07-Dec-15

Supply Chain ManagementSession 4 :

Topic : Decision Phases in Supply Chain,

Supply Chain Flow Cycles

Decision Phases in Supply Chain

Decision Phases in Supply Chain

Supply Chain Design / Strategy

Supply Chain Planning

Supply Chain Operation

1. Supply Chain Design/Strategy.

- Decides on how to structure Supply Chain over next
several years.
- Very expensive to alter on short notice.
- Must take into a/c uncertainty in anticipated market
conditions over next 5 years.
Decisions includes:
- Location and production and warehousing capacity
- Product to be manufactured
- Mode of transport to be made available
- Type of information system to be utilized.

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07-Dec-15

Decision Phases in Supply Chain

2. Supply Chain Planning
- At this phase Supply Chains configuration is already fixed.
- Time frame is quarter to a year, forecast for coming years.
Decisions includes :
- Which market will be supplied from which location.
- Subcontracting of manufacturing
- Inventory policies
- Timming and size of marketing promotions.

Process View of a Supply Chain

Decision Phases in Supply Chain

3. Supply Chain Operations
- Time horizon is weekly or daily.
- Planning policies are already defined.
- Goal is to handle incoming customer orders in the best
possible manner.
Decisions includes :
- Allocate inventory or production to individual orders
- Set a date fullfillment of an order
- Generate picklist at warehouse
- Allocate an order to particular shipping mode
- Set delivery schedules of travel

Process View of a Supply Chain

1. Cycle View

There are two different ways to view the processes performed

in a supply chain.
Process View of
Supply Chain

The processes in a supply chain are divided into a series of

cycles, each performed at the interface between two
successive stages of a supply chain.

Customer order cycle

Cycle View

Push / Pull View

Replenishment cycle (at retailer/distributor)

Manufacturing cycle (distributor/manufacturer)
Procurement cycle (manufacturer/supplier )
Note : Not all suppy chain have four cycles cleary separated Eg: Dell

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07-Dec-15

Cycle View of Supply Chain Processes

Cycle View of Supply Chain Processes

A cycle view of the supply chain defines the processes
involved and the owners of each process.
This view is very useful when considering operational
decisions.
It specifies the roles and responsibilities of each member of
supply chain and the desired outcome for each processes.

Cycle View of Supply Chain Processes

Cycle View of Supply Chain Processes

Customer Order Cycle

Customer Order Cycle

- Occurs at the customer/retailer interface

- Includes processes directly involved in receiving and filling
the customers order.
- Begins with retailers interaction with customer when and
ends when retailer receives the order from customer.

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07-Dec-15

Cycle View of Supply Chain Processes

Customer Order Cycle

Cycle View of Supply Chain Processes

Customer Order Cycle

Customer Arrival

Customer Order Fulfillment

- Refers to the customers arrival at the location where he / she has access

- During this process,the customers order is filled and sent to the

to his/her choices and makes a decision regarding a purchase.

Objective of this process is to maximize the conversion of customer
arrivals to customer orders.

Customer Order Entry

-

Refers to customers informing the retailer what products they want to

purchase and the retailer allocating products to customers.
Objective of this process is to ensure that the order entry is quick,
accurate and communicated to all supply chain processes that are
affected by it.

Cycle View of Supply Chain Processes

customer.
All inventories will need to be updated,which may result in the initiation
of the replenishment cycle.
Objective of the process is to get the correct orders to customers by the
promised due dates at the lowest possible cost.

Customer Order Receiving

-

During this process is the customer receives the order and takes
owneship.

Cycle View of Supply Chain Processes

Replenishment Cycle

Replenishment Cycle

- Occurs at the retailer/distributor interface

- Includes processes involved in replenishing retailer
inventory.
- Begins when retailer places an order to replenish inventories
to meet future customer demand.
Objective of Replenishment Cycle : To replenish inventories at the retailer at
minimum cost while providing high product availability.

