Supply Chain Management - Quick

Guide
SCM - Introduction
Supply Chain Management can be defined as the management of flow of
products and services, which begins from the origin of products and ends
at the products consumption. It also comprises movement and storage
of raw materials that are involved in work in progress, inventory and fully
furnished goods.
The main objective of supply chain management is to monitor and relate
production, distribution, and shipment of products and services. This can
be done by companies with a very good and tight hold over internal
inventories, production, distribution, internal productions and sales.

In the above figure, we can see the flow of goods, services and
information from the producer to the consumer. The picture depicts the
movement of a product from the producer to the manufacturer, who
forwards it to the distributor for shipment. The distributor in turn ships it
to the wholesaler or retailer, who further distributes the products to
various shops from where the customers can easily get the product.

Supply chain management basically merges the supply and demand

management. It uses different strategies and approaches to view the
entire chain and work efficiently at each and every step involved in the
chain. Every unit that participates in the process must aim to minimize
the costs and help the companies to improve their long term
performance, while also creating value for its stakeholders and
customers. This process can also minimize the rates by eradicating the
unnecessary expenses, movements and handling.
Here we need to note that supply chain management and supply chain
event management are two different topics to consider. The Supply Chain
Event Management considers the factors that may interrupt the flow of
an effective supply chain; possible scenarios are considered and
accordingly, solutions are devised for them.

Supply Chain Management - Advantages

In this era of globalization where companies compete to provide the best
quality products to the customers and satisfy all their demands, supply
chain management plays a very important role. All the companies are
highly dependent on effective supply chain process.
Lets take a look at the major advantages of supply chain. The key
benefits of supply chain management are as follows

Develops better customer relationship and service.

Creates better delivery mechanisms for products and services in demand with
minimum delay.

Improvises productivity and business functions.

Minimizes warehouse and transportation costs.

Minimizes direct and indirect costs.

Assists in achieving shipping of right products to the right place at the right
time.

Enhances inventory management, supporting the successful execution of

just-in-time stock models.

Assists companies in adapting to the challenges of globalization, economic

upheaval, expanding consumer expectations, and related differences.

Assists companies in minimizing waste, driving out costs, and achieving

efficiencies throughout the supply chain process.

These were some of the major advantages of supply chain management.

After taking a quick glance at the concept and advantages on supply
chain management, let us take a look at the main goals of this
management.

Supply Chain Management - Goals

Every firm strives to match supply with demand in a timely fashion with
the most efficient use of resources. Here are some of the important goals
of supply chain management

Supply chain partners work collaboratively at different levels to maximize

resource productivity, construct standardized processes, remove duplicate
efforts and minimize inventory levels.

Minimization of supply chain expenses is very essential, especially when

there are economic uncertainties in companies regarding their wish to
conserve capital.

Cost efficient and cheap products are necessary, but supply chain managers
need to concentrate on value creation for their customers.

Exceeding the customers expectations on a regular basis is the best way to

satisfy them.

Increased expectations of clients for higher product variety, customized

goods, off-season availability of inventory and rapid fulfillment at a cost
comparable to in-store offerings should be matched.

To meet consumer expectations, merchants need to leverage inventory as a

shared resource and utilize the distributed order management technology to
complete orders from the optimal node in the supply chain.

Lastly, supply chain management aims at contributing to the financial

success of an enterprise. In addition to all the points highlighted above, it
aims at leading enterprises using the supply chain to improve

differentiation, increase sales, and penetrate new markets. The objective

is to drive competitive benefit and shareholder value.

SCM - Process
Supply chain management is a process used by companies to ensure that
their supply chain is efficient and cost-effective. A supply chain is the
collection of steps that a company takes to transform raw materials into
a final product. The five basic components of supply chain management
are discussed below

Plan
The initial stage of the supply chain process is the planning stage. We
need to develop a plan or strategy in order to address how the products
and services will satisfy the demands and necessities of the customers.
In this stage, the planning should mainly focus on designing a strategy
that yields maximum profit.
For managing all the resources required for designing products and
providing services, a strategy has to be designed by the companies.
Supply chain management mainly focuses on planning and developing a
set of metrics.

Develop(Source)
After planning, the next step involves developing or sourcing. In this
stage, we mainly concentrate on building a strong relationship with
suppliers of the raw materials required for production. This involves not
only identifying dependable suppliers but also determining different
planning methods for shipping, delivery, and payment of the product.
Companies need to select suppliers to deliver the items and services they
require to develop their product. So in this stage, the supply chain
managers need to construct a set of pricing, delivery and payment
processes with suppliers and also create the metrics for controlling and
improving the relationships.
Finally, the supply chain managers can combine all these processes for
handling their goods and services inventory. This handling comprises

receiving and examining shipments, transferring them

manufacturing facilities and authorizing supplier payments.

to

the

Make
The third step in the supply chain management process is the
manufacturing or making of products that were demanded by the
customer. In this stage, the products are designed, produced, tested,
packaged, and synchronized for delivery.
Here, the task of the supply chain manager is to schedule all the
activities required for manufacturing, testing, packaging and preparation
for delivery. This stage is considered as the most metric-intensive unit of
the supply chain, where firms can gauge the quality levels, production
output and worker productivity.

Deliver

The fourth stage is the delivery stage. Here the products are delivered to
the customer at the destined location by the supplier. This stage is
basically the logistics phase, where customer orders are accepted and
delivery of the goods is planned. The delivery stage is often referred as
logistics, where firms collaborate for the receipt of orders from
customers, establish a network of warehouses, pick carriers to deliver
products to customers and set up an invoicing system to receive
payments.

Return
The last and final stage of supply chain management is referred as the
return. In the stage, defective or damaged goods are returned to the
supplier by the customer. Here, the companies need to deal with
customer queries and respond to their complaints etc.
This stage often tends to be a problematic section of the supply chain for
many companies. The planners of supply chain need to discover a
responsive and flexible network for accepting damaged, defective and
extra products back from their customers and facilitating the return
process for customers who have issues with delivered products.

SCM - Process Flow

Supply chain management can be defined as a systematic flow of
materials, goods, and related information among suppliers, companies,
retailers, and consumers.

Types
There are three different types of flow in supply chain management

Material flow

Information/Data flow

Money flow

Let us consider each of these flows in detail and also see how effectively
they are applicable to Indian companies.

Material Flow
Material flow includes a smooth flow of an item from the producer to the
consumer. This is possible through various warehouses among
distributors, dealers and retailers.
The main challenge we face is in ensuring that the material flows as
inventory quickly without any stoppage through different points in the
chain. The quicker it moves, the better it is for the enterprise, as it
minimizes the cash cycle.
The item can also flow from the consumer to the producer for any kind of
repairs, or exchange for an end of life material. Finally, completed goods
flow from customers to their consumers through different agencies. A
process known as 3PL is in place in this scenario. There is also an
internal flow within the customer company.

Information Flow
Information/data flow comprises the request for quotation, purchase
order, monthly schedules, engineering change requests, quality
complaints and reports on supplier performance from customer side to
the supplier.
From the producers side to the consumers side, the information flow
consists of the presentation of the company, offer, confirmation of

purchase order, reports on action taken on deviation, dispatch details,

report on inventory, invoices, etc.
For a successful supply chain, regular interaction is necessary between
the producer and the consumer. In many instances, we can see that
other partners like distributors, dealers, retailers, logistic service
providers participate in the information network.
In addition to this, several departments at the producer and consumer
side are also a part of the information loop. Here we need to note that
the internal information flow with the customer for in-house manufacture
is different.

