INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

Chapter-1

Evolution of SCM
Stage 1: Vendor Purchase Production - Distribution Retailer (1960s and 70s) Stage 2: Materials Management Logistics Management(1980s) (Facilitates the flow of materials) Stage 3: Supply Chain Management (1990s)(way that materials moves)

What is a Supply Chain?

A supply chain is a network of retailers, distributors, transporters, storage facilities and suppliers that participate in the sale, delivery and production of a particular product. (product specific) A supply chain is a sequence of suppliers, transporters, warehouse, manufacturers, wholesalers/distributors, retail outlets and final customers

Supply chain management

Supply chain management involves the flows of material, information and finance in a network consisting of customers, suppliers, manufacturers, and distributors Supply chain management is a collaborative based strategy to link cross enterprises business operations to achieve a shared vision of market opportunity. It is a comprehensive arrangement that can span from raw material sourcing to end customers purchase (Donald J. Bower sox)

SCM importance keeps growing

Globalization. Strategic Advantage. Outsourcing/off shoring . Technology. Faster order cycle times. COST and SERVICE.

Objectives in the Supply Chain

Purchasing Stable volume requirements Flexible delivery time Little variation in mix Large quantities 2. Manufacturing Long run production High quality High productivity Low production cost 3. Warehousing Low inventory Reduced transportation costs Quick replenishment capability
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4. Customers Short order lead time High in stock Enormous variety of products Low prices 5. Information, SC assets, Fund flows 6. Cost 7. SC profitability

Decision Phases in a Supply Chain

Supply chain strategy or design: Chains configuration and process each stage performs, location, capacity, transportation, warehousing, information system. long term decisions. Supply chain planning: operating policies that govern short term operations in regard to Market, inventories, subcontracting, replenishment, back up locations in case of stock out, timing and size of marketing location. Supply chain operation: time horizon regarding individual customer orders. configuration is fixed and planning policies defined. allocating individual orders to production, setting dates for fulfilling orders generating pick list at warehouse, particular shipping mode, getting delivery schedules, placing replenishment orders. Decision phases strongly affects the overall profitability and success of a firm.

Process view of a supply chain

Cycle view:
Process in SC are divided into a series of cycles, each performed at the interface between two successive stages of SC

Push/pull view:
Pull processes: execution is initiated in response to a customer order (Reactive) Push processes: execution is initiated in anticipation of customer orders (Speculative)

Cycle View of Supply Chains

Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor
Manufacturing Cycle

Manufacturer
Procurement Cycle

Supplier

 Customer Order Cycle

Customer arrival Customer order entry Customer order fulfillment Customer order receiving Retail order trigger Retail order entry Retail order fulfillment Retail order receiving Order arrival from the distributor, retailer, or customer Production scheduling Manufacturing and shipping Receiving at the distributor, retailer, or customer

Replenishment Cycle

Manufacturing Cycle

Procurement cycle: to start the production

Push/Pull View of Supply Chains

Procurement, Manufacturing and Replenishment cycles
Customer Order Cycle

PUSH PROCESSES

PULL PROCESSES

Customer Order Arrives

SC is about achieving Strategic Fit

Competitive strategy: defines the set of customer needs a firm seeks to satisfy through its products and services Supply chain strategy: Determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product Consistency and support between supply chain strategy, competitive strategy is important

Achieving Strategic Fit

Strategic fit:
Consistency between customer priorities of competitive strategy and supply chain capabilities specified by the supply chain strategy Competitive and supply chain strategies have the same goals A company may fail because of a lack of strategic fit or because its processes and resources do not provide the capabilities to execute the desired strategy

Example of strategic fit -- Dell

How is Strategic Fit Achieved

Step 1: Understanding the customer and supply chain uncertainty Step 2: Understanding the supply chain Step 3: Achieving strategic fit

Achieving Strategic Fit

Understanding the Customer
Lot size Response time Service level Product variety Price Innovation

Implied Demand Uncertainty

Understanding the Supply Chain

Supply chain responsiveness -- 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

There is a cost to achieving responsiveness Supply chain efficiency: cost of making and delivering the product to the customer Increasing responsiveness results in higher costs that lower efficiency

Achieving Strategic Fit

All functions in the value chain must support the competitive strategy to achieve strategic fit Two extremes: Efficient supply chains and responsive supply chains Two key points
there is no right supply chain strategy independent of competitive strategy there is a right supply chain strategy for a given competitive strategy

The primary drivers for achieving strategic fit in Supply Chain Strategy
Corporate Strategy

Supply Chain Strategy Efficiency Responsiveness

Facilities

Inventory

Transportation

Information

Production

The role of Production and sourcing

The performance of SC is very much dependent on production i.e., what is produced, how it is produced and when it has to produced Sourcing: Determine the set of suppliers / subcontractors to be used, and develop the contracts that will govern the relationship

The role of Inventory

Primary inventory components:
Raw Material Work In Process (WIP) Finished Goods

It exists because of the finiteness of the production and transportation rates Types of Inventory
Cycle Inventory: It is incurred in an effort to control the impact of fixed ordering and set-up costs. Safety Inventory: It is used to deal with the randomness in the experienced demand; it is set so that it meets the supply chain to meet some service level (i.e., control the probability that no stock-out will be experienced at any replenishment cycle). Seasonal Inventory: It is used to help the supply chain deal with predictable variability in demand. Opportunistic Inventory: Takes advantage of bargains..

The role of Facilities

Facilities: The locations where inventory is
processed and transformed into another state (manufacturing) or staged before being shipped to the next stage (warehousing) Location
Proximity to the customer Proximity to resources Access to markets (ability to circumvent quotas and tariffs) Infrastructure Operational costs and tax incentives

Capacity
Capital cost vs. responsiveness

The role of Transportation

Transportation: The SC element that moves product between its different stages. Primary decisions: Mode (s) of Transportation Air: fastest but most expensive Truck: Relatively quick, inexpensive and very flexible mode Rail: Inexpensive mode to be used for large quantities Ship: Slowest but often the most economical choice for large overseas shipments Pipeline: Used (primarily) for oil and gas Electronic transportation: for goods as music and movies Route and Network Selection Inhouse or Oursource

The role of Information

Information exchange is necessary for the most extensive modes of coordination sought in contemporary supply chains. It allows the supply chain to improve simultaneously its efficiency and responsiveness. Information-related decisions Push vs. pull Extent and modes of information sharing and coordination Forecasting and Aggregate Planning schemes Pricing and revenue management policies Enabling Technologies: Electronic Data Interchange (EDI): Enables paperless transactions, primarily for backend operations of the SC. The Internet and the WWW. Enterprise Resource Planning (ERP): enables transactional tracking and global visibility of information in the SC. Supply Chain Management (SCM) software: decision support tools.

Obstacles to Achieving strategic fit

Increasing variety of Products Decreasing product life cycles Highly demanding customers Fragmentation of supply chain ownership Globalizations Difficulty in Executing new strategies