Supply chain Management

Chapter no 1

Topic no 1

What is supply chain ?

1. Definition of a Supply Chain:

A supply chain includes all parties involved in fulfilling a customer request,

such as suppliers, manufacturers, transporters, warehouses, retailers, and
customers.

2. Flow of Information, Products, and Funds:

A supply chain involves the movement of products, information (e.g.,

pricing, availability), and funds between stages, often in both directions.

3. Dynamic Nature:

The supply chain is dynamic, with constant exchanges of data and resources
across different entities involved.

4. Example - Amazon:

Amazon's supply chain involves online information flow (pricing, product

availability), suppliers, warehouses, and delivery networks to meet customer
demands.

5. Customer’s Role:

The customer is an integral part of the supply chain, and the primary
purpose of the supply chain is to satisfy customer needs profitably.

6. Supply Chain Structure:

Although it may appear linear, most supply chains are networks or webs with
multiple suppliers and distributors at different stages.

8. Stages of a Supply Chain: Common stages include:

i. Customers
ii. Retailers
iii. Wholesalers/Distributors
iv. Manufacturers
v. Component/Raw Material Suppliers

9. Design Variations:

Supply chain structures vary based on the product and customer needs. For
example, Dell uses different supply chains for servers (direct to customer)
and PCs (with retailers like Walmart).

Topic no 2:

Decision phrases in a supply chain

The decision phases in a supply chain management involve three key stages:
 1. Supply Chain Strategy or Design:

This long-term phase (years) involves deciding the overall structure of the
supply chain, such as the configuration, resource allocation, and roles of
each stage. Key decisions include outsourcing, location of facilities,
transportation modes, and the information system used. These decisions are
aligned with the company’s strategic goals and must consider uncertainty in
future market conditions.

2. Supply Chain Planning:

This phase covers a shorter time frame (quarter to a year) and focuses on
maximizing the supply chain surplus within the constraints set by the design
phase. Planning involves demand forecasting, deciding which markets to
serve from specific locations, subcontracting, inventory policies, and
promotional activities. Companies also factor in uncertainties like demand
fluctuations and competition during this phase.

3. Supply Chain Operation:

This phase occurs on a daily or weekly basis and focuses on handling

individual customer orders. Decisions include allocating inventory, setting
order fulfillment dates, scheduling shipments, and placing replenishment
orders. Since operational decisions are made in the short term, there is
less uncertainty about demand, and the goal is to optimize performance
based on the existing configuration and planning policies.

Example:

Overall, effective design, planning, and operation are crucial for the
profitability and success of companies like Walmart and Seven-Eleven
Japan.
Topic no 3:

Process view of supply chain

The processes in a supply chain can be viewed in two ways:

1. Cycle View:

The supply chain is divided into four process cycles that occur between
different stages:

o Customer Order Cycle: Customer places an order, which is

fulfilled by the supplier.
o Replenishment Cycle: Retailer replenishes inventory by ordering
from the distributor.
o Manufacturing Cycle: Manufacturer produces goods in response
to demand or forecasts.
o Procurement Cycle: Supplier provides raw materials to the
manufacturer.

Each cycle consists of sub processes such as ordering, supplying, and

receiving. The cycle view is useful for operational decisions and is supported
by ERP systems.
2. Push/Pull View: Processes are divided based on when they are
triggered:

o Pull Processes: Executed in response to a customer order (e.g.,

custom-made furniture from Ethan Allen).

o Push Processes: Executed in anticipation of customer demand,

based on forecasts (e.g., L.L. Bean stocks inventory before receiving
customer orders).

o The push/pull boundary separates these two types of processes.

Moving certain processes from push to pull can improve efficiency
and better match supply with demand, as seen in the paint industry,
 where color mixing shifted to retail stores (pull) while base
production remained a push process.
o The push/pull view helps in strategic decisions by positioning the
boundary to optimize the supply chain’s responsiveness to demand.

