Understanding the Supply Chain and Supply Chain Management - Review Notes

Lesson of MBA - Core Subjects - Management Theory - Online Course Lecture Notes

Supply Chain Management: Review Notes Based on Chopra and Meindl's Book

Supply chain

A supply chain consists of all stages involved directly, or indirectly, in fulfilling a customer request for a product in an economy. Thus it includes customers who give the requests, transporters, retailers, wholesalers, warehouses, manufacturers, and component, service as well as miners who supply raw material suppliers. Within an organization there is a supply chain that includes all functions involved a filling a customer request or the order. The functions carried out within an organization include marketing, purchasing or procurement or supply, new product development, new process development, operations (manufacturing, material handling, maintenance, industrial engineering, quality control/inspection), distribution, finance and customer service.

In a supply chain there is constant flow of information, product and funds between stages. Usually supply chain is imagined as materials and product moving from suppliers to manufacturers and from there to wholesalers and retailers and then further to customers. But supply chains have two way movements. There is movement of information and funds apart from the product.

Customer is an integral part of the supply chain and the primary purpose of a supply chain is satisfying customer needs and generating profit for itself in the process.

The routine supply chain activities begin with a customer order and end when a satisfied customer has paid for his purchase.

In a supply chain, number of customers are there, number of retailers are there, number of transporters are there and number of manufacturing plants can be there. For the manufacturing plants, there are number of suppliers. In the case of a retailer, for his store, stores or warehouses, there are number of suppliers. Hence a supply chain is actually a network or a web. Hence, the terms, supply network and supply web also describe a supply chain.

The objective of every supply chain is to maximize the overall value generated. The term includes both the revenue generated which value created and exchanged in reference to the customer and profit which is value created for the supply chain.  Supply chain management involves the management of flows between and among stages in a supply chain to maximize total profitability along with the revenue for the supply chain. To realize that objective,  it has to provide expected value to the customer.

Supply Chain Performance

A supply chain can be described initially by two performance characteristics responsiveness and efficiency.

Various supply chain characteristics contribute to responsiveness and efficiency.

Supply chain responsiveness is measured by the abilities of the chain to do the following:


Ability to respond to fluctuations in demand
Ability to provide short lead times
Ability to handle large variety of products
Ability to come out with innovations and highly innovative products
Ability to provide a very high service level (On time delivery as per requirement of the customer).

Supply chain efficiency is the cost of making and delivering a product to the customer. Increase in costs lowers efficiency.

Cost-Responsiveness Efficient Frontier

It is a chart or graph with cost on the X-axis (origin is high cost) and Responsiveness on the Y axis (origin is low responsiveness). See Example

The frontier shows the minimum cost for a given responsiveness. If a company is operating within the frontier,  at a higher cost, it can decrease the cost by appropriate actions but keep the responsiveness same. When it is operating on the efficient frontier, any increase in responsiveness can only come by incurring extra cost.

The frontier curve is a short-run phenomena and companies continually try to improve their supply chain by reducing cost further and increasing responsiveness and thus change the frontier over each period.

Prof. David Simchi Levi uses the cost-responsiveness efficient frontier charts in his supply chain presentations to emphasize benefits of his innovations.

Supply Chain Industrial Engineering

In supply chains of engineering products/services and supply chains using engineering equipment, industrial engineers are the specialists employed to take care of the efficiency dimension of the supply chain. Industrial engineers use the process chart framework to increase the efficiency of material processing operations, inspection operations,  material handling and transport operations, storage and warehousing operations. They analyze planning and control activities to reduce delays and increase material flow. They also examine product and service design to do production industrial engineering and reduce their costs through product design modifications.

Supply Chain Industrial Engineering (8 Apr 2013)

https://www.youtube.com/watch?v=XSEWec1GrIQ

Supply Chain Industrial Engineering

Productivity and Efficiency Improvement in Supply Chain Partner activities. This applied IE was initiated by Prof. Narayana Rao K.V.S.S. in 2012. 

https://nraoiekc.blogspot.com/2012/01/supply-chain-industrial-engineering.html

Decision Phases in a Supply Chain

Supply Chain Strategy (Design), Plan and Operation (execution of plans) are identified as three significant decision phases by Chopra and Meindl.

