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Lecture Organization

Lecturing

Group exercises

Quizzes/Assignments/Tutorials Case discussion

Case study presentations


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Grading Policy

GradingAssignment and Quiz 10%

Mini-project 10%

Test 1 15% Test 2 15%

End Exam 50%

Mini-project Mini-project in supply chain

Presentation on a relevant topic

on supply chain


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Text Books

1. Chopra, S. and Meindl, P., Supply Chain Management: Strategy,Planning and Operation, Pearson Education, Inc., Singapore, Second

Edition, 2004.

2. Bozarth, C.C. and Handfield, R. B., Introduction to Operations and

Supply Chain Management, Pearson Education, 2006.

3. Simchi-Levi, D., Kaminsky, P., Simchi-Levi, E., and Ravi Shankar,

Designing and Managing the supply chain, Tata McGraw Hill Education

Private Limited, New Delhi, 2008.

4. Shah, J., Supply chain management: Text and Cases. New Delhi:

Pearson Education, 2009.

5. Shapiro, J.F., Modelling the supply chain, Second Edition, Brooks/Cole,

Cengage Learning, 2007.6. Dobler, D. W. and Burt, D. N., Purchasing and Supply Management:

Text and Cases, Sixth Edition, Tata McGraw-Hill Publishing Company

Limited, New Delhi, 1996.

7. Tersine, R. J., Principles of Inventory and Materials Management,

Fourth Edition, Prentice-Hall Inc., New Jersey, 1994.


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1. Christopher, M., Logistics and Supply Chain Management,

Second Edition, Financial Times Professional Limited, 1998.

2. Narasimhan, S. L., McLeavy, D. W. and Billington, P. J.,

Production Planning and Inventory Control, Second Edition,

Prentice Hall of India Private Limited, 1995.3. Raghuram, G. and Rangaraj, N., Logistics and Supply Chain

Management: Cases and Concepts, Macmillan India Limited,

New Delhi, 2000.

4. Arnold, J. R. T. and Chapman, S. N., Introduction to MaterialsManagement, Fourth Edition, Prentice-Hall Inc., 1998.

5. Burt, Dobler and Starling, World Class Supply Management:

Key to Supply Chain Management, Tata McGraw-Hill, 7th

Edition, 2003.

References


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Introduction

Why study Supply Chain Management?

Operations Management

Supply Chain Management Important trends


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Why Study Operations and

Supply Chain Management?


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Three Basic Truths

I. Pervasiveness

II. Interdependence

III. Profitability and Survival


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1. Pervasiveness

Every organization must make a product or providea service that someone values.

Manufacturer.Retailer.

Design firm.

University.

Health services.


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2. Interdependence

Most organizations function as part of a largersupply chain

Supplier Manufacturer Distributor Retailer Customer

UpstreamDownstream


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Supply Chains

Networks of manufacturers and serviceproviders that work together to move goods fromthe raw material stage through to the end user

Linked through physical, information, andmonetary flows


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3. Profitability and Survival

Organizations must carefully managetheir

operations and supply chains to prosper, andindeed, survive!


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THE PLANNING, SCHEDULING,AND CONTROL OF THE

ACTIVITIES THAT TRANSFORMINPUTS INTO FINISHED GOODSAND SERVICES

Operations Management


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Operations Function

The collection of people, technology, and systemswithin a company ...

that has primary responsibility ...

for providing the organizations products

and/or services.


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Viewing Operations as aTransformationProcess

Transformation

Process

Manufacturing operations

Service operations

Inputs OutputsMaterials

People

Equipment

Intangible needs

Information

Tangible goods

Fulfilled requests

Information

Satisfied Customers


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Manufacturing

Tangible product

Key decisions driven by physical

characteristics of the product: How is the product made?

How do we store it?

How do we move it?

Etc.


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A round watermelon needs lot of room in a refrigerator and the usually roundfruit often sits awkwardly on refrigerator shelves. Smart Japanese Farmers have

forced their watermelons to grow into a square-shape by inserting the melons

into square, tempered glass cases while the fruit is still growing on the vine.

Cuboid Watermelon


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Services

Intangible Product or Service

Key decisions:

How much customer involvement?

How much customization?


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Cross-Functional Linkages

Operations and

Supply Chain

FinanceBudgeting.

Analysis.

Funds.

MarketingWhat products?

What volumes?

Costs? Quality?

Delivery?

HumanResourcesSkills? Training?

# of Employees?

AccountingPerformance measurement systems.

Planning and control.

MISWhat IT solutions

to make it all work

together?

DesignSustainability.

Quality.

Manufacturability.


