Unit 1

INTRODUCTION
TO SUPPLY
CHAINS
a) Definition of a Supply Chain
b) Types of Supply Chains
c) Supply Chain Flows
d) Tiering in the Supply Chain
e) Managing Supply Chain Risk
f) Supply Chain Management Processes &
Enablers
 Definition of a Supply Chain

A supply chain is a network between a company and its suppliers to produce and

distribute a specific product to the final buyer. This network includes different

activities, people, entities, information, and resources. The supply chain also represents

the steps it takes to get the product or service from its original state to the customer.

Companies develop supply chains so they can reduce their costs and remain competitive

in the business landscape.

 Types of Supply Chains

There are many different types of supply chain models available to companies interested in implementing a strategy to

improve efficiency and workflow. The type of supply chain model a company selects will often depend on how the

company is structured and what its specific needs are. Here are a few examples:

a) Raw Supply Chains: Raw supply chain is one of the basic types of the supply It is very lightly organized, and

most of the systems and processes are followed from the legacy.

b) Ripe Supply Chains: This type of supply chain exist in the situations where organizations are satisfied with

what they have achieved and whatever needs to be achieved. Ripe supply chains have well-organized activities

and improved relationship with distributors and suppliers.

 Cont’

a) Internal Supply Chains: They are the most common types of supply chains and can be easily found in

organizations, where ERP packages and organizational internal operational are well-coordinated and managed.

b) Internal Supply Chains: They are the most common types of supply chains and can be easily found in

organizations, where ERP packages and organizational internal operational are well-coordinated and managed.

c) Extended Supply Chains: Extended supply chains are an extension of the internal supply chain concept.

These are nothing, but well-established internal supply chains which extend beyond the boundaries of the

organization to include external stakeholders like distributors and suppliers. However, the focus is only on the

topmost distributors and suppliers.

 Cont’
a) Outsourced Supply Chain: Under these supply chains, outsourced supply chains which are
typically in the form if 3PL logistics partners, take care of all the aspects of the supply chain
outbound logistics, inbound logistics, relationships, etc. They take all the critical decisions and
also monitor the working of the supply chain.

b) Production-Oriented Supply Chains: This type of supply chains has a single objective- to
make maximum utilization of capacity and labor. These supply chains consider production as the
utmost important function, and all the other activities lag behind.

c) Financial-oriented Supply Chains: Also known as cash-to-cash cycle chains, these chains aim
to provide the organization with a negative working capital. This releases funds for the
organization which would otherwise be blocked in inventory and accounts receivables. These
released funds can be suitably employed elsewhere.
 Cont’

a) Self-Monitored Supply Chains: In this type of supply chain, the manufacturing company becomes the

centre, and takes the lead in bringing all the partners and suppliers in its supply chain. Thus, self-

monitored supply chains are company-centric and not customer-centric.

b) Market-Oriented Supply Chains: They are typical built-to-order type supply chains which are

activated when the customer places an order. They are also known as customer supply chains.

c) Value Chains: Value chains are the highest form of supply chains which avoid optimization in parts

and focus on total optimization. These chains also address other related issues such as waste disposal,

low productivity.
Supply Chain Flows

There are Five major flows in any supply chain:

a) Product flow
b) Financial flow
c) Information flow
d) Value flow
e) Risk flow
Supply Chain Flows

So now that you have a better understanding of your supply chain, let’s discuss the three

flows of supply chain.

Let’s dive right into it. Supply chain management is the management of these three flows:

Material (Product) Flow

Information Flow

Financial Flow
 However, The three flows of supply chain

1) Material (Product) Flow

This is the flow of the physical product from supplier all the way down to the customer. This flow is usually

uni-directional, that is, it only flows one direction from supplier to customer; however, in certain instances,

when the customer returns the product, the flow occasionally goes in the other direction. A typical flow of

materials usually begins with the raw materials suppliers to manufacturers to warehouses and distribution

to the final customer.

2) Information Flow

Information flow is the flow of information from supplier to customer and from customer back to supplier.

This flow is bi-directional, that is, it goes both direction in the supply chain. The type of information that

flows between customers and suppliers include quotations, purchase orders, delivery status, invoices,

customer complaints and so on. For supply chain to be successful there has to be constant interaction

between supplier and Customer. In many cases, other partners like distributors, dealers, retailers, logistic

service providers are involved in the information network.

3) The value flow,

A supply chain has a series of value creating processes spanning over entire chain

in order to provide added value to the end consumer. At each stage there are

physical flows relating to production, distribution; while at each stage, there is

some addition of value to the products or services.

