scm -decision phases

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Session 4 :

Supply Chain Management-Topic : Decision Phases in Supply Chain,

Supply Chain Flow Cycles

Decision Phases in Supply Chain

Supply Chain Design / Strategy

Supply Chain Planning

Supply Chain Operation


1. Supply Chain Design/Strategy.- Decides on how to structure Supply Chain over next

several years. - Very expensive to alter on short notice.- Must take into a/c uncertainty in anticipated market

conditions over next 5 years.

• Decisions includes:- Location and production and warehousing capacity- Product to be manufactured- Mode of transport to be made available- Type of information system to be utilized.

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2. Supply Chain Planning

- At this phase Supply Chain’s configuration is already fixed.- Time frame is quarter to a year, forecast for coming years.

• Decisions includes :- Which market will be supplied from which location.- Subcontracting of manufacturing- Inventory policies- Timming and size of marketing promotions.


3. Supply Chain Operations- Time horizon is weekly or daily.- Planning policies are already defined.- Goal is to handle incoming customer orders in the best possible manner.

• Decisions includes :- Allocate inventory or production to individual orders- Set a date fullfillment of an order- Generate picklist at warehouse- Allocate an order to particular shipping mode- Set delivery schedules of travel

Process View of a Supply Chain

• There are two different ways to view the processes performed in a supply chain.

Process View of Supply Chain

Cycle View Push / Pull View


1. Cycle ViewThe processes in a supply chain are divided into a series of cycles, each performed at the interface between two successive stages of a supply chain.

· Customer order cycle· Replenishment cycle (at retailer/distributor)· Manufacturing cycle (distributor/manufacturer)· Procurement cycle (manufacturer/supplier )

Note : Not all suppy chain have four cycles cleary separated Eg: Dell




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Cycle View of Supply Chain ProcessesCycle View of Supply Chain Processes

• A cycle view of the supply chain defines the processes involved and the owners of each process.

• This view is very useful when considering operational decisions.

• It specifies the roles and responsibilities of each member of supply chain and the desired outcome for each processes.

Cycle View of Supply Chain Processes

• Customer Order Cycle


• Customer Order Cycle

- Occurs at the customer/retailer interface- Includes processes directly involved in receiving and filling

the customer’s order.- Begins with retailer’s interaction with customer when and ends when retailer receives the order from customer.




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Cycle View of Supply Chain Processes –Customer Order Cycle

Customer Arrival

- Refers to the customer’s arrival at the location where he / she has access to his/her choices and makes a decision regarding a purchase.

- Objective of this process is to maximize the conversion of customer arrivals to customer orders.

Customer Order Entry

- Refers to customers informing the retailer what products they want to purchase and the retailer allocating products to customers.

- Objective of this process is to ensure that the order entry is quick, accurate and communicated to all supply chain processes that are affected by it.

Cycle View of Supply Chain Processes –Customer Order Cycle

Customer Order Fulfillment

- During this process,the customer’s order is filled and sent to the customer.

- All inventories will need to be updated,which may result in the initiation of the replenishment cycle.

- Objective of the process is to get the correct orders to customers by the promised due dates at the lowest possible cost.

Customer Order Receiving

- During this process is the customer receives the order and takes owneship.


• Replenishment Cycle


• Replenishment Cycle

- Occurs at the retailer/distributor interface- Includes processes involved in replenishing retailer inventory.- Begins when retailer places an order to replenish inventories to meet future customer demand.

Objective of Replenishment Cycle : To replenish inventories at the retailer at minimum cost while providing high product availability.




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Cycle View of Supply Chain Processes –Replenishment Cycle

Retail Order Trigger

- Outcome is generation of a replenishment order that is ready to be passed to the distributor or manufacturer.

- Objective of the process is to maximize profitability by ensuring economies of scale and balancing product availability and cost of holding inventory.

Retail Order Entry

- Placing order conveyed to the distributor.- Objective of this process is that an order be entered accurately and

conveyed quickly to supply chain processes affected by the order.

Cycle View of Supply Chain Processes –Replenishment Cycle

Retail Order Fulfilment

- Takes place at the distributor.

- Objective of the process is to get the replenishment order to the retailer on time while minimizing costs.

Retail Order Receiving

- Involves flow of product from distributor to retailer, information and fund from retailer to distributor.

- Objective of this process is to update inventories and display quickly and accurately at the lowest possible cost.


• Manufacturing Cycle


• Manufacturing Cycle

- Occurs at the distributor/manufacturer interface- Includes processes involved in replenishing distributor inventory.




