Detailed Summary of Chapter 1: Understanding the Supply Chain PDF

Detailed Summary of Chapter 1: Understanding the Supply Chain 1.1 What Is a Supply Chain? A supply chain includes all parties involved, directly or indirectly, in fulfilling a customer request. This encompasses manufacturers, suppliers, transporters, warehouses, retailers, and customers. Within ea...

Detailed Summary of Chapter 1: Understanding the Supply Chain 1.1 What Is a Supply Chain? A supply chain includes all parties involved, directly or indirectly, in fulfilling a customer request. This encompasses manufacturers, suppliers, transporters, warehouses, retailers, and customers. Within each organization, functions such as new product development, marketing, operations, distribution, finance, and customer service are included in the supply chain. Example: A customer purchasing detergent from Walmart initiates a supply chain that includes the Walmart store, a warehouse or distributor, the manufacturer (e.g., Procter & Gamble), and raw material suppliers like Pactiv Corporation. 1.2 The Objective of a Supply Chain The primary objective of a supply chain is to maximize overall value generated, which is the supply chain surplus. Supply Chain Surplus =Customer Value - Supply Chain Cost Example: If a customer purchases a wireless router for $60, the value the supply chain generates is the difference between this price and the total costs incurred to produce and deliver the router. The supply chain profitability, which is the surplus, is shared across all supply chain stages and intermediaries. 1.3 The Importance of Supply Chain Decisions Supply chain decisions significantly affect a firm's success and can be divided into strategic, planning, and operational decisions: Strategic: Long term decisions regarding the structure of the supply chain. Planning: Midterm decisions on policies and operations. Operational: Short term decisions concerning daytoday activities. Examples: Walmart: Invested heavily in transportation and information infrastructure to facilitate effective flow of goods and information. Designed its supply chain with clusters of stores around distribution centers to enable frequent replenishment at retail stores in a cost effective manner. Amazon: Uses a combination of online sales and a network of warehouses to ensure product availability and efficient distribution. SevenEleven Japan: Uses a responsive replenishment system and an outstanding information system to ensure product availability when and where customers need it. 1.4 Decision Phases in a Supply Chain Supply chain decisions fall into three phases: 1. Supply Chain Strategy or Design: Decisions about the structure of the supply chain and what processes each stage will perform. 2. Supply Chain Planning: Establishes policies that govern short term operations. 3. Supply Chain Operation: Ensures that the supply chain operates efficiently on a daily basis, focusing on individual customer orders. Example: PepsiCo's decision to purchase its largest bottlers to streamline manufacturing and distribution, allowing quicker response to market changes. 1.5 Process Views of a Supply Chain Two main process views are introduced: Cycle View: Divides processes into cycles at the interface between successive stages (customer order cycle, replenishment cycle, manufacturing cycle, and procurement cycle). The supply chain operations reference (SCOR) model helps businesses evaluate and perfect supply chain management for reliability, consistency, and efficiency. Example: When a customer orders a book from Amazon, the cycle includes the customer (buyer) and Amazon (supplier). For Amazon ordering books from a distributor, the cycle involves Amazon (buyer) and the distributor (supplier). Push/Pull View: Categorizes processes based on their execution timing relative to customer demand. Pull processes are initiated in response to customer orders, while push processes are initiated in anticipation of customer orders. A push/pull view of the supply chain categorizes 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 useful when considering strategic decisions relating to supply chain design. Example: Dell’s server business operates on a build toorder model (pull), whereas their consumer products are often stocked at retailers (push). SC Macro processes All supply chain processes discussed in the two process views and throughout this book can be classified into the following three macro processes, as shown in Figure 18: 1. Customer relationship management (Crm): all processes at the interface between the firm and its customers 2. Internal Supply Chain management (ISCm):all processes that are internal to the firm 3. Supplier relationship management (Srm): all processes at the interface between the firm and its suppliers Key Point Within a firm, all supply chain activities belong to one of three macro processes: CRM, ISCM, and SRM. Integration among the three macro processes is crucial for successful supply chain management. These three macro processes manage the flow of information, product, and funds required to generate, receive, and fulfill a customer request. The CRM macro process aims to generate customer demand and facilitate the placement and tracking of orders. It includes processes such as SRM= source, negotiate, buy, design collaboration, supply collaboration ISCM= strategic, demand, supply planning, fulfillment, field service CRM= market, price, sell, call center, order management 1.6 Examples of Supply Chains Various examples illustrate different supply chain structures and challenges: Detergent Supply Chain: Includes Walmart stores, distributors, manufacturers like P&G, and raw material suppliers. Amazon: Sells a wide range of products online, requiring extensive coordination across suppliers, warehouses, and logistics providers. Macy’s OmniChannel Retailing: Integrates online and physical stores to offer a seamless customer experience, with stores fulfilling online orders and vice versa. 1.7 Summary of Learning Objectives The chapter concludes by summarizing the learning objectives: 1. Understanding the goal of a supply chain and its impact on firm success. 2. Identifying the three key supply chain decision phases and their significance. 3. Describing the cycle and push/pull views of a supply chain. 4. Classifying the supply chain macro processes within a firm. Conclusion Chapter 1 of "Supply Chain Management: Strategy, Planning, and Operation" provides a foundational understanding of supply chains. It emphasizes the interconnected nature of supply chains, the critical decisions at various stages, and the overall objective of maximizing supply chain surplus. This chapter sets the stage for more detailed discussions on strategy, planning, and operations in subsequent chapters.