understanding the supply chain maangement.pptx

Supply Chain Management: Strategy,
Planning, and Operation
Seventh Edition
Chapter 1
Understanding the Supply
Chain
Copyright © 2019, 2016, 2013 Pearson Education, Inc. All Rights Reserved

Learning Objectives
1.1 Discuss the goal of a supply chain and explain the
impact of supply chain decisions on the success of a firm.
1.2 Define the three key supply chain decision phases and
explain the significance of each one.
1.3 Describe the cycle and push/pull views along with the
macro processes of a supply chain.
1.4 Identify important issues and decisions to be addressed
in a supply chain.
1.5 Develop skill that employers have identified as critical to
success in the workplace.

What Is a Supply Chain? (1 of 3)
• All parties involved, directly or indirectly, in fulfilling a
customer request
• Includes manufacturers, suppliers, transporters,
warehouses, retailers, and customers
• Within each organization, the supply chain includes all
functions involved in receiving and fulfilling a customer
request (new product development, marketing,
operations, distribution, finance, customer service)

• Customer is an integral part of the supply chain
• Includes movement of products from suppliers to
manufacturers to distributors and information, funds, and
products in both directions
• May be more accurate to use the term “supply network”
or “supply web”
• Typical supply chain stages: customers, retailers,
wholesalers, distributors, manufacturers, suppliers

Figure 1-1 Stages of an Automotive Supply Chain

Flows in a Supply Chain
Figure 1-2 The Three Flows in a Supply Chain

The Objective of a Supply Chain (1 of 3)
• Maximize net value generated
Supply Chain Surplus = Customer Value − Supply
Chain Cost

• Example: a customer purchases a wireless router from
Best Buy for $60 (revenue)
• Supply chain incurs costs (convey information, produce
components, storage, transportation, transfer funds, etc.)
• Difference between $60 and the sum of all of these costs
is the supply chain profitability
• Supply chain profitability is total profit to be shared across
all stages of the supply chain
• Success should be measured by total supply chain
surplus, not profits at an individual stage

• Customer the only source of revenue
• Sources of cost include flows of information, products, or
funds between stages of the supply chain
• Effective supply chain management involves the
management of supply chain assets and product,
information, and fund flows to grow the total supply chain
surplus

Importance of Supply Chain Decisions
• Wal-Mart, $1 billion sales in 1980 to $482 billion in 2016
• Seven-Eleven Japan, ¥1 billion sales in 1974 to ¥2.7
trillion in 2016
• Webvan folded in two years.
• Borders, $4 billion in 2004, declared bankruptcy in 2010
• Dell, $56 billion in 2006, adopted new supply chain
strategies

Summary of Learning Objective 1
The goal of a supply chain should be to grow overall supply
chain surplus. Supply chain surplus is the difference
between the value generated for the customer and the total
cost incurred across all stages of the supply chain. A focus
on the supply chain surplus increases the size of the overall
pie for all members of the supply chain. Supply chain
decisions have a large impact on the success or failure of
each firm because they significantly influence both the
revenue generated and the cost incurred. Successful
supply chains manage flows of product, information, and
funds to provide a high level of product availability to the
customer while keeping costs low.

Decision Phases in a Supply Chain
1. Supply chain strategy or design
– How to structure the supply chain over the next
several years
2. Supply chain planning
– Decisions over the next quarter or year
3. Supply chain operation
– Daily or weekly operational decisions

Supply Chain Strategy or Design
• Decisions about the configuration of the supply chain, allocation of
resources, and what processes each stage will perform
• Strategic supply chain decisions
– Outsource supply chain functions
– Locations and capacities of facilities
– Products to be made or stored at various locations
– Modes of transportation
– Information systems
• Supply chain design must support strategic objectives
• Supply chain design decisions are long-term and expensive to
reverse – must take into account market uncertainty

