WEEK 1: UNDERSTANDING THE SUPPLY CHAIN
LEARNING OBJECTIVES
1. Discuss the goal of a supply chain and explain the impact of supply
chain decisions on the success of a firm.
2. Identify the three key supply chain decision phases and explain the
significance of each one.
3. Describe the cycle and push/pull views of a supply chain.
4. Classify the supply chain macro processes in a firm
WHAT IS SUPPLY CHAIN?
• A supply chain is the network of all the individuals,
organizations, resources, activities and technology involved in
the creation and sale of a product.
• A supply chain encompasses everything from the delivery of
source materials from the supplier to the manufacturer through
to its eventual delivery to the end user.
• Within each company, the supply chain includes all functions
involved in fulfilling a customer request (product development,
marketing, operations, distribution, finance, customer service)
• Customer is an integral part of the supply chain
• All stages involved, directly or indirectly, in fulfilling a
customer request
• Includes movement of products from suppliers to manufacturers
to distributors and information, funds, and products in both
directions
KEY STEPS IN SUPPLY CHAIN
The key steps in a supply chain include:
1.
Planning the inventory and manufacturing processes to
ensure supply and demand are adequately balanced.
2.
Manufacturing or sourcing materials needed to create
the final product.
3.
Assembling parts and testing the product.
4.
Packaging the product for shipment or holding in
inventory until a later date.
5.
Transporting and delivering the finished product to the
distributor, retailer, or consumer.
6.
Providing customer service support for returned items.
OBJECTIVES OF SUPPLY CHAIN
• The leading objectives of supply chain management are to
ensure that the right products or services are delivered to
the customers in a way that brings profitable results to the
business.
• To achieve these objectives, supply chain management must
consider all of the activities involved in the procurement,
manufacture, distribution, and delivery of goods or services.
• This includes the management of suppliers, inventory,
transportation, warehousing, and customer service.
• Example: a customer purchases a wireless
router from Best Buy for $60 (revenue)
• Supply chain incurs costs (information,
storage,
transportation,
produce
components, assembly, etc.)
• Difference between $60 and the sum of all
of these costs is the supply chain profit
• Supply chain profitability is total profit to
be shared across all stages of the supply
chain
• Achieving the objectives of supply chain management
requires a coordinated effort from all supply chain members, • Success should be measured by total
supply chain profitability, not profits at an
from suppliers to customers.
• This includes the identification of objectives, the
development of plans, and the implementation of strategies.
individual stage
OBJECTIVES OF SUPPLY CHAIN
Reduce Costs: The first and foremost
objective of supply chain management is
to reduce the overall costs associated
with running the supply chain. This
includes both direct and indirect costs. By
reducing costs, businesses can increase
their profits and competitiveness.
Improving Quality: One of the most critical
objectives of supply chain management is to
ensure that products or services are delivered
with the utmost quality. Superior quality can be
achieved through various means, such as
effective quality control supplier management,
and customer feedback. Quality will directly
impact customer satisfaction, which is essential
for any business.
Increase Value for the Customer:
Increasing value for customers can be
done by providing them with the right
product or service to the customers that
will fulfil their demands and also offer
them a better buying experience.
Improve Logistics: It is essential to streamline
the logistics. This includes managing the
transportation, storage, and distribution of
goods. By improving logistics, supply chain
managers can reduce waste and optimize
resources.
OBJECTIVES OF SUPPLY CHAIN
Enhance Distribution: One of the primary objectives of supply chain management is to
enhance the distribution system, so that finished goods and services are available to
customers when they need them. With a better distribution, businesses can improve
customer service and satisfaction levels, increasing sales and profits.
Increase Coordination: Supply chain management objectives also include enhancing
coordination between various departments and organisations that are involved in the
supply chain process. Coordination entails planning and executing various activities such
as production, transportation, storage, and distribution.
Increase Demand Fulfilment: The entire supply chain exists to fulfil customer demand.
By ensuring that customers receive the products or services they want, when they want
them, businesses can increase customer satisfaction and loyalty. In turn, this can result
in increased sales and market share.
KEY TAKEAWAY
• Supply chain design, planning, and operation decisions play a significant
role in the success or failure of a firm.
• To stay competitive, supply chains must adapt to changing technology and
customer expectations.
• The objectives of supply chain management are to reduce or eliminate
errors, waste, and inefficiencies throughout the entire process while
maximising customer satisfaction.
• By following these objectives, companies can ensure a well-run operation
that meets the needs and wants of their customer base.
• The supply chain is the driving force of any business that can make or
break it depending upon the management
DECISION PHASES IN A SUPPLY CHAIN
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
SUPPLY CHAIN STRATEGY
• Supply chain strategy is a comprehensive plan that guides the management of all
activities involved in sourcing, procurement, conversion, and logistics
management.
