A supply chain consists of all parties involved in fulfilling customer requests. Supply chain management aims to efficiently integrate suppliers, manufacturers, warehouses, and stores to minimize costs while meeting service requirements. It involves making decisions across strategic, tactical, and operational levels. Managing uncertainty, aligning development and supply chains, and taking a global optimization approach are challenging aspects of supply chain management.
2. What is a Supply Chain?
Prof. Raghavendran Venugopal, MBA Dept,
2 Mijar
3. What is a supply chain?
A supply chain consists of all the parties involved,
directly or indirectly, in fulfilling a customer
request.
Supply chain management is a set of approaches
utilized to efficiently integrate suppliers,
manufacturers, warehouses, and stores, so that
merchandise is produced and distributed at the
right quantities, to the right locations, and at the
right time, in order to minimize system-wide costs
while satisfying service level requirements.
Prof. Raghavendran Venugopal, MBA Dept,
3 Mijar
4. Supply Chain
Supplier Manufacturer Distributor Retailer Customers
Prof. Raghavendran Venugopal, MBA Dept,
4 Mijar
5. The definition implies……
First, supply chain management takes into
consideration every facility that has impact on
cost and plays a role in making the product
conform to customer requirements.
From supplier and manufacturing facilities
through warehouses and distribution centers to
retailers and stores.
In supply chain analysis, it is necessary to
account for the suppliers’ suppliers and the
customers’ customers because they have an
impact on supply chain performance.
Prof. Raghavendran Venugopal, MBA Dept,
5 Mijar
6. The definition implies……
Second, the objective of the supply chain
management is to be efficient and cost-effective
across the entire system.
Total system-wide costs, from transportation and
distribution to inventories of raw materials, work in
process, and finished goods are to be minimized.
Prof. Raghavendran Venugopal, MBA Dept,
6 Mijar
7. The definition implies……
Thus the emphasis is not on simply minimizing
transportation cost or reducing inventories, but
rather, on taking a systems approach to supply
chain management.
Finally, because supply chain management
revolves around efficient integration of suppliers,
manufacturers, warehouses and stores, it
encompasses the firm’s activities at many levels,
from strategic to the tactical and finally to the
operational level
Prof. Raghavendran Venugopal, MBA Dept,
7 Mijar
8. Then there are other terms for
SCM
Logistics Management
Value Chain management
Demand Chain management
Prof. Raghavendran Venugopal, MBA Dept,
8 Mijar
9. Typical Supply Chain Involves
Typical SC involves variety of stages and they
are:
Customers
Retailers
Wholesalers
Manufacturers
Raw material/OE manufacturers or Suppliers
Prof. Raghavendran Venugopal, MBA Dept,
9 Mijar
10. A Supply Chain Example…
Keethi Stores
Nilgiris
RK Canteen
Big B
GOA
Coke Hotel Sagar
End customer
Heritage
.
HUL KAR HP Retail
Kellogs Navami
DELHI
P&G
WB
Tier 1
suppliers
State Local stores
distributors Super
market
chains
Prof. Raghavendran Venugopal, MBA Dept,
10 Mijar
11. Supply Chain Management
Supply Chain Management is
the design and management of processes
across organizational boundaries
with the goal of matching supply and demand
in the most cost effective way.
Supply Demand
Prof. Raghavendran Venugopal, MBA Dept,
Mission impossible: Matching Supply and Demand
11 Mijar
12. What makes Supply Chain
Management Difficult?
Supply Chain strategies cannot be determined
in isolation. They are directly affected by
another chain that most organizations have, the
development chain that includes the set of
activities associated with new product
introduction.
At the same time, supply chain strategies also
should be aligned with specific goals of the
organization, such as maximizing market share
or increasing profit.
It is challenging to design and operate a supply
chain so that total system-wide costs are
Prof. Raghavendran Venugopal, MBA Dept,
12 Mijar
minimized, and system-wide service levels are
13. What makes Supply Chain
Management Difficult?
