-AN INTRODUCTION

The Supply Chain

Evolution of SCM
Stage 1: Vendor Purchase Production Distribution Retailer
Stage 2: Materials Management Logistics Management
Stage 3: Supply Chain Management

The Concept of Supply Chain Management

where it came from?
The concept of Supply Chain Management is a
relatively new concept, prior to the 1990s in relation
to both:
- Academic Literature, and
- Practitioner Literature

Recognition:
The early to mid-1990s witnessed a growing
recognition that there could be value in coordinating
the various business functions, both:
- Within Organizations, and
- Across Organizations

Recognition (contd):

With this recognition, came into being the

Philosophy of Supply Chain Management."

Order Size

The Dynamics of the Supply Chain

Customer
Demand

Distributor Orders

Retailer Orders

Production Plan

Time

Order Size

The Dynamics of the Supply Chain

Customer
Demand

Production Plan

Time

What is the Supply Chain Management

concept?
The Supply Chain Management Concept is that

concept that encompasses all activities associated

with:
i.

ii.

Flow and transformation of Goods From the

raw material stage (extraction) through to the
end user
Information flows to and from the end user

Flows in a supply chain

Information
Product

Customer
Funds

What does the Supply Chain Concept

consist of?
The Supply Chain Concept consists of all parties

involved (directly and/or indirectly), in fulfilling

customers requests. The parties involved are:
- Manufacturers
- Suppliers

- Transporters
- Warehouses
- Retailers
- Customers

Sources:
plants
vendors
ports

Regional
Warehouses:
stocking
points

Field
Warehouses:
stocking
points

Customers,
demand
centers
sinks

Supply

Inventory &
warehousing
costs
Production/
purchase
costs

Transportation
costs
Inventory &
warehousing
costs

Transportation
costs

Supply Chain Concept (contd)

The Supply Chain Concept may also include:
- New product development
- Marketing
- Operations
- Distribution
- Finance
- Customer service

Types of Supply Chain Configurations

Three types of supply chain configurations are
looked at. These are:
Direct Supply Chain
Extended Supply Chain
Ultimate supply chain

Direct Supply Chain

Supplier

Organization

Source Prof. Dr. Ted Lees Class Presentation - 2010

Customer

Extended Supply Chain

2

Supplier
Suppliers

suppliers

Organization

Customer
Customers
customers

Ultimate Supply Chain

3rd Party Logistic Supplier

Supplier

Organization

Customer
Ultimate
customer

Ultimate

supplier

Financial Provider

Market Research

The management of the Supply Chain

What is it?
Supply chain management, according to the
Council
of
Supply
Chain
Management
Professionals, is the:
Planning and Management of all activities
involved in the following:
- Sourcing and procurement
-

Conversion

Logistics management

Management of the Supply Chain (contd)

This involves coordination, and collaboration with
channel partners such as:
- Suppliers
- Intermediaries
- Third party service providers, and

- Customers

In general, Supply Chain Management integrates

supply and demand management within and across
organization(s)

Why Manage the Supply Chain?

Companies that excel in supply chain
management perform BETTER in every
financial measure of success
Supply-chain excellence improves demandforecast accuracy, which results in
approximately:

5% higher profit margin

15% less inventory

up to 17% stronger perfect order ratings
35% shorter cash-to-cash cycle times than
the competition

FIVE BASIC COMPONENT OF SUPPLY CHAIN

MANAGEMENT
1. Planning:
The

strategic portion of supply chain management.

A strategy for managing all the resources that goes

toward meeting customer demand for your product
or service.
Balances aggregate demand and supply to develop a
course of action which best meets the requirements
for:
-Sourcing
- Production, and
-Delivery

BASIC COMPONENT OF SUPPLY CHAIN

MANAGEMENT (contd)
2.

Sourcing:

Choose the suppliers that will deliver the goods and

services you need to create your product or service.
Develop a set of pricing, delivery and payment
processes with suppliers and create metrics for
monitoring and improving the relationships.
Put together processes for managing the inventory
of goods and services you receive from suppliers.

3.

BASIC COMPONENT OF SUPPLY CHAIN

MANAGEMENT (contd)
Making: (The manufacturing step. )

Schedule the activities necessary for production,

testing, packaging and preparation for delivery.
Is the most metric-intensive portion of the supply
chain, it measures
- Quality levels
- Production output, and
- Worker productivity

BASIC COMPONENT OF SUPPLY CHAIN

MANAGEMENT (contd)
4. Delivering: ( The "logistics portion of SCM. )

It Involves:
- Coordinating the receipt of orders from customers
- Developing network of warehouses
- Picking carriers to get products to customers, and
- Set up an invoicing system to receive payments.

BASIC COMPONENT OF SUPPLY CHAIN

MANAGEMENT (contd)
5. Return: (The problem part of the supply chain. )
Create a network for receiving defective and excess
products back from customers
Supporting customers who have problems with
delivered products.

Philosophy of SCM

The entire supply chain is a single, integrated

entity.
The cost, quality and delivery requirements of

the customer are objectives shared by every

company in the chain.
Inventory is the last resort for resolving supply

and demand imbalances.

Key Attributes of Supply Chain

Management
Customer Power Customer has become highly

knowledgeable about individual organization and its

product as well as about competing organizations
and products
Long-term Orientation Seeks relational exchanges

rather than transaction exchanges

Leveraging Technology Supply chains can be very

complex entities which require appropriate

technology to maximize shareholder wealth and
reduce costs. This as opposed to what obtained
historically.

Attributes of Supply Chain Management (contd)

Enhanced communication across Organization
Accurate, real time, seamless information flow
within and across organizations is necessary as
Supply chain relies on high volumes of information
Inventory Stock Better control flow of inventory
with fewer inventory lumps and also reduction in
the amount of physical inventory
Inter-organizational Collaboration Supply chain
as a whole has the objective of optimizing the
performance of the entire supply chain rather than
individual organization

Efficiency: Basis of Production Management

Efficiency leads to lower costs
Lower cost implies

Lower Price => Greater demand => Better market

growth => Higher profits => Product/ Process
development => Better market share
1980s and 1990s: Era of achieving excellence at
the firm level (JIT, TQM, TPM, BPR, ERP, etc)
2000s: Era of achieving excellence at the value
chain level (SCM, CRM, E-Commerce, etc.)

Decision Phases in a Supply Chain

Supply chain strategy or design
Supply chain planning

Supply chain operation

Process view of a supply chain

Cycle view
Push/pull view

Cycle View of Supply Chains

Customer

Customer Order Cycle

Retailer

Replenishment Cycle
Distributor

Manufacturing Cycle
Manufacturer

Procurement Cycle
Supplier

Customer order cycle

Customer arrival

Customer order entry

Customer order fulfillment
Customer order receiving

Replenishment cycle
Retail order trigger

Retail order entry

Retail order fulfillment
Retail order receiving

Manufacturing cycle
Order arrival from the distributor, retailer, or
customer
Production scheduling

Manufacturing and shipping

Receiving at the distributor, retailer, or

customer

Push/Pull View of Supply Chains

Pull processes: execution is initiated in
response to a customer order
Push processes: execution is initiated in
anticipation of customer orders

Push/Pull View of Supply Chains

Procurement,
Manufacturing and

Customer Order
Cycle

Replenishment cycles

PUSH PROCESSES

PULL PROCESSES

Customer
Order Arrives

Supply chain objective

Maximize overall value generated
Value strongly correlated to supply chain
profitability the difference between the
revenue generated from the customer and
the overall cost across the supply chain
Example: A customer purchasing a
computer from Dell pays $ 700 (the
revenue)
Dell and other stages of the supply chain
incur cost to convey information, produce
the components, store them, transport

them, transfer funds, etc.

Examples of Supply Chains

Dell / Compaq
Toyota / GM / Ford
Milk Distribution System of NDDB
Merry-Go-Round System of NTPC
Dabbawalas of Mumbai
Amazon / Borders / Barnes and Noble

Supply Chain: The Magnitude

In 1998, American companies spent $898

billion in supply-related activities (or

10.6% of Gross Domestic Product).
Transportation 58%

Inventory 38%
Management 4%

Third party logistics services grew in 1998

by 15% to nearly $40 billion

Supply Chain: The Magnitude (continued)

SOME ESTIMATES FOR INDIA
* Logistics Spend IN Rs. 2,40,000 crores
(approx. US $ 50 Billion)
* Share of GDP .
12-13 %
* Major Elements are ( Percentage of Total)
* Transportation
* Inventories

* Packaging

* Handling & Warehousing ..

* Others & Losses

35
25
11
9
14

Supply Chain:The Magnitude (continued)

It is estimated that the grocery industry
in USA could save $30 billion (10% of

operating cost) by using effective logistics

strategies.
A typical box of cereal spends 104 days

getting from factory to supermarket.

A typical new car spends 15 days

traveling from the factory to the

dealership.

Supply Chain: The Magnitude (continued)

Compaq computer estimates it lost $500 million to

$1 billion in sales in 1995 because its laptops and

desktops were not available when and where
customers were ready to buy them.
Boeing Aircraft, one of Americas leading capital

goods producers, was forced to announce writedowns of $2.6 billion in October 1997.
The reason? Raw material shortages, internal and
supplier parts shortages. (Wall Street Journal,
Oct. 23, 1997)

Supply Chain: The Potential

In 25 years, NDDB has enabled India to become

the largest producer of milk by implementing a

logistics and supply chain system that has
eliminated several intermediaries, thereby
leading to a much higher remunerative price
(yield) for producers and lower price for
consumers.
As described in the FORBES magazine, the
Dabbawalas of Mumbai has achieved an
extremely high level of reliability and precision
(SIX SIGMA level in QA parlance) in delivering to
their customers the products earmarked for
them.

