Supply Chain Management

Dr. C.Phaneendra Kiran

Ph.D
BITS Pilani Department of Mechanical Engineering
BITS Pilani Hyderabad Campus
Hyderabad Campus
Course content
Lect. Topic to be Covered Learning Objectives Ref. To Text
No.
2 What is Supply Chain Describe the cycle and push/ pull view of a supply Chapter 1 T1
Management & how chain Identify the key supply chain decision phases.
does it create Value? Goal of supply chain & impact of supply chain decision
on the success of a firm
3 Strategic Fit & Scope Achieving strategic fit is critical to a company’s overall Chapter 2 T1
success.
3 Supply Chain Drivers and Identify the major drivers of supply chain Chapter 3 T1
Metrics performance. Discuss the role each driver plays.
Describe the major obstacles that must be overcome
to manage a supply chain successfully.
8 Designing the Designing the distribution network in a supply chain, Chapters 4, 5 & 6
distribution network Network design in the supply chain, Network design in T1
uncertain environment
8 Planning demand and Demand forecasting in supply chain, Aggregate Chapters 7, 8, 9 &
supply in supply chain planning in the supply chain, Planning supply and 10 T1
demand in the supply chain: Managing predictable
variability; Coordination in Supply Chain
8 Planning and managing Managing economies of scale in the supply chain: Chapters 11, 12 &
inventories in a supply Cycle inventory, Managing uncertainty in the supply 13 T1
chain chain: Safety inventory, Determining optimal level of
product availability
7 Transportation, and Sourcing decisions in a supply chain, Transportation in Chapters 14 and
Sourcing the supply chain, Pricing and revenue management in 15 T1
the supply chain
3 Sustainability and the Introduction to sustainability; Issues and performance Chapter 17
supply chain measures T1

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Evaluation Scheme:
S. No. Evaluation Duratio Max. Date & Time Remarks
Component n Marks

1 Mid-Semester 90 Min 50 (25%) CB

Examination
2 Surprise Quizzes 30 (15%) CB
3 Project/Case 40 (20%) OB
Study /Article
Presentations

4 Comprehensive 3 hrs 80 (40%) CB

Examination
* Legend:
AN: AfterNoon Session; FN: ForeNoon Session
Closed Book Test: No reference material of any kind will be permitted inside the
exam hall.
Open Book Exam: Use of any printed / written reference material (books and
notebooks) will be permitted inside the exam hall. Loose sheets of paper will not
be permitted. Computers of any kind will not be allowed inside the exam hall. Use
of calculators will be allowed in all exams. No exchange of any material will be
allowed.

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Evaluation Scheme:

Class Test (15%): Surprise quiz will be conducted during

the class hours
Project/Case Study /Article Presentations(10%): Two
case studies/articles need to be presented with the given
below dates
Frequency: September 4, Nov 2

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 Prescribed text book

Sunil Chopra, Peter Meindl and D V Kalra,

“Supply Chain Management: Strategy, planning
and Operation”, Pearson Education, Sixth
Edition, India, 2016.
Indian low price edition is available
Reference Books

Donald J. Bowersox, David J. Closs, and

M. Bixby Cooper “Supply Chain Logistics
Management”, Second Edition, Tata
McGraw-Hill.

BITS Pilani, Hyderabad Campus

Address

Dr. C.Phaneendra Kiran

Assistant Professor
Room no: E 120, Mechanical Engineering Department
BITS-Pilani Hyderabad Campus
Jawahar Nagar
Shameerpet Mandal
Hyderabad-500078.
Office: +914066303629
Email: cpkiran@hyderabad.bits-pilani.ac.in
Home page: http://universe.bits-pilani.ac.in/hyderabad/chaganti/Profile
Consultation hours: Tuesday 4-5 pm

BITS Pilani, Hyderabad Campus

 BITS Pilani
Hyderabad Campus

Introduction to Supply chain

management
Content taken from Pearson text book material
Learning objectives

• Goal of a supply chain

• Impact of supply chain decisions on a firm
• What are the three key decision phases in
supply chain
• Push/pull view of supply chain
• Supply chain macro process in a firm

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 Traditional View: Supply Chains
in the Economy (1990, 1996)
Freight Transportation $352, $455 B
– Transportation manager in charge
– Transportation software
Inventory Expense $221, $311 B
– Inventory manager in charge
– Inventory software
Administrative Expense $27, $31 B
Transportation and inventory managers
Logistics related activity 11%, 10.5% of GNP

 $898 B spent domestically for SC activities in 1998.

