Overview of Supply Chain

Management
• Sunil Chopra, Peter Meindl, and D.V. Kalra.
Supply Chain Management Strategy, Planning,
and Operation. 5th Edition, Pearson, 2013.
 What Is a Supply Chain?
Flow of products and services from:
– Raw materials suppiers
– Intermediate products manufacturers
– End product manufacturers
– Wholesalers and distributors and
– Retailers
• Connected by transportation and storage
activities
• Integrated through information, planning, and
integration(Combination) activities
• Cost and service levels
What Is Supply Chain Management?

• Supply chain management is a set of

approaches utilized to efficiently integrate
suppliers, manufacturers, warehouses, and
stores, so that goods 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.
 Two Other Formal Definitions
The design and management of continuous, value-
added process across organizational boundaries to
meet the real needs of the end customer
Managing supply and demand, sourcing raw materials
and parts, manufacturing and assembly, warehousing
and inventory(record) tracking, order entry and order
management, distribution across all channels, and
delivery to the customer
• Supply chain management (SCM) is the active
management of supply chain activities to
maximize customer value and achieve a
sustainable competitive advantage.
• It represents a conscious effort by the firms to
develop and run supply chains in the most
effective & efficient ways possible. Supply chain
activities cover everything from product
development, sourcing, production, and
logistics(transportation of goods), as well as the
information systems needed to coordinate these
activities.
• The organizations that make up the supply chain are
“linked” together through physical flows and
information flows. 
Physical Flows
• Physical flows involve the transformation, movement,
and storage of goods and materials. They are the most
visible piece of the supply chain. But just as important
are information flows. 
Information Flows
• Information flows allow the various supply chain
partners to coordinate their long-term plans, and to
control the day-to-day flow of goods and materials up
and down the supply chain.
Example
Zara
• Zara is one of the main clothing and accessory retailers internationally based in
Spain. 
• They are mainly focused on new, trendy and cutting edge fashion for men and
women alike.
• Currently it operates in 88 different markets worldwide
• The retail giant delivers fashionable and trendy numbers catered for different taste
through controlled and integrated process: Just in time production/zero waste and
cost efficiency
• Relies on keeping inhouse production
• Relies on sophisticated fabric sourcing, cutting and sewing facilities near to its
headquarter in Spain.
• In their fabrics, they used environmentally friendly fabrics like organic cotton amongst
others. Their textile production comes from Spain, the Far East, India and Morocco.
• Biodiesel fuel is used to transport their products, according to their environmental
policies. They have a great concern for animal treatment and under no circumstances,
use animal products that come from animals that were not treated ethically or
sacrificed for the sole purpose of commercializing their leather, skin, horns, feathers,
etc.
• Amazon
• Amazon is a US electronic commerce and cloud computing company. Their
headquarters are based in Washington and they are the largest internet-based
retailer in the United States.
• Amazon was one of the first companies that started selling book online.
Currently their range of products doesn’t stop there; they also sell music,
videogames, shoes, clothing, luggage and many other accessories. Amazon offers
about everything you can think of and their variety in offers and products along
with their customer driven shopping and recommendations is a hit with
customers
• Amazon is a great example to look at with regards to increasing productivity,
expanding reach, and building profit. -ecommerce leader
• One of the reasons why Amazon can have such a wide spectrum of products is
the fact that they are not limited by physical spaces, since they don’t have actual
stores. Their supply chain goes from the lowest levels of inventory, through the
logistics(transportation of goods) of the order itself all they way up to an
