MCL756 : Supply Chain Management

3-0-0 Course

Dr S G Deshmukh & Prof Prem Vrat

1
 Jan Tue Wed Fri

Today is 15th Jan 2025 Week 1

Week 2 7 8
3 Jan

Week 3 15
Week 4
Week 5
Week 6
Week
7(feb)
Week 8
Week 9
Week 10
Week 11

Week 12

What was covered in previous Basic concepts (contd) Week 13

Week 14

session? Alternate view Week 15

Push pull/cycle view on SCM

Week 16

Week17

What will be done in this session? Decision phases

Fisher's framework
 Decision Phases in a Supply Chain

1. Supply chain strategy or design

How to structure the supply chain over the next several years
2. Supply chain planning
Decisions over the next quarter or year
3. Supply chain operation
Daily or weekly operational decisions

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 Supply Chain Strategy or Design

 Decisions about the configuration of the supply chain, allocation of resources,

and what processes each stage will perform
 Strategic supply chain decisions
◦ Outsource supply chain functions
◦ Locations and capacities of facilities
◦ Products to be made or stored at various locations
◦ Modes of transportation
◦ Information systems
 Supply chain design must support strategic objectives
 Supply chain design decisions are long-term and expensive to reverse – must
consider market uncertainty

4
 Supply Chain Planning
 Definition of a set of policies that govern short-term operations
 Fixed by the supply configuration from strategic phase
 Goal is to maximize supply chain surplus given established constraints
 Starts with a forecast of demand in the coming year
 Planning decisions:
◦ Which markets will be supplied from which locations
◦ Planned buildup of inventories
◦ Subcontracting
◦ Inventory policies
◦ Timing and size of market promotions
 Must consider demand uncertainty, exchange rates, competition over the time
horizon in planning decisions

5
 Supply Chain Operation
 Time horizon is weekly or daily
 Decisions regarding individual customer orders
 Supply chain configuration is fixed and planning policies are defined
 Goal is to handle incoming customer orders as effectively as
possible
 Allocate orders to inventory or production, set order due dates,
generate pick lists at a warehouse, allocate an order to a particular
shipment, set delivery schedules, place replenishment orders
 Much less uncertainty (short time horizon)

6
 Self-assessment
 Take a product /service
 Write at least 2 decision areas in :
◦ Strategy
◦ Planning
◦ Operations

7
 What is Strategy?
 Strategy is the pattern of missions, objectives, policies, and significant
resource utilization plans stated in such a way as to define what business
the company is in (or is to be in) and the kind of company it is or is to be. It
defines:
◦ The product line, markets and market segments for which products are to be
designed
◦ The channels through which these markets will be reached
◦ The means by which the operation is to be financed
◦ The profit objectives
◦ The size of the organization
◦ The image which it will project to employees, suppliers and customers

Bullen and Rockart, 1981

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 Strategy

Vision Introspect

Mission Purpose

Strategy Achievement

A strategy incorporates the vision and

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mission of the business
 Strategy
 Vision statement reflects the organization’s future
aspirations and direction

 Mission statement represents the “intents” or “purpose” of

the organization

 Strategy embodies the “image,” customers (markets),

business model and measure of achievement
◦ IT as an enabler to proactively implement change (i.e., innovate →
competitive pull) or reactively adapt to change (i.e., technology →
push)

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 Linking Supply Chain and Business
Strategy
Business Strategy

New Product Marketing

Strategy Strategy
Supply Chain Strategy

New Marketing
Product and Operations Distribution Service
Development Sales

Finance, Accounting, Information Technology, Human Resources

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 Achieve Strategic Fit
Strategic fit means both the competitive and
supply chain strategies have the same goal.

