1. Supply Chain Management Introduction
Outline
What is supply chain management?
Significance of supply chain management.
Push vs. Pull processes
Notes:

2. A Generic Supply Chain Sources: plants vendors ports Regional
Warehouses:
stocking
points
Field
Warehouses:
stocking
points
Customers,
demand
centers
sinks
Supply
A customer is a supplier for some other company. A supplier is a customer for some other company. Not all pieces of a supply chain belongs to the same company.
Inventory
Purchase
Inventory
Transportation

3. Traditional View: Cost breakdown of a manufactured good
Profit 10%
Supply Chain Cost 20%
Marketing Cost 25%
Manufacturing Cost 45%
Profit
Supply Chain
Cost
Marketing
Manufacturing
Notes: Key message here is that logistics costs are a significant fraction of the total value of a product. The problem here is that this a purely cost based view of the supply chain and drives a firm to simply reducing logistics costs. This is an incomplete picture.
Effort spent for supply chain activities are invisible to the customers.

4. Supply Chains in US Economy in 2007
Transportation and inventory managers
Supply Chains in US Economy in 2007
Logistics related activity 11%, 10.5%, 10.1%
of GDP in 1990, ,
Inventory Carrying Costs – 2,026 B inventory B
Interest B
Taxes, Obsolescence, Depreciation, Insurance B
Warehousing B
Transportation Costs B
Truck – Intercity B
Truck – Local B
Railroads B
Water (International 33 + Domestic 5) B
Oil pipelines B
Air (International 16 + Domestic 25) B
Forwarders B
Shipper Related Costs B
Logistics Administration B
Total B
Notes: Traditionally logistics and supply chain management have been measured in terms of transportation and inventory costs and the administration required to manage both. Traditionally firms would have an inventory manager and a transportation manager. This view is very narrow and causes significant problems in the proper functioning of the supply chain.

5. Importance of Supply Chain Management
In 2000, the US companies spent $1 trillion (10% of GNP) on supply-related activities (movement, storage, and control of products across supply chains). Source: State of Logistics Report
Tier 1 Supplier
Manufacturer
Distributor
Retailer
Customer
Inefficient logistics
High stockouts
Ineffective promotions
Frequent Supply shortages
High landed costs to the shelf
High inventories through the chain
Low order fill rates
Glitch-Wrong Material, Machine is Down – effect snowballs
Eliminating inefficiencies in supply chains can save millions of $.

6. What can Supply Chain Management do?
P&G (Proctor&Gamble) estimates it saved retail customers $65 M (in 18 months) by collaboration with retailers resulting in a better match of supply and demand.
Estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics and supply chain strategies
A typical box of cereal spends 104 days from factory to sale
A typical car spends 15 days from factory to dealership
Faster turnaround of the goods is better?
Laura Ashley (retailer of women and children clothes) turns its inventory 10 times a year five times faster than 3 years ago
inventory is emptied 10 times a year, or an item spends about 12/10 months in the inventory.
To be responsive, it relocated its main warehouse next to FedEx hub in Memphis, TE.
National Semiconductor used air transportation and closed 6 warehouses, 34% increase in sales and 47% decrease in delivery lead time.

7. Top 25 Supply Chains
AMR research publishes reports on supply chains and other issues.
The Top 25 supply chains report comes out in Novembers.
The table on the right-hand side is from The Second Annual Supply Chain Top 25 prepared by Kevin Riley and Released in November 2005.

8. SCM Generated Value Minimizing supply chain costs
while keeping a reasonable service level
customer satisfaction/quality/on time delivery, etc.
This is how SCM contributes to the bottom line
SCM is not strictly a cost reduction paradigm!

9. A picture is better than 1000 words
A picture is better than 1000 words! How many words would be better than 3 pictures?
- A supply chain consists of
Supplier
Manufacturer
Distributor
Retailer
Customer
Upstream
Downstream
SUPPLY SIDE
DEMAND SIDE
- aims to Match Supply and Demand, profitably for products and services
- achieves
The right
Product
Higher
Profits
Time
Customer
Quantity
Store
Price = +

10. An example: Detergent supply chain
P&G or other
manufacturer
Third
party DC
Albertson’s
Supermarket
Customer wants
detergent
Plastic cup
Producer
Tenneco
Packaging
Chemical
manufacturer
(e.g. Oil Company)
Notes:
Supply chain involves everybody, from the customer all the way to the last supplier.
Key flows in the supply chain are - information, product, and cash. It is through these flows that a supply chain fills a customer order. The management of these flows is key to the success or failure of a firm. Give Dell & Compaq example, Amazon & Borders example to bring out the fact that all supply chain interaction is through these flows.
Chemical
manufacturer
(e.g. Oil Company)
Paper
Manufacturer
Timber
Industry

11. Cycle View of Supply Chains
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer
Retailer
Distributor
Manufacturer
Supplier
Any cycle
0. Customer arrival
1. Customer triggers an order
2. Supplier fulfils the order
3. Customer receives the order
The supply chain is a concatenation of cycles with each cycle at the interface of two successive stages in the supply chain. Each cycle involves the customer stage placing an order and receiving it after it has been supplied by the supplier stage.
One difference is in size of order. Second difference is in predictability of orders - orders in the procurement cycle are predictable once manufacturing planning has been done.
This is the predominant view for ERP systems. It is a transaction level view and clearly defines each process and its owner.

12. Flows in a Supply Chain Supplier Customer Material Information Funds
The flows resemble a chain reaction.

13. Push vs Pull System
What instigates the movement of the work in the system?
In Push systems, work release is based on downstream demand forecasts
Keeps inventory to meet actual demand
Acts proactively
e.g. Making generic job application resumes today (e.g.: exempli gratia)
In Pull systems, work release is based on actual demand or the actual status of the downstream customers
May cause long delivery lead times
Acts reactively
e.g. Making a specific resume for a company after talking to the recruiter

14. Push/Pull View of Supply Chains
Typically, Procurement,
Typically, Customer
Order Cycle
Manufacturing and
Replenishment cycles
PUSH PROCESSES
PULL PROCESSES
In this view processes are divided based on their timing relative to the timing of a customer order. Define push and pull processes.
They key difference is the uncertainty during the two phases.
Give examples at Amazon and Borders to illustrate the two views
Customer
Order Arrives
Push-Pull boundary

15. Examples of Supply Chains
Dell / Compaq, computer (assembly) industry
Dell buys some components for a product from its suppliers after that product is purchased by a customer. Extreme case of a pull process.
Amazon / Barnes and Noble, bookstores
Amazon is strictly an online store. Amazon uses more pull processes.
Zara / Benetton, apparel (=clothing) industry
Zara is a Spanish company selling apparel with a short design-to-sale cycle to avoid markdowns. Zara uses relatively more pull.
Toyota / GM / Volkswagen, car manufacturers
Toyota provides reasonable quality at reasonable cost. Car manufacturing is mostly done as push process.
Dell has three production sites worldwide and builds to order. Compaq does both. Consider some decisions involved - where to locate facilities? How to size them? Where is the push/pull boundary? What modes of transport to use? How much inventory to carry? In what form? Where to source from?

16. Summary Components of supply chains.
Significance of supply chain management.
Push vs. Pull processes.
Notes: