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Supply Chain Dynamics

Basic Supply Chain

Supply Chain is a global network
used to deliver products and services
from raw materials to end customers
through an engineered flow of
information, physical distribution,
and cash

The Basic Supply Chain for a


Three entities

Provider of goods or services or a
seller with whom the buyer does
business as opposed to vendor which
is a generic term referring to all
sellers in market place
The supplier provides materials,
energy, services, or components for
use in producing a product or service

Receives services, materials,
supplies, energy and components to
use in creating finished products,
such as dress shirts, packaged
dinners, airplanes, electric power,
legal counsel, or guided tours
Supply Chain for services may be
more abstract than those for

Receives shipments of finished
products to deliver to its customers,
who wear the shirts, eat the
packaged dinners, fly the planes, or
turn on the lights

Companies require their supply chain
to guarantee a steady flow of supply
while at the same time striving to
reduce their supply chain costs
Supply Chain cost can be as high as
50% of a companys revenues
Inefficiencies in the supply chain can
total 25% of a firms operating cost

3 Main types of Supply Chain

Efficient Reactive

The Stable supply chain strategy is appropriate for

With a significant history of stability between demand
and supply
That are focused on execution, efficiencies, and cost
That use simple connectivity technologies and have
little need for real time information
An example is a table salt manufacturer with
commodity oriented processes that use scale
production and dedicated capital assets

A Reactive supply chain strategy works well

The chain acts to fulfill demand from trade
partners sales and marketing strategies
The chain is perceived as a cost center by all
The chain needs minimal connectivity
technologies and capital assets to respond to
Ensuring that throughput at any cost is the
chains primary goal

An Example of this strategy is a

manufacturer of sports team apparel
for the fans of competing rivals in the
world soccer tournament. When a
team makes it to the next round,
more products are needed. However,
for the loosing team, demand
virtually disappears for their apparel

With an efficient reactive supply chain

strategy, the chain:
Supports competitive positioning by serving
as an efficient, low cost, and integrated unit
Focuses efficiency and cost management on
the total delivered cost of finished goods
Places greater importance on connectivity
technology and new equipment to
automate functions to reduce labor costs
and improve capacity and throughput

An example of this strategy is the

supermarket chain where the shops,
distribution centers, 3rd party
logistics providers, and
manufacturers cooperate to replace
what is sold in the shops within less
than 24 hours

Four Flows
The flow of information back and forth
along the chain (also back and forth within
the entities and between the chain and
external entities, such as governments,
markets, and competitors)
The Primary Product Flow, including
physical materials and services from
suppliers through the intermediate entities
that transform them into consumable
items for distribution to the final customer

The primary flow of cash from the

customer back upstream towards the raw
material supplier
The reverse flow of products returned
for repairs, recycling, or disposal (This is
called the reverse supply chain, and it is
handled by reverse logistics, which
involves different arrangements than the
forward logistics that carried material and
products in the other direction)

Manufacturing Supply Chain


Services also have

supply chains

The Supply Chain Operational

Reference (SCOR )Model
A process reference model developed
and endorsed by a nonprofit
corporation, [the] Supply Chain
Council (SCC), as the cross-industry
standard diagnostic tool for supply
chain management

Vertical versus Horizontal

Vertical Integration, refers to the practice of
bringing the supply chain inside one
Henry Ford pursued a strategy of owning and
controlling as many links in the automobile
supply chain as possible
By bringing many supply chain activities inhouse and putting them under corporate
management, vertical integration solves the
problem of who will design, plan, execute,
monitor and control supply chain activities

Vertical Integration/Supply Chain

Management a la Henry Ford

Has replaced vertical integration as the
favored approach managing the myriad
activities in the supply chain
It is difficult for one corporation to garner the
expertise needed to excel in all elements of
the supply chain, and it increases their risk,
so corporations around the globe have
turned instead to outsourcing those aspects
of their business in which they judge
themselves to be least effective

Reasons for relying on Lateral

Supply Chain
To achieve economies of scale and scope
To improve business focus and expertise
To leverage communication and production
What each firm gains in scale, scope and
focus, it may lose in ability to see and
understand the larger supply chain
processes- or to care about them

