Understanding the supply chain
But now: it is a supply network!!
• A supply chain is everything that happens between the raw material and the customer => “all
the stages (= echelons) involved, directly or indirectly, in fulfilling a customer request”
• A SC exists because there is a customer request!! No demand/request = no SC
• There is a limit on how much efficiency can be gained by optimizing local processes!!!
• Your SC will be as weak as the weakest link!!! => This means that if you do everything on
time but your supplier is always late, you can’t be on time!!
Supply chain management is primarily concerned with the efficient integration of suppliers, factories,
warehouses and stores so that merchandise is produced and distributed in the right quantities, to
the right locations and at the right time, and so as to minimize total system cost subject to satisfying
service requirements.
SCM looks at the problem of managing the flow of goods in an integrated manner → you look at the
entire picture
Good SCM can be translated into money!!!
SCM is about trade-offs
There has to be a SC manager!
1. Purchasing
a. Stable volume requirements
b. Flexible delivery time
, c. Little variation in mix
d. Large quantities
2. Warehousing
a. Low inventory
b. Low transportation costs
c. Quick replenishment
3. Manufacturing
a. Long run production
b. High quality
c. High productivity
d. Low production cost
4. Sales
a. Short order lead time
b. Large inventories
c. Enormous variety of products
d. Low prices
As a decision-maker, you need to deal with:
• a sales department who wants cheap, and infinite, inventory of products available
immediately from the warehouse.
• the warehouse, who wants as little inventory as possible, replenished almost immediately by
manufacturing.
• manufacturing, who wants to produce in long runs (long LT), altering designs and materials
to achieve lower costs and higher quality.
• procurement, who want stability from manufacturing and require fast lead times from the
suppliers.
What is a supply chain?
Supply network would be a better name
The customer is an integral part of the supply chain → the customer demand drives everything!!!
Without customer, no supply chain
The movement of products is essential, but it also includes movement of information and funds in
both directions → flow of production (Upstream to Downstream), flow of information (Downstream
to Upstream), flow of money (Downstream to Upstream)
Not all stages are present in every supply chain
If products need to be send back because they ordered to much, information & money need
to be send back as well
The objective of a supply chain
Maximize overall value created => optimizing for the SC ≠ optimizing every single player
individually!!!!!
,What is value? => minimize cost or maximize profits
Measured with supply chain profitability (revenue from the customer – total cost)
SC success —> measured by total SC profitability (not sum of individual profits)
Dual sourcing: a way of optimizing your resilience → if 1 of your supplier plant explodes, you still
have another one
Manage SC flows (= products, money and information) and assets to maximize SC surplus
One source of revenue: the final customer → the only money that comes in the SC is from the
customer
Multiple sources of cost: all the different flows
Close connection between design, planning, and operation of a SC and its success (i.e., alignment)
Decision phases of a supply chain
1. Supply chain strategy and design
Long-term, expensive, and difficult to reverse
Must take uncertainty into account
Decisions about the structure of the supply chain
What processes will each stage perform?
• inhouse vs. outsourcing
• facility location and capacity
• where to produce and store
• transportation modes
• IT systems
2. Supply chain planning
Constrained by the strategic decisions
Input: medium-term demand forecast
, Goal: exploit flexibility to optimize performance
Policies for mid-term operations
• Which markets from which location?
• Subcontracting part of our manufacturing?
• Inventory policy?
• Planned buildup?
• Marketing promotions?
3. Supply chain operations
Constrained by the tactical decisions
Input: actual customer orders
Goal: implement the policies as effectively as you can
Policies for short-term operations
• almost no uncertainty
• allocate orders
• set due dates
• generate picking lists, etc
Process views of a supply chain
There are 2 ways of visualizing the processes:
1. Cycle view: divide the SC in cycles at the interface of each successive pair of stages → useful
when considering operational decisions
Clearly defines the processes and their owner → So decompose your SC into pairs of companies:
But now: it is a supply network!!