 $1,160 B of inventory in the US economy in the early 2000s.

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Traditional View: Cost breakdown
of a manufactured good
Profit
Profit 10% Supply Chain
Cost

Supply Chain Cost 20% Marketing

Cost

Marketing Cost 25%

Manufacturing
Manufacturing Cost 45% Cost

Effort spent for supply chain activities are invisible to the customers

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What can SCM do?

Estimated that the grocery industry could save $30

billion (10% of operating cost) by using effective
logistics and supply chain strategies
– A typical box of cereal spends 104 days from factory
to sale
– A typical car spends 15 days from factory to
dealership
– Faster turnaround of the goods is better?

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What can SCM do?

Laura Ashley (retailer of women

and children clothes) turns its
inventory 10 times a year five
times faster than 3 years ago
– inventory is emptied 10 times a
year, or an item spends about
12/10 months in the inventory.
– To be responsive, it relocated its
main warehouse next to FedEx
hub in Memphis, TE.

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What can SCM do?

National Semiconductor
Production:
• Produces chips in 6 locations(4 US, 1UK, 1 Israel)
• Chips are transported to 7 assembly locations in Asia
Distribution:
• Final product shipped to hundreds of locations in the world
What is the optimal way of transportation?
• 20000 different routes
• 95% of items in 45 days and 5% in 90days
• used air transportation and closed 6 warehouses, 34%
increase in sales and 47% decrease in delivery lead time.
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Magnitude of Supply Chain
Management
Compaq estimates it lost $0.5 B to $1 B in sales in 1995
because laptops were not available when and where
needed

P&G (Proctor&Gamble) estimates it saved retail customers

$65 M (in 18 months) by collaboration resulting in a
better match of supply and demand

When the 1 gig processor was introduced by AMD

(Advanced Micro Devices), the price of the 800 meg
processor dropped by 30%

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Importance of SCM
understood by some
AMR Research:
– "The biggest issue enterprises face today is intelligent visibility
of their supply chains-both upstream and down"
Forrester Research:
– "Companies need to sense and proactively respond to
unanticipated variations in supply and demand by adopting
emerging technologies such as intelligent agents. To boost their
operational agility, firms need to transform their static supply
chains into adaptive supply networks”
Gartner Group:
– “By 2004, 90% of enterprises that fail to apply supply-chain
management technology and processes to increase their agility
will lose their status as preferred suppliers”
• Open ended statement. Agility can be increased continuously.

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 Three-
Gartn
Peer Year
er Three-
Opini Weigh CSR
Opini Year Invent
Top 25 SCM Ran Compan
k y
on1
(169
on1
(38
Weigh ory
ted Turns3
ted Compon Compos
Reven ent ite
voters ue Score Score6
5
voters ROA2 (10%)
) Growt (10%)
) (20%)
(25%) h4
(25%)
(10%)
1 Unilever 2,074 649 10.2% 6.8 1.9% 10.00 6.39
McDona 1,264 442 13.9% 174.5 -4.2% 3.00 5.27
2
ld's
3 Inditex 1,192 337 16.3% 3.7 12.0% 10.00 4.98
Cisco 1,018 524 8.3% 13.5 0.8% 10.00 4.82
4
Systems
5 H&M 901 208 22.0% 3.0 12.5% 10.00 4.63
6 Intel 952 486 10.5% 4.0 4.6% 7.00 4.42
7 Nestlé 1,159 345 7.9% 5.1 -0.6% 10.00 4.10
8 Nike 1,290 207 16.2% 3.8 7.9% 6.00 4.07
Colgate- 843 313 18.0% 5.0 -4.9% 6.00 4.03
9 Palmoli
ve
Starbuc 926 143 20.3% 11.1 12.7% 4.00 3.80
10
ks
11 PepsiCo 974 356 8.5% 9.0 -1.8% 6.00 3.67
12 3M 553 210 15.3% 4.2 -1.1% 10.00 3.54
Johnson 878 269 11.8% 2.6 0.4% 7.00 3.50
13 &
https://www.gartner.com/newsroo Johnson
Coca 1,579 232 7.8% 5.7 -4.2% 4.00 3.46
m/id/3728919 Cola BITS Pilani, Hyderabad Campus
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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Stages of detergent supply
chain

