Introduction to

Supply Chain
Management
What is a Supply Chain ?

Supplier Tier Distributor Retailer

Manufacturer
Supplier Tier –1 Mfg OEM
–2 Mfg
Supply Chain is a Network
What Is Supply Chain
Management
Managing Flow of products 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

TO OPTIMIZE: Cost and service levels

SCM Myths
• It is the same as Transportation
i.e, Moving materials from place to place
• SCM includes quality, design, revenue
management
• SCM is mostly Mathematics
• This is not true……….but Lot of academic
instruction focuses on mathematical aspects
• Researchers have created complex math
models for very specific use cases
• AI has replaced traditional SCM already
Supply Chain
Industries
Industry Examples

Consumer Goods Dole, Pepsico, Frito-Lay, Unilever, ITC, etc

Retail Wal-Mart, Amazon, Tesco, Future Group, IKEA, Target, etc
Consumer Electronics Dell, Lenovo, Sony, Samsung, LG, Nokia, Apple

Semiconductor TI, Infineon, Intel, AMD, Sandisk, etc

Consumer Durables Whirlpool, Black & Decker, Electrolux, etc

Industrials Caterpillar, ABB, Volvo, etc

Automotive Honda, Hyundai, Ford, GM, Volkswagen, etc

Metals Tata Steel, Posco, Arcelor Mittal, Essar, etc

And many more ………

Supply Chain SCM defined:

Management & • Managing the flow of

information and the physical
flow of goods

Goals SCM Goals:

• Maximize Customer Service
Information Flow in terms of reliability &
responsiveness
“End” • Minimize costs
Customers
Forecast

Dealers

Distribution
Depots
Plan

Production
Plan
Production

Materials
Plan
Vendors
Supply Chain Management
Goals
SCM defined:
•Managing the flow of information
and the physical flow of goods
SCM Goals:
• Maximize Customer Service in
terms of reliability &
responsiveness
• Minimize costs
Lack of Reliability and
Stability of Planning Data
Conflicts due to
mismanagement of abnormal
demands
1.1 Definition

• Supply chain management is a set of

approaches utilized to efficiently
integrate suppliers, manufacturers,
warehouses, and stores, so that
merchandise is produced and distributed
at the right quantities, to the right
locations, and at the right time, in order
to:
• Minimize system wide costs while
satisfying service level
requirements.
Two Other Formal Definitions
The design and management of seamless,
value-added process across organizational
boundaries to meet the real needs of the
end customer
Institute for Supply Management
Managing supply and demand, sourcing raw
materials and parts, manufacturing and
assembly, warehousing and inventory
tracking, order entry and order
management, distribution across all
channels, and delivery to the customer
The Supply Chain Council
PC Industry Supply Chain
Cisco’s Value Network
 SCM Definition
Material Flow

Converter
Supplier Retailer
Distributor

Source
Converter Consumers
Distributor
Supplier End-User

Value-Added Services

Funds/Demand Flow

Information Flow

Reuse/Maintenance/After Sales Service Flow

The SCM Network
Key Observations
• Every facility that impacts costs need to
be considered
• Suppliers’ suppliers
• Customers’ customers
• Efficiency and cost-effectiveness
throughout the system is required
• System level approach
• Multiple levels of activities
• Strategic – Tactical – Operational
Key Challenges
• Complexity: Large number of numbers
(variables)

• Uncertainty
1.2 The Development
Chain
• Set of activities and processes associated
with new product introduction. Includes:
• product design phase
• associated capabilities and knowledge
• sourcing decisions
• production plans
1.2 The Development
Chain
1.3 Global Optimization
• Geographically dispersed complex
network
• Conflicting objectives of different
facilities
• Dynamic system
• Variations over time
• Matching demand-supply difficult
• Different levels of inventory and backorders
• Recent developments have increased
risks
• Lean production/Off-shoring/Outsourcing
Global Apparel Value Chain
Tracing back the dress you are wearing
Globally Dispersed Manufacturing
An Illustration:
How Li & Fung Limited Might Make a Dress

Product
ProductDesign
Design QC
QC& &Shipping
Shipping
[Hong
[HongKong]
Kong] [Hong
[HongKong]
Kong]

Yarn
YarnSpinning
Spinning Weaving
Weaving Stitching
Stitching
[Korea]
[Korea] [Taiwan]
[Taiwan] [Indonesia]
[Indonesia]