Chapter no 2

Topic no 1:

Competitive and supply chain strategies

1. Competitive Strategy: How a company satisfies customer needs

compared to competitors (e.g., Walmart focuses on low prices, while
McMaster-Carr offers quick service).

2. Customer Priorities: Companies focus on different things—some

prioritize cost (Walmart), while others prioritize variety or speed
(McMaster-Carr, Zales).

3. Value Chain: Different functions (like product development,

marketing, operations) work together to deliver products to customers.

4. Functional Strategies: Each part of a company (e.g., supply chain,

marketing) has its own strategy to support the overall business.

5. Supply Chain Strategy: Deals with how materials are bought,

products are made, and goods are delivered to customers. It can be
done in-house or outsourced.

6. Alignment for Success: All parts of the business need to work

together to match the company’s main strategy (e.g., Seven-Eleven
Japan does this well).

7. Fit Between Strategies: Companies succeed when their supply

chain and competitive strategies are well-matched.
Topic no 2:

Achieving strategic fit

1. Strategic Fit:

Aligning a company’s competitive and supply chain strategies to meet

customer needs.

2. Requirements:
 Coordination: All strategies should work together.
 Structure: Processes and resources must be organized
effectively.
 Supply Chain: It should support the overall strategy.

3. Issues with Misalignment:

Companies can fail if their strategies and resources don’t match, leading to
unhappy customers.

4. Dell’s Changes:

 1993-2006: Focused on customizable products with a flexible supply

chain.
 2007 Onwards: Shifted to selling low-cost products in retail stores,
changing to a cost-focused model.

How Is Strategic Fit Achieved?

There are three basic steps to achieving this strategic fit, which we outline
here and then
 1. Know Customer Needs:

Understand what customers want and how unpredictable their needs can
be.

2. Understand Supply Chain Strengths:

Know what your supply chain does well.

3. Align Them:

Make sure your supply chain matches customer needs. If not, either change
the supply chain or adjust what you offer to customers.

Step 1 :Understanding Customer and Supply Chain Uncertainty

1. Customer Needs:

Different customers want different things.

Example:

Seven-Eleven: Customers want convenience and don’t care much about

price.

Sam’s Club: Customers want low prices and are okay with buying in bulk.

2. Key Attributes of Demand:

Quantity: Emergency orders are usually smaller than construction orders.

Response Time: Faster delivery is expected for emergencies.

Variety: Some customers need a wide selection of products.

Service Level: High availability is crucial for urgent orders.

Price Sensitivity: Urgent customers care less about price.

Innovation: High-end shoppers expect new products often.

3. Implied Demand Uncertainty:

 This measures how unpredictable demand is for what the supply chain
aims to provide.
 It focuses on how customer needs create uncertainty in the supply
chain.

4. Service Level Impact:

Higher service levels mean preparing for unexpected demand, increasing

uncertainty.

5. Characteristics of Demand:

Products with uncertain demand usually have higher profits but face
stockouts or surplus issues.

Example:

Table Salt: Steady demand, low prices, and rarely out of stock.

New Cell Phone: Uncertain demand, high prices, and potential stockouts.
 6. Supply Uncertainty:

 New products have more uncertainty because they’re still being

developed.
 Uncertainty can also come from how well a supply chain can deliver.

7. Spectrum of Uncertainty:

Demand and supply uncertainty combine to create a range from low (like
table salt) to high (like new electronics).

Step 2 Understanding Supply Chain Capabilities

1. Meeting Demand:

After assessing uncertainty, companies must design supply chains that align
responsiveness with the implied uncertainty.

2. Supply Chain Responsiveness:

Key Abilities:

 Respond to various quantities demanded.

 Meet short lead times.
 Handle a wide variety of products.
 Build innovative products.
 Achieve high service levels.
 Manage supply uncertainty.

More responsive supply chains can meet customer needs better but at a
higher cost.

