Rizwan Khan

Assistant Professor
Email: [email protected]
Supply Chain Management

CHAPTER :2
Understanding the Supply Chain
1
 Learning Objectives

• Discuss the goal of a supply chain, and explain the impact of supply chain
decisions on the success of a firm.

• Identify the three key supply chain decision phases, and explain the significance
of each one.

• Describe the cycle and push/pull views of a supply chain.

• Classify the supply chain macro processes in a firm.

 Opportunities in Sectors
Manufacturing Industries
Industrial and Consumer Products

Merchandising
Firms Service Sectors
Wholesaler, Distributor, Banks, Hospitals, IT Sectors
Stockist and Retailer

Transportation Careers in Logistics

Industries L&SCM Firms
Freight and Passenger Warehousing, Dedicated
Careers, C&F etc.

Consulting Organisations Educational Establishments

Strategy, Technology, Business Universities, Institutions, Training Firms
Government Organisations
Defence, Telecom, Postal, Railways
 What is a Supply Chain?
• All stages involved, directly or indirectly, in fulfilling a customer
request.

• Includes, suppliers, manufacturers, transporters, warehouses, retailers,

and customers.

• Within each company, the supply chain includes all functions involved
in fulfilling a customer request (product development, marketing,
operations, distribution, finance, customer service).

• Customer is an integral part of the supply chain

• A supply chain is dynamic and involves the constant flow of
information, product and funds between different stages
 What is a Supply Chain?
• Typical supply chain stages: customers, retailers, distributors,
manufacturers, suppliers.
 Flows in a Supply Chain
All stages may not be present in all supply chains (e.g., no
retailer or distributor for Dell).

Figure 1-2
 upstream Flows in a Supply Chain

supplier

supplier

supplier

manufacturer distributer retailer customer

supplier
downstream
supplier

supplier

fig: an example of supply chain.

06/01/2021
 What is the goal of Supply Chain?
Right Product  At Right Place

Right Quantity At Right Time

Right Quality At Right Value

 The Objective of a Supply Chain
• Maximize overall value created
• Example: A customer purchases a wireless router from eBay for $60 (revenue).

• Supply chain incurs costs (information, storage, transportation, components,

assembly, etc.).

• Difference between $60 and the sum of all of these costs is the supply chain profit.

• Supply chain profitability is total profit to be shared across all stages of the supply
chain.

• Success should be measured by total supply chain profitability, not by profits at an

individual stage.

• Customer is the only source of revenue.

 The Objective of a Supply Chain

• Sources of cost includes flows of information, products, or funds between

stages of the supply chain.

• Effective supply chain management is the management of flows between

and among supply chain stages to maximize total supply chain surplus.
 Importance of Supply Chain Decisions
• Wal-Mart, $1 billion sales in 1980 to $408 billion in 2010

• Seven-Eleven Japan, ¥1 billion sales in 1974 to ¥3 trillion in 2009

• Borders, $4 billion in 2004 to $2.8 billion in 2009

• Dell, $56 billion in 2006, adopted new supply chain strategies

 Decision Phases of a Supply Chain
• Supply chain strategy or design

 How to structure the supply chain over the next several years

• Supply chain planning

 Decisions over the next quarter or year

• Supply chain operation

 Daily or weekly operational decisions

 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.
 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

• Planning decisions:

 Which markets will be supplied from which locations

 Planned buildup of inventories

 Subcontracting, backup locations

 Inventory policies

 Timing and size of market promotions

 Supply Chain Planning
• Must consider in planning decisions—demand uncertainty, exchange
rates, competition over the time horizon
 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).

 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).
Cycle View of Supply Chain Processes

Figure 1-3
 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: Here execution is initiated in response to a customer order (reactive).

• Push: Here execution is initiated in anticipation of customer orders

(speculative).

• Push/pull boundary separates push processes from pull processes.

