Supply Chain Management

Chapter-02
 Managing Chain

introducing


SCM
Prof. Manoj K Srivastava
Operations Management Area
mks [email protected] Management Development Institute-
http://mks507.vistapanel.net Gurgaon
A supply chain consists of the flow of products and services from:
–Raw materials manufacturers
–Intermediate products manufacturers
–End product manufacturers
–Wholesalers and distributors and
–Retailers

Connected by transportation and storage activities, and

Integrated through information, planning, and integration activities

 Supply Chain Management is the task of integrating

organizational units along a supply chain and coordinating

material, information and financial flows in order to fulfill

(ultimate) customer demands with the aim of improving the

competitiveness of a supply chain as a whole.

SCM is a set of approaches –
nTo integrate Suppliers, Manufacturing Centers , Warehouses, Dist.
Centers, Retail Outlets

nMerchandise is produced & distributed

nRight quantities, to right locations, at right time

nAim : To minimize system-wide cost, while satisfying service

level requirements
3rd Tier 2nd Tier 1st Tier 1st Tier 2nd Tier 3rd Tier
Supplier Supplier Supplier Customer Customer Customer

Focal Company
Oil Chemical Cereal
Company Processor Manufacturer
Internal
Upstream Downstream
Flour Cereal Grocery Retail
Farmer Processor Manufacturer Distributor Grocer Consumer

Lumber Corrugated
Supply Chain: Manufacturing Example
Forest Provider Manufacturer
Products and Services
Cash
Information
Demand
Supply
CUSTOMER

CONSUMER

CLIENT
 Imm. Suppliers The Firm Imm. Customer Supply Chain

Extended Supply Chain

2nd Tier 1st Tier 1st Tier 2nd Tier

Suppliers Suppliers The Firm Customer Customer

Ultimate Supply Chain

nth Tier 2nd Tier 1st Tier 1st Tier 2nd Tier nth Tier
Suppliers
…......
Suppliers Suppliers The Firm Customer Customer
…......
Customer
king to create seamless processes within their own four walls. (47%)
The Firm Common
Purchasing Production Marketing
R&D Logistics
Supply
urchasing & focus on integration with first-tier suppliers (34%) Chain
Key Suppliers The Firm
Integration

Some companies house SCM in

marketing & focus on integration
The Firm with key customers. (11%)
Key Customer

Few companies systematically

Key Suppliers
integrate up & downstream (8%) The Firm Key Customer

Suppliers Key Suppliers The Firm Key Customer Customer

Collaboration from suppliers' supplier to customers' customer is a vision not yet fully realized!!!
Rare
UPSTREAM INTERAL DOWNSTREAM

Supply Chain Value Chain Demand Chain

 Supply Chains Components
u The supply chain involves THREE segments:
n UPSTREAM, where sourcing or procurement from external suppliers occur
n INTERNAL, where packaging, assembly, or manufacturing take place
n DOWNSTREAM, where distribution or dispersal take place, frequently by
external distributors.


u movement of information and money and the procedures supporting the movement of a
product or a service.

u Organizations and individuals are also part of the chain

 Supply Chain Flows
Supply chain refers to the flow of materials, information, payments, and services
from raw material suppliers,
through factories and warehouses (Value Chain),
to the final consumer (Demand Chain).
It includes tasks such as purchasing, payment flow, materials handling, production planning & control, logistics &
warehousing, inventory control, and distribution. When it is managed electronically it is referred to as an e-supply chain.

u Supply Chain Flows

n Materials flows are all physical products, new materials, and supplies that flow along
the chain.
n

n Information flows relates to all data associated with demand, shipments, orders,
returns and schedules.
n

n Financial flows include all transfers of money, payments, credit card information,
payment schedules, e-payments and credit-related data.
Supply Chain
Flows
 Customer Customer
requirements From the customer’s perspective – 8% satisfaction satisfaction
100 N
8
20 From the operations
perspective – 90% satisfaction
Product/ service Y N
appropriate? 80 10 N
40 N
Product/ service N Y
Y 1
available? 70 50 10 N
Y
Y 9 1
Meets price and N Y
delivery 20 8
requirements? 10
Customer N
orders? Y
10 1

