Lecture 1: Introduction to

Supply Chain Management

 What is a Supply Chain?
o Flow of products and services from:
1. Raw materials manufacturers
2. Intermediate products manufacturers
3. End product manufacturers
4. Wholesalers and distributors and
5. Retailers
o Connected by transportation and storage activities
o Integrated through information, planning, and integration
activities
What is a Supply Chain?
“It is a futuristic approach for the transition of good and services from the
point of initiation to the point of consumption to cater the needs wants and
demands of the customer. With right resource allocation, with process
ownership, process health check definition and without any disintegration for
the sake of Customer satisfaction and organization profitability”
“To provide best possible product or service at lowest possible cost”
 Value chain Vs Supply chain
Management
o Supply Chain is the interconnection of all the activities that starts from the
manufacturing of raw material into the finished product and ends when the
product reaches the final customer
o The concept comes through business management and was first described by
Michael Porter in his 1985 bestseller, Competitive Advantage: Creating and
Sustaining Superior Performance
o Value Chain, on the other hand, is a set of activities that focuses on creating or
adding value to the product
Cont.
 Cont.
o The major difference between a supply chain and a value chain is the simple
fact that within a supply chain, there is no value added. In a supply chain, all
that is being done is conveyance.
o One product or material is taken from one company or from one end and
transported to the other. Of course there are procedures involved such as
proper storage and careful transportation but that is about it.
Flows in a Supply Chain
SCOR Model
 SCOR
Contains Three Level of Details
 Plan
o Demand Planning: Demand planning is a multi-step operational supply chain
management (SCM) process used to create reliable forecasts. Effective demand
planning can guide users to improve the accuracy of revenue forecasts, align
inventory levels with peaks and troughs in demand, and enhance profitability for a
given channel or product.
o Supply Planning: Supply chain planning (SCP) is the component of supply chain
management (SCM) involved with determining how best to fulfill the
requirements created from the Demand Plan. Its objective is to
balance supply and demand in a manner that achieves the financial and service
objectives of the enterprise.
 Source
o Raw Material Procurement
o Packaging Material Procurement
o Non Production Item (NPI) Procurement
 Make
o Production
o Engineering and Research
o MRO (Maintenance repair operation)
 Deliver
o Warehousing: Operations of administrative and physical functions associated with
storage of goods and materials. These functions include receipt, identification,
inspection, verification, putting away, retrieval for issue, etc.
o Distribution: Distribution is the process of making a product or service available for
the consumer or business user that needs it. This can be done directly by the
producer or service provider, or using indirect channels with intermediaries.
o Logistics: Ease and pace for the transition of goods from one point to another.
 Return
• CRM
• Order returns
• Reverse Logistics
The SCM Network
 Push/Pull View of Supply chain
Processes
o 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)
 The Old Paradigm: Push Strategies
o Production decisions based on long-term forecasts
o Ordering decisions based on inventory & forecasts
o What are the problems with push strategies?
Inability to meet changing demand patterns
Obsolescence
The bullwhip effect:
Excessive inventory
Excessive production variability
Poor service levels
A Newer Paradigm: Pull Strategies
Production is demand driven
◦ Production and distribution coordinated with true customer demand
◦ Firms respond to specific orders
Pull Strategies result in:
◦ Reduced lead times (better anticipation)
◦ Decreased inventory levels at retailers and manufacturers
◦ Decreased system variability
◦ Better response to changing markets
But:
◦ Harder to leverage economies of scale
◦ Doesn’t work in all cases
 Push-Pull Supply Chains
The Supply Chain Time Line

Customers
Suppliers
PUSH STRATEGY PULL STRATEGY

Low Uncertainty High Uncertainty

Push-Pull Boundary
A new Supply Chain Paradigm
A shift from a Push System...
◦ Production decisions are based on forecast

…to a Push-Pull System

◦ Initial portion of the supply chain is replenished based on long-term forecasts
◦ For example, parts inventory may be replenished based on forecasts
◦ Final supply chain stages based on actual customer demand.
◦ For example, assembly may based on actual orders.
 What is the Best Strategy?
Demand
uncertainty
(C.V.)