Indeed, it is frequently difficult to operate a
single facility so that costs are minimized and
service level is maintained.
The difficulty increases exponentially when an
entire system is being considered. The process
of finding the system-wide strategy is known as
global optimization.
Uncertainty and risk are inherent in every
supply chain,
Customer demand can never be forecast
exactly, travel times will never be certain, and
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machines and vehicles will breakdown.
Prof. Raghavendran Venugopal, MBA Dept,
Mijar
14. What makes Supply Chain
Management Difficult?
Recent industry trends like outsourcing, off-
shoring, and lean manufacturing that focus on
reducing supply chain costs, significantly increase
the level of risk in the supply chain.
Thus, supply chain needs to be designed and
managed to eliminate as much uncertainty and
risk as possible as well as deal effectively with the
uncertainty and the risk that remain.
Prof. Raghavendran Venugopal, MBA Dept,
14 Mijar
15. The Development Chain
The development chain is the set of activities and
processes associated with new product
information
Prof. Raghavendran Venugopal, MBA Dept,
15 Mijar
16. The Development Chain
Specifically, the development chain includes
decisions such as:
o product architecure
o Make and buy decisions
o Supplier selection
o Early supplier involvement
o Strategic partnerships
Prof. Raghavendran Venugopal, MBA Dept,
16 Mijar
17. Enterprise development and supply
chains
Product Architecture
Plan/Design Make/Buy
Early Supplier development
Strategic Partnerships
Source Supplier Selection
Supply Contracts
Supply Produce Distribute Sell
Supply
Prof. Raghavendran Venugopal, MBA Dept, Chain
17 Mijar
18. Global Optimization – Factors that
make it a challenging proposition
1. The supply chain is a complex network of
facilities dispersed over a large geography and
in many cases all over the globe.
2. Different facilities in the supply chain frequently
have different, conflicting objectives
Prof. Raghavendran Venugopal, MBA Dept,
18 Mijar
19. Global Optimization – Factors that
make it a challenging proposition
The supply chain is a dynamic system that
evolves over time. Customer demand
characteristic changes over time, supplier
capabilities change over time
Even the supply chain relationships change
over time.
Customer power increases with increased
demands for quality, variety and customization
Prof. Raghavendran Venugopal, MBA Dept,
19 Mijar
20. Global Optimization – Factors that
make it a challenging proposition
System variations over time – even when
demand is certain (purchase agreements etc.) the
planning process needs to account for demand
and cost parameters varying over time due to
impact of seasonal fluctuations, trends,
advertising and promotions, competitor’s pricing
strategies and so forth. These variations make it
difficult to develop the most effective supply chain
system.
Prof. Raghavendran Venugopal, MBA Dept,
20 Mijar
21. Managing Uncertainty and Risk
Matching supply and demand is a major
challenge
Inventory and back-order levels fluctuate
considerably across the supply chain
Forecasting does not solve the problem
Demand is not the only source of uncertainty
– delivery lead times, manufacturing yields,
transportation times and component
availability also can have significant impact on
supply chain
Prof. Raghavendran Venugopal, MBA Dept,
21 Mijar
22. Key issues in Supply Chain
management
Distribution Network Product design
Configuration Information Technology
and decision support
Supply Contracts systems
Distribution strategies Customer value
Supply chain Smart Pricing
integration and Local Issues
strategic partnering Inventory control
Outsourcing and Off- Production sourcing
shoring strategies
Prof. Raghavendran Venugopal, MBA Dept,
22 Mijar
23. The Objective of the Supply Chain
The objective of the supply chain should be to
maximize the overall value generated.
The value a supply chain generates is the
difference between what the final product is worth
to the customer and the costs the supply chain
incurs in filling the customer’s request.
For most commercial supply chains, value will be
strongly correlated with supply chain profitability
(also known as supply chain surplus)
Supply chain profitability or surplus is the total
profit that is shared across all supply chain stages
or intermediaries.