3. Supply Chain Efficiency:

  Efficiency is the opposite of cost; higher costs mean lower efficiency.
 A cost-responsiveness efficient frontier shows the lowest cost for a
given responsiveness level.
 Firms not on the efficient frontier can improve both responsiveness and
cost by moving closer to it.

4. Trade-Off:

Companies on the efficient frontier must trade off between cost and
responsiveness. Increasing responsiveness typically raises costs.

5. Responsiveness Spectrum:

Supply chains vary from highly responsive to those focused on low-cost

production.

Examples:

Seven-Eleven Japan: Highly responsive, replenishing stores frequently

based on demand.

W.W. Grainger: Responsive supply chain providing a variety of products

quickly.

Sam’s Club: Efficient supply chain with limited product variety and lower
costs.
Step. 3. Steps to Achieve Strategic Fit

1. Match Responsiveness to Uncertainty:

 If customer demand is unpredictable, the supply chain should be
flexible and responsive (e.g., McMaster-Carr).
 If demand is stable, focus on efficiency and low costs (e.g., Barilla).

2. Find the Right Fit:

Aim to connect your business strategy with how your supply chain
operates for better performance.

3. Assign Roles:
 Different parts of the supply chain can have different levels of
responsiveness and efficiency.
 Example – IKEA: Keeps a limited variety of furniture in stock to
quickly meet customer needs.
 Example – England, Inc.: Retailers hold little stock, so manufacturers
must be flexible and fast.
 4. Balance Responsiveness and Efficiency:

Make one part of the supply chain more responsive so that others can focus
on keeping costs down.

5. Ensure Consistency:

All departments must work together and support the overall business
strategy to achieve a strategic fit.

Key Points

 Adjust your supply chain based on customer demand.

 Different parts can specialize in responsiveness or efficiency.
 Keep all teams aligned with the business goals for success.

Topic no 3

Summary: Expanding Strategic Scope

1. Scope of Strategic Fit: This refers to the range of supply chain stages
and functions that work together to achieve common objectives. The
 scope can vary from limited, where each operation optimizes
independently, to broad, where all functions align across the entire
supply chain.

2. Levels of Strategic Fit:

Intraoperation Scope: Each stage acts independently, leading to potential

conflicts and reduced supply chain surplus.

Intrafunctional Scope: Strategies within a function are aligned to minimize

costs, improving internal efficiency but possibly neglecting broader company
goals.

Interfunctional Scope: Aligns strategies across all functions to maximize

company profits, ensuring coordination between marketing, manufacturing,
and other areas.

Intercompany Scope: Focuses on collaboration between companies in the

supply chain to enhance the overall surplus, like joint promotion planning
between Walmart and P&G.

3. Agile Intercompany Scope:

Acknowledges the need for flexibility as companies must adapt to changing

customer demands and market conditions. Firms should be able to shift
partnerships and strategies to maintain effective alignment in dynamic
environments.

Topic no 4

Obstacle to achieve strategic fit

1. Balancing Responsiveness and Efficiency:

 Companies struggle to find the right balance between being responsive to
customer needs and maintaining efficiency in operations.

2. Increasing Product Variety and Shorter Life Cycles:

 More product options and shorter market life increase uncertainty.

 Companies should focus on core products and streamline offerings to
enhance supply chain adaptability.

3. Globalization and Uncertainty:

 Fluctuations in markets and costs (like oil prices) create challenges.
 Flexible supply chains, like Honda’s, can adapt to changing demands
better.

4. Fragmentation of Supply Chain Ownership:

 Reduced vertical integration complicates coordination among various

supply chain partners.
 Aligning interests across all parties is crucial for overall profitability.

5. Changing Technology and Environment:

 Rapid technological advances and shifting consumer preferences can

render existing strategies obsolete.
 Companies like Dell and Blockbuster illustrate the need for adaptability
in changing markets.

6. Environmental and Sustainability Concerns:

  Increased focus on sustainability requires companies to adapt their
strategies.
 Successful firms engage the entire supply chain to improve
environmental practices and add value.

