Supply Chain
Management
Chapter 1
Understanding the Supply Chain
1
Outline
What is a Supply Chain?
Decision Phases in a Supply Chain
Process View of a Supply Chain
The Importance of Supply Chain Flows
Examples of Supply Chains
2
What is a Supply Chain?
All stages involved, directly or indirectly, in
fulfilling a customer request
Includes manufacturers, suppliers,
transporters, warehouses, retailers,
customers
Within each company, the supply chain
includes all functions involved in fulfilling a
customer request (product development,
marketing, operations, distribution, finance,
customer service)
3
Stages of a Detergent Supply Chain
Timber Paper Tenneco
Company Manufacturer Packaging
Wal-Mart
P&G or Other Wal-Mart
Or Third Customer
Manufacturer Store
Party DC
Chemical
Manufacturer
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What is a Supply Chain?
Customer is an integral part of the supply chain
Includes movement of products from suppliers to
manufacturers to distributors, but also includes
movement of information, funds, and products in
both directions
Probably more accurate to use the term “supply
network” or “supply web”
Typical supply chain stages: customers, retailers,
distributors, manufacturers, suppliers
All stages may not be present in all supply chains
(e.g., no retailer or distributor for Dell)
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What is a Supply Chain?
Supplier Manufacturer Distributor Retailer Customer
Supplier Manufacturer Distributor Retailer Customer
Supplier Manufacturer Distributor Retailer Customer
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Flows in a Supply Chain
Information
Product
Customer
Funds
7
The Objective of a Supply Chain
Maximize overall value created
Supply chain value: difference between what
the final product is worth to the customer and
the effort the supply chain expends in filling the
customer’s request
Value is correlated to supply chain profitability
difference between revenue generated from the
customer and the overall cost across the supply
chain
8
Key Point
Supply chain design, planning, and operation
decisions play a significant role in the
success or failure of a firm.
9
Decision Phases in a Supply Chain
Supply chain strategy or design
Supply chain planning
Supply chain operation
10
Supply Chain Strategy or Design
Decisions about the structure of the supply chain
and what processes each stage will perform
Strategic supply chain decisions
Locations and capacities of facilities
Products to be made or stored at various locations
Modes of transportation
Information systems
Supply chain design must support strategic
objectives
Supply chain design decisions are long-term and
expensive to reverse – must take into account
market uncertainty
11
Supply Chain Planning
Definition of a set of policies that govern
short-term operations
Fixed by the supply configuration from
previous phase
Starts with a forecast of demand in the
coming year
12
Supply Chain Planning
Planning decisions:
Which markets will be supplied from which
locations
Subcontracting, backup locations
Inventory policies
Timing and size of market promotions
Must consider in planning decisions demand
uncertainty, exchange rates, competition over
the time horizon
13
Supply Chain Operation
Time horizon is weekly or daily
Decisions regarding individual customer orders
Supply chain configuration is fixed and operating
policies are determined
Goal is to implement the operating policies as
effectively as possible
Allocate orders to inventory or production, set order
due dates, generate pick lists at a warehouse,
allocate an order to a particular shipment, set delivery
schedules, place replenishment orders
Much less uncertainty (short time horizon)
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Process View of a Supply Chain
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
Push/pull view: processes in a supply chain
are divided into two categories depending on
whether they are executed in response to a
customer order (pull) or in anticipation of a
customer order (push)
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Cycle View of Supply Chains
Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
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Cycle View of a Supply Chain
Each cycle occurs at the interface between two
successive stages
Customer order cycle (customer-retailer)
Replenishment cycle (retailer-distributor)
Manufacturing cycle (distributor-manufacturer)
Procurement cycle (manufacturer-supplier)
Cycle view clearly defines processes involved and
the owners of each process. Specifies the roles and
responsibilities of each member and the desired
outcome of each process.
17
Customer Order Cycle
Involves all processes directly involved in
receiving and filling the customer’s order
Customer arrival
Customer order entry
Customer order fulfillment
Customer order receiving
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Customer Order Cycle
Retailer markets customer returns
product reverse flows to
Retailers
customer places Customer
order receives supply
Retailer receives Retailer supplies
order order
19
Replenishment Cycle
All processes involved in replenishing retailer
inventories (retailer is now the customer)
Retail order trigger
Retail order entry
Retail order fulfillment
Retail order receiving
20
Manufacturing Cycle
All processes involved in replenishing
distributor (or retailer) inventory
Order arrival from the distributor, retailer, or
customer
Production scheduling
Manufacturing and shipping
Receiving at the distributor, retailer, or
customer
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Procurement Cycle
All processes necessary to ensure that materials
are available for manufacturing to occur according
to schedule
Manufacturer orders components from suppliers
to replenish component inventories
However, component orders can be determined
precisely from production schedules (different
from retailer/distributor orders that are based on
uncertain customer demand)
Important that suppliers be linked to the
manufacturer’s production schedule
22
Push/Pull View of Supply Chains
Procurement, Customer Order
Manufacturing and Cycle
Replenishment cycles
PUSH PROCESSES PULL PROCESSES
Customer
Order Arrives
23
Push/Pull View of
Supply Chain Processes
Supply chain processes fall into one of two
categories depending on the timing of their
execution relative to customer demand
Pull: execution is initiated in response to a
customer order (reactive)
Push: execution is initiated in anticipation of
customer orders (speculative)
Push/pull boundary separates push
processes from pull processes
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Push/Pull View of
Supply Chain Processes
Useful in considering strategic decisions relating
to supply chain design – more global view of how
supply chain processes relate to customer orders
Can combine the push/pull and cycle views
Dell
The relative proportion of push and pull
processes can have an impact on supply chain
performance
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Key point
A push/pull view of the supply chain
categorizes processes based on whether
they are initiated in response to a customer
order (pull) or in anticipation of a customer
order (push).
This view is very useful when considering
strategic decision relating to supply chain
design.
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Supply Chain in a Firm
All supply chain processes can be classified
into
Customer relationship management
Internal supply chain management
Supplier relationship management
The three macro processes manage the flow
of information, product, and funds required to
generate, receive, and fulfill a customer
request.
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Supply Chain Macro Processes
Supplier Firm Customer
Internal
Supplier Customer
Supply
Relationship Relationship
Chain
Management Management
Management
Source Market
Negotiate Strategic Planning Price
Buy Demand Forecasting Sell
Design Collaboration Supply Planning Call center
Supply Collaboration Fulfillment Order Management
Field Service
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Examples of Supply Chains
Dell / Compaq
Toyota / GM / Ford
McMaster Carr / W.W. Grainger
Amazon / Borders / Barnes and Noble
Webvan / Peapod / Jewel
What are some key issues in these supply
chains?
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Summary of Learning Objectives
What are the cycle and push/pull views of a
supply chain?
How can supply chain macro processes be
classified?
What are the three key supply chain decision
phases and what is the significance of each?
What is the goal of a supply chain and what
is the impact of supply chain decisions on the
success of the firm?
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