 Process View of a Supply Chain
Push versus pull based supply chain models:
Push model:

Supplier Manufacturer Distributer Retailer Customer

Supply to production based inventory based stock based Purchase

Forecast on forecast on forecast on forecast Wt. is available

Pull model:

Supplier Manufacturer Distributer Retailer Customer

Supply to produce to order automatically automatically customer

Order replenish replenish stock orders
 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 view

 Dell
 L.L.Bean

• The relative proportion of push and pull processes can have an impact on
supply chain performance.
 Push/Pull View—L.L. Bean

Figure 1-6
 Push/Pull View—Dell

Figure 1-7
Difference between push and pull view in supply chain
No
Push view Pull view
1. Execution initiate in anticipation of Execution initiate in response to
customer order customer order

2. Demand is uncertain Demand is certain

3. Speculative process Reactive process

4. High complexity Low complexity

5. Focus on resources allocation Focus on responsiveness

6. Long lead time Short lead time

7. Help in supply chain planning Helps in order fulfillment

8. Objective is to minimize the cost Objective is to maximize the service

 Supply Chain Macro Processes
• Supply chain processes discussed in the two views can be classified
into:
 Customer Relationship Management (CRM)

 Internal Supply Chain Management (ISCM)

 Supplier Relationship Management (SRM)

• The three macro processes manage the flow of information, product,

and funds required to generate, receive, and fulfill a customer request.

• Integration among the above three macro processes is critical for

effective and successful supply chain management.
 Supply Chain Macro Processes

Figure 1-8
 Examples of Supply Chains

• Gateway and Apple

• Zara

• Toyota

• Amazon
 Gateway and Apple
• Why did Gateway choose not to carry any finished-product inventory at its
retail stores? Why did Apple choose to carry inventory at its stores?
• Should a firm with an investment in retail stores carry any finished-goods
inventory? What are the characteristics of products that are most suitable to
be carried in finished-goods inventory? What characterizes products that
are best manufactured to order?
• How does product variety affect the level of inventory that a retail store
must carry?
• Is a direct selling supply chain without retail stores always less expensive
than a supply chain with retail stores?
• What factors explain the success of Apple retail and the failure of Gateway
country stores?
 Zara
• What advantage does Zara gain against the competition by having a very
responsive supply chain?
• Why does Zara source products with uncertain demand from local
manufacturers and products with predictable demand from Asian
manufacturers?
• What advantage does Zara gain from replenishing its stores multiple times
a week compared to a less frequent schedule? How does the frequency of
replenishment affect the design of its distribution system?
• Do you think Zara’s responsive replenishment infrastructure is better suited
for online sales or retail sales?
 Toyota

• Where should plants be located, what degree of flexibility and what capacity
should each have?

• Should plants be able to produce for all markets?

• How should markets be allocated to plants?

• What kind of flexibility should be built into the distribution system?

• How should this flexible investment be valued?

• What actions may be taken during product design to facilitate this flexibility?
 Amazon.com
• Why is Amazon building more warehouses as it grows? How many
warehouses should it have and where should they be located?
• What advantages does selling books via the Internet provide over a
traditional bookstore? Are there any disadvantages to selling via the
Internet?
• Should Amazon stock every product it sells?
• What advantage can bricks-and-mortar players derive from setting up an
online channel? How should they use the two channels to gain maximum
advantage?
• What advantages/disadvantages does the online channel enjoy in the sale
of shoes (diapers) relative to a retail store?
• For what products does the online channel offer the greater advantage
relative to retail stores? What characterizes these products?
 Gopaljee

• How can Gopaljee’s supply and distribution model be extended to other

business lines in the Indian and South Asian context?

• What all socio-economic features of South Asian societies can be

identified as the foundations for building sustainable supply chains?

• How can the existing distribution channels in the South Asian region be
transformed to maximize the value delivered to the customer?

• How can such indigenously developed SCM models integrate with and
expand into global supply chains?
 Summary of Learning Objectives
• Discuss the goal of a supply chain and explain the impact of supply
chain decisions on the success of a firm.

• Identify the three key supply chain decision phases and explain the
significance of each one.

• Describe the cycle and push/pull views of a supply chain.

• Classify the supply chain macro processes in a firm.

Thanks