Prof. Raghavendran Venugopal, MBA Dept,
23 The higher the supply chain profitability, the more
Mijar
24. The importance of supply chain
decisions
There is a close connection between the design
and management of supply chain flows (product,
information and funds) and the success of a
supply chain.
Also failure can also be attributed to the failure is
supply chain design.
Many Indian retail outlets have busted or have
truncated their business because of inefficiencies
that were existing in their supply chain design
which led to a negative supply chain surplus.
Wal-Mart, Dell Computer are few examples of
companies that have built their success on superior
design, planning and operation of the supply chain.
Prof. Raghavendran Venugopal, MBA Dept,
24 Mijar
25. Decision Phases in a Supply
Chain
Successful Supply Chain management requires
many decisions relating the flow of information,
product and funds.
Supply chain design or strategy
During this phase, given the marketing and pricing
plans for a product a company decides how to
structure the supply over the next several years.
Prof. Raghavendran Venugopal, MBA Dept,
25 Mijar
26. Decision Phases in a Supply
Chain
Supply chain planning
For decisions made during this phase, the time frame
considered is quarter to a year. This configuration
establishes constraints within which the planning must
be done.
The goal of planning is to maximize the supply chain
surplus that can be generated given the constraints
established during the during the strategic phase or the
design phase.
Companies start the planning phase with a forecast for
the coming year (or comparable time frame.) of demand
in different markets.
Planning includes making decisions regarding which
markets will be supplied by which locations, whether
subcontracting will be employed or which type inventory
Prof. Raghavendran Venugopal, MBA Dept,
26 Mijar policy will be adopted etc
27. Decision Phases in a Supply
Chain
Supply chain planning
In the planning phase the companies must include
uncertainty in demand, exchange rates, and
competition over this time horizon in their decisions.
Given a shorter time frame and better forecasts
than the design phase, companies in the planning
phase try to incorporate any flexibility built into the
supply chain in the design phase and exploit it to
optimize operations.
Prof. Raghavendran Venugopal, MBA Dept,
27 Mijar
28. Decision Phases in a Supply
Chain
Supply Chain Operations
The time horizon here is weekly or daily, and during
this phase companies make decisions regarding
individual customer orders.
At the operational level, supply chain configuration
is considered fixed and planning policies are
already defined.
The goal of supply chain operations is to handle
incoming customer orders in the best possible
manner
During this phase, firms allocate inventory or
productions to individual orders, set a date than an
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order is to be filled.
Prof. Raghavendran Venugopal, MBA Dept,
Mijar
29. Decision Phases in a Supply
Chain
Supply Chain Operations
Generate pick up lists at a warehouse, allocates an
order to a particular shipping mode and shipment,
set delivery schedules of trucks, and place
replenishment orders.
Because operational decisions are being made in
the short term (minutes, hours or days), there is
less uncertainty about demand information
Given the constraints established by the
configuration and planning policies the goal during
the operation phase is to exploit the reduction of
uncertainty and optimize performance.
Prof. Raghavendran Venugopal, MBA Dept,
29 Mijar
30. Process of Views of Supply
Chain
Cycle View: The processes in the supply
chain are divided into a series of cycles each
performed at the interface between two
successive stages of the supply chain.
Push/Pull view: The processes in the supply
chain are divided into two categories
depending on whether they are executed in
response to a customer order or in
anticipation of the customer order.
Prof. Raghavendran Venugopal, MBA Dept,
30 Mijar
31. Process of Views of Supply
Chain
Pull processes are initiated by a customer order.
Whereas push processes are initiated and
performed in the anticipation of customer orders.
Prof. Raghavendran Venugopal, MBA Dept,
31 Mijar
32. Cycle View of a Supply Chain
The processes in a supply chain are divided into
a series of cycles, each performed at the
interface between two successive stages.
