1.Supply Chain Management Module 1 By Prof. Raghavendran Venugopal

2. What is a Supply Chain?Prof. Raghavendran Venugopal, MBA Dept,2 Mijar 3. What is a supply chain? A supply chain consists of all the parties involved,directly or indirectly, in fulfilling a customerrequest. Supply chain management is a set of approachesutilized to efficiently integrate suppliers,manufacturers, warehouses, and stores, so thatmerchandise is produced and distributed at theright quantities, to the right locations, and at theright time, in order to minimize system-wide costswhile satisfying service level requirements.Prof. Raghavendran Venugopal, MBA Dept,3 Mijar 4. Supply ChainSupplier ManufacturerDistributor Retailer Customers Prof. Raghavendran Venugopal, MBA Dept,4Mijar 5. The definition implies First, supply chain management takes intoconsideration every facility that has impact oncost and plays a role in making the productconform to customer requirements. From supplier and manufacturing facilitiesthrough warehouses and distribution centers toretailers and stores. In supply chain analysis, it is necessary toaccount for the suppliers suppliers and thecustomers customers because they have animpact on supply chain performance.Prof. Raghavendran Venugopal, MBA Dept,5 Mijar 6. The definition implies Second, the objective of the supply chainmanagement is to be efficient and cost-effectiveacross the entire system. Total system-wide costs, from transportation anddistribution to inventories of raw materials, work inprocess, and finished goods are to be minimized.Prof. Raghavendran Venugopal, MBA Dept,6 Mijar 7. The definition implies Thus the emphasis is not on simply minimizingtransportation cost or reducing inventories, butrather, on taking a systems approach to supplychain management. Finally, because supply chain managementrevolves around efficient integration of suppliers,manufacturers, warehouses and stores, itencompasses the firms activities at many levels,from strategic to the tactical and finally to theoperational levelProf. Raghavendran Venugopal, MBA Dept,7 Mijar 8. Then there are other terms forSCM Logistics Management Value Chain management Demand Chain managementProf. Raghavendran Venugopal, MBA Dept,8 Mijar 9. Typical Supply Chain Involves Typical SC involves variety of stages and they are: Customers Retailers Wholesalers Manufacturers Raw material/OE manufacturers or SuppliersProf. Raghavendran Venugopal, MBA Dept,9 Mijar 10. A Supply Chain Example Keethi StoresNilgiris RK Canteen Big B GOA Coke Hotel Sagar End customerHeritage .HULKARHP RetailKellogs NavamiDELHI P&GWBTier 1 suppliersState Local stores distributors SupermarketchainsProf. Raghavendran Venugopal, MBA Dept,10Mijar 11. Supply Chain Management Supply Chain Management is the design and management of processes across organizational boundaries with the goal of matching supply and demand in the most cost effective way.Supply DemandProf. Raghavendran Venugopal, MBA Dept, Mission impossible: Matching Supply and Demand11Mijar 12. What makes Supply Chain Management Difficult? Supply Chain strategies cannot be determinedin isolation. They are directly affected byanother chain that most organizations have, thedevelopment chain that includes the set ofactivities associated with new productintroduction. At the same time, supply chain strategies alsoshould be aligned with specific goals of theorganization, such as maximizing market shareor increasing profit. It is challenging to design and operate a supplychain so that total system-wide costs are Prof. Raghavendran Venugopal, MBA Dept,12 Mijarminimized, and system-wide service levels are 13. What makes Supply Chain Management Difficult? Indeed, it is frequently difficult to operate asingle facility so that costs are minimized andservice level is maintained. The difficulty increases exponentially when anentire system is being considered. The processof finding the system-wide strategy is known asglobal optimization. Uncertainty and risk are inherent in everysupply chain, Customer demand can never be forecastexactly, travel times will never be certain, and13machines and vehicles will breakdown. Prof. Raghavendran Venugopal, MBA Dept, Mijar 14. What makes Supply Chain Management Difficult? Recent industry trends like outsourcing, off- shoring, and lean manufacturing that focus on reducing supply chain costs, significantly increase the level of risk in the supply chain. Thus, supply chain needs to be designed and managed to eliminate as much uncertainty and risk as possible as well as deal effectively with the