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ACTIVE MANAGEMENT OF SUPPLYCHAIN ACTIVITIES AND

RELATIONSHIPS TO MAXIMIZECUSTOMER VALUE AND ACHIEVE ASUSTAINABLE COMPETITIVE

ADVANTAGE

Supply Chain Management


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Module 1:Supply Chain Management

The first supply chain was the barter system

Traces of outsourcing was seen when Charles S. Rollsbecame selling agent for cars made by F. Henry Royce

The essence of SCM was understood with the first phasecharacterized as an inventory push era that focusedprimarily on physical distribution of finished goods

Ancient Times

1904

1960-1975

1975-1990

1980 Emergence of SCM

1985- WalMart introduced the concept of Cross Docking

Internet revolutionized the distribution system ofthe business1996-

Concept of e-commerce changed the definition ofbusiness

1998-

Companies began migrating from an inventory pushtoa customer pull channel


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Understanding the

Supply hain


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Traditional View: Logistics in the Economy(1990, 1996)

Freight Transportation $352, $455 Billion

Inventory Expense $221, $311 Billion

Administrative Expense $27, $31 Billion Logistics Related Activity 11%, 10.5% of GNP

Source: Cass Logist ics


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Traditional View: Logistics in the ManufacturingFirm

Profit 4%

Logistics Cost 21%

Marketing Cost 27%

Manufacturing Cost 48%

Profit

Logistics

Cost

Marketing

Cost

Manufacturing

Cost


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Supply Chain Management:The True Magnitude

Compaq estimates it lost $.5 billion to $1 billion insales in 1995 because laptops were not available

when and where needed

P&G estimates that it saved $65 million retail

customers by collaboration resulting in a bettermatch of supply and demand

Boeing Aircraft, one of Americas leading capital

goods producers, was forced to announce write-downs of $2.6 billion in October 1997.The reason?Raw material shortages, internal and supplierparts shortages. (Wall Street Journal, Oct. 23, 1997)


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SOME ESTIMATES FOR INDIA* Logistics Spend IN Rs. 2,40,000 crores

(approx. US $ 50 Billion)

* Share of GDP . 12-13 %

* Major Elements are ( Percentage of Total)

* Transportation 35

* Inventories 25

* Packaging 11

* Handling & Warehousing .. 9* Others & Losses 14

Supply Chain Management:The True Magnitude


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Supply Chain: The Potential

Dell Computer has outperformed the competitionin terms of shareholder value growth over the

eight years period, 1988-1996, by over 3,000%using

- Direct business model

- BTO (Build-to-Order) strategy.


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In 10 years,Wal-Marttransformed itself bychanging its logistics system. It has the highestsales per square foot, inventory turnover and

operating profit of any discount retailer.

Supply Chain: The Potential


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Outline

What is a Supply Chain?

Decision Phases in a Supply Chain

Process View of a Supply Chain

The Importance of Supply Chain Flows Examples of Supply Chains


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Just a significant evolution

Several hundred years ago, Napolean made theremark, An army marches on its stomach.

Unless the soldiers are fed, the army cannot move.

Term supply chain management arose in the late1980s and came into widespread use in 1990s.

Prior Logistics and operations management


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Some Definitions

Supply Chain Management encompasses everyeffort involved in producing and delivering afinal product or service, from the supplierssupplier to the customerscustomer.

Supply Chain Management includes managingsupply and demand, sourcing raw materials andparts, manufacturing and assembly, warehousingand inventory tracking, order entry and order

management, distribution across all channels,and delivery to the customer.

The Supply Chain Council, U.S.A.


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Some More Definitions

Supply Chain Management is primarily concerned with the efficientintegration of suppliers, factories, warehouses and stores so that

merchandise is produced and distributed in the right quantities, to theright locations and at the right time, and so as to minimize total systemcost subject to satisfying service requirements.

Simchi-Levi

Call it distribution or logistics or supply chain management. By whatevername, it is the sinuous, gritty, and cumbersome process by which

companies move, materials, parts, and products to customers.

Fortune (1994)


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All stages involved, directly or indirectly, infulfilling a customer request

Includes manufacturers, suppliers, transporters,

warehouses, retailers, and customersWithin each company, the supply chain includes all

functions involved in fulfilling a customer request(product development, marketing, operations,

distribution, finance, customer service)


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A picture is better than 1000 words!How many words would be better than 3 pictures?

- A supply chain consists of

- Aims to Match Supply and Demand,

profitably for products and services

SUPPLY SIDE DEMAND SIDE

The right

Product

Higher

ProfitsThe right

TimeThe right

CustomerThe right

QuantityThe right

StoreThe right

Price

=++ ++ +- Achieves

Supplier Manufacturer Distributor Retailer Customer

UpstreamDownstream


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Example of a Supply Chain?