Money Flow
On the basis of the invoice raised by the producer, the clients examine
the order for correctness. If the claims are correct, money flows from the
clients to the respective producer. Flow of money is also observed from
the producer side to the clients in the form of debit notes.
In short, to achieve an efficient and effective supply chain, it is essential
to manage all three flows properly with minimal efforts. It is a difficult
task for a supply chain manager to identify which information is critical
for decision-making. Therefore, he or she would prefer to have the
visibility of all flows on the click of a button.

SCM - Flow Components

After understanding the basic flows involved in the supply chain
management, we need to consider the different elements present in this
flow. Thus, the different components of the flow of supply chain are
described below.

Transportation
Transportation or shipment is necessary for an uninterrupted and
seamless supply. The factors that have an impact on shipment are
economic uncertainty and instability, varying fuel prices, customers
expectations,
globalization,
improvised
technologies,
changing
transportation industry and labor laws.

The major elements that influence transportation should be considered,

as it is completely dependent on these factors for order completion as
well as for ensuring that all the flows work properly. The major factors
are

Long-term Decisions
Transportation managers should acknowledge the supply freight flow and
accordingly design the network layout. Now, when we say long term
decision, we mean that the transportation manager has to select what
should be the primary mode of transportation.
The manager has to understand the product flows, volume, frequency,
seasonality, physical features of products and special handlings
necessities, if any. In addition to this, the manager has to make decisions
as to the extent of outsourcing to be done for each and every product.
While considering all these factors, he should carefully consider the fact
that the networks need not be constant.

For example, in order to transport stock to regional cross dock facilities

for sorting, packaging and brokering small loads to individual customers,
stock destinations can be assembled through contract transportation
providers.

Lane Operation Decisions

These functional decisions stress on daily freight operations. Here, the
transportation managers work on real time information on products
requirements at different system nodes and must collaborate every move
of the product that is both inbound and outbound shipping lanes so as to
satisfy their services demands at the minimal possible cost.
Managers who make good decisions easily handle information and utilize
the opportunities for their own profit and assure that the product is
moved to them immediately, whenever it is demanded, that too in the
right quantity. At the same time, they are saving cost on transportation
also.
For example, a shipment has landed from a supplier who is based in
New Jersey and in the same week, a product needs to be dispatched to
New York as it becomes available for movement. If the manager is aware
of this information in advance, he would prepare everything as per the
demand and the products could be shipped out immediately.

Choice and Mode of Carrier

A very important decision to be made is to choose the mode of
transportation. With the improvement in the means of transportation,
modes of transport that were not available in the traditional
transportation modes in the past can be now be a preferred choice.
For example, rail container service may offer a package that is costefficient and effective as compared to a motor transport. While making a
decision, the manager has to consider the service criteria that need to be
met, like the delivery time, date special handling requirements, while
also taking into consideration the element of cost, which would be an
important factor.

Dock Level Operations

This involves the last level of decision-making. This comprises planning,
routing and scheduling. For example, if a carriage is being loaded with

different customers orders, the function of the dock-level managers is to

assure that the driver is informed of the most efficient route and that
loads are placed in the order of the planned stops.

Warehousing
Warehousing plays a vital role in the supply chain process. In todays
industry, the demands and expectations of the customers are undergoing
a tremendous change. We want everything at our door step that too
with efficient price. We can say that the management of warehousing
functions demands a distinct merging of engineering, IT, human
resources and supply chain skills.

To neutralize the efficiency of inbound functions, it is ideal to accept

materials in an immediately storable conveyance, like a pallet, case or
box. For labeling the structure, tool selection and business process
demand the types and quantities of orders that are processed. Further,

the number of stock-keeping units (SKUs) in the distribution centers is a

crucial consideration.
The Warehouse Management Systems (WMS) leads the products to their
storage location where they should be stored. The required functionality
for the completion and optimization of receiving, storing and shipping
functions is then supplied.

Sourcing and Procurement

Sourcing and procurement are a vital part of the supply chain
management. The company decides if it wants to perform all the
exercises internally or if it desires to get it done by any other
independent firm. This is commonly referred as the make vs buy
decision, which we will be discussing in brief in another chapter.

Returns Management
Returns management can be defined as the management that invites the
merger of challenges and opportunities for inbound logistics. A costeffective reverse logistics program links the available supply of returns
with the product information and demand for repairable items or recaptured materials. We have three pillars that support returns
management processes. These are as follows

Speed It is a must to have quick and easy returns management and

automate

decisions

regarding

whether

to

produce

return

material

authorizations (RMAs) and if so, how to process them. Basically, the tools of
speed return processing include automated workflows, labels & attachments
and user profiles.

Visibility For improving the visibility and predictability, information needs

to be captured initially in the process, ideally prior to delivering the return to
the receiving dock. Most effective and easily implementable approaches for
obtaining visibility are web-based portals, carrier integration and bar-coded
identifiers.

Control

In

case

of

returns

management,

synchronizing

material

movements is a common issue that needs to be handled. The producers need

to be very cautious and pay close attention to receipts and reconciliation and
update

the

stakeholders

of

impending

quality

issues.

In

this

case,

reconciliation activates visibility and control all over the enterprise. The key
control points in this process are regulatory compliance, reconciliation and
final disposition and quality assurance.

Software solutions can assist in speeding up the returns management by

supporting user profiles and workflows that state supply chain partners
and processes, by labeling and documentation that tracks the material
along with the web-based portals and by exception-based reporting to
deliver information for timely reconciliation. These characteristics, when
executed with the three pillars mentioned above, support a reliable and
predictable returns process to count value across the company.

Post - Sales Service

Now that the ordered shipment is over, what is the next step? The post
sales service in supply chain tends to be an increasingly essential factor
as businesses offer solution instead of products.

The post sales services comprise selling spare parts, installing upgrades,
performing inspection, maintenance and repairs, offering training &
education and consulting.
Presently, with the growing demands of the clients, a high volume of
after sales service proves to be a profitable business. Here, the services
are basically heterogeneous and the value-added services are different
from those provided prior to sales service.

SCM - Decision Phases

Decision phases can be defined as the different stages involved in supply
chain management for taking an action or decision related to some
product or services. Successful supply chain management requires
decisions on the flow of information, product, and funds that fall into
three decision phases.
Here we will be discussing the three main decision phases involved in the
entire process of supply chain. The three phases are described below

Supply Chain Strategy

In this phase, decision is taken by the management mostly. The decision
to be made considers the sections like long term prediction and involves
price of goods that are very expensive if it goes wrong. It is very
important to study the market conditions at this stage.
These decisions consider the prevailing and future conditions of the
market. They comprise the structural layout of supply chain. After the
layout is prepared, the tasks and duties of each is laid out.
All the strategic decisions are taken by the higher authority or the senior
management. These decisions include deciding manufacturing the
material, factory location, which should be easy for transporters to load
material and to dispatch at their mentioned location, location of
warehouses for storage of completed product or goods and many more.

Supply Chain Planning

Supply chain planning should be done according to the demand and
supply view. In order to understand customers demands, a market
research should be done. The second thing to consider is awareness and
updated information about the competitors and strategies used by them
to satisfy their customer demands and requirements. As we know,
different markets have different demands and should be dealt with a
different approach.
This phase includes it all, starting from predicting the market demand to
which market will be provided the finished goods to which plant is
planned in this stage. All the participants or employees involved with the
company should make efforts to make the entire process as flexible as
they can. A supply chain design phase is considered successful if it
performs well in short-term planning.

Supply Chain Operations

The third and last decision phase consists of the various functional
decisions that are to be made instantly within minutes, hours or days.
The objective behind this decisional phase is minimizing uncertainty and
performance optimization. Starting from handling the customer order to

supplying the customer with that product, everything is included in this

phase.
For example, imagine a customer demanding an item manufactured by
your company. Initially, the marketing department is responsible for
taking the order and forwarding it to production department and
inventory department. The production department then responds to the
customer demand by sending the demanded item to the warehouse
through a proper medium and the distributor sends it to the customer
within a time frame. All the departments engaged in this process need to
work with an aim of improving the performance and minimizing
uncertainty.