• It includes the coordination and collaboration with channel partners, such as
suppliers, intermediaries, third-party service providers, and customers.
• A key aspect of supply chain strategy is that it must be designed to support the
mission, vision, and the overall strategy of the organization.
• This alignment ensures that the supply chain operations contribute to the broader
organizational goals and strategic objectives.
Three key aspects of supply chain strategy are:
1.
Difficulty to change: Once a supply chain strategy is implemented, it becomes
deeply embedded in the organization’s operations, making it difficult to change.
2.
Expensive: Developing and implementing a supply chain strategy requires
significant investment in terms of time, money, and resources.
3.
Long-term: A supply chain strategy is not a short-term fix but a long-term plan
that guides the organization’s supply chain operations over several years
Demand Planning: This involves an assessment of varied data to accurately
forecast demand, which can then be used to maintain and store optimum
inventory. Demand planning is done by looking at historical data, projected
sales, market conditions and other factors. The use of predictive analytics for
demand forecasting helps to better understand consumer behavior, buying
patterns and other factors that influence demand.
SUPPLY CHAIN
PLANNING
Supply Planning: The next step is to come up with a supply plan that can
synchronize with the demand plan and meet the overall requirements of the
business. The supply plan involves sourcing of raw materials, components and
other goods needed for production. The goal is planning supply that can meet
the demand for the product in the best possible way.
Production Planning: The broad objectives of a production plan are reducing
waste and only producing what is required to ensure the availability of
optimum inventory. This can be manged through efficient inventory
management.
Sales and Operations Planning: Sales and Operations planning essentially
brings diverse business teams working with different objectives on the same
page. It helps sales and marketing leaders assess and merge their plans with
operations.
SUPPLY CHAIN OPERATION
1
2
3
4
5
6
7
Demand planning
or demand
forecasting is the
first and one of
the most vital
components in
supply chain
operations.
Purchasing include
all activities
involved in
procuring raw
materials to be
used in
production.
Manufacturing
involves
converting or
transforming raw
materials into
finished products.
Inventory
management
controls how a
business receives,
stores, and tracks
its finished goods.
Fulfillment and
warehousing
operations include
processing and
confirming orders,
setting it aside to
be shipped to the
end customer.
Shipping and
transportation
transfer packages
from a business’s
warehouse or
fulfillment center
to the end
customer.
Customer service
operations include
assisting your
customers with
complaints,
returns,
replacements,
refunds, and
repairs even after
they’ve received
their orders.
SUMMARY – KEY POINTS
• Supply chain decision phases are broadly categorized into three main phases
based on their time frame: design, planning, and operational. These phases
represent different stages in the lifecycle of supply chain management.
• Design decisions are made in the early stages and these decisions are strategic
and have long-term implications, as they establish the framework within which
the supply chain will operate.
• Planning decisions occur after design decisions and involve creating detailed
strategies for operations, inventory management, production scheduling, and
distribution
• Operational decisions are made on a day-to-day basis to ensure smooth
execution of supply chain activities. These decisions include order processing,
inventory replenishment, transportation scheduling, and managing supplier
relationships.
• Each phase is interconnected and influences the others. Success in one phase
depends on the quality and alignment of decisions made in the preceding
phases.
PROCESS VIEWS OF SUPPLY CHAIN
Cycle View: Each cycle represents a transfer of goods or information between stages, such as from supplier to
manufacturer, manufacturer to distributor, and distributor to retailer.
This view emphasizes the interconnectedness and flow of activities across different stages, with each cycle involving
specific actions like procurement, production, and distribution.
These cycles are integral to the overall functioning of the supply chain, ensuring that materials and information move
smoothly from one stage to another.
By focusing on cycles, supply chain managers can optimize each interaction point to minimize delays, reduce costs, and
enhance overall efficiency. This view helps identify potential bottlenecks or inefficiencies at these interfaces, enabling
targeted improvements to enhance the overall performance of the supply chain.
Push/Pull View: The push/pull view of supply chain management categorized based customer demand.
Push processes involve activities that are initiated and performed in anticipation of customer orders, such as production
planning and inventory stocking.
Conversely, pull processes are triggered by actual customer orders. These processes include order fulfillment, packaging,
and shipping.
Pull processes are demand-driven, with activities executed in response to specific customer requirements or requests.
Push processes rely on accurate forecasting to ensure that adequate inventory levels are maintained without excessive
overstocking, while pull processes require agile and responsive supply chain operations to meet fluctuating customer
demands efficiently.
CYCLE VIEW OF
SUPPLY CHAIN
PROCESSES
CYCLE VIEW OF
SUPPLY CHAIN
PROCESSES
Supplier Stage: In the supplier stage processes involve procurement
activities such as sourcing raw materials, negotiating contracts, and
managing supplier relationships.
