INTRODUCTION OF

SUPPLY CHAIN MANAGEMENT (SCM)

A supply chain is a network of facilities and distribution options that
performs the functions of procurement of materials, transformation of these
materials into intermediate and finished products, and the distribution of these
finished products to customers. Supply chains exist in both service and
manufacturing organizations, although the complexity of the chain may vary
greatly from industry to industry and firm to firm.

Supply chain management is typically viewed to lie between fully

vertically integrated firms, where the entire material flow is owned by a single
firm and those where each channel member operates independently. Therefore
coordination between the various players in the chain is key in its effective
management. Cooper and Ellram [1993] compare supply chain management
to a well-balanced and well-practiced relay team. Such a team is more
competitive when each player knows how to be positioned for the hand-off.
The relationships are the strongest between players who directly pass the
baton (stick), but the entire team needs to make a coordinated effort to win the
race.

Below is an example of a very simple supply chain for a single product,

where raw material is procured from vendors, transformed into finished goods
in a single step, and then transported to distribution centers, and ultimately,
customers. Realistic supply chains have multiple end products with shared
components, facilities and capacities. The flow of materials is not always
along an arborescent network, various modes of transportation may be
considered, and the bill of materials for the end items may be both deep and
large.

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 To simplify the concept, supply chain management can be defined as a
loop: it starts with the customer and ends with the customer. All materials,
finished products, information, and even all transactions flow through the
loop. However, supply chain management can be a very difficult task because
in the reality, the supply chain is a complex and dynamic network of facilities
and organizations with different, conflicting objectives.

Supply chains exist in both service and manufacturing organizations,

although the complexity of the chain may vary greatly from industry to
industry and firm to firm.

Unlike commercial manufacturing supplies, services such as clinical

supplies planning are very dynamic and can often have last minute changes.
Availability of patient kit when patient arrives at investigator site is very
important for clinical trial success. This results in overproduction of drug
products to take care of last minute change in demand. R&D manufacturing is
very expensive and overproduction of patient kits adds significant cost to the
total cost of clinical trials. An integrated supply chain can reduce the
overproduction of drug products by efficient demand management, planning,
and inventory management.

Traditionally, marketing, distribution, planning, manufacturing, and the

purchasing organizations along the supply chain operated independently.
These organizations have their own objectives and these are often conflicting.
Marketing's objective of high customer service and maximum sales dollars
conflict with manufacturing and distribution goals. Many manufacturing
operations are designed to maximize throughput and lower costs with little
consideration for the impact on inventory levels and distribution capabilities.
Purchasing contracts are often negotiated with very little information beyond
historical buying patterns. The result of these factors is that there is not a
single, integrated plan for the organization---there were as many plans as
businesses. Clearly, there is a need for a mechanism through which these
different functions can be integrated together. Supply chain management is a
strategy through which such integration can be achieved.

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 IMPLICATIONS OF SCM ON LOGISTIC
MANAGEMENT

The challenge of integrating and coordinating the flow of materials

from multitude of suppliers, including offshore, and similarly managing the
distribution of the finished product by way of multiple intermediaries.

Achieving cost reduction or profit improvement at the expense of their

supply chain partners does not make companies more competitive.

Transferring cost upstream or downstream leads to “logistics myopia”

as all costs ultimately will make way to the final market place to be reflected
in the price paid by the end user.

Therefore, the leading edge companies seek to make the supply chain as
a hole more competitive through the value it adds and the cost it reduces
overall.

Thus today the real competition is not the companies against the
companies but rather supply chain against supply chain.

DEFINITIONS
Supply Chain Management (SCM) is the process of planning, implementing,
and controlling the operations of the supply chain with the purpose to satisfy
customer requirements as efficiently as possible. Supply chain management
spans all movement and storage of raw materials, work-in-process inventory,
and finished goods from point-of-origin to point-of-consumption.

According to the Council of Supply Chain Management Professionals

(CSCMP),

a professional association that developed a definition in 2004, Supply Chain

Management “encompasses the planning and management of all activities
involved in sourcing and procurement, conversion, and all logistics
management activities”. Importantly, it also includes coordination and
collaboration with channel partners, which can be suppliers, intermediaries,
third-party service providers, and customers. In essence, Supply Chain
Management integrates supply and demand management within and across
companies.

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 According to Cohen & Lee (1988)

Supply Chain Management is “The network of organizations that are having

linkages, both upstream and downstream, in different processes and activities
that produces and delivers the value in form of products and services in the
hands of ultimate consumer.” Thus a shirt manufacturer is a part of supply
chain that extends up stream through the weaves of fabrics to the spinners and
the manufacturers of fibers, and down stream through distributions and
retailers to the final consumer. Though each of these organizations are
dependent on each other yet traditionally do not closely cooperate with each
other. An integrated supply chain management streamlines processes and
increases profitability by delivering the right product to the right place, at the
right time, and at the lowest possible cost.

