Supply Chain Management

Introduction

January 2005 Nucleus Solutions, Pune 1

What is a Supply Chain

• It includes all the parties (direct / indirect),

which are involved in fulfilling customer needs.
• These parties include manufacturer, suppliers,
transporters, warehouses, distributors, retailers
and customers.
• Each of above parties include a set of
functions, which are part of this supply chain.
• A supply chain is dynamic & involves constant
flow of information, products & funds between
various stages.

January 2005 Nucleus Solutions, Pune 2

What is a Supply Chain

• The primary purpose of any supply chain is

to satisfy customer needs while maximizing
profits.
• Most supply chains are networks.
• Typical supply chain stages include
– Customer
– Retailers
– Wholesalers / Distributors
– Component / raw material suppliers

January 2005 Nucleus Solutions, Pune 3

Supply Chain Goal

• The goal is to maximize overall value

generated.
• Total profitability is the key instead of profits at
individual stage.
• SC profitability is the difference between
revenue generated from customer and sum of
all the costs spread across its supply chain.
• Hence SCM means managing flows of product,
information & funds across various stages of
SC & maximize the total SC profitability.

January 2005 Nucleus Solutions, Pune 4

Decision Phases in Supply Chain

• Categorization of decision phases is

based on
– Decision frequency
– Time frame over which the decision phase
has an impact.
• Following are the three categories
– Supply Chain Strategy or Design
– Supply Chain Planning
– Supply Chain Operation

January 2005 Nucleus Solutions, Pune 5

Supply Chain Design

• It decides how to structure SC over several years.

• It defines configuration, resources and processes at each
stage.
• It decided location and capacities for manufacturing
facilities & warehouses.
• It decides products-location combination.
• It decides modes of transportation as well as information
system that would support SC operations.
• It supports companies objectives. The decision taken in
this phase are very expensive to alter at short notice.
• Uncertainties in market conditions over next few years are
considered in this phase.

January 2005 Nucleus Solutions, Pune 6

Supply Chain Planning

• It works within the constraints of SC configuration fixed in

SC design phase.
• Typically planning starts with annual demand forecast in
different markets.
• The decisions involve market Vs supply locations,
subcontracting, inventory policies, timing & size of
market promotions etc.
• Decisions must include uncertainties in demand,
exchange rates, competition etc.
• This is typically done once a year.
• It incorporates flexibilities built in design phase and
exploit them to optimize performance.
• The output of this phase is a set of operating policies.

January 2005 Nucleus Solutions, Pune 7

Supply Chain Operations

• It focuses on individual customer orders.

• It involves allocation of inventory / production to
customer orders, setting of order fill date, allocation
of orders to shipping modes, placing replenishment
orders etc.
• It involves weekly / daily decisions.
• There is less uncertainty about demand information
in this stage. The goal is to exploit reduced
uncertainty and optimize the performance.

January 2005 Nucleus Solutions, Pune 8

Process Views in Supply Chain

• Cycle View
– Processes in SC are divided into series of cycles,
each performed at interface between the
successive stages of supply chain.
• Push / Pull View
– Processes are divided into two categories.
“Pull” processes are executed in response to
customer orders. “Push” processes are performed
in anticipation of customer orders.

January 2005 Nucleus Solutions, Pune 9

Cycle View in Supply Chain
Customer Order Replenishment Manufacturing Procurement
Cycle Cycle Cycle Cycle
Customer

Retailer

Distributor

Manufacturer

Supplier
•This view specifies roles & responsibilities of SC members
•This is useful in setting up infrastructure, information systems etc.

January 2005 Nucleus Solutions, Pune 10

Customer Order Cycle

Customer
Customer
Order
Arrival
receiving

Customer Customer
Order Order
Entry Fulfillment

January 2005 Nucleus Solutions, Pune 11

Replenishment Cycle

Retail Retail
Order Order
Trigger receiving

Retail Retail
Order Order
Entry Fulfillment

January 2005 Nucleus Solutions, Pune 12

Manufacturing Cycle

Order
Receiving
Trigger

Production Mfg &

Scheduling Shipment

January 2005 Nucleus Solutions, Pune 13

Procurement Cycle

Mfg Receiving
Schedule At
Arrival mfg

Supplier Schedule
Scheduling fulfillment

January 2005 Nucleus Solutions, Pune 14

Push / Pull View in supply chain

• Pull process execution is against known

customer demand (reactive)
• Push process execution is against
forecast customer demand
• This view is useful in strategic decision
making in SC design.
• It is also useful in process
postponement / preponement.
• Usually push/pull processes are divided
by a boundary.
January 2005 Nucleus Solutions, Pune 15
Push / Pull boundary at Dell

