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Supply Chain

Management
Overview
UNIT 1 LECTURE 1 &2

Course Approach
Lectures cover
Width of the subject matter
Application of the subject matter

Refer Textbooks/Internet Sources


For Depth of the subject matter

Exams
50% width 30% application 20% depth

Lecture Overview

What Is A Supply Chain


The system of suppliers, manufacturers, transportation,
distributors, and vendors that exists to transform raw
materials to final products and supply those products
to customers.
That portion of the supply chain which comes after the
manufacturing process is sometimes known as the
distribution network.

Snapshot

Sources:
plants
vendors
ports

Field
Regional
Warehouses:
Warehouses: stocking
stocking
points
points

Customers,
demand
centers
sinks

Supply

Inventory &
warehousing
costs
Production/
Transportati
purchase
on
Inventory &Transportati
on
costs
costs
warehousingcosts
costs

Example
P&G or other
manufacturer

Jewel or third
party DC

Plastic
Producer

Tenneco
Packaging

Chemical
manufacturer
(e.g. Oil Company)

Paper
Manufacturer

Jewel
Supermarket

Customer wants
detergent and goes
to Jewel

Chemical
manufacturer
(e.g. Oil Company)

Timber
Industry

Evolution of Supply Chain


Management
Further
Refinement of
SCM
Capabilities
SCM
Formation/
Extensions
JIT, TQM, BPR,
Alliances
Inventory Management/Cost
Optimization
Traditional Mass Manufacturing

1950s

1960s

1970s

1980s

1990s

2000s

Beyond

Changing scenarios of Supply Chain


Management
Global competition

Push-Pull strategies

Shorter product life cycle

Direct-to-Consumer

New, low-cost distribution


channels

Strategic alliances

More powerful wellinformed customers


Internet and E-Business
strategies

Manufacturing
postponement
Dynamic Pricing
E-Procurement

What Is the Goal of Supply Chain Management?


Supply chain management is 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
At the right time

In order to

Minimize total system cost


Satisfy customer service requirements

St
ra
te
gy
&
D
es
ig
Planning
n

Decision Phases in Supply Chain


Supply Chain Strategy &
Design
Supply Chain Planning
Supply Chain Operations

Operations

Decision Phases in Supply Chain


Supply Cain Strategy &
Design

Location & capacity of


production and warehouses
Products to manufactured
and in which locations
Mode of transportation
Types of information
systems to be used
Strategic sourcing decisions

Supply Cain Planning

Supply Cain Operations

Markets to be supplied & from Decisions over individual


which location
customer orders (daily,
Planned build-up of inventory weekly)
Subcontracting of
manufacturing

Less uncertainty about


demand information

Timing and size of market


promotion

Exploit reduction of
uncertainty to optimize
performance

Handling uncertainty in
demand, foreign exchange
fluctuations
Establishing production plan
under fixed strategic
parameters

Establish deliver dates


Establish order fill rate

Strategies for SCM


All of the advanced strategies, techniques,
and approaches for Supply Chain
Management focus on:

Global Optimization
Managing Uncertainty

Sequential Optimization
vs.
Global Optimization
Sequential Optimization
Procurement
Planning

Manufacturing
Planning

Distribution
Planning

Demand
Planning

Global Optimization
Supply Contracts/Collaboration/Information Systems and
DSS

Procurement
Planning

Manufacturing
Planning

Distribution
Planning

Demand
Planning

Conflicting Objectives in the


Supply Chain
Manufacturing

Purchasing
Stable volume requirements
Flexible delivery time
Little variation in mix

Long run production


High quality
High productivity
Low production cost

Large quantities
Warehousing

Customers

Low inventory

Reduced transportation costs

High in stock

Quick replenishment capability

Enormous variety of products

Low prices

Short order lead time

Uncertainty
What is variation?
What is randomness?
What tools and approaches help us
to deal with these issues?

Cant Forecasting Help?


Forecasting is always wrong
The longer the forecast horizon the worse
the forecast
End item forecasts are even more wrong

Volumes

Supply Chain Variability

Retailer
Retailer Orders
Orders

Manufacturer
Manufacturer Forecast
Forecast
of
of Sales
Sales

Retailer
Retailer Warehouse
Warehouse
to
to Shop
Shop

Actual
Actual
Consumer
Consumer
Demand
Demand

Production
Production Plan
Plan

Time

Volumes

What Management Wants

Production
Production Plan
Plan
Consumer
Consumer
Demand
Demand

Time

Volumes

What Management Gets...

Consumer
Consumer
Demand
Demand

Production
Production Plan
Plan

Time

Dealing with Optimization &


Uncertainty
Optimization

Uncertainty

Decision Support Systems


Inventory Control
Network Design
Design for Logistics
Cross Docking

Pull Systems
Risk Pooling
Centralization
Postponement
Strategic Alliances
Collaborative Forecasting

Key Issues of SCM and their


relationship with SCM objectives
Global
Optimization

Distribution Configuration
Inventory
Supply contract
Distribution strategies
Strategic Partnership
outsourcing
Product Design
Information Technology & Decision
Support System
Customer Value

Dist. Conf.

Managing
Uncertainty

Inv. Control

Sup. Contract

Dist.
Strategies

St.
partnership

Outsourcing

Pr. Design

IT & DSS

Cust. Value

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)

Cycle View of Supply Chains


Customer-retailer
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.

Customer Order Cycle

Retailer-distributor
Replenishment Cycle

Distributor-manufacturer
Manufacturing Cycle

Manufacturer-supplier
Procurement Cycle

Push/Pull View of Supply Chains


Procurement,
Manufacturing and
Replenishment cycles

PUSH PROCESSES
Push: execution is initiated in anticipation of
customer orders (speculative)

Customer Order
Cycle

PULL PROCESSES
Pull: execution is initiated in
response to a customer order
(reactive)

Customer
Order Arrives

Understanding the Supply Chain: CostResponsiveness Efficient Frontier


Responsiveness
High

Low
High

Low

Cost

Responsiveness Spectrum

Highly
efficient

Integrated
steel mill

Somewhat
efficient
Hanes
apparel

Somewhat
responsive
Most
automotive
production

Highly
responsive
Dell

Comparison of Efficient and


Responsive Supply Chains
Efficient

Responsive

Primary goal

Lowest cost

Quick response

Product design strategy

Min product cost

Modularity to allow
postponement

Pricing strategy

Lower margins (high


volumes)

Higher margins

Mfg strategy

High utilization

Capacity flexibility

Inventory strategy

Minimize inventory

Buffer inventory

Lead time strategy

Reduce but not at expense


of greater cost

Aggressively reduce even if


costs are significant

Supplier selection strategy

Cost and low quality

Speed, flexibility, quality

Transportation strategy

Greater reliance on low cost


modes

Greater reliance on
responsive (fast) modes

Drivers of Supply Chain Performance


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

Considerations for Supply Chain Drivers


Driver

Efficiency

Responsiveness

Inventory

Cost of holding

Availability

Transportation

Consolidation

Speed

Facilities

Consolidation /
Proximity /
Dedicated
Flexibility
What information is best suited for
each objective

Information

Tracing back the dress you are wearing

Global Apparel Value Chain

Magnitude of Supply Chain Costs


Example: The Apparel Industry
Cost per

Percent

Shirt

Saving

Manufacturer

Distributor

Retailer

Customer

$52.72

0%

Manufacturer

Distributor

Retailer

Customer

$41.34

28%

Distributor

Retailer

Customer

$20.45

62%

Manufacturer

Magnitude of Supply Chain Costs- Cost


Elements of a Typical Trade Book