2. WHAT IS SUPPLY CHAIN ?
It Consists of all parties involved, directly or indirectly, in fulfilling a customer request, include
not only manufacturers & suppliers, but also transporters, warehouses, retailers & even
customers
All facilities, functions, activities, associated with flow and transformation of goods and
services from raw materials to customer, as well as the associated information flows.
An integrated group of processes to “source,” “make,” and “deliver” products.
Supplier Manufacturer Distributor Retailer Customer
3. WHAT IS SUPPLY CHAIN MANAGEMENT?
Supply chain (sometimes called the value chain or demand chain)
management consists of firms collaborating to leverage strategic
positioning and to improve operating efficiency.
6. THE PRODUCT FLOW
Flow of Products
From the beginning to the final customer
Reverse Logistics
7. INFORMATION FLOW IN SUPPLY CHAIN
Flow of Information
Simplified supply chains utilize data from point-of-
sale back to suppliers
Real time information reduces uncertainty and
inventory levels
9. FORWARD INFORMATION FLOW
Advance shipment notices
Order status information
Inventory availability information
10. CASH FLOW IN SUPPLY CHAIN
Flow of Funds
Funds are transferred in both directions along the
supply chain
Supply chain compression
Management of working capital
11. DEMAND FLOW
Detect and understand demand signals
Synchronize demand vs. supply
12. LOGISTICS IN SUPPLY CHAIN
Logistics, in contrast to supply chain management, is the
work required to move and position inventory throughout a
supply chain
13. MAJOR FUNCTIONS OF SUPPLY CHAIN
Purchasing/Procurement
Manufacturing
Inventory Management
Demand Planning
Warehousing
Transportation
Customer Service
20. INVENTORY MANAGEMENT IN SUPPLY CHAIN
Inventory is spread throughout the supply chain and includes
everything from raw material to work in process to finished goods
that are held by the manufacturers, distributors, and retailers in a
supply chain.
21. INVENTORY MANAGEMENT
Its important to have the right product, at the right place at the right
price, and inventory allows this to occur.
Manager must decide about inventory cost
22. DEMAND PLANNING
It is a process of forecasting customer demand
Demand planning helps in Production planning , Inventory
management and Capacity requirements
23. WAREHOUSING IN SUPPLY CHAIN
Warehousing is a performance of administrative and physical
functions associated with storage of goods and materials.
These functions include receipt, identification, inspection,
verification, putting away, retrieval for issue
24. TRANSPORTATION
The movement of everything from raw material to finished goods
between different facilities in a supply chain.
25. CUSTOMER SERVICE
The process of ensuring the customer satisfaction
Only process in supply has interaction with customer
Helpful in understanding the needs of the customer
26. THE SALES ORDER PROCESSING WORKFLOW
The life cycle of a sales order begins when a company receives a purchase order from a customer. The
purchase order details what the customer wants and the price they were quoted for it. This document
also lists their billing address as well as their delivery or service address.
27. DECISION PHASES IN A SUPPLY CHAIN
Successful supply chain management requires many decisions relating to the flow of information,
product, and funds. Each decision should be made to raise the supply chain surplus.
These decisions fall into three categories or phases, depending on the frequency of each decision and
the time frame during which a decision phase has an impact
28. DECISION PHASES IN A SUPPLY CHAIN
1. Supply chain strategy or design: During this phase, a company decides how to structure the supply
chain over the next several years.
It decides what the chain’s configuration will be, how resources will be allocated, and what processes
each stage will perform.
29. DECISION PHASES IN A SUPPLY CHAIN
A firm must ensure that the supply chain configuration supports its strategic objectives and increases
the supply chain surplus during this phase
Supply chain design decisions are typically made for the long term (a matter of years) and are
expensive to alter on short notice.
30. DECISION PHASES IN A SUPPLY CHAIN
2. Supply chain planning: For decisions made during this phase, the time frame considered is a
quarter to a year.
Therefore, the supply chain’s configuration determined in the strategic phase is fixed. This
configuration establishes constraints within which planning must be done.
The goal of planning is to maximize the supply chain surplus that can be generated over the planning
horizon given the constraints established during the strategic or design phase.
31. DECISION PHASES IN A SUPPLY CHAIN
For example, steel giant ArcelorMittal’s decisions regarding markets supplied by a production facility
and target production quantities at each location are classified as planning decisions
In the planning phase, companies must include uncertainty in demand, exchange rates, and
competition over this time horizon in their decisions
32. DECISION PHASES IN A SUPPLY CHAIN
3. Supply chain operation: The time horizon here is weekly or daily. During this phase, companies
make decisions regarding individual customer orders.
At the operational level, supply chain configuration is considered fixed and planning policies are
already defined.
The goal of supply chain operations is to handle incoming customer orders in the best possible
manner.