Push Processes

Boundary
(PC Assembly)

Pull Processes

January 2005 Nucleus Solutions, Pune 16

Push / Pull View at L L Bean

Customer
Order Pull Processes
Cycle
Customer Order Arrives
Mfg &
Replenishment
Cycle

Push Processes
Procurement
Cycle

January 2005 Nucleus Solutions, Pune 17

Push / Pull View at Dell

Customer
Order
Cycle
Pull Processes

Mfg &
Cycle

Customer Order Arrives

Procurement
Cycle
Push Processes

January 2005 Nucleus Solutions, Pune 18

Supply Chain Macro Processes
Supplier Firm Customer

SRM ISCM CRM

•Source •Strategic •Market
•Negotiate Planning •Sell
•Buy •Demand •Call Center
•Design Collaboration Planning •Order
•Supply Collaboration •Supply Planning Management
•Fulfillment
•Field Service
These need to be tightly integrated. Lack of integration
would result into customer dissatisfaction & high costs.

Supply Chain decisions impact time, cost & quality elements

at every stage

January 2005 Nucleus Solutions, Pune 19

Value Chain in Company

Finance & Accounts, IT, HR

Mktg &
NPI Operations Distribution Service
Sales

Integrated Functional View

January 2005 Nucleus Solutions, Pune 20

Strategic Fit: Competitive & SC Strategy

• Competitive Strategy: It defines

customer needs that company wants to
satisfy through its products & services.
• It is based on customer priorities with
respect to cost, time, quality, variety,
sales support etc.
• Competitive strategy & SC strategy
should have same goal.

January 2005 Nucleus Solutions, Pune 21

Steps to achieve strategic fit

• Understanding customer & supply chain

uncertainty.
– Customer demands & effect on implied
demand
– Supply source capabilities
• Understanding SC capabilities.
– Efficiency of SC
– Responsiveness of SC
• Achieving strategic fit
January 2005 Nucleus Solutions, Pune 22
Strategic Fit

Dell Computers
Wal Mart
Responsive Mumbai Tiffins
SC
Responsiveness Spectrum

Efficient
SC

Implied Uncertainty
Certain Uncertain
Demand Demand
January 2005 Nucleus Solutions, Pune 23
SCM & Logistics

• SCM is not a hot or new Concept.

• Look at Taj Mahal and other historic Sites.
• That was an era when communication
technology was near absent.
• That was people driven Supply Chain.
• Logistics was coined during World War II. The
Wars were by having right equipment at right
time and right place.
• Recent examples were Gulf War, Afghanistan
War, Kargil War etc.
January 2005 Nucleus Solutions, Pune 24
SCM & Logistics

• SCM is
– Strategy
– Tactics
– Operations
• Logistics is actual ways & means to fulfill
overall supply chain.

January 2005 Nucleus Solutions, Pune 25

Supply Chain Planning Framework

January 2005 Nucleus Solutions, Pune 26

SCM Focus

• Savings
• Competitive Advantage
• Better Customer Service

January 2005 Nucleus Solutions, Pune 27

SCM: An Evolution
Stage 1: Linear flow, minimal interaction, power with the manufacturer

Supplier Manufacturer Customer

Stage 2: Two-way interaction between supplier-manufacturer; delegation of

responsibility & power

Supplier Manufacturer Customer

Stage 3: Increasing integration between supplier-manufacturer; customer becomes key,

integration increases between internal and external processes

Supplier Manufacturer Customer

January 2005 Nucleus Solutions, Pune 28

SCM: An Evolution
Stage 4: Emergence of expert & focused service providers, seamless integration
between all players facilitated by real-time information flows

Service Service
Supplier provider Manufacturer provider Customer

Information flow

Stage 5: Virtual Supply Chains. Customised, unique supply chain for every demand.
Players linked to each other by necessity, information and contractual
obligations.
Third party 3PL
Vendor 1
logistics Outbound 1
provider 1 Manufactu
rer/
Assembler Customer

3PL 2 3PL outbound

Vendor 2 provider 2

January 2005 Nucleus Solutions, Pune 29

Close Interaction Makes For Good Supply

January 2005 Nucleus Solutions, Pune 30