Supply Chain

Decision Phases

Section 4 part 2

The Magnitude

In 1998, American companies spent $898

billion in supply chain related activities (or
10.6% of Gross Domestic Product)
Third party logistics services grew in 1998 by
15% to nearly $40 billion
It is estimated that the grocery industry could
save $30 billion (10% of operating cost) by
using more effective logistics strategies
A typical box of cereal spends more than three
months getting from factory to supermarket

The Potential
itself by changing
In 10 years, Wal-Mart transformed

its logistics system. It has the highest sales per

square foot, inventory turnover and operating profit
of any discount retailer
Wal-Mart designed its supply chain with clusters of
stores around distribution centers to facilitate
frequent replenishment at its retail stores in a cost
effective manner. Frequent replenishment allows
stores to match supply and demand more efficiently
than the competition. Wal-Mart has been a leader in
sharing information and collaborating with suppliers
to bring down costs and improve product availability.
The results were impressive.

The Impact

In 1996, Dell held 31 days of inventory. It

now holds only 4 days of inventory.

The Impact

The Turning Point (The Economist, 9/20/07)

For such a tiny part of GDP, the contents of warehouses has

had a surprisingly big effect on its volatility. When industries cut
or add stocks according to demand, that adjustment magnifies
the effect of the initial change in sales. Stock levels were once
much larger relative to the size of the economy, so a small slip
in demand could easily blow up into a recession. But thanks to
improvements in technology, firms now have timelier and better
information about buyers. Speedier market intelligence and
production in smaller batches allows firms to match supply to
changing conditions. This makes huge stocks unnecessary and
minimizes the lurches in inventories that were once so
destabilizing.

Study of Supply
Chain Management

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

Decision Phases in a
Supply
Chain

TIME FRAME

years

3 mo.- 1year

daily

TYPE

Strategic

Tactical

Operational

TYPICAL DECISIONS

Supply chain network design (How many plants?

Location and capacities of plants and warehouses?)
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
Inventory policies (safety stock level)
Which locations supply which markets
Transportation strategies
Production scheduling
Decisions regarding individual orders
Place replenishment orders

 Supply chain design, planning, and operation

decisions play a significant role in the success or
failure of a firm

Supply chain strategy or design

Supply chain planning
Supply chain operation
Supply chain design decisions are long-term and
expensive to reverse must take into account market
uncertainty
Supply chain planning decisions use a fixed supply chain
configuration to come up with an overall production plan
Supply chain operation makes decisions about individual
customer orders & daily operations.

Study of Supply
Chain Management

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

Cycle View of Supply Chain

Processes

Customer

Customer Order Cycle

Cycle view
defines the
processes
involved and
the owner of
each process

Retailer
Replenishment Cycle

Distributor
Manufacturing Cycle

Manufacturer
Procurement Cycle

Supplier


1) Supply chain strategy or design.
In this phase, we must consider how to structure the supply chain.
Location, capacities of production and warehousing facilities will be
considered in this phase too.

2) Supply chain planning
In this phase, companies define a set of operating policies that govern
short-term operations. They collect data and produce market and
inventory level forecast. And they decide whether they need subcontract
some of manufacturing or not in this phase.

3) Supply chain operation
In this phase companies make decisions regarding individual customer
orders. Then, allocate individual orders to inventory or production. And
they also manage shipments, delivery and schedules of trucks.

Subprocesses in Each
Cycle

Buyer

Supplier markets
the product

Buyer may return

the product

Buyer places
an order

Buyer receives
the order

Supplier receives
the order

Supplier supplies
the order

Supplier

Cycle View of Supply Chain

Processes

stomer Order Process

Customer Arrival
Customer Order Entry
Customer Order Fullfillment
Customer Order Receiving

nufacturing Process
Order Arrival
roduction Scheduling
Manufacturing/Shipping
Receiving

Customer Order Cycle

Replenishment Process
1. Retail Order Trigger
Replenishment Cycle
2. Retail Order Entry
3. Retail Order Fullfillment
4. Retail Order Receiving

Manufacturing Cycle
Procurement Process
1. Component Order Arrival
Procurement Cycle 2. Production Scheduling
3. Manufacturing/Shipping
4. Receiving


Differences
1.In the Customer Order Cycle demand is external
2.Scale (and frequency) of an order increases (decreases)
when moving further away from the customer
Each cycle occurs at the interface between two
successive stages
Customer order cycle (customer-retailer)
Replenishment cycle (retailer-distributor)
Manufacturing cycle (distributor-manufacturer)
Procurement cycle (manufacturer-supplier)

Push/Pull View of Supply Chain

Processes
PULL
PROCESSES

Execution is initiated in
response to customer orders
(reactive)

Customer order
arrives

Execution is initiated in
PUSH
PROCESSES anticipation of customer

orders

(speculative)
Processes are divided based on the timing of
their execution relative to a customer order


Processes are divided based on their timing
relative to the timing of a customer order
They key difference is the uncertainty during
the two phases
At the time of execution of a pull process
customer demand is known
At the time of execution of a push process
customer demand is not known (and must be
forecasted)

Push/Pull Processes for the Supply

chain of Dell

PULL

Customer
Customer Order Cycle and
Manufacturing Cycle

Manufacturer
PUSH

Procurement Cycle

Supplier

Push/Pull Processes for the Supply

chain of Detergent

PULL

Customer

Customer Order Cycle

Retailer
Replenishment Cycle

Distributor
PUSH

Manufacturing Cycle

Manufacturer
Procurement Cycle

Supplier