33. EVOLUTION OF SUPPLY CHAIN MANAGEMENT
The evolution of supply chain management has been a
gradual process. Over the last century, there have been
three major revolutions in the field of supply chain
management and we examine each of them in the context
of the broader evolution in the economic and
technological environment
34. Our aim is always to arrange the material and machinery and to simplify
the operations so that practically no orders are necessary. Our finished
inventory is in transit. So is most of our raw material inventory. Our
production cycle is about eighty-one hours from the mine to the finished
machine (automobile) in the freight car.
35. Indeed, this statement came not in the 1960s or 1970s. Rather,
Henry Ford achieved this fine balance in the 1910s with the
Ford Motor Company. Clearly, this achievement set the standard
for all managers the world over.
36. THE FIRST REVOLUTION (1910–1920): VERTICAL INTEGRATED FIRMS
OFFERING LOW VARIETY OF PRODUCTS
The first major revolution was staged by the Ford Motor Company where they had
managed to build a tightly integrated chain. The Ford Motor Company owned every
part of the chain— right from the timber to the rails.
Through its tightly integrated chain, it could manage the journey from the iron ore
mine to the finished automobile in 81 hours.
37. However, as the famous saying goes, the Ford supply chain would offer any colour, as
long as it was black; and any model, as long as it was Model T. Ford innovated and
managed to build a highly efficient, but inflexible supply chain that could not handle a
wide product variety and was not sustainable in the long run.
General Motors, on the other hand, understood the demands of the market place and
offered a wider variety in terms of automobile models and colours. Ford’s supply
chain required a long time for set-up changes and, consequently, it had to work with a
very high inventory in the chain.
38. THE SECOND REVOLUTION (1960–1970): TIGHTLY INTEGRATED
SUPPLY CHAINS OFFERING WIDE VARIETY OF PRODUCTS
The Toyota Motor Company came up with ideas that allowed the final assembly and
manufacturing of key components to be done in-house. The bulk of the components
was sourced from a large number of suppliers who were part of the keiretsu system
Keiretsu refers to a set of companies with interlocking business relationships and
shareholdings. The Toyota Motor Company had long-term relationships with all the
suppliers.
39. These suppliers were located very close to the Toyota assembly plants.
Consequently, set-up times, which traditionally used to take a couple of hours, were
reduced to a couple of minutes.
This combination of low set-up times and long-term relationships with suppliers was
the key feature that propelled the second revolution—and it was a long journey from
the rigidly integrated Ford supply chain. The principles followed by Toyota are more
popularly known as lean production systems.
40. The Toyota system, involving tight linkages, did get into some problems in the later
part of the century.
Gradually, when Toyota and other Japanese firms tried to set up assembly plants in
different parts of the world, they realized that they would have to take their suppliers
also along with them.
Further, they found that some of the suppliers in keiretsu had become complacent
and were no longer cost competitive. With the advent of electronic data interchange
(EDI), which facilitated electronic exchange of information between firms, it was
possible for a firm to integrate with the suppliers without forcing them to locate their
plants close to the manufacturers’ plant.
41. THE THIRD REVOLUTION (1995–2020): VIRTUALLY INTEGRATED GLOBAL
SUPPLY NETWORKS OFFERING CUSTOMIZED PRODUCTS AND SERVICES
Technology, especially information technology, which is evolving faster than
enterprises can find applications for some of the innovations, is the fuel for the third
revolution in supply chain. It will probably take at least couple of years before we can
fully understand the IT-enabled model that has emerged and begin to apply it to all
industries.
42. Apple Inc., and Bharti Airtel. The first is a product company, the second combines
product and service, and third is a pure service organization. In each of these
organisations, we will see different aspects of the third revolution
However, it is not just about the product. Apple allows the consumer to have a
personalized user experience through the features and services. Users can personalize
the music and other media content on their device through the various features
available on iPod. Similarly, Bharti Airtel allows services like My Airtel through
which customer can have unique personalized experience.
43. EVOLUTION OF SCM
Although the term “supply chain management” is a recently new term used in the public domain, the
history of supply chain management goes back more than 100 years to Fredrick Taylor in 1911. Taylor
is the founder of industrial engineering and his publication The Principles of Scientific
Management focuses on the importance of improving processes in manual loading
44. Organizations have moved from offering products to offering user experiences, which
are a bundle of goods and services selected by the user. This has changed the way
supply chains are configured to deliver value. Let us begin with Dell. To make sure its
customers get the completely customized product
Dell has built a strong network of vendors who are cost and technology leaders. These
medium-term relationships are based on the understanding that the vendors will
adhere to a high benchmark on cost and technology leadership which in turn will
reflect in Dell’s products.
