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Prof. Himanshu Rathore

Office: 240, Chintan (Faculty Block)
Mail id: [Link]@[Link]
Extension: 6640 (Office)
Phone: +91-8053519834

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What are supply chains and
how are they different from
value chains?

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 Supply chains are:
1. Complex
2. Multi-layered/ Upstream and downstream echelons
Look at the 3. They interact with each other and form a network
supply 4. Except for the end customer, every node is simultaneously
chain a service provider and a customer.
figure and
observe its
features
 1. What are the types of flows that you can see?
Look [Link] figure
What andcomment
can you observeabout
the type of flowsof
the direction
flows?
3. What is indicated by the circular arrows?
 M01_CHOP3952_05_SE_C01.QXD 10/10/11 5:15 PM Page 3

1. Product (flows from upstream to downstream)

Flows in a Supply Chain 2.
3.
Information (flows in both directions)
Money (usually flows from downstream to customer)

Chapter 1 • Understanding the Supply

How about reverse

supply chains?
Supplier Manufacturer Distributor Retailer Customer

Supplier Manufacturer Distributor Retailer Customer

Supplier Manufacturer Distributor Retailer Customer

FIGURE 1-2 Supply Chain Stages

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Each stage in Figure 1-2 need not be present in a supply chain. As discussed in Chapter 4, the appro-
priate design of the supply chain depends on both the customer’s needs and the roles played by the
stages involved. For example, Dell has two supply chain structures that it uses to serve its customers.
For its corporate clients and also some individuals who want a customized personal computer (PC),
Dell builds to order; that is, a customer order initiates manufacturing at Dell. For these customers, Dell
 Definition: Supply chain management

Definition: Supply chain management aims to integrate all

supply chain partners/firms/echelons across all functions
such that they operate cohesively and coherently towards
maximizing supply chain profits/surplus.
“All ships should sail in the same direction”---(Ring a bell?)

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Objective of a Supply Chain

ü Maximize supply chain surplus

ü Supply Chain Surplus
= Customer Value – Supply Chain Cost
Consumer surplus=Customer value-Price of the product (held
by the consumer)
(Supply chain surplus-Consumer surplus) is the margin left for
distribution amongst all echelons of the supply chain

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Supply chains: A philosophical perspective

Supply chains are interlinked

business entities. Interlinkages
are characterised by
coordination (supply chain
decisions), negotiation (supply
chain revenues) and a common
goal for value creation.
Metaphorically speaking,
“Stronger the link, the better it is
for the supply chain”

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Historical evolution of supply chains

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Historical Evolution “A customer can have any colour so long as
it is black”-----By Henry Ford on Model-T car

First Revolution (1920s) : Vertically integrated firms

offering low variety of products (Ford Motor Co.)
ØSingle product, no varieties
ØVertical integration (??)

NOTE:
Vertical integration: X is a car manufacturer. Y is a supplier to X and supplies windshield parts. X
buys Y. This is vertical integration. Y is upstream and X is downstream in supply chain

Horizontal integration: X is a car manufacturer. Z is another car manufacturer. They are competitors.
X buys Z. This is horizontal integration. X and Z are at the same level of supply chain.

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 Vertically Integrated
To get the business
units and supply
chain functions
under the control of
one company.

Pros: Coordination
becomes easier
Cons: Less agility
(can’t change supply
chain partners
frequently) 12
Historical Evolution

Second Revolution (1970s): Supply chains offering wide

variety of products by building extensive supplier
networks based on long-term relationships (Toyota Motor
Co., Honda). Suppliers were usually placed closed to the
manufacturer. (Think of Gurgaon in the early 1990s!)
ØWide Variety
ØLong-term relationship with suppliers (Keiretsu system)

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 Historical Evolution

Third Revolution (2000s): Virtually integrated Global

supply networks built upon electronic links/ internet and
web-based platforms. This led to the stage of global supply
chains. (Dell Computer, Apple, Bharti Airtel)
ØCustomized products
ØMedium-term relationship with suppliers (Cisco)
ØSuppliers focus on technology and cost leadership
The times of supply
chain disruptions