Supply Chain Planning (1 of 2)
• Definition of a set of policies that govern short-term
operations
• Fixed by the supply configuration from strategic phase
• Goal is to maximize supply chain surplus given
established constraints
• Starts with a forecast of demand in the coming year

Supply Chain Planning (2 of 2)
• Planning decisions:
– Which markets will be supplied from which locations
– Planned buildup of inventories
– Subcontracting
– Inventory policies
– Timing and size of market promotions
• Must consider demand uncertainty, exchange rates,
competition over the time horizon in planning decisions

Supply Chain Operation
• Time horizon is weekly or daily
• Decisions regarding individual customer orders
• Supply chain configuration is fixed and planning policies are
defined
• Goal is to handle incoming customer orders 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)

Supply chain decisions may be characterized as strategic
(design), planning, or operational, depending on the time
horizon over which they apply. Strategic decisions relate to
supply chain configuration. These decisions have a long-
term impact that lasts for several years. Strategic decisions
define the constraints for planning decisions, and planning
decisions define the constraints for operational decisions.
Planning decisions cover a period of a few months to a
year and include decisions regarding production plans,
subcontracting, and promotions over that period.
Operational decisions span from minutes to days and
include sequencing production and filling specific orders.

Process Views of a Supply Chain
1. 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 the supply
chain.
2. Push/Pull View: The processes in a supply chain are
divided into two categories, depending on whether they
are executed in response to a customer order or in
anticipation of customer orders. Pull processes are
initiated by a customer order, whereas push processes
are initiated and performed in anticipation of customer
orders.

Cycle View of Supply Chain Processes (1 of 2)
Figure 1-3 Supply Chain Process Cycles

Cycle View of Supply Chain Processes (2 of 2)
Figure 1-4 Subprocesses in Each Supply Chain Process Cycle

Push/Pull View of Supply Chain Processes
• Supply chain processes fall into one of two categories
depending on the timing of their execution relative to
customer demand
• Pull: execution is initiated in response to a customer
order (reactive)
• Push: execution is initiated in anticipation of customer
orders (speculative)
• Push/pull boundary separates push processes from pull
processes

Figure 1-5 Push/Pull View of Supply
Chains

Push/Pull View – L.L. Bean
Figure 1-6 Push/Pull Processes for the L.L. Bean Supply Chain

Push/Pull View – Ethan Allen
Figure 1-7 Push/Pull Processes for Ethan Allen Supply Chain for
Customized Furniture

Supply Chain Macro Processes
Supply chain processes discussed in the two views can be
classified into
1. Customer Relationship Management (CRM):
– all processes at the interface between the firm and its
customers
2. Internal Supply Chain Management (ISCM):
– all processes that are internal to the firm
3. Supplier Relationship Management (SRM):
– all processes at the interface between the firm and its
suppliers

Figure 1-8 Supply Chain Macro Processes

Summary of Learning Objective 3 (1 of 2)
The cycle view divides processes into cycles, each
performed at the interface between two successive stages
of a supply chain. Each cycle starts with an order placed by
one stage of the supply chain and ends when the order is
received from the supplier stage. A push/pull view of a
supply chain characterizes processes based on their timing
relative to that of a customer order. Pull processes are
performed in response to a customer order, whereas push
processes are performed in anticipation of customer
orders.

All supply chain processes within a firm can be classified into
three macro processes: CRM, ISCM, and SRM. The CRM macro
process consists of all processes at the interface between the
firm and the customer that work to generate, receive, and track
customer orders. The ISCM macro process consists of all supply
chain processes that are internal to the firm and work to plan for
and fulfill customer orders. The SRM macro process consists of
all supply chain processes at the interface between the firm
and its suppliers that work to evaluate and select suppliers and
then source goods and services from them. Integration among
the three macro processes is crucial for successful supply chain
management.