45. Take the example of Apple iTunes and App Store. At the first level, iTunes made it
possible for Apple to provide all the music in the world to its users through a seamless
and tightly integrated platform. While this was only about entertainment, the App
Store took it to the next level. It created a global community of small and medium
sized application development teams who could become partners with Apple, use its
App Store platform, and offer a rich bouquet of utilities and applications which would
all help create a one-of-its-kind user experience
46. EVOLUTION OF SUPPLY CHAIN INVENTIONS
Although the term “supply chain management” is a recently new term used in the
public domain, the history of supply chain management goes back more than 100
years to Fredrick Taylor in 1911. Taylor is the founder of industrial engineering and
his publication The Principles of Scientific Management focuses on the importance of
improving processes in manual loading
47. This way of operations research and analytic value became the method of logistics
during World War II military operations in the 1940’s. Thus, the concepts of
industrial engineering and operations research merged to become supply chain
engineering. These concepts have seen many progressions in the last six decades.
48. A CONCISE TIMELINE OF EVOLUTION OF LOGISTICS AND SCM IS AS FOLLOWS:
1810- “Logistics” word used for the first time ) A famous publication, ‘The Scots Magazine
and Edinburgh Literary for January 1810’ included an article saying that Dr. Wilhei Muller
was going to write a book on the elements of science of war which comprised of the
“logistics” of soldier movements, it was the first time the word was used in the English
language. Around 100 years after this incident, ‘The Independent’ newspaper had an article
describing “Supply Chain”, which was in relation to the war activities.
49. 1913-The invention of the ‘Assembly line’ The famous car manufacturer Ford installed their first
moving assembly line which enabled them to produce the vehicles at rate, thereby ensuring economies
of scale.
Since the invention of the internal combustion engine and cars in the late 19th century, pioneers
started developing trucks to allow for the faster transport of goods by road. The first semi-truck was
invented at the very end of the 19th century and Mack Trucks was founded in 1900. Originally running
on gasoline, diesel engines were introduced in the mid-1920s. There were early concepts for the
forklift truck in the early 20th century, with further development prior to 1930
50. THE SUPPLY CHAIN FROM THE 1930S TO THE 1940S — GREATER
MECHANIZATION
Logistics became very important during World War II, as military organizations
needed efficient supply chains at home and in Europe. At home, supply chains were
necessary to manufacture military hardware and supplies, while abroad, it was
essential to get supplies and support to troops as quickly as possible. The 1940s saw a
consolidation of industrial engineering and operations research into supply chain
engineering.
51. 1940-Pallets and lift mechanization a faster In the period of 1940s to 1950s, the
main aim of the logistics field was to find out methods to increase the efficiency of
keeping stock in the warehouse, the use of racking and finally the best possible
design for a warehouse. The concept of using pallets gained a lot of publicity during
this time.
52. 1950-The birth of ‘Transport Management’ The use of intermodal containers along
with ships, trains and trucks to send items wherever they needed to be saw the birth of
‘Transport Management’ and made the way for the globalization of supply Chain
Management.
1952- Barcode was patented.
53. THE SUPPLY CHAIN IN THE 1950S — STANDARDIZATION AND
THE INTRODUCTION OF CONTAINERIZATION
Arguably, the greatest revolution in global supply chains was the invention of the shipping
container, and all the logistics and modes of transport needed to support it.
Whether a container is being pulled by road on a truck, carried on the railway or shipped
overseas on a container ship, standardization makes transporting and handling these
containers fast and easy.
That means cost and efficiency savings throughout the supply chain. Every minute saved
translates directly to faster transfer of goods, reduced waste and environmental impact, and
better margins.”
54. THE SUPPLY CHAIN FROM THE 1960S TO THE 1980S —
GREATER EFFICIENCIES AND COMPUTERIZATION
During the 1960s, goods distribution shifted away from railroads and
towards trucking. The continued evolution of pallets, handling equipment,
containerization and other areas meant that freight transportation was
more reliable. This led to the efficient transport of time-sensitive raw
materials, parts and products, even over longer distances.
55. 1960-The discovery was made that computer systems had the capability to transfer the
documents from one computer to another
1961-IBM develops the earliest version of Material Requirement Planning (MRP)
1971-The concept of Reverse logistics started in which the consumer played the role
of a seller, who distributed his waste materials where there is a demand.
56. Computerization started to gain popularity in the mid-1960s and IBM developed the
first computerized inventory management and forecasting system in 1967.
Before the 1960s, logistics records and data were captured, sent and reported through
paper. Data computerization started to streamline logistics, and created opportunities
in many areas including more accurate forecasting, better warehouse storage, truck
routing and better inventory management
57. The first real-time warehouse management system was installed in 1975, making
it easier to track orders, inventory and distribution and leading to greater efficiencies.
Around the same time, barcodes made it much easier to scan products, starting the
move away from manual input of SKUs and product codes.
58. THE SUPPLY CHAIN IN THE 1980S AND 1990S — FURTHER
EFFICIENCIES AND THE SHIFT TO A GLOBAL MODEL
The 1980s saw supply chain stakeholders, transportation manufacturers and more building
on their successes.
In 1983, the term “Supply Chain Management” was coined, and personal computing
further revolutionized the supply chain.
New software like flexible spreadsheets, mapping and route planning made it easier to track
costs and maximize profits.