SCM - Performance Measures

Supply chain performance measure can be defined as an approach to
judge the performance of supply chain system. Supply chain
performance measures can broadly be classified into two categories

Qualitative measures For example, customer satisfaction and product

quality.

Quantitative measures For example, order-to-delivery lead time, supply

chain response time, flexibility, resource utilization, delivery performance.

Here, we will be considering the quantitative performance measures only.

The performance of a supply chain can be improvised by using a multidimensional strategy, which addresses how the company needs to
provide services to diverse customer demands.

Quantitative Measures
Mostly the measures taken for measuring the performance may be
somewhat similar to each other, but the objective behind each segment
is very different from the other.
Quantitative measures is the assessments used to measure the
performance, and compare or track the performance or products. We can
further divide the quantitative measures of supply chain performance
into two types. They are

Non-financial measures

Financial measures

Non - Financials Measures

The metrics of non-financial measures comprise cycle time, customer
service level, inventory levels, resource utilization ability to perform,
flexibility, and quality. In this section, we will discuss the first four
dimensions of the metrics

Cycle Time
Cycle time is often called the lead time. It can be simply defined as the
end-to-end delay in a business process. For supply chains, cycle time can
be defined as the business processes of interest, supply chain process
and the order-to-delivery process. In the cycle time, we should learn
about two types of lead times. They are as follows

Supply chain lead time

Order-to-delivery lead time

The order-to-delivery lead time can be defined as the time of delay in the
middle of the placement of order by a customer and the delivery of
products to the customer. In case the item is in stock, it would be similar
to the distribution lead time and order management time. If the ordered
item needs to be produced, it would be the summation of supplier lead
time, manufacturing lead time, distribution lead time and order
management time.
The supply chain process lead time can be defined as the time taken by
the supply chain to transform the raw materials into final products along
with the time required to reach the products to the customers
destination address.
Hence it comprises supplier lead time, manufacturing lead time,
distribution lead time and the logistics lead time for transport of raw
materials from suppliers to plants and for shipment of semifinished/finished products in and out of intermediate storage points.
Lead time in supply chains is governed by the halts in the interface
because of the interfaces between suppliers and manufacturing plants,
between plants and warehouses, between distributors and retailers and
many more.

Lead time compression is a crucial topic to discuss due to the time based
competition and the collaboration of lead time with inventory levels,
costs, and customer service levels.

Customer Service Level

The customer service level in a supply chain is marked as an operation of
multiple unique performance indices. Here we have three measures to
gauge performance. They are as follows

Order fill rate The order fill rate is the portion of customer demands that
can be easily satisfied from the stock available. For this portion of customer
demands, there is no need to consider the supplier lead time and the
manufacturing lead time. The order fill rate could be with respect to a central
warehouse or a field warehouse or stock at any level in the system.

Stockout rate It is the reverse of order fill rate and marks the portion of
orders lost because of a stockout.

Backorder level This is yet another measure, which is the gauge of total
number of orders waiting to be filled.

Probability of on-time delivery It is the portion of customer orders that

are completed on-time, i.e., within the agreed-upon due date.

In order to maximize the customer service level, it is important to

maximize order fill rate, minimize stockout rate, and minimize backorder
levels.

Inventory Levels
As the inventory-carrying costs increase the total costs significantly, it is
essential to carry sufficient inventory to meet the customer demands. In
a supply chain system, inventories can be further divided into four
categories.

Raw materials

Work-in-process, i.e., unfinished and semi-finished sections

Finished goods inventory

Spare parts

Every inventory is held for a different reason. Its a must to maintain

optimal levels of each type of inventory. Hence gauging the actual
inventory levels will supply a better scenario of system efficiency.

Resource Utilization
In a supply chain network, huge variety of resources is used. These
different types of resources available for different applications are
mentioned below.

Manufacturing resources Include the machines, material handlers, tools,

etc.

Storage

resources

Comprise

warehouses,

automated

storage

and

retrieval systems.

Logistics resources Engage trucks, rail transport, air-cargo carriers, etc.

Human resources Consist of labor, scientific and technical personnel.

Financial resources Include working capital, stocks, etc.

In the resource utilization paradigm, the main motto is to utilize all the
assets or resources efficiently in order to maximize customer service
levels, reduce lead times and optimize inventory levels.

Finanacial Measures
The measures taken for gauging different fixed and operational costs
related to a supply chain are considered the financial measures. Finally,
the key objective to be achieved is to maximize the revenue by
maintaining low supply chain costs.
There is a hike in prices because of the inventories, transportation,
facilities, operations, technology, materials, and labor. Generally, the
financial performance of a supply chain is assessed by considering the
following items

Cost of raw materials.

Revenue from goods sold.

Activity-based costs like the material handling, manufacturing, assembling

rates etc.

Inventory holding costs.

Transportation costs.

Cost of expired perishable goods.

Penalties for incorrectly filled or late orders delivered to customers.

Credits for incorrectly filled or late deliveries from suppliers.

Cost of goods returned by customers.

Credits for goods returned to suppliers.

In short, we can say that the financial performance indices can be

merged as one by using key modules such as activity based costing,
inventory costing, transportation costing, and inter-company financial
transactions.

SCM - Strategic Sourcing

Strategic sourcing can be defined
approach to supply chain management
is gathered and used so that an
consolidated purchasing power to find
marketplace.

as a collective and organized

that defines the way information
organization can leverage its
the best possible values in the

We cannot build up the significance of operating in a collaborative

manner. Several decades have witnessed a major transformation in the
profession of supply chain, from the purchasing agent comprehension,
where staying in repository was the criterion, to emerging into a supply
chain management surrounding, where working with cross functional and
cross location teams is important, to achieve success.

Strategic sourcing is organized because of the necessity of some

methodology or process. It is collective because one of the most
essential necessities for any successful strategic sourcing attempt is of
receiving operational components, apart from the procurement, engaged
in the decision-making and assessment process.
The process of strategic processing is a step by step approach. There are
seven distinct steps engaged in the process of strategic processing.
These steps are explained below in brief.

Understanding the Spend Category

The first three steps involved in the strategic sourcing are carried out by
the sourcing team. In this first stage, the team needs to do a complete
survey on the total expenditure. The team ensures that it acknowledges
every aspect regarding the spend category itself.
The five major regions that are analyzed in the first stage are as follows

Complete previous expenditure records and volumes.

Expenditures divided by items and sub items.

Expenditures by division, department or user.

Expenditures by the supplier.

Future demand projections or budgets.

For example, if the classification is grooved packaging at a customer

goods company, the team has to acknowledge the description of the
classification, application patterns and the reason behind specification of
particular types and grades specified.
Stakeholders at all functioning units and physical locations are to be
determined. The logistics, for instance, needs an updated report
regarding the transportation specifications and marketing requirements
to acknowledge some quality or environmentally applicable features.

Supplier Market Assessment

The second step includes frequent assessment of the supplier market for
pursuing substitute suppliers to present incumbents. A thorough study of
the supplier marketplace dynamics and current trends is done. The major
element of the key products design is should-cost. Along with it, an
analysis on the major suppliers sub-tier marketplace and examination
for any risks or new opportunities are also important.

Now, it is not recommended to analyze the should-cost for every item.

There are many instances where conservative strategic sourcing
techniques tend to work better. But in the instances where the
application of strategic sourcing is not applicable, the should-cost

analysis supplies a valuable tool that drives minimizing of cost and

regular progress efforts of the supplier.

Supplier Survey
The third step is developing a supplier analysis for both incumbent and
potential substitute suppliers. This analysis assists in examining the skills
and abilities of a supplier. In the meanwhile, data collected from
incumbent suppliers is used for verifying spend information that suppliers
have from their sales systems.