Pull H

I II
Computer

Push IV III
Delivery cost
L Unit price

L H Economies of
Scale
Pull Push
Lecture 5: Supply Chain
Performance
 Competitive strategy
• A company’s competitive strategy defines, relative to its competitors, the set of
customer needs that it seeks to satisfy through its products and services.
• For example, Walmart aims to provide high availability of a variety of products
of reasonable quality at low prices.
• Most products sold at Walmart are commonplace (everything from home
appliances to clothing) and can be purchased elsewhere. What Walmart
provides is a low price and product availability.
 Synchronization between Competitive-Supply
Chain Strategies
• For a firm to succeed, all functional strategies must support one another and the
competitive strategy
• For example, Marketing at Seven-Eleven has emphasized availability of a wide range
of products and services
• New product development at Seven-Eleven is constantly adding products and
services, such as bill payment services that draw customers in and exploit the
excellent information infrastructure and the fact that customers frequently visit
Seven-Eleven
• Operations and distribution at Seven-Eleven have focused on having a high density of
stores, being very responsive, and providing an excellent information infrastructure
 Strategic Fit
• Strategic fit requires that both the competitive and supply chain strategies of a
company have aligned goals
• It refers to consistency between the customer priorities that the competitive
strategy hopes to satisfy and the supply chain capabilities that the supply chain
strategy aims to build
How is Strategic Fit achieved
1. Understanding the customer and supply chain uncertainty
2. Understanding the supply chain capabilities
3. Achieving strategic fit
Comparison of Efficient & Responsive Supply
Chain
Supply Chain Strategy & Product Life Cycle
Supply Chain Drivers
1. Facilities
2. Inventory
3. Transportation
4. Information
5. Sourcing
6. Pricing
SC Decision Making Framework
Lecture 6: Aggregate Planning and
Production in Supply Chain
 Aggregate Planning
• Aggregate planning is a process by which a company determines planned levels
of capacity, production, subcontracting, inventory, stock-outs, and even pricing
over a specified time horizon
• The goal of aggregate planning is to build a plan that satisfies demand while
maximizing profit
• A useful tool for thinking about decisions with an intermediate time frame of
between roughly 3 and 18 months
 Aggregate Planner’s Objective/s
• The aggregate planner’s main objective is to identify the following operational
parameters over the specified time horizon:
Production rate: the number of units to be completed per unit time (such as per
week or per month)
Workforce: the number of workers or units of labor capacity required
Overtime: the amount of overtime production planned
Machine capacity level: the number of units of machine capacity needed for
production
Subcontracting: the subcontracted capacity required over the planning horizon
Backlog: demand not satisfied in the period in which it arises, but is carried over to
future periods
Inventory on hand: the planned inventory carried over the various periods in the
planning horizon
Aggregate Planning Strategies
I. Chase Strategy
With this strategy, the production rate is synchronized with the demand rate by
varying machine capacity or hiring and laying off employees as the demand rate
varies
The chase strategy results in low levels of inventory in the supply chain
It should be used when the cost of carrying inventory is high
Cont.
II. Flexibility strategy
This strategy may be used if there is excess machine capacity (i.e., if machines
are not used 24 hours a day, seven days a week) and the workforce shows
scheduling flexibility
III. Level Strategy
With this strategy, a stable machine capacity and workforce are maintained with
a constant output rate
Shortages and surpluses result in inventory levels fluctuating over time
It should be used when inventory carrying and backlog costs are relatively low
 Production Leveling Method
Jan Feb Mar Apr May June
Opening 150
Stock
Forecast 200 250 300 400 500 100
Planned
Productio
n
End
Stock
Production Plan = (Total F.C + Desired E.S – Opening Stock)/ Total no. of
Months
 Chase Method
(Inventory Less Method)
 Predictable Variability
• Company’s goal is to respond in a manner that balances supply with demand to
maximize profitability and appropriately combine two broad options to handle
predictable variability:
1. Manage supply using capacity, inventory, subcontracting, and backlogs.
2. Manage demand using short-term price discounts and promotions.
 Managing Supply
• A firm can vary supply of product by controlling a combination of the following
two factors:
1. Production capacity
Time flexibility from workforce
Use of seasonal workforce
Use of subcontracting
Use of Dual Facilities – Specialized & Flexible
Cont.
2. Inventory
Using common components across multiple products
Build inventory of High-Demand OR Predictable-Demand Products
 Manufacturing Environment
• Make-to-stock (MTS): products are created before receipt of a customer order.
Customer orders are then filled from existing stock, and then those stocks are
replenished through production orders
• Assemble-to-order (ATO): products are assembled from components after the
receipt of a customer order. The key components in the assembly or finishing
process are planned and stocked in anticipation of a customer order . Receipt of
an order initiates assembly of the customized product.
 Cont.
• Make-to-order (MTO): products are made entirely after the receipt of a
customer order. The final product usually is a combination of standardized and
custom items to meet the customer's specific needs. Usually customized or
highly engineered products.
• Engineer-to-order (ETO): customer specifications require unique engineering
design, significant customization, or new purchased materials. Each customer
order results in a unique set of part numbers, bills of material, and routings.
Lecture 7: Planning & Managing
Inventory
 Inventory
• Inventory is commonly thought of as the finished goods a company accumulates
before selling them to end users
• But inventory can also describe the raw materials used to produce the finished
goods, goods as they go through the production process (referred to as "work-
in-progress" or WIP), or goods that are "in transit"
 Types of demands
• Independent demand – finished goods, items that are ready to be sold
E.g. a computer