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Cycle View of Supply Chain Processes –Manufacturing Cycle

Order Arrival

- Distributor sets replenishment order trigger

- Based on forecast of future demand and current product inventory- The resulting order is conveyed to manufacturer.

Production Scheduling

- During the process, forecasted orders are allocated to a production plan.- Objective is to maximize the proportion of orders filled on time while

keeping costs down.

Cycle View of Supply Chain Processes –Manufacturing Cycle

Manufacturing and Shipping

- Manufacturing phase, manufacturer produce to production schedule.

- Shipping phase,product shipped to Customer,Retailer,Distributor.- Objective is to create and ship the product by the promised due date

while meeting quality requirements and keeping costs down.

Receiving

- Product is received at distributor and inventory updation takes place.- Other processes related to storage and fund transfer occurs


• Procurement Cycle

- Occurs at the manufacturer/supplier interface- Includes processes necessary to ensure that materials are available for manufacturing to occur according to schedule.- Component orders depends on production schedule.- Suppliers to be linked to manufacturer’s production schedule.


• Procurement Cycle




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• There are two different ways to view the processes performed in a supply chain.

Process View of Supply Chain

Cycle View Push / Pull View

Push/Pull View

• The processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order or in anticipation of customer orders.

• Pull processes (Reactive Process) are initiated by a customer order, and

• Push processes (Speculative Process) are initiated and performed in anticipation of customer orders.

Push/Pull View of Supply Chain Processes

• The push/pull boundary in a supply chain separates push processes from pull processes.

Eg: Dell –inventory replenished in anticipation of customer demand.

All processes in procurement & replenishment cycle classified as push processes, in response to forecast.

• Push/Pull Process for the Supply Chain




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Cycles in Dell Supply Chain

Push/Pull Process for Dell Supply Chain

Push/Pull View of Supply Chain Processes

• A push/pull view of the supply chain is very useful when considering strategic decision relating to supply chain design.

• The goal is to identify an appropriate push/pull boundary that supply chain can match Supply and Demand effectively.

• Eg: Paint Industry –Until 1980s , push processes –anticipation of customer dd.In 1990s, shifted from push to the pull phase..How ?

The Importance of Supply Chain Flows

• There is a close connection between the design and management of supply chain flows and the success of a supply chain.

• Dell has only 10 days of inventory contrast to other pc makers of 80 to 100 days. The success of the Dell supply chain is facilitated by sophisticated information exchange. (customized web pages)

• Outsourcing Dell Supply Chain Stages




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Topic : Understanding the Consumer and Supply Chain Strategies

Competitive Advantage

• A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices.

1. Strategy - DifferentiationThis strategy is usually associated with charging a premium price for the product - often to reflect the higher production costs and extra value-added features provided for the consumer. 2. Cost LeadershipWith this strategy, the objective is to become the lowest-cost producer in the industry. This strategy is usually associated with large-scale businesses offering "standard" products with relatively little differentiation that are perfectly acceptable to the majority of customers. Occasionally, a low-cost leader will also discount its product to maximise sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share.

Competitive and Supply Chain Strategies

• Competitive strategy: defines the set of customer needs a firm seeks to satisfy through its products and services.

Examples :Big Bazar – high availability of variety of reasonable quality products at low price. –emphasise on cost.

Dell – build-to-order –customers can purchase online, places great emphasis on product variety and customization.

• Competitive Strategy targets one or more customer segments and aims to provide products and services that satisfy these customers’ needs.

Competitive and Supply Chain Strategies

• Supply chain strategy: – determines the nature of material procurement,

transportation of materials, manufacture of product or creation of service, distribution of product.

– Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important

- Includes supplier strategy, operations strategy and logistics strategy.- Decisions regarding inventory, transportation, operating facilities and information flows in the supply chain are all part of supply chain strategy.




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Competitive Strategy and Supply Chain Strategy –The relationshipCompetitive strategy

New ProductDevelopment

Marketing &Sales

Operations Distribution Service

Supply Chain Strategy

SupplierStrategy

OperationsStrategy

LogisticsStrategy

Achieving Strategic Fit

• Strategic fit: – Consistency between customer priorities of competitive

strategy and supply chain capabilities specified by the supply chain strategy

– Competitive and supply chain strategies have the same goals

• A company may fail because of a lack of strategic fit or because its processes and resources do not provide the capabilities to execute the desired strategy

• Example of strategic fit -- Dell

See the Dell example – Matching competitive and procurement strategies

• Suppose Dell’s competitive strategy is to deliver a product within 72 hours of receiving an order but is product suppliers, on average take 7 days to resupply inventory, then, Dell is not going to be able to accomplish its competitive strategy.