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07-Dec-15

Cycle View of Supply Chain Processes

Replenishment Cycle
Retail Order Trigger

Cycle View of Supply Chain Processes

Replenishment Cycle
Retail Order Fulfilment

- Outcome is generation of a replenishment order that is ready to be

-

passed to the distributor or manufacturer.

Objective of the process is to maximize profitability by ensuring
economies of scale and balancing product availability and cost of holding
inventory.

Retail Order Entry

-

Placing order conveyed to the distributor.

Objective of this process is that an order be entered accurately and
conveyed quickly to supply chain processes affected by the order.

Cycle View of Supply Chain Processes

- Takes place at the distributor.

-

Objective of the process is to get the replenishment order to the retailer

on time while minimizing costs.

Retail Order Receiving

-

Involves flow of product from distributor to retailer, information and

fund from retailer to distributor.
Objective of this process is to update inventories and display quickly and
accurately at the lowest possible cost.

Cycle View of Supply Chain Processes

Manufacturing Cycle

Manufacturing Cycle

- Occurs at the distributor/manufacturer interface

- Includes processes involved in replenishing distributor
inventory.

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07-Dec-15

Cycle View of Supply Chain Processes

Manufacturing Cycle
Order Arrival

Cycle View of Supply Chain Processes

Manufacturing Cycle
Manufacturing and Shipping

- Distributor sets replenishment order trigger

-

Based on forecast of future demand and current product inventory

The resulting order is conveyed to manufacturer.

Production Scheduling
-

During the process, forecasted orders are allocated to a production plan.

Objective is to maximize the proportion of orders filled on time while
keeping costs down.

Cycle View of Supply Chain Processes

- Manufacturing phase, manufacturer produce to production schedule.

-

Shipping phase,product shipped to Customer,Retailer,Distributor.

Objective is to create and ship the product by the promised due date
while meeting quality requirements and keeping costs down.

Receiving
-

Product is received at distributor and inventory updation takes place.

Other processes related to storage and fund transfer occurs

Cycle View of Supply Chain Processes

Procurement Cycle

- Occurs at the manufacturer/supplier interface

Procurement Cycle

- Includes processes necessary to ensure that materials are

available for manufacturing to occur according to schedule.
- Component orders depends on production schedule.
- Suppliers to be linked to manufacturers production
schedule.

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07-Dec-15

Process View of a Supply Chain

There are two different ways to view the processes performed
in a supply chain.
Process View of
Supply Chain

Push/Pull View
The processes in a supply chain are divided into two
categories depending on whether they are executed in
response to a customer order or in anticipation of customer
orders.
Pull processes (Reactive Process) are initiated by a customer
order, and

Cycle View

Push / Pull View

Push processes (Speculative Process) are initiated and

performed in anticipation of customer orders.

Push/Pull View of Supply Chain Processes

The push/pull boundary in a supply chain
separates push processes from pull processes.
Eg: Dell inventory replenished in anticipation of
customer demand.
All processes in procurement & replenishment
cycle classified as push processes, in response to
forecast.

Push/Pull Process for the Supply Chain

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07-Dec-15

Cycles in Dell
Supply Chain

Push/Pull View of Supply Chain Processes

A push/pull view of the supply chain is very useful
when considering strategic decision relating to supply
chain design.
The goal is to identify an appropriate push/pull
boundary that supply chain can match Supply and
Demand effectively.

Push/Pull Process
for Dell Supply
Chain

Eg: Paint Industry Until 1980s , push processes

anticipation of customer dd.
In 1990s, shifted from push to the pull phase..How ?

The Importance of Supply Chain Flows

There is a close connection between the design and
management of supply chain flows and the success of a
supply chain.
Dell has only 10 days of inventory contrast to other pc makers
of 80 to 100 days. The success of the Dell supply chain is
facilitated by sophisticated information exchange. (customized
web pages)
Outsourcing

Dell Supply Chain Stages

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07-Dec-15

Competitive Advantage

Topic : Understanding the Consumer and

Supply Chain Strategies

Competitive and Supply

Chain Strategies
Competitive strategy: defines the set of customer needs a
firm seeks to satisfy through its products and services.
Examples :
Big Bazar high availability of variety of reasonable quality products at low
price. emphasise on cost.
Dell build-to-order customers can purchase online, places great
emphasis on product variety and customization.

