CHAPTER 1:
UNDERSTANDING THE
SUPPLY CHAIN
BPB32303
1-1
Learning Objectives
1. Discuss the goal of a supply chain and explain the
impact of supply chain decisions on the success of a
firm.
2. Identify the three key supply chain decision phases and
explain the significance of each one.
3. Describe the cycle and push/pull views of a supply
chain.
4. Classify the supply chain macro processes in a firm.
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What is a Supply Chain?
• All stages involved, directly or indirectly, in fulfilling a
customer request.
• Involves manufacturers, suppliers, transporters,
warehouses, retailers, customers etc.
Products, funds, information
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What is a supply chain?
• Within each company - all functions involved in fulfilling a
customer request:
• Product development
• Marketing
• Customer service
• Operations
• Distribution
• Finance etc.
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What is a Supply Chain?
• Customer is an integral part.
• May be more accurate to use the term “supply network” or
“supply web”
• All stages may not be present in all supply chains
(e.g., no retailer or distributor for Amazon)
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Flows in a Supply Chain
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The Objective of a Supply Chain
• Maximize overall value, i.e. supply chain surplus.
• SC surplus – the difference between what the value of the
final product is to customer and the costs the supply chain
incurs in filling the customer’s request.
Supply Chain Surplus = Customer Value – Supply Chain Cost
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Example
• A customer purchases a GCB meal from McDonald’s for
RM13.90 (revenue).
• Costs – information, storage, transportation, raw
materials, production, etc.
• Profit – difference between RM13.90 and the sum of all of
these costs.
• Supply chain profitability – total profit to be shared across
all stages of the supply chain.
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The Objective of a Supply Chain
• Customer the only source of revenue.
• Success – total supply chain profitability, not profits at an
individual stage.
• Effective SCM – maximize total supply chain surplus
through management of flows between and among supply
chain stages.
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Decision Phases of a Supply Chain
01 02 03
STRATEGY OR PLANNING OPERATIONS
DESIGN Decisions over the Daily of weekly
How to structure the
supply chain over the
next quarter or year operational
next few years (long- decisions
term)
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Supply Chain Strategy or Design
• Decisions – SC structure and processes at each stage.
• Must support strategic objectives.
• Long-term and expensive to reverse – must take into
account market uncertainty.
• Strategic decisions:
• Locations and capacities of facilities
• Products to be made or stored at various locations
• Modes of transportation
• Information systems
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Supply Chain Planning
• Timeframe – quarter to a year.
• Plan based on configuration made in the strategic/design
phase.
• Starts with a forecast in the coming year of demand,
costs, prices etc. in different markets.
• Result in a set of operating policies that govern short-term
operations.
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Supply Chain Planning
• Planning decisions:
• Planned buildup of inventories
• Subcontracting, backup locations
• Inventory policies
• Timing and size of market promotions
• Which markets will be supplied from which locations
• Must consider – demand uncertainty, exchange rates,
competition over the time horizon.
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Supply Chain Operation
• Timeframe – weekly or daily
• Much less uncertainty (short time horizon).
• Decisions regarding individual customer orders.
• Goal is to implement the operating policies as effectively
as possible, i.e. handle customer orders in the best
possible manner:
• Allocate orders to inventory or production
• Allocate an order to a particular shipment
• Set order due dates
• Generate pick lists at a warehouse
• Set delivery schedules
• Place replenishment orders
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Process View of a Supply Chain
• Cycle View – processes divided into a series of
cycles, each performed at the interfaces between
two successive supply chain stages.
• Push/Pull View – processes divided into whether
they are executed in response to a customer
order (pull) or in anticipation of a customer order
(push)
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Cycle View of Supply Chain Processes
Customer
Customer order cycle
Retailer
Replenishment cycle
Distributor
Manufacturing cycle
Manufacturer
Procurement cycle
Supplier
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Push/Pull View of Supply Chain Processes
Push/pull boundary
Push process Pull process
Process
Process Process
Process Process
Process Process
Process Process
Process Process
Process
11 22 K
K K+1
K+1 N-1
N-1 N
N
Customer order arrives
* Push – speculative; Pull - reactive
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Supply Chain Macro Processes
• Supply chain processes discussed in the two views can
be classified into:
• Customer Relationship Management (CRM)
• Internal Supply Chain Management (ISCM)
• Supplier Relationship Management (SRM)
• Integration among the above three macro processes is
critical for effective and successful supply chain
management.
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Supply Chain Macro Processes
Supplier Firm Customer
Supplier Relationship Internal Supply Chain Customer Relationship
Management (SRM) Management (ISCM) Management (CRM)
• Source • Strategic planning • Market
• Negotiate • Demand planning • Price
• Buy • Supply planning • Sell
• Design • Fulfillment • Call center
collaboration • Field service • Order
• Supply management
collaboration
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Summary of Learning Objectives
1. Discuss the goal of a supply chain and explain the
impact of supply chain decisions on the success of a
firm.
2. Identify the three key supply chain decision phases and
explain the significance of each one.
3. Describe the cycle and push/pull views of a supply
chain.
4. Classify the supply chain macro processes in a firm.
1-21