• Dependent demand – components of finished products

E.g. parts that make up the computer

12-3
Costs of Inventory
Physical holding costs:
◦ out of pocket expenses for storing inventory (insurance, security, warehouse
rental, cooling)
◦ All costs that may be entailed before you sell it (obsolescence, spoilage,
rework...)
Operational costs:
◦ Delay in detection of quality problems.
◦ Delay the introduction of new products.
◦ Increase throughput times.
ABC Classification
Class A
◦ 5 – 15 % of units
◦ 70 – 80 % of value
Class B
◦ 30 % of units
◦ 15 % of value
Class C
◦ 50 – 60 % of units
◦ 5 – 10 % of value
 ABC Classification
PART UNIT COST ANNUAL USAGE
1 $ 60 90
2 350 40
3 30 130
4 80 60
5 30 100
6 20 180
7 10 170
8 320 50
9 510 60
10 20 120
 ABC Classification
TOTAL % OF TOTAL % OF TOTAL
PART VALUE VALUE QUANTITY % CUMMULATIVE
9 $30,600 35.96.0 6.0
8 16,000 18.75.0 11.0
2 14,000 16.44.0 15.0
A
1 5,400 6.3 9.0 24.0
4 4,800 5.6 6.0 30.0 B
3 3,900 4.6 10.040.0
6 3,600 4.2 18.058.0
5 3,000 3.5 13.071.0
10 2,400 2.8 12.083.0 C
7 1,700 2.0 17.0100.0
$85,400
 ABC Classification