• There is a lack of strategic fit.

• Also, look at Dell’s competitive strategy.

The Dell’s competitive and Supply Chain strategies

• Competitive strategy: provide a large variety of customizable computer-related products at a reasonable price and to let customers select from thousands of configurations.

• Supply Chain strategy: Two possible options:1. Efficient procurement limiting variety and exploiting economies of scale or2. High flexibility and responsiveness producing a large variety of products.

• Dell’s Supply Chain Strategy is No. 2Consequently, Dell focuses on designing easily customizable products, common platforms and components that can be assembled quickly.




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Example of Supply Chain and Competitive Strategic Fit- Dell

• A supply chain strategy that emphazises flexibility and responsiveness has a better strategic fit with Dell’s competitive strategy of providing a large variety of customizable products.

• Competitive Strategy- To provide a large variety of customizable products at reasonable price.

• Supply Chain Strategy- Use common components that can be assembled quickly and in response to customer order , proves Dell’s supply chain’s ability.

• Dell clearly acheived stong strategic fit between its different functional strategies and its competitive strategy.

How is Strategic Fit Achieved?

• A competitive strategy will specify one or more customer segment that a company hopes to satisfy.

• To achieve strategic fit, a company must ensure that its supply chain capabilities support its ability to satisfy the targeted customer segments.

Three Basic Steps to Achieve Strategic Fit :• Step 1: Understanding the customer and supply chain

uncertainty• Step 2: Understanding the supply chain• Step 3: Achieving strategic fit

Step 1: Understanding the Customer and Supply Chain Uncertainty

• Identify the needs of the customer segment being served• Quantity of product needed in each lot• Response time customers will tolerate• Variety of products needed• Service level required (regarding product availability)• Price of the product (emergency order not price sensitive)• Desired rate of innovation in the product (low price, no

expectation in new apparel design)


• Demand uncertainty: uncertainty of customer demand for a product

• Implied demand uncertainty: resulting uncertainty from the specific customer desires for only that portion of demand which the supply chain must be able to handle.

• First step to strategic fit is to understand customers by mapping their demand on the implied uncertainty spectrum.




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• Implied demand uncertainty is defined in the context multiple supply chains supplying the same product. Multiple supply chains come due to different attributes that they satisfy.

• An example is a firm supplying a product, say medicines, 24 hours versues a firm that supplies during normal day hours.

• The implied demand uncertainty for the 24 hour firm can be high as on some days there is heavy demand and some days very less demand and also the demand for specific medicines can be high on some days and can be even zero on some days.


• Another Example : Circuit board supplier – customers include build-to-order PC manufacturers and small variety PC manufacturers.

• Dell –same day lead time, suppliers need to bulid up inventory to be prepared for whatever demand Dell had that day.

• Forecast errors high, stockouts high, becos of these factors, margins would be likely higher.

• Other manufacturers – longer lead time, reduces forecast errors and stockout rates, margins would be likely smaller.

Note : These examples shows that even with the same product, different customer segments can have different implied demand uncertainty given different service requirements.

Correlation Between Implied Demand Uncertainty and Other Attributes

Attribute Low Implied Uncertainty

High Implied Uncertainty

Product margin Low High

Avg. forecast error 10% 40%-100%

Avg. stockout rate 1%-2% 10%-40%

Impact of Customer Needs onImplied Demand Uncertainty

Customer Need Causes implied demand uncertainty to increase because …

Range of quantity increases Wider range of quantity implies greater variance in demand

Lead time decreases Less time to react to orders

Variety of products required increases Demand per product becomes more disaggregated

Number of channels increases Total customer demand is now disaggregated over more channels

Rate of innovation increases New products tend to have more uncertain demand

Required service level increases Firm now has to handle unusual surges in demand




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Levels of Implied Demand Uncertainty

Predictable supply and

demand

Salt at a supermarket

A new communication

device

Highly uncertain supply and demand

Figure 2.2: The Implied Uncertainty (Demand and Supply)

Predictable supply and uncertain demand or uncertain supply and predictable demand or somewhat

uncertain supply and demand

An existing automobile

model

Achieving Strategic Fit

• Understanding the Customer– Lot size– Response time– Service level– Product variety– Price– Innovation

ImpliedDemand

Uncertainty

Step 2: Understanding the Supply Chain Capabilities

• How does the firm best meet demand thro its supply chain?