Manufacturer Stage: At the manufacturer stage, processes include
production planning, inventory management, and manufacturing
operations. This stage aims to convert raw materials into finished goods
efficiently while optimizing production schedules to meet demand.
PROCESS
FLOW
CYCLE VIEW
Distributor Stage: In the distributor stage, processes revolve around
warehousing, transportation, and order fulfillment. This stage focuses on
storing inventory, managing logistics, and ensuring timely distribution of
products to retailers or end customers.
Retailer Stage: At the retailer stage, processes involve sales forecasting,
inventory replenishment, and customer service. This stage aims to
anticipate customer demand, manage inventory levels effectively, and
provide satisfactory service to end customers.
Customer Stage: In the customer stage of the supply chain cycle view,
processes include order placement, payment, and receipt of goods or
services. This stage represents the final interaction point where
customer demand is fulfilled, completing the supply chain cycle.
SUMMARY – KEY POINTS
A cycle view of the supply chain clearly
defines the processes involved and the
owners of each process.
This view is useful when considering
operational decisions because it specifies
the roles and responsibilities of each
member of the supply chain and the
desired outcome for each process.
PUSH/PULL VIEW OF
SUPPLY CHAIN
In supply chain management, the push/pull view looks at
how businesses manage their inventory and production in
response to customer demand.
• Push Processes: These are like making a lot of something
and storing it in a warehouse before customers actually
order it. Businesses predict what customers might need
based on past sales or trends and then produce goods in
advance to have them ready.
• Pull Processes: This is more like making something only
when a customer orders it. When a customer buys a
product, the business then starts making it or sends it out
from their stock. This way, businesses respond directly to
what customers want, making the supply chain more
flexible and efficient.
The push/pull view helps businesses decide how much they
should make in advance (push) versus how much they
should wait to make until customers ask for it (pull),
balancing between being prepared and being responsive to
customer needs.
https://www.youtube.com/watch?v=-KXG5wjiaBU
SUPPLY CHAIN MACRO PROCESSES
Customer Relationship Management (CRM):CRM involves all processes that occur at the interaction points
between a company and its customers, focusing on activities like order processing, customer service, and
managing customer relationships.
These processes aim to enhance customer satisfaction, retention, and loyalty by efficiently addressing customer
needs and delivering value-added services.
Internal Supply Chain Management (ISCM): ISCM encompasses all internal processes within a company that are
essential for managing and optimizing the flow of materials, information, and resources across various
departments.
These processes include production planning, inventory management, quality control, and logistics management,
aimed at ensuring smooth operations and meeting customer demands effectively.
Supplier Relationship Management (SRM): SRM involves all processes that take place at the interface between a
company and its suppliers, encompassing activities such as procurement, supplier selection, contract negotiation,
and supplier performance evaluation.
Effective SRM aims to build strong supplier partnerships, ensure timely delivery of quality materials, and optimize
supply chain efficiency through collaboration and continuous improvement initiatives.
SUPPLY
CHAIN
MACRO
PROCESSES
EXAMPLES OF SUPPLY CHAIN
Gateway and
Apple
Zara
W.W. Grainger
and
McMaster-Carr
Toyota
Amazon
Macy's
GATEWAY AND APPLE
Gateway was a computer hardware company that was prominent in the 1990s and early 2000s, known for manufacturing
and selling personal computers and related products. They were recognized for their direct sales model and innovative
marketing strategies, such as shipping computers in spotted cow-patterned boxes. However, Gateway faced challenges in
the competitive PC market and eventually struggled financially, leading to its acquisition by Acer in 2007.
Apple Inc. is a multinational technology company based in Cupertino, California, USA. Founded in 1976 by Steve Jobs,
Steve Wozniak, and Ronald Wayne, Apple is renowned for its innovative products and services in the consumer electronics,
software, and digital services industries. Apple's success is attributed to its focus on design, user experience, integration
of hardware and software, and a strong ecosystem of products and services. The company has a significant global presence
with a network of retail stores, online services, and a loyal customer base.
Questions:
1. Why did Gateway choose not to carry any finished-product inventory at its retail stores?
2. Why did Apple choose to carry inventory at its stores?
3. Should a firm with an investment in retail stores carry any finished-goods inventory?
4.
What are the characteristics of products that are most suitable to be carried in finished-goods inventory?
5. What characterizes products that are best manufactured to order?
6. Is a direct selling supply chain without retail stores always less expensive than a supply chain with retail stores?
7. What factors explain the success of Apple retail and the failure of Gateway country stores?
GATEWAY AND APPLE
1.
Why did Gateway choose not to carry any finished-product inventory at its retail stores? Gateway chose not to carry inventory in
stores to reduce costs and risks associated with holding unsold products, aiming for a leaner and more efficient supply chain.
2.
Why did Apple choose to carry inventory at its stores? Apple carries inventory at its stores to ensure availability of popular
products for immediate purchase, providing convenience to customers and potentially boosting sales.