Prof. Raghavendran Venugopal, MBA Dept,
32 Mijar
33. Cycle View of Supply Chain
Processes
Customer order cycle
Customer order
cycle
Replenishment cycle
Replenishment
Cycle
Manufacturing cycle
Manufacturing
Procurement Cycle Cycle
Procurement
Cycle
Prof. Raghavendran Venugopal, MBA Dept,
33 Mijar
34. Push/Pull View
The processes in a supply chain are divided into
two categories depending on whether they are
executed in response to a customer order or in
anticipation of customer orders.
Pull processes are initiated on customer order,
whereas push processes are initiated and
performed in anticipation of customer orders.
Prof. Raghavendran Venugopal, MBA Dept,
34 Mijar
35. Push/Pull Processes
Customer order Customer
cycle Pull
Processes
Retailer
Replenishment
and
Manufacturing
Cycle Manufacturer
Push
Processes
Procurement
Cycle
Prof. Raghavendran Venugopal, MBA Dept,
35 Mijar
36. Process View of Supply Chain
Each cycle occurs at the interface between two
successive stages of the supply chain
Which means that there are four supply chain
process between five stages.
Not every supply chain will have all the four
cycles clearly separated
Prof. Raghavendran Venugopal, MBA Dept,
36 Mijar
37. Process View of Supply Chain
Customer
Customer order
cycle
Retailer
Replenishment
Cycle
Distributor
Manufacturing
Cycle
Manufacturer
Procurement
Cycle
Prof. Raghavendran Venugopal, MBA Dept, Supplier
37 Mijar
38. Sub-Process in each Supply Chain
Process Cycle
Within each cycle, the goal of the buyer is to ensure
product availability and to achieve economies of scale
in ordering.
Even though each cycle has the same basic sub-
processes, there are few differences between cycles.
In the customer order cycle, demand is external to the
supply chain and thus uncertain
In all other cycles order placement is uncertain but
can be projected based on policies followed by the
particular chain stage.
The difference across cycles relate to the scale of an
order.
Prof. Raghavendran Venugopal, MBA Dept,
38
Mijar For example, in the procurement cycle, a tire supplier to
an automotive manufacturer is known.
39. Sub-Process in each Supply Chain
Process Cycle
The cycle view clearly specifies the roles of each
member of the supply chain.
The detailed process description of a supply
chain in the cycle view forces a supply chain
designer to consider the infrastructure required to
support these processes
Prof. Raghavendran Venugopal, MBA Dept,
39 Mijar
40. Sub-Process in each Supply Chain
Process Cycle
Each cycle consists of six sub-processes
Supplier Stage markets Buyer returns reverse flows to
products supplier or third party
Buyer Stage
Buyer Stage places order
Receives Supply
Supplier Stage receives order Supplier Stage supplies order
Prof. Raghavendran Venugopal, MBA Dept,
40 Mijar
41. Supply Chain Macro Process in a
firm
Two process views can be viewed into three
macro process and they are:
Customer Relationship Management (CRM)
Internal SCM (ISCM)
Supplier Relationship Management (SRM)
• Source, Negotiate, Buy/Make
SRM • Design, Supplier Collaboration
• Strategic , Demand & Supply Planning
ISCM • Fulfillment, Field Service
• Market, Price, Sell
CRM • Call Center & Order Management
Prof. Raghavendran Venugopal, MBA Dept,
41 Mijar
43. Competitive & SC Strategies
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.
Targets one or more customer segments and
provides products and services to satisfy the
customer’s needs.
New Product Sales &
Operations Distribution Service
Development Marketing
Finance, Accounting, Information Technology, Human Resources
Value
Prof. Raghavendran Venugopal, MBA Dept, Chain for a typical organization
43 Mijar
44. Competitive Strategy
For Example:
Big Bazaar competitive strategy is to provide its
customers goods at the lowest possible price (vis-à-
vis competitors).
Acer’s competitive strategy is to provide value for
money to its customers with an effective and well-
accessible after sales service.
