Module – 1

Supply Chain Management Practices and Strategies

e-content, Glossary, References and Weblinks, Case studies.

I was relaxing in the garden one summer morning, I was thinking how many products
and services keep me comfortable and happy. Oops! I realised in a day’s life it is many
products. I still wonder how do so many products reach me from the supplier to me?
How do the companies bring their products to me? then I realised it is all about supply
chains and supply chain management. The lessons on Supply Chain Management
Practices and Strategies will induce you to think as a customer and design supply
chains and supply chain management systems for Corporates.
The module is designed with three lessons namely
1. Supply chains.
2. Integrated Supply Chain Management.
3. Supply chain – Goals and Objectives

Learning Objectives:
The Objectives of the course is as follows:
1. Link the customer view of the supply chain to the organizational perspective.
2. Provide insights on supply chains and integrated supply chain management
processes.
3. Trigger your thinking to design simple integrated supply chain management
systems.
4. Comprehend objectives of supply chain, supply chain surplus and strategic
selection of supply chain models.

Learning Outcomes:
By the end of the module the learner will be able to
1. Identify the processes and practices that can lead to design and manage supply
chains.
2. Suggest measures to effectively implement an integrated supply chain
management system.
3. Comprehend the goals of supply chain of various organisations and their
related supply chain models.
4. Define supply chain objectives and relate it to supply chain models.

Lesson – I: Supply Chains

A supply chain is a flow of raw materials and processes that fulfil a customer need
Imagine you get up in the morning and look for a cup of coffee. You walk to the kitchen
shelf take the coffee powder and sugar and the milk from the refrigerator. You switch
on the stove, set the water to boil and follow the process to make coffee, with a cup of
coffee, you wonder what it takes to get the cup of coffee in the morning?

Then comes the supply chain. Let us consider the major raw material requirements for
processing a cup of coffee namely the cooking gas, utensils (coffee kettle and a cup),
water, coffee powder, sugar, and milk.

1
Moving backward as a consumer you can identify the primary supply chains that are
needed to get the cup of coffee:

Supply chain for a cup of coffee.

In short, a supply chain is a process that satisfies a customer need and consists of
multiple entities that are linked through the flow of products, information and funds.

Transferring the experience of coffee at home to a world-class the Starbucks coffee,

we can understand the supply chain in the business sense:

Supply chain of Starbucks

Starbucks Corporation with more than 24000 stores in 70 countries starts the journey
of customer fulfilment with a cup of coffee across the world with its hand-picked coffee
beans and other merchandise sourced across the globe. The goal of Starbucks supply
chain is to reduce cost and improve efficiency, it follows a Plan- Source – Make-
Deliver model of supply chain.

Plan
In 2008, Starbucks to meet the competition, planned and re-engineered its supply
chain with three major objectives namely
1. Re-organize to centralize its fragmented supply chain
2. Cut cost and improve services
3. Design supply chains to meet its future capabilities.

2
Source
As a sustainable sourcing strategy, Starbucks worked directly with its nearly 300,000
coffee growers who met the Starbucks coffee and Farmers Equity standards and
Coffee Sourcing Guidelines (CSG). Starbucks interaction with the farmers ensures
that coffee beans are of the same quality and flavour. This empowers the suppliers to
meet Quality standards, Ethical standards like protecting workers’ rights and human
working conditions and Sustainability through social responsibility.

Make
The hand-picked coffee beans generally sourced from Latin America, Africa, and Asia
are shipped in ocean containers to its 6 company owned coffee roasting plants in the
USA and Europe referred to as Green warehouses. The beans are roasted and
packed in the coffee roasting plants. The company also relies on 24 co-manufacturers
in United States, Canada, Europe, Asia and Latin America. “One world one logistics
systems” of Starbucks reduced the transportation and logistics cost and increased
efficiency.

Deliver
After the coffee bean is roasted and packed, it is transported to Regional distribution
centres. Starbucks has 5 in the USA of which 3 is owned by Starbucks and 2 are third-
party logistics companies, 2 third-party logistics companies in Europe and 2 third-party
logistics companies in Asia. The regional distribution centres carry everything that a
Starbucks store need from furniture to cappuccino cups.