According to Ganeshan & Harrison (2001)

Supply Chain Management is a “systems approach to managing the entire

flow of information, materials, and services from raw materials suppliers
through factories and warehouses to the end customer.”

Supply chain event management (abbreviated as SCEM) is a consideration of

all possible occurring events and factors that can cause a disruption in a
supply chain. With SCEM possible scenarios can be created and solutions can
be planned.

Some experts distinguish supply chain management and logistics

management, while others consider the terms to be interchangeable. From
the point of view of an enterprise, the scope of supply chain management is
usually bounded on the supply side by your supplier's suppliers and on the
customer side by your customer's customers.

Supply chain management is also a category of software products.

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DIFFERENCE BETWEEN LOGISTICS MANAGEMENT
AND SCM

Logistics Management Supply Chain Management

Logistics management is primarily Supply Chain Management deals

concerned with optimizing flows with integration of all the partners in
within the organization. the value chain.

Logistics is essentially a framework Supply chain builds upon this

that creates a single plan for the framework and seeks to achieve
flow of products and information linkage and coordination between
through a business process of other entities in the
pipeline i.e. suppliers and
costumers, and the organization it
self.

COMPONENTS OF SUPPLY CHAIN MANAGEMENT

The following are the five basic components of Supply Chain Management:

1. Plan:-

This is the strategic portion of SCM. You need a strategy for managing
all the resources that go toward meeting customer demand for your product
or service. A big piece of planning is developing a set of metrics to
monitor the supply chain so that it is efficient, costs less and delivers high
quality and value to customers.

2. Source:-

Choose the suppliers that will deliver the goods and services you need
to create your product. Develop a set of pricing, delivery and payment
processes with suppliers and create metrics for monitoring and improving
the relationships. And put together processes for managing the inventory
of goods and services you receive from suppliers, including receiving
shipments, verifying them, transferring them to your manufacturing
facilities and authorizing supplier payments.

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 3. Make:-

This is the manufacturing step. Schedule the activities necessary for

production, testing, packaging and preparation for delivery. As the most
metric-intensive portion of the supply chain, measure quality levels,
production output and worker productivity.

4. Deliver:-

This is the part that many insiders refer to as logistics. Coordinate the
receipt of orders from customers, develop a network of warehouses, pick
carriers to get products to customers and set up an invoicing system to
receive payments.

5. Return:-

The problem part of the supply chain. Create a network for receiving
defective and excess products back from customers and supporting
customers who have problems with delivered products.

OBJECTIVES/NEED FOR SCM

Traditionally, marketing, distribution, planning, manufacturing, and the
purchasing organizations along the supply chain operated independently.
These organizations have their own objectives and these are often conflicting.
Marketing's objective of high customer service and maximum sales dollars
conflict with manufacturing and distribution goals. Many manufacturing
operations are designed to maximize throughput and lower costs with little
consideration for the impact on inventory levels and distribution capabilities.
Purchasing contracts are often negotiated with very little information beyond
historical buying patterns.

The result of these factors is that there is not a single, integrated plan
for the organization---there were as many plans as businesses. Clearly, there is
a need for a mechanism through which these different functions can be
integrated together. Supply chain management is a strategy through which
such integration can be achieved.

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 Moreover, shortened product life cycles, increased competition, and
heightened expectations of customers have forced many leading edge
companies to move from physical logistic management towards more
advanced supply chain management. Additionally, in recent years it has
become clear that many companies have reduced their manufacturing costs as
much as it is practically possible. Therefore, in many cases, the only possible
way to further reduce costs and lead times is with effective supply chain
management.

In addition to cost reduction, the supply chain management approach

also facilitates customer service improvements. It enables the management of:

 inventories,
 transportation systems and
 whole distribution networks

so that organizations are able to meet or even exceed their customers'

expectations.

The major objective of supply chain management is to reduce or

eliminate the buffers of inventory that exists between originations in chain
through the sharing of information on demand and current stock levels.

Broadly, an organization needs an efficient and proper supply chain

management system so that the following strategic and competitive areas can
be used to their full advantage if a supply chain management system is
properly implemented.

1. Fulfillment of raw materials:

Ensuring the right quantity of parts for production or products for sale
arrive at the right time. This is enabled through efficient communication,
ensuring that orders are placed with the appropriate amount of time available
to be filled. The supply chain management system also allows a company to
constantly see what is on stock and making sure that the right quantities are
ordered to replace stock.

