Supply Chain Management

1
SUPPLY CHAIN MANAGEMENT

-PROF. SUBHAJIT BHATTACHARYA
12/8/21 Xavier institute of Social Service, Ranchi

What Is Supply Chain Management?
2
Xavier institute of Social Service, Ranchi 12/8/21

© 2007 Pearson Education
What is Supply Chain Mgt.?
3
 Supply chain management is a set of approaches

used to efficiently integrate suppliers,
manufacturers, warehouses, and Users so that
merchandise is produced and distributed at the right
quantities, to the right locations, and at the right
time in order to minimize system wide costs while
satisfying service-level requirements.
 Planning, managing, acquiring, producing,
warehousing, distribution, delivery

Areas of focus
3-4
 Forecasting
 Purchasing and inventory management
 Warehouse Management
 Transporting
 E-SCM
 CRM

What is Supply Chain
3-5
Management
Scheduling Information
Supplier Cash Flow User
Inv. Order Flow
Supplier
Inv. Manufacturer or Inv. User

Service Provider
Inv.
Supplier
Credit Flow
Material Flow
Marketing/
Purchasing- Operations/
Sales/
Vendors Materials Man.
Cust. Serv.
Accounting
Xavier and Service,
institute of Social FinanceRanchi
12/8/21
3-6

Evolution of Supply Chain Management
Ancient Times The first supply chain was the barter system
Traces of outsourcing was seen when Charles S. Rolls

1904 became selling agent for cars made by F. Henry Royce
The essence of SCM was understood with the first phase

1960-1975 characterized as an inventory ‘push’ era that focused
primarily on physical distribution of finished goods
Companies began migrating from an inventory push to

1975-1990
a User pull channel
1980 Emergence of SCM
1985- WalMart introduced the concept of Cross Docking
Internet revolutionized the distribution system of

1996- the business
Concept of e-commerce changed the definition of

1998-
business
3-7 Xavier institute of Social Service, Ranchi 12/8/21
Module 1:Supply Chain Management
Various options in Supply chain Mgt.
3-8
Supplier Manufacturer Distributor Retailer User
Upstream Downstream
A Closed System View
R&D Marketing
Customer
Suppliers Finance Manufacturing Service Customers
Distribution
Purchasing Personnel
& Logistics
Xavier institute of Social Service, Ranchi 1-9

12/8/21
An Open System View
External
Suppliers Manufacturing Customers
Other Functions

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Evolution From OM to Supply
Chain
OM View Supply Chain View
Closed System Open System
Manufacturer Orientation Customer Orientation
Local Optimization Global Optimization
Technology (hardware, software, multimedia, etc.)
Local System Capabilities Enterprise System Capabilities
© 2007 Pearson Education 1-11

The Importance of Supply Chain Management
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 Lots of money at stake!

 Excess Inventory costs
 Excess freight charges
 Lost sales / Stock outages
 Wasted time and energy
 Extra staff
 Listings / Delistings
 User dissatisfaction - privatization
 Capital costs
 Real Estate Costs
The Objective of a Supply Chain
 Maximize overall value created
 Supply chain value: difference between what the
final product is worth to the User and the effort the
supply chain expends in filling the User’s request
 Value is correlated to supply chain profitability
(difference between revenue generated from the
User and the overall cost across the supply chain)

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 Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
 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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 Sources of supply chain revenue: the User
 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
1-15

Decision Phases of a Supply Chain
 Supply chain strategy or design
 Supply chain planning
 Supply chain operation

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Supply Chain Strategy or Design
 Decisions about the structure of the supply chain
and what processes each stage will perform
 Strategic supply chain decisions
 Locations and capacities of facilities
 Products to be made or stored at various locations
 Modes of transportation
 Information systems
 Supply chain design must support strategic
objectives
 Supply chain design decisions are long-term and
expensive to reverse – must take into1-17account

market
© 2007 Pearson Educationuncertainty
Supply Chain Planning
 Definition of a set of policies that govern short-
term operations
 Fixed by the supply configuration from previous
phase
 Starts with a forecast of demand in the coming year

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Supply Chain Planning
 Planning decisions:
 Which markets will be supplied from which locations
 Planned buildup of inventories
 Subcontracting, backup locations
 Inventory policies
 Timing and size of market promotions
 Must consider in planning decisions demand
uncertainty, exchange rates, competition over the
time horizon