Taiwan Semiconductor manufacturing company (vicariously controlled by China)

and Nvidia (a US firm) collectively control the world’s supply of semiconductor-
based GPU (graphic processing products) required to build any graphical
interface. With the rising tensions between US and China, such virtual supply
chain networks are disintegrating.
Federated Supply Chain

Ø In a Federation, guidance
comes from key firm that has
a broader responsibility
across the chain.
Ø Such a supply chain can be
seen as a conductor
orchestrating other musicians.
The conductor coordinates
other supply chain partners.
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The Orchestrator

The Orchestrator is responsible for coordinating functions

across the supply chain. This firm gives a generic routine which
has 10-20 % leeway for localised adaptation in various markets.
In some cases, the OEM or brand owner play this role.

E.g. Apparel Brand owner which:

ü Doesn’t own factories
ü Directs other supply chain members.
ü Carries liability insurance to address warranty, accidents,
damage and injury 18
The Orchestrator

Ø Orchestrator (The dominant or coordinating firm) could

have various objectives: Low cost, less response time or a
mix of low cost on supplier side and lesser response time on
the distribution side.
Ø Orchestrator is primarily a consultant who has a stake in
the business. Knowledge-based contribution to the supply
chain.

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Logistics terminology in supply chains Take your own product,
pack it and deliver it to the
receiver using your own
First Party Logistics- 1PL vehicle.

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Second Party Logistics- 2PL

Take your product and pack it. Then give the product
to a carrier which will deliver the packaged product
to the receiver using its own vehicle.

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 Third Party Logistics- 3PL

Take your product and give it to X to have it delivered to the

receiver.
X will pack it. Then X will give to a carrier service Y to have
the product shipped to the receiver. X does not own Y. X may
have its own assets in the form of warehouses etc. to store/
handle the product for some time.
Responsibility lies with X. X is 3PL.

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Fourth Party Logistics- 4PL

Ø 4PL oversees entire supply chain.

Ø Unlike 3PL, 4PL strictly does not own
assets. Assumes the role of logistics
consultant for the entire SC, namely
supplier and distribution side.
Ø 4PL is one-stop solution for the firm with
regard to all logistics inquiries. 3PL is
atleast two-stop solution (1 for supplier to
manufacturer & 1 for manufacturer to
retailer).
Ø 4PL advises on SC strategy (cost versus
response time), chooses shipping solutions
accordingly. 3PL may want to maximise
the usage of its own assets.
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Fourth Party Logistics- 4PL

Ø 4PLs have long-term partnership with the

firm. 3PLs have 1-3 years contract with the
firm.
Ø 4PL shares SC/ logistics risk with the
firm. 3PL doesn’t. Its relationship is
transaction-based.
Ø 4PL advises on IT-based information
transfer in the SC. Focusses on
innovation.
Ø 4PL is a company dealing with supervision
of supply chain activities of the client,
performing management of 3PLs and
providing consultancy services for the
development of internal logistics systems.
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Fifth Party Logistics- 5PL

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5PL primarily focusses on innovation and technology. I see it primarily as a branding exercise by the
better 4PL providers. They are usually associated with deployment of latest technology. The focus of
5PL is on supply chain networks as against supply chains.
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 Future Opportunities:
Technology is revamping SCM as it unfolds

> With the onset of COVID-19, warehouses are transformed by the use of technology to
operate them without the need for human intervention (Lights-out warehouse)
Use of
1. Smart glasses technology for quicker placement and retrieval of order.
[Link]

2. Increased used of Swarm AGV (automated guided vehicle) robots - Autonomous vehicles
that bring items to a picking station based on instructions from the order-flow software.

[Link]

Ø 3-D printing for reduced reliance on various parts and suppliers.

Ø Blockchain technology for tracking provenance of supply chain products (counterfeit drugs
in Africa, cannabis in Canada), reduction of bullwhip effect in supply chains by giving access
to immutable information at the sanctioned levels of supply chain echelons.