The regional distribution centres supply directly to the stores if it has a location
advantage, if not the stores are supplied from third party Central Distribution Centres.
Starbucks uses 33 third-party central distribution centres in the USA, 7 in Asia / Pacific
region, and 3 in Europe and all are well connected to the regional distribution centres.
The effective communication and scorecard assessment ensure consistency, on-time
delivery, reducing end to end supply chain cost and enhanced enterprise efficiency.

Further Starbucks is vertically integrated to provide the customer delight. Starbucks is

integrated backward through purchase agreements with coffee growers and company-
owned coffee bean farms in Costa Rica and China, Company-owned bean roasting
plants and warehousing and distribution facilities. It is integrated forward with its coffee
shop selling Foods and Drinks, Coffee beans and appliances and accessories.

The holistic supply chain model of Starbucks depicts that the success of Starbucks
infact is its definition and redefinition of its supply chain to meet the global challenges
So, “What is Supply Chain “

A supply chain is a inclusive network of raw material and merchandise suppliers,

manufacturers, logistics partners, distributors, retailers and consumers who are linked
through the flow of products and services, information and funds to meet a customer
need or rather a dream.

A supply chain is a
1. Collection of suppliers linked to create one specific product/ service for a company.
2. Every product has its own supply chain, though certain suppliers are linked to multiple
products.

3
3. It is a chain or network of nodes or "links," which can include multiple suppliers,
manufacturers and subcontractors, warehouses, distribution centres, and stores
where a consumer can purchase it.
4. Each link in a supply chain is sequenced in a specific direction and order.
5. Each link in a supply chain adds time, costs, and customer service
6. Supply chains are complicated and when managed well lead to competitive
advantage
7. It involves human interfaces, digital integration, and logistics partnership.
8. Effective and responsive supply chains can be designed with Plan – Source –
manufacture – deliver model.
9. To ensure effective control over supplies, value chain, and customer service,
the supply chain can be integrated either vertically or horizontally or both.
10. Benchmarking best practices and adapting to them leads to sustainable supply
chains.

Exercises- 1
1. From your experience as consumer depict a supply chain.
2. Name the brand you like and sketch the supply chain for it.

Lesson - 2 Integrated Supply Chain Management – Processes and Practices

A supply chain is how you plan, source, make and deliver the product and services by
linking suppliers, distributors, manufacturers, logistics partners, retailers, and
consumers.
With this understanding let us now move on to understand What is integrated supply
chain management?
An integrated supply chain is about integrating the supply chain processes namely
plan – source – make – deliver. In the words of W.P. Carey, integrated supply chain
management is a process of linking the functions of buy it, make it, move it, sell it and
service it.
In short, an integrated supply chain management is a process that links the plan –
source – make – deliver functions to provide efficient and responsive services to
customers.
Now let us understand the process of Integrated supply chain management by
understanding the supply chain of Amul- the taste of India. AMUL was launched in
1946, by Gujarat Co-operative federation and has created the white revolution in India
with its focus on quality, value for money, availability, and service to customers. The
supply chain management process of Amul can be explained as follows:
Buy it: Dairy farmers in the villages supply milk to the Village Cooperative Societies
where milk is cooled and stored using chillers. Chilled milk is transported from the
Village cooperative societies to the District unions.

Make it: Milk is pasteurized in the District Union. Pasteurized milk is transported to the
State Co-operation Marketing Federation (GCMMF) factories where dairy products are
manufactured and branded

Move and Market it: Products are transported to the various wholesale and retail
stores. Amul has an extended supply chain to Amul’s food factory Reverse logistics to
return milk churn, pouch milk tray, bottles and damaged products to the dairy is
effective in Amul.

