Unit 2

Supply Chain Structure

 Structure of a supply chain: The structure of a supply chain network refers to

the pattern or manner in which constituent parts are arranged together. The
characteristics of a supply chain network that exercise a strategic influence on
competitive forces are referred to as structural factors. These factors include
sharing of profit across the supply chain constituents and the level of customer
service within the network. In otherworld's it is there characteristics that play on
important role in the conduct and performance of organizations participating in
the supply chain network and provide competitive advantage to the focal
organization.
Fig:
Above figure represents the network of organizations in a supply chain. it
illustrates the relationship between the focal organization's supplier, the
supplier's, the intermediaries' logistics service providers, the customer, and
customer's customer, and soon. The design of a supply chain must take into
account such 'where' and 'who' issues as:
 Where and how products are produced.
 Where and how they enter the market,
 Where they are stored and how they reach a customer.
However, the key or starting point for designing a supply chain structure is
the purpose and command, or hierarchy, which is an about sticking a balance
between the cost of staring and moving goods and services from the supplier
to the customers.
In the set-up, customer service needs special attention. Hence, the supply
chain horizon extends from efficiency on one side to responsiveness on the
other side. Often these are extreme and mutually exclusive options.
As there is no formula or framework that can prescribe the right balance, the
optimal supply chain structure would typically differ not only from company
to company but also among product and market groups. This is mainly
because each product and market group is unique and the company's
competitive approach would be based on the resources it commands and
other factors like goals and vision.
 factors affecting supply chain structure:
 Characters and type of product.
 Nature, type and size of market.
 Distribution channel strategy.
 Facilities, locations, and options available.
 Customer characteristics and options available.
  Customer characteristics and preferences.
 Tax including direct and indirect taxes and levies.
 Strength of logistics services and intermediary options.
 strength of information and communication channels
 Level of industry maturity and scope for innovations.
 Efficient Vs Responsiveness:
Efficient and responsiveness are two objectives of supply chain management.
Whether or not high performance can be achieved on both dimensions at the
same time, however it is questionable. Responsiveness can be defined as "the
ability of the supply chain to respond proposes fully and within an appropriate
time scale to customer request or changes in the market place." In contract, a
supply chain can be considered to be efficient if the focus is on the cost
reduction and no resources are wasted on non-value added activities.
Efficiency Responsiveness
 In simple terms, it is defined as  In simple terms, it is the speed
the ratio of revenue to cost or and level of customer service.
profit generated. According to Fisher, the primary
 According to fisher, the primary foal of a responsive supply chain
goal of an efficient supply chain is to respond quickly to a demand.
is to serve demand at the lowest One may conclude that a
cost. responsive supply chain focus on
 one may conclude that an the time and level of service to
efficient supply chain keeps cost customer demand.
low. Typically, this is common in
 Typically, this approach is cases of high value items,
common in cases of necessity personalized items, and new
items, utility products and products.
standard goods. It focuses on flexibility and
 Efficient supply chains are responsive service and is able to
designed for efficiency and low react quickly to changing market
cost by minimizing inventory and demand and requirements.
maximizing efficiency in process
flow.

 boundary for efficient and responsive supply chain:

Efficiency is a measure of cost. Supply chain efficiency could focus on
reducing cost, which would focus on reducing cost, which would lead to
reduction in customer service levels, response time, and soon. As mentioned
 earlier, efficiency could focus on fewer variants and on standardization of
products and manufacturing set-up. On the other hand, responsiveness is the
speed at which one serve customer requirement. Often, such a speed can be
achieved with higher inventory, expensive and reliable movement, and soon.
Thus a responsiveness and efficiency as shown in figure below. Here, cost
depicts efficiency.
FIG