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Supply Chain Operation
 Time horizon is weekly or daily
 Decisions regarding individual User orders
 Supply chain configuration is fixed and operating
policies are determined
 Goal is to implement the operating policies as
effectively as possible
 Allocate orders to inventory or production, set order
due dates, generate pick lists at a warehouse, allocate
an order to a particular shipment, set delivery
schedules, place replenishment orders
 Much less uncertainty (short time horizon)
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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 User order (pull)
or in anticipation of a User order (push)

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Cycle View of Supply Chains
User
User Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
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Cycle View of a Supply Chain
 Each cycle occurs at the interface between two successive
stages
 User order cycle (User-retailer)
 Replenishment cycle (retailer-distributor)
 Manufacturing cycle (distributor-manufacturer)
 Procurement cycle (manufacturer-supplier)
 Figure (see previous power point)
 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.
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User Order Cycle
 Involves all processes directly involved in
receiving and filling the User’s order
 User arrival
 User order entry
 User order fulfillment
 User order receiving

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Replenishment Cycle
 All processes involved in replenishing retailer
inventories (retailer is now the User)
 Retail order trigger
 Retail order entry
 Retail order fulfillment
 Retail order receiving

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Manufacturing Cycle
 All processes involved in replenishing distributor
(or retailer) inventory
 Order arrival from the distributor, retailer, or User
 Production scheduling
 Manufacturing and shipping
 Receiving at the distributor, retailer, or User

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Procurement Cycle
 All processes necessary to ensure that materials are
available for manufacturing to occur according to
schedule
 Manufacturer orders components from suppliers to
replenish component inventories
 However, component orders can be determined
precisely from production schedules (different from
retailer/distributor orders that are based on uncertain
User demand)
 Important that suppliers be linked to the
manufacturer’s production schedule
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Push/Pull View of Supply Chains
Procurement, User Order
Manufacturing and Cycle
Replenishment cycles
PUSH PROCESSES PULL PROCESSES
User
Order Arrives
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Push/Pull View of
Supply Chain Processes
 Supply chain processes fall into one of two
categories depending on the timing of their
execution relative to User demand
 Pull: execution is initiated in response to a User
order (reactive)
 Push: execution is initiated in anticipation of User
orders (speculative)
 Push/pull boundary separates push processes from
pull processes
12/8/21
Push/Pull View of
Supply Chain Processes
 Useful in considering strategic decisions relating to
supply chain design – more global view of how
supply chain processes relate to User orders
 Can combine the push/pull and cycle views
 The relative proportion of push and pull processes
can have an impact on supply chain performance

12/8/21
A Framework for
Structuring Drivers
3-31
Competitive Strategy
Supply Chain
Strategy
Efficiency Responsiveness
Supply chain structure
Logistical Drivers
Facilities Inventory Transportation
Information Sourcing Pricing
Cross Functional Drivers

Drivers of Supply Chain
3-32
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
 Sourcing
 functions a firm performs and functions that are outsourced
 Pricing
 Price associated with goods and services provided by a firm to the supply chain

Facilities
3-33
 Role in the supply chain

 the “where” of the supply chain
 manufacturing or storage (warehouses)
 Role in the competitive strategy
 economies of scale (efficiency priority)
 larger number of smaller facilities (responsiveness
priority)
 Components of facilities decisions

Components of Facilities Decisions
3-34
 Location
 centralization (efficiency) vs. decentralization
(responsiveness)
 other factors to consider (e.g., proximity to Users)
 Capacity (flexibility versus efficiency)
 Manufacturing methodology (product focused versus
process focused)
 Warehousing methodology (SKU storage, job lot storage,
cross-docking)
 Overall trade-off: Responsiveness versus efficiency
Inventory
3-35

 Components of inventory decisions

Inventory: Role in the Supply
3-36
Chain
 Inventory exists because of a mismatch between supply and
demand
 Source of cost and influence on responsiveness
 Impact on
 material flow time: time elapsed between when material enters
the supply chain to when it exits the supply chain
 throughput
 rate at which sales to end consumers occur
 I = RT (Little’s Law)
 I = inventory; R = throughput Or capacity; T = flow time
 Example
 Inventory and throughput are “synonymous” in a supply chain

Inventory: Role in Competitive Strategy
3-37
 If responsiveness is a strategic competitive priority,

a firm can locate larger amounts of inventory closer
to Users
 If cost is more important, inventory can be reduced
to make the firm more efficient
 Trade-off