uncertainty and the risk that remain. Prof. Raghavendran Venugopal, MBA Dept,14 Mijar 15. The Development Chain The development chain is the set of activities andprocesses associated with new productinformation Prof. Raghavendran Venugopal, MBA Dept,15 Mijar 16. The Development Chain Specifically, the development chain includesdecisions such as:o product architecureo Make and buy decisionso Supplier selectiono Early supplier involvemento Strategic partnerships Prof. Raghavendran Venugopal, MBA Dept,16 Mijar 17. Enterprise development and supply chains Product ArchitecturePlan/DesignMake/Buy Early Supplier developmentStrategic PartnershipsSourceSupplier SelectionSupply Contracts SupplyProduce Distribute Sell Supply Prof. Raghavendran Venugopal, MBA Dept, Chain17 Mijar 18. Global Optimization Factors that make it a challenging proposition 1.The supply chain is a complex network of facilities dispersed over a large geography and in many cases all over the globe. 2.Different facilities in the supply chain frequently have different, conflicting objectives Prof. Raghavendran Venugopal, MBA Dept,18 Mijar 19. Global Optimization Factors that make it a challenging proposition The supply chain is a dynamic system that evolves over time. Customer demand characteristic changes over time, supplier capabilities change over time Even the supply chain relationships change over time. Customer power increases with increaseddemands for quality, variety and customization Prof. Raghavendran Venugopal, MBA Dept,19 Mijar 20. Global Optimization Factors that make it a challenging proposition System variations over time even whendemand is certain (purchase agreements etc.) theplanning process needs to account for demandand cost parameters varying over time due toimpact of seasonal fluctuations, trends,advertising and promotions, competitors pricingstrategies and so forth. These variations make itdifficult to develop the most effective supply chainsystem. Prof. Raghavendran Venugopal, MBA Dept,20 Mijar 21. Managing Uncertainty and Risk Matching supply and demand is a major challenge Inventory and back-order levels fluctuate considerably across the supply chain Forecasting does not solve the problem Demand is not the only source of uncertainty delivery lead times, manufacturing yields, transportation times and component availability also can have significant impact on supply chain Prof. Raghavendran Venugopal, MBA Dept,21 Mijar 22. Key issues in Supply Chain management Distribution Network Product design Configuration Information Technology and decision support Supply Contractssystems Distribution strategies Customer value Supply chain Smart Pricing integration and Local Issues strategic partnering Inventory control Outsourcing and Off- Production sourcing shoring strategies Prof. Raghavendran Venugopal, MBA Dept,22 Mijar 23. The Objective of the Supply Chain The objective of the supply chain should be tomaximize the overall value generated. The value a supply chain generates is thedifference between what the final product is worthto the customer and the costs the supply chainincurs in filling the customers request. For most commercial supply chains, value will bestrongly correlated with supply chain profitability(also known as supply chain surplus) Supply chain profitability or surplus is the totalprofit that is shared across all supply chain stagesor intermediaries. Prof. Raghavendran Venugopal, MBA Dept,23 The higher the supply chain profitability, the more Mijar 24. The importance of supply chain decisions There is a close connection between the design and management of supply chain flows (product, information and funds) and the success of a supply chain. Also failure can also be attributed to the failure is supply chain design. Many Indian retail outlets have busted or have truncated their business because of inefficiencies that were existing in their supply chain design which led to a negative supply chain surplus. Wal-Mart, Dell Computer are few examples of companies that have built their success on superior design, planning and operation of the supply chain. Prof. Raghavendran Venugopal, MBA Dept,24 Mijar 25. Decision Phases in a Supply Chain Successful Supply Chain management requiresmany decisions relating the flow of information,product and funds. Supply chain design or strategy During this phase, given the marketing and pricing plans for a product a company decides how to structure the supply over the next several years. Prof. Raghavendran Venugopal, MBA Dept,25 Mijar 26. Decision Phases in a Supply Chain