OMGT2198

Supply Management
Strategy

Topic 1: Understanding the Supply

Chain
Learning Objectives
1. Discuss the goal of a supply chain and explain the impact of
supply chain decisions on the success of a firm.

2. Identify the three key supply chain decision phases and

explain the significance of each one.

3. Describe the cycle and push/pull views of a supply chain.

4. Classify the supply chain macro processes in a firm.

What is a Supply Chain?
What is a Supply Chain?
• All stages involved, directly or indirectly, in fulfilling a customer request

• Includes manufacturers, suppliers, transporters, warehouses, retailers,

and customers

• Within each company, the supply chain includes all functions involved in
fulfilling a customer request (product development, marketing, operations,
distribution, finance, customer service)
What is a Supply Chain? Example
• A customer walking into Coop Mart store to purchase Downy Softener- an
Unilever product brand

• Supply chain begins with the customer need for softener

• Next stage of the supply chain is the Coop Mart retail store that the
customer visits

• Coop Mart stocks its shelves using inventory that may have been supplied
from a finished good warehouse or a distributor using trucks supplied by
by a 3rd party Danko Logistics

• The distributor is stocked by the manufacturer (Unilever)

• The Unilever manufacturing plant receives raw material from variety of

suppliers. Eg. Packaging material from Hutamaki Vietnam
What is a Supply Chain?
• Draw the supply chain in the previous example
What is a Supply Chain?

Figure 1-1
What is a Supply Chain?
Review questions:
• What is the integral part of the supply chain ?
• What are the major flows in supply chain ?
• What are the typical supply chain stages?
What is a Supply Chain?
• Customer is an integral part of the supply chain
• Includes movement of products from suppliers to manufacturers to
distributors and information, funds, and products in both
directions
• May be more accurate to use the term “supply network” or “supply
web”
• Typical supply chain stages: customers, retailers, distributors,
manufacturers, suppliers
• All stages may not be present in all supply chains (e.g., no retailer
or distributor for Dell). The appropriate design of the supply chain
depends on both the customer’s needs and the roles played by
the stages involved.
• *** refer to : 5 major flows in supply chain/
Flows in a Supply Chain

Figure 1-2
Example: Dell direct supply chain
Example: Dell direct supply chain
Example: Dell direct supply chain
Example: Dell direct supply chain
What is objective of a Supply Chain?
• Why supply chain management is important to business?
The Objective of a Supply Chain

• Maximize overall value created

Supply Chain Surplus = Customer

Value – Supply Chain Cost
The Objective of a Supply Chain
• Example: a customer purchases a wireless router from Best Buy
for $60 (revenue)
• Supply chain incurs costs (information, storage, transportation,
components, assembly, etc.)
• Difference between $60 and the sum of all of these costs is the
supply chain profit
• Supply chain profitability = total profit to be shared across all
stages of the supply chain
• Success should be measured by total supply chain profitability,
not profits at an individual stage
The Objective of a Supply Chain
• Customer: the only source of revenue

• Sources of cost include flows of information, products,

or funds between stages of the supply chain

• Effective supply chain management is the

management of flows between and among supply
chain stages to maximize total supply chain surplus
Importance of Supply Chain Decisions
• Wal-Mart, $1 billion sales in 1980 to $408 billion in 2010. Its design cluster
of stores around DC to facilitate frequent replenishment at its retail store in
a cost-effective manner.

• Seven-Eleven Japan, ¥1 billion sales in 1974 to ¥3 trillion in 2009. It has

used a very responsive replenishment system along with outstanding IS to
ensure that product are available to match customer needs.

• Borders, $4 billion in 2004 to $2.8 billion in 2009. Offer greater variety at

lower cost by aggregating operations in large store.

• Dell, $56 billion in 2006, adopted new supply chain strategies

Decision Phases of a Supply Chain
• Supply chain strategy or design

o How to structure the supply chain over the next

several years

• Supply chain planning

o Decisions over the next quarter or year

• Supply chain operation

o Daily or weekly operational decisions

• *** Refer to: 3 levels of supply chain management
Decision Phases of a Supply Chain
Supply Chain Strategy or Design
• Decisions about the structure of the supply chain and
what processes each stage will perform
• Strategic supply chain decisions
o Locations and capacities of facilities
o Products to be made or stored at various locations
o Modes of transportation
o Information systems
• Supply chain design must support strategic objectives
• Supply chain design decisions are long-term 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

Supply Chain Planning
• Planning decisions:

o Which markets will be supplied from which locations

o Planned buildup of inventories

o Subcontracting, backup locations

o Inventory policies

o Timing and size of market promotions

• Must consider in planning decisions: 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 orders
• Much less uncertainty (short time horizon)
Summary of 3 Supply Chain Decision
Phases
Summary of 3 Supply Chain Decision Phases
What are the current supply chain
strategy trends?
• Supply Chain Trends To Watch In 2018