Supply Chain: The Potential

Procter & Gamble estimates that it saved retail

customers $65 million through logistics gains

over the past 18 months.
According to P&G, the essence of its approach
lies in manufacturers and suppliers working
closely together . jointly creating business
plans to eliminate the source of wasteful
practices across the entire supply chain.
(Journal of Business Strategy, Oct./Nov. 1997)

Supply Chain: The Potential

Dell Computer has outperformed the competition

in terms of shareholder value growth over the

eight years period, 1988-1996, by over 3,000% (see
Anderson and Lee, 1999) using
- Direct business model
- Build-to-order strategy.

Supply Chain: The Potential

In 10 years, Wal-Mart transformed itself by

changing its logistics system. It has the

highest sales per square foot, inventory
turnover and operating profit of any
discount retailer.

Complexities Involved in Supply Chain

Management
The supply chain is a complex network of

facilities and organizations with different,

conflicting objectives
Matching supply and demand is a major
challenge
System variations over time are also an
important consideration
Many supply chain problems are new and there
is no clear understanding of all the issues
involved

Supply Chain: The Complexity

National Semiconductors:
Production:

Produces chips in six different locations: four in the US, one

in Britain and one in Israel
Chips are shipped to seven assembly locations in Southeast
Asia.

Distribution

The final product is shipped to hundreds of facilities all over

the world
20,000 different routes
12 different airlines are involved
95% of the products are delivered within 45 days
5% are delivered within 90 days.

Whats New in SCM?

Global competition
Shorter product life cycle
New, low-cost distribution channels
More powerful well-informed customers
Internet and E-Business strategies

Levels of implied demand uncertainty

Detergent
Long lead time steel

Price
Low

High Fashion
Emergency steel

Customer Need
Responsiveness

High

Implied Demand Uncertainty

Understanding the Supply Chain: CostResponsiveness Efficient Frontier

Responsiveness
High

Low
Cost
High

Low

New Concepts
Push-Pull strategies

Direct-to-Consumer
Strategic alliances
Manufacturing postponement
Dynamic Pricing
E-Procurement

A Plethora of Approaches

Just in Time Inventory

Vendor Managed Inventory
Quick Response
Collaborative Planning, Forecasting and
Replenishment
Cross-docking / Flow through Centres
Outsourcing / 3 PLs
Activity Based Costing
Internet / EDI
Bar-Coding / RFID
Build to Order

A Plethora of Approaches
(continued)
Partnerships / Alliances
Auctions / Exchanges
Postponement Strategies
SC Software
SC Event Management
Merge-In-Transit
Collaborative Transportation Management
Cash to Cash Metrics

Modeling for SCM

Forecasting Models
- These models allow prediction of demand based on past data or
other parameters that are independently available. They
enable
better planning, given the
lead-time necessary
for response.

Location Models
- These models identify the optimal location of facilities such as
plants and warehouses, considering the inbound and
outbound transportation costs as well as the fixed and variable
costs of
operation at the locations under consideration.
These are
usually formulated as Mixed Integer Programming
Models.

Modeling for SCM (contd)

Distribution Network Design Models
- These models are usually comprehensive in nature, deciding
between two, three and even four stages of distribution
network, location of warehouses and break-bulk points,
and sometimes even the transportation.

Allocation Models
- These models help in optimally allocating commodities from
sources to destinations in a multi-source, multi-destination
environment. The costs considered for optimisation are
production costs and warehousing costs. The constraints
considered can be due to demand, capacity, route
restrictions, etc.

Modeling for SCM (contd)

Inventory Models
- Inventory plays a major role in SCM.

- Inventory can be of various types such as:

- Batching and shipment inventories
- Buffer stocks to take care of uncertainties
- Pipeline inventory ( primary and secondary
transportation )
These models minimize the total relevant cost, based on tradeoffs among, inter alia, inventory carrying cost, ordering cost,
stock-out cost, transportation cost, taxes & duties, etc.

Modeling for SCM (contd)

Routing Models

- These models allow optimal routing on a

transportation network from a given source to a
destination. The models used are the Shortest
Path Problem, the Traveling Salesman Problem
and the Vehicle Routing Problem. Decision
Support Systems that interactively use the
expertise of the decision maker by providing
graphical support through a map (i.e., using a
Geographical Information System ) are also very
useful in such decisions.

Modeling for SCM (contd)

Scheduling Models
- These models enable allocation of resources to
particular activities. Depending on the criteria of
interest and the number of resources, the models
are of aid in evaluating appropriate rules for allocation.

Alternative Analysis
- This model simply proposes the identification of alternatives,
criteria for decision making and analysis of the alternatives
across the criteria to arrive at the best choice. Formal
approaches such as simulation and analytic hierarchy process
could be used in assessing the implications of the criteria.

THANK YOU