4
Let us now map each of the processes
Process- I Buy it
The upstream supply chain of Amul links the farmers and village cooperative societies.
The milk is procured at local cooperative milk collection centre and transported to the
cold storage network and the process is as follows:
Buy it – links farmers to local cooperative milk collection societies
Every farmer who supplies milk to Amul is given a plastic card for identification.
Farmer's identification number is captured and transmitted to local personal computer
Milk weighed and fat content measured. The amount due to the farmer is calculated
based on the fat content. Value of the milk is printed on the slip and farmers collect
the payment. Village Co-operative society, in turn, provides cattle feed, veterinary
service, and rural health schemes to ensure the quality of milk and suppler well- being.
The process at Amul from supplier identification to payment is digitally integrated with
Automatic Milk Collection Unit Systems (AMCUS). Amul has implemented Geographic
information systems (GIS) for tracking of milk at the village collection centres. The
Dairy Information and Service Kiosk (DISK) is set to establish good supplier
relationship. The kiosk provides information to improve cattle yield and connects them
to procure or collaborate with dairy products and services suppliers.it also provides
information and functions as a decision support system for Village collection centres
to imp rove the performance.
Process 2: Make it and move it:
At Amul, the milk is pasteurized at the District Milk Unions referred to as Cool storage
network. The internal supply chain of “Make it “starts with the milk being received at
District Milk unions with chilling plants.:
Amul’s chillers (District Milk Unions) are strategically located in proximity to the villages
and delivery to local chillers is by insulated rail tankers and chilled trucks. Amul
facilitates prompt transportation to district facilities and further dispatch it to consumer
or processing units. Transport of processed products are through chilled trucks to
distribution centers. Electronic systems to track inventory provides information for
replenishment schedules.
Amul has interconnected its zonal offices, regional offices, and member diaries
through VSAT and Gujarat Co-operative Federation have a strategic tie-up with IBM
to implement SAP ERP on IBM technologies. This will digitally connect end to end
business processes and ensure effective supply chain performance.
Process three: Move it and sell it
The downstream supply chain of Amul indicate that processed milk and dairy products
move from dairy unions to GCMMF owned warehouses. Orders are received by
GCMMF (Devas Naka) and products are distributed through its 56 Sales offices, and
a network of 10,000 dealers and 100,000 retailers. Amul adopts a three-tier
downstream flow as .Manufacturing units - Company depots- Wholesale depots –
Retailers and Direct retailing through Amul utterly delicious parlours/franchisees
Logistics decisions for distribution are controlled by Amul and the transportation cost
is borne by Amul. GCMMF monitors suppliers of milk and distributors of finished
goods. Effective reverse logistics minimizes cost. Amul has established a B2B and
B2C portal that links its supply partners, distributors, and customers and it e -sells all
its products through cyber stores.
Process 4: Integrate it
Amul as a Cooperative society has integrated its supply chain effectively both vertically
and horizontally. The basic advantage of Amul’s supply chain is

5
 1. It’s backward integration with dairy farmers who are members and the village
co-operative societies who function as collection centres.
2. It’s forward integration to meet customers is through Amul utterly delicious
parlours/ franchisees and Amul ‘s cyberstores.

What are some of the lessons learnt from Amul’s integrated supply chain management
processes?
Lessons Learnt – Buy it
1. Geographic proximity of supplies provides a competitive advantage
2. Provide simple automated procurement services to reduce the procurement
time.
3. Develop a long-term supplier relationship
4. Provide support systems to suppliers for improved productivity and to meet
quality standards
5. Partnering and revenue sharing with the supplier to indicate your growth is also
his growth.
6. Digital integration provides better supplier service and ensures quality
assessment and speedy delivery by suppliers.

Lessons Learnt – Make it and move it

1. The strategic location of manufacturing facilities that captures local
manufacturing advantages.
2. Resources and internal logistics systems need to be designed to suit the
product and process type.
3. Outsourcing decisions for supply chain processes and supporting processes
determine the success of supply chain management.
4. Digital integration with enterprise resource planning enhances supply chain
efficiency and responsiveness.