Supply Chain

Stages of Supply Chain

Management Evolution



Multiple Dysfunction
Semi functional Enterprise
Integrated Enterprise
Extended Enterprise

Stage 1- Multiple

Stage 2- Semi Functional


Stage 3- Integrated

Stage 4- Extended

Supply Chain Management

Supply Chain Management is about
creating net value
There should be value-creating
activities in the supply chain that
transcend the activities of particular
entities in the chain
Managing supply chains requires a
balancing act among competing

Value Chain
The functions within a company that
add value to the goods or services
that the organization sells to
customers and for which it receives
The intent of the value chain is to
increase the value of a product or
service as it passes through stages of
development and distribution before
reaching the end user

Value Stream
The process of creating, producing and
delivering a good or service to the market
For a good, the value stream encompasses the
raw material supplier, the manufacturer and
assembly of the good, and distribution network
For a service, the value stream consists of
suppliers, support personnel and technology,
the service producer, and distribution channel
The value stream may be controlled by a
single business or a network of several

Supply Chain Management

Improved Market knowledge
The three Vs-increase velocity,
increase visibility, and reduce
variability in the flow of goods and
services, funds, and information
Integrated operations
Improve management of risk
Increase sustainability

Improved Market
With supply chain management in place,
partners in the supply chain begin to share their
knowledge about the marketplace and in
particular about their customers
It may take some time for the organizations to
build trust before they share their key account
information, but with time it does often occur
Although market intelligence can be purchased
from outside sources, its most advantageous
(and less expensive) to gather it from your

The three Vs

Increase Visibility
Visibility is the ability to view important
information throughout a facility or supply chain no
matter where in the facility or supply chain the
information is located
Increased visibility along the supply chain is a
benefit for supply chain partners and the end
With better visibility, a supply chain manager or
employee can see the results of activities
occurring in the chain and is made aware of minor,
incremental changes via technological processes

Increase Velocity
Velocity is a term used to indicate
the relative speed of all transactions,
collectively, with in a supply chain
A maximum velocity is most
desirable because it indicates a
higher asset turnover for
stakeholders and faster order-todelivery response for customers

Methods to Increase
Relying on more rapid modes of
transportation (if there is a net benefit
after the increase in transportation costs)
Reducing the time in which inventory
is not moving by using Just-in-Time
delivery and Lean Manufacturing (The
less time inventory spends at rest, the less
likely it is to suffer damages or spoilage.
Increased velocity reduces the expenses
involved in warehousing inventory)

Eliminating activities the dont add value,

thus reducing the time required to accomplish
supply chain activities
Speeding up the flow of demand and cash
as well as the velocity of inventory (The
more rapid payments are received from
customers, the sooner the money can be put
to work in the business or deposited at
interest. Information about demand changes is
crucial when the competitive strategy is

Reduce Variability
Variability is the natural tendency
of the results of all business activities
to fluctuate above and below an
average value, such as fluctuations
around average time to completion,
average no of defects, average daily
sales, or average production yields
Traditional off set against
variability is safety stock

Bullwhip Effect
The Bullwhip Effect is an extreme
change in the supply position
upstream that is generated by a
small change in demand downstream
in the supply chain

Two additional Vs
Variety, refers to the mix of
products and services in a portfolio
that must alter to meet changes in
customer demand
Volume is the amount of product
being produced at a given time

Integrated Operations
Enterprise resources planning
software packages enable companies
around the globe to not only manage
their operations in one plant but to
facilitate enterprise wide integration
and even cross company

Improved Management
of Risk
Supply Chain Risk is based on
decisions and activities that have
outcomes that could negatively
affect information or goods within a
supply chain
Risk Management is the process of
identifying risk, analyzing exposures
to risk, and determining how to best
handle those exposures

Risk Response Plan is a written

document defining known risks,
including description, cause, likelihood,
cost, and proposed responses [that] also
identifies the current status of each risk
Risk Response Planning the process
of developing a plan to avoid risks and to
mitigate the effect of those that cannot
be avoided

Increased Sustainability
Expansion of the traditional supply
chain focus of cost, quality, and
service to include environmental
Sustainability and Green are
often used as synonyms in discussion
of corporate obligations that go
beyond the traditional emphasis on
bottom-line profits