outstanding distribution chain of their products in an international scale.
• Amazon can currently ship close to 10 million different products. This diversity
gives it an edge against competitors and makes it a perfect example of what
efficient supply chain management can accomplish.
 Stages in developing a successful supply
chain
• SCM encompasses such a wide range of functions that it can
seem scary, even to the most experienced international
businessperson.
• However, the process can be effectively modelled by breaking it
down into several main strategic areas. One common and very
effective model is the Supply Chain Operations Reference (SCOR)
model, developed by the Supply Chain Council to enable
managers to address, improve and communicate supply chain
management practices effectively.
• The SCOR model runs through five supply chain stages: Plan,
Source, Make, Deliver, Return
Stage 1: Plan
• Planning involves a wide range of activities.
Companies must first decide on their
operations strategy. Whether to manufacture a
product or component or buy it from a
supplier is a major decision.
• Companies must weight the benefits and
disadvantages of different options presented
by international supply chains.
• Options include:
• Manufacturing a product component
domestically.
• Manufacturing a component in a foreign
market by setting up international production
facilities.
• Buying a component from a foreign supplier
• Buying a component from a domestic supplier
• If companies are manufacturing products, they must decide
how they will be produced.
Goods can be:
• Make to stock (produced and stored, awaiting customer
orders);
• Make to order (constructed in response to a customer order);
• Configure to order (partially manufactured the product and
completed it after a firm customer order is received);
• or Engineer to order (manufactured a product to unique
specifications provided by a customer).
• Sometimes, goods can be produced by a
combination of these methods.
• Planning also involves mapping out the
network of manufacturing facilities and
warehouses, determining the levels of
production and specifying transportation
flows between sites. It also involves assessing
how to improve the global supply chain and its
management processes.
 Stage 2: Source
• This aspect of supply chain management involves organizing the
procurement(to get) of raw materials and components.
• Procurement is the acquisition of goods and services at the best
possible price, in the right quantity and at the right time.
• When sources have been selected and vetted, companies must
negotiate contracts and schedule deliveries.
• Supplier performance must be assessed and payments to the
suppliers made when appropriate. In some cases, companies will
be working with a network of suppliers. This will involve working
with this network, managing inventory and company assets and
ensuring that export and import requirements are met.
 Stage 3: Make
• This stage is concerned with scheduling of
production activities, testing of products,
packing and release. Companies must also
manage rules for performance, data that must
be stored and regulatory agreement.
 Stage 4: Deliver
• The delivery stage encompasses all the steps from
processing customer inquiries to selecting distribution
strategies and transportation options. Companies must
also manage warehousing and inventory(record) or pay
for a service provider to manage these tasks for them.
• The delivery stage includes any trial period or warranty
period, customers or retail sites must be invoiced and
payments received, and companies must manage import
and export requirements for the finished product.
 Stage 5: Return
• Return is associated with managing all returns of defective products,
including identifying the product condition, authorizing returns,
scheduling product shipments, replacing defective products and
providing refunds.
• Returns also include “end-of-life” products (those that are in the end
of their product lifetime and a vendor will no longer be marketing,
selling, or promoting a particular product and may also be limiting or
ending support for the product).
• Companies must establish rules for the following:
– Product returns
– Monitoring performance and costs
– Managing inventory of returned product
 The SCM Network

