Supply Chain Management

Lecture 1

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What is Supply Chain

Management?

What is a Supply Chain?

A supply chain consists of all parties involved, directly or
indirectly, in fulfilling a customer request
Suppliers, manufacturers, transporters, warehouses, retailers, and
customers

A supply chain includes all functions involved in receiving

and filling a customer request
New product development, marketing, operations, distribution,
finance, and customer service

A supply chain is the entire process of moving a product

or service from suppliers to customers

Stages of a Detergent Supply

Chain
Timber
Company

Chemical
Manufacturer

Paper
Manufacturer

Pactiv
Corporation

P&G or Other
Manufacturer

Wal-Mart
or Third
Party DC

Plastic
Producer

Wal-Mart
Store

Customer

Example: Wal-Mart
Procter & Gamble
Da-Fa Clothing, Inc. (China)
SONY Factory (Malaysia)

Wal-Mart
or third-party
distribution
centers

Wal-Mart
Stores

Customers Request:
Buying detergent,
clothes, TV, ...

Fabric Producer

Electronics Components Producer

Zipper Producer

Plastic Producer

Plastic Producer
Chemical Producer
Thread Producer

Example: HP
Suppliers

IC Mfg

Suppliers

PC Board

Suppliers

Subassembly

FAT

USA
DCs

Retailer

Customer

Europe
DCs

Retailer

Customer

Asian
DCs

Retailer

Customer

Suppliers

FAT = Final assembly & test

IC Mfg = Integrated circuit manufacturing
PC Board = Printed circuit board

Example: Dell
Monitors by SONY (Mexico)
Keyboards by Acer (Taiwan)
CPU by Intel (USA)

Dell
Assembly
Plant

Customers order
computers on
Dells website

Other components

Dell is significantly revamping its entire supply

chain strategy and, in large measure, abandoning
its make-to-order model [April, 2008]

Supply Chain Stages

A typical supply chain involves a variety of stages
Supplier

Manufacturer

Distributor

Retailer

Customer

Most supply chains are actually supply networks

Supply Chain Flows

Value-Added Services
Supplier

Manufacturer

Distributor

Material/Product Flow
Funds/Demand Flow
Information Flow
Returns/Recylcing

Retailer

Customer

What is a Supply Chain?

A supply chain consists of all parties involved, directly or
indirectly, in fulfilling a customer request
Suppliers, manufacturers, transporters, warehouses, retailers, and
customers

A supply chain includes all functions involved in receiving

and filling a customer request
New product development, marketing, operations, distribution,
finance, and customer service

A supply chain is the entire process of moving a product

or service from suppliers to customers

Supply Chain Cycle

Reverse logistics

Customer

Marketing

Product design

Logistics

Suppliers
Manufacturing

The Objective of a Supply Chain

Maximize overall value created
Supply chain value is the difference between
what the final product is worth to the customer
and the costs the supply chain incurs in filling the
customers request
Supply chain profitability (or supply chain
surplus) is the difference between the revenue
generated from the customer and the overall cost
across the supply chain

The Objective of a Supply Chain

Sources of supply chain revenue: Customer
Best Buy receives $60 from a customer for a wireless router

Sources of supply chain cost: Flows of information,

products, and funds between any pair of stages in the
supply chain
Difference between $60 and the sum of all costs is the supply
chain profit or supply chain surplus

Supply chain profitability is the total profit to be shared

across all supply chain stages and intermediaries
Supply chain success should be measured by total supply
chain profitability, not profits at an individual stage

The Importance of Supply Chain

Decisions
Supply chain design, planning, and operation
play a significant role in the success or failure of a
firm

Wal-Mart
Dell
Seven-Eleven Japan
Amazon
Toyota
W.W. Grainger and McMaster-Carr
Webvan
Snapple

Overview
Part I
Understanding the supply chain
Chapters: 1, 2, 3

Part II
Designing the supply chain network
Chapters: 4, 5, 6

Part III
Planning demand and supply in a supply chain
Chapters: 7, 8, 9

Overview
Part IV
Planning and managing inventories in a supply chain
Chapters: 10, 11, 12

Part V
Designing and planning transportation networks
Chapter: 13

Part VI
Sourcing and pricing decisions in a supply chain
Chapters: 14, 15, 16, 17