Umer Mukhtar

Workshop : Supply Chain Management 1

Umer Mukhtar
Lecturer (School of Management, GIFT University)
PhD (In Progress) UMT, Lahore
MS (Quality Management)
International Certificate of SCM, ITC, WTO.
Lead Auditor ISO 9001:2008
Lead Auditor SA 8000
Workshop : Supply Chain Management 2
 Summary: Workshop
Introduction and Need of Supply Chain Management
Right supply chain
Nature of Demand
Supply management of Functional and Innovative
products
Physically Innovative and Responsive Supply Chain
Networks
Ideal Supply Chain Strategy
Procurement and Sourcing
Requirement and planning of Supply

Workshop : Supply Chain Management 3

 Summary: Workshop
Distribution and Logistics
Customer service and logistics
Channels of distribution
Warehousing
Transportation

Workshop : Supply Chain Management 4

 Logistics/Supply Chain Management
Logistics and supply chain management are not
new ideas.

From the building of the pyramids to the relief of

hunger in Africa, the effective flow of materials
and information is the main concern.

Throughout the history of mankind wars have

been won and lost through logistics strengths and
capabilities

Workshop : Supply Chain Management 5

 Logistics
It is only in the recent past that business
organizations have come to recognize the vital
impact that logisticsLogistics
management can have in
the achievement of competitive advantage.
Logistics is the process of strategically managing the
procurement, movement and storage of materials, parts and
finished inventory (and the related information flows)
through the organization and its marketing channels in such
a way that current and future profitability are maximized
through the cost-effective fulfillment of orders.

Workshop : Supply Chain Management 6

 Supply Chain Management
Supply chain management builds upon the logistics
management framework and seeks to achieve
linkage and co-ordination between the processes of
other entities in the pipeline, i.e. suppliers, and
customers, and the organization itself.

For example, elimination of buffers

of inventory that exist between
organizations in a chain through the
sharing of information on demand
and current stock levels.

Workshop : Supply Chain Management 7

 Supply Chain Management
The management of a network of (Defined by Stock & Boyer in 2009
relationships within a firm and between
interdependent organizations 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.

Workshop : Supply Chain Management 8

 What is Supply Chain Management?

The design and management of seamless, value-added processes across

organizational boundaries to meet the real needs of the end customer
Institute for Supply Management
Managing supply and demand, sourcing raw materials and parts,
manufacturing and assembly, warehousing and inventory tracking, order
entry and order management, distribution across all channels, and delivery
to the customer
The Supply Chain Council
The planning and management of all activities involved in sourcing and
procurement, conversion, and all logistics management activities also
includes coordination with channel partners, which can be suppliers,
intermediaries, third party service providers, and customers.
Council of Supply Chain Management Professionals

2009 South-Western, a division of

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Cengage Learning
The Immediate Supply Chain for an Individual
Firm

Transportation Transportation Customers

Warehousing

Information
flows
Factory

Transportation

Vendors/plants/ports
Warehousing Transportation

Workshop : Supply Chain Management 10

Supply Chain: Manufacturing Example

Workshop : Supply Chain Management 11

Supply Chain: Service Example

Workshop : Supply Chain Management 12

 Supply Chain management
Cross function approach
Integrated approach
Overall objective is more important
Conflict resolution
Planning uncertainty i.e. contingency plans
Decision making at corporate level
Eliminate redundant activities
Ultimate objective is customer
astonishment

Workshop : Supply Chain Management 13

 Why do we need Supply Chain
Economies of Scale Management
Technology
Market Share
are not the only
options of cost
advantage

Brand Image
Variety
Product
Differentiation are
not the only
options to deliver
value

Workshop : Supply Chain Management 14

 Creating Value
Companies seek to develop a distinctive
advantage and differentiate themselves in the
mind of consumer.
Customers seek value in terms of:
Quality
Cost
Flexibility
Delivery
Innovation
The underlying philosophy of SC is to link the marketplace,
the distribution network, the manufacturing process and
the procurement activity in such a way that customers are
serviced at higher levels and yet at lower cost.

