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Supply Chain ManagementAn Overview

Reference Text 1. Supply Chain Management-Strategy, Planning and Operation By Sunil Chopra and Peter Meindl (Pearson Education, New Delhi) 2. Supply Chain Management-Concepts and Cases By Rahul V. Altekar (Prentice Hall India, New Delhi)

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What is Supply Chain?Supply Chain is a Special Value Chain (?)

A conceptual pipe line connecting source of raw material to end user

The value chain extends in steps called supply chain stages to reach the end user

What flows in this pipeline?

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INFORMATION FLOW

INVENTORY FLOW

CASH FLOW

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Some examples of supply chains in businessA steel cupboard supply chain - Godrej

A motor car/two wheeler – Honda supply chainMilk supply chain – Warna supply chainMangoes/apples – fruits supply chain

Bring in the roles of channel partners to understand the supply chain

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The channel partners

1. Suppliers – product owners

2. Intermediaries – experts in international shipping who offer consultancy service to

suppliers

3. Third-party service providers – those who offer logistics service for a fee

4. Customers – the recipients of service

5. Manufacturers – parts manufacturers – Packaging materials manufacturers

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6. Transporters – 3PL companies who offer transportation service

7. Handlers – 3PL companies who offer material handling service

8. Wholesalers – who stock inventory and offer in small quantities to retailers

9. Dealers – who book orders and instruct wholesalers to supply to retailers

10. Retailers – offer products to consumers

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Supply Chain Management, development of concept - origin

1950s, first post war decade Decade of awareness

• Importance of physical movement of materials to customers, product delivery due to the costs

involved • Focus on costs of these activities & idea of total

cost (impact on the output of the system )• Importance of mode of transport – importance of

right choice of transport• Lesson from II WW – idea of logistics and its

importance

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SUPPLIERVENDORDIRECT MATLS

CUSTOMER

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Outbound Logistics

Inbound Logistics

Manufacturingsupport

Vendor - outsourced

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1960s • Integration of activities of outbound logistics

and emergence of Physical Distribution Management

• Information as an important element of Physical Distribution Management

• Impact of electronics on information1970s

• Integration of some aspects of financial subsystem – recovery, cash flow

• Focus on activities of inbound logistics until considered to be vendors’ concern

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1980s • Concept of Logistics as a management function, internally integrating all activities of inbound and

out bound logistics• Focus on logistical operations

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1990s Gradually concept is encompassing entire

value chain as Supply Chain Management due to external integration

• Henry Ford’s [early 1890s] concept of mutual dependence of firms in a value chain

• Idea of control on entire supply chain for improving product delivery

Concepts in Supply Chain ManagementEnd user - consumer

Logistics – activities (?)Value chain and supply chain

Management Internal integration External integrationPipeline and flows

Supply Chain SurplusSupply Chain Profitability

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Supply Chain ManagementValue creation by improving Quality, Cost &

Delivery to end user Management of supply chain flows

Making the customer a better supplierFocus - End User

Origin – extension of scope of logistics management

Scope - Source of raw materials to end user - all upstream & downstream organizations &

linkages

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Encompasses all movement and movement

related activities• Sourcing (procurement)• Manufacturing support

• Packaging • Transportation

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Closely associated with all functions playing a

role in order capturing and fulfillment like new

product development, marketing, operations,

distribution, finance and customer service

Includes coordination and collaboration with

channel partners to finally deliver the product to

end users

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Objectives of SCM

Maximization of end user value

Management (supply chain decisions) of supply

chain assets, product (inventory), information and

fund flows to maximize supply chain surplus

Maximization of Supply Chain Profitability

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Definition - Management of upstream and

down stream relationships with suppliers and

customers to deliver superior customer value at

less cost to the supply chain as a whole

How SCM creates value?

1. Breaking the organizational barriers

2. Sharing of sales information in real time

3. Inventory visibility

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4. Reduces inventories by reducing uncertainties

5. Compresses value chain by slashing lead-times

thereby quickening cash flow US Supply chains and Indian Supply Chains

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How SCM is created in business

SCM is an evolution, a result of external

integration in the decade of 1990

1. L/M of supplier companies in1980s reached out

to integrate vendors and customers to stream

line the inventory flow to collectively deliver

the value to the end user

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2. This external integration formed a seamless

chain of organizations focused on the end

users

3. The above seamless chain links the source of raw materials to end users like a pipeline

4. When a company reaches out in this fashion to embrace other companies to deliver value to

end users, it is called an extended enterprise

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5. Extended enterprises form an Integrated

Supply Chain when they breakdown

organizational barriers to share sales and inventory

information

6. Integrated Supply Chain shares information and

coordinates logistical activities to ensure

coordination of goods & services, information &

cash through the pipeline

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7. Management of the extended enterprise is

Supply Chain Management

8. SCM integrates demand and supply

management within and across the companies

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Organizational Barriers to Supply Chain

Integration

Adversarial relationship between partners

1. Lack of visibility/transparency

2. Reluctance to share information

3. Traditional mind set, distrust

4. Inability to see long term benefits

5. Inadequate informational infrastructure

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Why SCM?

Customer-centric markets closed conventional

option to profitability!

Impact of philosophies & practices of the 1980s

like TQM, JIT, TPM etc. dropped manufacturing

costs dramatically in the world

SCM is a new opportunity to improve

profitability and outwit the competition!

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Important features of SCM

1. Complexity, two way flows

2. Breaking the organizational (attitudinal)

barriers• Sharing of sales information in real time

• Inventory visibility (information technologt) -

Reduces inventories by reducing

uncertainties• Compression of value chain by slashing

lead-times thereby quickening cash flow

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3. End user focus (help the customer to be a

better supplier!)

