Understanding the
Supply Chain
What is a Supply Chain?
Supply-chain is a term that
describes how organizations
(suppliers, manufacturers,
distributors, and customers) are
linked together
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 company, the supply chain
includes all functions involved in fulfilling a
customer request (product development,
marketing, operations, distribution,
finance, customer service).
Contd…
What is a Supply Chain?
• 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, distributors, manufacturers, suppliers
Most Supply Chains consist of many
“threads” which make up a network, or
“chain of chains”
SOURCE MAKE DELIVER
SOURCE MAKE DELIVER
SOURCE MAKE DELIVER
Supplier Focal firm Customer
(a) Basic supply chain
Supplier’s Customer’s
Supplier Focal firm Customer
supplier customer
(b) Extended supply chain
Initial Ultimate
Supplier Focal firm Customer
supplier consumer
(c) Ultimate supply chain
What is Supply Chain Management
Supply chain management is a set
of approaches utilized to efficiently
integrate suppliers, manufacturers,
warehouses, and stores, so that
merchandise is produced and
distributed in the right quantities,
to the right locations, and at the
right time, in order to minimize
system wide costs while satisfying
service level requirements
Two Other Formal Definitions
The design and management of seamless,
value-added process across organizational
boundaries to meet the real needs of the
end customer
– Institute for Supply Management
Managing supply and demand, sourcing raw
materials and parts, manufacturing and
assembly, warehousing and inventory
tracking, order entry and order
management, distribution across all
channels, and delivery to the customer
– The Supply Chain Council
Objectives of SCM
The objectives of supply chain
management are manifold but most of
them are derived from the primary
objective
The primary objective comprises creating a
superior mutual value for the customer in
terms of the product and service delivered
at a time and place in response to
customer needs and demand
The Primary Objective of SCM
Maximize overall value created
Supply chain surplus = Customer
value – Supply Chain Cost
Secondary Objectives of SCM
The derived or secondary
objectives are:
Reliability
Flexibility/Agility
Responsiveness
Communication and coordination
Increasing Importance of
The Supply Chain
• Proliferation of Product Lines
• Shorter Product Life Cycles
– Cell phone, Laptop, Automobile
• Higher Level of Outsourcing
– Dell computers, Bharti Tele ventures
• Shift in Balance of Power in Chain
– Impact of organized retail chain
• Globalization of Manufacturing
– Impact of tariff structure
Decision Phases of a Supply
Chain
• Supply chain strategy or design
– How to structure the supply chain over the next
several years
• Supply chain planning
– Decisions over the next quarter or year
• Supply chain operation
– Daily or weekly operational decisions
Supply Chain Strategy or
Design
• Decisions about the structure of the supply chain and what
processes each stage will perform
• Strategic supply chain decisions
– 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 previous phase
• Starts with a forecast of demand in
the coming year
Supply Chain Planning
• Planning decisions:
– Which markets will be supplied from
which locations
– Planned buildup of inventories
– Subcontracting, backup locations
– Inventory policies
– Timing and size of market promotions
• Must consider in planning decisions—
demand uncertainty, exchange rates,
competition over the time horizon
Supply Chain Operation
• Time horizon is weekly or daily
• Decisions regarding individual customer orders
• Supply chain configuration is fixed and operating
policies are determined
• Goal is to implement the operating policies 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
• Much less uncertainty (short time horizon)
Process View of a Supply Chain
• Cycle view: processes in a supply
chain are divided into a series of
cycles, each performed at the
interfaces between two successive
supply chain stages.
Cycle View of Supply Chain Processes
Supplier
Procurement
cycle
Manufacturer
Manufacturing
cycle
Distributor
Replenishment
cycle
Retailer
Customer order
cycle
Customer
Sub-processes in SC Cycles
Supply Chain Macro Processes
• Supply chain processes 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.
Supply Chain Macro Processes
Historical Evolution of SCM
Sourcing,
Procurement
& Supply Materials Logistics &
Management management Distribution
Integrated into
Supply chain
management
Logistics Cost
as a Percent of GDP
http://dashboard.commerce.gov.in/
Logistics Performance Index(LPI)
• The international logistics performance index (LPI) is
the weighted average of the country scores on the six
key dimensions:
1) Efficiency of the clearance process (i.e., speed,
simplicity and predictability of formalities) by border
control agencies, including customs;
• 2) Quality of trade and transport related infrastructure
(e.g., ports, railroads, roads, information technology);
• 3) Ease of arranging competitively priced shipments;
• 4) Competence and quality of logistics services (e.g.,
transport operators, customs brokers);
• 5) Ability to track and trace consignments;
• 6) Timeliness of shipments in reaching destination
within the scheduled or expected delivery time.
https://lpi.worldbank.org/international/global/2018
Supply Chain Trends
• Reduced number of suppliers
• Long-term relationships
• Suppliers located close to customers
• Suppliers on-site
• Integrated information infrastructure
• Process redesign to reduce transaction
costs and break down barriers
• Global supply chains
Supply Chain: Covid-19 Impact
• Short-term
– Distance is back
– Resilience (the ability to absorb a shock)
versus Efficiency
– The rise of the contact-free economy
– More government intervention in the
economy and more scrutiny for business
– Changing industry structures, consumer
behavior, market positions, and sector
attractiveness
Source: https://www.mckinsey.com/featured-insights/leadership/the-future-is-not-what-it-used-to-be-thoughts-on-the-shape-of-
the-next-normal?cid=other-eml-nsl-mip-mck&hlkid=b1b4d9015f6749189f7b99c5169cdada&hctky=11252061&hdpid=b16fb5ce-
b91b-435d-a7d7-ef4aa3afe3f1
Supply Chain: Covid-19 Impact
• Longer-term
– “Multi-shoring” of suppliers
– From JIT to “Just in case”
– More flexible 3PL providers
– More importance to Risk and Resiliency
– Increased reliance on technology
– Accelerating end-to-end digitization
– Deglobalized and more regionalized
ultimate supply chains
– More online and omni channels for service
delivery companies
– More asset leasing and less asset owning
Source: https://www.dcvelocity.com/articles/46356-cscmps-state-of-logistics-report-
highlights-pandemics-effects-on-the-industry and https://www.mckinsey.com/business-
functions/operations/our-insights/jump-starting-resilient-and-reimagined-operations#
Supply Chain: The Next Decade
• Uberization of freight
• Truck platooning
• Electric vehicle fleets
• Fully autonomous trucks
• Drone and unmanned aerial
vehicle delivery systems
• Autonomous mobile robots
• Artificial intelligence applications
• Blockchain
SCM Videos
Simple Introductory Videos at
https://wpcarey.asu.edu/supply-chain-
management-degrees/videos