• Let’s discuss with your peer in group of 4-5 members

whether these trends have been affecting Vietnamese
industries

• Give some examples

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
Chain
Processes

Figure 1-3
Cycle View of
Supply Chain Processes

Figure 1-4
Cycle view of Supply Chain is useful in making operational decisions as role
of each member of Supply Chain is clearly defined.
Cycle View of
Supply Chain Processes

**** Refer to: The cycle view of Supply Chain

Push/Pull View of Supply Chains

Figure 1-5
Push/Pull View of
Supply Chain Processes

• Supply chain processes fall 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

Push/Pull View of
Supply Chain Processes
• Useful in considering strategic decisions relating to supply chain
design – more global view of how supply chain processes relate to
customer orders

• Can combine the push/pull and cycle views

o L.L. Bean

o Dell

• The relative proportion of push and pull processes can have an

impact on supply chain performance
Push/Pull View of – L.L. Bean

Figure 1-6
Push/Pull View – Dell

Figure 1-7
Supply Chain Macro Processes
• Supply chain processes discussed in the two views can
be classified into

o Customer Relationship Management (CRM)

o Internal Supply Chain Management (ISCM)

o Supplier Relationship Management (SRM)

• Integration among the above three macro processes

is critical for effective and successful supply chain
management
Supply Chain Macro Processes

Figure 1-8
Examples of Supply Chain
Management Issues
• Gateway and Apple

• Zara

• W.W. Grainger and McMaster-Carr

• Toyota

• Amazon
Gateway and Apple - Retail Store
1. Why did Gateway choose not to carry any finished-product inventory
at its retail stores? Why did Apple choose to carry inventory at its
stores?
2. Should a firm with an investment in retail stores carry any finished-
goods inventory?
3. What are the characteristics of products that are most suitable to be
carried in finished-goods inventory?
4. What characterizes products that are best manufactured to order?
5. How does product variety affect the level of inventory a retail store
must carry?
6. Is a direct selling supply chain without retail stores always less
expensive than a supply chain with retail stores?
7. What factors explain the success of Apple retail and the failure of
Gateway country stores?
Zara – Responsive Supply Chain
1. What advantage does Zara gain against the competition by having a very
responsive supply chain?

2. Why has Inditex chosen to have both in-house manufacturing and outsourced
manufacturing? Why has Inditex maintained manufacturing capacity in Europe
even though manufacturing in Asia is much cheaper?

3. Why does Zara source products with uncertain demand from local manufacturers
and products with predictable demand from Asian manufacturers?

4. What advantage does Zara gain from replenishing its stores multiple times a
week compared to a less frequent schedule? How does the frequency of
replenishment affect the design of its distribution system?

5. Do you think Zara’s responsive replenishment infrastructure is better suited for

online sales or retail sales?
W.W. Grainger and McMaster-Carr
1. How many DCs should be built and where should they be located?

2. How should product stocking be managed at the DCs? Should all DCs carry all
products?

3. What products should be carried in inventory and what products should be left with the
supplier to be shipped directly in response to a customer order?

4. What products should W.W. Grainger carry at a store?

5. How should markets be allocated to DCs in terms of order fulfillment? What should be
done if an order cannot be completely filled from a DC? Should there be specified
backup locations? How should they be selected?

6. How should replenishment of inventory be managed at the various stocking locations?

7. How should Web orders be handled relative to the existing business? Is it better to
integrate the Web business with the existing business or to set up separate distribution?

8. What transportation modes should be used for order fulfillment and stock replenishment?
Toyota – Plant locations
1. Where should plants be located, what degree of
flexibility should each have, and what capacity should
each have?
2. Should plants be able to produce for all markets?
3. How should markets be allocated to plants?
4. What kind of flexibility should be built into the
distribution system?
5. How should this flexible investment be valued?
6. What actions may be taken during product design to
facilitate this flexibility?
Amazon.com - Warehouses
1. Why is Amazon building more warehouses as it grows? How many warehouses
should it have and where should they be located?

2. What advantages does selling books via the Internet provide over a traditional
bookstore? Are there any disadvantages to selling via the Internet?

3. Should Amazon stock every product it sells?

4. What advantage can bricks-and-mortar players derive from setting up an online

channel? How should they use the two channels to gain maximum advantage?

5. What advantages/disadvantages does the online channel enjoy in the sale of

shoes (diapers) relative to a retail store?

6. For what products does the online channel offer the greater advantage relative to
retail stores? What characterizes these products?
Summary of Learning Objectives
1. Discuss the goal of a supply chain and explain the impact
of supply chain decisions on the success of a firm.
2. Identify the three key supply chain decision phases and
explain the significance of each one.
3. Describe the cycle and push/pull views of a supply chain.
4. Classify the supply chain macro processes in a firm.