Competitive Strategy targets one or more customer segments and aims to

provide products and services that satisfy these customers needs.

A competitive advantage is an advantage over competitors

gained by offering consumers greater value, either by means
of lower prices or by providing greater benefits and service
that justifies higher prices.
1. Strategy - Differentiation
This strategy is usually associated with charging a premium price for the
product - often to reflect the higher production costs and extra valueadded features provided for the consumer.
2. Cost Leadership
With this strategy, the objective is to become the lowest-cost producer in
the industry. This strategy is usually associated with large-scale businesses
offering "standard" products with relatively little differentiation that are
perfectly acceptable to the majority of customers. Occasionally, a low-cost
leader will also discount its product to maximise sales, particularly if it has
a significant cost advantage over the competition and, in doing so, it can
further increase its market share.

Competitive and Supply

Chain Strategies
Supply chain strategy:
determines the nature of material procurement,
transportation of materials, manufacture of product or
creation of service, distribution of product.
Consistency and support between supply chain strategy,
competitive strategy, and other functional strategies is
important
- Includes supplier strategy, operations strategy and logistics
strategy.
- Decisions regarding inventory, transportation, operating
facilities and information flows in the supply chain are all part
of supply chain strategy.

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07-Dec-15

Competitive Strategy and Supply Chain Strategy

The relationship

Achieving Strategic Fit

Competitive strategy

New Product
Development

Marketing &
Sales

Operations

Distribution

Service

Supply Chain Strategy

Supplier
Strategy

Operations
Strategy

Logistics
Strategy

See the Dell example Matching competitive and

procurement strategies
Suppose Dells competitive strategy is to deliver a product
within 72 hours of receiving an order but is product suppliers,
on average take 7 days to resupply inventory, then, Dell is not
going to be able to accomplish its competitive strategy.
There is a lack of strategic fit.
Also, look at Dells competitive strategy.

Strategic fit:
Consistency between customer priorities of competitive
strategy and supply chain capabilities specified by the
supply chain strategy
Competitive and supply chain strategies have the same
goals
A company may fail because of a lack of strategic fit or
because its processes and resources do not provide the
capabilities to execute the desired strategy
Example of strategic fit -- Dell

The Dells competitive and Supply Chain strategies

Competitive strategy: provide a large variety of customizable
computer-related products at a reasonable price and to let
customers select from thousands of configurations.

Supply Chain strategy: Two possible options:

1. Efficient procurement limiting variety and exploiting
economies of scale or
2. High flexibility and responsiveness producing a large
variety of products.

Dells Supply Chain Strategy is No. 2

Consequently, Dell focuses on designing easily customizable
products, common platforms and components that can be
assembled quickly.

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07-Dec-15

Example of Supply Chain and Competitive

Strategic Fit- Dell
A supply chain strategy that emphazises flexibility and
responsiveness has a better strategic fit with Dells competitive
strategy of providing a large variety of customizable products.
Competitive Strategy- To provide a large variety of customizable products at
reasonable price.
Supply Chain Strategy- Use common components that can be assembled
quickly and in response to customer order , proves Dells supply chains
ability.
Dell clearly acheived stong strategic fit between its different functional
strategies and its competitive strategy.

Step 1: Understanding the Customer and Supply

Chain Uncertainty

Identify the needs of the customer segment being served

Quantity of product needed in each lot
Response time customers will tolerate
Variety of products needed
Service level required (regarding product availability)
Price of the product (emergency order not price sensitive)
Desired rate of innovation in the product (low price, no
expectation in new apparel design)

How is Strategic Fit Achieved?

