Topic Covered in Syllabus:
- Definition of supply chain management
- Functions and objectives of a supply chain
- Decision phases of supply chain
- Process view of a supply chain: cycle view and push/pull view
- The importance of a supply chain flows
- Pitfalls and opportunities in a supply chain
Case studies presentations
- Dell Computer: Direct Marketing
- 7-Eleven: A conventional Store
- Toyota: A Global Auto Manufacturer
- com: An e-Business Summary
- Zara: Apparel manufacturing and retail
- Gateway: A direct sales manufacturer
Supply Chain
Traditionally firms have focused their energies on the following functions:
- Purchasing
- Manufacturing
- Distribution
But these traditional organization need following function now days:
- Information
- Inventory management
- Transportation
- Warehousing
- Packaging & Security
A supply chain is a group of partners who collectively convert a basic commodity (upstream) into a finished product (downstream) that is valued by end-customers, and who manage returns at each stage. Planning and controlling all of the processes that link partners in a supply chain together in order to serve needs of the end-customer. A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. The network of external suppliers, internal processes, and external distributors, and the links connecting them, that delivers a finished product or service to the customer. A supply chain is the system of organizations, people, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform raw materials and components into a finished product that is delivered to the end customer.
A supply chain stages include:
- Customers
- Retailers
- Wholesalers/distributors
- Manufacturers
- Component/raw material suppliers
Supply Chain Management (SCM)
Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements. Supply Chain Management is the design and management of processes across organizational boundaries with the goal of matching supply and demand in the most cost effective way. Supply chain management involves the management of supply chain assets and products, information, and fund flows to maximize total supply chain surplus. Making decisions regarding the structure of the supply chain we should consider the following things:
- Coordinating the movement of goods and delivery of services
- Sharing information between members of the supply chain
SCM must consider the following trends, improved capabilities, & realities:
- Consumer Expectations and Competition – power has shifted to the consumer
- Globalization – capitalize on emerging markets
- Information Technology – e-commerce, Internet, EDI, scanning data, intranets
- Government Regulations – like trade barriers
- Environment Issues – e.g. waste minimization
“SCM is the integration of all activities associated with the flow and transformation of goods from raw materials through to end user, as well as information flows, through improved supply chain relationships, to achieve a sustainable competitive advantage.”
So, supply chain management is getting the right things, to the right places, at the right times, for profit.
Various Definitions of Supply Chain Management
Council of Supply Chain Management Professionals
Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies. Ohio State University Global Supply Chain Forum
Supply Chain Council
The supply-chain encompasses every effort involved in producing and delivering a final product or service, from the supplier’s supplier to the customer’s customer. Supply-chain management includes managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer.
University of Tennessee Supply Chain Research Group
The systematic, strategic coordination of the traditional business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole.
The Objectives of Supply Chain:
Maximize the overall value generated: the value of supply chain generates is the difference between what the final product is worth to customer and costs the supply chain incurs in filling the customer’s request. Supply Chain Surplus = Customer Value – Supply Chain Cost
Maximize the supply chain profitability: The value will be strongly correlated with supply chain profitability (supply chain surplus), the difference between the revenue generated from the customer and the overall cost across the supply chain.
The higher the supply chain profitability, the more successful is the supply chain.
Supply chain success is measured in terms of supply chain profitability not in terms of the profit in individual stage.
Example: Dell receives $2000 from a customer for a computer (revenue). Supply chain incurs costs (information, storage, transportation, components, assembly, etc.). Difference between $2000 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.
Supply chain success should be measured by total supply chain profitability, not profits at an individual stage.
Source of supply chain revenue: For any supply chain, there is only one source of revenue: the Customer.
Sources of supply chain cost: flows of information, products, or funds between stages of the supply chain
Better assets utilization Revenue growth
Cost reduction
So, Supply chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability.
Importance of Supply Chain Management:
SCM plays a vital role in organization activities and an essential element to operational efficiency which can be applied to customer satisfaction and company’s success. You can say that it is just like the backbone of an organization which manages the critical issues of the business organization such as rapid growth of multinational corporations, global expansion and environmental concerns which indirectly or dramatically affects the corporate strategy. Others benefits and importance of supply chain management are:
- Reduces inventory costs
- Provides better medium for information sharing between partners Improves customer satisfaction as well as service
- Maintains better trust between partners Provides efficient manufacturing strategy Improve process integration
- Increases cash flow
SCM offers various tools and techniques that help business organization to diagnose the problems and also provide solutions of these disruptions around the business environment. It plays an important role in moving goods more quickly to the destinations. The most important things in today’s business is managing competition among partners and in order to win this competition SCM helps business organization in a very efficient manner. All the benefits and importance of SCM makes its future so bright and because of emerging trends in organization SCM becomes the most critical business discipline in the world today.
