Supply Chain Management

An Overview
Reference Text
1. Supply Chain Management-Strategy,
Planning and Operation By Sunil Chopra and
Peter Meindl (Pearson Education, New Delhi)
2. Supply Chain Management-Concepts and
Cases By Rahul V. Altekar (Prentice Hall India,
New Delhi)
1

What is Supply Chain?

Supply Chain is a Special Value Chain (?)
A conceptual pipe line connecting source
of raw material to end user
The value chain extends in steps called
supply chain stages to reach the end user
What flows in this pipeline?

INFORMATION FLOW

INVENTORY FLOW

CASH FLOW
3

Some examples of supply chains in business

A steel cupboard supply chain - Godrej
A motor car/two wheeler Honda supply chain
Milk supply chain Warna supply chain
Mangoes/apples fruits supply chain
Bring in the roles of channel partners to
understand the supply chain

The channel partners

1. Suppliers product owners
2. Intermediaries experts in international
shipping who offer consultancy service to
suppliers
3. Third-party service providers those who offer
logistics service for a fee
4. Customers the recipients of service
5. Manufacturers parts manufacturers
Packaging materials manufacturers
5

6. Transporters 3PL companies who offer

transportation service
7. Handlers 3PL companies who offer material
handling service
8. Wholesalers who stock inventory
and offer in small quantities to
retailers
9. Dealers who book orders and
instruct wholesalers to supply to
retailers
10. Retailers offer products to
consumers
6

Supply Chain Management, development

of concept - origin
1950s, first post war decade
Decade of awareness
Importance of physical movement of
materials to customers, product delivery
due to the costs involved
Focus on costs of these activities & idea of
total cost (impact on the output of the
system )
Importance of mode of transport
importance of right choice of transport
Lesson from II WW idea of logistics and its
importance
8

Manufacturing Vendor outsourc

support
ed

Outbound
Logistics
VENDO
R
DIRECT
MATLS

CUSTOM
ER

SUPPLIER

Inbound
Logistics

1960s
Integration of activities of outbound
logistics and emergence of Physical
Distribution Management
Information as an important element
of Physical Distribution Management
Impact of electronics on information
1970s
Integration of some aspects of
financial subsystem recovery, cash
flow
Focus on activities of inbound
logistics until considered to be
10

1980s
Concept of Logistics as a management
function, internally integrating all
activities of inbound and out bound
logistics
Focus on logistical operations

11

1990s
Gradually concept is encompassing
entire value chain as Supply Chain
Management due to external
integration
Henry Fords [early 1890s] concept
of mutual dependence of firms in a
value chain
Idea of control on entire supply
chain for improving product delivery
12

Concepts in Supply Chain Management

End user - consumer
Logistics activities (?)
Value chain and supply chain
Management
Internal integration
External integration
Pipeline and flows
Supply Chain Surplus
Supply Chain Profitability
13

Supply Chain Management

Value creation by improving Quality, Cost &
Delivery to end user
Management of supply chain flows
Making the customer a better supplier
Focus - End User
Origin extension of scope of logistics
management
Scope - Source of raw materials to end user all upstream & downstream organizations &
linkages
14

Encompasses all movement and movement related

activities
Sourcing (procurement)
Manufacturing support
Packaging
Transportation

15

Closely associated with all functions playing a

role in order capturing and fulfillment like new
product development, marketing, operations,
distribution, finance and customer service
Includes coordination and collaboration with
channel partners to finally deliver the product to
end users

16

Objectives of SCM
Maximization of end user value
Management (supply chain decisions) of supply
chain assets, product (inventory), information and
fund flows to maximize supply chain surplus
Maximization of Supply Chain Profitability

17

 Definition - Management of upstream and

down stream relationships with suppliers and
customers to deliver superior customer value at
less cost to the supply chain as a whole
How SCM creates value?
1. Breaking the organizational barriers
2. Sharing of sales information in real time
3. Inventory visibility
18

4. Reduces inventories by reducing uncertainties

5. Compresses value chain by slashing lead-times
thereby quickening cash flow
. US Supply chains and Indian Supply Chains

19

How SCM is created in business

SCM is an evolution, a result of external
integration in the decade of 1990
1. L/M of supplier companies in1980s reached out
to integrate vendors and customers to stream
line the inventory flow to collectively deliver
the value to the end user
20

2. This external integration formed a seamless

chain of organizations focused on the end
users
3. The above seamless chain links the source of
raw materials to end users like a pipeline
4. When a company reaches out in this fashion to
embrace other companies to deliver value to
end users, it is called an extended enterprise

21

22

5. Extended enterprises form an Integrated

Supply Chain when they breakdown
organizational barriers to share sales and inventory
information
6. Integrated Supply Chain shares information and
coordinates logistical activities to ensure
coordination of goods & services, information &
cash through the pipeline
23

7. Management of the extended enterprise is

Supply Chain Management
8. SCM integrates demand and supply
management within and across the companies

24

Organizational Barriers to Supply Chain

Integration
Adversarial relationship between partners
1. Lack of visibility/transparency
2. Reluctance to share information
3. Traditional mind set, distrust
4. Inability to see long term benefits
5. Inadequate informational infrastructure
25

Why SCM?
Customer-centric markets closed conventional
option to profitability!
Impact of philosophies & practices of the 1980s
like TQM, JIT, TPM etc. dropped manufacturing
costs dramatically in the world
SCM is a new opportunity to improve
profitability and outwit the competition!
26

Important features of SCM

1. Complexity, two way flows
2. Breaking the organizational (attitudinal)
barriers
. Sharing of sales information in real time
. Inventory visibility (information technologt) Reduces inventories by reducing
uncertainties
. Compression of value chain by slashing
lead-times thereby quickening cash flow
27