A competitive strategy will specify one or more customer
segment that a company hopes to satisfy.
To achieve strategic fit, a company must ensure that its supply
chain capabilities support its ability to satisfy the targeted
customer segments.
Three Basic Steps to Achieve Strategic Fit :
Step 1: Understanding the customer and supply chain
uncertainty
Step 2: Understanding the supply chain
Step 3: Achieving strategic fit

Step 1: Understanding the Customer and Supply

Chain Uncertainty

Demand uncertainty: uncertainty of customer demand for a

product
Implied demand uncertainty: resulting uncertainty from the
specific customer desires for only that portion of demand
which the supply chain must be able to handle.
First step to strategic fit is to understand customers by
mapping their demand on the implied uncertainty spectrum.

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07-Dec-15

Step 1: Understanding the Customer and Supply

Chain Uncertainty

Step 1: Understanding the Customer and Supply

Chain Uncertainty

Implied demand uncertainty is defined in the context multiple supply

chains supplying the same product. Multiple supply chains come due to
different attributes that they satisfy.

An example is a firm supplying a product, say medicines, 24 hours versues

a firm that supplies during normal day hours.

The implied demand uncertainty for the 24 hour firm can be high as
on some days there is heavy demand and some days very less demand
and also the demand for specific medicines can be high on some days and
can be even zero on some days.

Correlation Between Implied Demand Uncertainty

and Other Attributes
Attribute
Product margin

Low Implied
Uncertainty
Low

High Implied
Uncertainty
High

Another Example : Circuit board supplier customers include build-toorder PC manufacturers and small variety PC manufacturers.
Dell same day lead time, suppliers need to bulid up inventory to be
prepared for whatever demand Dell had that day.
Forecast errors high, stockouts high, becos of these factors, margins would
be likely higher.
Other manufacturers longer lead time, reduces forecast errors and
stockout rates, margins would be likely smaller.

Note : These examples shows that even with the same product, different
customer segments can have different implied demand uncertainty given
different service requirements.

Impact of Customer Needs on

Implied Demand Uncertainty
Customer Need

Causes implied demand

uncertainty to increase because

Range of quantity increases

Wider range of quantity implies

greater variance in demand

Lead time decreases

Less time to react to orders

Avg. forecast error

10%

40%-100%

Variety of products required increases Demand per product becomes more

disaggregated

Avg. stockout rate

1%-2%

10%-40%

Number of channels increases

Total customer demand is now

disaggregated over more channels

Rate of innovation increases

New products tend to have more

uncertain demand

Required service level increases

Firm now has to handle unusual

surges in demand

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07-Dec-15

Levels of Implied Demand Uncertainty

Predictable
supply and
demand

Salt at a
supermarket

Predictable supply and uncertain

demand or uncertain supply and
predictable demand or somewhat
uncertain supply and demand

Highly uncertain
supply and demand

An existing
automobile
model

A new
communication
device

Figure 2.2: The Implied Uncertainty (Demand and Supply)

Step 2: Understanding the

Supply Chain Capabilities
How does the firm best meet demand thro its supply chain?
Supply chain responsiveness -- ability to
respond to wide ranges of quantities demanded
meet short lead times
handle a large variety of products
build highly innovative products
meet a very high service level

Achieving Strategic Fit

Understanding the Customer
Lot size
Response time
Service level
Product variety
Price
Innovation

Implied
Demand
Uncertainty

Step 2: Understanding the

Supply Chain Capabilities
Step is to achieve a strategic fit between competitive and
supply chain strategies to understand the supply chain and
map it on the responsiveness spectrum .
There is a cost to achieving responsiveness.
Respond to a wider range of quantities demanded, capacity
must be increased, which increases cost.
There should trade-off between Cost and Responsiveness,
through using existing possible technology of lowest cost .

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07-Dec-15

Understanding the Supply Chain: Cost-Responsiveness Efficient

Frontier

Responsiveness Spectrum

Responsiveness

High
Highly
efficient

Somewhat
efficient

Integrated
steel mill :

Hanes
apparel

Somewhat
responsive

Highly
responsive

Most
automotive
production

Dell

Low
High

Low

Cost

Achieving Strategic Fit Shown on the

Uncertainty/Responsiveness Map

Step 3: Achieving Strategic Fit

Step is to ensure that what the supply chain does well is
consistent with target customers needs.
**A Co.must ensure the consistency between the degree of
supply chain responsiveness and implied uncertainty

Responsive
supply chain

Responsiven
ess spectrum

Implied Uncertainty repesents customer needs or the firms

strategic position and the capability of supply sources.
The supply chains responsiveness represents the supply
chain strategy. (Figure in next slide)

Efficient
supply chain
Certain
demand

Implied
uncertainty
spectrum

Uncertain
demand

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07-Dec-15

For a high level of performance, companies should move their

competitive strategy ( and resulting implied uncertainty ) and
supply chain strategy (and resulting responsiveness) toward
the zone of strategic fit.
Example :
Nestle India Ltd , Maggi Noodles is product with stable
customer demand , giving it low implied demand uncertainty.
Supply is predictable.Nestle could design highly responsive
supply chain being custom made in very small batches in
response to customer orders, transport thro. FedEx.
Result loss of customers, due to expensive supply chain
design for a product which focus cost reduction.

Comparison of Efficient and Responsive

Supply Chains
Efficient

Responsive

Primary goal

Lowest cost

Quick response

Product design strategy

Min product cost

Modularity to allow
postponement

Pricing strategy

Lower margins

Higher margins

Mfg strategy

High utilization

Capacity flexibility

Inventory strategy

Minimize inventory

Buffer inventory

Lead time strategy

Reduce but not at expense

of greater cost

Aggressively reduce even if

costs are significant

Supplier selection strategy

Cost and low quality

Speed, flexibility, quality

Transportation strategy

Greater reliance on low cost

modes

Greater reliance on
responsive (fast) modes

Step 3: Achieving Strategic Fit

Final Step in acheiving strategic fit is to match supply
chain responsiveness with the implied uncertainty
from demand and supply.

Other Issues Affecting Strategic Fit

Multiple products and customer segments
Product life cycle
Competitive changes over time

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07-Dec-15

Multiple Products and

Customer Segments
Firms sell different products to different customer segments
(with different implied demand uncertainty)
Eg: Levis Jeans standard size (Lower Implied demand
uncetainty) and customized (higher implied demand
uncetainty).
The supply chain has to be able to balance efficiency and
responsiveness given its portfolio of products and customer
segments
Two approaches:
Different supply chains for products made on same line in a
plant (high level of responsiveness shipped thro. FedEx).
Tailor supply chain to best meet the needs of each products
demand or customer segment.

Product Life Cycle

The demand characteristics of a product and the needs of a
customer segment change as a product goes through its life
cycle
Supply chain strategy must evolve throughout the life cycle
Early: uncertain demand, high margins (time is important),
product availability is most important, cost is secondary
Late: predictable demand, lower margins, price is important
As products mature,the corresponding supply chain strategy
should, in general, move from being responsive to being
efficient.

Changes in Supply Chain Strategy

Over a Product Life Cycle
Responsive
supply chain

Responsiveness
spectrum

Efficient
supply chain
Product
Maturity

Implied
uncertainty
spectrum

Product
Introduction

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07-Dec-15

Product Life Cycle

Examples: pharmaceutical firms (introducing new drug), Intel
As the product goes through the life cycle, the supply chain
changes from one emphasizing responsiveness to one
emphasizing efficiency
Demand and supply characteristics change over a products
life cycle.
Because demand and supply characteistics change,the supply
chain strategy must also change over the product life cycle if a
company is to continue achieving strategic fit.

Competitive Changes Over Time

Competitive pressures can change over time
More competitors may result in an increased emphasis on
variety at a reasonable price
The Internet makes it easier to offer a wide variety of
products
The supply chain must change to meet these changing
competitive conditions
With the change in competitive strategy, a firm must also
change its supply chain strategy to maintain strategic fit.

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