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2. Logistics:

The cost of transporting materials as low as possible consistent with

safe and reliable delivery. Here the supply chain management system enables
a company to have constant contact with its distribution team, which could
consist of trucks, trains, or any other mode of transportation. The system can
allow the company to track where the required materials are at all times. As
well, it may be cost effective to share transportation costs with a partner
company if shipments are not large enough to fill a whole truck and this again,
allows the company to make this decision.

3. Smooth Production:

Ensuring production lines function smoothly because high-quality parts

are available when needed. Production can run smoothly as a result of
fulfillment and logistics being implemented correctly. If the correct quantity is
not ordered and delivered at the requested time, production will be halted, but
having an effective supply chain management system in place will ensure that
production can always run smoothly without delays due to ordering and
transportation.

4. Increase in Revenue & profit:

Ensuring no sales is lost because shelves are empty. Managing the

supply chain improves a company flexibility to respond to unforeseen changes
in demand and supply. Because of this, a company has the ability to produce
goods at lower prices and distribute them to consumers quicker then
companies without supply chain management thus increasing the overall
profit.

5. Reduction in Costs:

Keeping the cost of purchased parts and products at acceptable levels.

Supply chain management reduces costs by increasing inventory turnover on
the shop floor and in the warehouse controlling the quality of goods thus
reducing internal and external failure costs and working with suppliers to
produce the most cost efficient means of manufacturing a product.

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6. Mutual Success:

Among supply chain partners ensures mutual success. Collaborative

planning, forecasting and replenishment (CPFR) is a longer-term
commitment, joint work on quality, and support by the buyer of the supplier’s
managerial, technological, and capacity development. This relationship allows
a company to have access to current, reliable information, obtain lower
inventory levels, cut lead times, enhance product quality, improve forecasting
accuracy and ultimately improve customer service and overall profits. The
suppliers also benefit from the cooperative relationship through increased
buyer input from suggestions on improving the quality and costs and though
shared savings. Consumers can benefit as well through higher quality goods
provided at a lower cost.

ACTIVITIES/FUNCTIONS OF SCM
Supply chain management is a cross-functional approach to managing
the movement of raw materials into an organization and the movement of
finished goods out of the organization toward the end-consumer. As
corporations strive to focus on core competencies and become more flexible,
they have reduced their ownership of raw materials sources and distribution
channels. These functions are increasingly being outsourced to other
corporations that can perform the activities better or more cost effectively.
The effect has been to increase the number of companies involved in
satisfying consumer demand, while reducing management control of daily
logistics operations. Less control and more supply chain partners led to the
creation of supply chain management concepts. The purpose of supply chain
management is to improve trust and collaboration among supply chain
partners, thus improving inventory visibility and improving inventory
velocity.

Several models have been proposed for understanding the activities

required managing material movements across organizational and functional
boundaries. SCOR is a supply chain management model promoted by the
Supply-Chain Council. Another model is the SCM Model proposed by the
Global Supply Chain Forum (GSCF). Supply chain activities can be grouped
into strategic, tactical, and operational levels of activities.

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(a) Strategic:-
 Strategic network optimization, including the number, location, and
size of warehouses, distribution centers and facilities.

 Strategic partnership with suppliers, distributors, and customers,

creating communication channels for critical information and
operational improvements such as cross docking, direct shipping, and
third-party logistics.

 Products design coordination, so that new and existing products can be

optimally integrated into the supply chain.

 Information Technology infrastructure, to support supply chain

operations.

 Where to make and what to make or buy decisions.

(b) Tactical:-
 Sourcing contracts and other purchasing decisions.

 Production decisions, including contracting, locations, scheduling, and

planning process definition.

 Inventory decisions, including quantity, location, and quality of

inventory. Transportation strategy, including frequency, routes, and
contracting.

 Benchmarking of all operations against competitors and

implementation of best practices throughout the enterprise.

(c) Operational:-
 Daily production and distribution planning, including all nodes in the
supply chain.

 Production scheduling for each manufacturing facility in the supply

chain (minute by minute).

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  Demand planning and forecasting, coordinating the demand forecast of
all customers and sharing the forecast with all suppliers.

 Sourcing planning, including current inventory and forecast demand, in

collaboration with all suppliers. Inbound operations, including
transportation from suppliers and receiving inventory.

 Production operations, including the consumption of materials and flow

of finished goods.

 Outbound operations, including all fulfillment activities and

transportation to customers.

 Order promising, accounting for all constraints in the supply chain,

including all suppliers, manufacturing facilities, distribution centers,
and other customers. Performance tracking of all activities.

INTEGRATED SUPPLY CHAIN MANAGEMENT

An integrated supply chain management streamlines processes and
increases profitability by delivering the right product to the right place, at the
right time, and at the lowest possible cost. Unlike commercial manufacturing
supplies, clinical supplies planning is very dynamic and can often have last
minute changes. Availability of patient kit when patient arrives at investigator
site is very important for clinical trial success.

