Basic Concepts in Supply

Chain Management (Part-I)

Dr. Wahid Bux Mangrio

Assistant Professor, MUISTD
Introduction
• The term “supply chain management” arose in the late 1980s and came
into widespread use in the 1990s.
• businesses used terms such as “logistics” and “operations management”
• Some definitions of supply chain:
• “A supply chain is the alignment of firms that bring products or services to
market.”—Lambert, Stock, and Ellram
• “A supply chain consists of all stages involved, directly or indirectly, in fulfilling a
customer request. The supply chain not only includes the manufacturer and
suppliers, but also transporters, warehouses, retailers, and customers
themselves.”—Chopra and Meindl
• “A supply chain is a network of facilities and distribution options that performs
the functions of procurement of materials, transformation of these materials into
intermediate and finished products, and the distribution of these finished
products to customers.”—from Ganeshan and Harrison
Introduction: key five areas
• Companies in any supply chain must make decisions individually and
collectively regarding their actions in five areas:
1. Production
• What products does the market want?
• How much of which products should be produced and by when?
• Production activity contains creation of master production schedules (plant
capacities, workload balancing, quality control, equipment maintenance)

2. Inventory
• What inventory should be stocked at each stage in a supply chain?
• How much inventory should be held as raw materials, semifinished, or
finished goods?
Introduction: key five areas
• Companies in any supply chain must make decisions individually and
collectively regarding their actions in five areas:
3. Location
• Where should facilities for production and inventory storage be located?
• Where are the most cost-efficient locations for production and for storage of
inventory?
• Should existing facilities be used or new ones built?

4. Transportation
• How should inventory be moved from one supply chain location to another?
• Expensive vs. less expensive and fast and reliable vs. longer transit time and
uncertain
• When is it better to use which mode of transportation?
Introduction: key five areas
• Companies in any supply chain must make decisions individually and
collectively regarding their actions in five areas:
5. Information
• How much data should be collected and how much information should be
shared?
• Timely and accurate information holds the promise of better coordination and
better decision making.
• With good information, people can make effective decisions about what to
produce and how much, about where to locate inventory and how best to
transport it.
• The sum of these decisions will define the capabilities and effectiveness
of a company’s supply chain
The Five Major Supply Chain Drivers
The Five Major Supply Chain Drivers
Chopra and Meindl define these areas as performance drivers that can be managed
to produce the capabilities needed for a given supply chain.
1. Production
• Production refers to the capacity of a supply chain to make and store products
• Facilities for production: Factories and warehouse
• Factories can be built to accommodate one of two approaches to
manufacturing:
• Product focus—A factory that takes a product focus performs the range of
different operations required to make a given product line from fabrication of
different product parts to assembly of these parts.
• Functional focus—A functional approach concentrates on performing just a few
operations such as only making a select group of parts or only doing assembly.
These functions can be applied to making many different kinds of products.
The Five Major Supply Chain Drivers
1. Production
• Product focus
• Expertise about a given set of products
• Functional focus
• Expertise about any particular function
Companies need to decide which approach or what mix of approaches will give
them the capability and expertise they need to best respond to customer needs
• Three main approaches used in warehousing:
• Stock keeping unit (SKU) – All of a given product, efficient & easy
• Job lot storage – Different products related to needs of customer/job,
efficient for picking and packing but requires more storage space
• Crossdocking – Unload large quantities into smaller lots of different
products
The Five Major Supply Chain Drivers
2. Inventory
• Inventory spread throughout the supply chain management (from raw
material to finished goods held by manufacturers, distributors)
• Decision consideration: Trade-off between responsiveness and efficiency
• Responsiveness: hold large amount of inventory
• Efficiency: The cost of inventory should be kept as low as possible
• There are three basic decisions to make regarding the creation and
holding of inventory:
• Cycle inventory
• Safety inventory
• Seasonal Inventory
The Five Major Supply Chain Drivers
3. Location
• Location refers to the geographical sitting of supply chain facilities
• The decisions related to which activities should be performed in each facility
• Responsiveness and efficiency trade-off:
• Centralization activities in few location (to gain economies of scale and efficiency)
• Decentralization activates in many location (close to customer and suppliers for
operation to be more responsive)
• Making location decisions managers need to consider range of factors:
• Cost of facilities
• The cost of labor
• Skills available in workforce
• Infrastructure conditions
• Taxes and tariffs
• Proximity to customers and suppliers
The Five Major Supply Chain Drivers
4. Transportation
• Transportation refers to the movement of everything from raw material
to finished goods between different facilities in a supply chain.
• Responsiveness and efficiency trade-off: Choice of transportation mode
• Faster mode (airplanes) are very responsive but also more costly
• Slower mode (Ship and rail) are very cost efficient but not as responsive
• There are six basic modes of transport:
• Ship: very cost efficient, slowest mode
• Rail: very cost efficient but can be slow, restricted to locations where rail line service are available
• Pipelines: very efficient but are restricted to commodities that are liquid or gases
• Trucks: relatively quick and very flexible mode of transport, cost depend upon conditions (fuel)
• Airplanes: very fast mode and are responsive, expensive mode, limited to locations where airport
facility is available
• Electronic transport: fastest mode of transport, very flexible and cost efficient, for certain
products (electric energy, data, products composed of data such as music, pictures and text)
The Five Major Supply Chain Drivers
4. Transportation
• Mode of transport and the location of facilities in a supply chain,
manager need to design routes and networks for moving products
• Route is the path through which products move
• Network are composed of the collection of the paths and facilities connected by
those paths