Lesson learnt: Move it and sell it

1. Storage, transportation, and logistics need to be monitored effectively.
2. Cost and lead time in transportation is an important factor to be considered in
the supply chain.
3. A network of distributors need to be maintained without conflict of interest
4. Digital integration needs to trigger customer analysis, integrate demand
management with supply chains.
5. Design Business portals and cyber stores for responsive supply chains.

Lessons Learnt – Integrate it

1. Vertical and horizontal integration is the extended supply chain of any
organization
2. Design effective processes that ensure quality, speedy delivery and flexibility
across the supply chain partners.

To sum up, integrated supply chain management is about linking 5 functions namely
buy it, make it, move it, sell an
d service it, integrate it and this is achieved by well- designed and unique supply chain
processes namely Customer analysis, Supplier partnership, Inventory management,
Materials and lead time management, Manufacturing and outsourcing, Storage,
logistics, and transportation, Selling and servicing. Through perfectly designed

6
downstream, internal and upstream supply chains that are vertically and horizontally
integrated.
Effectively integrated supply chains are achieved by
1. Proper mapping of all the functions and activities across the supply chain and
eliminating unnecessary processes. (lean supply chain management)
2. Creating a culture that respects quality, speedy delivery and flexibility to meet
the changing demand, among the team members and the extended supply
chain partners (agile supply chain management)
3. Focusing on sustainable supply chains (Green supply chains management)

Now an exercise for you to help you comprehend and design integrated supply chain
management systems
1. List the integrated supply chain processes that can create competitive
advantage
2. The cooking gas agent supplying cooking gas cylinders to your house is worried
about the spiralling distribution cost and diminishing profits. He cannot pass on
the price fluctuations to the customer as he has to distribute the cooking gas
cylinders at the government rates. map his supply chain and give five
suggestions to improve its efficiency at a reduced cost.
Lesson -3: Supply Chain – Goals and Strategies
Supply chain is a sequence of functions and activities involved in delivering a product
or service. It is a complex network of organisations who supply, partner and
collaborate to fulfil a customer need.
This is also referred to as value chain consisting of three parts namely
• Upstream supply chain (procurement and inbound logistics)
• Manufacturing or operations logistics (Material management, inventory
and internal logistics),
• Downstream supply chain (Outbound logistics, marketing and after
sales).
Supply chain function determines the success and failure of an organisation as it is
customer centric and directed towards customer satisfaction.

Objective of Supply Chain and Supply Chain Management

Imagine you are arriving home late and you want a quick dinner you call a home
service and order you dinner. the moment you place your order the supply chain
process starts and it ends when you receive the order bur the success of the supply
chain is achieved if you have received the order as specified by you , the food is tasty
and fresh and if it reached you within the time anticipated and made you feel you have
not paid more for the service. From the customer perspective and the organisational
perspective
The goal of supply chain is to optimise the 7Rs namely providing to the right customer
the right product of the right quantity and right condition for the right price at the right
place and right time and this is possible only through integration of processes that
ensures effective flow of products, information and funds.
From the organisational perspective, the goal of supply chain is to optimise the 7Rs at
the least cost and minimum lead time this in financial terms is the Supply Chain surplus