This results in overproduction of drug products to take care of last

minute change in demand. R&D manufacturing is very expensive and
overproduction of patient kits adds significant cost to the total cost of clinical
trials.

An integrated supply chain can reduce the overproduction of drug

products by efficient demand management, planning, and inventory
management. Implementation of ERP system (such as SAP) in R&D can have
major ROI by an efficient supply and inventory management system and also
by reducing overproduction.

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⇒ How Integration Is Achieved In Supply Chain?

Stage 1:
Complete functional independence where each business function such as
production or purchasing does its own thing in complete isolation from other
business function. For instance, production function seeking to optimize its
unit cost of manufacture by long production runs with out regard for build up
of finished goods inventory and advance impact it will have on the
warehousing as well as working capital.

Stage 2:
Companies recognize the need of limited integration between adjacent
functions such as distribution and inventory management or purchasing and
material control.

Stage 3:
A natural extension of stage two, leading to establishment and implementation
of end- to-end integration. A concept of linkage and coordination is achieved.

STAGE 4:
The linkage achieved in stage three is extended upstream to suppliers and
down stream to customers. It represents true supply chain integration. This
concept is also called ‘co-managed inventory’ (CMI).

Force of supply chain management is on trust and cooperation and the

recognition that is properly managed ‘the whole cane be greater then the sum
of its part’.

⇒ Is Supply Chain Management Same As Vertical Integration?

No. supply chain management is not the same as vertical integration. Vertical
integration normally implies ownership of upstream suppliers and down
stream customer.

Once, the vertical integration used to be describable strategy but increasingly

the companies are focusing on their ‘core business’ i.e. the activities that they
do really well and where they have a differential advantage. Every thing else
is ‘out-sourced’ i.e. procured from outside the firm.

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 SUPPLY CHAIN DECISIONS

We classify the decisions for supply chain management into two broad
categories – Short term & Long term decisions. As the term implies, short
term decisions focus on activities over a day-to-day basis. On the other hand,
long term decisions are made typically over a longer time horizon. These are
closely linked to the corporate strategy and guide supply chain policies from a
design perspective.

There are four major decision areas in supply chain management:

1). Location,
2). Production,
3). Inventory, and
4). Transportation (distribution), and there are both short term and long-
term elements in each of these decision areas.

Location Decisions:

The geographic placement of production facilities, stocking points, and

sourcing points is the natural first step in creating a supply chain. The location
of facilities involves a commitment of resources to a long-term plan. Once the
size, number, and location of these are determined, so are the possible paths
by which the product flows through to the final customer. These decisions are
of great significance to a firm since they represent the basic strategy for
accessing customer markets, and will have a considerable impact on revenue,
cost, and level of service. These decisions should be determined by an
optimization routine that considers production costs, taxes, duties and duty
drawback, tariffs, local content, distribution costs, production limitations, etc.
Although location decisions are primarily long term they also have
implications on short term level.

Production Decisions:

The long term decisions include what products to produce, and which
plants to produce them in, allocation of suppliers to plants, plants to DC's, and
DC's to customer markets. As before, these decisions have a big impact on the
revenues, costs and customer service levels of the firm. These decisions
assume the existence of the facilities, but determine the exact path(s) through

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 which a product flows to and from these facilities. Another critical issue is the
capacity of the manufacturing facilities--and this largely depends the degree
of vertical integration within the firm. Short term decisions focus decisions
focus on detailed production scheduling. These decisions include the
construction of the master production schedules, scheduling production on
machines, and equipment maintenance. Other considerations include
workload balancing, and quality control measures at a production facility.

Inventory Decisions:

These refer to means by which inventories are managed. Inventories

exist at every stage of the supply chain as either raw material, semi-finished or
finished goods. They can also be in-process between locations. Their primary
purpose to buffer against any uncertainty that might exist in the supply chain.
Since holding of inventories can cost anywhere between 20 to 40 percent of
their value, their efficient management is critical in supply chain operations. It
is long term in the sense that top management sets goals. However, most
researchers have approached the management of inventory from short term
perspective. These include deployment strategies (push versus pull), control
policies --- the determination of the optimal levels of order quantities and
reorder points, and setting safety stock levels, at each stocking location. These
levels are critical, since they are primary determinants of customer service
levels.

Transportation Decisions:

The mode choice aspect of these decisions is the more long term ones.
These are closely linked to the inventory decisions, since the best choice of
mode is often found by trading-off the cost of using the particular mode of
transport with the indirect cost of inventory associated with that mode. While
air shipments may be fast, reliable, and warrant lesser safety stocks, they are
expensive. Meanwhile shipping by sea or rail may be much cheaper, but they
necessitate holding relatively large amounts of inventory to buffer against the
inherent uncertainty associated with them. Therefore customer service levels
and geographic location play vital roles in such decisions. Since transportation
is more than 30 percent of the logistics costs, operating efficiently makes good
economic sense. Shipment sizes (consolidated bulk shipments versus Lot-for-
Lot), routing and scheduling of equipment are key in effective management of
the firm's transport strategy.

