships should be implemented and in which situations?

Outsourcing & Procurement

Strategies

What are our core supply chain capabilities and which are not?
Does our product design mandate different outsourcing
approaches?
Risk management

Product Design

How are inventory holding and transportation costs affected by

product design?
How does product design enable mass customization?

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Time

Time

rs

Sales

Supplie
rs

Sales

Sales

Inventory and back-order levels fluctuate considerably

across the supply chain even when customer demand
doesnt vary
The variability worsens as we travel up the supply
chain
MultiWholesale
Forecasting
doesnt help
Consume
Manufacture
Retailer
tier
Distributor

Sales

Time

Time

Bullwhip Effect
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Demand forecasting practices

Lead time

Fixed ordering costs

Impact of transportation costs (e.g., fuel costs)
Sales quotas

Price fluctuations

Longer lead times lead to greater variability in

estimates of average demand, thus increasing
variability and safety stock costs

Batch ordering

Min-max inventory management (reorder points to

bring inventory up to predicted levels)

Promotion and discount policies

Lack of centralized information

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Four critical methods for reducing the Bullwhip effect:

Reduce uncertainty in the supply chain

Reduce variability in the supply chain

Centralize demand information

Keep each stage of the supply chain provided with upto-date customer demand information
More frequent planning (continuous real-time planning
the goal)

Every-day-low-price strategies for stable demand

patterns

Eliminate the bullwhip through strategic partnerships

Vendor-managed inventory (VMI)

Collaborative planning, forecasting and replenishment
(CPFR)

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STRATEGY

WHEN TO
CHOOSE

BENEFITS

Make to Stock

standardized
products, relatively
predictable demand

Low manufacturing
costs; meet customer
demands quickly

Make to Order

customized
products, many
variations

Customization;
reduced inventory;
improved service
levels

Configure to Order

many variations on
finished product;
infrequent demand

Low inventory levels;

wide range of product
offerings; simplified
planning

Engineer to Order

complex products,
unique customer
specifications

Enables response to
specific customer
requirements

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View the supply chain as a strategic asset

Create unique supply chain configurations that align

with your companys strategic objectives

Dells innovative direct-to-consumer sales and buildto-order manufacturing

Operations strategy
Outsourcing strategy
Channel strategy
Customer service strategy
Asset network

Supply chain configuration components

Reduce uncertainty

Forecasting
Collaboration
Integration

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Many different definitions depending on perspective

The means by which companies within the supply
chain work together towards mutual goals by sharing

Ideas
Information
Processes
Knowledge
Information
Risks
Rewards

Why collaborate?

Accelerate entry into new markets

Changes the relationship between cost/value/profit
equation

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The only method that has the potential to eliminate

or minimize the Bullwhip effect
Retailers

Supplier
s

Synchroniz
ed
Production
Scheduling

Manufacturer

Collaborativ
e Demand
Planning

Collaborati
ve Product
Developme
nt

Distributors/
Wholesalers

Collaborative Logistics Planning

Transportation services
Distribution center services

Logistics Providers

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CUSTOMERS

MATERIAL
SUPPLIERS

Reduced inventory
Increased revenue
Lower order management
costs
Higher Gross Margin
Better forecast accuracy
Better allocation of
promotional budgets

Reduced inventory
Lower warehousing costs
Lower material acquisition
costs
Fewer stockout conditions

SERVICE
SUPPLIERS
Lower freight costs
Faster and more reliable
delivery
Lower capital costs
Reduced depreciation
Lower fixed costs

Improved customer service

More efficient use of human resources

Source: Cohen & Roussel

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