Chapter no 3

Topic no 1 :

Impellers of supply chain

The text explains the key factors driving modern supply chains:

1. Empowered Customers: Today’s customers have more options and

expect better products and services, pushing industries to improve their
supply chains to be more efficient and responsive.

2. Globalization: With companies operating globally, they must manage

supply chain activities across various regions. However, issues like poor
infrastructure can create challenges, so companies need to reduce delays
and improve international trade practices.

3. Technology Advancements: New IT tools have transformed supply

chains by giving real-time control over products, finances, and operations.
Tools like MRP and ERP help optimize processes, and performance tracking
models like SCOR allow better management.

4. Supply Chain Concepts:

 Systems Concept: Everything in the supply chain is connected, and

success depends on overall performance, not just individual parts.
  Total Cost Concept: The goal is to reduce total costs across the entire
supply chain to deliver maximum value to customers.

 Trade-off Concept: Decision-makers must balance options, like

choosing faster but costlier transportation if it improves service and
reduces other costs.

Topic no 2

A framework for supply chain decision

The text says that a company’s supply chain needs to be both fast and
efficient to support its goals. This depends on important parts like:

Facilities (where products are stored)

Inventory (the products available to sell)

Transportation (how products are delivered)

Information (data and communication)

Sourcing (where products come from)

Pricing (how much products cost)

The company should organize these parts to respond quickly while keeping
costs low, which helps it earn more money and do better overall.
 First driver: Facilities

Facilities in Supply Chain Management

Role in the Supply Chain:

 More facilities improve responsiveness but increase costs.

 Greater flexibility or capacity also raises costs but can lower inventory
costs and response time.

Examples:

 IKEA: Few large stores for efficiency.

 Seven-Eleven Japan: Many small stores for quick access.

Components of Facilities Decisions:

1. Role:

 Decide between flexible (various products, less efficient) and dedicated

(specific products, more efficient) facilities.
 Choose between product-focused (single product functions) or
functional-focused (many products, specialized functions) designs.

2. Location:

 Centralization vs. decentralization trade-off affects costs and customer

proximity.
 Factors to consider include local workforce quality, costs, facility
expenses, infrastructure, and taxes.

3. Capacity:
  Balance excess capacity (flexibility but costly) and high utilization
(efficient but less responsive).
 Find the right capacity level for each facility.

Second driver: Inventory

Role in the Supply Chain:

Purpose: Inventory addresses mismatches between supply and demand,

allowing manufacturers to produce in bulk and retailers to prepare for future
sales.

Cost and Responsiveness:

 High inventory levels improve responsiveness but can lead to

markdowns and reduced profits.
 They lower production and transport costs but increase holding costs.
 Low inventory improves turnover but risks lost sales if items are out of
stock.

Material Flow Time: Inventory affects how long materials stay in the supply
chain, as shown by Little’s Law: I = DT. Reducing flow time can decrease
inventory levels.

Components of Inventory Decisions:

1. Cycle Inventory:
  The average inventory used between supplier shipments, influenced by
large lot orders to save costs.
 Managers must decide how much to order and how often.

2. Safety Inventory:

 Held to handle unexpected demand.

 Managers balance the risk of excess inventory (which may not sell)
against not having enough to meet demand.

3. Seasonal Inventory:

 Built up to manage predictable seasonal demand.

 Managers must weigh the cost of holding this inventory against
production flexibility.

4. Level of Product Availability:

 Indicates how well demand is met on time from inventory.

 High availability means more costs due to excess inventory; low
availability saves costs but risks losing customers.

Third driver : Transportation

Role in the Supply Chain:

Purpose: Transportation moves products through the supply chain, affecting
how responsive and efficient the system is.

Cost vs. Speed: Faster transportation increases responsiveness but costs

more, allowing for lower inventory levels and fewer facilities.