Examples of Supply Chains
• Gateway and Apple
• Zara
• W.W. Grainger and McMaster-Carr
• Toyota
• Amazon
• Macy's

Gateway and Apple
1. Why did Gateway choose not to carry any finished-product
inventory at its retail stores? Why did Apple choose to carry
inventory at its stores?
2. What are the characteristics of products that are most suitable to
be carried in finished-goods inventory in a retail store? What
characterizes products that are best manufactured to order?
3. How does product variety affect the level of inventory a retail store
must carry?
4. Is a direct selling supply chain without retail stores always less
expensive than a supply chain with retail stores?
5. What factors explain the success of Apple retail and the failure of
Gateway Country stores?

Zara
1. What advantage does Zara gain against the competition by having
a very responsive supply chain?
2. Why has Inditex chosen to have both in-house manufacturing and
outsourced manufacturing? Why has Inditex maintained
manufacturing capacity in Europe even though manufacturing in
Asia is much cheaper?
3. Why does Zara source products with uncertain demand from local
manufacturers and products with predictable demand from Asian
manufacturers?
4. What advantage does Zara gain from replenishing its stores
multiple times a week compared to a less frequent schedule?
5. Do you think Zara’s responsive replenishment infrastructure is
better suited for online sales or retail sales?

W.W. Grainger and McMaster-Carr
1. How many DCs should be built and where should they be
located?
2. How should product stocking be managed at the DCs? Should all
DCs carry all products?
3. What products should be carried in inventory and what products
should be left with the supplier to be shipped directly in response
to a customer order?
4. What products should W.W. Grainger carry at a store?
5. How should markets be allocated to DCs in terms of order
fulfillment? What should be done if an order cannot be completely
filled from a DC? Should there be specified backup locations?
How should they be selected?

Toyota
1. Where should the plants be located, and what degree of
flexibility should be built into each? What capacity
should each plant have?
2. Should plants be able to produce for all markets or only
for specific contingency markets?
3. How should markets be allocated to plants and how
frequently should this allocation be revised?
4. How should the investment in flexibility be valued?

Amazon
1. Why is Amazon building more warehouses as it grows? How many
warehouses should it have, and where should they be located?
2. Should Amazon stock every product it sells?
3. What advantage can online players derive from setting up a brick-
and-mortar location? How should they use the two channels to gain
maximum advantage?
4. What advantages and disadvantages does the online channel
enjoy in the sale of shoes and diapers relative to a retail store?
5. For what products does the online channel offer the greater
advantage relative to retail stores? What characterizes these
products?

Macy’s and W.W. Grainger
1. Should online orders be filled from stores or fulfillment
centers? What role(s) should each facility play?
2. How should store inventories be managed in an omni-
channel setting?
3. Should returns be kept at a store or sent to a fulfillment
center?

At a strategic level, a supply chain designer must decide
whether to build a responsive supply chain like Zara or
focus on lower costs. A decision must be made on the
location and capacity of each facility and whether it will be
dedicated or flexible in terms of the products it produces
and markets it serves. The designer must decide whether
products will be sold directly to customers, through
distributors like Grainger, or through brick-and-mortar
retailers like Macy’s. If opting for omni-channel retail, the
designer must decide which facilities will fulfill different
customer orders.

The planner must then decide on the production levels at
each production site and inventory levels at each DC and
retail store. As customer orders arrive, the operations
manager must decide how each order will be fulfilled given
the available inventory and production schedule. The goal
when making all these decisions is to maximize the supply
chain surplus.

Developing Skills for Your Career
• Lessons learned in this book will help develop career
skills no matter what path you take
• Employers have identified communication, critical
thinking, collaboration, knowledge application and
analysis, business ethics and social responsibility, data
literacy, and information technology application and
computing skills as critical
• Link between strategic decision making and analytics

Skills learned in this book will be of great use no matter
what path students choose to follow. The book is developed
with the premise that good strategic decisions cannot be
made without access to relevant analytics, and all analytics
should be designed to support decision making. As a result,
students will develop critical thinking, the ability to formulate
and analyze problems, and support their recommendations
with analytics that uses data literacy and computing skills.

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