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 SCM PROCESS INTEGRATION

Successful SCM requires a change from managing individual functions

to integrating activities into key supply chain processes. The purchasing
department placed orders as requirements became appropriate and marketing,
responding to customer demand, interfaced with several distributors and
retailers and attempted to satisfy this demand. Shared information between
supply chain partners can only be fully leveraged through process integration.
Process integration means collaborative working between buyers and
suppliers, joint product development, common systems and shared
information.

According to Lambert and Cooper (2000), operating an integrated

supply chain requires continuous information flows, which in turn assist to
achieve the best product flows. However, in many companies, such as 3M,
management has reached the conclusion that optimizing the product flows
cannot be accomplished without implementing a process approach to the
business.

The key critical supply business processes stated by Lambert and

Cooper are as follows:

1. Customer service management process:

Customer service provides the source of customer information. It also

provides the customer with real-time information on promising dates and
product availability through interfaces with the company production and
distribution operations

2. Procurement process:

Strategic plans are developed with suppliers to support the

manufacturing flow management process and development of new products.
In firms where operations extend globally, sourcing should be managed on a
global basis. The desired outcome is a win-win relationship, where both
parties benefit, and reduction times in the design cycle and product
development is achieved. Also, the purchasing function develops rapid
communication systems, such as electronic data interchange and Internet
linkages to faster transfer possible requirements. Activities related to

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 obtaining products and materials from outside suppliers requires performing
resource planning, supply sourcing, negotiation, order placement, inbound
transportation, storage and handling and quality assurance Also, includes the
responsibility to coordinate with suppliers in scheduling, supply continuity &
research to new programmes.

3. Product development and commercialization:

Here, customers and suppliers must be united into the product

development process, thus to reduce time to market. As product life cycles
shorten, the appropriate products must be developed and successfully
launched in ever shorter time-schedules to remain competitive. According to
Lambert and Cooper, managers of the product development and
commercialization process must:

a) coordinate with customer relationship management to identify

customer-articulated needs;

b) select materials and suppliers in conjunction with procurement, and

c) develop production technology in manufacturing flow to

manufacture and integrate into the best supply chain flow for the
product/market combination

4. Manufacturing flow management process:

The manufacturing process is produced and supplied products to the

distribution channels based on past forecasts. Manufacturing processes must
be flexible to respond to market changes, and must accommodate mass
customization. Orders are processes on a just-in-time (JIT) basis in minimum
lot sizes. Also, changes in the manufacturing flow process lead to shorter
cycle times, meaning improved responsiveness and efficiency of demand to
customers. Activities related to planning, scheduling and supporting
manufacturing operations, such as work-in-process storage, handling,
transportation, and time phasing of components, inventory at manufacturing
sites and maximum flexibility in the coordination of geographic and final
assemblies postponement of physical distribution operations.

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5. Physical Distribution:

This concerns movement of a finished product/service to customers. In

physical distribution, the customer is the final destination of a marketing
channel, and the availability of the product/service is a vital part of each
channel participant. It is also through the physical distribution process that the
time and space of customer service become an integral part of marketing, thus
it links a marketing channel with its customers (e.g. links manufacturers,
wholesalers, retailers).

6. Outsourcing/ Partnerships:

Not just outsourcing the procurement of materials and components, but

also outsourcing of services that traditionally have been provided in-house.
The logic of this trend is that the company will increasingly focus on those
activities in the value chain where it has a distinctive advantage and
everything else it will outsource. This movement has been particularly evident
in logistics where the provision of transport, warehousing and inventory
control is increasingly subcontracted to specialists or logistics partners. Also,
to manage and control this network of partners and suppliers requires a blend
of both central and local involvement. Hence, strategic decisions need to be
taken centrally with the monitoring and control of supplier performance and
day-to-day liaison with logistics partners being best managed at a local level.

7. Performance Measurement:

By taking advantage of supplier capabilities and emphasizing a long-

term supply chain perspective in customer relationships can be both correlated
with firm performance. As logistics competency becomes a more critical
factor in creating and maintaining competitive advantage, logistics
measurement becomes increasingly important because the difference between
profitable and unprofitable operations becomes narrower. As Kearney
Consultants (1985) noted that firms engaging in comprehensive performance
measurement realized improvements in overall productivity. According to
internal measures are generally collected and analyzed by the firm including
1) Cost,
2) Customer Service,
3) Productivity measures,
4) Asset measurement, and
5) Quality…..