Supply Chain Design: Supply chain strategy is another word used for this phase. Supply chain design decisions or strategy decisions include products to be manufactured, location and capacities of manufacturing plants and warehouses, supply sources, modes of transport to be utilized and information system to be utilized. In supply chain management paradigm careful design of supply sources, modes of transport and information system to be used between the end customer firm or focal firm of the supply chain and supplier firms are the new areas of attention. In the earlier operations management literature and marketing literature, decisions regarding products to be manufactured, location and capacities of manufacturing plants and warehouses were researched and many  decision models were created,

McKinsey consultants proposed in 2019 supply chain redesign based on zero-based approach. Read more about in: Zero-Based Productivity Management of Supply Chain - McKinsey Way Supply Chain Industrial Engineering

https://nraomtr.blogspot.com/2019/04/zero-based-productivity-management-of.html

Supply Chain Planning: Planning, typically done for an year, establishes parameters within which a supply chain will function over a specified period of time.

Supply Chain Operation: In this phase the time horizons are small, monthly, weekly and daily. The decisions are driven by customer order and are related to individual customer orders. There are also decisions related to individual production facilities, warehouses and transporters.

Process Views of a Supply Chain

There are two views.

1. Cycle view

In cycle view, the supply chain processes are divided into cycles that are performed at the interface between two successive stages of a supply chain and one describes the following cycles.

• Customer order cycle
• Replenishment cycle
• Manufacturing cycle
• Procurement cycle

A. Customer order cycle

Normally occurs at the retailer place between the customer and the retailer.

Activities involved

Customer arrival, Customer order entry, Customer order fulfillment, Customer order receiving, Customer funds payment

B. Replenishment cycles

Normally thought to occur at the retailer/wholesaler or distributor interface.

Activities involved
Retail order trigger, Retail order entry, Retail order fulfilment, Retail order receiving, Funds payment

C. Manufacturing cycle

Normally thought to occur at the wholesaler/manufacturer interface. Depending on the number of channels in the distribution channel it can occur at customer - manufacturer, or retailer - manufacturer also.

Activities involved

Order arrival, Production scheduling, Manufacturing and shipping, Receiving by the person ordered, Funds payment

D. Procurement cycle

Occurs at the manufacturer/supplier interface

2. Push/Pull View

In this view, a supply chain is viewed as a chain composed of pull processes and push processes.  Each supply chain will have some pull processes and push processes. There is a push - pull boundary. The activities initiated by customers' orders form pull process activities. The activities initiated and carried out in anticipation of customer demand are push process activities.

Importance of Supply Chain Flows

Flow of information, material and product and cash are important for supply chain functioning and fulfillment of its objectives.

Information is key to produce as per customers' order and also to forecast in case of made-to-stock supply chains.

Supply Design, Planning and Operation Related Questions. 

One will find answers to these questions in various chapters of the Supply Chain Management Book which we are summarizing chapter-wise.

1. Why a company outsources some assembly activities and does some within its assembly plant? What characteristics of the product or order characterize outsourced activities?
2. When does a company have only one manufacturing location for the entire country or world? When does it have multiple plants?
3. Why certain orders are despatched via couriers for overnight delivery or one day delivery and why certain other orders are sent via trucks on full load or part load basis?
4. How inventories are determined for components and finished goods?

Reference

Sunil Chopra and Peter Meindl, Supply Chain Management: Strategy, Planning and Operations, Prentice Hall, 2001.

Originally posted at
http://knol.google.com/k/narayana-rao/supply-chain-management-basic/ 2utb2lsm2k7a/ 1348# before 2011.

Updated on 3.4.2022, 31.3.2022,  12.8.2021,  2 March 2021,   29 June 2019,   1 May 2019,   27.3.2013


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