Merl Grove High School

Principles of Business
Supply Chain Management
Teacher: Mrs. Jacqueline Samuels
Lesson Objectives
At the end of this lesson, the students will be able to:
Define supply chain and supply chain management
Define Logistics Management
Explain the key parts and flows of supply chain
Explain Modification of Preferences in logistic management
Linking Competitive (Business) and Supply Chain Strategies
Critique the Significance (or Objectives) of Logistics Management

1.1 Introduction
The global market faces a fierce competition today. The introduction of products with
shorter life cycles and the heightened expectations of customers have forced business
enterprises to invest in, and focus attention on, their supply chains. This, together with
continuing advances in communications and transportation technologies (e.g., mobile
communication, internet, and overnight delivery), has motivated the continuous
evolution of the supply chain and of the techniques to manage it effectively. Recently,
the pressure of the competitive market and new information technologies has affected the
structures of the production systems, calling for:
 Reduction of time to market
 Higher flexibility of the systems
 Drastic reduction of costs
 Extended quality concept
Definition of Supply Chain
• A supply chain is a system of organizations, people, technology, activities,
information and resources involved in moving a product or service from supplier to
customer.
• A supply chain is a network of retailers, distributors, transporters, storage
facilities, and suppliers that participate in the production, delivery and sale of a
product to the consumer.
• These activities are associated with the flow and transformation of goods from the
raw materials stage to the end user, as well as the associated information and funds
flows.
• Supply chain activities transform natural resources, raw materials and components
into a finished product that is delivered to the end customer.
 • In simple terms, a supply chain is the link between a firm or business and its
suppliers and customers.

Supplier Firm Customer

Fig. 1.1 A Conceptual Model of a Basic Supply Chain

The supply chain, which is also referred to as the logistics network, consists of suppliers,
manufacturing centres, warehouses, distribution centres, and retail outlets, as well as raw
materials, work-in-process inventory, and finished products that flow between the
facilities.
Suppliers Manufacturers
Warehouses and
distribution centers Customers

Manufacturing costs
Transportation costs
Material costs Transportation costs

Inventory costs

Fig. 1.2 A supply chain network

A supply chain has three key parts:
Supply which focuses on the raw materials supplied to manufacturing, including how, when, and
from what location.
Manufacturing which focuses on converting these raw materials into finished products.
Distribution which focuses on ensuring that the products reach the consumers through an
organized network of distributors, warehouses, and retailers.

Fig. 1.3 Key parts of supply chain

A supply chain encompasses all activities in fulfilling customer demands and requests.
In sophisticated supply chain systems, used products may re-enter the supply chain at any point
where residual value is recyclable.
A supply chain strategy refers to how the supply chain should operate in order to compete in the
market. The strategy evaluates the benefits and costs relating to the operation. The supply chain
strategy focuses on the actual operations of the organization and the supply chain that will be
used to meet a specific goal.
The supply chain integrates, coordinates and monitors the flow of materials, information, and
funds.

Raw Material
Manufacturing Retailers End Customers
Suppliers

Information Flow

Material Flow

Fund Flow

Customer Order
 Cycles

PUSH PROCESSES PULL PROCESSES

Customer
Manufacturing and
• Replenishment
• The flows in supply chains helps in:
Close connection between design and management of supply chain flows
(product, information, and cash) and supply chain success.
Playing a significant role in the success or failure of a firm.

Linking Competitive (Business) and Supply Chain Strategies

• The competitive strategy defines the set of customer needs which a firm seeks to
satisfy through its products and services. It includes low cost, rapid response, product
differentiation etc.
• Supply chain strategy determines the nature of material procurement, transportation
of materials, and manufacture of product or creation of service, distribution of
product.
• Consistency and support between supply chain strategy, competitive strategy, and
other functional strategies is important.

LOGISTIC MANAGEMENT
Logistics management is the part of the supply chain process that plans, implements, and
controls the efficient, effective flow and storage of goods, services, and related information
from the point of origin to the point of consumption to meet customer requirements.
Logistics management may be defined as follows: According to the Council of Logistics
Management, logistics can be defined as “that part of supply chain process that plans,
 implements and controls the efficient, effective flow and storage of goods, services and
related information from the point of origin to the point of consumption”

Logistics Management is an all-inclusive term that encompasses both planning and execution of
four key aspects of logistics, i.e. transportation, distribution, warehousing and purchasing.
Another pertinent factor that logistics management takes into account is the flow of goods
in forward and reverse order. Logistics management consists of the process of planning,
implementing and controlling the efficient flow of raw-materials, work-in-progress and finished
goods and related information- from point of origin to point of consumption; with a view to
providing satisfaction to the customer.

