The document provides an overview of key concepts in supply chain management. It discusses that a supply chain involves all parties involved in fulfilling customer requests, including manufacturers, suppliers, transporters, warehouses, retailers, and customers. The primary purpose is to satisfy customer needs and generate profit. It also outlines the objective of maximizing overall value generated across the supply chain. Additionally, it discusses key decision phases in supply chain management including strategy, planning, and operations. Finally, it identifies various drivers of supply chain performance, such as facilities, inventory, transportation, information, sourcing, and pricing, that impact responsiveness and efficiency.

1. Supply Chain Management
[OME 752]
Shefeequ Rehman
Assistant Professor

3. Supply Chain
• It consists of all parties involved, directly or indirectly, in fulfilling a customer request.
• The supply chain includes not only the manufacturer and suppliers, but also transporters,
warehouses, retailers, and even customers themselves.
• A supply chain is dynamic and involves the constant flow of information, product, and funds
between different stages.
• These flows often occur in both directions and may be managed by one of the stages or an
intermediary.
• The primary purpose: To satisfy customer needs and generate profit.

4. Supply Networks|Web

5. In reality, a manufacturer may receive material from several suppliers and
then supply several distributors.

6. Objective of Supply Chain

7. • The objective of every supply chain should be to maximize the overall
value generated.

8. Consumer Surplus

9. • The value of the final product may vary for each customer and can be estimated by the
maximum amount the customer is willing to pay for it.
• The difference between the value of the product and its price remains with the customer
as consumer surplus.
Consumer Surplus = Value of Product – Price of the Product

10. Supply Chain Surplus

11. • The supply chain surplus is the difference between what the value of the final product is
to the customer and the costs the supply chain incurs in filling the customer’s request.
Supply Chain Surplus (Value) = Customer Value – Supply Chain Cost
• Effective supply chain management involves the management of supply chain assets and
product, information, and fund flows to maximize total supply chain surplus.

12. Supply Chain Profitability

13. • The customer is the only one providing positive cash flow for supply chain.
• All other cash flows are simply fund exchanges that occur within the supply chain.
• All flows of information, product, or funds generate costs within the supply chain.
• Thus, the appropriate management of these flows is a key to supply chain success.
• The higher the supply chain profitability, the more successful is the supply chain.

14. • The supply chain profitability is the difference between the revenue generated from the
customer and the overall cost across the supply chain.
• Supply chain profitability is the total profit to be shared across all supply chain stages and
intermediaries.

15. Decision Phases in Supply Chain

16. • Supply chain strategy or design
How to structure the supply chain over the next several years
• Supply chain planning
Decisions over the next quarter or year
• Supply chain operation
Daily or weekly operational decisions

17. Supply Chain Strategy | Design
• The structure of the supply chain
• What processes each stage will perform.
• Strategic supply chain decisions
Locations and capacities of facilities
Products to be made or stored at various locations
Modes of transportation
Information systems.
• Supply chain design decisions are long-term and expensive to reverse—must take into
account market uncertainty.

18. Supply Chain Planning
• Starts with a forecast of demand in the coming year
• Planning decisions:
• Which markets will be supplied from which locations
• Planned buildup of inventories
• Subcontracting, backup locations
• Inventory policies
• Timing and size of market promotions
• Must consider in planning decisions—demand uncertainty, exchange rates, competition
over the time horizon

19. Supply Chain Operation
• Time horizon is weekly or daily.
• Decisions regarding individual customer orders.
• Goal is to implement the operating policies as effectively as possible.
• Allocate orders to inventory or production, set order due dates, generate pick lists at a
warehouse, allocate an order to a particular shipment, set delivery schedules, place
replenishment orders.
• Much less uncertainty (short time horizon).

20. Process View

21. • A supply chain is a sequence of processes and flows that take place within and between
different stages.
• There are two ways to view the processes performed in a supply chain.
1. Cycle View
2. Push/Pull View

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

23. Cycle View

24. Push/Pull View

25. Competitive and Supply Chain Strategies

26. Value Chain

27. • Competitive strategy defines, relative to its competitor, the set of customer needs a firm
seeks to satisfy through its products and services.

28. • Product development strategy specifies the group of new products that the company will
try to develop.

29. • Marketing and sales strategy specifies how the market will be segmented and product
will be positioned, priced, and promoted.

30. • Supply chain strategy determines the nature of material procurement, transportation of
materials, manufacture of product or creation of service, distribution of product.

31. • All functional strategies must support one another and the competitive strategy.
Value Chain

32. Strategic Fit

33. Efficient v/s Responsive Supply Chain

34. Cost-Responsiveness Efficient Frontier

35. • Restructuring the supply chain to support the competitive strategy or alter its
competitive strategy, if any mismatch exists between what the supply chain does
particularly well and the desired customer needs.
• To achieve strategic fit, a company must ensure that its supply chain capabilities support
its ability to satisfy the needs of the targeted customer segments.