Customer wants

detergent

and goes

to Supermarket

SupermarketThird

party DC

P&G or other

manufacturer

Plastic

Producer

Chemical

manufacturer

(e.g. Oil Company)

Tenneco

Packaging

Paper

ManufacturerTimber

Industry

Chemical

manufacturer

(e.g. Oil Company)


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1-40

CUSTOMER is an integral part of any supply chain Includes movement of products from suppliers to

manufacturers to distributors, but also includes movementof information, funds, and products in both directions

Probably more accurate to use the term supply networkor supply web

All stages may not be present in all supply chains(e.g., no retailer or distributor for Dell computer)


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The Supply Chain

Suppliers Manufacturers Warehouses &

Distribution Centers

Customers

Material Costs

TransportationCosts

TransportationCosts

Transportation

CostsInventory CostsManufacturing Costs


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The Supply Chain Another View

Suppliers Manufacturers Warehouses &Distribution Centers

Customers

Material Costs

TransportationCosts

TransportationCosts Transportation

CostsInventory CostsManufacturing Costs

Plan Source Make Deliver Buy


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Supply chain flows

Material flow

Information flow

Fund flow


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Alcoa Ball Corp Anheuser-Busch M&M Meijer

First Tier

Supplier Distributor Retailer

Transportation companies

Final

customers

Upstream Downstream

Alcoa

Second Tier

Supplier

Material Flows


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Wheat Flour

Praline Wafers

ChocolateConfectionery

manufacturerPacking

Creamery

(milk)

Cocoa

beansSugar

Vegetable

oil

Cocoa

butterLecithin

Emulsifiers,

Salt, etc.

Printed

materialsAluminium Fiberboard

Multiple

retailers

Wholesalers

Others

(hospital etc.)

End

customers


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Dynamics of Material Flow

Supplier Plant Warehouse Logistics Retailer


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Dynamics of Order Flow



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Supply Chain Planning Processes

Demand PlanningMaterial Requirement PlanningDemand Forecasting


Production

Plan

Component

Requirement

Order Management


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1-50

Suppliers

SuppliersDirect

Suppliers ProducerDistributor

Final

Consumer

Supply Chain

Supply Chain:

A sequence of activities

organizations involved in producing

delivering a good or service

A S ppl Chain for Bread


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1-51

Stage of Production ValueAdded

Value ofProduct

Farmer produces and harvests wheat 2.33 2.33

Wheat transported to mill 1.24 3.57

Mill produces flour 2.33 5.90

Flour transported to baker 1.25 7.15

Baker produces bread 8.35 15.50

Bread transported to grocery store 1.25 16.75

Grocery store displays and sells bread 3.25 20.00

Total Value-Added 20.00

A Supply Chain for Bread


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The Objective of a Supply Chain

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Example: Dell receives 30000/- from a customer for acomputer (revenue)

Supply chain incurs costs (information, storage,transportation, components, assembly, etc.)

Difference between 30000/- and the sum of all of thesecosts is the supply chain profit

Supply chain profitability is total profit to be shared acrossall 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

Sources of supply chain revenue: the customer

Sources of supply chain cost: flows of information,products, or funds between stages of the supplychain

Supply chain management is themanagement of flows between and amongsupply chain stages to maximize total

supply chain profitability


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Process View of a Supply Chain

Cycle view: processes in a supply chain are dividedinto a series of cycles, each performed at theinterfaces between two successive supply chainstages

Push/pull view: processes in a supply chain aredivided into two categories depending on whetherthey are executed in response to a customer order

(pull) or in anticipation of a customer order (push)


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Cycle I

Cycle III

Customer

Distributor

ManufacturerSupplier

Retailer


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Cycle View of Supply Chains

Customer Order Cycle

Replenishment Cycle

Manufacturing Cycle

Procurement Cycle

Customer

Retailer

Distr ibuter

Manufacturer

Suppl ier


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Cycle View of a Supply Chain

Each cycle occurs at the interface between twosuccessive stages

Customer order cycle (customer-retailer)

Replenishment cycle (retailer-distributor)

Manufacturing cycle (distributor-manufacturer)

Procurement cycle (manufacturer-supplier)

Cycle view clearly defines processes involved and the

owners of each process. Specifies the roles andresponsibilities of each member and the desiredoutcomeof each process.

P h/P ll Vi f


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Push/Pull View ofSupply Chain Processes

Supply chain processes fall into one of two categoriesdepending on the timing of their execution relative tocustomer demand

Pull: execution is initiated in response to a customerorder (reactive)

Push: execution is initiated in anticipation ofcustomer orders (speculative)

Push/pull boundary separates push processes frompull processes


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Push/Pull View of Supply Chains

Procurement,Manufacturing andReplenishment cycles

Customer Order

Cycle

Customer

Order Arrives

PUSH PROCESSES PULL PROCESSES


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A push-based SCM takes longer to react to thechanging market place

In a push-based supply chain, production decisions

are usually based on long-term forecasts

In push-based strategies, SCM experienceincreased transportation costs, high inventorylevels and high manufacturing costs

In a pull-based supply chain, manufacturing is demand drivenso that it is coordinated with actual external customerdemand rather than a forecast

Push View of SCM

Pull View of SCM

Lead-time reduction occurs as the variabilitiesare better monitored in pull-based SCM

Pull-based systems are often difficult to implement when lead timesare so long that it is impractical to react to demand information


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Supply Chain Integration Push Strategies

Classical manufacturing supply chain strategy Manufacturing forecasts are long-range

Orders from retailers warehouses

Longer response time to react to marketplace changes Unable to meet changing demand patterns Supply chain inventory becomes obsolete as demand for

certain products disappears Increased variability (Bullwhip effect) leading to:

Large inventory safety stocks Larger and more variably sized production batches Unacceptable service levels Inventory obsolescence

Inefficient use of production facilities (factories) How is demand determined? Peak? Average? How is transportation capacity determined?

Examples: Auto industry, large appliances, others?


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Supply Chain Integration Pull Strategies

Production and distribution are demand-driven Coordinated with true customer demand

None or little inventory held Only in response to specific orders

Fast information flow mechanisms POS data

Decreased lead times

Decreased retailer inventory

Decreased variability in the supply chain and especially atmanufacturers

Decreased manufacturer inventory

More efficient use of resources

More difficult to take advantage of scale opportunities

Examples: Dell, Amazon


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Supply Chain Integration Push/Pull Strategies

Hybrid of push and pull strategies to overcomedisadvantages of each

Early stages of product assembly are done in a push manner

Partial assembly of product based on aggregate demandforecasts (which are more accurate than individual productdemand forecasts)

Uncertainty is reduced so safety stock inventory is lower

Final product assembly is done based on customer demand forspecific product configurations

Supply chain timeline determines push-pull boundary

Supply Chain Timeline

Raw

Materials

End

Consumer

Push Strategy Pull Strategy

Push-Pull

BoundaryGeneric Product Customized Product


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Choosing Between Push/Pull Strategies

Pull Push

Pull

Push

Economies of ScaleLow High

Low

High

DemandUnce

rtainty

Industries where:

Customization is HighDemand is uncertainScale economies are Low

Computerequipment

Industries where:

Standard processes are thenorm

Demand is stableScale economies are High

Grocery,Beverages

Industries where:

Uncertainty is lowLow economies of scalePush-pull supply chain

Books, CDs

Industries where:

Demand is uncertainScale economies are HighLow economies of scale

Furniture

Where do the followingindustries fit in thismodel:

Automobile?

Aircraft?

Fashion?

Petroleum refining?

Pharmaceuticals?

Biotechnology?

Medical Devices?

Source: Simchi-Levi


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Characteristics of Push, Pull and Push/Pull Strategies

PUSH PULL

Objective Minimize Cost Maximize Service Level

ComplexityHigh Low

Focus Resource Allocation Responsiveness

Lead Time Long Short

Processes Supply Chain Planning Order Fulfillment

Source: Simchi-Levi

S l Ch i M P i Fi


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Supply Chain Macro Processes in a Firm

Supply chain processes discussed in the two viewscan be classified into

Customer Relationship Management (CRM)- interfacebetween the firm and its customers

Internal Supply Chain Management (ISCM) internal to thefirm

Supplier Relationship Management (SRM) - interface betweenthe firm and its suppliers

Supplier Firm Customer


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Integration among the above three macro processesis critical for effective and successful supply chainmanagement

SRM ISCM

CRM

Source

Negotiate

Buy

Designcollaboration

Supply

collaboration

Strategic planning

Demand planning

Supply planning

Fulfillment Field service

Market

Price

Sell

Call center Order

management

Supplier Firm Customer


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Decision Phases of a Supply Chain

Supply chain strategy or design Supply chain planning

Supply chain operation

Supply Chain Decisions


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Supply Chain Decisions

OPERATIONAL

TACTICAL

STRATEGIC

Procurement DistributionManufacturing Logistics

S l Ch i St t D i


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Supply Chain Strategy or Design

Decisions about the structure of the supply chain andwhat processes each stage will perform

Strategic supply chain decisions

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 andexpensive to reverse must take into account marketuncertainty

S l Ch i Pl i


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Supply Chain Planning

Planning decisions: 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 demanduncertainty, exchange rates, competition over thetime horizon

S l Ch i O ti


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Supply Chain Operation

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 aseffectively as possibleAllocate orders to inventory or production, set

order due dates, generate pick lists at a

warehouse, allocate an order to a particularshipment, set delivery schedules, placereplenishment orders

Much less uncertainty (short time horizon)


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