Supply chain planning For decisions made during this phase, the time frameconsidered is quarter to a year. This configurationestablishes constraints within which the planning mustbe done. The goal of planning is to maximize the supply chainsurplus that can be generated given the constraintsestablished during the during the strategic phase or thedesign phase. Companies start the planning phase with a forecast forthe coming year (or comparable time frame.) of demandin different markets. Planning includes making decisions regarding whichmarkets will be supplied by which locations, whethersubcontracting will be employed or which type inventory Prof. Raghavendran Venugopal, MBA Dept,26 Mijar policy will be adopted etc 27. Decision Phases in a Supply Chain Supply chain planning In the planning phase the companies must include uncertainty in demand, exchange rates, and competition over this time horizon in their decisions. Given a shorter time frame and better forecasts than the design phase, companies in the planning phase try to incorporate any flexibility built into the supply chain in the design phase and exploit it to optimize operations. Prof. Raghavendran Venugopal, MBA Dept,27 Mijar 28. Decision Phases in a Supply Chain Supply Chain Operations The time horizon here is weekly or daily, and duringthis phase companies make decisions regardingindividual customer orders. At the operational level, supply chain configurationis considered fixed and planning policies arealready defined. The goal of supply chain operations is to handleincoming customer orders in the best possiblemanner During this phase, firms allocate inventory orproductions to individual orders, set a date than an28order is to be filled. Prof. Raghavendran Venugopal, MBA Dept, Mijar 29. Decision Phases in a Supply Chain Supply Chain Operations Generate pick up lists at a warehouse, allocates anorder to a particular shipping mode and shipment,set delivery schedules of trucks, and placereplenishment orders. Because operational decisions are being made inthe short term (minutes, hours or days), there isless uncertainty about demand information Given the constraints established by theconfiguration and planning policies the goal duringthe operation phase is to exploit the reduction ofuncertainty and optimize performance. Prof. Raghavendran Venugopal, MBA Dept,29 Mijar 30. Process of Views of Supply Chain Cycle View: The processes in the supplychain are divided into a series of cycles eachperformed at the interface between twosuccessive stages of the supply chain. Push/Pull view: The processes in the supplychain are divided into two categoriesdepending on whether they are executed inresponse to a customer order or inanticipation of the customer order. Prof. Raghavendran Venugopal, MBA Dept,30 Mijar 31. Process of Views of Supply Chain Pull processes are initiated by a customer order.Whereas push processes are initiated andperformed in the anticipation of customer orders. Prof. Raghavendran Venugopal, MBA Dept,31 Mijar 32. Cycle View of a Supply Chain The processes in a supply chain are divided intoa series of cycles, each performed at theinterface between two successive stages. Prof. Raghavendran Venugopal, MBA Dept,32 Mijar 33. Cycle View of Supply Chain Processes Customer order cycle Customer order cycle Replenishment cycle Replenishment Cycle Manufacturing cycle Manufacturing Procurement CycleCycleProcurement Cycle Prof. Raghavendran Venugopal, MBA Dept,33 Mijar 34. 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 on customer order, whereas push processes are initiated and performed in anticipation of customer orders. Prof. Raghavendran Venugopal, MBA Dept,34 Mijar 35. Push/Pull ProcessesCustomer order Customercycle Pull ProcessesRetailerReplenishment andManufacturingCycleManufacturerPushProcesses ProcurementCycle Prof. Raghavendran Venugopal, MBA Dept,35 Mijar 36. Process View of Supply Chain Each cycle occurs at the interface between two successive stages of the supply chain Which means that there are four supply chain process between five stages. Not every supply chain will have all the four cycles clearly separated Prof. Raghavendran Venugopal, MBA Dept,36 Mijar 37. Process View of Supply Chain CustomerCustomer ordercycleRetailerReplenishmentCycle DistributorManufacturing Cycle ManufacturerProcurement Cycle Prof. Raghavendran Venugopal, MBA Dept, Supplier37 Mijar 38. Sub-Process in each Supply Chain Process Cycle Within each cycle, the goal of the buyer is to ensure product availability and to achieve economies of scale in ordering. Even though each cycle has the same basic sub- processes, there are few differences between cycles. In the customer order cycle, demand is external to the supply chain and thus uncertain In all other cycles order placement is uncertain but can be projected based on policies followed by the particular chain stage. The difference across cycles relate to the scale of an order. Prof. Raghavendran Venugopal, MBA Dept,38 Mijar For example, in the procurement cycle, a tire supplier to an automotive manufacturer is known. 