7
Supply Chain Surplus
The objective of every supply chain is to maximise the overall value generated or
supply chain surplus
Supply chain surplus = Customer value- Supply chain cost
Customer Value is the benefit that a customer gets from the product or service and
from the firm’s perspective it indicates revenue generated from the customer. Supply
chain cost involves cost of flow of product / service, information and funds. Effective
supply chains are achieved by optimising the supply chain assets and products,
information and funds flow to maximise supply chain surplus. The supply chain
decisions focus on responsive deliveries at the lowest cost and supply chain decisions
in connection with supply chain surplus should be viewed from the competitor’s
perspective. Explaining this with example of two occasions when a customer wants to
buy a kg of apples.
1. Occasion one: is he visits the supermarket with his family and picks one kg of apple
2. Occasion two is he visits his friend in the hospital and buys a kg of apple from the
juice shop near the hospital
With little differentiation in the quality of apple, let us calculate the supply chain surplus
for a kg of apple in these two occasions
Occasion Customer with the family Customer visiting his
visits a supermarket on a friend in the hospital and
Sunday and buyg a kg of buying a a kg of apple at
apple the local fruit stall near the
hospital
Customer Spent some family time and at Buys the apple based on ,
experience the time complete the task of quality , availability and
replenishing his monthly stock proximity to purchase
Customer value Sum of customer value for (1 sum of customer value for
kg of apple +label on the apple (1 kg of apple+ quality
+convenience +family time + +convenience +quick
luxury enjoyed and loyalty purchase + proximity )
+store atmosphere and
experience )
. 150 per kg . 120 per kg
Supply chain cost Sum of ( procurement cost + sum of (procurement cost at
cost at three tier supply chain + single tier supply chain +
transportation cost short distance transportation
+preservation and stoage cost cost + replenishment cost +
+ inventory and other resource minimal reverse logistics
cost + store expenses cost )
+wastage and reverse logistics
cost +taxation)
. 120 per kg .80 per kg

Supply chain . 150 . 120 .120 – Rs. 80

surplus
Customer value – . 30 . 40
Supply chain cost

8
Does that mean the supply chain of a local fruit stall more competitive than the
supermarkets?
In the real sense, apart from the profits (supply chain surplus) ,the competitiveness of
a supply chain is determined by how efficient and how responsive is the supply chain
to meet the customer requirement and competitive challenges .In the above case the
success lays in how successfully the super market and local fruit stall leverages the
market conditions.
The local fruit seller can leverage on
1. Replenish to sale from local markets
2. Less inventory, logistics and storage cost
3. Forward integration (juice shop) to reduce wastage
4. Compete on price rather than product or service differentiation
The supermarket can leverage on
1. Economies of scale
2. Bulk purchase and bulk selling
3. Improved customer service and customer value
4. Backward integration and outsourcing
So, Supply chain management decision is based on what should the supply chain aim
at Efficiency or Responsiveness or both.
Efficiency-oriented supply chain vs responsiveness-oriented supply chains
The aims, supply chain models and its applicability based on efficiency and
responsiveness can be summarised as follows

Supply chain Efficiency Responsiveness

Orientation
Goals • Low cost supply chain •
Meeting changing
• High utilization of assets customer needs
• Reduced lead time and • Shortening Lead time
wastage • Respond to innovative
• Availability and quality meets products and variety
customer expectation seeking customers
• High service level
quality
Supply chain • Efficient supply chain model • Agile supply chain
models • The fast supply chain model model
• Continuous supply chain • Custom configured
model supply chain model

Applicability • Demand has become more • Demand is very

certain and supply is uncertain
predictable • Firms earn High
• Margins are lower and intense Margins when
competition demand meets supply
• Price influences consumer • Product innovation,
choice variety and availability
attracts customers.
• Cost is a secondary
consideration

9
In short, the objectives of a supply chain are to
• Ensure continuity in production and delivery of products to the consumer
• Reduce cost and maximise asset utilisation
• Provide better value for the product by reducing cost and increasing customer
experience
• Respond quickly to market changes
• Innovate new products and processes to meet customer needs and
• Improve quality of products and services.
These objectives can be achieved by designing the supply chain to be efficient and
responsive to the demand conditions.
Conclusion:
To conclude, the objective of any supply chain management systems are:
1. To optimise the 7Rs (providing to the right customer the right product of the
right quantity and right condition for the right price at the right place and right
time.
2. To maximize the supply chain surplus and
3. To balance Efficiency and responsiveness of supply chain
These objectives of the supply chain help in decision of which supply chain model to
opt for in a given market condition?
And two note worthy points are:
1. Strategic choice of efficiency-oriented supply chain model or responsiveness-
oriented supply chain model depends on the industry type, competition and
customer choice.
2. To achieve strategic fit, the supply chain model can be shifted from one type to
the other and as the product moves through the product life cycle and as the
demand-supply characteristics change.