This was coupled with other advancements including air freight optimization, supply
chain distribution networks and the introduction of Enterprise Resource Planning (ERP)
systems.
59. 1985-Fed Ex invented a new computerized tracking system to track the packages in real time.
1988-The term “Lean Manufacturing” was established.
2003-Walmart announces mandatory RFID tag norms
2010-Emergence of smart factory In a smart factory, there is extensive use of sensors, Internet
of things, big data, machine learning and artificial intelligence which combine to help the
manufacturers increase the performance and supply chains are able to track parts and do
maintenance when it needs to be done
60.
61.
62. THE IMPORTANCE OF THE SUPPLY CHAIN
Proliferation in product lines.
Companies have realized that more and more product variety is needed to
satisfy the growing range of customer tastes and requirements.
This is evident from the fact that every time a customer walks into a neighbor
hood store, he or she is bound to discover a couple of items on the shelf that
he or she had not seen during his or her last visit and that he or she has more
varieties to choose from now. Every time you walk into a neighborhood store,
do not be surprised to find that even a simple product like toilet soap has 50-
odd varieties.
63. Shorter product life cycles.
With increased competition, product life cycles across all industries are
becoming shorter. For example, technology leaders like Apple works with a
life cycle as short as 6 months. So a firm like Apple , which has, on an
average, just 5 days of inventory, as compared to the industry average of 35
days, does not have to worry about product and component obsolescence.
64. Higher level of outsourcing.
As discussed in the section on “Evolution of Supply Chain
Management”, firms increasingly focus on their core activities and
outsource non-core activities to other competent players. Michael
Dell, the CEO of Dell Computers, had mentioned that if his
company was vertically integrated, it would need five times as
many employees and would suffer from a drag effect.
65. Shift in power structure in the chain.
In every industry, the entities closer to customers are becoming more
powerful. With increasing competition, a steadily rising number of products
are chasing the same retail shelf space. Retail shelf space has not increased
at the pace at which product variety has increased. So there have been cases
of retailers asking for slotting allowance when manufacturers introduce new
products in the market place.
66. Globalization of manufacturing.
Over the past decade, tariff levels have come down significantly.
Many companies are restructuring their production facilities to be
at par with global standards. Unlike in the past, when firms use to
source components, produce goods and sell them locally, now
firms are integrating their supply chain for the entire world market.
67. ENABLERS OF SUPPLY CHAIN PERFORMANCE
Managing supply chains is becoming increasingly complex. Despite this, firms
have actually managed to reduce their logistics costs. For example, in a
country like the United States of America, logistics costs used to account for
15 per cent of the gross domestic product (GDP) in the 1980s. Today,
because of innovations in technology and management practices, logistics
costs account for about 8.5 per cent of their GDP. Three major enablers that
have helped firms and nations in reducing supply chain costs
68. IMPROVEMENT IN COMMUNICATION AND IT
Computing power has become cheaper and communication costs too have
come down. This has helped firms in coordinating global supply chains in a
cost-effective manner. Advances in enterprise resource planning (ERP)
systems have helped firms in automating several business processes
resulting in seamless information flow throughout the company across
different functions.
69. For example, a company with multiple plants can work with a common pool of
safety stock of raw materials and does not need to have safety stocks for
each individual plant. Similarly, on the order-processing side, companies can
offer greater customization as compared to the past because their order-
processing system can be designed to handle customized orders and their
manufacturing and distribution system would allow them to track these
customized products in the system
70. EMERGENCE OF THIRD-PARTY LOGISTICS PROVIDERS
Traditionally, many firms have been managing their logistics activities internally.
Lately, companies have realized that they need to focus their energies on managing
core business activities, and hence have been exploring the possibility of outsourcing
logistics activities to third-party logistics (3PL) service providers. In developed
countries, almost 90 per cent of the logistics activities are outsourced and are
managed by 3PL companies. Apart from bringing in the much needed
professionalism to the field, 3PL companies have economies of scale as they are
able to pool demand across customers.
71. ENHANCED INTER-FIRM COORDINATION CAPABILITIES
Successful coordination across a global network of companies has been a
comparatively new phenomenon in the corporate world. It has been realized
that for a network to function meaningfully one needs a firm to play the role of
the strategic centre
77. INFORMATION
Data and analysis concerning
facilities, inventory, transportation,
costs, prices, and customers
throughout the supply chain
78. SOURCING
Sourcing is the choice of who will
perform a particular supply chain
activity, such as production,
storage, transportation, or the
management of information.
79. PRICING
Pricing determines how much a
firm will charge for the goods and
services that it makes available in
the supply chain.
80. CROSS-FUNCTIONAL DRIVERS
Supply chain management includes the use of logistical and cross-
functional drivers to increase the supply chain surplus
Cross-functional drivers have become increasingly important in raising
the supply chain surplus in recent years
81. CROSS-FUNCTIONAL DRIVERS
Consider, for example, the sale of furniture at IKEA
The low component variety and stable replenishment orders allow
IKEA’s suppliers to focus on efficiency.