Ideally, and supply chain manager would like to reverse this relationship, which
is a big challenge in supply chain management. a management would want to
achieve the dual objective of cost minimization and increased customer service.
As can be observed from figure, an increase in responsiveness entails a
proportionate increase in cost, and this prospect becomes less attractive after a
point. When a firm focuses on increases responsiveness, it must question the
ability to pass on the increase in cost to the customer.
 push-based supply chain:
The push-based supply chain, in simple terms, products is manufactured based
on anticipation of customer orders. This model is also known as built to
inventory or built to stock. The name itself reveals its functionality. Products
are manufactured in anticipation of customer needs. there are no prizes for
identifying industries that use push model, it is obvious that there are aspects of
business that require push strategies in supply chain and the management must
apply all its efforts there is a lack of certainty in demand push based supply
chain refers to responsiveness. Some of the key challenges and characteristics
of push model include.
 High inventory costs.
 Challenging working capital requirements due to low inventory turns.
 Huge warehousing and distribution costs.
 Inability to meet, dynamic market conditions.
 Seasonal demand and off the shelf product.
Push programs represent a top down approach. The case assumption of push
program is that demand can be anticipated and that is more efficient and reliable
to mobilize resources in present ways to serve demand. It is seen as a
speculative supply chain. One needs to consider a few questions while
analyzing a push-based supply chain.
 Why should a manufacture prefer to set up the production function and
incur huge marketing as sales support in order to who customer?
  Are there inherent product, market, and industry characteristics that
warrant push strategies?
 Are there certain process or structure features which facilitate only push
strategies are to be passed?
 What is the relationship between cost, efficiency and responsiveness if
push strategies are to be passed?
 What are the managerial levels available in order to make the strategy
both push effective and cost efficient?

Over the year's business and industry development has facilitated streaming
approaches towards cost efficient push-based supply chain strategies. These
strategies should be implemented with right approach / in multidisciplinary
way, if wrong approach / implementation practice at the planning and
operations stages would lead not only to failure of the supply chain network but
also affect the model organization negatively.
 key conditions enabling push-based supply chain:
The enables of a push-based supply chain could be industry factors, the
organization of the distribution structure, the organization of the distribution
structure, the nature of the product, and the strength of support services,
including logistics' service providers.
One of the key enables of a push –based supply chain is the manufacturing
strategy of 'made to stock' (MTS). MIS strategy is one where the product is
provided so that it can be stocked for meeting an expected or estimated demand.
MIS strategy work in situations where lost sizes would require production in
large lots and releases have to be made in batches. some time, MIS strategy is
adopted for operating efficiency rather than demand requirements. besides the
supply of row materials also determines the MTS strategy.

 Pull-based Supply chain:

The pull based supply chain, in simple terms, products are manufactured based on
specific customer’s demand/ request. It is also known as “Built to order”, or
“configured to order” model. This model operates particularly in IT/High-tech
industries where customization is the competitive advantage. The objective of this
model is to minimize the inventory carrying and optimize supply. Pull model is as a
response to growing uncertainty in demand and short product cycle.
Pull-based supply chain is more a reactionary process as it reacts to customer demand.
The simplest example is dial-a-pizza, where a pizza is prepared and delivered on
order. It must be noted that most of the pull-based supply chains are on downward
stream whereas an inventory frame work and capacity dedication are available over
the years, improvements in industry practices have enabled. Pull based supply chain
for upstream activities as well.
Just in time (jit) manufacturing in one of the classic applications of pull strategy in
down-stream activities where in the supplier is encouraged to deliver components at
production line to save time and inventory, and also have flexibility and
responsiveness towards servicing customer demand. Some of the characteristics of
this model include:
 Volatile demand situation.
 High rate of customization.
 Minimal inventory carrying.
 Not a off the shelf product.
 Highly dynamic and effective distribution network.
 Key conditions enabling a pull-based supply chain:
The enables of a pull-based supply chain could be industry factors, the organization of
the distribution structure, the nature of the product, and the strength of support
services, including logistics serve providers, and so on.
One of the key enablers of a pull-based supply chain is the manufacturing strategy of
‘made to engineer’ (MTE) and ‘made to order’ (MTO). MTE strategy is applied where
a product is specifically designed and an order is confirmed based on tender and
quotation. Typically MTE works for capital machinery and high-value capital goods
such as machinery power generators and so on.
MTO manufacturing strategy is pull-based supply chain where the model organization
is the manufacture that has standard product designs and the ability to configure final
demand-this strategy provides the opportunity for mass-customization. Example
includes generator sets, auxiliary power generation equipment, electrical fitments, and
so on.
Fig:

 Difference between push Model and Pull Model:

Basis Push Model Pull Model

 Prime business driver Maximize utilization of High levels of customer
resources, raw materials service through
or manufacturer at least responsiveness and
cost. flexibility to meet
uncertain customer
demand.
Supply chain strategy Operate strict processes Operate in response to
in anticipation of customer demand.
demand. Emphasis Emphasis lean
demand forecasting principles.
Lead times Long and a prime focus Pricing does not
should be to reduce normally impact short-
them. term demand.
Pricing strategy Pricing is a key means Pricing does not
for balancing supply normally impact short-
and demand term demand.

Manufacturing-strategy Long production runs Short and flexible

production rows.
Inventory Typically high (push as Typically low (pull as
close to customer as remotely from the
possible) customer as possible).

 Commodity and cost-Centric Supply Chain:

Commodities mean goods which are traded. In this context, one would look at
products which are homogeneous in character or with less variation, and
commonly traded. Under commodities these could be agricultural products such
as rice, wheat, pulses, oilseeds, spices, sugar, fruits and vegetables. Or these
could be minerals and mineral-based products such as iron ore, steel and so on.
The trade of these commodities is widely regulated in different countries
through various agencies and international bodies. Some commodities are
coverall under the essential commodities Act and regulated through market
operations, support mechanism, and so on. Hence understanding the dynamics
of commodities, supply chain is critical for those who are in this business or are
using these products as raw materials and intermediaries.
For example, those in the business of personal care products such as hair oil are
directly dependent on oil extracts as their raw material. Similarly those who are
in the business of food products such as wheat flour, ready-to-eat items, and
processed spices, would also be directly influenced by the commodities market.
On the other hand, through pharmaceutical companies use sugar in their
 compounds, syrups constitutes a small portion of the total value added and may
not be sensitive to raw material commodities price. One can similarly look at
commodity such as iron ore, steel, and bullions for which there are various
kinds of customer groups located in different geographic. In the supply chain
for these commodities especially in the case of bullions; customer preference
would vary from utility function and store function to protect value of
investment. Hence the supply chain of such a commodity has to be mapped for
the modal organization with respect to the customer group.
 Supply chain for Emergencies:
A vast geography faces different challenges from nature by way of calamities
such as floods, earthquakes, famines due to crop failures, earth quacks, famines
due to crop failures, and so on. It is quite possible that varying degrees of
calamities happen more or less around the same time in different parts of the
country. The challenge is to ensure logistic and supply network support in
facing such hardships. The key issue with ability in such cases is preparedness,
the ability to pool resources, pecuniary and non –pecuniary, and leadership and
command on ground to execute the operations.
Something which is similar to this is emergency management. One of the areas
of emergency response that we seem to have problem with is that of logistics.
This is understandable because many forisdeiations really don’t deal in
logistics; they deal in purchasing. Logistics management plans, implements and
controls the flow and storage of goods and services between the point of origin
and the point of consumption purchasing is only part of this process.
Young and Peterson identified five crucial differences that distinguish
emergency supply chain management from its commercial counterpart:
 The unpredictability of demand.
 Suddenness of occurrence and short lead time.
 The need for timely delivery to mitigate human suffering.
 Damage to the logistics infrastructure caused by the disaster, and
 A lack of resources to implement such a system (trained personnel,
technology, transportation, capacities)
As a start to the development of an emergency supply chain, system, there
are series of but practices that would be applied by emergency managers.
 Plan/ enable: Develop overall plans to operate an emergency mgmt.
supply chain.
 Source: Plan and execute the procurement and receipt of emergency
materials and services.
 Make: Plan and execute the receiving, scheduling, picking, packing and
shipping of orders, for life-saving and life-sustaining materials.
 Return: Plan and execute demobilization.
Creating an emergency supply chain system clearly is something that will
need to be accomplished at the national level. Thinking in terms of supply
chain forces us to consider the larger issues involved in providing goods and
services following a disaster and makes us beyond simple purchasing.