The survey team considers the above-mentioned areas for gathering

information. The areas are as follows

Feasibility

Capability

Maturity

Capacity

The analysis is done to examine the potential and skills of the market to
satisfy the customer demands. This analysis helps in the examination

done at the initial stage to find out if the proposed project is feasible and
can be delivered by the identified supply base.
This analysis also supplies an initial caution of the customer demands to
the market and enables suppliers to think about how they would react to
and fulfill the demand. Here the motto is to motivate the appropriate
suppliers with the right structural layout to respond to the demands.

Building the Strategy

The fourth step comprises constructing the sourcing strategy. The merger
of the first three steps supports the necessary elements for the sourcing
strategy. For every region or category, the strategy depends on
answering the questions given below.

How willing is the marketplace to oppose the supplier?

How supportive are the clients of a firm for testing incumbent supplier
relationships?

What are the substitutes to the competitive assessment?

Generally, these substitutes are opted when a purchasing firm has little
leverage over its supply base. They will depend on the belief that the
suppliers will share the profits of a new strategy. Thus, we say that the
sourcing strategy is an accumulation of all the drivers thus far
mentioned.

RFx Request
Mostly, the competitive approach is applied in general cases. In this
approach, a request for proposal or bid needs to be prepared (e.g., RFP,
RFQ, eRFQ, ITT) for most spend classifications or groups.
This defines and clarifies all the needs for all prequalified suppliers. The
request should comprise product or service specifications, delivery and
service requirements, assessment criteria, pricing structure and financial
terms and conditions.
In the fifth stage, an interaction plan needs to be executed to allure
maximum supplier interest. It must be ensured that each and every
supplier is aware that they are competing on a level playing field. After

sending the RFP to all suppliers, it is to be confirmed that they are given
enough time to respond. In order to motivate greater response, follow-up
messages should also be sent.

Selection
This step is all about selecting and negotiating with suppliers. The
sourcing team is advised to apply its assessment constraints to the
responses generated by the suppliers.
If information across the limitation of RFP response is required, it can be
simply asked for. If done correctly, the settlement process is conducted
first with a larger set of suppliers and then shortlisted to a few finalists.
If the sourcing team utilizes an electronic negotiation tool, large number
of suppliers can sustain in the process for longer duration, giving more
wide suppliers a better opportunity at winning the enterprise.

Communicaction With New Suppliers

After informing the winning supplier(s), they should be invited to take
part in executing recommendations. The execution plans vary according
to the scale of switches the supplier makes.
For obligatory purposes, a communication plan will be set up, including
any modification in specifications and improvements in delivery, service
or pricing models. These tend to be communicated to users as well.
As we know, the company gains immensely from this entire process of
creating a communication plan, making some modifications according to
the customer demand and further forwarding this to the customer. Its
essential that this process should be acknowledged by both the company
and the supplier.
For new suppliers, we need to construct a communication plan that copes
with the alteration from old to new at every point in the process engaged
by the spend category. The sections that have an impact of this change
are the department, finance and customer service.
In addition, the risk antennae will be particularly sensitive during this
period. It is essential to gauge closely the new suppliers performance
during the first weeks of performance.

Another essential task is to grasp the intellectual capital of the sourcing

team, which has been developed within the seven-step process, so that it
can be used the next time that category is sourced.

SCM - Make Vs Buy

Production units are identified mostly with their decision to make or buy.
In other words, do they wish to produce the desired product on their own
or do they want to purchase it from the foreign market.
This decision is critical because the third-party suppliers especially in
countries like Eastern Europe, China, and other low-cost parts of the
world hold out the promise of essential beneficiaries, which the
developed nations fail to offer.

However, the developed countries can easily overcome the expenses cost
in the imported material through activities like human resources,
information technology, maintenance and customer relations.
If properly utilized and taken care of, these activities may yield profit
rather than leading the nation to suffer more loss. All the expense of
outsourcing can be regained through these activities and thus they
should not be neglected when the options are considered.
The Make Vs Buy decision of a nation depends on three pillars. These
pillars are

Business strategy

Risks

Economic factors

Business Strategy
The first pillar in the Make Vs Buy decision is the business strategy
adopted by a nation. Business strategy strategically engages the
importance of the company whose product or service is being considered
for outsourcing, in addition to the process, technologies or skills needed
to design the product or deliver that particular service.

These factors should be carefully considered, not just on the basis of

current competitive environment but also by anticipating the changing
competitive environment in future.
So, as a rule, its advisable to select the in-house skills and abilities when
a product or a function plays a very important role in improving the
companys performance or is considered a core operation.
Perhaps, if we consider a time-sensitive product or a product, which is
prone to consequent design changes, third-party producing would likely
be a mistake. In simple worlds, companies must opt for outsourcing in
the following scenarios

Remove the processes, which are intensive on the balance sheet, e.g., capital
or labor.

Minimize the costs.

Achieve flexibility for adjusting output in comeback to changing demand.

Phase out management of paperwork, documents or training.

Monitor fewer workers.

Have access to new process or network tools and technologies.

Leverage external expertise.

In fact, if a product relies on proprietary technology or intellectual

property or if a product or an operation is critical for the companys
performance, it is recommended to select in-house skills & abilities rather
than outsourcing.
Obviously, outsourcing is worth considering under some situations. If a
product or function has essentially become a commodity or is derived
from factors other than unique or differentiating capabilities and as such,
moving production or management to a third party does not give rise to
significant risk to the companys strategy, outsourcing would be the
perfect solution.

Risks
The second pillar under the Make Vs Buy strategy is risks involved with
any decision. The major risk factors involved in making a product in the
home country or purchasing it from foreign countries are quality,
reliability, and predictability of outsourced solutions or services. Along
with these, there are risks inherent in the process of labeling and
selecting the right supplier and structuring a workable ongoing
relationship.
When we have numerous suppliers, a single failure in the supply chain
may not be deadly. Even when the suppliers are making parts of an item
instead of that completely furnished item, there will be errors in
manufacturing. These errors should be identified before the products are
assembled so that the faulty item cannot be delivered to the consumer
directly.

We know outsourcing opens up a broad array of new risks. We need to

be attentive of any potential pitfalls with producers and examine
outsourcing partners on the basis of their importance to the company.
Operations in outsourcing that lead to failure of service could be
overwhelming, for example, an IT network, a payroll processing system
or element manufacturing, as compared to risks or problems like a glitch
in a training program or a long-term product development plan, which is
much lesser.
It is very important to acknowledge the risks that are related to the
location of an external supplier. Apart from judging the source countrys
political stability, companies require to examine the safety and lead times
of shipment schedule. Along with this, they have to label and examine
potential secondary carriers or routes or search for other producers as a
backup in a different area that supplies incremental volume during peaks
in demand or disruptions of the primary source of supply.
When we merge the outsourced manufacturing of products or outsourced
processes that demand distinct skills or assets, making it difficult or

expensive to re-source, the supply chain management becomes a highly

complex function. In fact, these risks through which a producer may
exploit a customers highly reliable relationship by increasing prices or
charging better terms (referred as hold up risks) can be easily handled
with some external solutions.
This is a very important decision to make. One has to go through all the
available options and select the best one out of them before making any
commitments to the supplier because outsourcing agreements can be
difficult to amend or break.