4. Practice pull system

5. Supply chain collaboration

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Importance of Supply Chain DecisionsPlanning, Design & Operation - Management of

Supply Chain flows• Inventory (Product), Information and Cash

The above decisions determine the success of a supply chain as these decisions influence

• Availability of product • Inventory levels

• Lead times

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Success of companies like Wal-Mart & Del is mainly due to their sound Supply Chain Decisions

Location of DCs and shops – Wal-martMovement consolidation – Wal-mart

Milk-runs – Wal-martDirect supply to customers eliminating

middlemen and use of their facilities – Del Process postponement – Del, Paint companies

Vendor partnering – Del & SonySupplier partnering – Del & Wal-mart

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Bad decisions Webvan – home delivery of groceries-higher

transportation costs as compared to supermarkets

Quacker Oates and Snapple merger – failed due to incompatibility (Su.chopra p9)

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Decision Phases in a Supply Chain1. Supply Chain Strategy or Design (time frame: 5-6

years)Decisions associated with long term resources

allocation for Supply chain configuration based on long term forecast

Information Transportation

Physical facilities•What - product? Where – locations? Who -

outsourcing? Why - objective? How - process and how much? How many – inventory policies?

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2. Supply Chain Planning (time frame: 3-12 months)

Objective: To maximize the supply chain surplus within the constraints set by Supply Chain

Strategy Start with a forecast for a shorter time frame

(better than the forecast for strategy) To consider uncertainties due to demand ,

exchange rate and competition Planning phase sets policies and parameters for

operation in the given time frame

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What type of product? From where – locations of manufacture, storage? Who (outsourcing)?

When – timing? Why (objectives)? How much –quantity, inventory policies, price ?

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3. Supply Chain Operation (time frame: weekly or daily)

Lesser uncertainty due to very short time frame Optimize performance within the policy

parameters set • Receive a customer order• Commit a delivery date• Generate picking lists

• Packaging• transportation

• Product delivery as per commitment

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Process views of a supply chain (Cycle view & push pull view)

Cycle view The supply chain is viewed as a set of process cycles which connect various stages in a supply

chain1. Cycle is a set of repetitive activities

2. The cycles are bi-directional 3. Cycles link (act like an interface) all stages in the

value chain up and down by information and product movement

4. Each cycle consists of sub processes as in figure

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5. Cycles are input sensitive (customer order) & dynamic

6. Sensitiveness determines efficiency of operating system

7. Within each cycle supplier tries to forecast customer’s demand to ensure

Accurate order fulfillment process On time delivery

8. Reduced cost of procuring orders9. Customer tries to reduce cost of receiving the

order by Economies of scale in buying

Ensuring availability for end user to access the product

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10. Both manage the reverse flows to reduce cost and meet environmental objectives

11. Demand becomes less uncertain as the chain progresses from customer to supplier

12. order quantity increases and variety decreases13.Supply chain decisions need to consider these

factors for setting up infrastructure, physical as well as informational

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Push pull viewIn a supply chain certain sets of stages respond to a customer’s pull while certain stages speculate

customer’s pullIn a tea stall, the tea vendor makes tea and

stocks in a flask speculating demand – this is push system

Tea vendor mixes brewed tea, milk and sugar on demand – this is pull system. But maintaining the stock of brewed tea, milk and sugar against

expected demand is push system

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Push system operates under conditions of uncertainty of demand (customer’s order is not

yet in hand) as this is based on long term forecast – push phase

Pull system operates under conditions of certainty of demand (customer’s order is in hand)

– pull phaseBut pull system is constrained by inventory and

capacity decisions of push phase

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Some important decisions based on Push pull view of supply chain

postpone product mutation, processing postponementPaint industry Del computers

What is the impact on the bottom line of the organizations?

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Competitive Supply Chain StrategiesCompetitive strategy and supply chain strategy

Competitive strategyStrategy of the company to meet a set of

customer needs the company wants to satisfy•Low cost? Variety? Availability of product,

minimum lead time? Product to go to customer?A company chooses to meet certain specific

needs of the customerThe choice as above aligns a market segment and

the company

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Supply chain strategyA set of strategic decisions to facilitate smooth

supply chain flows for achieving objectives of competitive strategy

Developing necessary supply chain capability to support competitive strategy

If competitive strategy is to deliver product at minimum cost to customer the strategic supply

chain decisions must be aimed at the same objective

•All other components of supply chain strategy like marketing, transportation must complement the

supply chain strategy

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Strategic fitStrategic fit is right alignment of Competitive and

supply chain strategiesWhen supply chain strategy is fully focused on the goals of Competitive strategy the organization has

achieved the Strategic FitWhen Strategic Fit is achieved supply chain

strategy is competitive Key points to achieve Strategic Fit

1. Competitive strategy and all functional strategies to fit together, functional strategies mutually

supporting each other

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2. Various functions in the company should structure their strategies with appropriate

resource allocation to execute them3. Design of the entire supply chain and role of

each stage must be aligned to support the supply chain strategy

How is strategic fit achieved?1. Understanding the uncertainty

Demand side uncertainties and supply side uncertainties

Demand side uncertainties help the company define QCD deliverables

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Supply side uncertainties help the company identify disruption which may arise

2. Study and understand supply chain capabilities What the supply chain is good at

3. Achieving the strategic fit Mismatch between supply chain capability and

desired customer needs?• Restructure supply chain or redefine

competitive strategy