Understanding Supply Chain

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January 2005 Nucleus Solutions, Pune 1

Supply Chain ManagementSupply Chain Management

Introduction




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.




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




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.




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




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.




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.




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.




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.




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.




Customer Order Cycle

Customer

Arrival

Customer

Order

Entry

Customer

Order

Fulfillment

Customer

Order

receiving




Replenishment Cycle

Retail

Order

Trigger

Retail

Order

Entry

Retail

Order

Fulfillment

Retail

Order

receiving




Manufacturing Cycle

Order

Trigger

ProductionScheduling

Mfg &Shipment

Receiving




Procurement Cycle

Mfg

Schedule

Arrival

Supplier Scheduling

Schedulefulfillment

Receiving

At

mfg




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.




Push / Pull boundary at Dell

Boundary

(PC Assembly)

Push Processes

Pull Processes




Push / Pull View at L L Bean

Customer Order

Cycle

Mfg &

ReplenishmentCycle

Procurement

Cycle

Customer Order Arrives

Pull Processes

Push Processes




Push / Pull View at Dell

Customer Order

Cycle

Mfg &

Cycle

Procurement

Cycle

Customer Order Arrives

Pull Processes

Push Processes




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




Value Chain in Company

Mktg &

SalesOperations Distribution ServiceNPI

Finance & Accounts, IT, HR

Integrated Functional View




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.




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




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




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




SCM & Logistics

• SCM is

– Strategy

– Tactics

– Operations

• Logistics is actual ways & means to fulfilloverall supply chain.

S l Ch i Pl i F k




Supply Chain Planning Framework

SCM F




SCM Focus

• Savings• Competitive Advantage

• Better Customer Service

SCM A E l ti




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


Stage 3: Increasing integration between supplier-manufacturer; customer becomes key,

integration increases between internal and external processes


SCM A E l ti




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




Close Interaction Makes For Good Supply

Understanding Supply Chain

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