Chapter 1: Understanding the Supply Chain

Objective of a supply chain

-A customer purchases a wireless router from Best Buy for $60 (revenue) -Supply chain incurs costs (information, storage, transportation, produce components, assembly, etc.) -Difference between $60 and the sum of all of these costs is the supply chain profit -Supply chain profitability is total profit to be shared across all stages of the supply chain -Success should be measured by total supply chain profitability, not profits at an individual stage -Customer the only source of revenue -Sources of cost include flows of information, products, or funds between stages of the supply chain -Effective supply chain management is the management of supply chain assets and product, information, and fund flows to grow the total supply chain surplus

What is a supply chain?

-All stages involved, directly or indirectly, in fulfilling a customer request -Includes manufacturers, suppliers, transporters, warehouses, retailers, and customers -Within each economy, the supply chain includes all functions involved in fulfilling a customer request (product development, marketing, operations, distribution, finance, customer service) -Customer is an integral part of the supply chain -Includes movement of products from suppliers to manufacturers to distributors and information, funds, and products in both directions -May be more accurate to use the term "supply network" or "supply web" -Typical supply chain stages: customers, retailers, wholesalers/distributors, manufacturers, component/raw material suppliers -All stages may not be present in all supply chains (e.g., no retailer or distributor for Dell)

Supply Chain Strategy or Design

-Decisions about the configuration of the supply chain, allocation of resources, and what processes each stage will perform -Strategic supply chain decisions -Outsource supply chain functions -Locations and capacities of facilities -Products to be made or stored at various locations -Modes of transportation -Information systems -Supply chain design must support strategic objectives -Supply chain design decisions are long-term and expensive to reverse - must take into account market uncertainty

Supply Chain Planning

-Definition of a set of policies that govern short-term operations -Fixed by the supply configuration from strategic phase -Goal is to maximize supply chain surplus given established constraints -Starts with a forecast of demand in the coming year -Planning decisions: -Which markers will be supplied from which locations -Planned buildup of inventories -Subcontracting -Inventory policies -Timing and size of market promotions -Must consider demand uncertainty, exchange rates, competition over the time horizon in planning decisions

Examples of Supply Chains

-Gateway and Apple -Zara -W.W. Grainger and McMaster-Carr -Toyota -Amazon -Macy's

Push/pull view of supply chain processes

-Supply chain processes fall into one or two categories depending on the timing of their execution relative to customer demand -Pull: execution is initiated in response to a customer order (reactive) -Push: execution is initiated in anticipation of customer orders (speculative) -Push/pull boundary separates push processes from pull processes

Supply Chain Operation

-Time horizon is weekly or daily -Decisions regarding individual customer orders -Supply chain configuration is fixed and planning policies are defined -Goal is to handle incoming customer orders as effectively as possible -Allocate orders to inventory or production, set order due dates, generate pick lists at a warehouse, allocate an order to a particular shipment, set delivery schedules, place replenishment orders

Importance of Supply Chain Decisions

-Wal-Mart, $1 billion sales in 1980 to $469 billion in 2013 -Seven-Eleven Japan, 1 billion sales in 1974 to 1.9 trillion in 2013 -Webvan folded in two years -Borders, $4 billion in 2004 to $2.8 billion in 2009 -Dell, $56 billion in 2006, adopted new supply chain strategies

Process Views of a Supply Chain

1. Cycle View: the processes in a supply chain are divided into a series of cycles, each performed at the interface between two successive stages of the supply chain 2. 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 by a customer order, whereas push processes are initiated and performed in anticipation of customer orders

Decision Phases in a Supply Chain

1. Supply chain strategy or design -How to structure the supply chain over the next several years 2. Supply chain planning -Decisions over the next quarter or year 3. Supply chain operation -Daily or weekly operational decisions

CSCMP's Definition of Logistics Management

Logistics management is that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customer's requirements

Supply chain macro processes

Supply chain processes discussed in the two views can be classified into 1. Customer Relationship Management (CRM): all processes at the interface between the firm and its customers -Market -Price -Sell -Call center -Order management 2. Internal Supply Chain Management (ISCM): all processes that are internal to the firm -Strategic planning -Demand planning -Supply planning -Fulfillment -Field service 3. Supplier Relationship Management (SRM): all processes at the interface between the firm and its suppliers -Source -Negotiate -Buy -Design collaboration -Supply collaboration