Prof. Raghavendran Venugopal, MBA Dept,
44 Mijar
45. All functions play important role and each must
develop its own strategy.
Product Development Strategy
Marketing and sales Strategy
Logistics/ Supply chain strategy.
Prof. Raghavendran Venugopal, MBA Dept,
45 Mijar
46. Competitive Advantages by SCM
Company
utilization of all
resources
Competitors
Customers
utilization of all
Needs & Wants
resources
Prof. Raghavendran Venugopal, MBA Dept,
46 Mijar
47. Competitive Advantages by SCM
Companies shall have productive advantages or
Value advantages. Major companies shall have
both.
Productivity Advantage.
Cost per unit
Summative volume
Value Advantages
Service Leader (C) Cost & Service Leader (D)
Product Market (A) Cost Leader (B)
Prof. Raghavendran Venugopal, MBA Dept,
47 Mijar
48. Supply chain strategies
Technology
Integration
Strategy
SC
Demand stream Collaboration
Strategy Frame Strategy
work
Customer
Service
Strategy
Prof. Raghavendran Venugopal, MBA Dept,
48 Mijar
49. Collaboration strategy:
Opportunities among business partners.
Three types of business collaborations.
Manufacturer or Supplier Collaborations
Manufacturer or Customer Collaborations
3PL’s & 4PL’s providers
Customer Service Strategy:
Directly proportional to the service rendered by the
organizations.
Customer Segmentation
Returns managing
Cost to serve
Technology integration strategy
Demand Stream Strategy
Prof. Raghavendran Venugopal, MBA Dept,
49 Mijar
50. Achieving Strategic Fit & Meaning of
Strategic Fit
For any company to be successful its supply chain strategy
and competitive strategy must fit together
It means that both the competitive and supply chain
strategies have aligned goals.
It refers to consistency between customer priorities that the
competitive strategy hopes to satisfy and the supply chain
capabilities that the supply chain strategy aims to build.
All processes and functions that are part of a company’s
value chain contribute to its success or failure
These processes and functions do not lead to the operate
in isolation
No one processes or function can ensure the chain’s
success.
Failure at any one process or function, however, may lead
50
to failure of
Prof. Raghavendran Venugopal, MBA Dept,
Mijar
51. How strategic Fit achieved?
The following steps shall support to achieve the
strategic fit.
Understanding the Customer and Supply Chain
uncertainty.
Understanding the supply chain capabilities.
Achieving strategic fit
Prof. Raghavendran Venugopal, MBA Dept,
51 Mijar
52. Understanding the Customer and
Supply Chain uncertainty
To understand the customer, a company must
identify the needs of the customer segment being
served.
The quantity of the product needed in each lot.
The response time the customers are willing to
tolerate.
The variety of products needed.
The service level required.
The price of the product.
The desired rate of innovation of the product.
Prof. Raghavendran Venugopal, MBA Dept,
52 Mijar
53. Implied Demand Uncertainty
This does not mean uncertainty in overall demand but
uncertainty in demand which the company seeks to
satisfy.
Range of quantity required increases
Lead Time Decreases
Increases because wider range of the quantity
required implies greater variance in demand.
Increase because there is less time in which to react
to orders.
Variety of products required increases
Number of channels through which product may be
acquired increases
Prof. Raghavendran Venugopal, MBA Dept,
53 Mijar
54. Implied Demand Uncertainty
Increase because demand per product becomes more
disaggregate
Increase because the total customer demand is now
disaggregated over more channels.