Zippers+…
Zippers+…
[Japan+…]
[Japan+…]
1.4 Uncertainty and Risk
Factors
Matching Supply and Demand a Major
Challenge
REASONS EXAMPLES
•Raw material shortages Boeing Aircraft’s inventory write-
•Internal and supplier parts down of $2.6 billion
shortages
•Productivity inefficiencies
•Sales and earnings shortfall Sales at U.S. Surgical Corporation
•Larger than anticipated inventories declined 25 percent, resulting in a
loss of $22 million
•Stiff competition Intel reported a 38 percent decline
•General slowdown in the PC in quarterly profit
market
•Higher than expected orders for EMC Corp. missed its revenue
new products over existing guidance of $2.66 billion for the
products second quarter of 2006 by around
$100 million
1.4 Uncertainty and Risk Factors
Fluctuations of Inventory and Backorders
throughout the Supply Chain

FIGURE 1-3: Order variations in the supply chain

1.4 Uncertainty and Risk
Factors
• Forecasting is not a solution
• Demand is not the only source of
uncertainty
• Recent trends make things more
uncertain
• Lean manufacturing
• Outsourcing
• Off-shoring
1.5 Evolution of Supply Chain
Management
Further
Refinement of
SCM Capabilities

SCM
Formation/
Extensions

JIT, TQM, BPR,

Alliances

Inventory Management/Cost
Optimization

Traditional Mass Manufacturing

1950s 1960s 1970s 1980s 1990s 2000s Beyond

1.6 The Magnitude
• U.S. companies spend trillions in supply-related
activities (10-15% of Gross Domestic Product)
• Transportation 58%
• Inventory 38%
• Management 4%
• The grocery industry could save $100 billion
(10% of operating cost) by using effective
logistics strategies
• A typical box of cereal spends 60 days getting
from factory to supermarket.
• A typical new car spends 10 days traveling
from the factory to the dealership.
 The Magnitude

• HPs loss of $1 billion in sales in one year

• Laptops and desktops were not available when and
where customers were ready to buy them
• Boeing’s forced announcement of write-downs of
$2.6b
• Raw material shortages, internal and supplier parts
shortages….
• Cisco’s multi-billion ($2.2b) dollar write-off of
inventories in 2002
• Customers balked on orders due to market meltdown
 Transactional Complexity
National Semiconductors:
• Production:
– Produces chips in six different locations: four in the US,
one in Britain and one in Israel
– Chips are shipped to seven assembly locations in
Southeast Asia.
• Distribution
– The final product is shipped to hundreds of facilities all
over the world
– 20,000 different routes
– 12 different airlines are involved
– 95% of the products are delivered within 45 days
– 5% are delivered within 90 days.
PC Value Chain
Performance of Traditional PC Manufacturer
PC Value Chain: Focus on Cost Reduction
Performance of Dell Computers
Magnitude of Supply Chain Costs
Cost Elements of a Typical Book
Magnitude of Supply Chain Costs
Example: The Apparel Industry

Cost per Percent

Shirt Saving

Manufacturer Distributor Retailer Customer $52.72 0%

Manufacturer Retailer Customer $41.34 28%

Distributor

$20.45 62%
Manufacturer Distributor Retailer Customer
 1.7 Key Issues in Supply Chain
Management

Chain Global Optimization Managing Risk and Uncertainty

Distribution Network Configuration Supply Y

Inventory Control Supply Y

Production Sourcing Supply Y

Supply Contracts Both Y Y

Distribution Strategies Supply Y Y

Strategic Partnering Development Y

Outsourcing and Offshoring Development Y

Product Design Development Y

Information Technology Supply Y Y

Customer Value Both Y Y
Smart Pricing Supply Y
 SCM Challenges:
Supply Chain
QTY
Time Lag CHALLENGE
Inventory
 Response Time consists

of Lead Times and

planning cycle times
 Reduce Planning cycle
time

Operational
Response

Actual Demand
TIM
E

Making planning more dynamic aligns

operational
response with demand and improves efficiency
Key Functions in SCM
• Demand and Forecast Planning
• Procurement Management
• Inventory Management and Control
• Logistics and Transportation Management
• Production and Distribution Planning
• Detailed Scheduling
 SCM Key operational
challenges
Multi-Supply Multi-Product Multi-Channel

Procurement Production New Demand Customer VMI POS

forecasts w ithdraw als data
orders orders products orders

Increasing cost and

complexity

Growing
Retail demand
variability

Suppliers Distributors
Owned
Factories

Rising supply
chain risks
Enterprise Escalating
customer
expectations
Suppliers Outsourced
Factories
Direct Consumer