• As a general rule:
• Higher the value of a product (electronic components and pharmaceutical: the
more its transport network should emphasis responsiveness
• Lower the value of a product (bulk commodities like grain: the more its network
should emphasize efficiency
The Five Major Supply Chain Drivers
5. Information
• Information is the basis upon which to make decisions regarding the
other four supply chain drivers
• It is the connection between all of the activities and operations in a
supply chain
• Strong connection (accurate, timely and complete data) companies in a supply
chain will each be able to make good decision for their own operations 
maximize the profitability of the supply chain as a whole
• Information is used for two purposes in supply chain:
• Coordinating daily activities: related to functioning of the four supply chain drivers
• Product supply and demand to decide weekly production schedules, inventory level, transport route
• Forecasting and planning: to anticipate and meet future demands
• Strategic forecasts to guide decisions about whether build new facilities, enter new market or existing
markets
 Basic Concepts in Supply
Chain Management (Part-II)

Dr. Wahid Bux Mangrio

Assistant Professor, MUISTD
 Participants in the Supply Chain
• Producers
• Producers or manufacturers are organizations that make a product.
• Companies that are producers of raw materials (e.g. chip manufactures)
• Companies that are producers of finished goods (e.g. Laptop, mobile, car, etc.)
• Producers can create products that are intangible items (music, entertainment,
software, or designs) and tangible items (industrial products)
• Distributors
• Distributors are companies that take inventory in bulk from producers and deliver a
bundle of related product lines to customers
• Distributors are also known as wholesalers
• For the customer, distributors fulfill the “Time and Place” function
• Typical functions performed by distributors: product promotions and sales, inventory
management, warehouse operations, product transportation and customer service
 Participants in the Supply Chain
• Retailers
• Retailers stock inventory and sell in smaller quantities to the general public
• Closely tracks the preferences and demands of the customers
• Advertise and uses combination of price, product selection, service, and convivence
as primary draw to attract the customers
• Customers
• Customers or consumers are any organization that purchases and uses a product
• Customer organization: incorporate in another product
• Customer: the final end user of a product
• Service Providers
• Organizations that provides services to producers, distributors, retailers, & customer
• Service providers have developed special expertise and skills that focus on a particular
activity needed by a supply chain (transportation services, warehousing services)
Supply Chain Structures
Supply Chain Structures
 Aligning the Supply Chain with Business Strategy
• The supply chain needs to respond to market requirements and do so in a
way that supports the company’s business strategy
• Depending on the needs of its customers, a company’s supply chain must
deliver the appropriate mix of responsiveness and efficiency.
• A company whose supply chain allows it to more efficiently meet the needs
of its customers will gain market share at the expense of other companies in
that market and also will be more profitable.
• Example:
• 7-eleven: Convenience, hurry and buy small amount of common household items
• Sam’s Club: Lowest price, not hurry and buy large amount of items

Responsiveness vs Efficiency
 Aligning the Supply Chain with Business Strategy
Three steps to use in aligning your supply chain with your business
strategy
• FIRST STEP: Understand the markets that your company serves
• SECOND STEP: Define the strengths or core competencies of your
company
• THIRD STEP: develop the needed supply chain capabilities
 Aligning the Supply Chain with Business Strategy
Understand the markets Your Company Serves
• Begin by asking questions about your customers
• What kind of customer does your company serve?
• What kind of customer does your customer sell to?
• What kind of supply chain is your company a part of?
• Chopra and Meindl have defined the following attributes that help to clarify
requirements for the customers you serve. These attributes are:
• The quantity of the product needed in each lot (small quantity vs large quantity)
• The response time that customers are willing to tolerate (short time vs longer time)
• The variety of products needed (Are customers looking for a narrow and well-defined bundle of
products or are they looking for a wide selection of different kinds of products?
• The service level required (immediate delivery vs. partial delivery)
• The price of product (How much are customers willing to pay?)