FIGURE : The logistics network

 Growing Interest in SCM – Why?

• As manufacturing becomes more efficient (or is

outsourced), companies look for ways to reduce
costs
• Several significant success stories:
– Efficient SCM at Walmart, HP, Dell Computer
• SCM considers the broad, integrated, view of
materials management from purchasing through
distribution
• The huge growth of interest in the web has
spawned web-based models for supply chains:
from “dot com” retailers to B-2-B business models
Objectives of Supply Chain Management
1. To maximize the overall value generated
2. To look for sources of revenue and cost
3. Replacement of the material or product whenever required
4. Cost quality improvement
5. Shortening time to order
6. Faster Speed to market
7. To meet consumer demand for guaranteed delivery of high quality and low cost with minimal lead
time
8. Efficient supply chain
9. To achieve world class performance
10.More awareness of supply chain dynamics and efficiency
11.To fulfill customer demand through efficient resources
12.To improve pre and post production inventory levels
13.Good understanding of business characteristics
14.Provide flexible planning and control mechanism
15.Reduce transportation cost
16.Greater labor efficiency, equipment and space efficiency
17.To maximize efficiency of distribution side
18.To reduce system wide cost of company to satisfy service level requirement
Supply Chain – Decision Phases
 Study of Supply Chain Management

• Successful supply chain management requires

decisions on the flow of information, product,
and funds that fall into three decision phases
– Supply chain strategy or design
– Supply chain planning
– Supply chain operation
 Decision Phases in a Supply Chain
TIME FRAME TYPE TYPICAL DECISIONS
•Supply chain network design (How many plants?
Location and capacities of plants and warehouses?)
years •Supply chain strategies (Sell direct or through
Strategic
retailers? Outsource or in-house? Focus on cost or
customer service?)
•Product mix at each plant

•Workforce & Production planning

Tactical •Inventory policies (safety stock level)
3 mo.- 1year •Which locations supply which markets
•Transportation strategies

•Production scheduling
daily Operational •Decisions regarding individual orders
•Place renewal orders
• Supply chain design, planning, and operation decisions play a
significant role in the success or failure of a firm

• Supply chain strategy or design

• Supply chain Tactical planning
• Supply chain operation

• Supply chain design decisions are long-term and expensive to

reverse – must take into account market uncertainty
• Supply chain planning decisions use a fixed supply chain
configuration to come up with an overall production plan
• Supply chain operation makes decisions about individual
customer orders & daily operations.
Decision Phases of Supply Chain
 Study of Supply Chain Management
• A supply chain is a sequence of processes and
flows that take place within and between different
stages
– Cycle view
• The processes in a supply chain are divided into a series of
cycles, each performed at the interface between two
successive stages of a supply chain
– Push/pull view
• The processes in a supply chain are divided into two
categories depending on whether they are executed in
response or in expectation of a customer order
 Cycle View of Supply Chain Processes

Customer
Customer Order Cycle

Cycle view Retailer

defines the Replenishment(Top up) Cycle
processes Distributor
involved and
the owner of Manufacturing Cycle
each process Manufacturer
Procurement(Tracking down) Cycle
Supplier
 Subprocesses in Each Cycle

Buyer
Supplier markets Buyer may return
the product the product

Buyer places Buyer receives

an order the order

Supplier receives Supplier supplies

the order the order

Supplier
 Cycle View of Supply Chain Processes
stomer Order Process
Customer Arrival
Customer Order Entry
Customer Order Fullfillment
Customer Order Receiving
nufacturing Process
Order Arrival
roduction Scheduling
Manufacturing/Shipping
Receiving
Customer Order Cycle
Replenishment Process
1. Retail Order Trigger
Replenishment Cycle 2. Retail Order Entry
3. Retail Order Fullfillment
4. Retail Order Receiving
Manufacturing Cycle
Procurement Process
1. Component Order Arrival
Procurement Cycle 2. Production Scheduling
3. Shipping
4. Receiving
• Each cycle occurs at the interface between two
successive stages
– Customer order cycle (customer-retailer)
– Replenishment cycle (retailer-distributor)
– Manufacturing cycle (distributor-manufacturer)
– Procurement cycle (manufacturer-supplier)
 Push/Pull View of Supply Chain Processes

PULL Implementation is initiated in

PROCESSES response to customer orders
(reactive)
Customer order arrives

PUSH Execution is initiated in

PROCESSES anticipation of customer orders
(speculative)

Processes are divided based on the timing of

their execution relative to a customer order
• Processes are divided based on their timing
relative to the timing of a customer order
• They key difference is the uncertainty during the
two phases
• At the time of execution of a pull process
customer demand is known
• At the time of execution of a push process
customer demand is not known (and must be
forecasted)
Push/Pull Processes for the Supply chain of Dell

PULL

Customer
Customer Order Cycle and
Manufacturing Cycle
Manufacturer
Procurement Cycle
PUSH
Supplier
 Push/Pull Processes for the Supply chain of
Detergent