39. Sub-Process in each Supply Chain Process Cycle The cycle view clearly specifies the roles of each member of the supply chain. The detailed process description of a supply chain in the cycle view forces a supply chain designer to consider the infrastructure required to support these processes Prof. Raghavendran Venugopal, MBA Dept,39 Mijar 40. Sub-Process in each Supply ChainProcess Cycle Each cycle consists of six sub-processesSupplier Stage marketsBuyer returns reverse flows to productssupplier or third partyBuyer Stage Buyer Stage places orderReceives SupplySupplier Stage receives order Supplier Stage supplies orderProf. Raghavendran Venugopal, MBA Dept,40Mijar 41. Supply Chain Macro Process in a firm Two process views can be viewed into threemacro process and they are: Customer Relationship Management (CRM) Internal SCM (ISCM) Supplier Relationship Management (SRM) Source, Negotiate, Buy/Make SRM Design, Supplier Collaboration Strategic , Demand & Supply Planning ISCM Fulfillment, Field Service Market, Price, Sell CRM Call Center & Order Management Prof. Raghavendran Venugopal, MBA Dept,41 Mijar 42. Supply Chain Performance Achieving Strategic Fit and Scope 43. Competitive & SC Strategies A companys competitive strategy defines relative to its competitors, the set of customer needs that it seeks to satisfy through its products and services. Targets one or more customer segments and provides products and services to satisfy the customers needs.New Product Sales &Operations DistributionServiceDevelopmentMarketing Finance, Accounting, Information Technology, Human Resources Value Prof. Raghavendran Venugopal, MBA Dept, Chain for a typical organization43 Mijar 44. Competitive Strategy For Example: Big Bazaar competitive strategy is to provide itscustomers goods at the lowest possible price (vis--vis competitors). Acers competitive strategy is to provide value formoney to its customers with an effective and well-accessible after sales service. Prof. Raghavendran Venugopal, MBA Dept,44 Mijar 45. All functions play important role and each mustdevelop its own strategy. Product Development Strategy Marketing and sales Strategy Logistics/ Supply chain strategy. Prof. Raghavendran Venugopal, MBA Dept,45 Mijar 46. Competitive Advantages by SCMCompany utilization of allresourcesCompetitors Customers utilization of allNeeds & Wantsresources Prof. Raghavendran Venugopal, MBA Dept,46 Mijar 47. Competitive Advantages by SCM Companies shall have productive advantages orValue advantages. Major companies shall haveboth. Productivity Advantage.Cost per unit Summative volume Value Advantages Service Leader (C)Cost & Service Leader (D)Product Market (A)Cost Leader (B) Prof. Raghavendran Venugopal, MBA Dept,47 Mijar 48. Supply chain strategiesTechnologyIntegration Strategy SCDemand streamCollaboration Strategy Frame StrategyworkCustomer ServiceStrategy Prof. Raghavendran Venugopal, MBA Dept,48 Mijar 49. Collaboration strategy: Opportunities among business partners. Three types of business collaborations. Manufacturer or Supplier Collaborations Manufacturer or Customer Collaborations 3PLs & 4PLs providers Customer Service Strategy: Directly proportional to the service rendered by the organizations. Customer Segmentation Returns managing Cost to serve Technology integration strategy Demand Stream Strategy Prof. Raghavendran Venugopal, MBA Dept,49 Mijar 50. Achieving Strategic Fit & Meaning of Strategic Fit For any company to be successful its supply chain strategyand competitive strategy must fit together It means that both the competitive and supply chainstrategies have aligned goals. It refers to consistency between customer priorities that thecompetitive strategy hopes to satisfy and the supply chaincapabilities that the supply chain strategy aims to build. All processes and functions that are part of a companysvalue chain contribute to its success or failure These processes and functions do not lead to the operatein isolation No one processes or function can ensure the chainssuccess. Failure at any