Understanding Supply Chains

Understanding the Supply Chain

• A supply chain includes all stages involved in fulfilling a customer request, directly or indirectly.
• These stages encompass manufacturers, suppliers, transporters, warehouses, retailers, and customers.
• Within each company, the supply chain covers all functions in fulfilling customer requests, such as product development, marketing, operations, distribution, finance, and customer service.
• The customer is an integral part of the supply chain.
• The supply chain involves the movement of products from suppliers to manufacturers to distributors.
• It also includes information, funds, and products moving in both directions.
• The term "supply network" or "supply web" is sometimes more accurate
• Typical supply chain stages include customers, retailers, distributors, manufacturers, and suppliers.
• Not all stages are present in every supply chain, like Dell, which lacks retailers or distributors.

Objective of A Supply Chains

• The goal is to maximize overall value created.
• Supply Chain Surplus = Customer Value – Supply Chain Cost
• For example, a customer buys a wireless router from Best Buy for $60, which is the revenue.
• The costs include information, storage, transportation, components, and assembly.
• The difference between the $60 revenue and the sum of costs shows the supply chain profit.
• Supply chain profitability is the total profit shared across all stages.
• Success is measured by total supply chain profitability, not just profits at one stage.
• The customer is the only source of revenue.
• Costs come from the flows of information, products, and funds between stages.
• Effective supply chain management manages flows between stages to maximize the total supply chain surplus.

Importance of Supply Chain Decisions

• Wal-Mart increased sales from $1 billion in 1980 to $408 billion in 2010.
• Seven-Eleven Japan increased sales from ¥1 billion in 1974 to ¥3 trillion in 2009.
• Webvan folded in two years.
• Borders declined from $4 billion in 2004 to $2.8 billion in 2009.
• Dell, with $56 billion in 2006, adopted new supply chain strategies.

Decision Phases of a Supply Chain

• Supply Chain Strategy/Design: This determines how the supply chain will be structured over years.
• Supply Chain Planning: This involves decisions for the next quarter or year.
• Supply Chain Operation: This covers daily or weekly operational decisions.

Supply Chain Strategy or Design

• Decisions are made about the structure and processes of each stage in the supply chain.
• Strategic decisions include locations and capabilities of facilities, product storage locations, transportation modes, and information systems.
• Supply chain design must support strategic objectives.
• Design decisions are long-term and expensive to reverse, so market uncertainty must be considered.

Supply Chain Planning

• It involves setting policies to govern short-term operations.
• It's fixed by the previous supply configuration.
• Planning starts with a forecast of demand for the upcoming year.
• Decisions include which markets to supply, inventory buildup, subcontracting, inventory policies, and market promotions.
• Demand uncertainty, exchange rates, and competition must be considered.

Supply Chain Operation

• The time horizon is weekly or daily.
• Decisions concern individual customer orders.
• The supply chain configuration is fixed, and operating policies are set.
• The goal is to implement operating policies effectively.
• Tasks include allocating orders, setting due dates, generating pick lists, allocating shipments, setting delivery schedules, and placing replenishment orders.
• There is much less uncertainty.

Process View of a Supply Chain

• Cycle View: The supply chain is divided into cycles, each performed at interfaces between two successive stages.
• Push/Pull View: Processes are divided into categories depending on whether they are executed in response to a customer order (pull) or in anticipation of a customer order (push).

Push/Pull View of Supply Chain Processes

• Processes are categorized based on execution timing relative to customer demand.
• Pull is execution initiated in response to an order (reactive).
• Push is execution initiated in anticipation of orders (speculative).
• The push/pull boundary separates push and pull processes.
• This view is useful for strategic decisions related to supply chain design, providing a global view of how processes relate to customer orders.
• Can combine push/pull and cycle views, such as with L.L. Bean and Dell.
• The proportion of push and pull processes impacts performance.

Supply Chain Macro Processes

• Processes in the two views are classified into:
• Customer Relationship Management (CRM)
• Internal Supply Chain Management (ISCM)
• Supplier Relationship Management (SRM).
• Integration among CRM, ISCM, and SRM is critical for effective supply chain management.