3. End user focus (help the customer to be a

better supplier!)
4. Practice pull system
5. Supply chain collaboration

28

Importance of Supply Chain Decisions

Planning, Design & Operation Management of Supply Chain flows
Inventory (Product), Information and Cash
The above decisions determine the success
of a supply chain as these decisions
influence
Availability of product
Inventory levels
Lead times
29

Success of companies like Wal-Mart &

Del is mainly due to their sound Supply
Chain Decisions
Location of DCs and shops Wal-mart
Movement consolidation Wal-mart
Milk-runs Wal-mart
Direct supply to customers eliminating
middlemen and use of their facilities
Del
Process postponement Del, Paint
companies
Vendor partnering Del & Sony

30

Bad decisions
Webvan home delivery of grocerieshigher transportation costs as
compared to supermarkets
Quacker Oates and Snapple merger
failed due to incompatibility (Su.chopra
p9)

31

Decision Phases in a Supply Chain

1. Supply Chain Strategy or Design (time
frame: 5-6 years)
Decisions associated with long term
resources allocation for Supply chain
configuration based on long term
forecast
.Information
.Transportation
. Physical facilities
.What - product? Where locations? Who
- outsourcing? Why - objective? How 32

2. Supply Chain Planning (time frame: 312 months)

Objective: To maximize the supply chain
surplus within the constraints set by
Supply Chain Strategy
. Start with a forecast for a shorter
time frame (better than the forecast
for strategy)
. To consider uncertainties due to
demand , exchange rate and
competition
. Planning phase sets policies and
33

 What type of product? From where

locations of manufacture, storage?
Who (outsourcing)? When timing?
Why (objectives)? How much
quantity, inventory policies, price ?

34

3. Supply Chain Operation (time frame:

weekly or daily)
. Lesser uncertainty due to very short
time frame
. Optimize performance within the policy
parameters set
. Receive a customer order
. Commit a delivery date
. Generate picking lists
. Packaging
. transportation
. Product delivery as per commitment
35

Process views of a supply chain

(Cycle view & push pull view)
Cycle view
The supply chain is viewed as a set of
process cycles which connect various
stages in a supply chain
1. Cycle is a set of repetitive activities
2. The cycles are bi-directional
3. Cycles link (act like an interface) all
stages in the value chain up and down
by information and product movement
4. Each cycle consists of sub processes
36

37

5. Cycles are input sensitive (customer

order) & dynamic
6. Sensitiveness determines efficiency of
operating system
7. Within each cycle supplier tries to
forecast customers demand to ensure
. Accurate order fulfillment process
. On time delivery
8. Reduced cost of procuring orders
9. Customer tries to reduce cost of
receiving the order by
. Economies of scale in buying
38

10. Both manage the reverse flows to

reduce cost and meet environmental
objectives
11. Demand becomes less uncertain as
the chain progresses from customer to
supplier
12. order quantity increases and variety
decreases
13.Supply chain decisions need to
consider these factors for setting up
infrastructure, physical as well as
informational
39

Push pull view

In a supply chain certain sets of stages
respond to a customers pull while
certain stages speculate customers
pull
In a tea stall, the tea vendor makes
tea and stocks in a flask speculating
demand this is push system
Tea vendor mixes brewed tea, milk
and sugar on demand this is pull
system. But maintaining the stock of
brewed tea, milk and sugar against
expected demand is push system

40

Push system operates under conditions

of uncertainty of demand (customers
order is not yet in hand) as this is based
on long term forecast push phase
Pull system operates under conditions
of certainty of demand (customers
order is in hand) pull phase
But pull system is constrained by
inventory and capacity decisions of
push phase

41

42

43

44

Some important decisions based on

Push pull view of supply chain
postpone product mutation,
processing postponement
Paint industry
Del computers
What is the impact on the bottom line
of the organizations?

45

Competitive Supply Chain Strategies

Competitive strategy and supply chain
strategy
Competitive strategy
Strategy of the company to meet a set of
customer needs the company wants to satisfy
Low cost? Variety? Availability of product,
minimum lead time? Product to go to
customer?
A company chooses to meet certain specific
needs of the customer
The choice as above aligns a market
segment and the company
46

Supply chain strategy

A set of strategic decisions to facilitate
smooth supply chain flows for achieving
objectives of competitive strategy
Developing necessary supply chain
capability to support competitive
strategy
If competitive strategy is to deliver
product at minimum cost to customer
the strategic supply chain decisions must
be aimed at the same objective
All other components of supply chain
strategy like marketing, transportation
47

Strategic fit
Strategic fit is right alignment of
Competitive and supply chain strategies
When supply chain strategy is fully
focused on the goals of Competitive
strategy the organization has achieved
the Strategic Fit
When Strategic Fit is achieved supply
chain strategy is competitive
Key points to achieve Strategic Fit
1. Competitive strategy and all functional
strategies to fit together, functional
48

2. Various functions in the company

should structure their strategies with
appropriate resource allocation to
execute them
3. Design of the entire supply chain and
role of each stage must be aligned to
support the supply chain strategy
. How is strategic fit achieved?
1. Understanding the uncertainty
. Demand side uncertainties and
supply side uncertainties
. Demand side uncertainties help the

49

 Supply side uncertainties help the

company identify disruption which may
arise
2. Study and understand supply chain
capabilities
. What the supply chain is good at
3. Achieving the strategic fit
. Mismatch between supply chain
capability and desired customer needs?
. Restructure supply chain or redefine
competitive strategy
50