410-MC9-UM

Course Instructor : Manish Chauhan

1 • Supply chain overview

• Supply chain Management (SCM)

2 • Value creation
• The future of SCM
A supply chain consists of all parties involved, directly or
indirectly, in fulfilling a customer request.

Primary Product flow Primary Cash Flow

Traditional Views:

Logistics in the Manufacturing Firm

Profit 4% Profit
Logistics
Logistics Cost 21% Cost

Marketing
Marketing Cost 27% Cost

Manufacturing Cost 48% Manufacturing

Cost
Traditional Views

Logistics in the US Economy

2006 2007 years

Freight Transportation $809 $856 Billion
Inventory Expense $446 $487 Billion
Administrative Expense $50 $54 Billion
Total Logistics Costs $1.31 $1.4 Trillion
Logistics Related Activity 10% 10.1% of GNP
The Magnitude in the Traditional View

➢Estimated that the grocery industry could save $30

billion (10% of operating cost) by using effective
logistics and supply chain strategies
•A typical box of cereal spends 104 days from
factory to sale
•A typical car spends 15 days from factory to
dealership
True Magnitude in the Traditional View
➢Compaq estimates it lost $.5 billion to $1 billion in
sales in 1995 because laptops were not available
when and where needed

➢When the 1 gig processor was introduced by AMD,

the price of the 800 mb processor dropped by 30%

➢Boeing aircraft, one of America's leading capital

goods producers, was forced to announce write
downs of $2.6 billion in October 1997, due to “Raw
material shortages, internal and supplier parts
shortages…”.
The Potential
Procter & Gamble estimates that it saved retail
customers $65 million through logistics gains over
the past 18 months.

“According to P&G, the essence of its approach lies

in manufacturers and suppliers working closely
together …. jointly creating business plans to
eliminate the source of wasteful practices across the
entire supply chain”.
(Journal of business strategy, Oct./Nov. 1997)
The Potential
➢In 10 years, Wal-Mart transformed itself by
changing its logistics system. It has the highest sales
per square foot, inventory turnover and operating
profit of any discount retailer.

➢Dell Computer has outperformed the competition

in terms of shareholder value growth over the eight
years period, 1988-1996, by over 3,000% (see
Anderson and Lee, 1999) using
Direct business model
Build-to-order strategy.
 CUSTOMER

Customer Order Cycle

Distribution of Costs

Demand Information

Supply Information
RETAILER

Customer Value
Replenishment Cycle

DISTRIBUTOR

Manufacturing Cycle

MANUFACTURER

Procurement Cycle

SUPPLIER
The supply chain is an interconnected series of cycles
https://www.youtube.com/watch?v=-lU1m7P7NvU
 CUSTOMER

PULL Customer Order Cycle

Distribution of Costs

Demand Information

Supply Information
RETAILER

Customer Value
PUSH Replenishment Cycle

DISTRIBUTOR

Manufacturing Cycle

MANUFACTURER

Procurement Cycle

SUPPLIER
Examples: grocery, store front merchandise, catalogs
 Customer wants
P&G or other Provigo or third Provigo
detergent and goes
manufacturer party DC Supermarket to Provigo

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

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

1-13
 CUSTOMER

Customer Order Cycle

Distribution of Costs

Demand Information

Supply Information
RETAILER

Customer Value
PULL
Replenishment Cycle

DISTRIBUTOR

Manufacturing Cycle
PUSH
MANUFACTURER

Procurement Cycle

SUPPLIER
Example: Amazon.com
 CUSTOMER

Customer Order Cycle

Distribution of Costs

Demand Information

Supply Information
RETAILER

Customer Value
Replenishment Cycle

DISTRIBUTOR
PULL
Manufacturing Cycle

MANUFACTURER

PUSH Procurement Cycle

SUPPLIER
Example: Dell, Wal-mart
PUSH PROs PUSH CONs
Enable customer impulse purchase High risk of customer forecasting –
inventory costs are highly
Use manufacturing economies of dependent on demand forecasting
scale and supply lead-times

Lose customization opportunity

PULL PULL
Firm customer order trigger Lose customer impulse purchase

Customization opportunity Lose manufacturing economies of

scale

High risk of customer demand

acceleration & deceleration
Push vs. Pull becomes a strategic decision
➢All stages involved, directly or indirectly, in fulfilling a
customer request

➢Includes manufacturers, suppliers, transporters,

warehouses, retailers, and customers

➢Within each company, the supply chain includes all

functions involved in fulfilling a customer request (product
development, marketing, operations, distribution, finance,
customer service)
➢In reality, a manufacturer may receive material from several
suppliers and then supply several distributors.
➢Thus, most supply chains are actually networks. It may be
more accurate to use the term supply network or supply web
 The value chain was introduced by Michael S.
Porter in 1985
 "Value chain" is used to analyze the flow of
value-adding activities from the raw material
supplier to the end customer.
 The model looks at what value each link adds
the company and thereby uncovers the
company's competitiveness.
 Support Activities

Primary Activities

Source: http://www.flixabout.com/porters-value-chain
 providing the customer with
information about the products
excellence which should lead to
a sale, determining the
products distribution Channel,
pricing promotion, personal
Primary Activities
purchase product enhances or
preserves value for the
customer the service could
include advice in-person or
online repairs customer
training ongoing maintenance

selling etc

Order processing packaging shipping everything

which deals with the distribution of the finished
product to buyers

Transforming raw materials and

components into new products

Receiving goods , Inspection storage,

Receiving returned Goods etc
Source: http://www.flixabout.com/porters-value-chain
 •Recruitment
•Training Supports primary, support
•Retention activities and Other activities
•Motivation e.g, Management, Planning,
Quality Management and
Finance etc.
Support Activities

•Function of purchasing not the physical input

•supports all the primary activities

•Overview: Products are in stock , delivery time

•ERP systems:

Source: http://www.flixabout.com/porters-value-chain
Source: http://www.flixabout.com/porters-value-chain
Source: http://www.flixabout.com/porters-value-chain
➢ The objective of every supply chain should be to maximize
the overall value generated.
➢ The value also known as supply chain surplus
Supply Chain Surplus = Customer Value – Supply Chain Cost
➢ A growth in supply chain surplus increases the size of the
total pie, allowing contributing members of the supply
chain to benefit.

➢ The customer is the only one providing positive cash flow

for the Wal-Mart supply chain.
➢ All other cash flows are simply fund exchanges that occur
within the supply chain, given that different stages
➢ have different owners. When Wal-Mart pays its supplier, it
is taking a portion of the funds the customer provides and
passing that money on to the supplier.
 Shift in supply chains
 No more a back-office support function
 Not only great product or service
◦ Great customer experience customers
 Sustainable supply chain
 Materials recycling
 Rethink consumer behavior
 Increase in technology
 The thought of a driverless logistics network
seemed unthinkable just 10 years ago
◦ Now driverless trucks are covering thousands of
miles and drones are dropping packages off at
front doors, although only in tests for now.
◦ China’s JD.com has combined warehouse
automation, driverless trucks, drones and other
technology in its vision for urban logistics
 Mission Critical
Hybrid (both)

Mission critical products (e.g., PPE, Thermometers, drugs) should

be supported by “Affordable Resilient” supply Chains (with some
just-in-case inventory)- enable continuity!
UCLAAnderson- Chris Tang
https://www.youtube.com/watch?v=N4E6Pgax8to UCLA Anderson- Chris Tang