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An Introduction To Supply Chain Management

The document provides an overview of supply chain management. It defines a supply chain as a network of facilities that procures materials, transforms them into products, and distributes finished products to customers. It notes that traditionally, organizations along the supply chain operated independently, but that supply chain management aims to integrate suppliers, manufacturers, warehouses, and stores to minimize costs while meeting service requirements. Key decisions in supply chain management include location of facilities, production planning, inventory management, and transportation/distribution.

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90 views

An Introduction To Supply Chain Management

The document provides an overview of supply chain management. It defines a supply chain as a network of facilities that procures materials, transforms them into products, and distributes finished products to customers. It notes that traditionally, organizations along the supply chain operated independently, but that supply chain management aims to integrate suppliers, manufacturers, warehouses, and stores to minimize costs while meeting service requirements. Key decisions in supply chain management include location of facilities, production planning, inventory management, and transportation/distribution.

Uploaded by

sukhbir24
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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An Introduction to Supply Chain

Management
A supply chain is a network of facilities and distribution
options that performs the functions of procurement of
materials, transformation of these materials into intermediate
and finished products, and the distribution of these finished
products to customers. Supply chains exist in both service and
manufacturing organizations, although the complexity of the
chain may vary greatly from industry to industry and firm to
firm.
Realistic supply chains have multiple end products with
shared components, facilities and capacities. The flow of
materials is not always along an arborescent network, various
modes of transportation may be considered, and the bill of
materials for the end items may be both deep and large.

Traditionally,
marketing,
distribution,
planning,
manufacturing, and the purchasing organizations along the
supply chain operated independently. These organizations
have their own objectives and these are often conflicting.
Marketing's objective of high customer service and maximum
sales dollars conflict with manufacturing and distribution
goals. Many manufacturing operations are designed to
maximize output (throughput) and lower costs with little
consideration for the impact on inventory levels and
distribution capabilities.

Purchasing contracts are often negotiated with very little


information beyond historical buying patterns. The result of
these factors is that there is not a single, integrated plan for
the organization---there were as many plans as businesses.
Clearly, there is a need for a mechanism through which these
different functions can be integrated together. Supply chain
management is a strategy through which such an integration
can be achieved.

Supply Chain Management is a set of approaches utilised to


efficiently integrate suppliers, manufacturers, warehouses, and
stores, so that product is produced and distributed at the right
quantities, to the right locations, and at the right time, in order
to minimise system wide costs, while satisfying service level
requirements

Observations :
I
1. SCM considers every facility that has impact on cost
2. Making the product confirm to requirement
3. From supplier- storage -Mfg Facilities- Warehousedistribution centres- retailers
4. Sometimes, suppliers suppliers and customers customers
II
1. Efficient and cost effective across entire system

2. From transportation cost distribution cost- inventories of


raw material-WIP inventory of finished goods

SCM is integration of suppliers, mfgs, warehouse, etc.


e.g- Turnaround of Indian Railways

Supply chain management is typically viewed to lie between


fully vertically integrated firms, where the entire material
flow is owned by a single firm, and those where each channel
member operates independently. Therefore coordination
between the various players in the chain is key in its effective
management. Cooper and Ellram [1993] compare supply
chain management to a well-balanced and well-practiced relay
team. Such a team is more competitive when each player
knows how to be positioned for the hand-off. The
relationships are the strongest between players who directly
pass the baton, but the entire team needs to make a
coordinated effort to win the race.
Supply Chain Decisions
We classify the decisions for supply chain management into two broad categories -- strategic
and operational. As the term implies, strategic decisions are made typically over a longer time
horizon. These are closely linked to the corporate strategy (they sometimes {\it are} the
corporate strategy), and guide supply chain policies from a design perspective. On the other
hand, operational decisions are short term, and focus on activities over a day-to-day basis.
The effort in these type of decisions is to effectively and efficiently manage the product flow
in the "strategically" planned supply chain.

There are four major decision areas in supply chain management: 1) location, 2) production,
3) inventory, and 4) transportation (distribution), and there are both strategic and operational
elements in each of these decision areas.

Location Decisions
The geographic placement of production facilities, stocking points, and sourcing points is the
natural first step in creating a supply chain. The location of facilities involves a commitment
of resources to a long-term plan. Once the size, number, and location of these are determined,
so are the possible paths by which the product flows through to the final customer. These
decisions are of great significance to a firm since they represent the basic strategy for
accessing customer markets, and will have a considerable impact on revenue, cost, and level
of service. These decisions should be determined by an optimization routine that considers
production costs, taxes, duties and duty drawback, tariffs, local content, distribution costs,
production limitations, etc. (See Arntzen, Brown, Harrison and Trafton [1995] for a thorough
discussion of these aspects.) Although location decisions are primarily strategic, they also
have implications on an operational level.

Production Decisions
The strategic decisions include what products to produce, and which plants to produce them
in, allocation of suppliers to plants, plants to DC's, and DC's to customer markets. As before,
these decisions have a big impact on the revenues, costs and customer service levels of the
firm. These decisions assume the existence of the facilities, but determine the exact path(s)
through which a product flows to and from these facilities. Another critical issue is the
capacity of the manufacturing facilities--and this largely depends the degree of vertical
integration within the firm. Operational decisions focus on detailed production scheduling.
These decisions include the construction of the master production schedules, scheduling
production on machines, and equipment maintenance. Other considerations include workload
balancing, and quality control measures at a production facility.

Inventory Decisions
These refer to means by which inventories are managed. Inventories exist at every stage of
the supply chain as either raw materials, semi-finished or finished goods. They can also be inprocess between locations. Their primary purpose to buffer against any uncertainty that might
exist in the supply chain. Since holding of inventories can cost anywhere between 20 to 40
percent of their value, their efficient management is critical in supply chain operations. It is
strategic in the sense that top management sets goals. However, most researchers have
approached the management of inventory from an operational perspective. These include
deployment strategies (push versus pull), control policies --- the determination of the optimal
levels of order quantities and reorder points, and setting safety stock levels, at each stocking
location. These levels are critical, since they are primary determinants of customer service
levels.

Transportation Decisions
The mode choice aspect of these decisions are the more strategic ones. These are closely
linked to the inventory decisions, since the best choice of mode is often found by trading-off
the cost of using the particular mode of transport with the indirect cost of inventory
associated with that mode. While air shipments may be fast, reliable, and warrant lesser
safety stocks, they are expensive. Meanwhile shipping by sea or rail may be much cheaper,
but they necessitate holding relatively large amounts of inventory to buffer against the
inherent uncertainty associated with them. Therefore customer service levels, and geographic
location play vital roles in such decisions. Since transportation is more than 30 percent of the
logistics costs, operating efficiently makes good economic sense. Shipment sizes
(consolidated bulk shipments versus Lot-for-Lot), routing and scheduling of equipment are
key in effective management of the firm's transport strategy.

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