Supply Chain Management

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.
 Introduction
• 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
 Supply Chain
• A supply chain is a system of organisations,
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.
 Supply Chain
• 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.
 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.
 Supply Chain
• 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 organised network of distributors,
warehouses, and retailers.
• A supply chain encompasses all activities in fulfilling customer
demands and requests.
 Supply Chain
• 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 organisation 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.
 Supply Chain Management
• Supply chain management (SCM) is the oversight of materials,
information, and finances distributed from supplier to consumer. The
supply chain also includes all the necessary stops between the supplier
and the consumer. Supply chain management involves coordinating
this flow of materials within a company and to the end consumer.
• . Supply chain management is an integrating function with primary
responsibility for linking major business functions and business
processes within and across companies into a cohesive and high-
performing business model. It includes all of the logistics management
activities noted above, as well as manufacturing operations, and it
drives coordination of processes and activities with and across
marketing, sales, product design, and finance and information
technology
 Supply Chain Management
• SCM is also called the art of management of providing
the right product, at the right time, right place and at the
right cost to the customer.
• Supply chain management can be divided into three
main flows:
• The Product flow includes moving goods from supplier to consumer, as
well as dealing with customer service needs
• The Information flow includes order information and delivery status
• The Financial flow includes payment schedules, credit terms, and
additional arrangements.
Flows in a supply chain

Information

Product
Customer
Funds
 Supply Chain Management
• Supply chain management is a set of approaches utilised
to efficiently integrate suppliers, manufacturers,
warehouses, and stores, so that merchandise 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.
 Objective of Supply Chain
Management
The objectives of supply chain management can be listed
below
•enhancing customer service
•‚ expanding sales revenue
•‚ reducing inventory cost
•‚ improving on-time delivery
•‚ reducing order to delivery cycle time
•‚ reducing lead time ‚ reducing transportation cost
• ‚ reducing warehouse cost ‚
• reducing supplier base
•‚ expanding depth of distribution
 Importance of Supply Chain
Management
• The importance of supply chain
management is to:
• reduce inventories along the chain
• ‚ share better information among the partners
• ‚ plan in consultation rather than in isolation
 Activities of Supply Chain
Management
• There are three levels of activities of supply chain
management that different parts of the company will
focus on:
• Strategic: At this level, strategic decisions concerning the whole
organisation, such as the size and location of manufacturing sites,
partnerships with suppliers, products to be manufactured and sales markets
are taken. Such decisions have a long-lasting effect on the firm. This
includes decisions regarding product design, what to make internally and
what to outsource, supplier selection, and strategic partnering and the flow
of material through the logistics network.
 Activities of Supply Chain
Management
• Tactical: Tactical decisions focus on adopting measures that will
produce cost benefits such as using industry best practices,
developing a purchasing strategy with favoured suppliers, working
with logistics companies to develop cost effect transportation and
developing warehouse strategies to reduce the cost of storing
inventory. Such decisions are typically updated anywhere between
once every quarter and once every year. These include purchasing
and production decisions, inventory policies, and transportation
strategies, including the frequency with which customers are visited
 Activities of Supply Chain
Management
• Operational: Decisions at this level affect how the
products move along the supply chain. Operational
decisions involve making schedule changes to
production, purchasing agreements with suppliers,
taking orders from customers and moving products in
the warehouse. Such decisions refer to day-to-day
decisions such as scheduling, lead time quotations,
routing, and truck loading.
 Decision Phases in a Supply Chain

• Successful supply chain management requires many

decisions relating to the flow of information, product,
and funds. These decisions fall into three categories or
phases, depending on the frequency of each decision
and the time frame over which a decision phase has an
impact. The design, planning, and operation of a supply
chain have a strong impact on overall profitability and
success.
Decision Phases in a Supply Chain

(i) Supply chain strategy or design

During this phase, the supply chain is structured
and configured.
It is designed that, how resources will be allocated,
and what processes each stage will perform.
Strategic decisions made by companies include:
location and capacities of production and warehouse facilities
‚ products to be manufactured or stored at various locations
‚ modes of transportation to be made available along different shipping legs
‚ type of information system to be utilized
 Decision Phases in a Supply Chain