Rate of Innovation Increases
Required service level increases
Increase because new products tend to have more
uncertain demand
Increase because the firm has to handle unusual surges
in demand
Prof. Raghavendran Venugopal, MBA Dept,
54 Mijar
55. The Implied Uncertainty (Demand
and Supply) Spectrum
Predictable Supply and
uncertain demand or uncertain Highly uncertain
Predictable Supply supply and predictable supply and
and Demand demand or somewhat demand
uncertain supply and demand
Salt at a An existing A new
Supermarket automobile communication
demand device
Prof. Raghavendran Venugopal, MBA Dept,
55 Mijar
56. Understanding the supply chain
capabilities
Supply chain responsiveness implies the
following:
Response to wide ranges of quantities demanded
Meet short lead times
Handle a large variety of products
Build highly innovative products
Meet a high service level
Handle supply uncertainty
Prof. Raghavendran Venugopal, MBA Dept,
56 Mijar
57. The cost-responsive efficient frontier
It is the curve showing the lowest possible cost
for a given level of responsiveness
Prof. Raghavendran Venugopal, MBA Dept,
57 Mijar
58. Responsiveness
High
Low
Prof. Raghavendran Venugopal, MBA Dept,
High Low
58 Mijar Cost
59. Responsiveness Spectrum
Somewhat Somewhat Highly
Highly Efficient
efficient responsive responsive
Local Apparel: A Big Bazaar:
Integrated traditional make- Most automotive Changing
Textile Mills: to-stock production: merchandise
Production manufacturer delivering a mix and by
scheduled with production large variety of location and
weeks or months lead time of products in a time of the day
in advance with several weeks couple of weeks
little variety or
flexibility
Prof. Raghavendran Venugopal, MBA Dept,
59 Mijar
60. Step 3: Achieving Strategic Fit
After mapping the level of implied uncertainty and
understanding the supply chain position on the
responsiveness spectrum, the third and final step
is to ensure that the degree of supply chain
responsiveness is consistent with the implied
uncertainty.
The goal is to target high responsiveness for a
supply chain facing high implied uncertainty.
The relationship is represented by the “Zone of
Strategic Fit”.
Increasing implied uncertainty from the customers
and supply sources is best served by increasing
Prof. Raghavendran Venugopal, MBA Dept,the supply chain.
responsiveness from
60 Mijar
61. Zone of Strategic Fit
Responsive
Supply Chain
Responsive
Spectrum
Efficient Supply
Chain
Certain Implied
Uncertain
Demand Uncertainty
Demand
Spectrum
Prof. Raghavendran Venugopal, MBA Dept,
61 Mijar
62. Zone of Strategic Fit
Responsive
Responsive
Spectrum
Efficient
Product Implied
Product
Maturity Uncertainty
Introduction
Spectrum
Prof. Raghavendran Venugopal, MBA Dept,
62 Mijar
63. Comparison of efficient and
responsive supply chains
Efficient Supply Chain Responsive Supply
Chain
Primary Goal Supply demand at the Respond quickly to
lowest cost demand
Product Design Maximizing Create modularity to
Strategy performance at a allow postponement of
minimum product cost product differentiation
Pricing strategy Lower Margins Higher Margins
because price is the because price is not
prime customer driver the prime customer
driver
Prof. Raghavendran Venugopal, MBA Dept,
63 Mijar
64. Comparison of efficient and
responsive supply chains
Efficient Supply Chain Responsive Supply
Chain
Manufacturing Lower costs through Maintain capacity
Strategy higher utilization flexibility to buffer
against demand and
supply uncertainty
Inventory Strategy Minimize inventory to Maintain buffer
lower cost inventory to deal with
demand/supply
uncertainty
Lead time strategy Reduce, but not the Reduce aggressively,
expense of costs even if costs are
significant
Prof. Raghavendran Venugopal, MBA Dept,
64 Mijar
65. Comparison of efficient and
responsive supply chains
Efficient Supply Chain Responsive Supply
Chain
Supplier Strategy Select based on cost Select based on
and quality speed, flexibility,
reliability and quality
Transport Strategy Lowest Cost mode Fastest means of
available delivery depending on
needs
Prof. Raghavendran Venugopal, MBA Dept,
65 Mijar
66. Other Issues Affecting Strategic
Fit
Multiple Products and Customer Segments
Product Life Cycle
Changing Customer Expectation
Issues on Globalization
Supply Chain uncertainty
Competitive Changes over time horizon
Prof. Raghavendran Venugopal, MBA Dept,
66 Mijar
67. Expanding Strategic Scope
A key issue relating to strategic fit is the scope, in
terms of supply chain stages, across which the
strategic fit applies.
