WHAT IS SUPPLY CHAIN

A  supply chain consists of all parties (manufacturers, suppliers, transporters, warehouses,

retailers, and customers) and, within each organization, all the functions involved, directly or
indirectly, in fulfilling a customer request

 A supply chain includes all functions involved in receiving and filling a customer
request

New product development, marketing, operations, distribution, finance, and customer service

 A supply chain is the entire process of moving a product or service from suppliers to
customers
 A supply chain is the alignment of firms that bring products or services to market

Example of HP:

EXAMPLE OF DELL:
SC emerged as an important business process concept that links the supplier to the customer
through manufacturing or intermediary …

SC exist in both services and manufacturing organizations; however, the complexity of the chain
depends on its product-market configuration.

SUPPLY CHAIN FLOW

SC control the physical flow (capacity and speed) of goods from source to point-of-use by
aligning the capabilities of supply chain partners (Suppliers, Manufacturers, Channel Partners,
and Customers.)

Supply Chain Flows

Supplier Manufacturer Distributor Retailer Customer

Coffee - Supply Chain?

Movie Production Co. - Supply Chain?

Systems Thinking

Systems thinking is a management discipline that concerns an understanding of a system

by examining the linkages and interactions between the components that comprise the
entirety of that defined system.
Supply Chain – Systems Thinking?

Systems thinking provides the framework in which to best respond to business requirements
that otherwise would seem to be in conflict with each other

The end-to-end supply chain

Primary manufacturers

End customers
Focal firm

Purchasing Physical
and supply distribution
Supply side Demand side
Supply Chain Management is?

“The systemic, strategic coordination of the traditional business functions and the tactics
across these business functions within a particular company and across businesses within the
supply chain, for the purposes of improving the long‐term performance of the individual
companies and the supply chain as a whole.”

OR

Supply chain management is the coordination of production, inventory, location, and

transportation among the participants in a supply chain to achieve the best mix of
responsiveness and efficiency for the market being served.”

Supply chain management views the supply chain and the organizations in it as a single
entity.

“the integration of these activities through improved supply chain relationships, to achieve a
sustainable competitive advantage”

OR

The primary focus of SCM is to serve consumer with excellent goods and services against
optimum cost and quick response time.

The purpose of supply chain is to improve customer value and satisfaction.

Managing supply and demand, sourcing raw materials and parts, manufacturing and
assembly, warehousing and inventory tracking, order entry and order management, distribution
across all channels, and delivery to the customer.

Supply chain management is concerned with the efficient integration of suppliers, factories,
warehouses and stores so that merchandise is produced and distributed:

o In the right quantities

o To the right locations

o At the right time

In order to

o Minimize total system cost

o Satisfy customer service requirements

SCM PROCSS FLOW

Evolution of Supply Chain Management

Further Refinement
of SCM Capabilities

SCM
Formation/ Extensions
JIT, TQM, BPR,
Alliances

Inventory Management/Cost
Optimization

Traditional Mass Manufacturing

1950s
1960s 1970s 1980s 1990s 2000s Beyond

Mass manufacturing Little to none attention paid to creating partnerships, flexibility

Inventory management MRP systems were developed.

Just-in-time (JIT) is an inventory strategy implemented to improve the return on investment of

a business by reducing in-process inventory and its associated carrying costs.

Total Quality Management (TQM) is a business management strategy aimed at embedding

awareness of quality in all organizational processes.
Business process reengineering (BPR) is the fundamental rethinking and radical redesign of
business processes to achieve dramatic improvements in critical contemporary measures of
performance, such as cost, quality, service, and speed

• Mass production era (1900s – 1970s)

– In the early 1900s, Henry Ford created the first moving assembly line reducing
the time to build a Model T from 728 hours to 1.5 hours

• Lean manufacturing era (1970s –1995)

– In the early 1970s, Japanese manufacturers like Toyota changed the rules of
production from mass to lean. Lean manufacturing focuses on flexibility and
quality more than on efficiency and quantity.