Given the available inventory, low-cost modes of transportation are
used to ship densely packed components.
82. CROSS-FUNCTIONAL DRIVERS
In contrast, some U.S. furniture makers have chosen to focus on
providing variety.
Given the high variety and high prices, keeping inventory of all variants
at a retailer would be very expensive
85. WALMART FRAMEWORK
Walmart pioneered cross-docking, a system in which inventory is not stocked
in a warehouse but rather is shipped to stores from the manufacturer with a
brief stop at a distribution center (DC), where product is transferred from
inbound trucks from the supplier to outbound trucks to the retail store
86. WALMART FRAMEWORK
On the transportation front, Walmart runs its own fleet, to keep
responsiveness high
Walmart uses centrally located DCs within its network of stores to decrease
the number of facilities and increase efficiency at each DC
87. WALMART FRAMEWORK
Walmart has invested significantly more than its competitors in information
technology, allowing the company to feed demand information across the
supply chain to suppliers that manufacture only what is being demanded.
With regard to the sourcing driver, Walmart identifies efficient sources for
each product it sells
88. WALMART FRAMEWORK
Finally, for the pricing driver, Walmart practices “everyday low pricing” (EDLP)
for its products
Walmart uses all the supply chain drivers to achieve the right balance
between responsiveness and efficiency so its competitive strategy and supply
chain strategy are in harmony.
89. ROLE OF FACILITIES IN SUPPLY CHAIN
Role in the supply chain
The “where” of the supply chain
Manufacturing or storage (warehouses)
Role in the competitive strategy
Economies of scale (efficiency priority)
Larger number of smaller facilities (responsiveness priority)
90. COMPONENTS OF FACILITIES DECISIONS
Role
Flexible, dedicated, or a combination of the two
Product focus or a functional focus
91. COMPONENTS OF FACILITIES DECISIONS
Role
Flexible, dedicated, or a combination of the two
Product focus or a functional focus
92. COMPONENTS OF FACILITIES DECISIONS
Location
Where a company will locate its facilities
Centralize/decentralize, macroeconomic factors, quality of workers, cost of workers and
facility, availability of infrastructure, proximity to customers, location of other facilities, tax
effects
93. COMPONENTS OF FACILITIES DECISIONS
Capacity
A facility’s capacity to perform its intended function or functions
Excess capacity – responsive, costly
Little excess capacity – more efficient, less responsive
94. COMPONENTS OF FACILITIES DECISIONS
Facility-Related Metrics
Capacity
Utilization
Processing/setup/down/idle time
95. COMPONENTS OF FACILITIES DECISIONS
Facility-Related Metrics
Production
Quality losses
Theoretical flow/cycle time of production
96. COMPONENTS OF FACILITIES DECISIONS
Facility-Related Metrics
Actual average flow/cycle time
Flow time efficiency
Product variety
97. COMPONENTS OF FACILITIES DECISIONS
Facility-Related Metrics
Volume contribution of top 20 percent SKUs and customers
Average production batch size Product variety
Production service level
98. ROLE OF INVENTORY IN THE SUPPLY CHAIN
Role in the Supply Chain
Mismatch between supply and demand
Satisfy demand
Exploit economies of scale
Impacts assets, costs, responsiveness, material flow time
99. ROLE OF INVENTORY IN THE SUPPLY CHAIN
Role in the Supply Chain
Mismatch between supply and demand
Satisfy demand
Exploit economies of scale
Impacts assets, costs, responsiveness, material flow time
100. ROLE OF INVENTORY IN THE SUPPLY CHAIN
Little’s Law
D: Demand or throughput rate at which sales to end consumers occur
T: material flow time: time elapsed between when material enters the supply chain to when it
exits the supply chain
I: Inventory required
I = DT
Ex:
Case 1: I=60 units/hr x 10 hrs= 600 units
Case 2: I=60 units/hr x 5 hrs=300 units
101. COMPONENTS OF INVENTORY DECISIONS
Cycle inventory
Average amount of inventory used to satisfy demand between shipments
Function of lot size decisions
102. COMPONENTS OF INVENTORY DECISIONS
Safety inventory
Inventory held in case demand exceeds expectations
Costs of carrying too much inventory versus cost of losing sales
103. COMPONENTS OF INVENTORY DECISIONS
Seasonal inventory
Inventory built up to counter predictable variability in demand
Cost of carrying additional inventory versus cost of flexible production
104. COMPONENTS OF INVENTORY DECISIONS
Level of product availability
The fraction of demand that is served on time from product held in inventory
Trade off between customer service and cost
105. COMPONENTS OF INVENTORY DECISIONS
Inventory-Related Metrics
C2C cycle time
Average inventory
Inventory turns
106. COMPONENTS OF INVENTORY DECISIONS
Inventory-Related Metrics
Products with more than a specified number of days of inventory
Average replenishment batch size
107. COMPONENTS OF INVENTORY DECISIONS
Inventory-Related Metrics
Average safety inventory
Seasonal inventory
108. COMPONENTS OF INVENTORY DECISIONS
Inventory-Related Metrics
Fill rate
Fraction of time out of stock
Obsolete inventory