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Amazon

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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

Material

Information
Supplier Customer
Funds

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Flows in a Supply Chain

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What is a Supply Chain?

• May be more accurate to use the term “supply network”

or “supply web”
• Typical supply chain stages: customers, retailers,
wholesalers/distributors, manufacturers, component/raw
material suppliers
• All stages may not be present in all supply chains (e.g.,
no retailer or distributor for Dell)

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Historical perspective

Three principle streams are

Sourcing, procurement, and supply management
Sourcing, supply side management, inbound logistics, supplier
relationship management
Material management
Management of flow of material into, through and out of an enterprise,
adding in the process, value or customer
Logistics management
Inbound, outbound and manufacturing logistics

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Objective of a supply chain

To maximize overall value generated also known as supply

chain surplus
Supply Chain Surplus
= Customer Value – Supply Chain Cost

Consumer surplus: difference between the value of the

product and its price

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The Objective of a Supply
Chain
• Example: a customer purchases a wireless
router from Amazon Rs. 999 (revenue)
• Supply chain incurs costs (information, storage,
transportation, produce components, assembly,
etc.)
• Difference between Rs. 999 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
• 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
• 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 supply chain assets and product, information, and
fund flows to grow the total supply chain surplus

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FMCG-USA

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FMCG-INDIA

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Importance of SCM-Walmart

“People think we got big by putting big stores in small

towns. Really, we got big by replacing inventory with
information”
Sam Walton, Founder of Wal-Mart

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BITS Pilani, Hyderabad Campus
Wal-Mart-stores

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Wal-Mart-Distribution centre

Net income of $17 billion on revenue $469 billion

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Some failures

Webvan
Large warehouse
Home delivery
Folded in 2001, after initial IPO

Borders
100000 against 10000 at low price
2004- $4b sales /$132m profit
2009- $2.8b sales/$ 109m

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Key point to learn

Supply chain design, planning, and

operation decisions play a significant role
in the success or failure of a firm. To stay
competitive, supply chains must adapt to
changing technology and customer
expectations.

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Decision Phases in a Supply
Chain
1. Supply chain strategy or design
How to structure the supply chain over the next several years
Eg: Pepsi & Co decision on bottling, Malls vs kiranas now e-commerse,
Strategy change: From Acute therapy(generic drug) to Chronic therapy(high
margin)

2. Supply chain planning

Decisions over the next quarter or year

3. Supply chain operation

Daily or weekly operational decisions

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Supply Chain Strategy or
Design
• Decisions about the configuration of the supply chain,
allocation of resources, and what processes each stage
will perform
• Strategic supply chain decisions
• Outsource supply chain functions
• 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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Supply Chain Planning

• Definition of a set of policies that govern short-term

operations
• Fixed by the supply configuration from strategic phase
• Goal is to maximize supply chain surplus given
established constraints
• 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
• Inventory policies
• Timing and size of market promotions

• Must consider demand uncertainty, exchange rates,

competition over the time horizon in planning decisions

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Supply Chain Operation

• Time horizon is weekly or daily

• Decisions regarding individual customer orders
• Supply chain configuration is fixed and planning policies
are defined
• Goal is to handle incoming customer orders 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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Key Point

Supply chain decision phases may be

categorized as design, planning, or
operational, depending on the time frame
during which the decisions made apply.
Design decisions constrain or enable good
planning, which in turn constrains or
enables effective operation.

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Process Views of a Supply
Chain
1. 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 the supply
chain.
2. Push/Pull View: The processes in a supply chain are
divided into two categories, depending on whether they
are executed in response to a customer order or in
anticipation of customer orders. Pull processes are
initiated by a customer order, whereas push processes
are initiated and performed in anticipation of customer
orders.

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Cycle View of Supply
Chain Processes

• Demand external
• Scale of order

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Cycle View of
Supply Chain Processes

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Key Point

A cycle view of the supply chain clearly defines the

processes involved and the owners of each process.
This view is useful when considering operational
decisions because it specifies the roles and
responsibilities of each member of the supply chain and
the desired outcome for each process.

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Push/Pull View of Supply
Chains

Speculative Reactive

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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

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Customfurnish

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BatchTag

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woodstreet

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Push/Pull View – L.L. Bean

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Push/Pull View – Ethan Allen

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Key point

A push/pull view of the supply chain categorizes

processes based on whether they are initiated in
response to a customer order (pull) or in
anticipation of a customer order (push). This
view is useful when considering strategic
decisions relating to supply chain design.

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Supply chain macro
processes
Supply chain processes discussed in the two views can be
classified into
Customer Relationship Management (CRM):
all processes at the interface between the firm and its
customers
Internal Supply Chain Management (ISCM):
all processes that are internal to the firm
Supplier Relationship Management (SRM):
all processes at the interface between the firm and its
suppliers

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Key Point

Within a firm, all supply chain activities belong to

one of three macro processes: CRM, ISCM, and
SRM. Integration among the three macro
processes is crucial for successful supply chain
management.

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Supply Chain Macro
Processes

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Examples of Supply Chains

• Gateway and Apple

• Zara
• W.W. Grainger and McMaster-Carr
• Toyota
• Amazon
• Macy's

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Gateway and Apple
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? What are the
characteristics of products that are most suitable to be
carried in finished-goods inventory? What characterizes
products that are best manufactured to order?
3. How does product variety affect the level of inventory a
retail store must carry?
4. Is a direct selling supply chain without retail stores
always less expensive than a supply chain with retail
stores?
5. What factors explain the success of Apple retail and the
failure of Gateway country stores?
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Zara

Largest Spanish cloths company owned by Inditex

Responsiveness to changing trends(1wk vs 2months M&S)
Popular with young female (20-25)
40% manufa. Owned by Inditex and rest outsourced to Asia
40% purchases and production during sales vs only 20%
for others
Invested in information technology
Avg. delivery time 24-36hr EU, max 48 hr for USA and Aisa

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Zara

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?
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Amazon

1. Why is Amazon building more warehouses as it grows?

How many warehouses should it have and where
should they be located?
2. Should Amazon stock every product it sells?
3. 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?
4. What advantages and disadvantages does the online
channel enjoy in the sale of shoes and diapers relative
to a retail store?
5. For what products does the online channel offer the
greater advantage relative to retail stores? What
characterizes these products?
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Toyota

• Japan’s top auto

manufacturer
• Each plant can equip
local production vs each
plant supplying to every
market
• Global complementation
strategy
• Increased commonality
between parts used
across world

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Toyota

1. Where should the plants be located, and what degree

of flexibility should be built into each? What capacity
should each plant have?
2. Should plants be able to produce for all markets or only
for specific contingency markets?
3. How should markets be allocated to plants and how
frequently should this allocation be revised?
4. How should the investment in flexibility be valued?

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W.W. Grainger and McMaster-
Carr
Maintenance, repair, operations (MRO)
WW Grainger Mc Master Carr
Several hundreds stores in USA No stores
Walk into stores, call, online delivered to Ships almost its orders
customer or pick up
9DC 5DC
300000 stock keeping units (SKU) 500000 SKU

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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?
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Macy's

1. Should online orders

be filled from stores
or fulfillment
centers?
2. How should store
inventories be
managed in an
omni-channel
setting?
3. Should returns be
kept at a store or
sent to a fulfillment
center?
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Van Heusen

Pepper fry

BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956

Endless aisle technology

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Patanjali

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