one process or function, however, may lead50to failure of Prof. Raghavendran Venugopal, MBA Dept, Mijar 51. How strategic Fit achieved? The following steps shall support to achieve the strategic fit. Understanding the Customer and Supply Chain uncertainty. Understanding the supply chain capabilities. Achieving strategic fit Prof. Raghavendran Venugopal, MBA Dept,51 Mijar 52. Understanding the Customer and Supply Chain uncertainty To understand the customer, a company must identify the needs of the customer segment being served. The quantity of the product needed in each lot. The response time the customers are willing to tolerate. The variety of products needed. The service level required. The price of the product. The desired rate of innovation of the product. Prof. Raghavendran Venugopal, MBA Dept,52 Mijar 53. Implied Demand Uncertainty This does not mean uncertainty in overall demand butuncertainty in demand which the company seeks tosatisfy. Range of quantity required increases Lead Time Decreases Increases because wider range of the quantityrequired implies greater variance in demand. Increase because there is less time in which to reactto orders. Variety of products required increases Number of channels through which product may beacquired increases Prof. Raghavendran Venugopal, MBA Dept,53 Mijar 54. Implied Demand Uncertainty Increase because demand per product becomes more disaggregate Increase because the total customer demand is now disaggregated over more channels. Rate of Innovation Increases Required service level increases Increase because new products tend to have more uncertain demand Increase because the firm has to handle unusual surges in demand Prof. Raghavendran Venugopal, MBA Dept,54 Mijar 55. The Implied Uncertainty (Demand and Supply) Spectrum Predictable Supply and uncertain demand or uncertain Highly uncertain Predictable Supplysupply and predictablesupply andand Demand demand or somewhatdemand uncertain supply and demandSalt at a An existing A newSupermarket automobile communication demand device Prof. Raghavendran Venugopal, MBA Dept, 55Mijar 56. Understanding the supply chain capabilities Supply chain responsiveness implies thefollowing: Response to wide ranges of quantities demanded Meet short lead times Handle a large variety of products Build highly innovative products Meet a high service level Handle supply uncertainty Prof. Raghavendran Venugopal, MBA Dept,56 Mijar 57. The cost-responsive efficient frontier It is the curve showing the lowest possible costfor a given level of responsiveness Prof. Raghavendran Venugopal, MBA Dept,57 Mijar 58. Responsiveness HighLow Prof. Raghavendran Venugopal, MBA Dept, High Low58 Mijar Cost 59. Responsiveness Spectrum Somewhat Somewhat HighlyHighly Efficientefficient responsive responsiveLocal Apparel: A Big Bazaar:Integratedtraditional make- Most automotiveChangingTextile Mills:to-stockproduction:merchandiseProductionmanufacturerdelivering a mix and byscheduled with production large variety of location andweeks or months lead time ofproducts in atime of the dayin advance with several weeks couple of weekslittle variety orflexibilityProf. Raghavendran Venugopal, MBA Dept, 59 Mijar 60. Step 3: Achieving Strategic Fit After mapping the level of implied uncertainty andunderstanding the supply chain position on theresponsiveness spectrum, the third and final stepis to ensure that the degree of supply chainresponsiveness is consistent with the implieduncertainty. The goal is to target high responsiveness for asupply chain facing high implied uncertainty. The relationship is represented by the Zone ofStrategic Fit. Increasing implied uncertainty from the customersand supply sources is best served by increasing Prof. Raghavendran Venugopal, MBA Dept,the supply chain.responsiveness from60 Mijar 61. Zone of Strategic Fit ResponsiveSupply ChainResponsiveSpectrumEfficient SupplyChain Certain Implied Uncertain DemandUncertainty DemandSpectrum Prof. Raghavendran Venugopal, MBA Dept, 61Mijar 62. Zone of Strategic FitResponsiveResponsiveSpectrumEfficientProduct ImpliedProductMaturityUncertaintyIntroduction SpectrumProf. Raghavendran Venugopal, MBA Dept, 62 Mijar 63. Comparison of efficient andresponsive supply chainsEfficient Supply Chain Responsive SupplyChain Primary Goal Supply demand at the Respond quickly tolowest costdemand Product Design Maximizing Create modularity to Strategy performance at a allow postponement ofminimum product cost product differentiation Pricing strategy Lower MarginsHigher Marginsbecause price is the because price is