Strategic Choices:

 High-value items (like pacemakers) may need fast shipping while

centralizing locations to save costs.
 Low-value, high-demand items (like light bulbs) often keep inventory
close to customers and use cheaper transport methods (like sea or rail)
for restocking.

Components of Transportation Decisions:

1. Design of Transportation Network:

 This involves planning the routes, modes, and locations for shipping
products.
 Companies decide whether to ship directly or use intermediate points
and whether to consolidate multiple supplies or demands in one
shipment.

2. Choice of Transportation Mode:

 Options include air, truck, rail, sea, pipeline, and internet for digital
goods.
 Each mode has different speeds, costs, and shipment sizes, which
influence companies' decisions.
 Fourth driver : Information

Role in the Supply Chain:

Importance: Good information helps improve the use of resources and

coordination, making the supply chain more responsive and cost-effective.

Examples:

 Seven-Eleven Japan: Increases product availability and reduces

inventory.
 Walmart: Uses supplier shipment info to cut inventory and
transportation costs.
 Li & Fung: Chooses the best suppliers based on information.
 Airlines: Adjusts seat prices based on demand information.

Information Complexity: Sharing too much information can increase costs

and complexity. It’s important to share just the necessary data, like using
aggregate sales instead of detailed point-of-sale information, for better
planning.

Components of Information Decisions:

1. Push vs. Pull:

Push Systems: Rely on forecasts to create production schedules.

Pull Systems: Need fast information about actual demand for accurate
production.
 2. Coordination and Information Sharing:

 Effective supply chain coordination requires sharing information among

all stages to maximize profitability.
 For pull systems, manufacturers need to share demand data with
suppliers.

3. Sales and Operations Planning (S&OP):

 S&OP aligns sales and marketing with supply capabilities to create a

supply plan.
 This plan is essential for meeting demand and helps project revenues
across the supply chain.

Fifth driver: sourcing

Sure! Here’s a simplified summary:

Summary of Sourcing in Supply Chain Management

Role in the Supply Chain:

Definition: Sourcing involves purchasing goods and services.

Key Decisions:

 Managers choose between responsive or efficient sources and whether

to handle tasks in-house or outsource.
  The goal Is to maximize the total surplus shared in the supply chain.

 Outsourcing: Beneficial if a third party can add more value than the
company could alone but comes with risks.

 In-House Operations: Kept if outsourcing doesn’t provide significant

benefits or poses too much risk.

 Example: W.W. Grainger outsources package delivery but manages its

warehouses internally due to scale.

Components of Sourcing Decisions:

1. In-House or Outsource: Decide whether to perform tasks internally

or outsource, based on potential benefits and risks.

2. Supplier Selection: Determine how many suppliers to use and the

criteria for choosing them.

3. Procurement: Focus on obtaining goods and services to increase

overall supply chain value, ensuring good coordination for direct
materials and low costs for MRO products.

Sixth : pricing
Role in the Supply Chain:

 Pricing determines how much to charge customers and influences who

buys the product and their expectations.

 It helps match supply and demand, especially when flexibility is low,

using tactics like short-term discounts.

 Profit Maximization: Pricing should aim to increase profits by

understanding costs and the value of supply chain activities.

Examples:

 Costco uses Everyday Low Pricing (EDLP) to keep demand stable.

 Amazon offers various shipping prices to cater to different customer

needs for speed and cost.

Components of Pricing Decisions:

 In short, effective pricing is key to balancing customer needs and

supply chain efficiency while boosting profits.
 Pricing should reflect cost savings from larger orders, often using
quantity discounts.

 EDLP vs. High–Low Pricing:

 EDLP (like Costco) leads to steady demand.
 High–Low Pricing (like in supermarkets) causes peaks during sales and
drops afterward.

 Fixed Price vs. Menu Pricing: Firms must decide whether to set
fixed prices or offer a range based on factors like response time. A
pricing menu can help but needs to align with actual costs to avoid
profit loss.