Your Suppliers Your Enterprise Your Customers

Lack of internal Shipments Rapid growth of

and external new products
alignment
Metals Supply
Chain
SLAB

Hot Coil

Iron & Steel

Making Blast
Furnace Cold
Rolling
Hot Rolling

EGL

Cold Rolling
& Finishing

EGL Line &

Finishing
Metals Industry
Challenges and
Solutions
Solutions
METALS

•Challenges &MPRETOACLE
SSS

• Needs High • Improve Resource

Capacity Utilization
Utilization • Improve product mix
• Need to decisions
Minimize • Reduce inventory
Inventory
across the levels
supply chain • Improve forecast
• Significant accuracy
Demand • Profitably meet demand
Fluctuations based on pre-
• Varying configured business
prices , Spot rules.
Auction
Pricing
Hi-Tech Supply Chain

Store
s
Small Stores
Suppliers PLANT

DDC
Procure
CPU CPU
Stores
ASSEMBLY
Procure COMPUT
MEMORY
MEMORY
ER Large Distributors

Procure RDC
HARD-DRIVE
HARD-DRIVE

Procure
Stores
MOTHER-
MOTHER-
BOARD
BOARD

Large retailers
Hi-Tech Supply Chain
Challenges
CONSUMER
HITIENCDHUOSTERMEI
&SCE

• Short Product Life-Cycles

• Product Proliferation
• Multiple contract
manufacturers
• Price Erosion, Reducing
Margins
• High Demand Uncertainty
Consumer Packaged Goods
(CPG)
1TN
DFCann_Plant
Slicing
JUICE E
Make

Fruit Cutting Pack

Move ECW
1TT
93060US 3890003060
Move 389003060
DICED_PEACH

80MM_PLASTIC_CUP

1TN1
JUICE HHCann_Plant
Slicing

1TCN
Fruit Cutting
E Move SER
Make Pack
Move 3890003060

1TTN 9306001 3890003060

DICED_PEACH
80MM_PLASTIC_CUP
Consumer Packaged Goods
Challenges
• Complex channels of HIGH TECH
CONSUMER

distribution and sales, high

distribution costs
• Intensely competitive, low
barrier to entry
• Prices Flat to Declining
• High Failure rate of new products
• Retailers consolidating
• Eroding Brand loyalty
Apparel Supply Chain

Spinning Knitting Dyeing Cutting Sewing Distribution Retailer

s
Plants Plants Plants Plants Plants Centers
Transportation
Modes
Capital Labor
Intensiv Intensive
e

20 80 7
textile sew distribution
plants plants centers

Generating a supply chain plan every day for more than 50,000
SKUs (style/color/size) with more than five million demands for a
planning horizon of six months
Apparel Industry
Challenges
• Product Proliferation:
multiple style/color/size
combinations
• Inventory obsolescence
• Demand uncertainty
CASE: Meditech Surgical
• Intent – diagnosis of supply chain
• Business overview
• Supply chain
• Production planning
• What’s wrong?
• How to fix it?
Endoscopic Surgical
Instruments
• Permits minimally invasive surgery
• Market created in early 80’s, rapidly
growing
• Old products continually updated and
replaced with new product introductions
Business Overview
• National and Meditech split the market
• Compete based on product innovations,
customer service, cost
• National sells to physicians; Meditech
sells to material managers
• Customer preferences change slowly
External Supply Chain

Hospitals

Domesti
c
Dealers

Part Meditec Meditech

supplier h Warehou
s Assembl se
Hospitals
y

Int’l
Meditech
Affiliates
Internal Supply Chain

Parts Assembly Bulk Packaging &

FG
Inventor Inventor Sterilization Inventor
y y y

2 - 16 2 1
weeks weeks week
 Production Planning
Annual
Forecast

Monthly
Revision

Transfer
Requirements

Monthly
Plan

MRP

Parts Weekly
Procurement Assembly
Plan Schedule
 Monthly
Production Planning
Plan

MRP

Order point;
Material
Order quantity
Plan

Parts Assembly Bulk Packaging & FG

Inventory Inventory Sterilization inventory
What’s Wrong?
• Poor service for new product
introductions
• Poor forecasting?
• Panic ordering?
• And high FG inventory
What Is Going On?
• Demand is quite predictable
• Usage in hospitals is quite stable
• Market share moves slowly over time
• With each new product, dealer must build
inventory to fill pipeline
Why Did Meditech Think
Demand Was
Unpredictable?
• Poor information systems
• No one looked at demand
• No one had responsibility for forecast
errors
• Tendency to shift the blame
• Built-in delays and monthly buckets in
planning system
• Amplifier in planning system
What to Do?
• Recognize that demand is stable and
predictable
• Establish accountability for forecast
• Eliminate planning delays and/or reduce
time bucket
• Alternatively, put assembly within pull
system and eliminate bulk inventory