Workshop : Supply Chain Management 15

 The Value Chain of typical manufacturing firm

INDIRECTLY
create the
value as
perceived by
the customer

DIRECTLY
create the
value as
perceived by
the customer

Workshop : Supply Chain Management 16

Internal Value Chain: Local Focus
Executive
R&D
Management

Information
Operations
Technology

Supply
Logistics
Management

Finance Marketing

Human
Accounting Resource
Management
Workshop : Supply Chain Management 17
 Internal Value Chain: Company Focus
Executive
R&D
Management

Information
Operations
Technology

Upstream Downstream
Supply
Suppliers Management
Logistics Customers

Finance Marketing

Human
Accounting Resource
Management
Workshop : Supply Chain Management 18
 Internal Value Chain: Company Focus
Executive
R&D
Management

Information
Operations
Technology

Upstream Downstream
Supply
Suppliers Management
Logistics Customers

Finance Marketing

Human
Accounting Resource
Management
Workshop : Supply Chain Management 19
 SCM: Linked Value Chains
Executive
R&D
Management

Information
Operations
Technology
Executive Executive Executive Executive
R&D R&D R&D R&D
Management Management Management Management

Information Information Information Information

Operations Operations Operations Operations
Technology Technology Technology Technology

Supply Supply Supply Supply Supply

Management Management
Logistics Logistics
Management Logistics
Management
Logistics Logistics
Management

Finance Finance Marketing Marketing Finance Finance

Marketing Marketing

Human Human Human Human

Accounting Resource Accounting Resource Accounting Resource Accounting Resource
Management Management Management Management

Finance Marketing

Suppliers Supplier Focal Human Customer Customers

Accounting Resource
Supplier Firm Management Customer
Workshop : Supply Chain Management 20
 Supply Chain Integration
Common

Theoretical Ideal
Workshop : Supply Chain Management 21
The Supply Chain is Multi-Enterprise
Scope in
reality

Focus
Company

Suppliers Customers

Suppliers Customers/
suppliers End users

Acquire Convert Distribute

Product and information flow

CR (2004) Prentice Hall, Inc. Workshop : Supply Chain Management 22

Generalized Supply Chain Model
Relationship Management

Information, Product, Service, Financial and Knowledge Flows

SUPPLIER E
M NETWORK N
A INTEGRATED D
ENTERPRISE DISTRIBUTIVE
T NETWORK
E C
R O
Procurement Distribution
I N
A S
L U
S Manufacturing
M
E
R
S

Capacity, Information, Core Competencies, Capital and Human Resources

Supply Chain Logistics Management, First Edition. Bowersox, Closs, and Cooper.
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Workshop : Supply Chain Management 23

 Conflicts within the supply chains
High inventories higher customer service levels
[ but supply chains operate inefficiently]
Low inventories Efficient supply chain operations
[ but customer service levels are at stake]

Supplier Manufacturer Retailer Customer

objective objective objective objective
Large stable Desire low Reduce Low price &
demand for less product variety / inventory and high product
variety of high production transportation quality and
materials volumes costs variety

Flexible delivery Flexible delivery Rapid JIT receiving

schedules schedules replenishment of products,
short lead
times
Supply chain management best practices by Blenchard
Workshop : Supply Chain Management 24
 Demand Nature
Food Industry of U.S. was loosing 300 Billion annually due
to poor coordination of Supply Chain Partners.
The excess of some products and shortage of others owing
to an inability to predict demand
Consideration of Demand Nature
Primarily Functional
Satisfy basic needs, stable, and predictable demand and long life
cycles Rice, Pulses, Milk, Chicken, Vegetables (Grocery Items)
Primarily Innovative
Satisfy luxury needs, unstable, and unpredictable demand and
short life cycles Apparels, Fashion products, Personal
Computers, Smart phones.

Workshop : Supply Chain Management 25

 Functional Versus Innovative
Products: Differences in Demand
Functional Innovative
Aspects of Demand Predictable Unpredictable

Product Life Cycle More than 2 years 3 months to 1 year

Contribution Margin 5% to 20% 20% to 60%

Product Variety Low (10 to 20 variants per High (Often no. of variants
category) per category)

Average Margin of error in 10% 40% to 100%

the demand forecast

Average Stock out Rate 1% to 2 % 10% to 40%

Lead time required for 6 months to 1 year 1 day to 2 weeks

made-to-order products
Workshop : Supply
Chain
26
Management
What is the Right Supply Chain?

