supplychainintro.docx

supplychainintro.docx

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supplychainintro

SupplyChainIntroduction

WHATISASUPPLYCHAIN?

Asupplychainconsistsofallstagesinvolved,directlyorindirectly,infulfillingacustomerrequest.Thesupplychainnotonlyincludesthemanufacturerandsuppliers,butalsotransporters,warehouses,retailers,andcustomersthemselves.Withineachorganization,suchasamanufacturer,thesupplychainincludesallfunctionsinvolvedinfillingacustomerrequest.Thesefunctionsinclude,butarenotlimitedto,newproductdevelopment,marketing,operations,distribution,finance,andcustomerservice.

ConsideracustomerwalkingintoaWal-Martstoretopurchasedetergent.Thesupplychainbeginswiththecustomerandhisorherneedfordetergent.ThenextstageofthissupplychainistheWal-Martretailstorethatthecustomervisits.Wal-MartstocksitsshelvesusinginventorythatmayhavebeensuppliedfromafinishedgoodswarehousethatWal-Martmanagesorfromadistributorusingtruckssuppliedbyathirdparty.Thedistributorinturnisstockedbythemanufacturer（say,Procter&Gamble[P&G]inthiscase）.TheP&Gmanufacturingplantreceivesrawmaterialfromavarietyofsuppliers,whomaythemselveshavebeensuppliedbylower-tiersuppliers.Forexample,packagingmaterialmaycomefromTenneco,andTennecomightreceiverawmaterialtomanufacturethepackagingfromothersuppliers.ThissupplychainisillustratedinFigure1.

Asupplychainisdynamicandinvolvestheconstantflowofinformation,product,andfundsbetweendifferentstages.Eachstageofthesupplychainperformsdifferentprocessesandinteractswithotherstagesofthesupplychain.Wal-Martprovidestheproduct,aswellaspricingandavailabilityinformation,tothecustomer.ThecustomertransfersfundstoWal-Mart.Wal-Martconveyspoint-of-saledataaswellasreplenishmentorderstothedistributioncenter（DC）,whichtransfersthereplenishmentorderviatrucksbacktothestore.Wal-Marttransfersfundstothedistributorafterthereplenishment.ThedistributoralsoprovidespricinginformationandsendsdeliveryschedulestoWal-Mart.Similarinformation,material,andfundflowstakeplaceacrosstheentiresupplychain.

Figure1:

StagesofaDetergentSupplyChain

Inanotherexample,whenacustomerpurchaseson-linefromDellComputer,thesupplychainincludes,amongothers,thecustomer,theWebpagethattakesthecustomer'sorder,theDellassemblyplant,andallofDell'ssuppliersandtheirsuppliers.TheWebpageprovidesthecustomerwithinformationregardingpricing,productvariety,andproductavailability.Havingmadeaproductchoice,thecustomerenterstheorderinformationandpaysfortheproduct.ThecustomermaylaterreturntotheWebpagetocheckthestatusoftheorder.Stagesfurtherupthesupplychainusecustomerorderinformationtofilltheorder.Thatprocessinvolvesanadditionalflowofinformation,product,andfundsbetweenvariousstagesofthesupplychain.

Theseexamplesillustratethatthecustomerisanintegralpartofthesupplychain.Theprimarypurposefortheexistenceofanysupplychainistosatisfycustomerneeds,intheprocessgeneratingprofitsforitself.Supplychainactivitiesbeginwithacustomerorderandendwhenasatisfiedcustomerhaspaidforhisorherpurchase.Thetermsupplychainconjuresupimagesofproduct,orsupply,movingfromsupplierstomanufacturerstodistributorstoretailerstocustomersalongachain.Itisimportanttovisualizeinformation,funds,andproductflowsalongbothdirectionsofthischain.Thetermmayalsoimplythatonlyoneplayerisinvolvedateachstage.Inreality,amanufacturermayreceivematerialfromseveralsuppliersandthensupplyseveraldistributors.Therefore,mostsupplychainsareactuallynetworks.Itmaybemoreaccuratetousethetermssupplynetworkorsupplywebtodescribethestructureofmostsupplychains.

Atypicalsupplychainmayinvolveavarietyofstages.ThesesupplychainstagesareshowninFigure2andincludethefollowing:

Customers

Retailers

Wholesalers/distributors

Manufacturers

Component/rawmaterialsuppliers

EachstageinFigure2neednotbepresentinasupplychain.Theappropriatedesignofthesupplychainwilldependonboththecustomer'sneedsandtherolesofthestagesinvolvedinfillingthoseneeds.Insomecases,suchasDell,amanufacturermayfillcustomerordersdirectly.Dellbuildstoorder,thatis,acustomerorderinitiatesmanufacturingatDell.Delldoesnothavearetailer,wholesaler,ordistributorinitssupplychain.Inothercases,suchasthemailordercompanyLLBean,manufacturersdonotrespondtocustomerordersdirectly.LLBeanmaintainsaninventoryofproductsfromwhichitfillscustomerorders.ComparedwiththeDellsupplychain,theLLBeansupplychaincontainsanextrastage（theretailer,LLBeanitself）betweenthecustomerandthemanufacturer.Inthecaseofasmallretailstore,thesupplychainmayalsocontainawholesalerordistributorbetweenthestoreandthemanufacturer.

