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The Base Supply Chain StoryThere's a story that you need to be able to tell relative to the supply chain and supply chain management. Thestory starts with what is a supply chain.It is a the network of processes, entities, technologies, fund-flows thatenable the right product or service to get to the right place at the right time at the right cost to and through anetwork of interrelated partners where most of the time, those partners are not something part of or in yourorganizational control.The science to make this happen as efficiently as possible is known as supply chain management. The supply chainis called a chain for a number of reasons but key are two points:1) there are in many cases intermediariesbetween the end consumer and the producer for very value-added purposes (geographic proximity, lot sizedisparity between the amount that can be economically produced, and the amount consumed, late stagedifferentiation and tailoring, etc).Because there are for-profit intermediaries, there are entities actingautonomously to their own profit agenda and as a result, natural delay in moving product through from one link inthe chain to another and2) there are steps in the process as determined in a sort of left to right flow offunctional players in the supply chain that again organizationally and from an expertise standpoint tend to actautonomously to their own purpose.In most supply chains there is a process flow from new productdevelopment depicted on the "left" of most supply chains and sales depicted on the "right" in so called make-to-stock model (the most prevalent model in most economies) supply chains. The supply chain is typically depictedthen as a process flow from new product development to, sales & operations planning (plan), to procurement(buy) to manufacture (make), to warehousing and distribution (move), to sales/return (sell).The challenge of supply chain management is that the delay caused by autonomous entities or functions notworking to the same agenda causes reduced visibility and thus (as with any traffic) reduced speeds and inherentwaste ... so-called hedges just-in case something bad happens (like a planned or unplanned delay in two unrelatedpartners doing their respective thing). These autonomous but linked operations or functions stand in contrast tothe unstated but assumed expectations of a customer that simply says why can’t I have it now, at a great price,without planning or hassle.Obviously, the job of the supply chain professional is to move the product or service through the chain asefficiently as possible so in that sense there is an optimization problem at hand with all its quantitative methodimplications.But intuitively we all know how this would or should work (efficiently/effectively) in its simplestform. The easiest way to perform supply-chain management wouldbe to fulfil all supply requests from end-consuming/paying customers after the customer specifies their need and the supply chain executes with theexact measure of supply, capacity, human capital, energy, etc necessary to return the exact requirement in thequantity, time frame (approaching zero), and quality expected. Fancy supply chain names describing this sort ofpractice model include pull, make-to-order, configure-to-order, assemble-to-order ... concepts we'll talk aboutthroughout the semester.However, in many cases for many good and challenging reasons, the ability to respond to demand once it is knowor understood is tempered, stopped, or balanced against a typically unspecified and sometimes arbitrary andarguable expectation around time-to-deliver, calledthe Customer Expected Leadtime (CELT)based on thehistorical and current technologies and paradigms to make that product/service available to the buying market (eg.you used to have to buy a book at a bookstore located within 1-50 miles of your home. A reasonably-rich-but-not-all-item-available pallet of books were available immediately at a "retail" price if you were willing to make the tripto go buy it at the local store and take it home that day. Today's paradigm is that I can have access to an almostinfinite selection of books, that can be delivered instantaneously at "retail-minus" prices through use of anelectronic device. This new product/channel method becomes the new expectation for this industry assumingthat the method has reached what I call the DVD/BlueRay tipping point in popularity. Think now about items thatyou “expect” to always be available and on (unplanned) demand: groceries, medicines, emergency medicalservices ... et. al.
The natural status for most consuming customers is that "order late" and "now" is always the preference if notoffset by other constraining matters like money, etc. So the natural expectation of customers as history hasimproved is to try and move more and more products and services into a category where we do not have to planfor the purchase or plan late in our need cycle and 2) expect that once I do specify a need that my wait time is fromnominal to nothing.A starting premise for many operations and supply chain science courses is to accept that this disparity requiresexcess capacity to exist in the supply chain so the supply side can run as it best can efficiently withoutinconveniencing or disappointing the consumers (demand side's) natural tendencies for "late" and "now". As aresult, a great deal of time is spent teaching (particularly undergrads) the nature of the "make to stock" model andthe "guess-plan-buy-make-move-and sell at a discount supply chain strategies that go with it including elaborateinventory planning and management strategies.Since most of you are 1) new to operations strategy and 2) will be using your supply chain knowledge in ways totest the assertion of others or at best-managing your own capital and entrepreneurial ideas, it is more importantto get you to think about the original premise, then strive always to first think about ways to do the easiest andmost straight-forward thing which is to serve customers that want to plan late, or not at all, and expect theirpurchase to be (ideally) delivered "now". Starting there means having a totally different toolset at your disposaland knowing two major techniques and tenets of supply chain will serve you in this effort.1)Evaluate where the product or service contemplated fits on the Demand/Lead Time 2X2 model. (akey to being "demand" not "supply" oriented)1Simchi-Levi, et al,Designing andManaging the Supply Chainwhere Lead Time represents the time through the supply chain functions –Time needed to plan, acquire raw material, produce, stage in appropriate-geography warehousing, andtransport to final customer.2)Understand, question, and test operating strategies suggested against the four tenets of great supplychains.The Lead Time in the Demand / Lead Time 2X2 should be thought of in terms of a line that runs from left to rightwhere items on the left represent those products or services, because of today's delivery and business paradigms,that are most-expected to be available without consumption planning, specification, and always available forimmediate delivery or pickup. These items are often represented by commodities; items/services with low-differentiating specification, considered staples used frequently by mass numbers of consumers, and are (in orderto sell effectively) expected to be available all the way to the natural end of "impulse buy" expectation andavailability. Products/services like milk, bread, chewing gum, People Magazine, orange juice concentrate, porkbellies, hotel rooms, dry cleaning, gasoline, ... others all fit in this category (plus or minus). Most of these itemsare made with Make-to-Stock Methods then pushed through channels or echelons of entities that hold inventorycloser and closer to the customer as we move “downstream” in the supply chain. That said, note that Pull/MTO