UnderstandingtheSupplyChain1LearningObjectivesDiscussthegoalofasupplychainandexplaintheimpactofsupplychaindecisionsonthesuccessofafirm.Identifythethreekeysupplychaindecisionphasesandexplainthesignificanceofeachone.Describethecycleandpush/pullviewsofasupplychain.Classifythesupplychainmacroprocessesinafirm.WhatisaSupplyChain?Allstagesinvolved,directlyorindirectly,infulfillingacustomerrequestIncludesmanufacturers,suppliers,transporters,warehouses,retailers,andcustomersWithineachcompany,thesupplychainincludesallfunctionsinvolvedinfulfillingacustomerrequest(productdevelopment,marketing,operations,distribution,finance,customerservice)WhatisaSupplyChain?CustomerisanintegralpartofthesupplychainIncludesmovementofproductsfromsupplierstomanufacturerstodistributorsandinformation,funds,andproductsinbothdirectionsMaybemoreaccuratetousetheterm“supplynetwork”or“supplyweb”Typicalsupplychainstages:customers,retailers,distributors,manufacturers,suppliersAllstagesmaynotbepresentinallsupplychains(e.g.,noretailerordistributorforDell)WhatisaSupplyChain?Figure1-1FlowsinaSupplyChainFigure1-2TheObjectiveofaSupplyChainMaximizeoverallvaluecreatedSupplyChainSurplus=CustomerValue–SupplyChainCostTheObjectiveofaSupplyChainExample:acustomerpurchasessomethingfor$60(revenue)Supplychainincurscosts(information,storage,transportation,components,assembly,etc.)Differencebetween$60andthesumofallofthesecostsisthesupplychainprofitSupplychainprofitabilityistotalprofittobesharedacrossallstagesofthesupplychainSuccessshouldbemeasuredbytotalsupplychainprofitability,notprofitsatanindividualstageImportanceofSupplyChainDecisionsWal-Mart,$1billionsalesin1980to$408billionin2010Seven-ElevenJapan,¥1billionsalesin1974to¥3trillionin2009Dell,$56billionin2006,adoptednewsupplychainstrategiesDecisionPhasesofaSupplyChainSupplychainstrategyordesignHowtostructurethesupplychainoverthenextseveralyearsSupplychainplanningDecisionsoverthenextquarteroryearSupplychainoperationDailyorweeklyoperationaldecisionsSupplyChainStrategyorDesignDecisionsaboutthestructureofthesupplychainandwhatprocesseseachstagewillperformStrategicsupplychaindecisionsLocationsandcapacitiesoffacilitiesProductstobemadeorstoredatvariouslocationsModesoftransportationInformationsystemsSupplychaindesignmustsupportstrategicobjectivesSupplychaindesigndecisionsarelong-termandexpensivetoreverse–musttakeintoaccountmarketuncertaintySupplyChainPlanningDefinitionofasetofpoliciesthatgovernshort-termoperationsFixedbythesupplyconfigurationfrompreviousphaseStartswithaforecastofdemandinthecomingyearSupplyChainPlanningPlanningdecisions:WhichmarketswillbesuppliedfromwhichlocationsPlannedbuildupofinventoriesSubcontracting,backuplocationsInventorypoliciesTimingandsizeofmarketpromotionsMustconsiderinplanningdecisionsdemanduncertainty,exchangerates,competitionoverthetimehorizonSupplyChainOperationTimehorizonisweeklyordailyDecisionsregardingindividualcustomerordersSupplychainconfigurationisfixedandoperatingpoliciesaredeterminedGoalistoimplementtheoperatingpoliciesaseffectivelyaspossibleAllocateorderstoinventoryorproduction,setorderduedates,generatepicklistsatawarehouse,allocateanordertoaparticularshipment,setdeliveryschedules,placereplenishmentordersMuchlessuncertainty(shorttimehorizon)ProcessViewofaSupplyChainCycleView:processesinasupplychainaredividedintoaseriesofcycles,eachperformedattheinterfacesbetweentwosuccessivesupplychainstagesPush/PullView:processesinasupplychainaredividedintotwocategoriesdependingonwhethertheyareexecutedinresponsetoacustomerorder(pull)orinanticipationofacustomerorder(push)CycleViewofSupplyChainProcessesFigure1-3CycleViewofSupplyChainProcessesFigure1-4Push/PullViewofSupplyChainsFigure1-5Push/PullViewofSupplyChainProcessesSupplychainprocessesfallintooneoftwocategoriesdependingonthetimingoftheirexecutionrelativetocustomerdemandPull:executionisinitiatedinresponsetoacustomerorder(reactive)Push:executionisinitiatedinanticipationofcustomerorders(speculative)Push/pullboundaryseparatespushprocessesfrompullprocessesPush/PullViewofSupplyChainProcessesUsefulinconsideringstrategicdecisionsrelatingtosupplychaindesign–moreglobalviewofhowsupplychainprocessesrelatetocustomerordersCancombinethepush/pullandcycleviewsL.L.BeanDellTherelativeproportionofpushandpullprocessescanhaveanimpactonsupplychainperformancePush/PullViewof–L.L.BeanFigure1-6Push/PullView–DellFigure1-7SupplyChainMacroProcessesSupplychainprocessesdiscussedinthetwoviewscanbeclassifiedintoCustomerRelationshipManagement(CRM)InternalSupplyChainManagement(ISCM)SupplierRelationshipManagement(SRM)IntegrationamongtheabovethreemacroprocessesiscriticalforeffectiveandsuccessfulsupplychainmanagementSupplyChainMacroProcessesFigure1-8ExamplesofSupplyChainsGatewayandAppleZaraW.W.GraingerandMcMaster-CarrToyotaAmazonGatewayandAppleWhydidGatewaychoosenottocarryanyfinished-productinventoryatitsretailstores?WhydidApplechoosetocarryinventoryatitsstores?Shouldafirmwithaninvestmentinretailstorescarryanyfinished-goodsinventory?Whatarethecharacteristicsofproductsthataremostsuitabletobecarriedinfinished-goodsinventory?Whatcharacterizesproductsthatarebestmanufacturedtoorder?Howdoesproductvarietyaffectthelevelofinventoryaretailstoremustcarry?Isadirectsellingsupplychainwithoutretailstoresalwayslessexpensivethanasupplychainwithretailstores?WhatfactorsexplainthesuccessofAppleretailandthefailureofGatewaycountrystores?ZaraWhatadvantagedoesZaragainagainstthecompetitionbyhavingaveryresponsivesupplychain?WhyhasInditexchosentohavebothin-housemanufacturingandoutsourcedmanufacturing?WhyhasInditexmaintainedmanufacturingcapacityinEuropeeventhoughmanufacturinginAsiaismuchcheaper?WhydoesZarasourceproductswithuncertaindemandfromlocalmanufacturersandproductswithpredictabledemandfromAsianmanufacturers?WhatadvantagedoesZaragainfromreplenishingitsstoresmultipletimesaweekcomparedtoalessfrequentschedule?Howdoesthefrequencyofreplenishmentaffectthedesignofitsdistributionsystem?DoyouthinkZara’sresponsivereplenishmentinfrastructureisbettersuitedforonlinesalesorretailsales?W.W.GraingerandMcMaster-CarrHowmanyDCsshouldbebuiltandwhereshouldtheybelocated?HowshouldproductstockingbemanagedattheDCs?ShouldallDCscarryallproducts?Whatproductsshouldbecarriedininventoryandwhatproductsshouldbeleftwiththesuppliertobeshippeddirectlyinresponsetoacustomerorder?WhatproductsshouldW.W.Graingercarryatastore?HowshouldmarketsbeallocatedtoDCsintermsoforderfulfillment?WhatshouldbedoneifanordercannotbecompletelyfilledfromaDC?Shouldtherebespecifiedbackuplocations?Howshouldtheybeselected?Howshouldreplenishmentofinventorybemanagedatthevariousstockinglocations?HowshouldWebordersbehandledrelativetotheexistingbusiness?IsitbettertointegratetheWebbusinesswiththeexistingbusinessortosetupseparatedistribution?Whattransportationmodesshouldbeusedfororderfulfillmentandstockreplenishment?ToyotaWhereshouldplantsbelocated,whatdegreeofflexibilityshouldeachhave,andwhatcapacityshouldeachhave?Shouldplantsbeabletoproduceforallmarkets?Howshouldmarketsbeallocatedtoplants?Whatkindofflexibilityshouldbebuiltintothedistributionsystem?Howshouldthisflexibleinvestmentbevalued?Whatactionsmaybetakenduringproductdesigntofacilitatethisflexibility?Amazon.comWhyisAmazonbuildingmorewarehousesasitgrows?Howmanywarehousesshouldithaveandwhereshouldtheybelocated?WhatadvantagesdoessellingbooksviatheInternetprovideoveratraditionalbookstore?ArethereanydisadvantagestosellingviatheInternet?ShouldAmazonstockeveryproductitsells?Whatadvantagecanbricks-and-mortarplayersderivefromsettingupanonlinechannel?Howshouldtheyusethetwochannelstogainmaximumadvantage?Whatadvantages/disadvantagesdoestheonlinechannelenjoyinthesaleofshoes(diapers)relativetoaretailstore?Forwhatproductsdoestheonlinechannelofferthegreateradvantagerelativetoretailstores?Whatcharacterizestheseproducts?SummaryofLearningObjectivesDiscussthegoalofasupplychainandexplaintheimpactofsupplychaindecisionsonthesuccessofafirm.Identifythethreekeysupplychaindecisionphasesandexplainthesignificanceofeachone.Describethecycleandpush/pullviewsofasupplychain.Classifythesupplychainmacroprocessesinafirm.