Customer
PULL Customer Order Cycle

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle
PUSH
Manufacturer
Procurement Cycle
Supplier
 Value Chain
• Interlinked value-adding activities that convert inputs into outputs which, in turn, add to
the bottom line and help create competitive advantage. A value chain typically consists
of
(1) Inbound(incoming) distribution or logistics
(2) manufacturing operations
(3) outbound distribution or logistics
(4) marketing and selling
(5) after-sales service
These activities are supported by
(6) purchasing or procurement
(7) research and development
(8) human resource development
(9) and corporate infrastructure.
Value Chain
• Value system or value chain --
Porter called the value producing activities of one organization
a value chain and the network organizations involved in the
production and delivery of an offering to the end customer
a value system.
• Value stream and supply chain --
Value stream is defined as the processes of creating, producing,
and delivering an offering and may be controlled by a single
business or a network of businesses. The term value stream
brings focus onto the value creating activities regardless of the
business organizations that own them. Supply chain is often just
the value stream or system up to the point of conversion, the
production of the offering and its marketing, sales, distribution
and service.
 Porter's (1985) value activities
• Primary activities -- Activities involved in the physical creation of the product and its sale
or transfer to the buyer as well as after sales assistance
– In bound logistics - receiving, warehousing, inventory control of input materials, etc.
– Operations -- value-creating activities that transform the inputs into the final products
– Out bound logistics -- activities required to get the finished product to the customer, including
warehousing and order fulfillment
– Marketing and sales - selling, channel selection, advertising, pricing, etc.
– Service - customer support, repair services, etc.

• Support activities -- Activities that support the primary activities and each other. These
activities can be associated with primary activities as well as the full value chain.
– Human resource management - recruiting, development, and compensation of employees
– Technology development - research and development, process automation, other technology
development used to support the value chain activities
– Procurement - purchasing the raw materials and other inputs used in the value creating activities

• Firm infrastructure -- Activities not associated with particular primary activities that
support the full value chain. This includes finance, legal, quality management, etc.
Value system and competitive advantage
• Value activities are the discrete building blocks of
competitive advantage. How each activity is performed
with its economics will determine if a firm is high or low
cost relative to its competitors.
• The firm's competitive advantage comes from the way
activities fit and reinforce one another.
• By seeing the company's value chain and its value system
as a whole, the firm can adapt its competencies to fit
together to provide a superior value proposition to the
customer.
• Value system, strategy, and business design --
Value chain formulation focuses on how these activities create value and
what determines their cost, giving the firm considerable latitude in
determining how activities are configured.
• Value system architecture --
The complete view of the value system reveals the value system
architecture. As in all 'architecture,' a style or method of design and
construction should become evident, as well as opportunities to better
design the system.
• There should be a thematic and complementary arrangement of the
activities first followed by forming the activities into a structure.
• A value system design with gaps, without a defined flow, or unidentified and
unaligned value propositions of the players raises a red flag for the
possibility of an incomplete or ineffective strategy.
• Value system and strategy formation --
The value system design occurs early on in the
strategy creation processes.
• This activity produces strategic insights. For example,
the incorporation of substitute offerings and
competitors into a value system view is a means for
developing insights into strategic opportunities.
• As specific strategic alternatives are developed and
assessed, defining each alternative's value system
serves to reveal any weak links in the system.
Value system and strategy deployment --
• As for defining the business model in preparation for deployment,
the value system becomes a clear representation of what you want
the process""battlefield"" to look like at the end of distribution.
• As such, it serves as a guide to those involved with the ongoing
dynamics of strategy deployment where twists and turns are an
everyday occurrence as the processes, functions, and business
relationships are further refined.
• Referring to the value system design during the heat of battle can
insure that the achievement of the overall value proposition as
defined in the strategy and that the hypothesis of the strategy is in
fact being tested.