MODULE 1
SUPPLY CHAIN MANAGEMENT- KEY CONCEPTS
"Many supply chains are perfectly suited to the needs that the business had 20 years ago."
-MIT Professor Jonathan Byrnes
WHAT ARE SUPPLY CHAINS?
Supply Chains – Link between suppliers’ suppliers, suppliers, manufacturers,
distributors, wholesalers, retailers, customers, and end consumers; Confer Time and
Place utility upon products and services; ideally ensure that the right product is
available at the right time at the right place at the right price to the right target
audience.
From the Text –
“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, retailers and customers themselves.”1
WHAT IS SUPPLY CHAIN MANAGEMENT?
The synchronized and coordinated effort of the participants in a network where
goods and services flow from the point of production to the point of consumption
and the activities involved therein across the entire value chain which reducesthe
total cost for all the participants and increases customer service fulfilling customer
needs and emanating customer delight.
From the Text –
“The systematic, strategic coordination of the traditional business functions and
the tactics across these business functions within a particular company and
across businesses within the supply chain, for the purposes of improving the
long-term performance of the individual companies and the supply chain as a
1 Chopra and Meindl (Chopra Sunil and Peter Meindl, 2003, Supply Chain, 2nd edition, Upper
Saddle River, NJ: Prentice-Hall, Inc. Chapter 1).
whole.”2
THE 5 FOCUS AREAS OF SUPPLY CHAIN MANAGEMENT
The 5 focal areas of Supply Chain Management include –
• Production
• Inventory
• Location
• Transportation
• Information
Production –
Under this focal area, the thinking is about What is demanded? i.e., which
product/good is demanded? The next question to ponder is How much of a
specific product/good is demanded? Then a supply chain manager/specialist
needs to think about When this product is needed by/needs to be delivered to the
customer/end consumer?
Inventory –
Under this focal area, the questions to ponder include - How much stocks are
needed at each supply chain echelon**? How much needs to be stored as raw
materials, semi-finished or finished products?
**Echelons – different levels (participants) in a Supply chain. For instance,
Suppliers, Manufacturers, Distributors, Wholesalers, Retailers, Customers,
Consumers etc. are all different echelons in a supply chain.
Location –
By far, one of the more important decisions to be considered in a supply chain.
Why? Direct impact on capital expenditures and costs… Some essential and very
crucial questions to be answered under this focal area include - Where do we put up
2 Mentzer, DeWitt, Keebler, Min, Nix, Smith, and Zacharia (2001, “Defining Supply Chain Management,”
Journal of Business Logistics, Vol. 22, No. 2, p. 18)
the manufacturing facilities? Where should we locate inventory storage
faculties? Should we set up base near the suppliers or the customers? Should we
ask suppliers to set up base near our facilities? Are existing facilities adequate or
new ones are needed?
Transportation –
Under this focal area, the idea is to choose a mode of transport for the cargoes,
whether to use Air, Sea (Ocean), Rail, or Inter-Modal (using a mix of modes).
Information –
Under this focal area, the consideration is how much data do we need to collect?
Also, another important question to study is how much information must we
share with other supply chain participants/stakeholders?
5 MAJOR MODES OF TRANSPORTATION
The 5 major modes of transportation are –
Sea / Ocean
Most of the cargoes in the world are measured in terms of TEUs shipped globally.
TEUs are 20-foot equivalent units. Then, we also have equipment used in
Sea/Ocean freight which are FEUs or 40-foot equivalent units. FEUs are nothing
but 2 TEUs put together. I have put in images for both FEUs and TEUs in the next
page for your understanding.
FEU v TEU
&
The above classification helps differentiate between different types of container
sizes available for shipping cargoes.
Let us look at what are Reefers or Refrigerated Containers/Temperature controlled
containers? Below is an example of a Reefer
Rail
Pipelines
Surface/Truckloads
Air
COMBINED TRANSPORTATION
Combined transportation can further be categorized into 2 types –
Multimodal – Cargo is shipped from Origin to Hub, where some of the cargo
is removed and shipped via another mode oftransport
Intermodal – Cargo is shipped from Origin to Destination by using different
modes
SUPPLY CHAIN DRIVERS
There are 5 major supply chain drivers –
Production – What, How, and When toproduce?
Inventory – How much to produce and How much tostore?
Location – Which will be the best location for a specific activity?
Transportation – How to move the product? When to move the product?
Information – The key to take Production; Inventory; Location;
& Transportation decisions
SUPPLY CHAIN PARTICIPANTS
The main participants in any supply chain are –
Suppliers’ Suppliers – Businesses from which
the
manufacturers’/producers’ suppliers procure
Suppliers – Businesses from which the manufacturers/producersprocure
Manufacturers/Producers – Businesses which produce products/services
Distributors – Businesses which buy from producers to distributefurther
Wholesalers – Businesses which buy from distributors to sell it to Retailers
Retailers – Businesses which buy from Wholesalers to sell it
Customers/End Consumers
Customers – Who buy from Retailers (usually) for others to use the
products/services
End consumers – May be buyers but surely users of the products/services
procured
Service Providers – Transporters; Warehousing companies; Banks;
Information Service providers; Market Research Agencies; Product
Design Agencies; Credit Rating Agencies etc.
EFFICIENT V RESPONSIVE SUPPLY CHAINS
The fundamental characteristics which help differentiate between efficient and
responsive supply chains are cost and lead times. While an efficient supply chain is
always concerned with low cost modes of transport at all times and aim to reduce
lead times, a responsive supply chain on the other hand is always in search of
responsive and speedy modes of transport with the aim to aggressively reduce lead
times. For instance, Walmart is an example of an Efficient supply chain whereas 7-
Eleven is an example of a Responsive supply chain.
From a strategic standpoint, efficient and responsive supply chains differ along
the following characteristics –
Goal of the supply chain;
Product Design
Pricing
Manufacturing
Inventory
Lead Times
Suppliers
Transportation Modes
Efficient v Responsive Supply Chains differing from Strategic standpoints
Efficiency V
Responsiveness - A
Strategic Distinction
St rat egy Efficient Supply Responsive Supply
Chains Chains
Meet (predictable)
PRIMARY GOAL demand at Low Respond Quickly to
Cost Demand
Max. Performance Flexible Design
PRODUCT DESIGN at Min. Cost (Modular, Mix-Match)
PRICING Lower Margins Higher Margins
High Facility
Utilization (Low Capacity Flexibility &
MANUFACTURIN Average Cost) Cushions
G
Maintain buffer inventory
to meet (unexpected)
INVENTORY Minimise Inventory Demand
Levels
Reduce, but not at the
expense of
LEAD TIME production costs Aggressively Reduce
Select based on
Select based on speed, flexibility, and
SUPPLIER Costs and Quality Quality
Responsive &
TRANSPORTATIO Low Costs Modes Speedy Modes
N
From a supply chain driver standpoint, supply chains differ along the following
drivers –