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 Force of supply chain management is on trust and cooperation and the
recognition that is properly managed 'the whole cane be greater then the sum
of its part'.

For example:

Let's look at consumer packaged goods for an example of collaboration.

If there are two companies that have made supply chain a household word,
they are Wal-Mart and Procter & Gamble. Before these two companies started
collaborating back in the '80s, retailers shared very little information with
manufacturers. But then the two giants built a software system that hooked
P&G up to Wal-Mart's distribution centers.

When P&G's products run low at the distribution centers, the system
sends an automatic alert to P&G to ship more products. In some cases, the
system goes all the way to the individual Wal-Mart store. It lets P&G monitor
the shelves through real-time satellite link-ups that send messages to the
factory whenever a P&G item swoops past a scanner at the register.

With this kind of minute-to-minute information, P&G knows when to

make ship and display more products at the Wal-Mart stores. No need to keep
products piled up in warehouses awaiting Wal-Mart's call. Invoicing and
payments happen automatically too. The system saves P&G so much in time,
reduced inventory and lower order-processing costs that it can afford to give
Wal-Mart "low, everyday prices" without putting itself out of business.

ROLE AND APPLICATION OF SOFTWARE’S IN SCM

Supply chain management software is possibly the most fractured

group of software applications on the planet. Each of the five major supply
chain steps previously outlined composes dozens of specific tasks, many of
which have their own specific software. Some vendors have assembled many
of these different chunks of software together under a single roof, but no one
has a complete package that is right for every company.
For example:
Most companies need to track demand, supply, manufacturing status, logistics
(i.e. where things are in the supply chain), and distribution. They also need to
share data with supply chain partners at an ever increasing rate. While
products from large ERP vendors like Sap’s Advanced Planner and Optimizer

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(APO) can perform many or all of these tasks, because each industry's supply
chain has a unique set of challenges, many companies decide to go with
targeted best of breed products instead, even if some integration is an
inevitable consequence.

Goal of installing SCM software’s:

Before the Internet came along, the aspirations of supply chain software
devotees were limited to improving their ability to predict demand from
customers and make their own supply chains run more smoothly. But the
cheap, ubiquitous nature of the Internet, along with its simple, universally
accepted communication standards have thrown things wide open. Now, you
can connect your supply chain with the supply chains of your suppliers and
customers together in a single vast network that optimizes costs and
opportunities for everyone involved. This was the reason for the B2B
explosion; the idea that everyone you do business with could be connected
together into one big happy, cooperative family.

Of course, reality isn't quite that happy and cooperative, but today most
companies share at least some data with their supply chain partners. The goal
of these projects is greater supply chain visibility. The supply chain in most
industries is like a big card game. The players don't want to show their cards
because they don't trust anyone else with the information. But if they showed
their hands they could all benefit. Suppliers wouldn't have to guess how many
raw materials to order, and manufacturers wouldn't have to order more than
they need from suppliers to make sure they have enough on hand if demand
for their products unexpectedly goes up. And retailers would have fewer
empty shelves if they shared the information they had about sales of a
manufacturer's product in all their stores with the manufacturer.

Relationship between ERP and SCM:

Many SCM applications are reliant upon the kind of information that is
stored in the most quantity inside ERP software. Theoretically you could
assemble the information you need to feed the SCM applications from legacy
systems (for most companies this means Excel spreadsheets spread out all
over the place), but it can be nightmarish to try to get that information flowing
on a fast, reliable basis from all the areas of the company. ERP is the battering
ram that integrates all that information together in a single application, and
SCM applications benefit from having a single major source to go to for up-

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 to-date information. Most CIO’s who have tried to install SCM applications
say they are glad they did ERP first. They call the ERP projects "putting your
information house in order." Of course, ERP is expensive and difficult, so you
may want to explore ways to feed your SCM applications the information they
need without doing ERP first. These days, most ERP vendors have SCM
modules so doing an ERP project may be a way to kill two birds with one
stone. Companies will need to decide if these products meet their needs or if
they need a more specialized system.

Applications that simply automate the logistics aspects of SCM are less
dependent upon gathering information from around the company, so they tend
to be independent of the ERP decision. But chances are, you'll need to have
these applications communicate with ERP in some fashion. It's important to
pay attention to the software's ability to integrate with the Internet and with
ERP applications because the Internet will drive demand for integrated
information. For example, if you want to build a private website for
communicating with your customers and suppliers, you will want to pull
information from ERP and supply chain applications together to present
updated information about orders, payments, manufacturing status and
delivery.