Economic Factors
The third pillar in the Make Vs Buy strategy is the economic
factors residing in the country that needs to decide if to buy a product
or make it on its own. The various economic factors comprise the effect
of outsourcing on capital expenditures, return on invested capital and
return on assets, along with the probable savings gained by outsourcing.
To study the importance of pricing mechanisms, lets consider those
companies that base their decision on if they need to outsource solely on
approximate calculations of the in-house as compared to the external
costs related to the outsourced function, for example, the cost of each
item produced or the price of running an HR department or an IT
network instead on the total costs. The net prices that need to be taken
care of comprise the layouts for handling the outsource supplier,
exclusively as the outsourced process changes. These changes prove to
be very essential.
For example, customizing some software on a third-party information
technology network can compute a large surcharge to the outsourcing
deal. Tackling the customization in-house, i.e., within the home country,
where the IT department can work closely, their work can be easily
monitored and more productively with end-users to satisfy their demands
can be obtained, tend to be less costly.
Along with this, the home country needs to choose the outsourcing
partners very cautiously. In case the outsourcing partners are not
selected properly, the companies often attempt to protect themselves
from failures or delays by replicating in-house some of the effort that

was originally farmed out. This leads to multiple prices for the same
project and potential costs are mostly neglected when the outsourcing
deal is made.
The costs that are often neglected in outsourcing manufacturing
operations are as follows

Transportation and handling charges.

Expanded, extended inventories.

Administrative bills like the supplier management and quality control rates.

Casted complexity and its effect on lean flows.

Minimal return on invested capital.

Production dependability and quality control.

Taking all these costs into consideration, depending on a one-time quote

to measure the competitiveness of an external producer is mostly not
enough. Enterprises can be saved from this mistake by factoring into the
outsourcing equation the economic effects of comparative wage prices,
labor productivity, tools and staff utilization, the biasness of both the
labor base and functional processes, the potential for process and
product innovation and relative purchasing power.
Finally, we can say that for a successful outsourcing relationship, the
basic factors include the sharing of savings from productivity progress,
so that both sides have an inducement to merge.
After establishing a sober formal relationship, it is very essential to
search for the right balance between fully transparent supplier functions
and micromanagement or the perception of it. After the outsourcing
decisions are made and suppliers have been chosen, it is crucial to be on
the same front on a fair and balanced pricing mechanism, productivity
progress and cost minimization expectations and the necessary scale of
responsiveness to design, service or delivery changes.

SCM - Networks

The network design in supply chain determines its physical arrangement,

design, structural layout and infrastructure of the supply chain. Here the
major decisions to be made are on the number, locations and size of
manufacturing plants and warehouses and the assignment of retail
outlets to warehouses, etc. This stage witnesses some other major
sourcing decisions as well. The basic time duration for planning horizon is
few years.
Many major decisions involving the long-term location, capacity,
technology and supplier selection have to be made by considering the
probable uncertainties present in the market development accompanied
by changing economic and legal conditions.

The network design in supply chain concentrates mainly on the

development of multi-stage stochastic optimization methods required for

decision support under demand, freight rate and exchange rate

uncertainty. Here, we will discuss the various strategies to study the
uncertainty and scenario modeling.

Warehouse location When companies expand their branches into various

new locations, they need new storage places as well. Here the company faces
a warehouse location problem. Within the set of probable choices in locations,
the one that has minimal fixed costs and operational costs by fulfilling the
required demand is chosen.

Traffic network design With the growing population, the traffic in cities
is increasing. Because of the higher transportation demand, the traffic
networks have also to be widened. Since the budget allotted is usually
limited, the major issue is to determine which projects should be constructed
to develop the flow inside a traffic network.

Reshoring This phenomenon has emerged recently because of the rising

cost and other circumstances. It is the exercise of bringing outsourced
products and services back to the source point from which they were
originally shipped. It outlines the process of moving some or all producing
back to its original source.

Networks Models
Supply chain networks present different types of models that help us
understand the various optimization methods used for studying the
uncertainty and scenario modeling. There are six distinct supply chain
network models, as given below.

Producer storage with direct shipping

Producer storage with direct shipping and in-transit merge (cross docking)

Distributor storage with package carrier delivery

Distributor storage with last mile delivery

Producer or distributor storage with costumer pickup

Retail storage with customer pickup

The supply chain network basically deals with three major entities:
Producer, Distributor and Merchant. Two different options are available,
i.e., customer pickup or door delivery. For example, if the door delivery
option is opted for, there is transport between producer and distributor,
distributor and merchant and producer and merchant.
The distribution system decision is made on the basis of the choice of the
customers. This in turn results in the demand for the product or products
and cost of the distribution arrangement.
New companies may come to a halt through the application of a single
type of distribution network. Mostly, companies go for merging of
different types for distinct products, different customers and different
usage situations, coming back to the different optimization models
mentioned above. Now we will discuss each model in brief.

Producer storage with direct shipping

In this model, goods are moved directly from the manufacturers location
as the starting point to the end customers location as the destination
point bypassing the retailer. The retailer is the person who takes the
order and initiates the delivery request. This option is also called dropshipping, with product delivered directly from the manufacturers location
to the customers destination.

Producer storage with direct shipping and in-transit

merge
It is somewhat congruent to pure drop-shipping or moving, but the
difference is that pieces of the order come from different locations and
they are merged into one so that the customer gets a single delivery.

Distributor storage with package carrier delivery

This comes into action when the inventory is not owned by the
manufacturers at the plants; instead it is owned by the
merchants/retailers in intermediate warehouses and package carriers are
used for shipment of goods from the intermediate location to the final
customer.

Distributor storage with last mile delivery

This type results when the merchant/retailer delivers the goods ordered
by the customer to the customers home instead of using a package
carrier.

Producer/distributor storage with customer pickup

In this type, the inventory is stored at the warehouse owned by the
manufacturer or producer but the customers place their orders online or
through phone and then come to pick up points allotted for collecting
their orders.

Retail storage with customer pickup

This is mostly applied on situations when inventory is locally stored at
retail stores; customers walk into the retail shop or order something
online or on the phone and pick it up at the retail store.

SCM - Inventory Management

As seen under the major objectives of supply chain, one of the basic
objectives of SCM is to make sure that all the activities and functions
within as well as across the company are managed efficiently.

There are instances where efficiency in supply chain can be ensured by

efficiencies in inventory, to be more precise, by maintaining efficiency in
inventory reductions. Though inventory is considered a liability to
efficient supply chain management, supply chain managers acknowledge
the need of inventory. However, the unwritten rule is to keep inventory at
a bare minimum.
Many strategies are developed with the objective of streamlining
inventories beyond the supply chain and holding the inventory
investment as low as possible. The supply chain managers tend to
maintain the inventories as low as possible because of inventory
investment. The cost or investment related with owning inventories can
be high. These costs comprise the cash outlay that is necessary for
purchasing the inventory, the costs of acquiring the inventories (the cost

of having invested in inventories rather than investing in something else)

and the costs related with managing the inventory.

Role of Inventory
Before understanding the role of inventory in supply chain, we need to
understand the cordial relationship between the manufacturer and the
client. Handling clients, coping up with their demands and creating
relationships with manufacturer is a critical section of managing supply
chains.
There are many instances where we see the concept of collaborative
relationship being marked as the essence of supply chain management.
However, a deeper analysis of supply chain relationships, especially those
including product flows, exposes that at the heart of these relationships
is inventory movement and storage.
More than half of it relies on the purchase, transfer or management of
inventory. As we know, inventory plays a very important role in supply
chains, being a salient feature.
The most fundamental functions that inventory has in supply chains are
as follows

To supply and support the balance of demand and supply.

To effectively cope with the forward and reverse flows in the supply chain.

Companies need to manage the upstream supplier exchanges and

downstream customer demands. In this situation, the company enters a
state where it has to maintain a balance between fulfilling the demands
of customers, which is mostly very difficult to predict with precision or
accuracy, and maintaining adequate supply of materials and goods. This
balance can be obtained through inventory.