Modification of Preferences
 The energy crisis of the moment drives the movement towards the improvement of transport
and storage.
 Just in Time’s approach was modified by Quick Response (QR) and Efficient Consumer
Response (ECR) with the sole purpose of seeking a precise delivery with the exact amount, when
and where needed, to meet to the customer.
 Changes in supply chain preferences where special attention is paid to suppliers, distributors
and customer service, defining the end-user’s demand.
 Inventories, total logistics costs are reduced, and delivery times are shorter.
 Logistics operations are energy-intensive: environmental-ecological concern is born
Promotion of Logistics
Logistics went on to become a more integrated process in terms of its external and internal
environment, in other words, its internal processes within the company were managed according
to the relationships that were with its customers and suppliers. This process of integration causes
logistics management to begin with a strategic plan regarding the design of how to reach the final
customers, in order to go out and minimize competition, establishing efficient plans for the
supply of the products.
 Technology continues to position itself in conventional Logistics processes and Distribution
channels
 Outsourcing services
 Demand for logistics services expands day by day it is observed that to put into practice a good
business logistics management is essential, it has developed over time and is now a basic aspect.
A perfectly designed logistics project is the most strategic tool to compete with the demanding
current market, achieving customer loyalty.

Classification of Logistical Activities

Logistics (or Logistical Activities) may be broadly classified into two categories:
I. Inbound logistics; which is concerned with the smooth and cost effective inflow of materials
and other inputs (that are needed in the manufacturing process) from suppliers to the plant. For
proper management of inbound logistics, the management has to maintain a continuous interface
with suppliers (vendors)
2.Outbound logistics (also called physical distribution management or supply chain
management); is concerned with the flow of finished goods and other related information from
the firm to the customer. For proper management of outbound logistics, the management has to
maintain a continuous interface with transport operators and channels of distribution.

Significance (or Objectives) of Logistics Management

Logistics management is significant for the following reasons:
(2) Cost Reduction and Profit Maximization: Logistics management results in cost reduction
and profit maximization, primarily due to:
1. Improved material handling
2. Safe, speedy and economical transportation
3. Optimum number and convenient location of warehouses etc.
(ii) Efficient Flow of Manufacturing Operations: Inbound logistics helps in the efficient flow
of manufacturing operations, due to on-time delivery of materials, proper utilization of materials
and semi-finished goods in the production process and so on.
(iii) Competitive Edge: Logistics provide, maintain and sharpen the competitive edge of an
enterprise by: 1. Increasing sales through providing better customer service 2. Arranging for
rapid and reliable delivery 3. Avoiding errors in order processing; and so on.
(iv) Effective Communication System: An efficient information system is a must for sound
logistics management. As such, logistics management helps in developing effective
communication system for continuous interface with suppliers and rapid response to customer
enquiries.
(v) Sound Inventory Management: Sound inventory management is a by-product of logistics
management. A major headache of production management, financial management etc. is how to
ensure sound inventory management; which headache is cured by logistics management.
FUNCTIONS OF LOGISTICS: Logistics is a process of movement of goods across the supply
chain of a company. However, this process consists of various functions that have to be properly
managed to bring effectiveness and efficiency to the supply chain of the organization.
Order Processing: Customers’ orders are very important in logistics management. Order
processing includes activities for receiving, handling, filing, recording of orders. Herein,
management has to ensure that order processing is accurate, reliable and fast. Further,
management has to minimize the time between receipt of orders and date of dispatch of the
consignment to ensure speedy processing of the order. Delays in execution of orders can become
serious grounds for customer dissatisfaction; which must be avoided at all costs.
Inventory Management: The basic objective of inventory management is to minimize the
amount of working capital blocked in inventories; and at the same time to provide a continuous
flow of materials to match production requirements; and to provide timely supplies of goods to
meet customers’ demands.
Warehousing: Warehousing is the storing of finished goods until they are sold. It plays a vital
role in logistics operations of a firm. The effectiveness of an organization’s marketing depends
on the appropriate decision on warehousing. In today’s context, warehousing is treated as
switching facility rather than a storage of improper warehousing management. Warehousing is
the key decision area in logistics.
The major decisions in warehousing are:
Location of warehousing facilities
Number of warehouses
Size of the warehouse
Warehouse layout
Design of the building
Ownership of the warehouse
Transportation: For movement of goods from the supplier to the buyer, transportation is the
most fundamental and important component of logistics. When an order is placed, the
transaction is not completed till the goods are physically moved to the customer’s place. The
physical movement of goods is through various transportation modes. In logistics costs, its
share varies from 65 to 70 percent in the case of massconsumed, very low unit-priced
products. Firms choose the mode of transportation depending on the infrastructure of
transportation in the country or region. Cost is the most important consideration in the
selection of a particular mode of transport.