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Understanding the
Supply Chain

PowerPoint presentation to accompany

Chopra and Meindl Supply Chain Management, 5e
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall.

1-1
 Learning Objectives
1. Discuss the goal of a supply chain and explain
the impact of supply chain decisions on the
success of a firm.
2. Identify the three key supply chain decision
phases and explain the significance of each
one.
3. Describe the cycle and push/pull views of a
supply chain.
4. Classify the supply chain macro processes in a
firm.

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 What is a Supply Chain?
• All stages involved, directly or indirectly, in
fulfilling a customer request
• Includes manufacturers, suppliers, transporters,
warehouses, retailers, and customers
• Within each company, the supply chain includes
all functions involved in fulfilling a customer
request (product development, marketing,
operations, distribution, finance, customer
service)

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 What is a Supply Chain?
• Customer is an integral part of the supply chain
• Includes movement of products from suppliers to
manufacturers to distributors and information,
funds, and products in both directions
• May be more accurate to use the term “supply
network” or “supply web”
• Typical supply chain stages: customers,
retailers, distributors, manufacturers, suppliers
• All stages may not be present in all supply
chains (e.g., no retailer or distributor for Dell)

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 What is a Supply Chain?

Figure 1-1

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 Flows in a Supply Chain

Figure 1-2

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 The Objective of a Supply Chain

• Maximize overall value created

Supply Chain Surplus
= Customer Value – Supply Chain Cost

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 The Objective of a Supply Chain
• Example: a customer purchases a wireless
router from Best Buy for $60 (revenue)
• Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
• Difference between $60 and the sum of all of
these costs is the supply chain profit
• Supply chain profitability is total profit to be
shared across all stages of the supply chain
• Success should be measured by total supply
chain profitability, not profits at an individual
stage

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 The Objective of a Supply Chain
• Customer the only source of revenue
• Sources of cost include flows of
information, products, or funds between
stages of the supply chain
• Effective supply chain management is the
management of flows between and among
supply chain stages to maximize total
supply chain surplus

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 Importance of
Supply Chain Decisions
• Wal-Mart, $1 billion sales in 1980 to $408 billion
in 2010
• Seven-Eleven Japan, ¥1 billion sales in 1974 to
¥3 trillion in 2009
• Webvan folded in two years
• Borders, $4 billion in 2004 to $2.8 billion in 2009
• Dell, $56 billion in 2006, adopted new supply
chain strategies

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 Decision Phases of a Supply Chain

• Supply chain strategy or design

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

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 Supply Chain Strategy or Design
• Decisions about the structure of the supply chain
and what processes each stage will perform
• Strategic supply chain decisions
– 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 take into account
market uncertainty
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 Supply Chain Planning
• Definition of a set of policies that govern
short-term operations
• Fixed by the supply configuration from
previous phase
• Starts with a forecast of demand in the
coming year

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 Supply Chain Planning
• Planning decisions:
– Which markets will be supplied from which locations
– Planned buildup of inventories
– Subcontracting, backup locations
– Inventory policies
– Timing and size of market promotions
• Must consider in planning decisions demand
uncertainty, exchange rates, competition over
the time horizon

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 Supply Chain Operation
• Time horizon is weekly or daily
• Decisions regarding individual customer orders
• Supply chain configuration is fixed and operating
policies are determined
• Goal is to implement the operating policies 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)
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 Process View of a Supply Chain
• Cycle View: processes in a supply chain are
divided into a series of cycles, each performed
at the interfaces between two successive supply
chain stages
• Push/Pull View: processes in a supply chain are
divided into two categories depending on
whether they are executed in response to a
customer order (pull) or in anticipation of a
customer order (push)

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 Cycle View
of Supply
Chain
Processes

Figure 1-3

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 Push/Pull View of Supply Chains

Figure 1-5

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 Push/Pull View of
Supply Chain Processes
• Supply chain processes fall into one of two
categories depending on the timing of their
execution relative to customer demand
• Pull: execution is initiated in response to a
customer order (reactive)
• Push: execution is initiated in anticipation of
customer orders (speculative)
• Push/pull boundary separates push processes
from pull processes

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 Push/Pull View of
Supply Chain Processes
• Useful in considering strategic decisions relating
to supply chain design – more global view of
how supply chain processes relate to customer
orders
• Can combine the push/pull and cycle views
– L.L. Bean
– Dell
• The relative proportion of push and pull
processes can have an impact on supply chain
performance

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 Push/Pull View of – L.L. Bean

Figure 1-6

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 Push/Pull View – Dell

Figure 1-7

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 Supply Chain Macro Processes

• Supply chain processes discussed in the

two views can be classified into
– Customer Relationship Management (CRM)
– Internal Supply Chain Management (ISCM)
– Supplier Relationship Management (SRM)
• Integration among the above three macro
processes is critical for effective and
successful supply chain management

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 Supply Chain Macro Processes

Figure 1-8

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 Summary of Learning Objectives

1. Discuss the goal of a supply chain and explain

the impact of supply chain decisions on the
success of a firm.
2. Identify the three key supply chain decision
phases and explain the significance of each
one.
3. Describe the cycle and push/pull views of a
supply chain.
4. Classify the supply chain macro processes in a
firm.
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