Workshop : Supply Chain Management 27

 Two functions of Supply Chain
Physical Function
Conversion of Raw material into
components, parts, finished products
and transporting all of them from
one point in supply chain to the next.
Physical Costs
Cost of production, transportation
cost, inventory storage
Market Mediation Function
Ensure that the variety of products
reaching the marketplace matches
what consumers want to buy.
Mediation costs
when supply falls short of demand in
the form of lost sales and dissatisfied
customers.

Workshop : Supply Chain Management 28

 Physically efficient and Market-
Responsive Supply Chains
Physically Efficient Market Responsive
Process Process
Primary purpose Supply predictable Respond quickly to
demand efficiently at unpredictable demand
the lowest possible cost in order to minimize
stakeouts and obsolete
inventory
Manufacturing focus Maintain high average Deploy excess buffer
utilization rate capacity
Inventory Strategy Generate high turns and Deploy significant buffer
minimize inventory stocks of parts or
throughout the chain finished goods
Lead Time focus Shorten lead time as Invest aggressively in
long as it does not ways to reduce lead
increase costChain Management
Workshop : Supply time 29
 Physically efficient and Market-
Responsive Supply Chains
Lead Time Focus Shorten lead time as
long as it does not
increase cost
Approach to choosing Select primarily for cost
Supplies and quality
Product Design Strategy Maximize performance
and minimize cost
Workshop : Supply Chain Management
Invest aggressively in ways
to reduce lead time
Select primarily for
speed, flexibility and
quality
Use modular design in
order to postpone
product differentiation
for as long as possible
30
 The Bullwhip Effect
Variation in demand is exaggerated as
information moves upstream away from the
point of use.

Variation in demand is exaggerated due to

infrequent demand and/or inventory level
information exchange and order batching.
 The Dynamics of the Supply Chain
Order Size

Customer
Demand

Retailer Orders
Distributor Orders

Production Plan

Time
 The Dynamics of the Supply Chain
Order Size

Customer
Demand

Production Plan

Time
 The Dynamics of the Supply Chain
Order Size

Customer
Demand

Production Plan

Time
Evolution of Supply Chain Management
Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+

Demand forecasting

Purchasing

Requirements planning
Purchasing/
Production planning Materials
Management
Manufacturing inventory

Warehousing
Logistics
Material handling

Packaging

Finished goods inventory Supply Chain

Physical Supply Chain
Management
Distribution Management
Distribution planning

Order processing

Transportation

Customer service

Strategic planning

Information services

Marketing/sales

Finance
CR (2004) Prentice Hall, Inc. 1-35
 The Logistics/SC Mission

Getting the right goods or services

to the right place, at the right time,
and in the desired condition at the
lowest cost and highest return on
investment.

CR (2004) Prentice Hall, Inc. 1-36

 Significance of Logistics
Costs are high
About 10.5% of GDP domestically
About 12% of GDP internationally
A range of 4 to 30% of sales for individual firms, avg. about 10%
A high as 70-80% of sales if purchasing and production are
included
Customers are more demanding of the supply chain
Desire for quick response
Desire for mass customization
An integral part of company strategy
Generate revenue
Improve profit
Logistical lines are lengthening
Local vs. long distance supply
Logistics is a key to trade and an increased standard of living
Law of comparative economic advantage applies
Logistics adds value
Time and place utilities 1-37
Costs are lower than K-Mart or
Target Stores
CEO is a former logistician
Wal-Mart is the largest retailer in
the world!
CR (2004) Prentice Hall, Inc. 1-38
Scope of the Supply Chain for Most Firms
Business logistics

Physical supply Physical distribution

(Materials management)

Sources of Plants/
Customers
supply operations
Transportation Transportation
Inventory maintenance Inventory maintenance
Order processing Order processing
Acquisition Product scheduling
Protective packaging Protective packaging
Warehousing Warehousing
Materials handling Materials handling
Information maintenance Information maintenance

Focus firms internal supply chain

CR (2004) Prentice Hall, Inc. 1-14
 Key Activities/Processes
Primary
- Setting customer service goals
- Transportation
- Inventory management
- Location

