OVERVIEW OF SUPPLY CHAIN PLANNING
ISSUES
© 2004 Prentice-Hall, Inc.
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Helpful References (Print)
1.
2.
3.
Chopra, S. and Meindl, P., “Supply Chain Management:
Strategy, Planning and Operation,” Prentice Hall, 2004
Chase, Aquilano and Jacobs, “Operations Management for
Competitive Advantage,” 9th Edition, McGraw Hill, 2001
Handfield, R.B. and Nichols, E.L., “Introduction to Supply
Chain Management,” Prentice Hall, 1999
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Helpful References (Internet)
1.
2.
www.apics.org
www.supply-chain.org
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Operations Management (OM)
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OM: Design, operation & improvement of the
production systems
OM: Concerned with conversion of inputs to
outputs
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OM Framework
INPUTS
TRANSFORMATION
People
Plants
Parts
Processes
Assembly
Blending
Storing
OUTPUTS
Tangible vs.
Intangible
Direct vs.
Indirect
Planning & control systems
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OM: Transformation Types

Transformations can be:
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–
–
Physical
Location
Physiological
Informational
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Characteristics of Manufacturing
Environment
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Increased product diversity
Reduced product life cycles
Increased awareness of the environment
– impact of products & manufacturing systems
Difficulties of estimating the costs and benefits
Changing social expectations
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Manufacturing System Views

Closed System
– Manufacturing is seen as an internal function buffered
from suppliers, customers, and other functions

Open Systems
– Manufacturing is seen as closely linked to suppliers,
customers and other functions
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A Closed System View
Suppliers
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R&D
Marketing
Finance
Manufacturing
Customer
Service
Purchasing
Personnel
Distribution
& Logistics
Customers
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An Open System View
Suppliers
Manufacturing
External
Customers
Other Functions
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Evolution From OM to Supply Chain
OM View
Closed
System
Manufacturer
Local
Supply Chain View
Open
Orientation
Optimization
System
Customer
Global
Orientation
Optimization
Technology (hardware, software, multimedia, etc.)
Local
System Capabilities
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Enterprise
System Capabilities
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Changing Basis of Competition
Basis of Competition
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Yesterday
Manufacturing company
versus
Manufacturing company
Today
Manufacturing company and it’s supply
chain
versus
Manufacturing company and it’s supply
chain
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Customers

Consumers
– Pay for your company’s final product

External customers
– Receiving outputs from your company

Internal customers
– Receiving outputs from you to others within the company
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Supply Chain: Definition

Supply chain is a network of interconnected
organizations or organizational entities developed
with the goal of getting the right product to the
right place at the right time
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Supply Chain: Scope

Supply chain encompasses every effort involved in
producing and delivering a final product, from the supplier’s
supplier to the customer’s customer
– Efforts include managing supply and demand, sourcing raw
materials and parts, manufacturing and assembly, warehousing,
information management, distribution and delivery to customers
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Supply Chain: Flows (1)

The following flows have to be managed in a
supply chain:
– Materials
– Information
– Cash
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Supply Chain: Flows (2)
Material, Information, Invoicing
Suppliers
Manufacturers
Distributors
Customers
After-sales support, Recycling, Order information, Payments
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Supply Chain: Elements

Supply chain consists of elements internal and
external to the company

These elements range from material producers to the
customers

All supply chain elements must be appropriately
integrated for a company to be able to effectively
compete in chosen markets
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What is a Supply Chain?
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All stages involved, directly or indirectly, in fulfilling
a customer request
Includes manufacturers, suppliers, transporters,
warehouses, retailers, customers
Within each company, the supply chain includes all
functions involved in fulfilling a customer request
(product development, marketing, operations,
distribution, finance, customer service)
Examples: Fig. 1.1 (Wal-Mart), Dell
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What is a Supply Chain?
Customer is an integral part of the supply chain
 Includes movement of products from suppliers to
manufacturers to distributors, but also includes
movement of information, funds, and products in both
directions
Typical supply chain stages: customers, retailers,
distributors, manufacturers, suppliers (Fig. 1.2)
 All stages may not be present in all supply chains
(e.g., no retailer or distributor for Dell)

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What is a Supply Chain?
P&G or other
manufacturer
Jewel or third
party DC
Plastic
Producer
Tenneco
Packaging
Chemical
manufacturer
(e.g. Oil Company)
Paper
Manufacturer
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Jewel
Supermarket
Customer wants
detergent and goes
to Jewel
Chemical
manufacturer
(e.g. Oil Company)
Timber
Industry
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The Objective of a Supply Chain



Maximize overall value created
Supply chain value: difference between what the final
product is worth to the customer and the effort the
supply chain expends in filling the customer’s request
Value is correlated to supply chain profitability
(difference between revenue generated from the
customer and the overall cost across the supply chain)
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The Objective of a Supply Chain

