understanding supply chain
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Supply Chain ManagementSupply Chain Management
Introduction
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What is a Supply Chain
• It includes all the parties (direct / indirect),which are involved in fulfilling customer needs.
• These parties include manufacturer, suppliers,transporters, warehouses, distributors, retailersand customers.
• Each of above parties include a set of functions, which are part of this supply chain.
• A supply chain is dynamic & involves constantflow of information, products & funds betweenvarious stages.
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What is a Supply Chain
• The primary purpose of any supply chain isto satisfy customer needs while maximizing
profits.
• Most supply chains are networks.
• Typical supply chain stages include
– Customer
– Retailers
– Wholesalers / Distributors – Component / raw material suppliers
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Supply Chain Goal
• The goal is to maximize overall valuegenerated.
• Total profitability is the key instead of profits atindividual stage.
•SC profitability is the difference betweenrevenue generated from customer and sum of all the costs spread across its supply chain.
• Hence SCM means managing flows of product,information & funds across various stages of SC & maximize the total SC profitability.
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Decision Phases in Supply Chain
• Categorization of decision phases isbased on
– Decision frequency
– Time frame over which the decision phase
has an impact.
• Following are the three categories
– Supply Chain Strategy or Design
– Supply Chain Planning – Supply Chain Operation
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Supply Chain Design
• It decides how to structure SC over several years.
• It defines configuration, resources and processes at eachstage.
• It decided location and capacities for manufacturingfacilities & warehouses.
• It decides products-location combination.
• It decides modes of transportation as well as informationsystem that would support SC operations.
• It supports companies objectives. The decision taken in
this phase are very expensive to alter at short notice.
• Uncertainties in market conditions over next few years areconsidered in this phase.
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Supply Chain Planning
• It works within the constraints of SC configuration fixed in
SC design phase.• Typically planning starts with annual demand forecast in
different markets.
• The decisions involve market Vs supply locations,subcontracting, inventory policies, timing & size of
market promotions etc.• Decisions must include uncertainties in demand,
exchange rates, competition etc.
• This is typically done once a year.
• It incorporates flexibilities built in design phase andexploit them to optimize performance.
• The output of this phase is a set of operating policies.
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Supply Chain Operations
• It focuses on individual customer orders.
• It involves allocation of inventory / production tocustomer orders, setting of order fill date, allocation
of orders to shipping modes, placing replenishment
orders etc.
• It involves weekly / daily decisions.
• There is less uncertainty about demand information
in this stage. The goal is to exploit reduced
uncertainty and optimize the performance.
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Process Views in Supply Chain
• Cycle View – Processes in SC are divided into series of cycles,
each performed at interface between the
successive stages of supply chain.
• Push / Pull View – Processes are divided into two categories.
“Pull” processes are executed in response to
customer orders. “Push” processes are performed
in anticipation of customer orders.
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Cycle View in Supply Chain
Customer Order
Cycle
Replenishment
Cycle
Manufacturing
Cycle
Procurement
Cycle
C u s t om er
R e t ai l er
Di s t r i b u t or
M an uf a c t ur er
S u p pl i er
•This view specifies roles & responsibilities of SC members•This is useful in setting up infrastructure, information systems etc.
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Customer Order Cycle
Customer
Arrival
Customer
Order
Entry
Customer
Order
Fulfillment
Customer
Order
receiving
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Replenishment Cycle
Retail
Order
Trigger
Retail
Order
Entry
Retail
Order
Fulfillment
Retail
Order
receiving
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Manufacturing Cycle
Order
Trigger
ProductionScheduling
Mfg &Shipment
Receiving
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Procurement Cycle
Mfg
Schedule
Arrival
Supplier Scheduling
Schedulefulfillment
Receiving
At
mfg
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Push / Pull View in supply chain
•Pull process execution is against knowncustomer demand (reactive)
• Push process execution is againstforecast customer demand
• This view is useful in strategic decisionmaking in SC design.
• It is also useful in process
postponement / preponement.• Usually push/pull processes are divided
by a boundary.
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Push / Pull boundary at Dell
Boundary
(PC Assembly)
Push Processes
Pull Processes
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Push / Pull View at L L Bean
Customer Order
Cycle
Mfg &
ReplenishmentCycle
Procurement
Cycle
Customer Order Arrives
Pull Processes
Push Processes
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Push / Pull View at Dell
Customer Order
Cycle
Mfg &
Cycle
Procurement
Cycle
Customer Order Arrives
Pull Processes
Push Processes
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Supply Chain Macro Processes
SRM ISCM CRM
Supplier Firm Customer
•Source•Negotiate•Buy
•Design Collaboration•Supply Collaboration
•StrategicPlanning
•Demand
Planning•Supply Planning•Fulfillment•Field Service
•Market•Sell•Call Center
•OrderManagement
These need to be tightly integrated. Lack of integration
would result into customer dissatisfaction & high costs.
Supply Chain decisions impact time, cost & quality elements
at every stage
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Value Chain in Company
Mktg &
SalesOperations Distribution ServiceNPI
Finance & Accounts, IT, HR
Integrated Functional View
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Strategic Fit: Competitive & SC Strategy
• Competitive Strategy: It definescustomer needs that company wants to
satisfy through its products & services.
• It is based on customer priorities with
respect to cost, time, quality, variety,
sales support etc.
• Competitive strategy & SC strategy
should have same goal.
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Steps to achieve strategic fit
• Understanding customer & supply chainuncertainty.
– Customer demands & effect on implied
demand
– Supply source capabilities
• Understanding SC capabilities.
– Efficiency of SC
– Responsiveness of SC
• Achieving strategic fit
S
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Strategic Fit
Responsive
SC
Efficient
SC
Certain
Demand
Uncertain
Demand
Implied Uncertainty
R e s p o
n s i v en e s s S p e c t r um
Dell Computers
Wal MartMumbai Tiffins
SCM & L i i
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SCM & Logistics
• SCM is not a hot or new Concept.
• Look at Taj Mahal and other historic Sites.
• That was an era when communication
technology was near absent.
• That was people driven Supply Chain.
• Logistics was coined during World War II. The
Wars were by having right equipment at right
time and right place.• Recent examples were Gulf War, Afghanistan
War, Kargil War etc.
SCM & L i ti
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SCM & Logistics
• SCM is
– Strategy
– Tactics
– Operations
• Logistics is actual ways & means to fulfilloverall supply chain.
S l Ch i Pl i F k
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Supply Chain Planning Framework
SCM F
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SCM Focus
• Savings• Competitive Advantage
• Better Customer Service
SCM A E l ti
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SCM: An Evolution
Supplier Manufacturer Customer
Stage 1: Linear flow, minimal interaction, power with the manufacturer
Stage 2: Two-way interaction between supplier-manufacturer; delegation of
responsibility & power
Supplier Manufacturer Customer
Stage 3: Increasing integration between supplier-manufacturer; customer becomes key,
integration increases between internal and external processes
Supplier Manufacturer Customer
SCM A E l ti
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SCM: An Evolution
Stage 4: Emergence of expert & focused service providers, seamless integration
between all players facilitated by real-time information flows
Supplier Service
provider Manufacturer Service
provider Customer
Information flow
Stage 5: Virtual Supply Chains. Customised, unique supply chain for every demand.
Players linked to each other by necessity, information and contractual
obligations.
Vendor 1
Vendor 2
Third party
logistics
provider 1
3PL 2
Manufactu
rer/
Assembler
3PL
Outbound 1
3PL outbound
provider 2
Customer
Cl I t ti M k F G d S l
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Close Interaction Makes For Good Supply