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Supply Chain Decisions

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Decision Phases

1. Supply chain strategy or design

ü How to structure the supply chain over the
next several years
2. Supply chain planning
ü Decisions over the next quarter or year
3. Supply chain operation
ü Daily or weekly operational decisions

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 Strategy or Design

• Strategic decisions:
1. Choice of the product and its characteristics to cater
customer demand, characteristics, market segment etc.
2. Make or Outsource the supply chain function
3. Determine the locations and capacities of facilities
4. Modes of transportation
Supply Chain Planning

Tactical/ Planning decisions:

ØWhich markets will be supplied from which locations
ØPlanned buildup of inventories to meet the demand in
the forthcoming season.
ØProcuring raw materials, supplies etc. from suppliers
ØTiming and size of market promotions

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Supply Chain Operation

Operational decisions:
1. Inventory management
2. Updating bill of materials
3. Forecasting demand
4. Quality control and monitoring

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 Supply chains consist of push and pull
phases: Echelons which fall in “push”
category are the ones which react
according to anticipation of demand
Process Views of a Supply Chain whereas echelons which fall in “pull”
category are the ones which react to
demand after it is realized.

Cycle View Push/Pull View

Multiple cycles exist simultaneously.

Examples:
1. Customer replenishment cycle (between customer and retailer)
2. Raw material procurement cycle (between supplier and manufacturer)
3. Distribution channel cycle (between manufacturer and distributors)
4. Stock replenishment cycle (between distributor and retailer)
5. Customer care/complaint redressal cycle (between customer and company executive)
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 Art Manuscript FG_01_003.eps
File Name: FG_01_003.eps NEW - Re-render as close as possible Across 1 Page
Creator: NEW - Make new and different. Donʼt copy Across Spread
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Resolution: Research new photo Minor
Secure Exact Image; author to permission Triple 1 col
ISBN: 0-13-608040-5 Other ______________ Triple 2 col
Author(s): Chopra / Meindl Other_______
Title: Supply Chain Management: Strategy, Planning,
and Operation
Edition: 4

Cycle View
of Supply
Chain Processes

Pg. 9 -
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 Push/Pull View of SC Processes

Push
Pull
(Speculative: driven by
(driven by demand)
anticipated demand)

Depends on the timing of their execution

relative to customer demand.
Characteristics of Push and Pull processes
Push processes Pull processes
• Maximize utilization of • Responding to the demand in
resources, raw materials and less time is the objective.
infrastructure at least cost. Utilization of resources is not as
• Demand is anticipated efficient.
• Pricing is in accordance with • Demand is known with certainty
cost leadership strategy. • Pricing is in accordance with
• High levels of average inventory product differentiation
• Low levels of average inventory
goal of the replenishment cycle is to ensure product availability when a customer order arrives.
All processes in the replenishment cycle are performed in anticipation of demand and are thus
push processes. The same holds true for processes in the manufacturing and procurement
cycles. In fact, raw material such as fabric is often purchased six to nine months before
customer demand is expected. Manufacturing itself begins three to six months before the point
of sale. The processes in the L. L. Bean supply chain break up into pull and push processes, as
Push/Pull View of SC Processes
shown in Figure 1-6.

Push/Pull Boundary

Decoupling point

Push Processes Pull Processes

Process Process Process Process Process Process Process

1 2 3 k k"1 N!1 N

Customer Order Arrives

FIGURE 1-5 Push/Pull View of the Supply Chain
Supply Chain Integration:
Push/Pull Strategies
Examples:
Asian paints: made
paints in basic color and
customized the
inventory upon
realization of demand
(Manufacturing: Push;
Dsitribution: Pull)

Zara apparels: Sweaters

of different sizes made in
one basic color to be
kept in inventory stock.
Upon realization of
demand, they are
colored and sold.

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 Supply Chain Performance Measures/Objectives

Minimize physical Minimize the costs of

costs market mediation
Supplementary reading:
“What Is the Right Supply Chain for Your Products?” HBR Product number: 8509-PDF-ENG
Factors such as:
ØLead time of delivery, demand uncertainty, inventory turnover etc.
determine
I. Responsiveness
II. Efficiency
 Cost-Service Relationship

The marginal cost of providing service

Cost of product availability
rises exponentially. That is, it is less
costly to increase service from 98% to
98.5% as compared to 98.5% to 99%

Product availability
 Ø Revenue (R) There is an optimal
level of service level
Impact of Service Level on Ø Costs (C) which
revenue.
maximises
Anything
Ø Profit (=R-C) above that level or
below that level will
result in sub-optimal
SC performance.

