Understanding The Supply Chain Management

Definition, phases, process view of supply chain.

Tina S
Tina S
Jan 26, 2010
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What is supply chain?

A supply chain is a network of retailers, distributors, transporters, storage facilities, and suppliers that participate in the production, delivery, and sale of a product to the consumer. The supply chain is typically made up of multiple companies who coordinate activities to set themselves apart from the competition.

All stages involved, directly or indirectly, in fulfilling a customer request.
Within each company, the supply chain includes all functions involved in fulfilling a customer request (like product development, marketing, operations, distributions, 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”.

While often applied to manufacturing and consumer products, a supply chain can also be used to show how several processes supply to one another. The supply chain definition in this sense can apply to Internet technology, finance, and many other industries.
A supply chain strategy defines how the supply chain should operate in order to compete in the market. The strategy evaluates the benefits and costs relating to the operation. While a business strategy focuses on the overall direction a company wishes to pursue, supply chain strategy focuses on the actual operations of the organization and the supply chain that will be used to meet a specific goal.

Objectives of supply chain:

1.To maximize the overall value generated.

Supply chain value: The value a supply chain generates is the difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customer’s request.

For example, a customer purchasing a computer from Dell pays $2,000, which represents the revenue the supply chain receives. Dell and other stages of the supply chain incur costs to convey information, produce components, store them, transport them, transfer funds, and so on.
The difference between the $2,000 that the customer paid and the sum of all costs incurred by the supply chain to produce and distribute the computer represents the supply chain profitability.

2.The higher the supply chain profitability, the more successful the supply chain. Supply chain success should be measured in terms of supply chain profitability and not in terms of the profits at an individual stage.

Having defined the success of a supply chain in terms of supply chain profitability, the next logical step is to look for sources of revenue and cost.

For any supply chain, there is only one source of revenue: the customer At Wal-Mart, a customer purchasing detergent is the only one providing positive cash flow for the supply chain.

All other cash flows are simply fund exchanges that occur within the supply chain given that different stages have different owners. When Wal-Mart pays its supplier, it is taking a portion of the funds the customer provides and passing that money on to the supplier.

All flows of information, product, or funds generate costs within the supply chain. Thus, the appropriate management of these flows is a key to supply chain success.

Supply chain management involves the management of flows between and among stage sin a supply chain to maximize total supply chain profitability.

What is supply chain management?

Supply chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability.

Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer.

Decision phases of a supply chain:

  • Supply chain strategy or chain
  • Supply chain planning
  • Supply chain operation

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 or stored at various locations.
- Products to be made or stored at various locations.
- Modes of transportation.
- Information.

Supply chain design must support strategic objectives.
Supply chain decisions are long and expensive to reverse-must take into account market uncertainty.

Supply chain planning:

  • 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 decision:

- 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 decision demand uncertainty, exchange rates, competition over the time horizon.

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 order.
  • Much less uncertainty( short time horizon)

Process view of a short supply chain:
Cycle view: Processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive suplly chain stages.
Push/pull view: The processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order or in anticipation of customer orders.

Cycle view supply chain:
Each cycle occurs at the interface between two successive stages.
  • Customer order cycle ( customer-retailer)
  • Replenishment cycle ( retailer-distributor)
  • Manufacturing cycle ( distributors-suppliers)
  • Procurement cycle ( manufacturer-supplier)
Cycle view clearly defines processes involved and the owners of each member of each process. Specifies the roles and responsibilities of each member and the desired outcome of each process.
Push/pull view of supply chain processes:

Supply chain processes fail 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 processes relate to customer orders.

As supply chains have moved from a cost focus to a customer focus and now currently to a strategic focus, the need to think strategically about the supply chain has never been more important. The success of a strategy is only as good as the company’s ability to fully and properly execute it. A great supply chain strategy, linked with operational excellence, can provide success for not only the company in question but also its partners and customers.

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