109. ROLE OF TRANSPORTATION IN SUPPLY CHAIN
Role in the Supply Chain
Moves the product between stages in the supply chain
Impact on responsiveness and efficiency
Faster transportation allows greater responsiveness but lower efficiency
Also affects inventory and facilities
110. ROLE OF TRANSPORTATION IN SUPPLY CHAIN
Role in the Supply Chain
Moves the product between stages in the supply chain
Impact on responsiveness and efficiency
Faster transportation allows greater responsiveness but lower efficiency
Also affects inventory and facilities
111. COMPONENTS OF TRANSPORTATION DECISIONS
Design of transportation network
Modes, locations, and routes
Direct or with intermediate consolidation points
One or multiple supply or demand points in a single run
112. COMPONENTS OF TRANSPORTATION DECISIONS
Choice of transportation mode
Air, truck, rail, sea, and pipeline
Information goods via the Internet
Different speed, size of shipments, cost of shipping, and flexibility
113. COMPONENTS OF TRANSPORTATION DECISIONS
Transportation-Related Metrics
Average inbound transportation cost typically measures the cost of bringing product
into a facility
Average incoming shipment size
Average inbound transportation cost per shipment
114. COMPONENTS OF TRANSPORTATION DECISIONS
Transportation-Related Metrics
Average outbound transportation cost
Average outbound shipment size
115. COMPONENTS OF TRANSPORTATION DECISIONS
Transportation-Related Metrics
Average outbound transportation cost per shipment
Fraction transported by mode
116. ROLE OF INFORMATION IN SUPPLY CHAIN
Improve the utilization of supply chain assets and the coordination of supply chain flows to
increase responsiveness and reduce cost
Information is a key driver that can be used to provide higher responsiveness while
simultaneously improving efficiency
118. COMPONENTS OF INFORMATION DECISIONS
• Coordination and information sharing
– Supply chain coordination, all stages of a supply chain work toward the objective of
maximizing total supply chain profitability based on shared information
119. COMPONENTS OF INFORMATION DECISIONS
Sales and operations planning (S&OP)
• The process of creating an overall supply plan (production and inventories) to meet the
anticipated level of demand (sales)
120. COMPONENTS OF INFORMATION DECISIONS
Enabling technologies
1. Electronic data interchange (EDI)
2. The Internet
3. Enterprise resource planning (ERP) systems
4. Supply chain management (SCM) software
5. Radio frequency identification (RFID)
121. COMPONENTS OF INFORMATION DECISIONS
Enabling technologies
1. Electronic data interchange (EDI)
2. The Internet
3. Enterprise resource planning (ERP) systems
4. Supply chain management (SCM) software
5. Radio frequency identification (RFID)
122. COMPONENTS OF INFORMATION DECISIONS
Enabling technologies
1. Electronic data interchange (EDI)
2. The Internet
3. Enterprise resource planning (ERP) systems
4. Supply chain management (SCM) software
5. Radio frequency identification (RFID)
123. COMPONENTS OF INFORMATION DECISIONS
Information-Related Metrics
Forecast horizon
Frequency of update
Forecast error
124. COMPONENTS OF INFORMATION DECISIONS
Information-Related Metrics
Seasonal factors
Variance from plan
Ratio of demand variability to order variability
125. ROLE OF SOURCING IN SCM
Role in the Supply Chain
Set of business processes required to purchase goods and services
Will tasks be performed by a source internal to the company or a third party
Globalization creates many more sourcing options with both considerable opportunity and
potential risk
126. COMPONENTS OF SOURCING DECISIONS
1.In-house or outsource
Perform a task in-house or outsource it to a third party
2.Supplier selection
Number of suppliers, evaluation and selection criteria, direct negotiations or auction
3.Procurement
The supplier sends product in response to customer orders
127. COMPONENTS OF SOURCING DECISIONS
1.In-house or outsource
Perform a task in-house or outsource it to a third party
2.Supplier selection
Number of suppliers, evaluation and selection criteria, direct negotiations or auction
3.Procurement
The supplier sends product in response to customer orders
128. COMPONENTS OF SOURCING DECISIONS
Sourcing-Related Metrics
Days payable outstanding
Average purchase price
Range of purchase price
129. COMPONENTS OF SOURCING DECISIONS
Sourcing-Related Metrics
Average purchase quantity
Supply quality
Supply lead time
130. COMPONENTS OF SOURCING DECISIONS
Sourcing-Related Metrics
Percentage of on-time deliveries
Supplier reliability
131. ROLE OF PRICING IN SCM
Pricing determines the amount to charge customers for goods and services
Affects the supply chain level of responsiveness required and the demand profile the
supply chain attempts to serve
Pricing strategies can be used to match demand and supply
132. COMPONENTS OF PRICING DECISIONS
Pricing and economies of scale
The provider of the activity must decide how to price it appropriately to reflect these
economies of scale
133. COMPONENTS OF PRICING DECISIONS
Everyday low pricing versus high-low pricing
Different pricing strategies lead to different demand profiles that the supply chain must
