Teng 5249: LOGISTICS AND SUPPLY CHAIN MANAGEMENT FOR
TEXTILES
Understanding the Supply Chain
LECTURE 1
TOPICS TO BE COVERED
• What is Supply Chain?
• Decision Phases in a Supply Chain
• Process view of Supply Chain
Supply Chain Stages
Supplier Manufacturer Distributor
Customer Retailer
A typical supply chain may involve a variety of stages. These supply
chain stages include: Customers, Retailers,
Wholesalers/distributors, Manufacturers, Raw material
suppliers.
Each stage in a supply chain is connected through the flow of
products, information, and funds. These flows often occur in
both directions and may be managed by one of the stages or an
intermediary.
Operations and Supply Chain Management
Supply Chain Processes
Manufacturing
Processes
Sourcing Distribution
Processes Processes
Logistics Logistics
Processes Processes
Service
Processes
What is a Supply Chain?
Flow of products and services from:
• –Raw materials manufacturers
• –Intermediate products manufacturers
• –End product manufacturers
• –Wholesalers and distributors and
• –Retailers
Connected by transportation and storage activities
Integrated through information, planning, and integration
activities
Cost and service levels
What is a Supply Chain?
• Supply Chain- Meaning
• The supply chain encompasses all activities involved in the
transformation of goods from the raw material stage to the
final stage, when the goods and services reach the end
customer.
• Supply chain management involves planning, design and
control of flow of material, information and finance along
the supply chain to deliver superior value to the end
customer in an effective and efficient manner.
• Supply chain management involves coordinating and
integrating these flows both within and among companies
SCM Definition
Material Flow
Converter
Supplier Retailer
Distributor
Source
Converter Consumers
Distributor End-User
Supplier
Value-Added Services
Funds/Demand Flow
Information Flow
Reuse/Maintenance/After Sales Service Flow
Definition
Mohanty and Deshmukh define supply chain management as
a loop:
• It starts with the customer and ends with the customer.
• Through the loop, flow of all materials, finished goods,
information and all transactions.
• It requires looking at the business as one continuous,
seamless process.
• This process absorbs distinct functions such as forecasting,
purchasing, manufacturing and distribution, sales and
marketing into a continuous business interaction.
• For a simple product like soap, the HUL supply chain
involves ingredient suppliers, transporters, the company’s
manufacturing plants, carrying and forwarding agents,
wholesalers, distributors and retailers.
• A supply chain is dynamic and involves the constant flow
of information, product and funds between different
stages.
• Of late, firms have realized that it is not the firms
themselves but their supply chains that vie with each
other in the marketplace.
Objective of a supply chain
•Maximize the value of supply chain (difference
between the worth of the final product to the
customer and the cost of the supply chain in
filling the customer’s request)
•Increase the supply chain profitability (supply
chain surplus)
• Supply chain success should be measured in terms of supply
chain profitability and not in terms of the profits at an
individual stage.
• For any supply chain, there is only one source of revenue:
the customer. 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.
• Effective supply chain management involves the
management of supply chain assets and product,
information and fund flows to maximize total supply chain
profitability.
• Supply chain includes
• •Material flows / Product flows
• •Information flows
• •Financial flows
Supply Chain Strategy or Design – It decides
what the chain’s configuration will be, how
resources will be allocated and what processes
each stage will perform. Strategic decisions
made by companies include whether to
outsource or perform a supply chain function in-
house, the location and capacities of production
and warehousing facilities, the products to be
manufactured or stored at various locations, the
modes of transportation to be made available
along different shipping legs and the type of
information system to be utilized. Cisco’s
decisions regarding its choice of supply sources
for components, contract manufacturers for
manufacturing and the location and capacity of
its warehouses are all supply chain design or
strategic decisions.
2. Supply Chain Planning – 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. Planning includes making decisions
regarding which markets will be supplied
from which locations, the subcontracting of
manufacturing, the inventory policies to be
followed and the timing and size of
marketing and price promotions. Dell’s
decisions regarding markets supplied by a
production facility and target production
quantities at each location are classified as
planning decisions.
