1

Understanding
the Supply
Chain

PowerPoint presentation to accompany

Chopra and Meindl Supply Chain Management, 5e
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall.

1-1
 Course Code MGT 561

Supply Chain Management

Book: Supply Chain Management Strategy,
Planning, and Operation
5th edition (Pearson Publishing)
Author: Sunil Chopra and Peter Meindl

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 Course Strategic Outline

1. Building a strategic framework to analyze supply chains

2. Designing a supply chain networks
3. Planning and coordinating demand and supply in
supply chain
4. Planning and managing inventories in a supply chain
5. Designing and planning transportation networks

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 1
Understanding the
Supply Chain

PowerPoint presentation to accompany

Chopra and Meindl Supply Chain Management, 5e
Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall.

1-5
 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? (1/3)
• 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)

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 What is a Supply Chain? (2/3)
• 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
• All stages may not be present in all supply
chains (e.g., no retailer or distributor for Dell)

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 What is a Supply Chain? (3/3)

Figure 1-1 Stages of a detergent supply chain

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 Flows in a Supply Chain

Figure 1-2 Supply chain stages

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 The Objective of a Supply Chain (1/3)

• Maximize overall value created

Supply Chain Surplus
= Customer Value – Supply Chain Cost

• Disaster supply chains

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 The Objective of a Supply Chain
(2/3)
• Example: a customer purchases a wireless
router from Best Buy for $60 (revenue)
• Supply chain incurs costs (information,
storage, transportation, 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
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 The Objective of a Supply Chain
(3/3)
• 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 flows between and
among the supply chain stages to
maximize total supply chain surplus

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 Importance of
Supply Chain Decisions – Cases
• Wal-Mart, $1 billion sales in 1980 to $408 billion
in 2010
• Seven-Eleven Japan, ¥1 billion sales in 1974 to
¥3 trillion in 2009
• Dell, $56 billion in 2006, adopted new supply
chain strategies

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 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

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 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
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 Supply Chain Planning (1/2)
• 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

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 Supply Chain Planning (2/2)
• 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

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 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)
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 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
• 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)

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 Cycle View
of Supply
Chain
Processes

Figure 1-3

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 Push/Pull View of Supply Chains

Figure 1-5

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 Push/Pull View of
Supply Chain Processes
• 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

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 Push/Pull View of
Supply Chain Processes
• Useful in considering strategic decisions relating
to supply chain design – more global view of
how supply chain processes relate to customer
orders
• The relative proportion of push and pull
processes can have an impact on supply chain
performance

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 Push/Pull View – Dell

Figure 1-7

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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

Figure 1-8

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 Lecture Notes
• The basic theme discussed in this chapter
is the understanding of the what really
supply chain management is, and what
are the different decisional phases
involved in any decision pertaining to
supply chain management.
• The different supply chain macro
processes both within the supply chain
and at the input and output of the supply
chain have been identified.
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 Lecture Notes
• After the introduction of the macro
processes a classification approach have
been introduced, in this classification
approach the different processes can be
either be classified as either push or pull.
• The basic distinction between push and
pull process is that push process is in the
anticipation of the customer demand while
the pull process is triggered after the
arrival of the customer demand.
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 Lecture Notes
Definition:
Supply Chain Management is primarily concerned
with the efficient integration of suppliers, factories,
warehouses and stores so that merchandise is
produced and distributed in the right quantities, to
the right locations and at the right time, and so as
to minimize total system cost subject to satisfying
service requirements.

Notice: – Who is involved – Cost and Service

Level – It is all about integration
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 Lecture Notes
• Today’s Supply Chain Challenges
• Global supply chain with long lead times
• Rising and shifting customer expectations
• Increase in labor costs in developing
countries Increase in labor costs in
developing countries
• Increase in logistics costs
• Importance of sustainability
• Unprecedented Volatility
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 Lecture Notes
• Conflicting Objectives in the Supply Chain
1. Purchasing
• Stable volume requirements
• Flexible delivery time
• Little variation in mix
• Large quantities
2. Manufacturing
• Long run production
• High quality
• High productivity
• Low production cost

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 Lecture Notes
3. Warehousing Warehousing
• Low inventory
• Reduced transportation costs
• Quick replenishment capability
4. Customers
• Shortorder leadtime
• High in stock
• Enormous variety of products
• Low prices

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