Dr. Ch. V. V. S. N. V. PrasadAssistant Professor in ManagementUnderstanding the Supply Chain

Learning ObjectivesSupply ChainSupply Chain ManagementObjective of a Supply ChainImportance of Supply Chain DecisionsDecision Phases in a Supply ChainProcess Views of a Supply ChainSupply Chain Macro Processes

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Supply ChainSupply Chain is a network of various business entities and processes linking suppliers, operations and customers.Business EntitiesSupplier, manufacturer, distributor, transporters, retailers and customers.ProcessesIt consists of all activities/processes starting from sourcing of raw material or components till delivery of the finished product to the final customer.SC includes all parties involved in fulfilling a customer request

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Supply Chain*

Supply Chain*

Supply Chain - Flows*

Detergent Supply Chain *Customer wantsdetergent and goes to JewelJewelSupermarketJewel or thirdparty DCP&G or othermanufacturerPlasticProducerChemicalmanufacturer(e.g. Oil Company)TennecoPackagingPaper ManufacturerTimberIndustry

Chemicalmanufacturer(e.g. Oil Company)

Dell Supply Chain*

Supply ChainSupply chainsStretch from raw materials to consumersInclude various entities and processesRun in reverse as well as toward end userContain cash, product, and information flowsConnect to outside stakeholders.

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Supply Chain ManagementSupply chain management of any firm can be viewed as integration of all the activities starting from purchasing, manufacturing, and distribution by the organization plus activities that stretch between companys suppliers and its customers.It is an integrated approach of managing various business processes that links the supply chain partners.

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Objectives of a Supply ChainMaximize overall value createdSupply chain value: difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customers requestValue is correlated to supply chain profitability (difference between revenue generated from the customer and the overall cost across the supply chain)Revenue: Dell receives $2000 from a customer for a computer (revenue)Cost : Supply chain incurs costs (information, storage, transportation, components, assembly, etc.)

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Objectives of a Supply ChainSupply chain profitability is total profit to be shared across all stages of the supply chainSupply chain success should be measured by total supply chain profitability, not profits at an individual stageSources of supply chain revenue: the customerSources of supply chain cost: flows of information, products, or funds between stages of the supply chain

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Importance of Supply Chain DecisionsSupply chain decisions have a large impact on the success or failure of each firm because they significantly influence both the revenue generated and the cost incurred. Successful supply chains manage flows of product, information, and funds to provide a high level of product availability to the customer while keeping costs low.

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Decision Phases in a Supply ChainSupply chain decision phases may be categorized as design, planning, or operational depending on the time frame over which the decisions made.Supply chain strategy or designSupply chain planningSupply chain operation

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Decision Phases in a Supply ChainStrategic decisionsRelate to supply chain configurationLong term impact lasting several yearsExpensive to reverseSupport strategic objectives of the firmDecisions includeLocations and capacities of facilitiesProducts to be made or stored at various locationsModes of transportationTypes of Information systems to be utilized

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Decision Phases in a Supply ChainPlanning decisionsCover a period of a few months to a yearDefinition of a set of policies that govern short-term operationsFixed by the supply configuration from previous phaseStarts with a forecast of demand in the coming yearMust consider demand uncertainty, exchange rates, competition over the time horizon for making planning decisions

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Decision Phases in a Supply ChainPlanning decisions includeWhich markets will be supplied from which locationsPlanned buildup of inventoriesSubcontracting, backup locationsInventory policiesTiming and size of market promotions

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Decision Phases in a Supply ChainOperational decisionsTime horizon is weekly or dailyGoal is to handle customer orders in the best possible mannerMuch less uncertainty (short time horizon)Decisions includeAllocate orders to inventory or production, set order due dates, allocate an order to a particular shipment, set delivery schedules, place replenishment orders

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Process Views of a Supply ChainA supply chain is a sequence of processes and flows that takes place within and between different stages .There are 2 different ways to view the processes performed in a supply chainCycle viewPush/pull view

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Process Views of a Supply ChainCycle view: processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages.Clearly defines processes involved and owners of each processSpecifies role and responsibilities of each memberPush/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 SC Processes*

Customer Order Cycle

Replenishment Cycle

Manufacturing Cycle

Procurement CycleCustomer

Retailer

Distributor

ManufacturerSupplier

Cycle View of SC ProcessesCustomer Order CycleInvolves all processes directly involved in receiving and filling the customers orderCustomer arrivalCustomer walks in to a supermarket to make purchaseOpen the website to give orderCustomer order entryCustomer informing the retailer what products they want to purchaseCustomer order fulfillmentCustomer order is filled and sent to customer. (packaging and Shipping)Customer order receiving

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Cycle View of SC ProcessesReplenishment CycleAll processes involved in replenishing retailer inventories (retailer is now the customer):Retail order triggerProduct availability and cost of holding inventoryRetail order entryOrder is placed to distributorRetail order fulfillmentOrder fulfillment at distributorRetail order receiving

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Cycle View of SC ProcessesManufacturing CycleAll processes involved in replenishing distributor (or retailer) inventory.Order arrival from the distributor, retailer, or customer.Replenishment order trigger based on forecast demand and current inventory Order is conveyed to manufacturerProduction scheduling.Orders are allocated to production planningManufacturing and shipping.Receiving at the distributor, retailer, or customer.

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Cycle View of SC ProcessesProcurement CycleAll processes necessary to ensure that materials are available for manufacturing to occur according to schedule.Manufacturer orders components from suppliers to replenish component inventories.Supplier production schedulingComponent manufacturing and shippingReceiving at manufacturer

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Push/Pull View of SC ProcessesSupply chain processes fall into one of two categories depending on the timing of their execution relative to customer demandPull: 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 SC Processes*

Procurement,Manufacturing andReplenishment cyclesCustomer OrderCycleCustomerOrder Arrives

PUSH PROCESSESPULL PROCESSES

Push/Pull View of SC Processes*

Procurement cycleCustomer OrderAnd Manufacturing CycleCustomer order arrives

PUSH PROCESSESPULL PROCESSES

Push/Pull View of SC ProcessesDemand is certain at the time of executing pull process and demand is anticipated or forecasted at the time of executing push process. Useful in considering strategic decisions relating to supply chain design more global view of how supply chain processes relate to customer ordersThe relative proportion of push and pull processes can have an impact on supply chain performance

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Supply Chain Macro Processes in a FirmSupply chain processes discussed in the two views can be classified into Customer Relationship Management (CRM)All Processes that focus on the interface between firm and customerInternal Supply Chain Management (ISCM)All processes that are internal to the firmSupplier Relationship Management (SRM)All Processes that focus on the interface between firm and SupplierIntegration among the above three macro processes is critical for effective and successful supply chain management

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Supply Chain Macro Processes in a Firm*

Supply Chain Macro Processes in a FirmCRMGenerate customer demand and facilitate the placement and tracking of ordersISCMPlanning internal production and storage capacity, preparation of demand and supply plans and internal fulfillment of actual ordersSRMSupplier selection, and evaluation, negotiation of supply terms, design collaborations, supply collaborations and agreements

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SummaryWhat is supply chain and supply chain management?What is the goal of a supply chain and what is the impact of supply chain decisions on the success of the firm?What are the three key supply chain decision phases and what is the significance of each?What are the cycle and push/pull views of a supply chain?How can supply chain macro processes be classified?

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