notprime customer driverthe prime customer driverProf. Raghavendran Venugopal, MBA Dept,63Mijar 64. Comparison of efficient andresponsive supply chains Efficient Supply Chain Responsive Supply Chain Manufacturing Lower costs throughMaintain capacity Strategyhigher utilization flexibility to bufferagainst demand andsupply uncertainty Inventory StrategyMinimize inventory toMaintain buffer lower cost inventory to deal withdemand/supplyuncertainty Lead time strategyReduce, but not theReduce aggressively, expense of costs even if costs aresignificantProf. Raghavendran Venugopal, MBA Dept,64Mijar 65. Comparison of efficient andresponsive supply chains Efficient Supply Chain Responsive Supply Chain Supplier Strategy Select based on cost Select based on and qualityspeed, flexibility,reliability and quality Transport StrategyLowest Cost mode Fastest means of availabledelivery depending onneedsProf. Raghavendran Venugopal, MBA Dept,65Mijar 66. Other Issues Affecting Strategic Fit Multiple Products and Customer Segments Product Life Cycle Changing Customer Expectation Issues on Globalization Supply Chain uncertainty Competitive Changes over time horizon Prof. Raghavendran Venugopal, MBA Dept,66 Mijar 67. Expanding Strategic Scope A key issue relating to strategic fit is the scope, interms of supply chain stages, across which thestrategic fit applies. Scope of strategic fit refers to the functions withinthe firm and stages across the supply chain thatdevise an integrated strategy with a sharedobjective. At one extreme, every operation within eachfunctional area devises its own independentstrategy with the objective of optimizing itsindividual performance. At the opposite extreme, all functional areasacross all stages of the supply chain devise Prof. Raghavendran Venugopal, MBA Dept,67strategy jointly with a common objective of Mijar 68. Obstacles in Achieving Strategic Fit Increase in Product Decreasing PLCs Variety. Division of SC High Demand Ownership Customers Difficulty in Executing Globalization New Strategies Silo mentality Diminishing SC Lack of confidence &Visibility Knowledge. Prof. Raghavendran Venugopal, MBA Dept,68 Mijar 69. Supply Chain Drivers & Metrics 70. Drivers of Supply Chain Performance Facilities places where inventory is stored, assembled, or fabricated production sites and storage sites Inventory raw materials, WIP, finished goods within a supply chain inventory policies Transportation moving inventory from point to point in a supply chain combinations of transportation modes and routes Information data and analysis regarding inventory, transportation, facilities throughout the supply chain potentially the biggest driver of supply chain performance Sourcing functions a firm performs and functions that are outsourced Pricing Prof. Raghavendran Venugopal, MBA Dept, Price associated with goods and services provided by a firm to the supply70 chain Mijar 71. A Framework for Structuring DriversCompetitive StrategySupply ChainStrategy Efficiency ResponsivenessSupply chain structure Logistical DriversFacilitiesInventoryTransportationInformation SourcingPricingCross Functional Drivers Prof. Raghavendran Venugopal, MBA Dept,71 Mijar 72. Role in the supply chain Role in the competitive strategy Components of Drivers decisions Prof. Raghavendran Venugopal, MBA Dept,72 Mijar 73. Facilities Role in the supply chain the where of the supply chain manufacturing or storage (warehouses) Role in the competitive strategy economies of scale (efficiency priority) larger number of smaller facilities (responsiveness priority) Prof. Raghavendran Venugopal, MBA Dept,73 Mijar 74. FacilitiesComponents of Facilities Decisions Location centralization (efficiency) vs. decentralization (responsiveness) other factors to consider (e.g., proximity to customers) Capacity (flexibility versus efficiency) Manufacturing methodology (product focused versusprocess focused) Warehousing methodology (SKU storage, job lotstorage, cross-docking) Overall trade-off: Responsiveness versus efficiency Prof. Raghavendran Venugopal, MBA Dept,74 Mijar 75. Inventory Role in the Supply Chain Inventory exists because of a mismatch between supply and demand Source of cost and influence on responsiveness Impact on material flow time: time elapsed between when material enters the supply chain to when it exits the supply chain throughput rate at which sales to end consumers occur I = RT (Littles Law) I = inventory; R = throughput; T = flow time ExampleProf. Raghavendran Venugopal, MBA Dept, synonymous Inventory and throughput arein a supply