Why does the revenue go down as the service

level increases?

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 Webvan placed a $1 billion order with Bechtel
to build its warehouses, and bought a fleet of
delivery trucks.
It promised to deliver products to customers'
homes within a 30-minute window of their
choosing.

At its peak in 2000, Webvan had

$178.5 million in sales but it also had
$525.4 million in expenses. It filed for
bankruptcy in 2001.
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 Is supply chain management worth the hype?

“Only 7% companies are

effectively managing their
supply chains. However,
these companies are 73%
more profitable than their
competitors”
A Deloitte & Touche Study

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Future of supply chains in the wake of uncertainties and
risks (Unknown-Unknowns: COVID-19)
Approach 1: Scenario planning in supply chains: The art of constructing
plausible futures.
[Link]
Supply chain managers can take a sequential approach to delineating
various supply chain scenarios:
1. Classify focal decisions (which are directly under the control of company)
2. Identify local factors (which can be influenced but are not under direct
control. E.g. supplier processes)
3. Take account of external driving forces (which can neither be influenced
nor controlled. E.g. inflation, unstable political situations, rising crude oil
prices etc.)
Conduct a joint exercise/simulation with various stakeholders in the light of
plausible external events.
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• Account two most extreme external driving
forces.
• Write the extreme outcomes of each
uncertainty on the two ends of the axes.
• For each quadrant, analyze how the two
extreme uncertainties’ outcomes will
interact when considered simultaneously,
within the context of the likely truths
identified
• Class exercise: Plan and plot a scenario
considering public infrastructure (Road
transport) and crude oil prices as the two
extreme uncertainties in the referred
quadrant on the right for a Supply chain/
logistics manager. Decision: Centralized
versus de-centralized

• After completing the matrix, make

contingency plans for all scenarios
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depending upon their likelihood.
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Approach 2: McKinsey uses Altman z-scores for determining supply
chain risk. Altman z-scores came about in 2009 after the financial
crises of Lehman brothers for determining the financial solvency of
banks and financial institutions. McKinsey is using similar adaptation of
that score to determine supply chain risk.
• Likely supply chain disruptions to be caused in the near future:
semiconductors and plastics!.

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CARVER: A tool to determine supply chain
resilience
1. Criticality (C): How essential is the asset to the supply chain
2. Accessibility (A): How easily can it be procured/replaced from alternative
sources
3. Recoverability (R): How quickly the supply chain is likely to recuperate
from a possible disruption in the asset
4. Vulnerability (V): Probability of a possible disruption in the asset
5. Effect/Impact (E): In case of a disruption to the asset, how much of an
impact would be caused to the supply chain
6. Recognizability (R): How quickly is the disruption likely to be noticed?
All the above factors are marked on a score of 1-5 and cumulative CARVER
score is obtained. It helps supply chain managers take decisions considering
various supply chain risks.

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Supply Chains and their increasing exposure
to political choke points!
• Choke point: When countries used businesses as proxies to further their own political
interests.
1. U.S., in an attempt to place sanctions on Iran, pressurises SWIFT (Society for
Worldwide Interbank Financial Communication), the only financial institution based in
Belgium which relays all financial transactions around
rcon nethe
ct world,
ed and coto m
cutploff A
[Link]
twor ks are in te
TAKEAWAY: Supply chain ne
banks.
in th e en ti re su pp ly ch ai n network.
2. U.S. placed curbs
e chon
okeZTE int reverberat
potechnologies es
for providing services to Iran. In retaliation,
ri pp le at on
China placed penalties on Fed Ex.
3. U.S. blacklists Huawei (a Chinese company). Stops providing U.S technology to Huawei
(such as Qualcomm processors) used in smartphones. This move results in huge
backlash from 1200 contractors (U.S. companies) of Huawei. Trump administration
revoked the sanctions.
4. Japan blocked the export of raw materials required for semiconductor manufacturing
to South Korea. Samsung and LG got affected as a result. Hike in prices of smartphones
across the world.

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