What do you expect from this course?

• Ice-breaking
• Objectives
• Learning Outcomes
• Assessment System
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 Global Supply Chain
Management

Chapter 1
Understanding the Supply Chain

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 Outline
 What is a Supply Chain?
 What is a Global Value Chain?
 Decision Phases in a Supply Chain
 Process View of a Supply Chain
 The Importance of Supply Chain Flows
 Examples of Supply Chains

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 What is supply chain management?

Supply Chain Management is the systemic, strategic coordination of

traditional business functions within a particular company and across
businesses within the supply chain, for the purposes of improving the
long-term performance of the individual companies and the supply
chain as a whole.
Council of Supply Chain Management Professionals
http://www.cscmp.com

Supplier
Supplier Focal
FocalFirm
Firm Customer
Customer

Buy side Inside Sell side

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 Supply
Chain
Marketing
Flows
-----------------------------------------------------------------------------------------------
Sales
-----------------------------------------------------------------------------------------------
Research and Development
-----------------------------------------------------------------------------------------------
Forecasting
Functional
----------------------------------------------------------------------------------------------- Information
Production Customer
-----------------------------------------------------------------------------------------------
Purchasing Satisfaction,
----------------------------------------------------------------------------------------------- Products Value,
Cross

Logistics
----------------------------------------------------------------------------------------------- Profitability,
Information Systems Finances
---------------------------------------------------------------------------------------------- Competitive
Finance Advantage
-----------------------------------------------------------------------------------------------
Customer Service

Cross Organizational
Supplier’s Supplier Supplier Focal Firm Customer Customer’s Customer

A Picture of Supply Chain Management

Here is a picture (or a model if you will) of supply chain management. The yellow swim lanes represent the
traditional business functions within a firm. Good supply chain planning and execution requires working with
each of these departments. So supply chain has a cross functional or interdepartmental scope. The companies
trading partners on both the buying side and the selling side of the business are shown; depicting the cross
organizational or inter-company scope of the supply chain. All of this coordination is to support the flow of
information, product, and finances between the trading partners with the goals of customer satisfaction, value,
profitability, and competitive advantage.

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 What is a Supply Chain?
 All parties 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).
 Examples: Fig. 1.1 Detergent supply chain (Agora)

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 What is a Supply Chain?
Customer wants
P&G or other Agora or third Agora Store/
detergent and goes
manufacturer party DC Supermarket
to Agora

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

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

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 A Supply Chain has Three essential Elements
 Stages
 Flows
 Processes Let’s continue for a closer look.

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 A Supply Chain has Stages

WIP WIP

Supplier’s Supplier Primary Secondary Regional Distributor Retailer Customer

Supplier Manufacturing Manufacturing Warehouse

A Supply Chain Has Stages

As you see here from left to right there are many companies or trading partners involved in the supply chain.
Each represents a stage where value is added. That value can be transforming materials into components,
assembling components into finished products, adding special packaging to finished products, providing
local availability of products, providing product expertise, and delivering the product to the customer.

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 Supply Chain Web or Supply Network

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 Supply Chain Stages
 Includes movement of products from suppliers to
manufacturers to distributors, but also includes
movement of information, funds, and products in both
directions.
 Probably more accurate to use the term “supply
network” or “supply web”.
 Typical supply chain stages: customers, retailers,
distributors, manufacturers, suppliers (Fig. 1.2).
 Customer is an integral part of the supply chain.
 All stages may not be present in all supply chains
(e.g., no retailer or distributor for Dell or Amazon).
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 Information
Capacity,Delivery
Capacity, DeliverySchedules
Schedules

Product Raw Materials, Intermediate Products, Finished Goods

Raw Materials, Intermediate Products, Finished Goods

Finance Credits, Payment Terms, Invoices

Credits, Payment Terms, Invoices

Suppliers Manufacturers Distributors Resellers Customers

Information
Demands, Orders, Quality
Demands, Orders, Quality

Returns, Product
Returns,Repairs,
Repairs,Servicing,
Servicing,Recycling,
Recycling,Disposal
Disposal