Secondary, or supporting
- Warehousing
- Materials handling
- Acquisition (purchasing)
- Protective packaging
- Product scheduling
- Order processing
CR (2004) Prentice Hall, Inc. 1-40
 The Multi-Dimensions of SC

SUPPLY
CHAIN
MANAGEMENT

Activity and process

administration
CR (2004) Prentice Hall, Inc. 1-41
 Relationship of Logistics to Marketing
and Production
LOGISTICS
Sample
activities: MARKETING
PRODUCTION/ Transport Interface Sample
OPERATIONS Inventory
Interface activities: activities:
Sample activities: Order Customer
Quality control activities: Promotion
Product processing service Market
Detailed production
scheduling
scheduling Materials standards research
Plant Pricing Product
Equipment maint . handling
location Packaging
Capacity planning mix
Purchasing Retail Sales force
Work measurement
location management
& standards

Production-
logistics Marketing-
interface logistics
interface

Internal Supply Chain

CR (2004) Prentice Hall, Inc. 1-21
 Relationship of Logistics to Marketing
Product

Promotion
Price

Place-Customer
service levels

Inventory Transport
Logistics

carrying costs costs

Lot quantity Warehousing

costs Order processing costs
and information
costs
CR (2004) Prentice Hall, Inc. 1-22
What is Supply Chain Management? (Cont.)
Old paradigm - Firm gained synergy as a vertically integrated
firm encompassing the ownership and coordination of several
supply chain activities. Organizational cultures emphasized
short-term, company focused performance.

New paradigm - Firm in a supply chain focuses activities in its

area of specialization and enters into voluntary and trust-based
relationships with supplier and customer firms.
All participants in the supply chain benefit.
Boundaries are dynamic and extend from the firms
suppliers suppliers to its customers customers (i.e., second
tier suppliers and customers).
Supply chains now deal with reverse logistics to handle
returned products, warranty repairs, and recycling.

2009 South-Western, a division of

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Cengage Learning
 Importance of Supply Chain Management
(Cont.)
Cost savings and better coordination of resources are reasons to
employ Supply Chain Management
Reduced Bullwhip Effect- the magnified reduction
of safety stock costs based on coordinated
planning and sharing of information
Collaborative planning, forecasting, and
replenishment activities reduce the Bullwhip
Effect and lead to better customer service, lower
inventory costs, improved quality, reduced cycle
time, better production methods, and other
benefits.

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Origins of Supply Chain Management Cont.

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 The Foundations of Supply Chain
Management

Supply Supplier management, supplier evaluation,

Management supplier certification, strategic partnerships
Demand management, MRP, ERP, inventory
Operations visibility, JIT (AKA lean production & Toyota
Production System), TQM (AKA Six Sigma)
Transportation management, customer
relationship management, distribution network,
Distribution
perfect order fulfillment, global supply chains,
service response logistics

Integration Process integration, performance measurement

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 The Foundations of Supply Chain
Management (Cont.)
Purchasing Trends:
Long term relationships
Supplier management- improve performance
through
Supplier evaluation (determining supplier capabilities)
Supplier certification (third party or internal
certification to assure product quality and service
requirements)
Strategic partnerships- successful and trusting
relationships with top-performing suppliers

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 Important Elements of Supply Chain
Management (Cont.)
Operations Trends:

Demand management- match

demand to available capacity
Linking buyers & suppliers via MRP
and ERP systems
Use JIT to improve the pull of
materials to reduce inventory levels
Employ TQM to improve quality
compliance among suppliers
2009 South-Western, a division of
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Cengage Learning
 Important Elements of Supply Chain
Management (Cont.)
Distribution Trends:
Transportation management- tradeoff
decisions between cost & timing of
delivery/customer service via trucks, rail,
water & air
Customer relationship management-
strategies to ensure deliveries, resolve
complaints, improve communications, &
determine service requirements
Network design- creating distribution
networks based on tradeoff decisions
between cost & sophistication of
distribution system

2009 South-Western, a division of

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 Important Elements of Supply Chain
Management (Cont.)
Integration Trends:
Supply Chain Process Integration- when supply
chain participants work for common goals.
Requires intrafirm functional integration. Based on
efforts to change attitudes & adversarial
relationships
Supply Chain Performance Measurement- Crucial
for firms to know if procedures are working

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 Current Trends in Supply Chain Management

Expanding the Supply Chain

U.S. firms are expanding partnerships and building
facilities in foreign markets
The expansion involves:
breadth- foreign manufacturing, office & retail sites,
foreign suppliers & customers
depth- second and third tier suppliers & customers

2009 South-Western, a division of

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Cengage Learning
 Current Trends in Supply Chain
Management (Cont.)
Increasing Supply Chain
Responsiveness
Firms will increasingly need to be
more flexible and responsive to
customer needs
Supply chains will need to benchmark
industry performance and meet and
improve on a continuous basis
Responsiveness improvement will
come from more effective and faster
product & service delivery systems
2009 South-Western, a division of
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Cengage Learning
 Current Trends in Supply Chain
Management (Cont.)
The Greening of Supply Chains
- Producing, packaging, moving, storing,
delivering and other supply chain activities
can be harmful to the environment
Supply chains will work harder to reduce
environmental degradation
Large majority (75%) of U.S. consumers
influenced by a firms environmental
friendliness reputation
Recycling and conservation are a growing
alternative in response to high cost of
natural resources
2009 South-Western, a division of
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 Current Trends in Supply Chain Management-
Cont.
Reducing Supply Chain Costs
Cost reduction achieved through:
Reduced purchasing costs
Reducing waste
Reducing excess inventory, and
Reducing non-value added activities
Continuous Improvement through
Benchmarking- improve over competitors performance
Trial & error
Increased knowledge of supply chain processes

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 2
Supply Chain
Performance:
Achieving
Strategic Fit and
Scope
PowerPoint presentation to accompany
Chopra and Meindl Supply Chain Management, 5e
Global Edition
Copyright 2013 Pearson Education.
2012 Prentice Hall Inc. 56
1-56
2-56
 Competitive and Supply
Chain Strategies
Competitive strategy defines the set of customer needs a firm
seeks to satisfy through its products and services
Product development strategy specifies the portfolio of new
products that the company will try to develop
Marketing and sales strategy specifies how the market will be
segmented and product positioned, priced, and promoted
Supply chain strategy determines the nature of material
procurement, transportation of materials, manufacture of
product or creation of service, distribution of product
All functional strategies must support one another and the
competitive strategy

2-57
 How is Strategic Fit Achieved?

1. Understanding the customer and supply

chain uncertainty
2. Understanding the supply chain capabilities
3. Achieving strategic fit

2-58
Step 1: Understanding the Customer and
Supply Chain Uncertainty

Quantity of product needed in each lot

Response time customers are willing to
tolerate
Variety of products needed
Service level required
Price of the product
Desired rate of innovation in the product
2-59
 Customer Needs and Implied
Demand Uncertainty
Customer Need
Range of quantity required
increases
Lead time decreases
Variety of products required
increases
Number of channels through
which product may be acquired
increases
Rate of innovation increases
Required service level increases
Causes Implied Demand Uncertainty to
Increase because a wider range of the quantity
required implies greater variance in demand
Increase because there is less time in which to
react to orders
Increase because demand per product becomes
more disaggregate
Increase because the total customer demand is
now disaggregated over more channels
Increase because new products tend to have more
uncertain demand
Increase because the firm now has to handle
unusual surges in demand
2-60
Levels of Implied Demand Uncertaint

2-61
 Step 2: Understanding Supply Chain
Capabilities
How does the firm best meet demand?
Supply chain responsiveness is the ability to
Respond to wide ranges of quantities demanded
Meet short lead times
Handle a large variety of products
Build highly innovative products
Meet a very high service level
Handle supply uncertainty

2-62
Cost-Responsiveness
Efficient Frontier

2-63
Responsiveness Spectrum

2-64
 Step 3: Achieving Strategic Fit

Ensure that the degree of supply chain

responsiveness is consistent with the implied
uncertainty
Assign roles to different stages of the supply
chain that ensure the appropriate level of
responsiveness
Ensure that all functions maintain consistent
strategies that support the competitive strategy

2-65
Zone of Strategic Fit

2-66
Roles and Allocations

2-67
Efficient and Responsive Supply Chains

Efficient Supply Chains Responsive Supply Chains

Supply demand at the lowest
Primary goal Respond quickly to demand
cost
Create modularity to allow
Product design Maximize performance at a
postponement of product
strategy minimum product cost
differentiation
Lower margins because price is Higher margins because price is
Pricing strategy
a prime customer driver not a prime customer driver
Maintain capacity flexibility to
Manufacturing Lower costs through high
buffer against demand/supply
strategy utilization
uncertainty
Inventory Maintain buffer inventory to deal
Minimize inventory to lower cost
strategy with demand/supply uncertainty
Lead-time Reduce, but not at the expense Reduce aggressively, even if the
strategy of costs costs are significant
Supplier Select based on speed, flexibility,
Select based on cost and quality
strategy reliability, and quality
2-68
 Changes Over Product
Life Cycle

Beginning stages
1. Demand is very uncertain, and supply may be
unpredictable
2. Margins are often high, and time is crucial to
gaining sales
3. Product availability is crucial to capturing the
market
4. Cost is often a secondary consideration

2-69
 Changes Over Product
Life Cycle

Later stages
1. Demand has become more certain, and supply is
predictable
2. Margins are lower as a result of an increase in
competitive pressure
3. Price becomes a significant factor in customer
choice

2-70
Different Scopes of Strategic Fit Across a Supply
Chain

2-71
Drivers of Supply Chain Performance

1. Facilities
The physical locations in the supply chain network
where product is stored, assembled, or fabricated

2. Inventory
All raw materials, work in process, and finished
goods within a supply chain

3. Transportation
Moving inventory from point to point in the
supply chain

2-72
 Drivers of Supply Chain Performanc

4. Information
Data and analysis concerning facilities, inventory,
transportation, costs, prices, and customers
throughout the supply chain

5. Sourcing
In-house or outsource, Supplier selection,
Procurement

6. Pricing
How much a firm will charge for the goods and
services that it makes available in the supply chain

2-73
 A Framework
for Structuring
SCM Drivers

2-74
 Challenges

Increasing product variety and shrinking life

cycles
Globalization and increasing uncertainty
Fragmentation of supply chain ownership
Changing technology and business
environment
The environment and sustainability

2-75
 Key Issues
Issues span
Strategic
Tactical
Operational
What are the tradeoffs and issues?
Distribution Network Configuration
Inventory control
Supply Contracts
Distribution Strategies
Integration and Partnerships
Procurement Strategies and Outsourcing
Product Design
Information Technology
 New Concepts

Push-Pull strategies
Direct-to-Consumer
Strategic alliances
Manufacturing postponement
Dynamic Pricing
E-Procurement
 Chapter 3
Supply Chain Drivers and Obstacles

3-78
 Facilities
Role in the supply chain
the where of the supply chain
manufacturing or storage (warehouses)
Role in the competitive strategy
economies of scale (efficiency priority)
larger number of smaller facilities (responsiveness
priority)
Example 3.1: Toyota and Honda
Components of facilities decisions
3-79
 Components of Facilities Decisions
Location
centralization (efficiency) vs. decentralization
(responsiveness)
other factors to consider (e.g., proximity to customers)
Capacity (flexibility versus efficiency)
Manufacturing methodology (product focused
versus process focused)
Warehousing methodology (SKU storage, job lot
storage, cross-docking)
Overall trade-off: Responsiveness versus efficiency
3-80
 Inventory
Role in the supply chain
Role in the competitive strategy
Components of inventory decisions

3-81
Inventory: Role in the Supply Chain
Inventory exists because of a mismatch between supply
and demand
Source of cost and influence on responsiveness
Impact on
material flow time: time elapsed between when material
enters the supply chain to when it exits the supply chain
throughput
rate at which sales to end consumers occur
I = RT (Littles Law)
I = inventory; R = throughput; T = flow time
Example
Inventory and throughput are synonymous in a supply chain

3-82
 Inventory: Role in Competitive
Strategy
If responsiveness is a strategic competitive
priority, a firm can locate larger amounts of
inventory closer to customers
If cost is more important, inventory can be
reduced to make the firm more efficient
Trade-off
Example 3.2 Nordstrom

