Managing the
Supply Chain
Course: Strategic Supply Chain and Logistics
Management
07/08/2024 1
What is a Supply Chain?
All stages involved, directly or indirectly, in fulfilling a customer request
Includes manufacturers, suppliers, 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
It also includes movement of information, funds, and
products in both direction
Its more accurate to use the term “supply network” or “supply web”
Figure 1-1 Stages of a Shampoo Supply Chain
Walmart
Wal-Mart
or third
Supermarket
Customer
party DC
Plastic Producer
Sunsilk or other
manufacturer
Chemical
manufacturer
Paper Timber
Tenneco
Manufacturer Industry
Packaging
Typical Supply Chain stages includes customers, retailers, distributors, manufacturers and
suppliers (all stages may not be included in all supply chains)
A Supply Chain for Bread
1-4
Figure 1-2 Supply Chain Stages
Supplier Manufacturer Distributor Retailer Customer
Supplier Manufacturer Distributor Retailer Customer
Supplier Manufacturer Distributor Retailer Customer
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Extended Supply Chain
Supplier’s Direct Final
Producer Distributor
Supplier Supplier Customer
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Flows in a Supply Chain
Information
Product
Customer
Funds
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Flows in a Supply Chain
Information – Production schedules, promotions planned, delivery status,
forecasts, order status, etc.
Product – Finished goods, components, specialized operations, defective goods,
services, etc.
Funds – Payment, volume discount, rebates, surcharges, etc.
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The Objective of a Supply Chain
The objective of every supply chain is to maximize overall supply chain value created.
Supply Chain Profit is shared across all stages in SC.
Supply Chain Success is measured by total supply chain profitability, not profits at an
individual stage.
Value (supply chain surplus) – the difference between what the product is worth to the
customer, and the costs incurred by the chain in providing the product.
Profitability – Revenue generated from the customer minus the overall cost across the
supply chain.
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The Objective of a Supply Chain (c.)
Example: Dell receives $2000 from a customer for a
computer (revenue)
• Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
• Difference between $2000 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
• Supply chain success should be measured by total supply chain profitability, not profits at an individual stage
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The Objective of a Supply Chain (c.)
Sources of supply chain revenue: the customer.
Sources of supply chain cost: flows of information, products, facility,
transportation or funds between stages of the supply chain.
Supply chain management is the management of flows between and among
supply chain stages to maximize total supply chain profitability.
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Decision Phases of a Supply Chain
• Supply Chain Strategy or Design
• Supply Chain Planning
• Supply Chain Operation
Strategy
Planning
Operation
Supply Chain Strategy or Design
Structure of the supply chain
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
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Supply Chain Planning
A set of policies that govern short-term operations
Fixed by the supply chain design
Starts with a forecast of demand for 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
Must consider demand uncertainty, exchange rates, competition over the time horizon
Supply Chain Operation
Time horizon is weekly or daily.
Decisions about individual customer orders.
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
A Supply Chain is a sequence of processes and flows that take place within and
between different stages and combine to fill a customer need for a product.
Cycle view: Supply chain is a series of cycles, each performed at the interfaces
between two successive supply chain stages.
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.
Cycle View of a Supply Chain
Customer
Customer Order Cycle • Customer order cycle
Retailer (customer-retailer)
Replenishment Cycle • Replenishment cycle (retailer-
Distributor distributor)
Manufacturing Cycle • Manufacturing cycle
Manufacturer (distributor-manufacturer)
Procurement Cycle • Procurement cycle
Supplier (manufacturer-supplier)
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Push/Pull View of Supply Chain Processes
Push/pull view: processes in a supply chain are divided into two categories:
Push/pull boundary separates push processes from pull processes
Pull: execution is initiated in response to a customer order (reactive)
Push: execution is initiated in anticipation of customer orders (speculative)
Pull Systems are Leaner.
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Push/Pull View of Supply Chains
Procurement, Customer Order
Manufacturing and Cycle
Replenishment cycles
PUSH PROCESSES PULL PROCESSES
Customer
Order Arrives
Example:
The paint industry is the perfect example of setting the Push-Pull boundary in the SC
process.
Push:
Paint companies used to manufacture the base, mixture the colors and pack them in the
manufacturing plant. After preparing them they used to distribute it into the stores.
(uncertain demand and difficulty in matching demand-supply)
Pull:
The supply chain was restructured for paint industry by mixing the color in retailer’s
point. The color mixing part was shifted from push to pull.
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Supply Chain Macro Processes in a Firm
• All supply chain processes (as discussed in the two process views) can be
classified into the following three macro processes –
Customer
• Customer Relationship Management (CRM)
• Internal Supply Chain Management (ISCM)
• Supplier Relationship Management (SRM)
• Integration among the above three macro processes is critical for effective
and successful supply chain management
Supply Chain Macro Processes In a Firm
Thank You!