36. • There are three basic steps to achieving this strategic fit are;
1. Understanding the Customer and Supply Chain Uncertainty
2. Understanding the Supply Chain Capabilities
3. Achieving Strategic Fit

37. Step 1: Understanding the Customer and Supply Chain Uncertainty
• To understand the customer, a company must identify the needs of the customer
segment being served.
• In general, customer demand from different segments varies along several attributes as
follows:
• Quantity of product needed in each lot
• Response time customers will tolerate
• Variety of products needed
• Service level required
• Price of the product
• Desired rate of innovation in the product

38. STEP 2: UNDERSTANDING THE SUPPLY CHAIN CAPABILITIES
• How does the firm best meet demand in that uncertain environment?
• Responsiveness and efficiency.
• Supply chain responsiveness includes a supply chain’s ability to do the following:
• Respond to wide ranges of quantities demanded
• Meet short lead times
• Handle a large variety of products
• Build highly innovative products
• Meet a high service level
• Handle supply uncertainty
• The more of these abilities a supply chain has, the more responsive it is.

39. STEP 3: ACHIEVING STRATEGIC FIT
• The goal is to target high responsiveness for a supply chain facing high implied
uncertainty, and efficiency for a supply chain facing low implied uncertainty.
• Assign roles to different stages of the supply chain that ensure the appropriate level of
responsiveness.
• It is important to understand that the desired level of responsiveness required across the
supply chain may be attained by assigning different levels of responsiveness and
efficiency to each stage of the supply chain.
• The final step in achieving strategic fit is to match supply chain responsiveness with the
implied uncertainty from demand and supply.
• The supply chain design and all functional strategies within the firm must also support
the supply chain’s level of responsiveness.

40. Zone of Strategic Fit

41. Drivers of Supply Chain Performance

42. • Improve supply chain performance in terms of responsiveness and efficiency
• Examine the logistical and cross–functional drivers of supply chain performance
• Facilities, inventory, transportation, information, sourcing, and pricing.
• The goal is to structure the drivers to achieve the desired level of responsiveness at the
lowest possible cost.
• Thus improving the supply chain surplus and the firm’s financial performance.

43. Facilities
• The actual physical locations in the supply chain network where product is stored,
assembled, or fabricated.
• The two major types of facilities are production sites and storage sites.
• Decisions regarding the role, location, capacity, and flexibility of facilities have a
significant impact on the supply chain’s performance.

44. Inventory
• Encompasses all raw materials, work in process, and finished goods within a supply
chain.
• The inventory belonging to a firm is reported under assets.
• Changing inventory policies can dramatically alter the supply chain’s efficiency and
responsiveness.

45. Transportation
• Moving inventory from point to point in the supply chain.
• Transportation can take the form of many combinations of modes and routes, each with
its own performance characteristics.
• Transportation choices have a large impact on supply chain responsiveness and
efficiency.

46. Information
• Data and analysis concerning facilities, inventory, transportation, costs, prices, and
customers throughout the supply chain.
• Information is potentially the biggest driver of performance in the supply chain because
it directly affects each of the other drivers.
• Information presents management with the opportunity to make supply chains more
responsive and more efficient.

47. Sourcing
• The choice of who will perform a particular supply chain activity such as production,
storage, transportation, or the management of information.
• At the strategic level, these decisions determine what functions a firm performs and
what functions the firm outsources.
• Sourcing decisions affect both the responsiveness and efficiency of a supply chain.
• Sourcing costs show up in the cost of goods sold, and monies owed to suppliers are
recorded under accounts payable.

48. Pricing
• How much a firm will charge for the goods and services that it makes available in the
supply chain.
• Pricing affects the behavior of the buyer of the good or service, thus affecting supply
chain performance.
• Differential pricing provides responsiveness to customers that value it and low cost to
customers that do not value responsiveness as much.
• Any change in pricing impacts revenues directly but could also affect costs based on the
impact of this change on the other drivers.

49. Framework for Structuring Drivers

50. • The goal of a supply chain strategy is to strike the balance between responsiveness and
efficiency that fits with the competitive strategy.
• To reach this goal, a company must structure the right combination of the three logistical
and three cross-functional drivers.
• The combined impact of these drivers then determines the responsiveness and the
profits of the entire supply chain.

52. • Most companies begin with a competitive strategy and then decide what their supply
chain strategy ought to be.
• The supply chain strategy determines how the supply chain should perform with respect
to efficiency and responsiveness.
• The supply chain must then use the three logistical and three cross-functional drivers to
reach the performance level the supply chain strategy dictates and maximize the supply
chain profits.
• Although this framework is generally viewed from the top down, in many instances, a
study of the six drivers may indicate the need to change the supply chain strategy and
potentially even the competitive strategy.

53. End