Supply Chain Operation – The goal of
supply chain operations is to handle
incoming customer orders in the best
possible manner. During this phase,
firms allocate inventory or production
to individual orders, set a date that an
order is to be filled, generate pick lists
at a warehouse, allocate an order to a
particular shipping mode and
shipment, set delivery schedules of
trucks and place replenishment
orders.
Importance of Supply Chain Decisions
• Helps in achieving success – Companies being a leader at using
supply chain design, planning and operation help in achieving
success.
• Effective flow of goods and information – Companies like
Walmart who have invested heavily in transportation and
information infrastructure help in achieving effective flow of
goods and information.
• Reduces the level of Inventory with the manufacturer – Dell
centralizes manufacturing and inventories in a few locations and
postpones final assembly until orders arrive. Thus, Dell is able to
provide a large variety of PC configurations while keeping very
low levels of inventory.
• Improved match between supply and demand – To
improve the match between supply and demand,
Dell makes an active effort to steer customers in real
time, on the phone or via the internet, toward PC
configurations that can be built given the
components available.
• Reason for company’s success – For the Companies
like Dell, Toyota etc., the supply chain design, and its
management of product, information and cash flows
play a key role in the company’s success.
Process View
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 different ways to view the processes
performed in a supply chain.
• Cycle View – The processes in a supply chain are
divided into a series of cycles, each performed at the
interface between two successive stages of a supply
chain.
• Push/Pull View – Pull processes are initiated in
response to a customer order, whereas push
processes are initiated and performed in anticipation
of customer orders
All supply chain processes can be broken down
into four process cycles:
• Customer order cycle
• Replenishment cycle
• Manufacturing cycle
• Procurement cycle
Each cycle occurs at the interface between two
successive stages of the supply chain.
Cycle View of Supply Chains
Customer
Customer Order
Cycle
Retailer
Any cycle
Replenishment Cycle 0. Customer arrival
1. Customer triggers an order
Distributor 2. Supplier fulfils the order
3. Customer receives the order
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
Supply Chain Process Cycles
Sub processes in Each Supply Chain Process
Cycle
Buyer returns
Supplier stage reverse flows to
markets product supplier or third
party
Buyer stage Buyer stage
places order receives supply
Supplier stage Supplier stage
receives order supplies order
• Each cycle starts with the supplier marketing the
product to customers.
• A buyer then places an order that is received by
the supplier.
• The supplier supplies the order, which is received
by the buyer.
• The buyer may return some of the product or
other recycled material to the supplier or a third
party
• Within each cycle, the goal of the buyer is to ensure
product availability and to achieve economies of scale
in ordering.
• The supplier attempts to forecast customer orders and
reduce the cost of receiving the order.
• The supplier then works to fill the order on time and
improve efficiency and accuracy of the order
fulfillment process.
• The buyer then works to reduce the cost of the
receiving process.
Few differences between cycles:
• In the customer order cycle, demand is external
to the supply chain and thus uncertain. In all
other cycles, order placement is uncertain but
can be projected based on policies followed by
the particular supply chain stage.
• As we move from the customer to the supplier,
the number of individual orders declines and
the size of each order increases.
Push/Pull View of Supply Chain Processes
• With pull processes, execution is initiated in
response to a customer order. With push
processes, execution is initiated in anticipation
of customer orders.
• At the time of execution of a pull process,
customer demand is known with certainty,
whereas at the time of execution of a push
process, demand is not known and must be
forecast.
• Pull processes may also be referred to as
reactive processes because they react to
customer demand. Push processes may
also be referred to as speculative
processes because they respond to
speculated rather than actual demand.
Push/Pull
Boundary
Push Pull Processes
Processes
Customer Order
Arrives
Examples of Push and Pull Processes
• Make to stock Companies like HP – Executes all
processes in the customer order cycle after the
customer arrives. All processes that are part of
the customer order cycle are thus pull
processes.
• All processes in the replenishment cycle,
manufacturing and procurement cycle are
performed in anticipation of demand and are
thus push processes.