• A supply chain is everything that happens between the raw material and the customer => “all
the stages (= echelons) involved, directly or indirectly, in fulfilling a customer request”
• A SC exists because there is a customer request!! No demand/request = no SC
• There is a limit on how much efficiency can be gained by optimizing local processes!!!
• Your SC will be as weak as the weakest link!!! => This means that if you do everything on
time but your supplier is always late, you can’t be on time!!
Supply chain management is primarily concerned with the efficient integration of suppliers, factories,
warehouses and stores so that merchandise is produced and distributed in the right quantities, to
the right locations and at the right time, and so as to minimize total system cost subject to satisfying
service requirements.
SCM looks at the problem of managing the flow of goods in an integrated manner → you look at the
entire picture
Good SCM can be translated into money!!!
SCM is about trade-offs
There has to be a SC manager!
1. Purchasing
a. Stable volume requirements
b. Flexible delivery time
, c. Little variation in mix
d. Large quantities
2. Warehousing
a. Low inventory
b. Low transportation costs
c. Quick replenishment
3. Manufacturing
a. Long run production
b. High quality
c. High productivity
d. Low production cost
4. Sales
a. Short order lead time
b. Large inventories
c. Enormous variety of products
d. Low prices
As a decision-maker, you need to deal with:
• a sales department who wants cheap, and infinite, inventory of products available
immediately from the warehouse.
• the warehouse, who wants as little inventory as possible, replenished almost immediately by
manufacturing.
• manufacturing, who wants to produce in long runs (long LT), altering designs and materials
to achieve lower costs and higher quality.
• procurement, who want stability from manufacturing and require fast lead times from the
suppliers.
What is a supply chain?
Supply network would be a better name
The customer is an integral part of the supply chain → the customer demand drives everything!!!
Without customer, no supply chain
The movement of products is essential, but it also includes movement of information and funds in
both directions → flow of production (Upstream to Downstream), flow of information (Downstream
to Upstream), flow of money (Downstream to Upstream)
Not all stages are present in every supply chain
If products need to be send back because they ordered to much, information & money need
to be send back as well
The objective of a supply chain
Maximize overall value created => optimizing for the SC ≠ optimizing every single player
individually!!!!!
,What is value? => minimize cost or maximize profits
Measured with supply chain profitability (revenue from the customer – total cost)
SC success —> measured by total SC profitability (not sum of individual profits)
Dual sourcing: a way of optimizing your resilience → if 1 of your supplier plant explodes, you still
have another one
Manage SC flows (= products, money and information) and assets to maximize SC surplus
One source of revenue: the final customer → the only money that comes in the SC is from the
customer
Multiple sources of cost: all the different flows
Close connection between design, planning, and operation of a SC and its success (i.e., alignment)
Decision phases of a supply chain
1. Supply chain strategy and design
Long-term, expensive, and difficult to reverse
Must take uncertainty into account
Decisions about the structure of the supply chain
What processes will each stage perform?
• inhouse vs. outsourcing
• facility location and capacity
• where to produce and store
• transportation modes
• IT systems
2. Supply chain planning
Constrained by the strategic decisions
Input: medium-term demand forecast
, Goal: exploit flexibility to optimize performance
Policies for mid-term operations
• Which markets from which location?
• Subcontracting part of our manufacturing?
• Inventory policy?
• Planned buildup?
• Marketing promotions?
3. Supply chain operations
Constrained by the tactical decisions
Input: actual customer orders
Goal: implement the policies as effectively as you can
Policies for short-term operations
• almost no uncertainty
• allocate orders
• set due dates
• generate picking lists, etc
Process views of a supply chain
There are 2 ways of visualizing the processes:
1. Cycle view: divide the SC in cycles at the interface of each successive pair of stages → useful
when considering operational decisions
Clearly defines the processes and their owner → So decompose your SC into pairs of companies:
