Subrata Kumar Nandi

[email protected]
Mobile: 9212735209
 Costs are high
-     About 13% of GDP domestically
-     About 12% of GDP internationally
-     A range of 4 to 30% of sales for individual firms, avg. about 10%
-     A high as 70-80% of sales if purchasing and production are included
 
 Customers are more demanding of the supply chain
-     Desire for quick response
-     Desire for mass customization
 
 An integral part of company strategy
-     Generate revenue
-     Improve profit
 
 Logistical lines are lengthening
-     Local vs. long distance supply
 
 Logistics adds value
-     Time and place utilities
Category Percent of sales
Transportation 3.34%
Warehousing 2.02
Order entry 0.43
Administration 0.41
Inventory carrying 1.72
Total 7.65%

Add one-third for inbound supply costs

Logistics costs are

about 10% of sales
w/o purchasing
costs
 Estimated that the grocery industry could save $30
billion (10% of operating cost) by using effective
logistics and supply chain strategies
◦ A typical box of cereal spends 104 days from factory to sale
◦ A typical car spends 15 days from factory to dealership
 Compaq estimates it lost $.5 billion to $1 billion in
sales in 1995 because laptops were not available
when and where needed
 When the 1 gig processor was introduced by AMD,

the price of the 800 mb processor dropped by 30%

 P&G estimates it saved retail customers $65 million

by collaboration resulting in a better match of

supply and demand
Transportation Transportation Customers
Warehousing

Information
flows
Factory

Transportation

Vendors/plants/ports
Warehousing Transportation
Source: Principles of Supply Chain Management: A Balanced
Approach by Wisner, Leong, and Tan
© 2005 Thomson Business and Professional Publishing
 All stages involved, directly or indirectly, in fulfilling a
customer request
 Includes manufacturers, suppliers, transporters, warehouses,
retailers, customers
 Within each company, 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, but also includes movement
of information, funds, and products in both directions
 Probably more accurate to use the term “supply network”
or “supply web”
 Typical supply chain stages: customers, retailers,
distributors, manufacturers, suppliers All stages may not
be present in all supply chains
(e.g., no retailer or distributor for Dell)
 Supply Chain Management is a set of approaches
utilized to efficiently integrate suppliers,
manufacturers, warehouses, and stores, so that
merchandize 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.
- Levi et al
 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
 Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+

Demand forecasting

Purchasing

Requirements planning
Purchasing/
Production planning Materials
Management
Manufacturing inventory

Warehousing
Logistics
Material handling

Packaging

Finished goods inventory Supply Chain

Physical Supply Chain
Management
Distribution Management
Distribution planning

Order processing

Transportation

Customer service

Strategic planning

Information services

Marketing/sales

Finance
Information

Product
Customer
Funds
 OPERATIONS TECHNOLOGY
Material Distribute-
supplies production
storage tin
MATERIALS FLOW
suppliers --------------------------- customers
CASH
INFORMATION FLOW
Supply Production Production Sales
planning scheduling planning forecasting
INFORMATION TECHNOLOGY
 Maximize overall value created
 Supply chain value: difference between

what the final product is worth to the

customer and the effort the supply chain
expends in filling the customer’s request
 Value is correlated to supply chain

profitability (difference between revenue

generated from the customer and the
overall cost across the supply chain)
 Example: Dell receives $2000 from a customer for
a computer (revenue)
 Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
 Difference between $2000 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
 Supply chain success should be measured by total
supply chain profitability, not profits at an
individual stage
 Supply chain strategy or design
 Supply chain planning
 Supply chain operation
 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
 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
 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
 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)
 A supply chain is a sequence of processes and flows that take place
between different stages and combine to fill a customer need for a
product

 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
 Push/pull view: 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)
 Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor

Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
 Each cycle occurs at the interface between two successive stages
 Customer order cycle (customer-retailer)
 Replenishment cycle (retailer-distributor)
 Manufacturing cycle (distributor-manufacturer)
 Procurement cycle (manufacturer-supplier)
 Cycle view clearly defines processes involved and the owners of each
process. Specifies the roles and responsibilities of each member and the
desired outcome of each process.
Manufacturing
Procurement, Customer Order

Replenishment cycles

PUSH PROCESSES PULL PROCESSES

Customer
Order Arrives
 Supply chain processes fall into one of 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
 Useful in considering strategic decisions relating to
supply chain design – more global view of how supply
chain processes relate to customer orders
 Can combine the push/pull and cycle views

◦ Dell The relative proportion of push and pull processes can

have an impact on supply chain performance
 It is difficult to design and operate a supply
chain so that total system-wide costs are
minimized, and system-wide service levels
are maintained. (achieving global
optimization)
 The inherent uncertainty in the Supply chain
 The supply chain is a complex network of facilities
dispersed over large geography
 Different facilities in the supply chain frequently
have different, conflicting objectives
 The supply chain is a dynamic system that evolves
over time
 System variation over time
 Managing supply and demand is a major
challenge
 Inventory and back order levels fluctuate
considerably across the supply chain, even
when customer demand for particular
products does not vary greatly
 Forecasting does not solve the problem
 Demand is not the only source of uncertainty.
Others include delivery lead times,
transportation and component availability.
 Distribution Network Configuration
 Inventory Control
 Distribution Strategies e.g Wal-Mart’s Cross
Docking strategy
 Supply chain integration and Strategic
Partnering
 Outsourcing and Procurement Strategies
 Product Design
 Information Technology and Decision Support
Systems
 Customer Value
Getting the right goods or services to the
right place, at the right time, and in the
desired condition at the lowest cost and
highest return on investment.