Optimization Models
Optimization models of supply chain are those models that codify the
practical or real life issues into mathematical model. The main objective
to construct this mathematical model is to maximize or minimize an
objective function. In addition to this, some constraints are added to
these issues for defining the feasible region. We try to generate an

efficient algorithm that will examine all possible solutions and return the
best solution in the end. Various supply chain optimization models are as
follows

Mixed Integer Linear Programming

The Mixed integer linear programming (MILP) is a mathematical modeling
approach used to get the best outcome of a system with some
restrictions. This model is broadly used in many optimization areas such
as production planning, transportation, network design, etc.
MILP comprises a linear objective function along with some limitation
constraints constructed by continuous and integer variables. The main
objective of this model is to get an optimal solution of the objective
function. This may be the maximum or minimum value but it should be
achieved without violating any of the constraints imposed.
We can say that MILP is a special case of linear programming that uses
binary variables. When compared with normal linear programming
models, they are slightly tough to solve. Basically the MILP models are
solved by commercial and noncommercial solvers, for example: Fico
Xpress or SCIP.

Stochastic Modeling
Stochastic modeling is a mathematical approach of representing data or
predicting outcomes in situations where there is randomness or
unpredictability to some extent.
For example, in a production unit, the manufacturing process generally
has some unknown parameters like quality of the input materials,
reliability of the machines and competence within the employees. These
parameters have an impact on the outcome of the manufacturing process
but it is impossible to measure them with absolute values.
In these types of cases, where we need to find absolute value for
unknown parameters, which cannot be measured exactly, we use
Stochastic modeling approach. This modeling strategy helps in predicting
the result of this process with some defined error rate by considering the
unpredictability of these factors.

Uncertainty Modeling
While using a realistic modeling approach, the system has to take
uncertainties into account. The uncertainty is evaluated to a level where
the uncertain characteristics of the system are modeled with probabilistic
nature.
We use uncertainty modeling for characterizing the uncertain parameters
with probability distributions. It takes dependencies into account easily
as input just like Markov chain or may use the queuing theory for
modeling the systems where waiting has an essential role. These are
common ways of modeling uncertainty.

Bi-level Optimization
A bi-level issue arises in real life situations whenever a decentralized or
hierarchical decision needs to be made. In these types of situations,
multiple parties make decisions one after the other, which influences
their respective profit.
Till now, the only solution to solve bi-level problems is through heuristic
methods for realistic sizes. However, attempts are being made for
improving these optimal methods to compute an optimal solution for real
problems as well.

SCM - Pricing & Revenue

Pricing is a factor that gears up profits in supply chain through an
appropriate match of supply and demand. Revenue management can be
defined as the application of pricing to increase the profit produced from
a limited supply of supply chain assets.
Ideas from revenue management recommend that a company should
first use pricing to maintain balance between the supply and demand and
should think of further investing or eliminating assets only after the
balance is maintained.
The
assets
in
supply
chain
namely capacity andInventory

are

present

in

two

forms,

Capacity assets in the supply chain are present for manufacturing,

shipment, and storage while inventory assets are present within the

supply chain and are carried to develop and improvise product

availability.
Thus, we can further define revenue management as the application of
differential pricing on the basis of customer segment, time of use and
product or capacity availability to increment supply chain surplus.
Revenue management plays a major role in supply chain and has a share
of credit in the profitability of supply chain when one or more of the
following conditions exist

The product value differs in different market segments.

The product is highly perishable or product tends to be defective.

Demand has seasonal and other peaks.

The product is sold both in bulk and the spot market.

The strategy of revenue management has been successfully applied in

many streams that we often tend to use but it is never noticed. For
example, the finest real life application of revenue management can be
seen in the airline, railway, hotel and resort, cruise ship, healthcare,
printing and publishing.

RM for Multiple Customer Segments

In the concept of revenue management, we need to take care of two
fundamental issues. The first one is how to distinguish between two
segments and design their pricing to make one segment pay more than
the other. Secondly, how to control the demand so that the lower price
segment does not use the complete asset that is available.
To gain completely from revenue management, the manufacturer needs
to minimize the volume of capacity devoted to lower price segment even
if enough demand is available from the lower price segment to utilize the
complete volume. Here, the general trade-off is in between placing an
order from a lower price or waiting for a high price to arrive later on.
These types of situations invite risks like spoilage and spill. Spoilage
appears when volumes of goods are wasted due to demand from high
rate that does not materialize. Similarly, spill appears if higher rate

segments need to be rejected due to the commitment of volume goods

given to the lower price segment.
To reduce the cost of spoilage and spill, the manufacturer can apply the
formula given below to segments. Let us assume that the anticipated
demand for the higher price segment is generally distributed with mean
of DH and standard deviation of H
CH = F-1(1-PL/PH, DH, H) = NORMINV(1-PL/PH, DH, H)
Where,
CH = reserve capacity for higher price segment
PL = the price for lower segment
PH = the price for higher segment
An important point to note here is the application of differential pricing
that increments the level of asset availability for the high price segment.
A different approach that is applicable for differential pricing is to build
multiple versions of product that focus on different segments. We can
understand this concept with the help of a real life application of
managing revenue for multiple customer segments, that is, the airlines.

RM for Perishable Assets

Any asset that loses its value in due course of time is considered as a
perishable item, for example, all fruits, vegetables and pharmaceuticals.
We can also include computers, cell phones, fashion apparels, etc.;
whatever loses its value after the launch of new model is considered as
perishable.
We use two approaches for perishable
management. These approaches are

assets

in

the

Fluctuate cost over time to maximize expected revenue.

Overbook sales of the assets to cope or deal with cancellations.

revenue

The first approach is highly recommended for goods like fashion apparels
that have a precise date across which they lose a lot of their value; for
example, apparel designed for particular season doesnt have much value

in the end of the season. The manufacturer should try using effective
pricing strategy and predict the effect of rate on customer demand to
increase total profit. Here the general trade-off is to demand high price
initially and allow the remaining products to be sold later at lower price.
The alternate method may be charging lower price initially, selling more
products early in the season and then leaving fewer products to be sold
at a discount.
The second approach is very fruitful here. There are occurrences where
the clients are able to cancel placed orders and the value of asset lowers
significantly after the deadline.

RM for Seasonal Demands

One of the major applications of revenue management can be seen in the
seasonal demand. Here we see a demand shift from the peak to the offpeak duration; hence a better balance can be maintained between supply
and demand. It also generates higher overall profit.
The commonly used effective and efficient revenue management
approach to cope with seasonal demand is to demand higher price during
peak time duration and a lower price during off-peak time duration. This
approach leads to transferring demand from peak to off-peak period.
Companies offer discounts and other value-added services to motivate
and allure customers to move their demand to off-peak period. The best
suited example is Amazon.com. Amazon has a peak period in December,
as it brings short-term volume that is expensive and reduces the profit
margin. It tempts customers through various discounts and free shipping
for orders that are placed in the month of November.
This approach of reducing and increasing the price according to the
demand of customers in the peak season generates a higher profit for
various companies just like it does for Amazon.com.

RM for Bulk and Spot Demands

When we talk about managing revenue for bulk and spot demand, the
basic trade-off is somewhat congruent to that of revenue management
for multiple customer segments.

The company has to make a decision regarding the quantity of asset to

be booked for spot market, which is higher price. The booked quantity
will depend upon the differences in order between the spot market and
the bulk sale, along with the distribution of demand from the spot
market.
There is a similar situation for the client who tends to make the buying
decision for production, warehousing and transportation assets. Here the
basic tradeoff is between signing on long-term bulk agreement with a
fixed, lower price that can be wasted if not used and buying in the spot
market with higher price that can never be wasted. The basic decision to
be made here is the size of the bulk contract.
A formula that can be applied to achieve optimal amount of the asset to
be purchased in bulk is given below. If demand is normal with mean
and standard deviation , the optimal amount Q* to be purchased in bulk
is
Q* = F-1(P*, , ) = NORMINV(P*, , )
Where,
P* = probability demand for the asset doesnt exceed Q*
Q* = the optimal amount of the asset to be purchased in bulk
The amount of bulk purchase increases if either the spot market price
increases or the bulk price decreases.
We can now conclude that revenue management is nothing but
application of differential pricing on the basis of customer segments, time
of use, and product or capacity availability to increase supply chain
profit. It comprises marketing, finance, and operation functions to
maximize the net profit earned.