⇒ Roadblocks in installing SCM Software’s:

There are some hurdles which come in way while installing the SCM
software’s in the organizations. They are:

1. Gaining trust from your suppliers and partners:-

Supply chain automation is uniquely difficult because its complexity

extends beyond your company's walls. Your people will need to change the
way they work and so will the people from each supplier that you add to your
network. Only the largest and most powerful manufacturers can force such
radical changes down suppliers' throats. Most companies have to sell outsiders
on the system. Moreover, your goals in installing the system may be
threatening to those suppliers, to say the least.

For example:
Wal-Mart's collaboration with P&G meant that P&G would assume more
responsibility for inventory management, something retailers have
traditionally done on their own. Wal-Mart had the clout to demand this from

20
 P&G, but it also gave P&G something in return-better information about Wal-
Mart's product demand, which helped P&G manufacture its products more
efficiently. To get your supply chain partners to agree to collaborate with you,
you have to be willing to compromise and help them achieve their own goals.

2. Internal resistance to change:-

If selling supply chain systems is difficult on the outside, it isn't much

easier inside. Operations people are accustomed to dealing with phone calls,
faxes and hunches scrawled on paper, and will most likely want to keep it that
way. If you can't convince people that using the software will be worth their
time, they will easily find ways to work around it. You cannot disconnect the
telephones and fax machines just because you have supply chain software in
place.

3. Many mistakes at first:-

There is a diabolical twist to the quest for supply chain software

acceptance among your employees. New supply chain systems process data as
they are programmed to do, but the technology cannot absorb a company's
history and processes in the first few months after an implementation.
Forecasters and planners need to understand that the first bits of information
they get from a system might need some tweaking. If they are not warned
about the system's initial naiveté (simplicity), they will think it is useless.

In one case, just before a large automotive industry supplier installed a

new supply chain forecasting application to predict demand for a product, an
automaker put in an order for an unusually large number of units. The system
responded by predicting huge demand for the product based largely on one
unusual order. Blindly following the system's numbers could have led to
inaccurate orders for materials being sent to suppliers within the chain. The
company caught the problem but only after a demand forecaster threw out the
system's numbers and used his own. That created another problem:
Forecasters stopped trusting the system and worked strictly with their own
data. The supplier had to fine-tune the system itself, and then work on
reestablishing employees' confidence. Once employees understood that they
would be merging their expertise with the system's increasing accuracy, they
began to accept and use the new technology.

21
 ⇒ Conclusions:

What has enabled the effective implementation of supply chain

management? The answer is found from the rapid developments in
information and communications technologies. Use of databases,
communication systems, and foremost advanced computer software are
crucial for the development of a modern cost-effective supply chain
management.

MANAGING THE GLOBAL SUPPLY CHAIN

We live in interesting times. Powerful forces are re-shaping the global

business scene: financial and economic upheaval in the Far East, Latin
America & China is creating a tidal-wave of change in the competitive
environment. Organisations that once felt insulated from overseas low-priced
competitors now find that they too must not only continue to constantly create
new value for customers, but must do so at a lower price.

To meet the challenge of simultaneously reducing cost and enhancing

customer value requires a radically different approach to the way the business
responds to marketplace demand. One of the keys to success is the creation of
an agile supply chain on a worldwide scale.

⇒ The Agile Supply Chain:

There is now widespread recognition of the role that supply chain

management can play in enabling organisations to compete in volatile
markets. However, experience suggests that there are significant barriers both
within the company and between its upstream and downstream partners in
achieving the required level of responsiveness across the chain as a whole.
Continuous change is a phenomenon with which the supply chains have had
to cope for some time. But due to high rate of competition in today’s market
the logistics environment of the new millennium will have to contend with:

i. ) turbulent markets that change rapidly and unpredictably,

ii. ) highly fragmented 'niche' markets instead of mass markets,
iii. ) ever greater rates of technological innovation in products and
processes,
iv. ) shorter product life-cycles,
v. ) growing demand for tailored products - 'mass customisation',

22
 vi. ) the delivery of complete 'solutions' to customers, comprising
products and services.

And all of the above to be achieved at less cost!

These severe challenges mean that a new operating paradigm is needed.

The key factor is agility - rapid strategic and operational adaptation to large
scale, unpredictable changes in the business environment. Agility implies
responsiveness from one end of the supply chain to the other. It focuses upon
eliminating the barriers to quick response, be they organisational or technical.

Figure 1 suggests that whilst there will still be conditions where lean
concepts are appropriate, in particular where the product is standard and
volume demand is high and predictable. Increasingly however these situations
are tending to become fewer as the global forces we have described lead to
higher levels of market volatility.

How do global supply chains achieve agility? In a sense the very

process of globalisation has retarded agility. For example, many companies in
their search for lower production costs have moved much of their
manufacturing and assembly offshore. The main driver for such moves often
being low labour costs. However, in so doing they run the risk of extending
their lead-times significantly thus generating the need for more inventory in
the pipeline.