Figure2:

SupplyChainStages

TheObjectiveofaSupplyChain

Theobjectiveofeverysupplychainistomaximizetheoverallvaluegenerated.Thevalueasupplychaingeneratesisthedifferencebetweenwhatthefinalproductisworthtothecustomerandtheeffortthesupplychainexpendsinfillingthecustomer'srequest.Formostcommercialsupplychains,valuewillbestronglycorrelatedwithsupplychainprofitability,thedifferencebetweentherevenuegeneratedfromthecustomerandtheoverallcostacrossthesupplychain.Forexample,acustomerpurchasingacomputerfromDellpays$2,000,whichrepresentstherevenuethesupplychainreceives.Dellandotherstagesofthesupplychainincurcoststoconveyinformation,producecomponents,storethem,transportthem,transferfunds,andsoon.Thedifferencebetweenthe$2,000thatthecustomerpaidandthesumofallcostsincurredbythesupplychaintoproduceanddistributethecomputerrepresentsthesupplychainprofitability.Supplychainprofitabilityisthetotalprofittobesharedacrossallsupplychainstages.Thehigherthesupplychainprofitability,themoresuccessfulthesupplychain.Supplychainsuccessshouldbemeasuredintermsofsupplychainprofitabilityandnotintermsoftheprofitsatanindividualstage.（Wedemonstrateinsubsequentchaptersthatafocusonprofitabilityatindividualstagesmayleadtoareductioninoverallsupplychainprofits.）

Wedefinethesuccessofasupplychainintermsofsupplychainprofitability.Thenextlogicalstepistolookforsourcesofrevenueandcost.Foranysupplychain,thereisonlyonesourceofrevenue:

thecustomer.Thecustomeristheonlyrealpointofpositivecashflowinasupplychain.IntheWal-Martexample,thecustomerpurchasingdetergentistheonlyoneprovidingpositivecashflowforthesupplychain.Allothercashflowsaresimplyfundexchangesthatoccurwithinthesupplychain,giventhatdifferentstageshavedifferentowners.WhenWal-Martpaysitssupplier,itistakingaportionofthefundsthecustomerprovidesandpassingthatmoneyontothesupplier.Thiscashtransferaddstothesupplychain'scosts.Allflowsofinformation,product,orfundsgeneratecostswithinthesupplychain.Therefore,theappropriatemanagementoftheseflowsisakeytosupplychainsuccess.Supplychainmanagementinvolvesthemanagementofflowsbetweenandamongstagesinasupplychaintomaximizetotalprofitability.

Inthenextsection,wecategorizesupplychaindecisionphasesbasedontheirduration.

DECISIONPHASESINASUPPLYCHAIN

Successfulsupplychainmanagementrequiresseveraldecisionsrelatingtotheflowofinformation,product,andfunds.Thesedecisionsfallintothreecategoriesorphases,dependingonthefrequencyofeachdecisionandthetimeframeoverwhichadecisionphasehasanimpact:

1.Supplychainstrategyordesign.Duringthisphase,acompanydecideshowtostructurethesupplychain.Itdecideswhatthechain'sconfigurationwillbeandwhatprocesseseachstagewillperform.Decisionsmadeduringthisphasearealsoreferredtoasstrategicsupplychaindecisions.Strategicdecisionsmadebycompaniesincludethelocationandcapacitiesofproductionandwarehousingfacilities,productstobemanufacturedorstoredatvariouslocations,modesoftransportationtobemadeavailablealongdifferentshippinglegs,andtypeofinformationsystemtobeutilized.Afirmmustensurethatthesupplychainconfigurationsupportsitsstrategicobjectivesduringthisphase.Dell'sdecisionsregardingthelocationandcapacityofitsmanufacturingfacilities,warehouses,andsupplysourcesareallsupplychaindesignorstrategicdecisions.Supplychaindesigndecisionsaretypicallymadeforthelongterm（amatterofyears）andareveryexpensivetoalteronshortnotice.Consequently,whencompaniesmakethesedecisions,theymusttakeintoaccountuncertaintyinanticipatedmarketconditionsoverthenextfewyears.

2.Supplychainplanning.Asaresultoftheplanningphase,companiesdefineasetofoperatingpoliciesthatgovernshort-termoperations.Fordecisionsmadeduringthisphase,thesupplychain'sconfigurationdeterminedinthestrategicphaseisfixed.Thisconfigurationestablishesconstraintswithinwhichplanningmustbedone.Companiesstarttheplanningphasewithaforecastforthecomingyear（oracomparabletimeframe）ofdemandindifferentmarkets.Planningincludesdecisionsregardingwhichmarketswillbesuppliedfromwhichlocations,theplannedbuildupofinventories,thesubcontractingofmanufacturing,thereplenishmentandinventorypoliciestobefollowed,thepoliciesthatwillbeenactedregardingbackuplocationsincas