Flow of products and services from

Suppliers
Raw materials manufacturers
Intermediate goods manufacturers
Finished goods manufacturers
Distributors and wholesalers
Retailers
Customers
Connected through transportation, information, and
exchanges of funds
Supplier Manufacturer Distributor Retailer Customer
 In order to maximize supply chain surplus
Every facility that impacts costs needs to be
considered
Suppliers suppliers
Customers customers
Efficiency throughout the supply chain network is
required using a network level approach
Supply chain management involves the
management of supply chain assets and
products, information, and fund flows to
maximize total supply chain surplus
Getting the right things
to the right places
at the right times
for profit
 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
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
 Supply chain management is a set of
approaches utilized to efficiently integrate
suppliers, manufacturers, warehouses, and
stores, so that merchandise 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
Simchi-Levi et al, 2003
 Video
Ford Manufacturing Supply Chain
 Supply chain management is all about
relationships
Management of relationships in order to enhance
value and reduce cost
Collaboration is an important part of effective
supply chain management
 Further
Refinement of
SCM Capabilities

SCM
Formation/
Extensions

JIT, TQM, BPR,

Alliances

Inventory Management/Cost
Optimization

Traditional Mass Manufacturing

1950s 1960s 1970s 1980s 1990s 2000s Beyond

 Mass production era (1900s 1970s)
In the early 1900s, Henry Ford created the first moving assembly line
reducing the time to build a Model T from 728 hours to 1.5 hours
Lean manufacturing era (1970s 1995)
In the early 1970s, Japanese manufacturers like Toyota changed the
rules of production from mass to lean. Lean manufacturing focuses on
flexibility and quality more than on efficiency and quantity.
Mass customization era (1995 2010?)
Beginning around 1995 and coinciding with the commercial
application of the Internet, manufacturers started to mass-produce
customized products. Henry Fords famous statement You can have
any color Model T as long as its black no longer applies.
 Geographically dispersed complex network
Conflicting objectives across the supply chain
Uncertainty and risk factors
Information distortion
 Geographically dispersed complex network
 Conflicting objectives across the supply
chain
Manufacturer Distributor Retailer Customer

Large production Low inventory Few stores Convenience

batches Few DCs Low inventory Short lead time
Little variety Large variety of
Close to DCs products
Large shipments
 Uncertainty and risk factors
2005 Hurricane Katrina
P&G coffee supplies from sites around New Orleans
Six month impact
2002 West Coast port strike
Losses of $1B/day
Store stock-outs, factory shutdowns
2001 India earthquake
Supply interruptions for apparel manufacturers
1999 Taiwan earthquake
Supply interruptions for HP and Dell
 Information distortion
Supplier Manufacturer Distributor Retailer Customer

Bullwhip effect
 Successful supply chain management
requires decisions on the flow of information,
product, and funds that fall into three
decision phases
Supply chain strategy or design
Supply chain planning
Supply chain operation
 TIME FRAME TYPE TYPICAL DECISIONS
Supply chain network design (How many plants?
Location and capacities of plants and warehouses?)
years
Strategic Supply chain strategies (Sell direct or through
retailers? Outsource or in-house? Focus on cost or
customer service?)
Product mix at each plant

Workforce & Production planning

Tactical Inventory policies (safety stock level)
3 mo.- 1year Which locations supply which markets
Transportation strategies

Production scheduling
daily Operational Decisions regarding individual orders
Place replenishment orders
 A supply chain is a sequence of processes and
flows that take place within and between
different stages
Cycle view
The processes in a supply chain are divided into a series
of cycles, each performed at the interface between two
successive stages of a supply chain
Push/pull view
The processes in a supply chain are divided into two
categories depending on whether they are executed in
response or in anticipation of a customer order
 Customer
Customer Order Cycle

Cycle view Retailer

defines the Replenishment Cycle
processes Distributor
involved and
the owner of Manufacturing Cycle
each process Manufacturer

Procurement Cycle
Supplier
 Buyer
Supplier markets Buyer may return
the product the product

Buyer places Buyer receives

an order the order

Supplier receives Supplier supplies

the order the order

Supplier
Customer Order Process
1. Customer Arrival
2. Customer Order Entry Customer Order Cycle
3. Customer Order Fullfillment
4. Customer Order Receiving Replenishment Process
1. Retail Order Trigger
Replenishment Cycle 2. Retail Order Entry
3. Retail Order Fullfillment
Manufacturing Process 4. Retail Order Receiving
1. Order Arrival
2. Production Scheduling Manufacturing Cycle
3. Manufacturing/Shipping
4. Receiving Procurement Process
1. Component Order Arrival
Procurement Cycle 2. Production Scheduling
3. Manufacturing/Shipping
4. Receiving
 PULL Execution is initiated in
PROCESSES response to customer orders
(reactive)
Customer order arrives

PUSH Execution is initiated in

PROCESSES anticipation of customer orders
(speculative)

Processes are divided based on the timing of

their execution relative to a customer order
PULL

Customer
Customer Order Cycle and
Manufacturing Cycle
Manufacturer
Procurement Cycle
PUSH
Supplier
 Customer
PULL Customer Order Cycle

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle
PUSH
Manufacturer
Procurement Cycle
Supplier
 Soda vending machines
Amazon.com
Emergency care
Paint industry
Runway capacity at an Airport
 Which view is more useful when
considering operational decisions and
which view is more useful when
considering strategic decisions?
 Coca cola SCM Video
 The herbs were originally harvested by hand in the Rocky
Mountains
Currently, herbs and leafs come from growers around the
world
Weve been working to establish sustainable
harvests and fair wages for more than 30 years

What are advantages of having one production facility?

What are disadvantages of having one production facility?
What advantages does selling tea over the Internet
provide?