Scope of strategic fit refers to the functions within
the firm and stages across the supply chain that
devise an integrated strategy with a shared
objective.
At one extreme, every operation within each
functional area devises its own independent
strategy with the objective of optimizing its
individual performance.
At the opposite extreme, all functional areas
across all stages of the supply chain devise
Prof. Raghavendran Venugopal, MBA Dept,
67
strategy jointly with a common objective of
Mijar
68. Obstacles in Achieving Strategic
Fit
Increase in Product Decreasing PLC’s
Variety. Division of SC
High Demand Ownership
Customers Difficulty in Executing
Globalization New Strategies
Silo mentality Diminishing SC
Lack of confidence & Visibility
Knowledge.
Prof. Raghavendran Venugopal, MBA Dept,
68 Mijar
70. Drivers of Supply Chain
Performance
Facilities
places where inventory is stored, assembled, or fabricated
production sites and storage sites
Inventory
raw materials, WIP, finished goods within a supply chain
inventory policies
Transportation
moving inventory from point to point in a supply chain
combinations of transportation modes and routes
Information
data and analysis regarding inventory, transportation, facilities throughout
the supply chain
potentially the biggest driver of supply chain performance
Sourcing
functions a firm performs and functions that are outsourced
Pricing
Prof. Raghavendran Venugopal, MBA Dept,
Price associated with goods and services provided by a firm to the supply
70 chain
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71. A Framework for Structuring
Drivers
Competitive Strategy
Supply Chain
Strategy
Efficiency Responsiveness
Supply chain structure
Logistical Drivers
Facilities Inventory Transportation
Information Sourcing Pricing
Cross Functional Drivers
Prof. Raghavendran Venugopal, MBA Dept,
71 Mijar
72. Role in the supply chain
Role in the competitive
strategy
Components of Drivers
decisions
Prof. Raghavendran Venugopal, MBA Dept,
72 Mijar
73. Facilities
Role in the supply chain
the “where” of the supply chain
manufacturing or storage (warehouses)
Role in the competitive strategy
economies of scale (efficiency priority)
larger number of smaller facilities (responsiveness
priority)
Prof. Raghavendran Venugopal, MBA Dept,
73 Mijar
74. Facilities
Components of Facilities Decisions
Location
centralization (efficiency) vs. decentralization
(responsiveness)
other factors to consider (e.g., proximity to customers)
Capacity (flexibility versus efficiency)
Manufacturing methodology (product focused versus
process focused)
Warehousing methodology (SKU storage, job lot
storage, cross-docking)
Overall trade-off: Responsiveness versus efficiency
Prof. Raghavendran Venugopal, MBA Dept,
74 Mijar
75. Inventory
Role in the Supply Chain
Inventory exists because of a mismatch between supply
and demand
Source of cost and influence on responsiveness
Impact on
material flow time: time elapsed between when material
enters the supply chain to when it exits the supply chain
throughput
rate at which sales to end consumers occur
I = RT (Little’s Law)
I = inventory; R = throughput; T = flow time
Example
Prof. Raghavendran Venugopal, MBA Dept, “synonymous”
Inventory and throughput are in a supply chain
75 Mijar
76. Inventory
Role in Competitive Strategy
If responsiveness is a strategic competitive priority, a
firm can locate larger amounts of inventory closer to
customers
If cost is more important, inventory can be reduced
to make the firm more efficient
Example: Economies of Scale
Prof. Raghavendran Venugopal, MBA Dept,
76 Mijar
77. Inventory
Components of Inventory Decisions
Cycle inventory
Average amount of inventory used to satisfy demand between
shipments
Depends on lot size
Safety inventory
inventory held in case demand exceeds expectations
costs of carrying too much inventory versus cost of losing sales
Seasonal inventory
inventory built up to counter predictable variability in demand
