MGMT 655: Chapter 1

Understanding the Supply Chain

Supply Chain Management

Prof. Willem Selen

Course facilitator
Dr. Selen is professor of supply chain management and
logistics at the United Arab Emirates University, and
previously held positions as professor and Coordinator of
Business Programs at the Middle East Technical University
Northern Cyprus Campus, and professor and Chair of
Operations Management at the Macquarie Graduate
School of Management in Australia.
He obtained a commercial engineering degree from
Limburg University in Belgium, and a PhD in business
administration from the University of South Carolina
(1982).
Willem Selen has been active in academia and
management development for well over thirty years. As a
consultant and educator, he worked with numerous
organizations, such as EDS, Opel Belgium, Brabantia, BHP
Steel, Dow Chemical, NCR, DHL, among others. Projects
have involved issues such as capacity planning, inventory
management, and business process flow re-engineering
on a supply chain level.
Willem will be returning to Australia in June after four
years at UAEU to take up his new role as Dean of the
School of Business & Law at Central Queensland
University.

Chapter 1
Understanding
the Supply
Chain

Copyright 2010 Pearson Education, Inc.

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Outline

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What is a Supply Chain?

Decision Phases in a Supply Chain
Process View of a Supply Chain
The Importance of Supply Chain Flows
Examples of Supply Chains

Outline

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What is a Supply Chain?

Decision Phases in a Supply Chain
Process View of a Supply Chain
The Importance of Supply Chain Flows
Examples of Supply Chains

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)

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Figure 1.1 The evolution of the integrated supply chain

2008 John Wiley & Sons Ltd.
www.wileyeurope.com/college/Mangan

Process Steps for Mens Nylon

Supplex Parka

Understanding the Global Supply

Chain
Success in todays global markets requires a
business strategy that matches the preferences
of customers with the realities of supply networks
A sustainable strategy is critical
Meets the needs of shareholders and
employees
Preserves the environment
Supply refers to processes that move information
and material to and from the manufacturing and
service processes of the firm

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

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The Objective of a Supply Chain

Example: Dell receives $1000 from a customer for
a computer (revenue)
Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
Difference between $1000 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

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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

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Outline

What is a Supply Chain?

Decision Phases in a Supply Chain
Process View of a Supply Chain
The Importance of Supply Chain Flows
Examples of Supply Chains

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Decision Phases of a Supply Chain

Supply chain strategy or design
Supply chain planning
Supply chain operation

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Decision Phases of a Supply Chain

Supply chain strategy or design
Supply chain planning
Supply chain operation

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Supply Chain Strategy or Design

Decisions about the structure of the supply chain
and what processes each stage will perform
Strategic supply chain decisions
Locations and capacities of facilities
Products to be made or stored at various
locations
Modes of transportation
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
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Decisions Guided by the

Structural Strategy
Capacity

Size?
Timing?
Type?

Facilities

Size?
Location?

Technology

Equipment?
Processes?
Information systems?

Vertical Integration

Direction?
Extent?

2008 Pearson Prentice Hall --- Introduction to Operations and Supply ChainChapter 2, Slide 17
Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Decisions Guided by the

Infrastructural Strategy
Organization

Sourcing and
Purchasing
Planning and
Control
Process and Quality

Product and Service

Design

Control/reward systems?
Centralization/decentralization?
Workforce skilled/semi-skilled?
Supplier selection/performance metrics?
Procurement systems?
Sourcing strategy?
Forecasting?
Inventory management?
Production planning/control?
Continuous improvement processes?
Business process management
SPC/Six Sigma
Development process?
Organization/supplier roles?

2008 Pearson Prentice Hall --- Introduction to Operations and Supply ChainChapter 2, Slide 18
Management, 2/e --- Bozarth and Handfield, ISBN: 0131791036

Decision Phases of a Supply Chain

Supply chain strategy or design
Supply chain planning
Supply chain operation

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Supply Chain Planning

Definition of a set of policies that govern shortterm operations
Fixed by the supply configuration from previous
phase
Starts with a forecast of demand in the coming
year

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Supply Chain Planning

Planning decisions:
Which markets will be supplied from which
locations
Planned buildup of inventories
Subcontracting, backup locations
Inventory policies
Timing and size of market promotions
Must consider in planning decisions demand
uncertainty, exchange rates, competition over the
time horizon

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Decision Phases of a Supply Chain

Supply chain strategy or design
Supply chain planning
Supply chain operation

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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)

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Outline

What is a Supply Chain?

Decision Phases in a Supply Chain
Process View of a Supply Chain
The Importance of Supply Chain Flows
Examples of Supply Chains

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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)

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Cycle View of Supply Chains

Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor
Manufacturing Cycle

Manufacturer
Procurement Cycle

Supplier
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Cycle View of a Supply Chain

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)
Cycle view clearly defines processes involved and
the owners of each process. Specifies the roles
and responsibilities of each member and the
desired outcome of each process.

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Push/Pull View of Supply Chains

Procurement,
Manufacturing and
Replenishment cycles

PUSH PROCESSES

Customer Order
Cycle

PULL PROCESSES

Customer
Order Arrives
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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 (the customer order
decoupling point)

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Customer Order Decoupling Point

Vendor

Production - Assembly

Produce to Stock
COPD2

CODP3

CODP4

Warehouse

CODP1

Assemble to Order
Produce to Order

Purchase & Produce to Order

Customers

4 CODP Positions in Supply

Chains
(ref: Hoekstra and Romme, 1992 )

CODP-1 (Produce-to-Stock)
End products are made to stock at the end of the
production process, and from there delivered
directly to customers.

CODP-2 (Assemble-to-Order)
Only modules and sub-assemblies are made
based on forecast, the final assembly being based
on specific orders.

4 CODP Positions in Supply Chains -2

(ref: Hoekstra and Romme, 1992 )

CODP-3 (Produce-to-Order)
Only raw materials and components are stocked,
every customer order being identified as a
specific project.

CODP-4 (Purchase-and-Produce-to-Order)
No stocks are held; purchases are based on
specific orders, and production is entirely projectbased.

Outline

What is a Supply Chain?

Decision Phases in a Supply Chain
Process View of a Supply Chain
The Importance of Supply Chain Flows
Examples of Supply Chains

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Flows in a Supply Chain

Information
Product
Funds

Supply Chain

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Customer

Outline

What is a Supply Chain?

Decision Phases in a Supply Chain
Process View of a Supply Chain
The Importance of Supply Chain Flows
Examples of Supply Chains

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Examples of Supply Chains

EXERCISE:
Look at STRATA in Al Ain and describe the
position of STRATA in its supply chain.

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Summary of Learning Objectives

What are the cycle and push/pull views of
a supply chain?
How can supply chain macro processes be
classified?
What are the three key supply chain
decision phases and what is the
significance of each?
What is the goal of a supply chain and
what is the impact of supply chain
decisions on the success of the firm?
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End of Chapter 1