3-83
 Components of Inventory Decisions
Cycle inventory
Average amount of inventory used to satisfy demand between shipments
Depends on lot size
Safety inventory
inventory held in case demand exceeds expectations
costs of carrying too much inventory versus cost of losing sales
Seasonal inventory
inventory built up to counter predictable variability in demand
cost of carrying additional inventory versus cost of flexible production
Overall trade-off: Responsiveness versus efficiency
more inventory: greater responsiveness but greater cost
less inventory: lower cost but lower responsiveness

3-84
 Transportation
Role in the supply chain
Role in the competitive strategy
Components of transportation decisions

3-85
 Transportation: Role in
the Supply Chain
Moves the product between stages in the
supply chain
Impact on responsiveness and efficiency
Faster transportation allows greater
responsiveness but lower efficiency
Also affects inventory and facilities

3-86
 Transportation:
Role in the Competitive Strategy
If responsiveness is a strategic competitive
priority, then faster transportation modes can
provide greater responsiveness to customers
who are willing to pay for it
Can also use slower transportation modes for
customers whose priority is price (cost)
Can also consider both inventory and
transportation to find the right balance
Example 3.3: Laura Ashley
3-87
 Components of
Transportation Decisions
Mode of transportation:
air, truck, rail, ship, pipeline, electronic transportation
vary in cost, speed, size of shipment, flexibility
Route and network selection
route: path along which a product is shipped
network: collection of locations and routes
In-house or outsource
Overall trade-off: Responsiveness versus
efficiency

3-88
 Information
Role in the supply chain
Role in the competitive strategy
Components of information decisions

3-89
 Information: Role in
the Supply Chain
The connection between the various stages in
the supply chain allows coordination
between stages
Crucial to daily operation of each stage in a
supply chain e.g., production scheduling,
inventory levels

3-90
 Information:
Role in the Competitive Strategy
Allows supply chain to become more efficient
and more responsive at the same time
(reduces the need for a trade-off)
Information technology
What information is most valuable?
Example 3.4: Andersen Windows
Example 3.5: Dell

3-91
Components of Information Decisions
Push (MRP) versus pull (demand information
transmitted quickly throughout the supply chain)
Coordination and information sharing
Forecasting and aggregate planning
Enabling technologies
EDI
Internet
ERP systems
Supply Chain Management software
Overall trade-off: Responsiveness versus efficiency

3-92
 Sourcing
Role in the supply chain
Role in the competitive strategy
Components of sourcing decisions

3-93
 Sourcing: Role in
the Supply Chain
Set of business processes required to
purchase goods and services in a supply chain
Supplier selection, single vs. multiple
suppliers, contract negotiation

3-94
 Sourcing:
Role in the Competitive Strategy
Sourcing decisions are crucial because they
affect the level of efficiency and
responsiveness in a supply chain
In-house vs. outsource decisions- improving
efficiency and responsiveness
Example 3.6: Cisco

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Components of Sourcing Decisions
In-house versus outsource decisions
Supplier evaluation and selection
Procurement process
Overall trade-off: Increase the supply chain
profits

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 Pricing
Role in the supply chain
Role in the competitive strategy
Components of pricing decisions

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 Pricing: Role in
the Supply Chain
Pricing determines the amount to charge
customers in a supply chain
Pricing strategies can be used to match
demand and supply

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 Sourcing:
Role in the Competitive Strategy
Firms can utilize optimal pricing strategies to
improve efficiency and responsiveness
Low price and low product availability; vary
prices by response times
Example 3.7: Amazon

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 Components of Pricing Decisions
Pricing and economies of scale
Everyday low pricing versus high-low pricing
Fixed price versus menu pricing
Overall trade-off: Increase the firm profits

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 Obstacles to Achieving
Strategic Fit
Increasing variety of products
Decreasing product life cycles
Increasingly demanding customers
Fragmentation of supply chain ownership
Globalization
Difficulty executing new strategies

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 Summary
What are the major drivers of supply chain performance?
What is the role of each driver in creating strategic fit
between supply chain strategy and competitive strategy
(or between implied demand uncertainty and supply
chain responsiveness)?
What are the major obstacles to achieving strategic fit?
In the remainder of the course, we will learn how to
make decisions with respect to these drivers in order to
achieve strategic fit and surmount these obstacles

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Workshop : Supply Chain Management 103