cost of carrying additional inventory versus cost of flexible
production
Overall trade-off: Responsiveness versus efficiency
more inventory: greater responsiveness but greater cost
less inventory: lower cost but lower responsiveness
Prof. Raghavendran Venugopal, MBA Dept,
77 Mijar
78. Transportation
Role in the supply chain
Moves the product between stages in the supply
chain
Impact on responsiveness and efficiency
Faster transportation allows greater responsiveness
but lower efficiency
Also affects inventory and facilities
Prof. Raghavendran Venugopal, MBA Dept,
78 Mijar
79. Transportation
Role in the competitive strategy
If responsiveness is a strategic competitive priority,
then faster transportation modes can provide greater
responsiveness to customers who are willing to pay
for it
Can also use slower transportation modes for
customers whose priority is price (cost)
Can also consider both inventory and transportation
to find the right balance
Prof. Raghavendran Venugopal, MBA Dept,
79 Mijar
80. Transportation
Components of transportation decisions
Mode of transportation:
air, truck, rail, ship, pipeline, electronic transportation
vary in cost, speed, size of shipment, flexibility
Route and network selection
route: path along which a product is shipped
network: collection of locations and routes
In-house or outsource
Overall trade-off: Responsiveness versus efficiency
Prof. Raghavendran Venugopal, MBA Dept,
80 Mijar
81. Information
Role in the supply chain
The connection between the various stages in the
supply chain – allows coordination between stages
Crucial to daily operation of each stage in a supply
chain – e.g., production scheduling, inventory levels
Role in the competitive strategy
Allows supply chain to become more efficient and more
responsive at the same time (reduces the need for a
trade-off)
Information technology
What information is most valuable?
Prof. Raghavendran Venugopal, MBA Dept,
81 Mijar
82. Information
Components of information decisions
Push (MRP) versus pull (demand information
transmitted quickly throughout the supply chain)
Coordination and information sharing
Forecasting and aggregate planning
Enabling technologies
EDI
Internet
ERP systems
Supply Chain Management software
Overall trade-off: Responsiveness versus efficiency
Prof. Raghavendran Venugopal, MBA Dept,
82 Mijar
83. Sourcing
Role in the supply chain
Set of business processes required to
purchase goods and services in a supply chain
Supplier selection, single vs. multiple suppliers,
contract negotiation
Role in the competitive strategy
Sourcing decisions are crucial because they
affect the level of efficiency and
responsiveness in a supply chain
In-house vs. outsource decisions- improving
83
efficiency and responsiveness
Prof. Raghavendran Venugopal, MBA Dept,
Mijar
84. Sourcing
Components of sourcing decisions
In-house versus outsource decisions
Supplier evaluation and selection
Procurement process
Overall trade-off: Increase the supply chain
profits
Prof. Raghavendran Venugopal, MBA Dept,
84 Mijar
85. Pricing
Role in the supply chain
Pricing determines the amount to charge
customers in a supply chain
Pricing strategies can be used to match demand
and supply
Role in the competitive strategy
Firms can utilize optimal pricing strategies to
improve efficiency and responsiveness
Low price and low product availability; vary prices
by response times
Prof. Raghavendran Venugopal, MBA Dept,
85 Mijar
86. Pricing
Components of pricing decisions
Pricing and economies of scale
Everyday low pricing versus high-low pricing
Fixed price versus menu pricing
Overall trade-off: Increase the firm profits
Prof. Raghavendran Venugopal, MBA Dept,
86 Mijar
87. Obstacles to Achieving Strategic
Fit
Increasing variety of products
Decreasing product life cycles
Increasingly demanding customers
Fragmentation of supply chain ownership
Globalization
Difficulty executing new strategies
Prof. Raghavendran Venugopal, MBA Dept,
87 Mijar