• Mass customization era (1995 – 2010?)

Beginning around 1995 and coinciding with the commercial application of the Internet,
manufacturers started to mass-produce customized products. Henry Ford’s famous statement
“You can have any color Model T as long as it’s black” no longer applies.

Managing a Supply Chain is Not Easy

 Geographically dispersed complex network

 Conflicting objectives across the supply chain

 Uncertainty and risk factors

 Information distortion

1. GEOGRAPHICALLY DISPERSED COMPLEX NETWORK:

2. CONFLICTING OBJECTIVES ACROSS THE SUPPLY CHAIN

3. UNCERTAINTY AND RISK FACTORS

a. 2005 Hurricane Katrina

i. P&G coffee supplies from sites around New Orleans
ii. Six month impact
b. 2002 West Coast port strike
i. Losses of $1B/day
ii. Store stock-outs, factory shutdowns
c. 2001 India earthquake
i. Supply interruptions for apparel manufacturers
d. 1999 Taiwan earthquake
i. Supply interruptions for HP and Dell

4. INFORMATION DISTORTION
 BULLWHIP EFFECT

The bullwhip effect is a supply chain phenomenon describing how small fluctuations in demand
at the retail level can cause progressively larger fluctuations in demand at the wholesale,
distributor, manufacturer and raw material supplier levels.

It is one of the most important causes of inefficiency in a supply chain

Causes of the bullwhip effect

 Lead-time issues such as manufacturing delays

 Less-than-optimal decisions made by supply chain stakeholders at any point along the
chain, for example, customer service or shipping

 A lack of communication and alignment between each link or stakeholder organization in

the supply chain

 Over- or under-reacting to demand expectations, such as ordering too many units or not
enough

 Customer companies, often retailers, waiting until orders build up before placing orders
with their suppliers, a practice called order batching

 Discounts, cost changes and other price variations that disrupt regular buying patterns

 Inaccurate forecasts from over-reliance on historical demand to predict future demand

What happens when the bullwhip effect hits the supply chain?

Just as fluctuations in demand ripple throughout the entire supply chain, the bullwhip effect can
have serious consequences throughout all aspects of business:

 Too much stock on hand, leading to increased inventory holding costs

 Unfulfilled orders

 Poor customer service

 Lost revenue

 Misguided demand forecasts

 Missed production schedules

How Do You minimizes / Reduction the bullwhip effect

Accept and understand the bullwhip effect Improve the inventory planning process

Improve the raw material planning process

Collaboration and information sharing between managers

Optimize the minimum order quantity and offer stable pricing

How Supply Chain Management is Changing the Rules of Competition … Better, Faster,
Closer

Only a few years ago, most marketing professionals would have answered the question:

“How do you compete?”

“Through our brands of course

However, the marketplace has changed radically over the last decade. No longer is it enough to
rely on the strength of :

 Consumer Pull

 Brand Loyalty is now a fairly rare phenomenon

 Now focus much more on ‘value’ and, in particular, availability.

 For FMCG marketing people the big question now is : ‘What do we have to do to
convince the retailer to give us presence on the shelf?”

IMOIRTANCE OF SUPPLY CHAIN

SUPPLY CHAIN PERFORMANCE AND DRIVERS:

The supply chain management drivers were the main focus that motivates supply chain
sustainability. Such drivers include facility, transportation, information, inventory, sourcing, and
pricing. Supply chain sustainability can be determined by such drivers.
FACILITY: Facility is actual physical location in supply chain network where product is stored,
assembled and fabricate.

INVENTORY: Inventory encompasses all the raw materials, work in process, and finished
goods within a supply chain. Changing inventory policies can dramatically alter the supply
chain’s efficiency & responsiveness.

TRANPORTATION: Transportation entails moving inventory from point to point in the supply
chain . Transportation can take the form of many combinations of modes & routes, each with its
own performance characteristics.