serve
134. COMPONENTS OF PRICING DECISIONS
Fixed price versus menu pricing
If marginal supply chain costs or the value to the customer vary significantly along some
attribute like response time or delivery location, it is often effective to have a pricing menu
Can lead to customer behavior that has a negative impact on profits
135. COMPONENTS OF PRICING DECISIONS
Pricing-Related Metrics
Profit margin
Days sales outstanding
136. COMPONENTS OF PRICING DECISIONS
Pricing-Related Metrics
Incremental fixed cost per order
Incremental variable cost per unit
Average sale price
137. COMPONENTS OF PRICING DECISIONS
Pricing-Related Metrics
Average order size
Range of sale price
Range of periodic sales
138. THE SCOR MODEL
One of the more recognized methods for integrating supply chains and measuring trading partner performance is
use of the Supply Chain Operations Reference (SCOR) model developed in 1996 by supply-chain consulting firms
Pittiglio Rabin Todd & McGrath and AMR Research. These firms also founded the Supply-Chain Council, a
non-profit global organization with a current membership of over 600 profit and nonprofit companies, to manage
the SCOR model
139.
140. PLAN
Demand and supply planning and management are included in this first step. Elements include
balancing resources with requirements and determining communication along the entire chain. The plan
also includes determining business rules to improve and measure supply chain efficiency. These business
rules span inventory, transportation, assets, and regulatory compliance, among others. The plan also
aligns the supply chain plan with the financial plan of the company
141. Source
This step describes sourcing infrastructure and material acquisition. It describes how to manage
inventory, the supplier network, supplier agreements, and supplier performance. It discusses how to
handle supplier payments and when to receive, verify, and transfer product
142. Make
Manufacturing and production are the emphasis of this step. Is the manufacturing process make-to-
order, make-to-stock, or engineer-to-order? The make step includes, production activities, packaging,
staging product, and releasing. It also includes managing the production network, equipment and
facilities, and transportation
143. Deliver
Delivery includes order management, warehousing, and transportation. It also includes receiving orders
from customers and invoicing them once product has been received. This step involves management of
finished inventories, assets, transportation, product life cycles, and importing and exporting
requirements
144. Return
Companies must be prepared to handle the return of containers, packaging, or defective product. The
return involves the management of business rules, return inventory, assets, transportation, and
regulatory requirements
145. QUIZ – Q1
1) Which of the following is not a major driver of supply chain performance?
A) Facilities
B) Inventory
C) Transportation
D) Information
E) All of the above are major drivers of supply chain performance.
Answer: E
146. QUIZ – Q2
2) The places in the supply chain network where product is stored, assembled, or fabricated
are known as
A) facilities.
B) inventory.
C) transportation.
D) information.
E) customers.
Answer: A
147. QUIZ – Q3
3) Moving inventory from point to point in the supply is known as
A) facilities.
B) inventory.
C) transportation.
D) information.
E) customers.
Answer: C
148. QUIZ – Q4
4) The two major types of facilities are
A) distribution sites and storage sites.
B) production sites and distribution sites.
C) production sites and storage sites.
D) retail sites and distribution sites.
E) distribution sites and inventory sites.
Answer: C
149. QUIZ – Q5
5) Which of the following is not a component of facilities decisions?
A) Warehousing methodology
B) Forecasting methodology
C) Operations methodology
D) Capacity
E) Location
Answer: B
150. QUIZ – Q6
6) Excess capacity
A) allows a facility to be very flexible and to respond to wide swings in the demands placed on
it.
B) costs money and therefore can decrease efficiency.
C) requires proximity to customers and the rest of the network.
D) both A and B
E) all of the above
Answer: D
151. QUIZ – Q7
7)Pricing directly affects revenues but can also affect production costs and inventories
depending upon its impact on consumer demand. Which of the following is not listed as a
metric a manager should track?
A) Inventory turnover
B) Profit margin
C) Days sales outstanding
D) Average sales price
Answer: A
152. QUIZ – Q8
8) Sourcing involves
A) deciding the tasks that will be outsourced and those that will be performed within the firm.
B) deciding whether to source from a single supplier or a portfolio of suppliers.
C) identifying the set of criterion that will be used to select suppliers and measure their
performance.
D) selecting suppliers and negotiating contracts with them.
E) all of the above
Answer: E
153. QUIZ – Q9
9) The inventory held in case demand exceeds expectation in order to counter uncertainty is
called
A) cycle inventory.
B) safety inventory.
C) seasonal inventory.
D) sourcing.
