1-1 Supply Chain Management Chapter 1 Understanding the Supply Chain

1-2 What is a Supply Chain? uAll stages involved, directly or indirectly, in fulfilling a customer request uIncludes manufacturers, suppliers, transporters, warehouses, retailers, and customers uWithin each company, the supply chain includes all functions involved in fulfilling a customer request (product development, marketing, operations, distribution, finance, customer service)

1-3 What is a Supply Chain? uCustomer is an integral part of the supply chain uIncludes movement of products from suppliers to manufacturers to distributors, but also includes movement of information, funds, and products in both directions uProbably more accurate to use the term “supply network” or “supply web” uTypical supply chain stages: customers, retailers, distributors, manufacturers, suppliers uAll stages may not be present in all supply chains (e.g., no retailer or distributor for Dell)

1-4 What is a Supply Chain? Customer wants detergent and goes to Migros Migros Supermarket Migros or third party DC P&G or other manufacturer Plastic Producer Chemical manufacturer (e.g. Oil Company) Tenneco Packaging Paper Manufacturer Timber Industry Chemical manufacturer (e.g. Oil Company)

1-5 Flows in a Supply Chain Customer Information Product Funds

1-6 The Objective of a Supply Chain uMaximize overall value created uSupply chain value: difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customer’s request uValue is correlated to supply chain profitability (difference between revenue generated from the customer and the overall cost across the supply chain)

1-7 The Objective of a Supply Chain uSources of supply chain revenue: the customer uSources of supply chain cost: flows of information, products, or funds between stages of the supply chain uSupply chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability

1-8 The Objective of a Supply Chain uExample: Dell receives $2000 from a customer for a computer (revenue) uSupply chain incurs costs (information, storage, transportation, components, assembly, etc.) uDifference between $2000 and the sum of all of these costs is the supply chain profit uSupply chain profitability is total profit to be shared across all stages of the supply chain uSupply chain success should be measured by total supply chain profitability, not profits at an individual stage

1-9 Decision Phases of a Supply Chain uSupply chain strategy or design uSupply chain planning uSupply chain operation

1-10 Supply Chain Strategy or Design uDecisions about the structure of the supply chain and what processes each stage will perform uStrategic supply chain decisions –Locations and capacities of facilities –Products to be made or stored at various locations –Modes of transportation –Information systems uSupply chain design must support strategic objectives uSupply chain design decisions are long-term and expensive to reverse – must take into account market uncertainty

1-11 Supply Chain Planning uDefinition of a set of policies that govern short-term operations uFixed by the supply configuration from previous phase uStarts with a forecast of demand in the coming year

1-12 Supply Chain Planning uPlanning decisions: –Which markets will be supplied from which locations –Planned buildup of inventories –Subcontracting, backup locations –Inventory policies –Timing and size of market promotions uMust consider in planning decisions demand uncertainty, exchange rates, competition over the time horizon

1-13 Supply Chain Operation uTime horizon is weekly or daily uDecisions regarding individual customer orders uSupply chain configuration is fixed and operating policies are determined uGoal is to implement the operating policies as effectively as possible uAllocate 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 uMuch less uncertainty (short time horizon)

1-14 Process View of a Supply Chain uCycle view: processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages uPush/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)

1-15 Cycle View of Supply Chains Customer Order Cycle Replenishment Cycle Manufacturing Cycle Procurement Cycle Customer Retailer Distributor Manufacturer Supplier

1-16 Cycle View of a Supply Chain uEach cycle occurs at the interface between two successive stages uCustomer order cycle (customer-retailer) uReplenishment cycle (retailer-distributor) uManufacturing cycle (distributor-manufacturer) uProcurement cycle (manufacturer-supplier) uCycle view clearly defines processes involved and the owners of each process. Specifies the roles and responsibilities of each member and the desired outcome of each process.

1-17 Push/Pull View of Supply Chains Procurement, Manufacturing and Replenishment cycles Customer Order Cycle Customer Order Arrives PUSH PROCESSESPULL PROCESSES 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)

1-18 Push/Pull View of Supply Chain Processes uSupply chain processes fall into one of two categories depending on the timing of their execution relative to customer demand uPull: execution is initiated in response to a customer order (reactive) uPush: execution is initiated in anticipation of customer orders (speculative) uPush/pull boundary separates push processes from pull processes

1-19 Push/Pull View of Supply Chain Processes uUseful in considering strategic decisions relating to supply chain design – more global view of how supply chain processes relate to customer orders uCan combine the push/pull and cycle views uThe relative proportion of push and pull processes can have an impact on supply chain performance

1-20 Supply Chain Macro Processes in a Firm uSupply chain processes discussed in the two views can be classified into: –Customer Relationship Management (CRM) –Internal Supply Chain Management (ISCM) –Supplier Relationship Management (SRM) uIntegration among the above three macro processes is critical for effective and successful supply chain management

1-21 Examples of Supply Chains uGateway uZara uMcMaster Carr / W.W. Grainger uToyota uAmazon / Borders / Barnes and Noble uWebvan / Peapod / Jewel What are some key issues in these supply chains?

1-22 Toyota uWhere should plants be located, what degree of flexibility should each have, and what capacity should each have? uShould plants be able to produce for all markets? uHow should markets be allocated to plants? uWhat kind of flexibility should be built into the distribution system? uHow should this flexible investment be valued? uWhat actions may be taken during product design to facilitate this flexibility?

1-23 Amazon.com uWhy is Amazon building more warehouses as it grows? How many warehouses should it have and where should they be located? uWhat advantages does selling books via the Internet provide? Are there disadvantages? uWhy does Amazon stock bestsellers while buying other titles from distributors? uDoes an Internet channel provide greater value to a bookseller like Borders or to an Internet-only company like Amazon? uShould traditional booksellers like Borders integrate e-commerce into their current supply? uFor what products does the e-commerce channel offer the greatest benefits? What characterizes these products?