Supply Chain Management is facilitated by:
- Processes
- Structure
- Technology
Decision Phases of Supply chain:
Successful supply chain requires many decisions relating to the flow of information, product and funds. Each and every decision should be made to raise supply chain surplus. Supply chain decision phases may be categorized as design, planning and operational, depending on the time frame during which the decisions made apply.
These decisions fall into three categories:
- Supply chain strategy or design
- Supply chain planning
- Supply chain operation
Strategy and Design:
- Strategic sourcing decisions for Chain’s configuration, and resource allocation.
- Decisions about the stru cture 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 to be used
- Supply chain design must support strategic objectives
- Supply chain design decisions are long-term and expensive to reverse – must take into account market uncertainty.
Planning/Tactical:
- Time frame considered is quarter or year for decisions during this phase.
- Markets to be supplied & from which location
- Planned build-up of inventory
- Timing and size of market promotion
- Handling uncertainty in demand, foreign exchange fluctuations
- Establishing production plan under fixed strategic parameters
- 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
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.
Operation:
- Time horizon is weekly or daily
- Decisions over individual customer orders
- Less uncertainty about demand information
- Exploit reduction of uncertainty to optimize performance
- Establish deliver dates, order fill rate
- 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)
Process view of supply chain:
A supply chain is a sequence of processes and flows that take place within and between different stages and combine to fill a customer need for a product.
- Cycle view: A cycle view of supply chain clearly defines the processes involved and the owners of each process. This view is very useful when considering operational decisions because it specifies the roles and responsibilities of each member of the supply chain and the desired outcome for each process. The processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages. 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. Each cycle occurs at the interface between two successive stages:
Customer order cycle (customer-retailer) Replenishment cycle (retailer-distributor)
Manufacturing cycle (distributor-manufacturer) Procurement cycle (manufacturer-supplier)
Cycle view clearly defines processes involved and the owners of each process.
This cycle view specifies the roles and responsibilities of each member and the desired outcome of each process.
- Push/pull view: A push/pull view of the supply chain categories processes based on whether they are initiated in response to a customer order (pull) or in anticipation of a customer order (push). This view is very useful when considering strategic decisions relating to supply chain design. The 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).Supply chain processes fall into one of two categories depending on the timing of their execution relative to customer demand. This isomer global view of how supply chain processes relate to customer orders. The relative proportion of push and pull processes can have an impact on supply chain performance.
Push/pull boundary separates push processes from pull processes. Pull: execution is initiated in response to a customer order (reactive) Push: execution is initiated in anticipation of customer orders (speculative).
Supply Chain Macro Processes in Firm:
Supply chain processes discussed in the two views can be classified into three macro processes:
- Customer Relationship Management (CRM): All processes that focus on the interface between the firm and its customer.
- Internal Supply Chain Management (ISCM): All process that is internal to the firm.
- Supplier Relationship Management (SRM): All processes that focus on the interface between the firm and its suppliers.
Integration among the above three macro processes is critical for effective and successful supply chain management.
Key Issues in Supply Chain Management:
- Distribution Network Configuration
- Inventory Control
- Supply contract
- Distribution Strategies
- Supply Chain Integration & Strategic Partnering
- Outsourcing & Procurement Strategies
- Product Design
- Information Technology & Decision Support System
- Customer Value
Functions of Supply Chain Management
- Inventory Management
- Distribution Management
- Channel Management
- Payment Management
- Supplier Management
- Transportation Management
- Customer Service Management
- Performance Management
- Manufacturing flow Management
- Product Development and commercialization
Questions
- What is supply chain? Explain SC stages with an example.
- What are the objectives of SC? Are there any differences between SC value and SC profitability?
- What is supply chain management? What things should be considered to design SCM?
- Why SCM is required for business organization? Explain the functions of SCM.
- In what phases the SC decision is made? Explain.
- Explain the various flows of SC associated in SC stages.
- What is process view of supply chain? Explain cycle view and push/pull view with necessary diagram.
- Explain supply chain macro process.
- Explain the importance of supply chain in global market.
- If you are about to develop a supply chain software, what processes of supply chain are supposed to be considered to make an effective SCM software? Show relationship on those processes.
- Consider the supply chain for any product and show the various processes and relationships among SC parties involved in it.