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The management of the chain of supply Module 1.1 “Amateurs talk strategy and professionals talk logistics.”
The management of the chain of
supply
Module 1.1
“Amateurs
talk strategy and professionals talk logistics.”

Nothing Entirely New

...

Just

a Significant Evolution

  • Industrialization, infrastructural development (railroad, national highways, seaports, aerospace, new communication media) expanded market; thus matured the supply chain and logistics domain

In the early 1900  Ford model T  First moving assembly line  Reduced time
In the early 1900
Ford model T
First moving assembly
line
Reduced time from 728
hours to 1.5 hours

Post world war 2

  • New world economic order emerged; specifically Germany, Belgium and France

  • In East, it was Japan who changed the rules-Mass to Lean

  • Form efficiency and quantity to flexible and quality

  • The ideas were six sigma, JIT inventory and TQM

In 1970

  • US superiority was challenged by the companies that producing quality product at lower cost

  • IT boom

  • Responsive supply chain

In 1990  Mass customization; possible due to internet and technological advances
In 1990
Mass customization; possible due to internet and
technological advances
Supply chain: Detergent Customer wants P&G or other manufacturer Wal-Mart or third party DC Wal-Mart detergent
Supply chain: Detergent
Customer wants
P&G or other
manufacturer
Wal-Mart or third
party DC
Wal-Mart
detergent and goes
Supermarket
to Wal-Mart
Chemical
Plastic
Tenneco
Producer
Packaging
manufacturer
(e.g. Oil Company)
Chemical
Paper
Timber
manufacturer
(e.g. Oil Company)
Manufacturer
Industry
1-7

Lets define ...

  • “A supply chain is the alignment of firms that bring products or services to market.

from

Lambert,

Stock,

and

Ellram

in

their

book

Fundamentals of Logistics Management.

A bit details ...

  • “A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailer and customer themselves”

-Chopra and Meindl

Logistics vs. Supply chain: any difference?

Some terms like logistics, inbound logistics, material management, physical distribution/outbound logistics and supply chain management are used interchangeably.

Inbound logistics vs. Outbound logistics  Inbound logistics/procurement logistics: covers the movement of materials, components and
Inbound logistics vs. Outbound logistics
Inbound logistics/procurement logistics: covers the movement of
materials, components and product received from the supplier
Outbound
logistics/
distribution
:
refers
to
the
outward
movement of the finished goods from the shipping or dispatch
department.

Material management

  • Handling of materials

and

movement

of

goods

and

components within the factory or firm

  • LOGISTICS describes the entire process of materials and products moving into, through and out of a firm.

More specifically ...

  • The gamut of logistics management includes:

    • Order management

    • Outbound transportation and distribution management

    • Inventory management

    • Inbound transportation

    • Procurement

    • Information management

  • Logistics management is oriented towards cost minimization for the focal firm/group

  • Logistics refers only to internal supply chain management

  • Lets make it in this way ...

    “Logistic is the process of strategically managing the procurement, movement and storage of materials, parts and finished inventory and the related information flows through

    the organization and its marketing channels for the cost effective fulfilment of customers’ order”

    -N. Chandrasekaran

    Supply chain management: ....

    is

    a difference

    • Sugar industry India:

    • Nestle and coffee:

    • Unilever and unprivileged entrepreneur:

    Nestle and coffee

    Obtaining a reliable supply of specialized coffees is extremely challenging, however. Most coffees are grown by small farmers in impoverished rural areas of Africa and Latin America, who

    are trapped in a cycle of low productivity, poor quality, and

    environ-mental degradation that limits production volume. To address these issues, Nestle redesigned procurement. It worked intensively with its growers, providing advice on farming practices, guaranteeing bank loans, and helping secure inputs

    such as plant stock, pesticides, and fertilizers. Nestle

    established local facilities to measure the quality of the coffee at

    the point of purchase, which allowed it to pay a premium for better beans directly to the growers and thus improve their

    incentives. Greater yield per hectare and higher production

    quality increased growers' incomes, and the environmental impact of farms shrank. Meanwhile, Nestlé's reliable supply of good coffee grew significantly.

    Unilever and unprivileged entrepreneur

    Hindustan Unilever is creating a new direct-to-home distribution system, run by underprivileged female entrepreneurs, in Indian

    villages of fewer than 2,000 people. Unilever provides micro-

    credit and training and now has more than 45,000 entrepreneurs covering some 100,000 villages cross 15 Indian states. Project Shakti, as this distribution system is called, benefits communities

    not only by giving women skills that often double their household

    income but also by reducing the spread of communicable diseases through increased access to hygiene products. Project Shakti now accounts for 5% of Unilever's total revenues in India and has

    extended the company's reach into rural areas and built its brand

    in media-dark regions, creating major economic value for the company.