(ii) Supply chain planning

During this phase, the time frame considered is a quarter to a
year. It starts with a forecast of demand in the coming year.
As a result, the supply chain’s configuration determined in the strategic phase is
fixed. The configuration establishes constraints within which planning must be
done. Planning establishes parameters within which a supply chain will function
over a specified period of time. Companies start the planning phase with a
forecast for the coming year of demand in different markets.
Planning decisions include those regarding markets to which a given production
facility will supply and target production quantities at different locations..
The companies must include uncertainty in demand, exchange rates, and
competition over this time horizon in their decisions.
Decision Phases in a Supply Chain

• Following are the planning decisions

undertaken in supply chain:
• ‚ which markets will be supplied from which
locations ‚
• planned buildup of inventories
• ‚ subcontracting, backup locations
• ‚ inventory policies
• ‚ timing and size of market promotions
Decision Phases in a Supply Chain

(iii) Supply chain operation

The time horizon is weekly or daily, and during this phase
companies make decisions regarding individual customer
orders.
At the operational level, supply chain configuration is considered fixed and
planning policies are already defined.
The goal of supply chain operations is to handle incoming customer orders in
the best possible manner. During this phase, the following activities are
undertaken.
firms allocate inventory or production to individual orders
Decision Phases in a Supply Chain

• set a date that an order is to be filled

• ‚ generate pick lists at a warehouse
• ‚ allocate an order to a particular shipping
mode and shipment
• ‚ set delivery schedules of trucks
• ‚ place replenishment orders
Process view of a supply chain

• Cycle view

• Push/pull view
Cycle View of Supply Chains
Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle

Manufacturer
Procurement Cycle
Supplier
Push/Pull View of
Supply Chains
• Pull processes: execution is
initiated in response to a
customer order
• Push processes: execution is
initiated in anticipation of
customer orders
 Push/Pull View of Supply
Procurement,
Chains Customer Order
Manufacturing and Cycle
Replenishment cycles

PUSH PROCESSES PULL PROCESSES

Customer
Order Arrives
 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
 Supply Chain Drivers
Supply chain drivers determine the supply chain
performance. For each driver, managers must make
tradeoffs between efficiency (cost) and responsiveness.
The drivers of supply chain include:
Inventory: It consists of all raw materials; work in process, and finished goods within a
supply chain. Inventory is maintained in the supply chain because of mismatches
between supply and demand. Increasing inventory gives higher responsiveness but
results in higher inventory carrying cost.
Transportation: It involves moving inventory from one point in the supply chain to
another point. A number of decisions have to be taken in designing a supply chain
regarding transportation. The six basic modes of transportation are:  air  truck (road)
 rail  ship  pipeline  electronic transportation (the newest mode for music,
documents etc)
 Supply Chain Drivers
• Facilities: A facility is a place where inventory is stored,
manufactured or assembled. Hence, facilities can be categorised
into production facilities and storage facilities. The facilities related
decisions involve location, capacity, manufacturing methodology
or technology and warehousing methodology.
• Information: It consists of data and results of analysis regarding
inventory, transportation, facilities, customer orders, customers, and funds.
Good information drives good decisions.
 Barriers of Supply Chain
Management
• The obstacles of supply chain management include:
• ‚ lack of top management support
• ‚non-aligned strategic and operating philosophies ‚
• inability or unwillingness to share information ‚
• lack of trust among supply chain members
‚ unwillingness to share risks and rewards
• ‚ inflexible organisational systems and processes ‚ cross-
functional conflicts
• ‚ inconsistent or inadequate performance measures
‚ resistance to change ‚ lack of training for new mindsets
and skills
 Scope of Supply Chain Activities

• The scope of supply chain activities

includes: ‚ sourcing and procurement
‚ production scheduling and
manufacturing ‚ order processing
‚ inventory management ‚ warehousing
‚ customer service ‚ distribution ‚ reverse
logistic