chain75Mijar 76. Inventory Role in Competitive Strategy If responsiveness is a strategic competitive priority, a firm can locate larger amounts of inventory closer to customers If cost is more important, inventory can be reduced to make the firm more efficient Example: Economies of ScaleProf. Raghavendran Venugopal, MBA Dept,76Mijar 77. Inventory Components of Inventory Decisions Cycle inventory Average amount of inventory used to satisfy demand between shipments Depends on lot size Safety inventory inventory held in case demand exceeds expectations costs of carrying too much inventory versus cost of losing sales Seasonal inventory inventory built up to counter predictable variability in demand cost of carrying additional inventory versus cost of flexible production Overall trade-off: Responsiveness versus efficiency more inventory: greater responsiveness but greater cost less inventory: lower cost but lower responsiveness Prof. Raghavendran Venugopal, MBA Dept,77 Mijar 78. Transportation Role in the supply chain Moves the product between stages in the supply chain Impact on responsiveness and efficiency Faster transportation allows greater responsiveness but lower efficiency Also affects inventory and facilities Prof. Raghavendran Venugopal, MBA Dept,78 Mijar 79. Transportation Role in the competitive strategy If responsiveness is a strategic competitive priority, then faster transportation modes can provide greater responsiveness to customers who are willing to pay for it Can also use slower transportation modes for customers whose priority is price (cost) Can also consider both inventory and transportation to find the right balanceProf. Raghavendran Venugopal, MBA Dept,79Mijar 80. Transportation Components of transportation decisions Mode of transportation: air, truck, rail, ship, pipeline, electronic transportation vary in cost, speed, size of shipment, flexibility Route and network selection route: path along which a product is shipped network: collection of locations and routes In-house or outsource Overall trade-off: Responsiveness versus efficiencyProf. Raghavendran Venugopal, MBA Dept,80Mijar 81. Information Role in the supply chain The connection between the various stages in the supply chain allows coordination between stages Crucial to daily operation of each stage in a supply chain e.g., production scheduling, inventory levels Role in the competitive strategy Allows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off) Information technology What information is most valuable?Prof. Raghavendran Venugopal, MBA Dept,81Mijar 82. Information Components of information decisions Push (MRP) versus pull (demand informationtransmitted quickly throughout the supply chain) Coordination and information sharing Forecasting and aggregate planning Enabling technologies EDI Internet ERP systems Supply Chain Management software Overall trade-off: Responsiveness versus efficiency Prof. Raghavendran Venugopal, MBA Dept,82 Mijar 83. Sourcing Role in the supply chain Set of business processes required topurchase goods and services in a supply chain Supplier selection, single vs. multiple suppliers,contract negotiation Role in the competitive strategy Sourcing decisions are crucial because theyaffect the level of efficiency andresponsiveness in a supply chain In-house vs. outsource decisions- improving83efficiency and responsiveness Prof. Raghavendran Venugopal, MBA Dept,Mijar 84. Sourcing Components of sourcing decisions In-house versus outsource decisions Supplier evaluation and selection Procurement process Overall trade-off: Increase the supply chainprofitsProf. Raghavendran Venugopal, MBA Dept,84Mijar 85. Pricing Role in the supply chain Pricing determines the amount to charge customers in a supply chain Pricing strategies can be used to match demand and supply Role in the competitive strategy Firms can utilize optimal pricing strategies to improve efficiency and responsiveness Low price and low product availability; vary prices by response times Prof. Raghavendran Venugopal, MBA Dept,85 Mijar 86. Pricing Components of pricing decisions Pricing and economies of scale Everyday low pricing versus high-low pricing Fixed price versus menu pricing Overall trade-off: Increase the firm profits Prof. Raghavendran Venugopal, MBA Dept,86 Mijar 87. Obstacles to Achieving Strategic Fit Increasing variety of products Decreasing product life cycles Increasingly demanding customers Fragmentation of supply chain ownership Globalization Difficulty executing new strategies Prof. Raghavendran Venugopal, MBA Dept,87 Mijar