Fundamentals of Industrial Plants

Supply chain strategy

Instructor:
Carlo Rafele
Dept.ofProductionandManagementEngineering

Contents
1. MainrelationshipswithinSCM
2. Operationallinksbetweenactors
3. Contractsandbenefitsforactors

LectureGoals
Comprising different ways of collaboration in
the SCM
Knowing right application of relationships
Understanding the main logistic contracts
and applications

A New Supply Chain Paradigm

A shift from a Push System
Production decisions are based on forecast

to a Push-Pull System
Initial portion of supply chain is replenished
based on long-term forecasts
For example, parts inventory may be replenished
based on long term forecasts

Final supply chain stages based on actual

customer demand
For example, assembly may be based on actual
orders

Push-Pull Supply Chains

Supply Chain Time Line

Suppliers

PUSH STRATEGY
Low uncertainty

PULL STRATEGY
High uncertainty
Push-Pull Boundary

Customers

Consider Two PC Manufacturers

Build to stock

Forecast demand
Buys components
Assembles computers
Observes demand and
meets demand if
possible

A traditional Push
System

Build to order

Forecast demand
Buys components
Observes demand
Meets demand
Assembles computers

A Push-Pull System

Characteristics and Skills

Push-Pull Boundary
Raw
material

Customers

Low uncertainty

High uncertainty

Long lead times

Short cycle times

Cost minimization

Service level

Resource allocation

Responsiveness

Locating the Push-Pull Boundary

The Push section requires:
Supply chain planning
Long term strategies

The Pull section requires:

Order fulfillment processes
Customer relationship management

Buffer inventory at the boundary:

The output of the tactical planning process
The input to the order fulfillment process

Selecting the Best SC Strategy

Higher demand uncertainty suggests Pull
Higher importance of economies of scale (EOS)
suggests Push
High uncertainty and EOS not important: such
as the computer industry, implies Pull
Low uncertainty and EOS important: such as
groceries, implies Push
Demand is stable
Transportation cost reduction is critical
Pull would not be appropriate here.

Selecting the Best SC Strategy

Low certainty but low value of EOS (high volume
books and CDs)
Either Push strategies or Push-Pull strategies might
be most appropriate

High uncertainty and high value of EOS

For example, the furniture industry
How can production be Pull but delivery Push?
Is this a Pull-Push system?

What Is the Best Strategy?

Demand
Uncertainty

Pull
H

II

III

IV

Delivery Cost
Unit Price

L
Push

L
Pull

H
2

Push

Economies of Scale

Choosing Between Push/Pull Strategies

High

Demand Uncertainty

Pull

Industries where:

Industries where:

Customization is High
Demand is uncertain
Scale economies are Low

Demand is uncertain
Scale economies are High in
transportation
Low economies of scale in
production

Computer
equipment
Industries where:

Industries where:

Uncertainty is low
Low economies of scale
Push-pull supply chain

Standard processes are the

norm
Demand is stable
Scale economies are High

Books, CDs
Push

Furniture

Low
Low
Pull

Where do the following

industries fit in this
model:
Automobile?
Aircraft?
Fashion?
Petroleum refining?
Pharmaceuticals?
Biotechnology?
Medical Devices?

Grocery,
Beverages

Economies of Scale

High
Push
Source: Simchi-Levi

Different Location of the Push-Pull

Boundary
IKEA

Furniture

Dell

Amazon

GM

Traditional
retailers

Raw
material

Customers
Production

Assembly

PUSH
Source: Tatjana Bolic Supply Chain Management

Manufacturer
DC

Distributor
DC

Store

PULL

Different Positions for the

Decoupling Point
PHASES OF THE MANUFACTURING LOGISTICS SYSTEM
SYSTEM Assembling
Engineering
Purchasing
Manufacturing
Delivery

Customized on
demand

Forecasting not required

Building

Forecasting not required

Aircraft

Forecasting about purchased materials

Furniture

Components
customized on
demand
Catalogs
Customization
on standard
modules

Car

Mass
production

Fridge
Light bulb

Source: F.Dallari, Manuale di logistica MPH

Product

Consumer
goods