Supply Chain: An

Introduction
Indian Institute of Management Calcutta
 Stages of Supply
Chain: Example
Plastic
Recycled
packaging
Plastic Supplier
supplier

Surfactant
chemical
supplier Petrochemical
P&G/HUL/Ot complex
her
manufacturer

Builder
chemical
supplier
Spencer DC
Paper
packaging
supplier Spencer store

Timber Factory

Customer
 Flows in a Supply
OP3952_05_SE_C01.QXD 10/10/11 5:15 PM Page 3

Chain
Chapter 1 • Understanding th

Supplier Manufacturer Distributor Retailer Customer

Supplier Manufacturer Distributor Retailer Customer

Supplier Manufacturer Distributor Retailer Customer

FIGURE 1-2 Supply

ProductChain Stages Information Fund
 Stakeholders

Motivator
• Customers Competitor Market

• Retailers

• Wholesalers/Distributors

Enabler
• Manufacturers

• Component/raw material manufacturers

 Before Supply Chain
Management
• Sourcing, procurement and supply management
• Primarily in the purchasing area
• Focuses in reduction of supplier cost and contribution toward bottom line
• Focuses on the economic procurement and inflow of inputs into the
enterprise

• Material management
• Forecasting, inventory management, stock keeping, scheduling, production
planning and control
• 60% of the cost from materials in manufacturing

• Logistics and distribution

• Plan, implement and control the forward and reverse flow of goods, services
• And related information
 Objective OF SUPPLY
CHAIN
• Supply Chain Surplus

= Customer Value – Supply Chain Cost

= Producer Surplus + Consumer Surplus

• Producer Surplus = Price – Supply Chain Cost

• Consumer Surplus = Customer Value - Price

 The Objective of a
Supply Chain
• Example: a customer purchases a wireless router
from Flipkart for Rs 2500 (revenue)
• Supply chain incurs costs (information, storage,
transportation, produce components, assembly,
etc.)
• Difference between Rs 2500 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
• Success should be measured by total supply chain
profitability, not profits at an individual stage
 The Objective of a
Supply Chain
• Customer the only source of revenue
• Sources of cost include flows of information, products, or funds
between stages of the supply chain
• Sources of customer value:
• Product attributes
• Shopping convenience
• Availability
• Creating awareness about different benefits/features of product

• Effective supply chain management is the management of supply chain

assets and product, information, and fund flows to grow the total
supply chain surplus
 The Objective of a
Supply Chain
Retailing in US Retailing in India
Customers: Customers:
- Comfortable in purchasing bulk - Comfortable in purchasing smaller
quantities from malls quantities from local Kirana Shops
- Product variety required - Product variety not that important
- Availability required - Availability required
- Quality and brand conscious - Not so much concerned about brands
- Self selection (independent) (and quality)
- Traveling to malls is convenient - Shop owners opinion counts
- Inconvenience in traveling

Costs incurred in supply chain: Costs incurred in supply chain:

- Transportation cost - Transportation cost
- Inventory holding cost - Inventory holding cost
 Key Point

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.

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
• Configuration of stages (vertical integration or not)
• Processes in each stage (in house or outsource)
• Allocation of resources in each process (facilities, manpower etc.)
• 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
• 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
• 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)

 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.
Supply Chain Management: Strategy, Planning,
4

chain processes
Cycle view of supply
3952_05_SE_C01.QXD 10/10/11 5:15 PM Page 9

Cycle view of supply

chain processes
Chapter 1 • Understandin

Buyer returns reverse

Supplier stage
flows to supplier or
markets product
third party

Buyer stage places Buyer stage

order receives supply

Supplier stage Supplier stage

receives order supplies order

FIGURE 1-4 Subprocesses in Each Supply Chain Process Cycle

 Key Point

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 processes. The same holds true for processes in the manufacturing and procurement

Push/Pull View of
cycles. In fact, raw material such as fabric is often purchased six to nine months before
customer demand is expected. Manufacturing itself begins three to six months before the point
of sale. The processes in the L. L. Bean supply chain break up into pull and push processes, as
Supply Chains
shown in Figure 1-6.

Push/Pull Boundary

Push Processes Pull Processes

Process Process Process Process Process Process Process

1 2 3 k k"1 N!1 N

Customer Order Arrives

FIGURE 1-5 Push/Pull View of the Supply Chain

FIGURE 1-5
 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
 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