Payments
Payments Finance

A Supply Chain also has Three Flows

As you can see, a supply chain is a flow of information, product, and finances aimed at satisfying the
consumer. These flows generally occur in a sequence; information, then product, and then money.
Information starts with orders or demand flowing from customers to suppliers. This is followed by materials
and products flowing from suppliers to customers. Then money flows from customers to suppliers. At the
same time you have capacities and schedules flowing from suppliers to customers as well as returns flowing
from customers to suppliers. These are continuous and dynamic flows. It is the supply chain manager’s job
to provide the coordination required to keep them in flowing.

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 Flows in a Supply Chain

Information

Product
Customer
Funds

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 Plan

Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source

Return Return Return Return Return

Return Return Return

Suppliers’ Supplier Your Company Customer Customer’s

Supplier Customer

SCOR Model

A Supply Chain has Four Distinct Management Processes

The Supply Chain Council, which is an organization of companies who identify and share best
practices among themselves, has done an excellent job of categorizing supply chain processes. This
categorization is called the SCOR model. SCOR stands for Supply Chain Operations Reference
Model, and is a good way to view how all supply chain processes are linked. This categorization
begins with a processes being either source, make, or deliver so that the supply chain becomes a series
of linked processes. So reading from left to right the supply chain is a series of processes: source,
make deliver; source, make, deliver; source, make, deliver all the way from the buy side of a business
through the inside operations and onto the sell side of a business. Setting above the series of source –
make – deliver cycles is the supply chain plan process. This is what drives capacity planning,
production schedules, and procurement plans. Setting below the source-make-deliver cycles is the
supply chain returns process. So there are five processes in a supply chain: plan, source, make,
deliver, and returns. This is a good organization for those companies interested in identifying and
benchmarking best practices in supply chain processes. The web site is given if you want to learn
http://www.supply-chain.org

more.
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 Supply Chain Management (SCM)
Although it is difficult to pinpoint the origin of the SCM concept, the beginning of
the discussion could be traced back to Forrester’s (1958) seminal research on
industrial dynamics in the 1960s (Cooper, Lambert, & Pagh, 1997; Oliver &
Webber, 1982).

Stock and Boyer (2009) offered a consensus definition of SCM as a

management philosophy:

“The management of a network of relationships within a firm and between

interdependent organisations and business units consisting of material suppliers,
purchasing, production facilities, logistics, marketing, and related systems that
facilitate the forward and reverse flow of materials, services, finances and
information from the original producer to final customer with the benefits of
adding value, maximizing profitability through efficiencies, and achieving
customer satisfaction” (p. 706).

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 Global Supply Chains (GSCs)

Growing interests in

GSCs are complex network of relationships between buyers and suppliers, which are
integrated and driven by global buying firms as lead firms (Gereffi, 1994).
 Cross-broader trade and production:
• 80 percent of world trade now passes through global supply chains, creating almost
88 million jobs.
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 The Objective of a Supply Chain
 To maximize overall value created.
 Supply chain value: difference between what the
final product is worth to the customer and the costs
the entire supply chain incurs in filling the customer’s
request.
 Value is correlated to supply chain profitability
(difference between revenue generated from the
customer and the overall cost across the supply chain).

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 The Objective of a Supply Chain
 Example: Dell receives $2000 from a customer for a computer (Sources of
supply chain revenue: the customer).
 Supply chain incurs costs (Sources of supply chain cost: information,
storage, transportation, components, assembly, etc.).
 Difference between $2000 and the sum of all of these costs is the supply
chain profit.
 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.
 In this sense, SCM is the management of flows between and among
supply chain stages to maximize total supply chain profitability.

