Supply Chain : Objective, Decisions and Views

 

Objective

As we know by now ,supply chain consists of many individual organisations and functions with in each organisation involved to full fill the customer needs.

Some of the concepts we need to understand are as below :

• Consumer value : It is the amount of money customer is willing to pay to satisfy his needs. 
• Supply chain cost : It is the total amount that supply chain incurred while satisfying the needs of consumer.
• Supply chain surplus : It is the difference between customer Value and Supply Chain cost.It is the overall pie that needs to be distributed across all parties in supply chain.

Consumer also receives the share in the pie if the supply chain is able to fulfill his needs at a less cost than his perceived value.This is called as consumer surplus.

The objective of supply chain is to full fill needs with profit and the pie of these profit is distributed across all the parties involved in supply chain.

                                                 

 

Having understood the objective of the supply chain, we can now look into sources of Value, revenue and cost to achieve this objective.

 The source of revenue is customer as he provides positive cash flow and the   remaining stages are simply fund exchanges.

All flows of information, funds and products contribute to costs, appropriate management decisions can reduce these costs increasing the surplus.

 Importance of decisions

 Design and management of supply chain strongly affects the success of the   business.

 To stay competitive, supply chains must adapt to changing technology and   customer expectations.

 

Decision Phases

The decision phases are three categories based on the frequency and time frame.

 Strategy:

• Structure and configuration of supply chain decided for long term. Uncertainty is involved.
• Decision of processes at each stage is determined.
• At strategic level decisions like outsourcing, locations, capacities, warehouse facilities, product lines

 Planning:

• Need to operate in configuration fixed in strategy phase. Time frame quarter to year.
• Goal is maximize supply chain surplus that can be generated over planning horizon.
• Starts with forecast of demand and other factors, costs and prices.
• Decisions like location to market mapping, subcontracting, inventory polices, timing and size of marketing decided.

 

Operation:

• Constrained by planning decisions. Time horizon is weekly or daily.
• Goal is to handle incoming orders in best possible manner.
• Allocates inventory or production of individual orders, set date for orders fullfilment, picklists ,shipping mode, delivery schedules, replenishment orders.
• Exploit the less uncertainty involved and optimize performance.

  How can supply chain be viewed to understand it better?

 

As we discussed earlier many stages are involved in supply chain like supply of raw materials, manufacturing, distribution, and Retailing. These stages are not fixed, depending on the product and market the stages can vary.

 

The entire supply chain can be viewed in different formats to gain more insights , below are two of them.

 Cycle View

Process in a supply chain are divided into series of cycles each performed at interface of different successive stages.

Cyclic view of SC clearly defines processes involved and owners of each process. This view is useful to make operational decisions because it specifies the roles and responsibilities of each member and desired outcome.

Accordingly, we can define the following cycles :

 

 

Sub process in each cycle

 

Sub process can be linked to make, deliver, and return process in SC operations reference SCOR model. The buyer and supplier in each stage varies.

 

• Goal of buyer is to have the product available and achieve economies of scale in ordering.
• Supplier attempts to forecast orders and reduce the cost.
• As we move from customer to supplier the order size increases, and number of orders decreases.
• Sharing of information and operation polices across chain is important.

Push Pull view

Depending on the timing of execution relative to end customer demand supply chain process.

Pull process are reactive and operative in uncertainty while push process are speculative, operate in certainty.

A supply chain need not be completely push based or pull based there is a boundary in the process at which it can change from pull to push or vice versa, this boundary is called as Decoupling Point.

 

 

A push/pull view can be used when considering strategic decisions relating to supply chain design. 

Supply chain Macro processes in a firm

 As we discussed earlier different stages of the supply chain are usually dealt by different firms.

 With in each firm we can classify supply chain activities into below major process.

• Customer Relationship Management (CRM): Between firm and customers.
• Internal SC Management (ISCM): Processes internal to firm.
• Supplier Relationship Management: Between firm and suppliers.
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Integration between these activities is necessary for a firm to be efficient in serving customer.