% OF TOTAL % OF TOTAL
CLASS ITEMS VALUE QUANTITY
A 9, 8, 2 71.015.0
B 1, 4, 3 16.525.0
C 6, 5, 10, 7 12.560.0

Example 10.1
Direct Inventories
These includes such items which are directly used for production or manufacture
and are a part of the goods/services produced or provided. Direct Inventories can
be further classified into following types:
i. Production Inventory
Items such as raw materials, components and subassemblies used to produce
the final product.
ii. Work-in- progress Inventory
The components which are in the process, neither raw material nor finished
good but semi finished goods lying in machines or in factory awaiting completion
is called work in progress.
Cont.
iii. Finished goods inventories
This includes the final products ready for dispatch to consumers or distributors.
After production. The finished goods may be stocked to meet varying market
demands
iv. MRO Inventory
Maintenance, repair and operating items such as spare parts and consumable stores
v. Miscellaneous Inventory
All other items such as scrap, obsolete and unsaleable products, stationary and
other items
Indirect Inventories
i. Transportation Inventory
Under normal conditions, a business transports raw materials, WIP, finished
goods etc from one site to other. Due to long distances, the inventory stays on
the way for days, weeks and even months depending on distances
ii. Buffer inventories
They are required as protection against the uncertainties of supply and demand.
Indirect Inventories
iii. Decoupling Inventories
A "decoupled" inventory consists of inventory stock set aside in the event of a
slowdown or stoppage in production. Decoupling inventory cushions the
company's inventory against potential issues in the production line. These issues
can occur when one part of the production line works at a different speed than
another.
iv. Seasonal Inventories
Demands in many cases are seasonal and he inventories have to be maintained
to meet such high seasonal demands economically. Like demand for cooler or
ACs before summer season
Cont.
v. Lot-size Inventories
These are held to take advantages of discounts which are usually available for
purchase of large quantities. Lot sizes or cycle inventories are held by making
purchases in lots rather than for numbers which are exactly required.
vi. Anticipation Inventories
These inventories are stocked in anticipation of an event like major promotion
programme being launched for display at exhibition or for meeting the customer
demand for the plant shut down period for maintenance.
Lecture 9: Transportation in
Supply Chain
 Role of Transportation
• Transportation refers to the movement of product from one location to another
as it makes its way from the beginning of a supply chain to the customer.
• Seven-Eleven Japan is another firm that has used transportation to achieve its
strategic goals. Seven-Eleven Japan uses a responsive transportation system
that replenishes its stores several times a day so that the products available
match customers’ needs.
Modes of Transportation
Supply chains use a combination of the following modes of transportation:
o Air
o Truck
o Rail
o Water
o Pipeline
o Intermodal
Land – Road
STRENGTHS WEAKNESSES
Flexibility to pick up and deliver where Not the fastest.
and when needed.
Not the cheapest.
Often the best balance between cost/
flexibility and delivery reliability/
speed.
Can deliver straight to the customer
(increasing).
Can be available 24/7
Land – Rail
STRENGTHS WEAKNESSES
Highly cost effective for bulky items. Limited locations, but better than for
water.
Can be most effective when linked
into multimodal system Better delivery reliability/speed than
water
Air
STRENGTHS WEAKNESSES
Quickest delivery over longer Often the most expensive, particularly
distances. on a per pound basis
Can be very flexible when linked to
highway mode.
Works best for low weight-to-value
items.
Sea (Water)
STRENGTHS WEAKNESSES
Highly cost effective for bulky items. Limited locations.
Works best for high weight-to-value Relatively poor delivery reliability/
items. speed.
Most effective when linked into Often limited operating hours at docks.
multimodal system.
Unimodal transportation
Unimodal transportation, which the goods are carried by purely one
single mode of transport is so called Unimodal transport
Namely by road, rails, sea, air and pipeline. In short, it is known as
Carriage of goods by only one mode of transport
Intermodal Transportation
Intermodal transportation is the use of two or more modes, or carriers, to
transport goods (freight) from shipper to consignee
An example of how this type of transportation scenario would progress, would be
with a truck bringing an empty container to a shipper to pick up a load
The container would be loaded with freight by the shipper and then taken by the
truck to a railroad yard. It is then put on a train and moved to its destination
At the destination city it is removed from the train and delivered by truck to the
consignee, where the contents of the containers are unloaded. The container is
then empty and ready for another load.
Multimodal Transportation
Multimodal Transportation is the movement of cargo from origin to destination
by several modes of transport where each of these modes have a different
transport provider or entity responsible, but under a single contract
A Single carrier contracted to fulfill a single journey
 Logistics
• Ease and Pace for the transition of goods and services from one point to
another in order to cater the demand is called Logistics
• Transportation is a way to execute logistics Activities
 Inbound and Outbound Logistics
• Inbound Logistics, refers to movement of goods and raw materials from
suppliers to your company. In contrast.
• Outbound Logistics, refers to movement of finished goods from your company
to customers.
Logistics Strategy Choices