    Based on the cases ...

    Primarily, Logistics is inward-looking. In the businesses discussed above, the process is more logistics cantered, with

    inward looking focus of optimizing production from a

    satellite area of farming, managing farmers, time window, process plant, and so on (in the sugar industry)

    On the other hand, supply chain management is more

    outward-looking and inter-organizational in approach. It involves collaboration, partnering, and coordination across entities serving the nodal organization. Relationship

    management depends heavily on logistics effectiveness and

    efficiency

    Flows in a Supply Chain Information Product Customer Funds 1-19
    Flows in a Supply Chain
    Information
    Product
    Customer
    Funds
    1-19

    The Objective of a Supply Chain

    • Maximize overall value created

    • Supply chain value: difference between what the final

    product is worth to the customer and the effort the supply

    chain expends in filling the customer’s request

    • Value is correlated to supply chain profitability (difference between revenue generated from the customer and the overall cost across the supply chain)

    The Objective of a Supply Chain

    • Example: Dell receives $2000 from a customer for a computer (revenue)

    • Supply chain incurs costs (information, storage, transportation, components, assembly, etc.)

    • Difference between $2000 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

    • Supply chain success should be measured by total supply chain profitability, not profits at an individual stage

    The Objective of a Supply Chain

    • Sources of supply chain revenue: the customer

    • Sources of supply chain cost: flows of information, products, or funds between stages of the supply chain

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

    Role of Supply Chain Manager

    Supply chain manager must be efficient in managing relationship within and across organization in the network

    Manager must be more outward-looking and inter-organizational in approach. This requires good negotiating skills representing both internal and partners interests

    Ability to drive collaboration, partnering, and coordination across entities serving the nodal organization.

    Must have strategic, planning and execution orientation with ease

    of handling top management on various perspectives

    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)

    Cycle View of Supply Chains Customer Customer Order Cycle Retailer Replenishment Cycle Distributor Manufacturing Cycle Manufacturer
    Cycle View of Supply Chains
    Customer
    Customer Order Cycle
    Retailer
    Replenishment Cycle
    Distributor
    Manufacturing Cycle
    Manufacturer
    Procurement Cycle
    Supplier
    Customer Order Cycle
    Customer Order Cycle
    Replenishment Cycle
    Replenishment Cycle
    Manufacturing Cycle
    Manufacturing Cycle
    Procurement Cycle
    Procurement Cycle

    Push/Pull View of Supply Chain Processes

    • Pull: execution is initiated in response to a customer order (reactive)

    • This concept is reactive but brings value creation to customers by allowing flexible configuration of products

    • Push: execution is initiated in anticipation of customer orders (speculative)

    • This process would be more driven by economies of scale in operations and for low-value items

    Push/Pull View of Supply Chains Procurement, Manufacturing and Customer Order Cycle Replenishment cycles PUSH PROCESSES PULL
    Push/Pull View of Supply Chains
    Procurement,
    Manufacturing and
    Customer Order
    Cycle
    Replenishment cycles
    PUSH PROCESSES
    PULL PROCESSES
    Customer
    Order Arrives
    1-31
    Push/Pull Process for the L.L. Bean Supply Chain
    Push/Pull Process for the L.L. Bean Supply Chain
    Cycles in Dell Supply Chain Push/Pull Process for Dell Supply Chain
    Cycles in Dell
    Supply Chain
    Push/Pull
    Process for Dell
    Supply Chain

    Why push-pull?

    • There is

    a

    close

    connection between the design and

    management of supply chain flows and the success of a supply

    chain.

    • Paint industry was entirely based on push process

    • Base, mixing of suitable colour and packing-all are performed in large factories

    • Restructured in 1990; mixing of colour done by the retail store according consumer choice

    • Total paint inventories declined

    Supply Chain Macro Processes in a

    Firm

    • Supply chain processes discussed in the two views can be classified into (Figure 1.8):

      • 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

  • The ultimate goal of logistics and SCM Decreasing operational and Competitive advantages inventory cost Increasing customer’s
    The ultimate goal of logistics and SCM
    Decreasing
    operational and
    Competitive
    advantages
    inventory cost
    Increasing
    customer’s
    value

    Case analysis: Wal-Mart