SCM - Integration
Supply chain integration can be defined as a close calibration and
collaboration within a supply chain, mostly with the application of shared
management information systems. A supply chain is made from all
parties that participate in the completion of a purchase, like the

resources, raw materials, manufacturing of the product, shipping of

completed products and facilitating services.
There are different levels of supply chain integration. We will understand
this with the help of an example of a computer manufacturing company.
The initial step in integration shall include choosing precise merchants to
supply certain inputs and ensuring compliance for them for supplying
certain amount of inputs within the year at a set cost.
This assures that the company has the appropriate materials required to
produce the expected output of computers during the year. In the
meanwhile, this computer company may sign a bond with a large
supplier of circuit boards; the bond expects it to deliver a precise
quantity at precise times within a year and fix a price that will be
effective during the bond year.
If we move to a higher level, the next step would be to integrate the
companies more closely. The circuit board supplier may construct a plant
close to the assembly plant and may also share production software.
Hence, the circuit board company would be able to see how many boards
are required in the upcoming month and can construct them in time, as
the company requires them in order to meet its sales demand.
Further higher level is referred as vertical integration. This level starts
when the supply chain of a company is actually owned by the company
itself. Here, a computer company may buy the circuit board company just
to ensure a devoted supply of elements.

Push System
In a push-based supply chain, the goods are pushed with the help of a
medium, from the source point, e.g., the production site, to the retailer,
e.g., the destination site. The production level is set in accordance with
the previous ordering patterns by the manufacturer.
A push-based supply chain is time consuming when it has to respond to
fluctuations in demand, which can result in overstocking or bottlenecks
and delays, unacceptable service levels and product obsolescence.
This system is based on the deliberation of customers demand. It tries
to push as many products into the market as possible. As a result, the

production is time consuming because the producer and the retailer

struggle to react to the changes in the market. Forecast or prediction
plays an important role in the push system.
Optimum level of products can be produced through long term
prediction. This deliberative nature of the push system leads to high
production cost, high inventory cost as well as high shipment cost due to
the companys desire to halt products at every stage.
Thus, in the push view of supply chain integration, the manager of a firm
may sometimes fail to satisfy or cope with the fluctuating demand
pattern. This system leads to high inventory and high size of batches.
Here, the companies focus more on minimizing the cost of supply chain
and neglect the responsiveness. This system models challenges along
with demand management and transportation management.

Pull System
The pull-based supply chain is based on demand-driven techniques; the
procurement, production and distribution are demand-driven rather than
predicting. This system doesnt always follow the make-to-order
production. For example, Toyota Motors Manufacturing produces products
yet do not religiously produce to order. They follow the supermarket
model.
According to this model, limited inventory is kept and piled up as it is
consumed. Talking about Toyota, Kanban cards are used to hint at the
requirement of piling up inventory.
In this system, the demand is real and the company responds to the
customer demands. It assists the company in producing the exact
amount of products demanded by the clients.
The major drawback in this system is that in case the demand exceeds
than the amount of products manufactured, then the company fails to
meet the customer demand, which in turn leads to loss of opportunity
cost.
Basically in the pull system, the total time allotted for manufacturing of
products is not sufficient. The production unit and distribution unit of the

company rely on the demand. From this point of view, we can say that
the company has a reactive supply chain.
Thus, it has less inventories as well as variability. It minimizes the lead
time in the complete process. The biggest drawback in pull based supply
chain integration is that it cant minimize the price by ranking up the
production and operations.

Differences in Push and Pull System

The major differences between push and pull view in supply chain are as
follows

In the push system, the implementation begins in anticipation of customer

order whereas in the pull system, the implementation starts as a result of
customers order.

In the push system, there is an uncertainty in demand whereas in pull

system, the demand remains certain.

The push system is a speculative process whereas the pull system is a

reactive process.

The level of complexity is high in the push system whereas it is low in the
pull system.

The push based system concentrates on resources allocation whereas the pull
system stresses on responsiveness.

The push system has a long lead time whereas the pull system has a short
lead time.

The push system assists in supply chain planning whereas the pull system
facilitates in order completion.

To conclude, the push based supply chain integrations works with an

objective of minimizing the cost whereas the pull based supply chain
integration works with an objective to maximize the services it provides.

Push & PUll System

Mostly we find a supply chain as merger of both push and pull systems,
where the medium between the stages of the push-based and the pullbased systems is referred as the pushpull boundary.
The terms push and pull were framed in logistics and supply chain
management, but these terms are broadly used in the field of marketing
as well as in the hotel distribution business.

To present an example, Wal-Mart implements the push vs. pull strategy.

A push and pull system in business represents the shipment of a product
or information between two subjects. Generally, the consumers use pull
system in the markets for the goods or information they demand for their
requirements whereas the merchants or suppliers use the push system
towards the consumers.
In supply chains, all the levels or stages function actively for the push
and the pull system. The production in push system depends on the
demand predicted and production in pull system depends on absolute or
consumed demand.
The medium between these two levels is referred as the pushpull
boundary or decoupling point. Generally, this strategy is recommended

for products where uncertainty in demand is high. Further, economies of

scale play a crucial role in minimizing production and/or delivery costs.
For example, the furniture industries use the push and pull strategy. Here
the production unit uses the pull-based strategy because it is impossible
to make production decisions on the basis on long term prediction.
Meanwhile, the distribution unit needs to enjoy the benefits of economy
of scale so that the shipment cost can be reduced; thus it uses a pushbased strategy.

Demand-Driven Strategies
The demand-driven strategies were first developed to understand the
impact of inactivity and collection, as information fertilizes the supply
chain from the source of demand to the suppliers.
Within a mentioned supply lead time, normally the manufacturers
manufacture sufficient goods to satisfy the needs of their clients
predicted. But this is only somewhat accurate at the granular level at
which inventory decisions are made.
Anyways, when the actual demand varies from the demand predicted,
the first thing to be done is to adjust the supply levels needed in
accordance with each step of the supply chain. But because of time delay
between changing demands and its detection at several at points along
the supply chain, its impact is amplified, resulting in inventory shortages
or excesses.

The inventory levels of the companies are disturbed because of the

overcompensation done by the companies either by slowing down or
speeding up production. These fluctuations prove to be a costly and
inefficient affair for all participants.
Basically, the demand-driven strategies or the demand-driven supply
chain is completely based on the demand as well as the supply part of
marketing. So it can be uniquely organized in terms of the demand side
and supply side initiatives.
The demand-side initiatives concentrate on efficient methods to acquire
the demand signal closer to the source, observe the demand to sense the
latest and most accurate demand signal and shape the demand by
implementing and following promotional and pricing strategies to gear up
demand in accordance with business objectives.
On the other hand, the supply side initiatives mostly need to do with
reducing reliance on the prediction by developing into an agile supply
chain accompanied by faster response when absolute demand is known.
All the strategies discussed above are addressed under the demanddriven strategy, but we a company following all of them is rare. In fact,

we can conclude that companies concentrate on different markets on the

basis of features of the market and industry.