4) The flow of risk:

Risks in supply chain are due to various uncertain elements broadly covered under
demand, supply, price, lead time, etc. Supply chain risk is a potential occurrence of an
incident or failure to seize opportunities of supplying the customer in which its outcomes
result in financial loss for the whole supply chain. Risks therefore can appear as any kind
of disruptions, price volatility, and poor perceived quality of the product or service, process
/ internal quality failures, deficiency of physical infrastructure, natural disaster or any event
damaging the reputation of the firm. Risk factors also include cash flow constraints,
inventory financing and delayed cash payment. Risks can be external or internal and move
either way with product or financial or information or value flow.
5) Financial Flow

Lastly, financial flow involves the movement of money from the customer to the supplier.

Usually, when the customer receives the product and verifies it, the customer pays and the

money travels back to the supplier. Sometimes the finances flow the other direction (from

supplier to customer) in form of debit.

For an efficient and effective supply chain, it is important that all three flows are managed

properly with minimal effort. By understanding your supply chain and how products,

information and money flows through it, you will be in a good position to find several

inefficiencies and figure out how to significantly improve your business.

 Tiering in the Supply Chain

Tiering suppliers is a form of supply base management in

which suppliers are organised such that only first tier

suppliers deal directly with the buying organisation. In other

words, its the practice allows the development of differentiated

supply relationships with a smaller community of suppliers.

 Managing Supply Chain Risk

Risk management is a central part of any organization’s strategic management.

In business, risk management is defined as the process of identifying, monitoring

and managing potential risks in order to minimize the negative impact they may
have on an organization. Examples of potential risks include security breaches, data
loss, cyber-attacks, system failures and natural disasters. An effective risk
management process will help identify which risks pose the biggest threat to an
organization and provide guidelines for handling them.
Supply Chain Risk
Management Process

The 3 Steps of Risk Management

The risk management process consists of three parts: risk

assessment and analysis, risk evaluation and risk

treatment. Below, we delve further into the three components of

risk management and explain what you can do to simplify the

process.
Risk Assessment & Analysis

The first step of the risk management process is called the risk assessment and

analysis stage. A risk assessment evaluates an organization's exposure to

uncertain events that could impact its day-to-day operations and estimates the

damage those events could have on an organization's revenue and reputation.

Effectively assessing and analyzing an organization's risks helps protect assets,

improve decision making and optimize operational efficiency across the board to

save money, time and resources.

Risk Evaluation

After the risk assessment/analysis has been completed, a risk evaluation should take

place. A risk evaluation compares estimated risks against risk criteria that the

organization has already established. Risk criteria can include associated costs and

benefits, socio-economic factors, legal requirements and system malfunctions.

Risk Treatment & Response

The last step in the risk management process is risk treatment and response. Risk

treatment is the implementation of policies and procedures that will help avoid or

minimize risks. Risk treatment also extends to risk transfer and risk financing.

It is important to note that risk management is an ongoing process and does not end once

risks have been identified and mitigated. An organization's risk management policies

should be revisited every year to ensure policies are up-to-date and relevant.
TYPES OF RISKS

External Risks

These risks can be driven by events either

upstream or downstream in the supply chain

Types of External Risks
include,
Demand risks
These are related to unpredictable or misunderstood customer or end-
customer demand.
Supply risks
These are related to any disturbances to the flow of product within your
supply chain.
Environment risks
These are risks that originate from shocks outside the supply chain.
Cont’

 Business risks
These are related to factors such as suppliers’ financial or management
stability.
 Physical risks
These are related to the condition of a supplier’s physical facilities.
Internal risks

These risks that are driven by events

within company control.
Manufacturing risks

These are caused by disruptions of internal operations or processes.

Business risks

These are caused by changes in key personnel, management, reporting

structures, or business processes.

Planning and control risks

These are caused by inadequate assessment and planning, and ineffective

management.

Mitigation and contingency risks

These are caused by not putting in place contingencies.

The Supply Chain Enablers

The are four main Supply Chain Enablers

1) Organisational Infrastructure

2) Information Technology

3) Strategic Alliance

4) Human Resource Management

The Structure of the SC Enablers
 Organisation Infrastructure
 Functional Unit & Change management

Attributes

 Business Strategy

 Process flow methodologies

 Having people committed to and responsible for cross-functional processes

 Operating Units

 Cross-functional Design Team

 Business Processes within the organisation

 Business function to drive Supply Chain Management Initiative

 Information Technology
Affecting Company’s Operational and Strategic Supply Chain Processes

Attributes

 Operations, Marketing and logistics data

 Data availability

 SCM linked ERP systems

 State-of-the-Art system

 State-of-the-IT thinking
 Strategic Alliance
Building and managing Relationships

Attributes

 Clearly stated expectations

 Collaboration on SC Design, Product and Service Strategies

 Top Management regular interface

Human Resource Management
 Job Description Design & Job Position filled

 Career Path & Recognition of people

Attributes

 Sourcing, Hiring and selecting skilled people

 Change Agents to manage SCM Processes

 Compensation and incentive Programs

 Internal Process Facilitators

 Appropriate Job Descriptions and Responsibilities

 Performance Appraisal Systems.

Conceptual Model of SC Enablers