Points to ponder:
Three examples of well-known supply chain masters namely Walmart, Amazon and Telsa
as quoting from Smart street Inc USA (https://www.smartsheet.com/supply-chain-
management) is presented for you as a transcript
On reading the brief on the supply chain innovations, comment on the following:
1. What is the supply chain objective of these firms?
2. What is the supply chain model that these firms have followed and how are they
different?
3. Explain how they have balanced efficiency and responsiveness of the supply chain

10
 Module – I Glossary
Supply A supply chain is a flow of raw materials and processes that fulfil a
Chain customer need.
A supply chain is a process that satisfies a customer need and consists of
multiple entities that are linked through the flow of products, information
and funds
A supply chain is a inclusive network of raw material and merchandise
suppliers, manufacturers, logistics partners, distributors, retailers and
consumers who are linked through the flow of products and services,
information and funds to meet a customer need or rather a dream.
Supply The supply framework that consist of four supply chain decision areas
Chain model namely Plan-Source-Make- Deliver,
Supply Integrated supply chain management is a process that links the plan –
Chain source – make – deliver functions to provide efficient and responsive
Management services to customers.
(SCM) Integrated supply chain management is a process of linking the functions
of buy it, make it, move it, sell it and service it. (W.C. Carey)
Upstream Upstream supply chain includes all operations that enable flow of materials
supply chain into the manufacturing process. It consists of procurement and inbound
logistics.
Procurement Procurement involves sourcing and purchasing all the inputs / resources
needed to manufacture a product or to provide a service.
Inbound Inbound logistics includes chain of activities related to receiving raw
Logistics materials, holding inventory and issuing them to the operations.
Downstream Downstream supply chain includes all operation that enable flow of
supply chain materials from the organisation to the customers. It includes outbound
logistics, marketing and sales, and services.
Outbound Outbound logistics includes chain of activities related to warehousing and
logistics distribution of finished goods to the customers
Internal Internal supply chain refers to chain of activities within an organisation that
supply results in providing a product / service to the customer.
chains
Extended Supply chain is extended to collaborate with the suppliers and trading
supply partners and the customers
chains /
supply chain
network
Vertically Supply Chains when in the firm controls the supplies and distribution.
integrated Backward integration – supply chains integrates the firm with the suppliers.
supply Forward integration -supply chains integrate the firm with the distribution
chains channels that carry the products to the consumers.
Horizontally Supply chains that integrate with companies of similar products or services
integrated .
Supply
chains

11
 Module – I Glossary
Bench Comparing the supply chain practices of a firm to the best in the industry
Marking and best practices from other companies.
Customer Customer value is the satisfaction of a customer.
value Customer Value is the revenue generated from customers.

Cost of Supply chain cost is the overall cost of flow of product / service, information
supply chain and funds.
Supply chain Supply chain surplus is the overall value generated
surplus Supply chain surplus = Customer value- Supply chain cost

References:
1. Sunil Chopra and Peter Meindl, (2015), “Supply Chain Management: Strategy,
Planning and Operation”, 6th Edition, Pearson Higher Education, New Delhi.
2. Donal J Bowersox, David J Closs, M Bixby Cooper (2008), “Supply Chain Logistics
Management”, 2nd Edition, Tata McGraw Hill, New Delhi.
3. Michael H. Hugos (2011), “Essentials of Supply Chain Management”, 3rd Edition,
Wiley Publications, US.
4. Robert B. Handfield, Ernest Nichols (2016), “Introduction to Supply Chain
Management”, 1st Edition, Pearson Education, New Delhi.

Weblinks
1. From bean to cup: How Starbucks transformed its supply chain,
http://www.supplychainquarterly.com/topics/Procurement/scq201004starbucks/
http://www.supplychainquarterly.com/topics/Procurement/scq201004starbucks
2. escm at Amul, https://www.slideshare.net/karanshah101/amul-ppt-finale-
3. What is supply chain, https://www.smartsheet.com/supply-chain-
management.

12