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Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
Supply chain profitability is total profit to be shared
across all stages of the supply chain
Supply chain success should be measured by total
supply chain profitability, not profits at an individual
stage
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The Objective of a Supply Chain

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
Sources of supply chain revenue: the customer
Sources of supply chain cost: flows of information,
products, or funds between stages of the supply chain
Supply chain management is the management of
flows between and among supply chain stages to
maximize total supply chain profitability
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Decision Phases of a Supply Chain
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Supply chain strategy or design
Supply chain planning
Supply chain operation
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Supply Chain Strategy or Design
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Decisions about the structure of the supply chain and
what processes each stage will perform
Strategic supply chain decisions
–
–
–
–
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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
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Supply Chain Planning

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Definition of a set of policies that govern short-term
operations
Fixed by the supply configuration from previous
phase
Starts with a forecast of demand in the coming year
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Supply Chain Planning
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Planning decisions:
–
–
–
–
–
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Which markets will be supplied from which locations
Planned buildup of inventories
Subcontracting, backup locations
Inventory policies
Timing and size of market promotions
Must consider in planning decisions demand
uncertainty, exchange rates, competition over the time
horizon
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Supply Chain Operation
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Time horizon is weekly or daily
Decisions regarding individual customer orders
Supply chain configuration is fixed and operating
policies are determined
Goal is to implement the operating policies 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)
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Process View of a Supply Chain
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Cycle view: processes in a supply chain are divided
into a series of cycles, each performed at the
interfaces between two successive supply chain stages
Push/pull view: processes in a supply chain are
divided into two categories depending on whether
they are executed in response to a customer order
(pull) or in anticipation of a customer order (push)
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Cycle View of Supply Chains
Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
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Cycle View of a Supply Chain
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Each cycle occurs at the interface between two successive
stages
Customer order cycle (customer-retailer)
Replenishment cycle (retailer-distributor)
Manufacturing cycle (distributor-manufacturer)
Procurement cycle (manufacturer-supplier)
Figure (see previous power point)
Cycle view clearly defines processes involved and the
owners of each process. Specifies the roles and
responsibilities of each member and the desired outcome
of each process.
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Customer Order Cycle
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Involves all processes directly involved in receiving
and filling the customer’s order
Customer arrival
Customer order entry
Customer order fulfillment
Customer order receiving
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Replenishment Cycle
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All processes involved in replenishing retailer
inventories (retailer is now the customer)
Retail order trigger
Retail order entry
Retail order fulfillment
Retail order receiving
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Manufacturing Cycle
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All processes involved in replenishing distributor (or
retailer) inventory
Order arrival from the distributor, retailer, or customer
Production scheduling
Manufacturing and shipping
Receiving at the distributor, retailer, or customer
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Procurement Cycle
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All processes necessary to ensure that materials are
available for manufacturing to occur according to
schedule
Manufacturer orders components from suppliers to
replenish component inventories
However, component orders can be determined
precisely from production schedules (different from
retailer/distributor orders that are based on uncertain
customer demand)
Important that suppliers be linked to the manufacturer’s
production schedule
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Push/Pull View of Supply Chains
Procurement,
Manufacturing and
Replenishment cycles
PUSH PROCESSES
Customer Order
Cycle
PULL PROCESSES
Customer
Order Arrives
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Push/Pull View of
Supply Chain Processes
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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
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Push/Pull View of
Supply Chain Processes


Useful in considering strategic decisions relating to
supply chain design – more global view of how
supply chain processes relate to customer orders
Can combine the push/pull and cycle views
– L.L. Bean (Figure 1.8)
– Dell (Figures 1.9 and 1.10)

The relative proportion of push and pull processes can
have an impact on supply chain performance
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Examples of Supply Chains

Micron Electronics Inc. (A direct sales Manufacturer)
– Why has assembly of certain PCs been outsourced? What characterizes
PCs or orders that have been outsourced?
– Why does Micron have only one manufacturing site?
– Why are individual orders shipped using FedEx and large corporate
orders shipped using LTL?
– Why are individual orders merged in transit rather than at the assembly
site itself?
– How much inventor of components and finished products is maintained?
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Examples of Supply Chains

7-Eleven ( A Convenience Store) (Japan)
– One of the company’s objectives is to micro-match supply
and demand by location, season, and time of day.
– Fresh food and distribution center.

Toyota (A Global Auto Manufacturer)
– Global production and distribution network.
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Examples of Supply Chains

Amazon.com (An E-Business)
– Why is Amazon.com building more warehouses as it grows? How many
warehouses should it have, and where should they be located?
– What advantages does selling books via the Internet provide over a
traditional bookstore? Are there any disadvantages to selling via the
Internet?
– Why does Amazon.com stock best-sellers while buying other titles from
distributors?
– Des the Internet channel provide greater value to a bookseller like
Borders with retail outlets or to an e-business like Amazon.com?
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Stages of a Detergent Supply Chain
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Supply Chain Stages
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