4. 1.1 Overview of Supply Chain
Supply chain (also called value chain or demand chain), is
the network of the involved companies, through upstream
and downstream linkages, in the different processes and
activities that produce value in the form of products and
services in the hands of the ultimate consumer. For
example, a shirt manufacturer is a part of a supply chain
that goes upstream through the weavers of fabrics to the
manufacturers of fibers, and downstream through
distributors and retailers to the final consumer. Each of
these organizations in the chain is dependent upon each
other.
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5. 1.2 The Definition of SCM
There are various definitions of different edition. But in general, Supply
chain management means the management of upstream and
downstream relationships with suppliers and customers to deliver
superior customer value at less cost to the supply chain as a whole. The
supply chain arrangement links a firm and its distributive and supplier
network to end customers.
The integrated value-creation process must be managed from material
procurement to end-customer product delivery. The integrated supply
chain management shifts traditional channel arrangements from
loosely linked groups of independent businesses that buy and sell
inventory to each other toward a coordinated initiative to increase
market impact, overall efficiency, continuous improvement, and
competitiveness.
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6. 1.3 The Supply Chain
Suppliers Manufacturers Warehouses & Customers
Distribution Centers
Transportation Transportation
Costs Costs
Material Costs Transportation
Manufacturing Costs Inventory Costs Costs
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7. Plan Source Make Deliver Buy
• A set of approaches used to efficiently integrate
– Suppliers
– Manufacturers
– Warehouses
– Distribution centers
• So that the product is produced and distributed
– In the right quantities
– To the right locations
– And at the right time
• System-wide costs are minimized
• Service level requirements are satisfied
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8. 1.4 Difficulties
• Uncertainty is inherent to every supply chain
– Travel times
– Breakdowns of machines and vehicles
– Weather, natural catastrophe, war
– Local politics, labor conditions, border issues
• The complexity of the problem to globally optimize a
supply chain is significant
– Minimize internal costs
– Minimize uncertainty
– Deal with remaining uncertainty
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10. 1.6 Reasons for Developing Supply
Chains
Greater competitive advantage
Greater value to consumers
Reduces the lead time gap
Faster and smaller deliveries to intermediate customers
Introduces the concept of increased shareholder value
These reasons give rise to the notion that in future,
we will see supply chains competing with supply chains
rather than competition between organizations.
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11. 1.7 The Goal of SCM
Since World War II, with the development of the operations
research and management science, there has been an increasing
interest in supply chain planning and management. Working
together, supply chain planners/managers and all members of
the front, middle and back end of the supply chain may enhance
revenue, cost control, and asset utilization as well as customer
satisfaction.
Furthermore, software for optimization has been embraced by
all of these parties, as it offers mathematical modeling solutions
to supply chain problems. For example, a software package
might provide an optimum delivery route of the products, from
supplier to manufacture. In conclusion, the goal is to optimize
efficiency through supply chain management.
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12. 1.8 Summary of SCM
A supply chain consists of
Supplier Manufacturer Distributor Retailer Customer
Upstream
Downstream
aims to Match Supply and Demand,
profitably for products and services
SUPPLY SIDE DEMAND SIDE
achieves
The right
Product
+ + + + +
The right
Price
The right
Store
The right
Quantity
The right
Customer
=
The right
Time
Higher
Profits
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14. 2.1 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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15. 2.2 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 at
manufacturers
• Decreased manufacturer inventory
• More efficient use of resources
• More difficult to take advantage of scale opportunities
• Examples: Dell, Amazon
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16. 2.3 Supply Chain Integration :
Push/Pull Strategies
• Hybrid of “push” and “pull” strategies to overcome disadvantages of each
• Early stages of product assembly are done in a “push” manner
– Partial assembly of product based on aggregate demand forecasts (which are
more accurate than individual product demand forecasts)
– Uncertainty is reduced so safety stock inventory is lower
• Final product assembly is done based on customer demand for specific product
configurations
• Supply chain timeline determines “push-pull boundary”
Push-
“Generic” Product Pull “Customized” Product
Boundary
Push Strategy Pull Strategy
Raw End
Materials Consumer
Supply Chain Timeline
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17. 2.4 Choosing Between Push/Pull
Strategies
Pull High Industries where: Industries where:
Where do the following
• Customization is High • Demand is uncertain
• Demand is uncertain • Scale economies are High industries fit in this
model:
Demand Uncertainty
• Scale economies are Low • Low economies of scale
Computer Furniture • Automobile?
equipment • Aircraft?
• Fashion?
Industries where: Industries where: • Petroleum refining?
• Pharmaceuticals?
• Uncertainty is low • Standard processes are the
• Low economies of scale norm • Biotechnology?
• Push-pull supply chain • Demand is stable • Medical Devices?
• Scale economies are High
Books, CD’s Grocery,
Push Low Beverages
Low Economies of Scale High
Pull Push
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18. 2.5 Characteristics of Push, Pull and
Push/Pull Strategies
PUSH PULL
Objective Minimize Cost Maximize Service Level
Complexity High Low
Focus Resource Allocation Responsiveness
Lead Time Long Short
Processes Supply Chain Planning Order Fulfillment
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19. 2.6 Supply Chain Collaboration
• Cornerstone of effective SCM
• The focus of many of today’s SCM initiatives
• The only method that has the potential to eliminate or minimize the Bullwhip effect
Retailers
Suppliers Synchronized Manufacturer
Production
Scheduling Collaborative
Distributors/
Demand Planning
Collaborative Wholesalers
Product
Development
Collaborative Logistics Planning
•Transportation services
•Distribution center services
Logistics Providers
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20. 2.7 Flows in a Supply Chain
Material
Information
Supplier Customer
Funds
The flows resemble a chain reaction.
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21. 2.8 Importance of SCM
Frequent Supply shortages Low order fill
Inefficient rates
logistics
High
Manufacturer Distributor Retailer Customer stockouts
Supplier
Glitch-Wrong Material,
Ineffective
Machine is Down – High inventories High landed costs
through the chain promotions to the shelf
effect snowballs
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22. Exercise
1. Match the words (1-6) with correct definition (a-f).
1.Outsourcing
2.comprehensive
3.consolidation
4.requirements
5.demand
6.Competition
a. including a wide range of services.
b. details of what is expected and needed
c. the need for particular goods or services
d. companies trying to sell the same or similar products to customers
e. the grouping of small shipments into one container.
f. contracting functions out to third-party providers
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23. Thank you for your attention
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