Understanding the Supply Chain

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 Outline

• What is a Supply Chain?

• Supply Chain Decision Phases
• Process View of a Supply Chain
• Supply Chain Macro Processes

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 What is a supply chain?

• A supply chain consists of all parties involved, directly or indirectly, in

fulfilling a customer request.

• Manufacturers
• Suppliers
• Transporters
• Warehouses
• Retailers
• customers

• Within each company, the supply chain includes all functions involved in
fulfilling a customer request.
• R&D
• Marketing
• Operations
• Distribution
• Finance
• Customer service
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 A detergent supply chain

P&G or other Wal-Mart or Wal-Mart

Customer
manufacturer Third-Party DC Store

Plastic Packaging Paper

Producer Company Manufacturer

Chemical Timber
manufacturer Industry

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 An Automotive Supply Chain

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 Flows in a supply chain
Supplier Manufacturer Distributor Retailer Customer

Supplier Manufacturer Distributor Retailer Customer

Supplier Manufacturer Distributor Retailer Customer

Information

Materials
Funds
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 Objective of a supply chain
• Supply chain profit is total profit to be
generated across all stages of the supply chain.
Supply Chain Profit = Customer Revenue – Supply Chain Cost

• The objective of a supply chain is to maximize

total supply chain profit, not profit at an
individual firm.

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 Outline

• What is a Supply Chain?

• Supply Chain Decision Phases
• Process View of a Supply Chain
• Supply Chain Macro Processes

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 Importance of supply chain decisions

• Wal-Mart, $1 billion sales in 1980 to $572 billion in 2021

(570 times)

• Seven-Eleven Japan, ¥1 billion sales in 1974 to ¥6.8 trillion

in 2019 (6,800 times)

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• On May 15, 2020, JC Penny filed for Chapter 11 bankruptcy

protection.

• Bed Bath & Beyond filed for bankruptcy on April 23, 2023.

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 Importance of supply chain decisions
Wal-Mart vs. Bed Bath & Beyond

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 Supply chain decision phases

• Phase 1: Supply chain strategy (strategic)

• Phase 2: Supply chain planning (tactical)

• Phase 3: Supply chain operation (operational)

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 Phase 1: supply chain strategy

• Decisions about the structure of the supply

chain

– Outsource supply chain functions

– Locations and capacities of facilities
– Products to be made or stored at various locations
– Modes of transportation
– Information systems (AI, Blockchain, clouds)

• Strategic decisions are long-term (next several

years) and expensive to reverse
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 Phase 2: supply chain planning
• Determine a set of policies that govern mid-term (a
quarter to a year) operations

– Which markets will be supplied from which

locations
– Inventory policies
– Subcontracting
– Timing and size of market promotions
• Must consider demand uncertainty, exchange rates,
competition over the time horizon

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 Phase 3: supply chain operation

• Short-term (weekly or daily) decisions

regarding individual customer orders

– 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

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 Outline

• What is a Supply Chain?

• Supply Chain Decision Phases
• Process View of a Supply Chain
• Supply Chain Macro Processes

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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
customer order (pull) or in anticipation of a
customer order (push).

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 Cycle view

Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle

Manufacturer
Procurement Cycle
Supplier
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 Push/Pull view
Push/Pull Boundary

PUSH PROCESSES PULL PROCESSES

(Speculative Processes) (Reactive Processes)

Customer
Order Arrives

Process 1 Process 2 Process 3 Process N-1 Process N

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 Push/Pull view example (make to stock)

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 Push/Pull view example (make to stock)

Customer
Pull Customer
Order Process Customer Order Cycle

LL Bean
Customer
Order
Arrives Replenishment and
Procurement, Manufacturing Cycle
Manufacturing,
Replenishment Manufacturer
Push
Processes
Procurement Cycle
Supplier

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 Push/Pull view example (assemble to order)

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 Push/Pull view example (assemble to order)

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 Outline

• What is a Supply Chain?

• Supply Chain Decision Phases
• Process View of a Supply Chain
• Supply Chain Macro Processes

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 Supply chain macro processes
Supply chain processes discussed in the two views can
be classified into

Customer Relationship Management (CRM): all

processes at the interface between the firm and its
customers

Internal Supply Chain Management (ISCM): all

processes that are internal to the firm

Supplier Relationship Management (SRM): all

processes at the interface between the firm and its suppliers

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 Supply chain macro processes

• Within a firm, all supply chain activities belong to

one of three macro processes: CRM, ISCM, and SRM.
• Integration among the three macro processes is
crucial for successful supply chain management.

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 Next…

Discussion of Supply Chain Performance

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