Produced as Y N
promised? 9
1

Taking a customer perspective of supply performance Received as

promised? 8
Y

can lead to very different conclusions

 Customer
relationshi
p Customer
Returns management service
management management

Product
development Supply Chain Management
– Eight Processes Demand
& management
commerciali
sation

Supplier
relationshi Order
p Manufacturi fulfillment
management ng flow
management
 Actual Inputs
Within the firm

Supplier Performance =
INPUT Expected Inputs
Value Added EFFICIENCY
Process
Input Used
Utilization =
OUTPUT Input Available
EFFECTIVENES
S Actual Outputs
PERFORMANC Productivity =
Inputs Used
E
Productivity Actual Outputs
Performance =
Outside the firm

OUTCOME Planned Outputs

Actual Inputs
Customer Satisfaction =
IMPACT EFFICACY Expected Inputs

Source: Mentzer, J. T., Supply Chain Management, Response Books, New Delhi, 2001
 Automotive
Supply Chain
Porter’s
Value
Chain
Model
Historical Evolution of the Supply Chain
First Revolution: (Ford Motor Co. 1910–1920)
ØSingle product, that is, no product variety
ØVertical integration
Second Revolution: (Toyota Motor Co. 1960–1970)
ØWide Variety
ØLong-term relationship with suppliers
Third Revolution: (Dell Computers 1995–Current)
ØCustomized products
ØMedium-term relationship with suppliers
ØSuppliers have to maintain technology and cost
leadership
 Major Issues in SCM
1.Location
2.Transportation and Logistics
3.Inventory and Forecasting
4.Marketing and Channel Restructuring
5.Sourcing and Supplier Management
6.Information and Electronic Mediated Environments
7.Product Design and New Product Introduction
8.Service and After Sales Support
9.Reverse Logistics and Green Issues
10.Outsourcing and Strategic Alliances
11.Metrics and Incentives
12.Global Issues.

Source: Pyke, D.F., A Framework for Teaching Supply Chain Management, 2000
 Views of Supply Chain

u Cycle view: processes in a supply chain are divided into a series of

cycles, each performed at the interfaces between two successive
supply chain stages


u Push/pull view: processes in a supply chain are divided into two

categories depending on whether they are executed
n in response to a customer order (pull)
n in anticipation of a customer order (push)
 Cycle View of Supply Chains
uEach cycle occurs at the Customer
interface between two
successive stages Customer Order Cycle
nCustomer order
cycle ( customer - Retailer
retailer )

predictability of orders
nReplenishment Replenishment Cycle
cycle ( retailer -
distributor ) Distributor
nManufacturing

size of order
cycle Manufacturing Cycle
( distributor -
manufacturer ) Manufacturer
nProcurement cycle
( manufacturer - Procurement Cycle
supplier ) Supplier
Cycle view clearly defines processes involved and the owners of each
process .
Specifies the roles and responsibilities of each member and the desired
◆In Push systems, work release is based on downstream
demand forecasts
–Keeps inventory to meet actual demand
–Acts proactively Making generic job application resumes today

◆ Produces using a forecast of sales and moves them to points of sale where they are
stored as finished goods inventory.
◆
◆In Pull systems, work release is based on actual demand or
the actual status of the downstream customers
–May cause long delivery lead times
–Acts reactively Making a specific resume for a company after talking to the recruiter

»
produces only in response to customer demand signals
 Push/Pull View of Supply Chains

Procurement, Manufacturing, Replenishment cycles Customer Order cycles

Boundary
Push/Pull
PUSH PROCESSES PULL PROCESSES

Customer Order Arrives

Supply Chain Push-Pull Systems and
Boundaries
 Matching supply chain
strategies with products
 The Foundations of Supply Chain Management

Supply Management Supplier management, supplier evaluation, supplier

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