 Step 1: Understand the customer

 Step 2: Understand the supply chain
 Step 3: Achieve strategic fit

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 Step 1: Understand the Customer
- Implied Demand Uncertainty-

Customer demand attributes

 Lot size
 Response time
 Service level
Implied
Demand
 Product variety
Uncertainty
 Price
 Innovation

Implied demand uncertainty is the uncertainty that exists due to

the portion of demand that the supply chain is required to meet.
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 Implied Uncertainty
(Demand and Supply) Spectrum

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 Step 2: Understanding Supply
Chain Capabilities
 How does the firm best meet demand?
 Supply chain responsiveness is the 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 high service level
◦ Handle supply uncertainty

 Responsiveness comes at a cost

 Supply chain efficiency is the inverse to the cost of making and delivering the product to the
customer
 The cost-responsiveness efficient frontier curve shows the lowest possible cost for a given level of
responsiveness

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 Cost-Responsiveness Efficient Frontier

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 Responsiveness Spectrum

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 Zone of Strategic Fit

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 Efficient and Responsive
supply chains..

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 Pathbreaking article..

 Fisher M, 1997, What Is the Right Supply Chain for

Your Product?, Harvard Business Review
 https://hbr.org/1997/03/what-is-the-right-supply-chain-for-
your-product

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 Marshall Fisher Google scholar page as on 15 Jan 2025

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 Functional Versus Innovative Products

FUNCTIONAL INNOVATIVE
• Mature product • Early life cycle stage
• Low product variety • High product variety
• Predictable demand • Unpredictable demand, e.g., fashions
• Established product categories • New product categories
• Low margins • High margins
• Low forecasting error • High forecasting error

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Efficient and Responsive Supply Chains
Efficient Supply Chains Responsive Supply Chains

Primary goal Supply demand at the lowest cost Respond quickly to demand

Product design Maximize performance at a minimum Create modularity to allow postponement of

strategy product cost product differentiation
Lower margins because price is a prime Higher margins because price is not a prime
Pricing strategy
customer driver customer driver
Manufacturing Maintain capacity flexibility to buffer against
Lower costs through high utilization
strategy demand/supply uncertainty
Inventory Maintain buffer inventory to deal with
Minimize inventory to lower cost
strategy demand/supply uncertainty
Lead-time Reduce aggressively, even if the costs are
Reduce, but not at the expense of costs
strategy significant
Supplier Select based on speed, flexibility, reliability,
Select based on cost and quality
strategy and quality
 Matching Supply Chains
with Products
Supply Chain Functional Products Innovative Products
Efficient

Match Mismatch
Supply Chain
Responsive

Mismatch Match

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 Enhancing Responsiveness
• Reduce excessive and unnecessary variety
• Buffer inventory of parts
• Use leading indicators
• Use common parts and postpone differentiation
• Cut lead-times with lean manufacturing

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 Lee’s Uncertainty framework
Demand Uncertainty

Low High
(Functional Products) (Innovative Products)
Low (Stable Process) Grocery, basic apparel, food, Fashion Apparel,
oil, gas Computers, Music
Supply
Uncertainty Responsive Supply Chain
Efficient Supply Chain
High (Evolving Process) Solar Power, some food Telecom, High-end
products computers,
semiconductors
Risk-hedging Supply Chain Agile Supply Chain

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Lee, H L, 2002, Aligning supply chain strategies with product uncertainties, California Management Review, 44(3), 105-119
 Supply characteristics
Stable Evolving
Less breakdowns Vulnerable to breakdowns
Stable and higher yields Variable and lower yields
Less quality problems Potential quality problems
More supply sources Limited supply sources
Reliable suppliers Unreliable suppliers
Less process changes More process changes
Less capacity constraints Potential capacity constraints
Easier to change over Difficult to change over
Flexible Inflexible
Dependable lead times Variable lead times

Lee, H L, 2002, Aligning supply chain strategies with product uncertainties, California Management Review,
27 44(3), 105-119
 Demand characteristics
Functional Innovative
Low demand uncertainty High demand uncertainty
More predictable demand Difficult to forecast
Stable demand Variable demand
Long product life cycle Short selling season
Ow inventory cost High inventory cost
Low profit margin High profit margin
Low product variety High product variety
Higher volume Low volume
Low stockout cost High stockout cost
Low obsolescence High obsolescence

Lee, H L, 2002, Aligning supply chain strategies with product uncertainties, California Management Review,
28 44(3), 105-119