Chapter 1

Understanding the
Supply Chain
 What is a Supply chain?
 A supply chain consists of all parties involved,
directly or indirectly, in fulfilling a customer request.
The supply chain includes not only the manufacturer
and suppliers, but also transporters, warehouses,
retailers, and even customers themselves.

 When a customer makes a purchase online, the

supply chain includes the customer, the company’s
website, the company warehouse, and all the
company’s suppliers and their suppliers.
 What is a Supply chain?
 The facilities, functions, and activities,
involved to producing and delivering a product
or service from the suppliers to the customers.

 The supply chain is also an integrated group of

processes to “source”, “make”, and “deliver”
products.
 What is a Supply chain?
 A typical supply chain may involve a variety of
stages:
• Customers
• Retailers
• Wholesalers/ distributors
• Manufacturers
• Component/ raw material suppliers
Each stage in a supply chain is connected through the
flow of products, information, and funds.
Supply chain Stages:
 The Objective of a Supply Chain
 The objective of every supply chain should be
to maximize the overall value (also known as
supply chain surplus)generated.

 Supply chain Surplus = Customer value –

Supply chain cost
Importance of Supply Chain Decisions
 Walmart, Amazon, and Seven Eleven Japan are
examples of companies that have built their
success on superior strategies, planning, and
operation of their supply chain.
 The failure of many online businesses, such as
Webvan and Kozmo, can be attributed to their
inability to design appropriate supply chain
strategies or manage supply chain flows
effectively.
 Process views of a Supply Chain
 There are two ways to view the processes
performed in a supply chain.
1. Cycle view
2. Push/Pull view
 Cycle view of Supply Chain Processes
 The processes in a supply chain are divided into a
series of cycles, each performed at the interface
between two successive stages of the supply
chain.
 Given the five stages of a supply chain as shown
in the following figure, all supply chain processes
can be broken into the following four process
cycles. Each cycle occurs at the interface between
two successive stages of the supply chain.
 Cycle view of Supply Chain Processes
Cycles Stages
Customer
Customer Order cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
 Push/ Pull View of Supply Chain
Processes
 The processes in a supply chain are divided
into two categories, depending on whether they
are executed in response to a customer order or
in anticipation of customer orders.
 Pull processes are initiated by a customer
order, whereas push processes are initiated are
performed in anticipation of customer orders.
 Supply Chain Macro Process in a Firm

1. Customer Relationship Management

(CRM): all processes at the interface
between the firm and its customers.
2. Internal Supply Chain Management
(ISCM): all processes that are internal to the
firm.
3. Supplier Relationship Management
(SRM): all processes at the interface between
the firm and its suppliers.
 Supply Chain Macro Process in a Firm
SRM ISCM CRM

Source Strategic Planning Market

Negotiate Demand planning Price

Buy Supply Planning Sell

Design Fulfillment Call Center

Collaboration

Supply Field Service Order Management

Collaboration
 Supply Chain Management
 Supply Chain Management (SCM) focuses on
integrating and managing the flow of goods and
services and information through the supply
chain in order to make it responsive to customer
needs while lowering total costs.

 Keys to effective SCM are close collaboration,

cooperation, communication, information
sharing, and trust among suppliers, producers,
distributors, and customers.
Strategic Supply Chain Management
 Supply chain management operates at three
phases:

 Strategic
 Tactical, and
 Operational
 Supply Chain Strategy
 During this phase a company decides how to
structure the supply chain over the next several
years. It decides:
• What the chain’s configurations will be
• How resources will be allocated
• What processes each stage will perform
• The location and capacities of production and warehousing
facilities
• The products to be manufactured and stored at various
locations
• The modes of transportation
• The type of information system to be used, etc.
 Supply Chain Planning or Tactics
 For decisions made during this phase, the time
frame considered is a quarter to a year. It
includes:
• A forecast of demand for the coming year
• Costs and prices in different markets
• Which markets will be supplied from which
location
• Inventory policies
• Timing and size of marketing and promotions, etc.
 Supply Chain Operations
 The time horizon here is weekly or daily.
 Companies make decisions regarding
individual customer orders.
 Firms allocate inventory or production to
individual orders
 Set a date by which an order is to be filled
 Allocate an order to a particular shipping mode
and shipment
 Set delivery schedules of trucks, etc.
 Product Development Strategies
 Senior management has to define a strategic
direction when considering the products that the
company should manufacture and offer to their
customers.
 As product cycles mature or products sales decline,
management has to make strategic decisions to
develop and introduce new versions of existing
products into the marketplace, rationalize the current
product offering or developing a new range of
products and services.
 Customers related Strategies
 At the strategic level, a company has to
identify the customers for its products and
services.
 The company then identifies the key customer
segments where company marketing and
advertising will be targeted.
 Manufacturing Strategy
 Manufacturing decisions define the
manufacturing infrastructure and technology.
 The company may require new facilities or to
increase capacity
 Firm may need subcontracting and third party
logistics.
 Logistics Strategy
 Strategic decisions are required in
 Warehouses, distribution centers,
 Transportation modes
 Third party logistics companies
Summary
 Primary goal of any SCM is delivering the
orders the customers want when the customers
want – by spending as little money as possible.
 Only by lowering costs and improving value of
the product offering, performance of a supply
chain can be optimized.
 This optimization is possible when a supply
chain is managed at the operational, tactical,
and strategic levels.