SCM - Role of IT
Companies that opt to participate in supply chain management initiatives
accept a specific role to enact. They have a mutual feeling that they,
along with all other supply chain participants, will be better off because
of this collaborative effort. The fundamental issue here is power. The last
two decades have seen the shifting of power from manufacturers to
retailers.
When we talk about information access for the supply chain, retailers
have an essential designation. They emerge to the position of
prominence with the help of technologies. The advancement of inter
organizational information system for the supply chain has three distinct
benefits. These are

Cost reduction The advancement of technology has further led to ready

availability of all the products with different offers and discounts. This leads
to reduction of costs of products.

Productivity

The

growth

of

information

technology

has

improved

productivity because of inventions of new tools and software. That makes

productivity much easier and less time consuming.

Improvement and product/market strategies Recent years have seen

a huge growth in not only the technologies but the market itself. New
strategies

are

made

to

allure

customers

and

new

ideas

are

being

experimented for improving the product.

It would be appropriate to say that information technology is a vital

organ of supply chain management. With the advancement of
technologies, new products are being introduced within fraction of
seconds increasing their demand in the market. Let us study the role of
information technology in supply chain management briefly.
The software as well as the hardware part needs to be considered in the
advancement and maintenance of supply chain information systems. The
hardware part comprises computer's input/output devices like the
screen, printer, mouse and storage media. The software part comprises

the entire system and application program used for processing

transactions management control, decision-making and strategic
planning.
Here we will be discussing the role of some critical hardware and
software devices in SCM. These are briefed below

Electronic Commerce
Electronic commerce involves the broad range of tools and techniques
used to conduct business in a paperless environment. Hence it comprises
electronic data interchange, e-mail, electronic fund transfers, electronic
publishing, image processing, electronic bulletin boards, shared
databases and magnetic/optical data capture.

Electronic commerce helps enterprises to automate the process of

transferring records, documents, data and information electronically
between suppliers and customers, thus making the communication
process a lot easier, cheaper and less time consuming.

Electronic Data Interchange

Electronic Data Interchange (EDI) involves the swapping of business
documents in a standard format from computer-to-computer. It presents
the capability as well as the practice of exchanging information between

two companies electronically rather than the traditional form of mail,

courier, & fax.
The major advantages of EDI are as follows

Instant processing of information

Improvised customer service

Limited paper work

High productivity

Advanced tracing and expediting

Cost efficiency

Competitive benefit

Advanced billing

The application of EDI supply chain partners can overcome the deformity
and falsehood in supply and demand information by remodeling
technologies to support real time sharing of actual demand and supply
information.

Barcode Scanning
We can see the application of barcode scanners in the checkout counters
of super market. This code states the name of product along with its
manufacturer. Some other practical applications of barcode scanners are
tracking the moving items like elements in PC assembly operations and
automobiles in assembly plants.

Data Warehouse
Data warehouse can be defined as a store comprising all the databases.
It is a centralized database that is prolonged independently from the
production system database of a company.
Many companies maintain multiple databases. Instead of some particular
business processes, it is established around informational subjects. The
data present in data warehouses is time dependent and easily accessible.
Historical data may also be accumulated in data warehouse.

Enterprise Resource Planning(ERP) Tools

The ERP system has now become the base of many IT infrastructures.
Some of the ERP tools are Baan, SAP, PeopleSoft. ERP system has now
become the processing tool of many companies. They grab the data and
minimize the manual activities and tasks related to processing financial,
inventory and customer order information.
ERP system holds a high level of integration that is achieved through the
proper application of a single data model, improving mutual

understanding of what the shared data represents and constructing a set

of rules for accessing data.
With the advancement of technology, we can say that world is shrinking
day by day. Similarly, customers' expectations are increasing. Also
companies are being more prone to uncertain environment. In this
running market, a company can only sustain if it accepts the fact that
their conventional supply chain integration needs to be expanded beyond
their peripheries.

The strategic and technological interventions in supply chain have a huge

effect in predicting the buy and sell features of a company. A company
should try to use the potential of the internet to the maximum level
through clear vision, strong planning and technical insight. This is
essential for better supply chain management and also for improved
competitiveness.
We can see how Internet technology, World Wide Web, electronic
commerce etc. has changed the way in which a company does business.

These companies must acknowledge the power of technology to work

together with their business partners.
We can in fact say that IT has launched a new breed of SCM application.
The Internet and other networking links learn from the performance in
the past and observe the historical trends in order to identify how much
product should be made along with the best and cost effective methods
for warehousing it or shipping it to retailer.

SCM - Agile and Reverse

In this chapter, we will throw some light on two specialized supply chains

Agile Supply Chain

Reverse Supply Chain

Agile Supply Chain

An agile supply chain can be defined as a chain of supply that has the
potential to respond to changing requirements in a way that accelerates
the delivery of ordered goods to customers.
In simple words, supply chain agility is a custom adopted by many
companies for choosing a dealer. As we know, a supply chain with
flexibility and the ability to quickly react to emergency requirements can
help the business answer more efficiently to its customers. Apart from
flexibility, speed and accuracy are also signature marks of this type of
supply chain.

To acknowledge the advantages of an agile supply chain, we have to

learn about the elements of any type of supply chain. These include
elements like collection of orders and processing, supply of materials to
create the goods used to complete orders, packaging and transport of
finished goods, and the quality of customer service that is advertised
throughout the process from the point of sale to the actual delivery and
beyond.
Thus, for considering the functions of supply chain as agile, each one of
these elements must be managed efficiently and coordinated in such a
way that makes it possible to adapt to changing circumstances.
With the help of an agile supply chain, merchants can easily respond to
the varying requirements of customer with relatively less time required.
For example, if a client has already placed a sizable order but demands

the product to be delivered few days prior to the projected delivery date,
a merchant with a truly agile supply chain can easily accommodate that
change in the clients situation, at least in part. Working collaboratively,
the merchant and the customer develop a strategy to permit the delivery
of as much of the order as possible within the new time frame required.
There are times when merchants need to think creatively along with
some flexibility in terms of scheduling production time, selecting shippers
and basically looking closely at each step in the order completion process
to search for ways to reduce the time required to successfully accomplish
those tasks and abide with the customers request.

Reverse Supply Chain

Reverse supply chain states the evolution of products from customer to
merchant. This is the reverse of the traditional supply chain evolution of
products from merchant to customer.
Reverse logistics is the process of planning, executing, monitoring and
controlling the efficient and effective inbound flow and storage of
secondary goods and information related to the purpose of recovering
value or proper disposal. Some examples of reverse supply chain are as
follows

Product returns and handling product displacement.

Remanufacturing and refurbishing exercises.

Management and sale of surplus, along with returned equipment and

machines from the hardware leasing business.

Different types of reverse supply chain arise at different stages of the

product cycle. Mostly reverse supply chain is designed to carry out the
below given five key processes

Product acquisition Accumulating the used product from the user by the
reseller or manufacturer because of some manufacturing defect or some
other reason. It is basically considered as a companys growth strategy.

Reverse logistics Shipping of products from their final destination for

auditing, sorting and disposition.

Inspection and disposition Examining the condition of the product

returned along with making the most profitable decision for reusing it in
some other way.

Remanufacturing or refurnishing Returning the product to its original

source from where it was ordered in the very first place along with
specifications. This is done basically when there is a manufacturing or
furnishing defect in the goods.

Marketing Establishing secondary markets for the goods that have been
recovered by the merchant from the client who initially ordered it in the
beginning but chose to return it.

In short, we can say that the enterprises that closely coordinate with
their forward supply chains are the one that have been most successful
with their reverse supply chains. These two chains create a closed-loop
system. For example, the company designs a product layout according to
the manufacturing decisions followed by recycling and reconditioning.
Bosch is a beautiful example of reverse supply chain. It constructs
sensors into the motors of its power tools, which signs if the motor is
worth reconditioning.
Technology plays a great role here by reducing the inspection and
disposition costs, sanctioning the company to make a profit on the
remanufactured tools. In fact, along with reverse supply chains, forward
thinking results in big dividends.