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 Decision Phases of a Supply Chain

1. Supply chain strategy or design

2. Supply chain planning
3. Supply chain operation

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 1. Supply Chain Strategy or
Design
 Decisions about the structure of the supply chain for the
next several year 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 into account market
uncertainty.
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 2. Supply Chain Planning
 Definition of a set of policies that govern short-term
operations ( a quarter to one year).
 Fixed by the supply configuration from previous
phase.
 Starts with a forecast of demand in the coming year of
demand and other factors such as costs and prices in
different markets.

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 2. Supply Chain Planning (Cont.)
 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 uncertainty in demand, exchange rates,
competition over the time horizon.

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 3. Supply Chain Operation
 Time horizon is weekly or daily.
 Decisions regarding individual customer 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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 Examples
 The design, planning and operation of a supply chain have a strong impact on
overall profitability and success.

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 Process View of a Supply Chain
1. 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.

2. 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).

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 1. Cycle View of Supply Chains
Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle

Manufacturer
Procurement Cycle
Supplier
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 1. Cycle View of a Supply Chain
 Each cycle occurs at the interface between two successive
stages.
a. Customer order cycle (customer-retailer)
b. Replenishment cycle (retailer-distributor)
c. Manufacturing cycle (distributor-manufacturer)
d. Procurement cycle (manufacturer-supplier)
 Figure 1.3
 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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 Sub-processes in Each Supply Chain
Process Cycle

For Example: Amazon (When customers shops online COC. In contrast, when Amazon
orders books from distributors…RC)
Automobile
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 2. Push/Pull View of Supply
Chains
Procurement, Customer Order
Manufacturing and Cycle
Replenishment cycles

PUSH PROCESSES PULL PROCESSES

Customer
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
customer demand.
 Pull: execution is initiated in response to a customer
order (reactive).
 Push: execution is initiated in anticipation of customer
orders (speculative).
 Push/pull boundary separates push processes from
pull processes.

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 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 customer orders.
 Can combine the push/pull and cycle views
– L.L. Bean (Figure 1.6)
 The relative proportion of push and pull processes can
have an impact on supply chain performance.

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 Push/Pull View of
Supply Chain Processes (Example)

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 Push/Pull View of
Supply Chain Processes (Dell Computer)

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 Supply Chain Macro Processes in
a Firm
 Supply chain processes discussed in the two views can be classified into
(Figure 1.8):
– Customer Relationship Management (CRM)
– Internal Supply Chain Management (ISCM)
– Supplier Relationship Management (SRM)
 Integration among the above three macro processes is critical for effective
and successful supply chain management

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 Examples of Supply Chains
 Gateway
 Zara
 McMaster Carr / W.W. Grainger
 Toyota
 Amazon / Borders / Barnes and Noble
 Webvan / Peapod / Jewel

What are some key issues in these supply chains?

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 Case Analysis

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 Marcy's: Omni-Channel retailing

After selling for decades from its department stores, Macy’s has
made a big push into omni- channel retailing, allowing customers
to have a seamless experience between shopping online or at a
store. Customers can browse online and then experience the
product at a store or order online after seeing a product at the
store. Omni-channel is not just about ordering, however; it is also
about fulfillment. Orders placed on any channel have access to
Macy’s entire assortment. By 2012, Macy’s had equipped 292
Macy’s stores to fulfill online orders or orders from other stores
that were sold out of a particular item. If customers desire, orders
placed online can be picked up at select stores and items
purchased online can be returned to stores.

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 Marcy's: Omni-Channel retailing

 Any omni-channel retailer must address the following

questions:
1. Should online orders be filled from stores or
fulfillment centers?
2. How should store inventories be managed in an omni-
channel setting?
3. Should returns be kept at a store or sent to a
fulfillment center?