E) none of the above
Answer: B
154. QUIZ – Q10
When all the different stages of a supply chain work toward the objective of maximizing total supply chain
profitability, rather than each stage devoting itself to its own profitability without considering total supply
chain profit, it is known as
A) supply chain coordination.
B) forecasting.
C) aggregate planning.
D) revenue management.
E) pricing.
Answer: A
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176. PROCESS VIEWS OF A SUPPLY CHAIN
A supply chain is a sequence of processes and flows that take place within and between different
stages and combine to fill a customer need for a product. There are two ways to view the processes
performed in a supply chain.
1. Cycle view
2. Push/pull view
177. PROCESS VIEWS OF A SUPPLY CHAIN
Cycle View of Supply Chain Processes
178. PROCESS VIEWS OF A SUPPLY CHAIN
Each cycle occurs at the interface between two successive stages of the supply chain.
Each cycle starts with the supplier marketing the product to customers.
A buyer then places an order that is received by and distributor when it sells servers directly to the
supplier.
179. PROCESS VIEWS OF A SUPPLY CHAIN
Subprocesses in Each Supply Chain Process Cycle
180. PROCESS VIEWS OF A SUPPLY CHAIN
Subprocesses in Each Supply Chain Process Cycle
Depending on the transaction in question, the subprocesses in the picture be applied to the
appropriate cycle.
When customers shop online at Amazon, they are part of the customer order cycle—with the
customer as the buyer and Amazon as the supplier.
181. PROCESS VIEWS OF A SUPPLY CHAIN
Subprocesses in Each Supply Chain Process Cycle
Within each cycle, the goal of the buyer is to ensure product availability and to achieve economies of
scale in ordering
The supplier then works to fill the order on time and improve efficiency and accuracy of the order
fulfillment process
182. PROCESS VIEWS OF A SUPPLY CHAIN
Subprocesses in Each Supply Chain Process Cycle
Even though each cycle has the same basic subprocesses, there are a few important differences
among the cycles.
In the customer order cycle, demand is external to the supply chain and thus is uncertain
In all other cycles, order placement is uncertain but can be projected based on policies followed by
the particular supply chain stage.
183. PROCESS VIEWS OF A SUPPLY CHAIN
Subprocesses in Each Supply Chain Process Cycle
The second difference across cycles relates to the scale of an order.
A customer buys a single car, but the dealer orders multiple cars at a time from the manufacturer, and
the manufacturer, in turn, orders an even larger quantity of tires from the supplier
187. VALUE CHAIN, VALUE SYSTEM, AND SUPPLY CHAIN
Support activities, according to Porter, can be divided into four categories: procurement,
technology development, human resource management, and the firms infrastructure, including
general management, planning, finance, accounting, legal, government affairs, and quality
management
188. VALUE CHAIN, VALUE SYSTEM, AND SUPPLY CHAIN
Porter’s framework on industry analysis discusses the five forces model, in which he reckons the
bargaining power of buyers and sellers, and the intensity of rivalry among firms in an industry with
respect to the five factors that shape competition and drive strategic decision-making of firms
189. VALUE CHAIN, VALUE SYSTEM, AND SUPPLY CHAIN
According to Porter, a firms value chain is embedded in a larger stream of activities termed as value
system.
A value system links up the value chain of a firm with the value chain of the supplier and the value
chain of the channel and buyer
190. VALUE CHAIN, VALUE SYSTEM, AND SUPPLY CHAIN
The value system is not merely the movement of goods from a supplier.
It involves much more because it is crucial for an organization to understand the value-creating
activities of the supplier, including margin, for competitive advantage
191. MAJOR SUPPLY CHAIN ISSUES
The challenge to develop and sustain an efficient and effective
supply chain(s) requires organizations to address a number of
issues.
Let’s discuss 11 major challenges in a supply chain
192. 1. SUPPLY CHAIN NETWORKS
Rapid change in the network system
Need of a flexible and dynamic network system
194. 3.INVENTORY DEPLOYMENT
Managing the Inventory level
Reducing working capital
Information technology is the key to manage the inventory level
195. 4.INFORMATION
Difficulties in handling data
Challenges In sharing data across the supply chain
Information is the substitute of Inventory
196. 5.COST AND VALUE
Prevention of sub- optimization
Global Supply chain competition
Attracting Customers
199. 8 .TECHNOLOGY
Technology is a change driver
Challenge of implementing the technology
Educating the people
Analysis and Planning
200. 9 .TRANSPORTATION MANAGEMENT
Transportation as a competitive edge
Challenge among the transportation provider
Challenges in maintaining transportation infrastructure
201. 10.SUPPLY CHAIN SECURITY
Safe and reliable delivery is the expected quality out of a supply
chain
Threats are increasing day by day
Planning in advance is the challenging task
202. 11.TALENT MANAGEMENT
Demand of talents
Need to have an expertise in the Supply chain has become
mandatory
Educating and holding the people in the organization is very
important