Components of Inventory
3-38
Decisions
 Cycle inventory
 Average amount of inventory used to satisfy demand between shipments
 Depends on lot size
 Safety inventory
 inventory held in case demand exceeds expectations
 costs of carrying too much inventory versus cost of losing sales
 Seasonal inventory
 inventory built up to counter predictable variability in demand
 cost of carrying additional inventory versus cost of flexible production
 more inventory: greater responsiveness but greater cost
 less inventory: lower cost but lower responsiveness

Transportation
3-39

 Components of transportation decisions

Transportation: Role in
3-40
the Supply Chain
 Moves the product between stages in the supply
chain
 Impact on responsiveness and efficiency
 Faster transportation allows greater responsiveness
but lower efficiency
 Also affects inventory and facilities

Transportation:
Role in the Competitive Strategy
3-41
 If responsiveness is a strategic competitive priority,

then faster transportation modes can provide
greater responsiveness to Users who are willing to
pay for it
 Can also use slower transportation modes for Users
whose priority is price (cost)
 Can also consider both inventory and transportation
to find the right balance

Components of
Transportation Decisions
3-42
 Mode of transportation:
 air, truck, rail, ship, pipeline, electronic transportation
 vary in cost, speed, size of shipment, flexibility
 Route and network selection
 route: path along which a product is shipped
 network: collection of locations and routes
 In-house or outsource

Information
3-43

 Components of information decisions

Information: Role in
the Supply Chain
3-44
 The connection between the various stages in the

supply chain – allows coordination between stages
 Crucial to daily operation of each stage in a supply
chain – e.g., production scheduling, inventory
levels

Information:
3-45
 Allows supply chain to become more efficient and

more responsive at the same time (reduces the need
for a trade-off)
 Information technology
 What information is most valuable?

Components of Information Decisions
3-46
 Push (MRP) versus pull (demand information transmitted

quickly throughout the supply chain)
 Coordination and information sharing
 Forecasting and aggregate planning
 Enabling technologies
 EDI
 Internet
 ERP systems
 Supply Chain Management software
Sourcing
3-47
 Selecting suppliers-single vs. multiple

suppliers, contract negotiation
 Ordering materials
 Shipping & delivery of raw materials
 Information management
 Quality management - w/regard to suppliers
 User service - w/regard to suppliers and fellow
workers
Sourcing:
3-48
 Sourcing decisions are crucial because they affect

the level of efficiency and responsiveness in a
supply chain
 In-house vs. outsource decisions- improving
efficiency and responsiveness

Components of Sourcing Decisions
3-49
 In-house versus outsource decisions

 Supplier evaluation and selection
 Procurement process
 Overall trade-off: Increase the supply chain profits

Pricing
3-50

 Components of pricing decisions

Pricing: Role in
the Supply Chain
3-51
 Pricing determines the amount to charge Users in a

supply chain
 Pricing strategies can be used to match demand and
supply

Sourcing:
3-52
 Firms can utilize optimal pricing strategies to

improve efficiency and responsiveness
 Low price and low product availability; vary prices
by response times

Components of Pricing Decisions
3-53
 Pricing and economies of scale

 Everyday low pricing versus high-low pricing
 Fixed price versus menu pricing
 Overall trade-off: Increase the firm profits

Making Supply Chain Operational
3-54
 Ordering materials - in conjunction w/purchasing

 Inventory control
 Scheduling production & capacity
 Shipping & delivery - in conjunction w/warehouse
 Information management - linked to 3 major
business areas
 Quality management - garbage in/garbage out principal
 User service - vendors and final User

Uncertainty In Supply Chain
3-55
 Wrong forecasts
 Late deliveries
 Poor quality
 Machine breakdowns
 Canceled orders
 Erroneous information

Some Solutions….
3-56
 Vertical integration
 Single sourcing
 JIT - moving suppliers closer
 Keiretsu - Japanese concept of partnering a small
set of suppliers and vertical integration
 Information technology improvements- MRP,
ERP
 Improved inventory control - goods as well as
services
Supply Chain Design
3-57
 Strategic issue
 Apply quality management principles
 Control inventory
 Work with suppliers & Users to achieve goals
 Major goal of distribution is speed
 Locate close to major markets
 Use IT to speed information flow - e.g., EDI,
Internet, etc.
 Outsource international distribution-(if at all)

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12/8/21 Xavier institute of Social Service, Ranchi

Xavier institute of Social Service, Ranchi 12/8/21