• Supply chain responsiveness -- ability to– respond to wide ranges of quantities demanded– meet short lead times– handle a large variety of products– build highly innovative products– meet a very high service level

Step 2: Understanding the Supply Chain Capabilities

• Step is to achieve a strategic fit between competitive and supply chain strategies to understand the supply chain and map it on the responsiveness spectrum .

• There is a cost to achieving responsiveness.• Respond to a wider range of quantities demanded, capacity

must be increased, which increases cost.• There should trade-off between Cost and Responsiveness,

through using existing possible technology of lowest cost .




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Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier

High Low

Low

High

Responsiveness

Cost

Responsiveness Spectrum

Integratedsteel mill :

Dell

Highlyefficient

Highlyresponsive

Somewhatefficient

Somewhatresponsive

Hanesapparel

Mostautomotiveproduction

Step 3: Achieving Strategic Fit

• Step is to ensure that what the supply chain does well is consistent with target customer’s needs.

• **A Co.must ensure the consistency between the degree of supply chain responsiveness and implied uncertainty

• Implied Uncertainty repesents customer needs or the firm’s strategic position and the capability of supply sources.

• The supply chain’s responsiveness represents the supply chain strategy. (Figure in next slide)

Achieving Strategic Fit Shown on the Uncertainty/Responsiveness Map

Implied uncertainty spectrum

Responsive supply chain

Efficient supply chain

Certain demand

Uncertain demand

Responsiveness spectrum




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• For a high level of performance, companies should move their competitive strategy ( and resulting implied uncertainty ) and supply chain strategy (and resulting responsiveness) toward the zone of strategic fit.

Example :• Nestle India Ltd , Maggi Noodles is product with stable

customer demand , giving it low implied demand uncertainty.• Supply is predictable.Nestle could design highly responsive

supply chain – being custom made in very small batches in response to customer orders, transport thro. FedEx.

• Result – loss of customers, due to expensive supply chain design for a product which focus cost reduction.

Step 3: Achieving Strategic Fit

• Final Step in acheiving strategic fit is to match supply chain responsiveness with the implied uncertainty from demand and supply.

Comparison of Efficient and Responsive Supply Chains

Efficient Responsive

Primary goal Lowest cost Quick response

Product design strategy Min product cost Modularity to allow postponement

Pricing strategy Lower margins Higher margins

Mfg strategy High utilization Capacity flexibility

Inventory strategy Minimize inventory Buffer inventory

Lead time strategy Reduce but not at expense of greater cost

Aggressively reduce even if costs are significant

Supplier selection strategy Cost and low quality Speed, flexibility, quality

Transportation strategy Greater reliance on low cost modes

Greater reliance on responsive (fast) modes

Other Issues Affecting Strategic Fit

• Multiple products and customer segments• Product life cycle• Competitive changes over time




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Multiple Products and Customer Segments

• Firms sell different products to different customer segments (with different implied demand uncertainty)

• Eg: Levis Jeans – standard size (Lower Implied demand uncetainty) and customized (higher implied demand uncetainty).

• The supply chain has to be able to balance efficiency and responsiveness given its portfolio of products and customer segments

• Two approaches:– Different supply chains for products made on same line in a

plant (high level of responsiveness shipped thro. FedEx). – Tailor supply chain to best meet the needs of each product’s

demand or customer segment.

Product Life Cycle

• The demand characteristics of a product and the needs of a customer segment change as a product goes through its life cycle

• Supply chain strategy must evolve throughout the life cycle• Early: uncertain demand, high margins (time is important),

product availability is most important, cost is secondary• Late: predictable demand, lower margins, price is important• As products mature,the corresponding supply chain strategy

should, in general, move from being responsive to being efficient.

Changes in Supply Chain Strategy Over a Product Life Cycle

Implied uncertainty spectrum

Responsive supply chain

Efficient supply chain

Product Maturity

Product Introduction

Responsiveness spectrum




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Product Life Cycle

• Examples: pharmaceutical firms (introducing new drug), Intel• As the product goes through the life cycle, the supply chain

changes from one emphasizing responsiveness to one emphasizing efficiency

• Demand and supply characteristics change over a product’s life cycle.

• Because demand and supply characteistics change,the supply chain strategy must also change over the product life cycle if a company is to continue achieving strategic fit.

Competitive Changes Over Time

• Competitive pressures can change over time• More competitors may result in an increased emphasis on

variety at a reasonable price• The Internet makes it easier to offer a wide variety of

products• The supply chain must change to meet these changing

competitive conditions• With the change in competitive strategy, a firm must also

change its supply chain strategy to maintain strategic fit.




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