© 2007 Pearson Education 1-38

 Gateway and Apple: Two Different Journeys into
Retailing

 Gateway was founded in 1985 as a direct sales manufacturer of

PCs with no retail footprint. In 1996, Gateway was one of the
first PC manufacturers to start selling PCs online. After many
years of selling its PCs without a retail infrastructure, however,
Gateway introduced an aggressive strategy of opening
Gateway retail stores throughout the United States in the late
1990s. Its stores carried no finished-goods inventory and were
primarily focused on helping customers select the right
configuration to purchase. All PCs were manufactured to order
and shipped to the customer from one of the assembly plants.

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 Gateway and Apple: Two Different
Journeys into Retailing
 Initially, investors rewarded Gateway for this strategy and raised the stock
price to more than $80 per share in late 1999. However, this success did not
last. By November 2002, Gateway shares had dropped to less than $4, and
Gateway was losing a significant amount of money. By April 2004, Gateway
had closed all its retail outlets and reduced the number of configurations
offered to customers. In August 2007, Gateway was purchased by Taiwan’s
Acer for $710 million. By 2010, Gateway computers were sold through more
than 20 different retail outlets, including Best Buy and Costco. As one can
imagine, this was quite a transition for the company to experience.
 In contrast, Apple has enjoyed tremendous success since it opened its first
retail store in 2001. By 2013, Apple had more than 415 stores worldwide,
with sales of over $20 billion. Unlike Gateway, Apple has always carried
product inventory at its stores. Given its product designs, Apple carries
relatively little variety in its stores. In 2012, average revenue per Apple retail
store was $51.5 million, a 19 percent increase over 2011.

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 Gateway and Apple: Two Different
Journeys into Retailing
The following questions highlight supply chain decisions that have a bearing
on the difference between Apple’s and Gateway’s performance:
1. Why did Gateway choose not to carry any finished-product inventory at its
retail stores? Why did Apple choose to carry inventory at its stores?
2. Should a firm with an investment in retail stores carry any finished-goods
inventory? What are the characteristics of products that are most suitable to be
carried in finished-goods inventory? What characterizes products that are best
manufactured to order?
3. How does product variety affect the level of inventory a retail store must
carry?
4. Is a direct selling supply chain without retail stores always less expensive
than a supply chain with retail stores?
5. What factors explain the success of Apple retail and the failure of Gateway
country stores?

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 7-Eleven
 What factors influence decisions of opening and closing stores?
Location of stores?
 Why has 7-Eleven chosen off-site preparation of fresh food?
 Why does 7-Eleven discourage direct store delivery from vendors?
 Where are distribution centers located and how many stores does
each center serve? How are stores assigned to distribution centers?
 Why does 7-Eleven combine fresh food shipments by temperature?
 What point of sale data does 7-Eleven gather and what information
is made available to store managers? How should information
systems be structured?

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 Toyota
 Where should plants be located, what degree of
flexibility should each have, and what capacity should
each have?
 Should plants be able to produce for all markets?
 How should markets be allocated to plants?
 What kind of flexibility should be built into the
distribution system?
 How should this flexible investment be valued?
 What actions may be taken during product design to
facilitate this flexibility?

© 2007 Pearson Education 1-43

 Amazon.com
 Why is Amazon building more warehouses as it grows? How many
warehouses should it have and where should they be located?
 What advantages does selling books via the Internet provide? Are
there disadvantages?
 Why does Amazon stock bestsellers while buying other titles from
distributors?
 Does an Internet channel provide greater value to a bookseller like
Borders or to an Internet-only company like Amazon?
 Should traditional booksellers like Borders integrate e-commerce
into their current supply?
 For what products does the e-commerce channel offer the greatest
benefits? What characterizes these products?

© 2007 Pearson Education 1-44

 Summary of Learning Objectives
 What are the cycle and push/pull views of a supply
chain?
 How can supply chain macro processes be classified?
 What are the three key supply chain decision phases
and what is the significance of each?
 What is the goal of a supply chain and what is the
impact of supply chain decisions on the success of the
firm?

© 2007 Pearson Education 1-45