INFORMATION: Information serves as the connection between various stages of a supply

chain, allowing them to coordinate & maximize total supply chain profitability. It is also crucial to
the daily operations of each stage in a supply chain for e.g a production scheduling system.

SOURCING: Sourcing is the set of business processes required to purchase goods & services.
Managers must first decide which tasks will be outsourced & those that will be performed within
the firm.

PRICING: Pricing determines how much a firm will charge for goods & services that it makes
available in the supply chain. Pricing affects the behavior of the buyer of the good or services,
thus affecting supply chain performance.
To understand how a company can improve supply chain performance in terms of
responsiveness and efficiency we must examine (and make decisions about) the logistical and
cross-functional drivers of supply chain performance

The Role of Distribution in the Supply Chain

• What is distribution?

– Distribution refers to the steps taken to move and store a product from the
supplier stage to the customer stage in a supply chain

• Distribution-related cost

– Make up about 10.5% of the US economy

– Make up about 20% of the cost of manufacturing

Distribution can achieve supply chain objectives from low cost to high responsiveness

SCND – ?

SCND is all about the art of balancing our relationship with all elements of SC keeping SC
Drivers in MIND

Supply chain network design is the disciplined process of determining the optimal location and
size of facilities and the flow of products using a mathematical modeling approach

SCND – On Agenda - Why

SCND ensures a competitive supply chain

The strategic value of network design network design is the strategic planning process for
evaluating alternative structures for a supply chain, and selecting the one that maximizes
profitability and helps to improve performance at each link in the supply chain.

Key characteristics of today´s competitive markets

SCND – Company's Performance

If delivered successfully, SCND improves a company’s supply chain performance in a variety of

areas:
SCND affects the whole supply chain

Network design decisions impact on all levels of supply chain management

Example: opening up a new production plant triggers various decisions at all decision levels

Different drivers for SCND

Typical business questions answered through SCND

Key strategy dimensions that affect network design

As high performance in each dimension would be typically neither economically justified nor
even feasible, it is crucial to align network design with the optimal strategy regarding products
and markets, and to carefully investigate the potential trade-offs between the different
performance dimensions. When designing a supply chain, it is therefore critical to understand
the different requirements of the various product or customers segments. For example,
innovative, high margin products might require a different strategic positioning than less risky
but low margin commodity products.
 Supply Chain Network Design Decisions

• Facility role

– What role should each facility play? What processes are

performed at each facility?

• Facility location

– Where should facilities be located?

• Capacity allocation

– How much capacity should be allocated to each facility?

• Market and supply allocation

– What markets should each facility serve? Which supply

sources should feed each facility?

Factors Influencing Network Design Decisions

• Strategic

• Technological

• Macroeconomic

• Political

• Infrastructure

• Competitive

• Logistics and facility costs

• Strategic factors

– Offshore Facility: low-cost facility for export production

i.e. supply outside the country where it’s located

 – Source Facility: low-cost facility for global production

– Server Facility: regional production facility

– Contributor Facility: regional production facility with development

skills

– Outpost Facility: regional production facility built to gain local skills

– Lead Facility: facility that leads in development and

process technologies

• Macroeconomic factors

– Quotas, tariffs, and tax incentives

• Economic trade agreements: Nafta, EU

– Exchange rate and demand risk

– Different states or countries often offer economic incentives to

companies that decide to set up shop there, including tax
incentives and low-interest economic development loans

• Political factors

– Political stability

• Infrastructure factors

– Availability of transportation terminals, labor

• Most of Amazon’s distribution centers are located near

airports

• Competitive factors

– Positive externalities (many stores in a mall makes it more

convenient for customers – one location for everything the
customers need)

• Technological factors
 – Compare your supplies to the final product, considering
whether value, weight, volume or other factors change

– Availability of production technologies

– High or low fixed cost

• Semiconductor manufacturing takes place only in 5-6

countries worldwide (building one plant costs about 1 to 4
billion dollars)

SUPPLY CHAIN STAGES