3.
Should a firm with an investment in retail stores carry any finished-goods inventory? It depends on the firm's strategy and
customer demands; carrying inventory can be beneficial for meeting immediate customer needs and improving customer
satisfaction.
4.
What are the characteristics of products that are most suitable to be carried in finished-goods inventory? Products suitable for
finished-goods inventory are typically popular, predictable in demand, and have stable production processes, ensuring consistent
availability.
5.
What characterizes products that are best manufactured to order? Products best manufactured to order are often customized or
specialized items with variable demand, where producing only upon receiving orders minimizes inventory holding costs and
reduces the risk of excess inventory.
6.
Is a direct selling supply chain without retail stores always less expensive than a supply chain with retail stores? Not necessarily;
while direct selling can reduce distribution costs, retail stores can provide benefits like customer engagement, immediate
availability, and brand presence that may justify the additional expenses.
7.
What factors explain the success of Apple retail and the failure of Gateway country stores? Apple's success in retail can be
attributed to its focus on innovative products, customer experience, and effective store design, whereas Gateway's failure may
stem from market conditions, competitive pressures, and possibly a less compelling value proposition.
TOYOTA
1.
2.
3.
4.
Where should the plants be located, and what degree of
flexibility should be built into each? Toyota's plants are
strategically located near major markets to minimize
transportation costs and respond quickly to customer
demand. Each plant is designed with a high degree of
flexibility to accommodate varying production volumes
and model changes efficiently.
What capacity should each plant have? The capacity of
each Toyota plant is carefully planned to match
forecasted market demand, ensuring optimal utilization
without excessive inventory buildup or shortages during
peak periods.
How should markets be allocated to plants and how
frequently should this allocation be revised? Markets are
allocated to Toyota plants based on factors such as
customer demand, distribution logistics, and local
regulations. This allocation is periodically reviewed to
optimize production efficiency and customer service.
How should the investment in flexibility be valued? The
investment in flexibility at Toyota is valued based on its
ability to enhance responsiveness, minimize lead times,
and improve overall supply chain resilience.
This Photo by Unknown Author is licensed under CC BY-SA
AMAZON
1.
Why is Amazon building more warehouses as it grows? How many
warehouses should it have and where should they be located? Amazon
is expanding its warehouse network to improve order fulfillment
speed and efficiency, reducing delivery times for customers. The
number and location of warehouses are determined based on
customer demand patterns, population density, and logistics
optimization, aiming to cover key markets efficiently.
2.
Should Amazon stock every product it sells? Amazon employs a vast
selection strategy but does not necessarily stock every product it
sells directly. It uses a combination of owned inventory, third-party
sellers, and dropshipping to offer a wide range of products without
excessive inventory costs.
3.
What advantages and disadvantages does the online channel enjoy in
the sale of shoes and diapers relative to a retail store? The online
channel offers convenience and a broader selection for shoes and
diapers, allowing customers to compare products easily. However, it
lacks the tactile experience of trying on shoes or assessing product
quality in person, which can be a disadvantage.
4.
For what products does the online channel offer the greater
advantage relative to retail stores? What characterizes these
products? The online channel offers a greater advantage for products
like electronics, books, and niche items with specific features or
customization options. These products are often well-suited for
online purchasing due to extensive product information, customer
reviews, and ease of comparison shopping.
This Photo by Unknown Author is licensed under CC BY-SA
ZARA
1.
2.
3.
4.
5.
What advantage does Zara gain against the competition
by having a very responsive supply chain?
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?
Why does Zara source products with uncertain demand
from local manufacturers and products with
predictable demand from Asian manufacturers?
What advantage does Zara gain from replenishing its
stores multiple times a week compared to a less
frequent schedule? How does the frequency of
replenishment affect the design of its distribution
system?
Do you think Zara’s responsive replenishment
infrastructure is better suited for online sales or retail
sales?
Zara is a renowned fashion brand owned by
Inditex, based in Spain. It is known for its fastfashion business model, offering trendy and
affordable clothing that quickly reflects the
latest runway styles. Zara's success lies in its
ability to design, manufacture, and distribute
new clothing collections rapidly, maintaining a
strong focus on customer preferences and
market responsiveness.
Inditex is a multinational fashion retailer
headquartered in Spain, known for its flagship
brand Zara. The company operates a unique and
efficient business model focused on fast fashion,
allowing it to quickly respond to market trends
and deliver new styles to stores within weeks.
SUMMARY OF LEARNING
OBJECTIVES
1. Discuss the goal of a supply chain
and explain the impact of supply
chain decisions on the success of
a firm.
2. Identify the three key supply
chain decision phases and explain
the significance of each one.
3. Describe the cycle and push/pull
views of a supply chain.
4. Classify the supply chain macro
processes in a firm