23
 As a result their agility is reduced. Some organisations have actually
sought to reverse this trend by bringing manufacturing back closer to their
main markets - Dell Computer being a case in point. Other companies are
using low cost sources of supply to manufacture products where there is a
predictable demand and using more local, flexible facilities for producing less
predictable, more volatile products. Zara, the successful Spanish fashion
retailer, has followed a very similar strategy enabling it to respond more
rapidly to changes in demand.

To overcome the potential loss of agility through extended global

supply chains, companies need to adopt a number of guiding principles:-

⇒ Remove the organisational barriers:

Too many companies are hindered in their attempts to streamline their

supply chains because of their out-molded organisational structures. It is not
possible to even contemplate a seamless global pipeline if there are quasi-
independent national subsidiaries making their own decisions on sourcing,
distribution facilities and inventory for example.

Similarly, it is still the case that for many businesses the functional
'barons' still wield significant power. As a result decisions are taken which are
based on a narrow definition of 'optimisation' - in other words the focus is on
improving performance within a function without regard for its wider supply
chain impact. Thus we find, for instance, that often factories are designed and
built to maximise the economies of scale rather than to enhance flexibility of
response. In a global marketplace this tunnel vision can lead to a damaging
loss of competitiveness.

The solution has to be to re-engineer the organisation structure so that

supply chains are managed on a truly integral basis with cross-functional
teams being given the responsibility for managing the pipeline from source to
final market.

⇒ Make the supply chain the value chain:

24
 The idea that companies should focus on their core competencies is
rapidly taking hold. As a result there is a greater willingness to out-source
than was previously the case. This trend has been particularly observable in
global corporations where there has been recognition that the complexity of
managing a worldwide logistics chain requires specialist resources.

There is now a great opportunity to start thinking of the supply chain as

a value chain. Rather than accepting the conventional view that believes that
all value-creating activities need to be conducted under the same corporate
roof, forward-looking organisations are taking a different view. Particularly as
supply chains become global it will often make sense to move to a greater
level of 'localisation', i.e. the final finishing or configuration of the product
being performed much closer to the point of demand. To enable this to be
achieved on a global basis, specialist third party logistics service providers
have emerged who can now act as extensions of the company's value chain.

In structuring cost-effective and agile global supply chains the question

of where in that chain the value creation should take place becomes crucial.
By working more closely with specialist providers, greater levels of customer
value can often be achieved at less cost to the supply chain as a whole.
Hewlett Packard has adopted this concept for many of its products such as the
Desk Jet printer, even going to the lengths of re-designing it so that a generic
semi-finished global version could be built centrally with localisation being
performed by regional partners.

⇒ Shift the de-coupling point:

A major problem in all supply chains, but significantly worse for global
business, is that they have little visibility of 'real' demand. Because global
supply chains tend to be extended with multiple echelons of inventory
between the point of production and the final market place they tend to be
forecast driven rather than demand driven. In other words decisions on
production and distribution are based upon forecasts or orders (which
themselves do not necessarily reflect demand but rather tend to be based on
arbitrary 'rules' such as re-order points and re-order quantities).

The point to which real demand penetrates upstream in a supply chain

is termed the decoupling point. These decoupling points also tend to dictate
the form in which inventory is held. Thus in the uppermost example in Figure

25
2 demand penetrates right to the point of manufacture and inventory is
probably held in the form of components or materials. In the lower example
demand is only visible at the end of the chain; hence inventory will be in the
form of finished product.

Ideally, information from the marketplace should flow as far upstream

and in as close to real time as possible. In this way all the parties in the supply
chain work to the same information and reduce their dependency on the
forecast. At the same time opportunities for postponing the final configuration
of finished inventory should be investigated. The aim of the global supply
chain should be to carry inventory in a generic form, i.e. standard semi-
finished products awaiting final assembly or localisation.

Managing the global supply chain requires a level of agility and

responsiveness several magnitudes greater than that required in the old model
of 'local for local' manufacturing. Emphasis will increasingly have to be
placed on creating a business model that recognises that competitive
advantage is created through the management of the supply chain as a single
entity rather than through fragmented, locally-focused decision making units.
For the foreseeable future leadership in global markets will belong to those
organisations that exhibit greater agility than their competitors.

FUTURE OF SCM

The most notable is Radio Frequency Identification, or RFID. RFID

tags are essentially barcodes on steroids. Whereas barcodes only identify the
product, RFID tags can tell what the product is, where it has been, when it
expires, whatever information someone wishes to program it with. RFID
technology is going to generate mountains of data about the location of
pallets, cases, cartons, totes and individual products in the supply chain. It's
going to produce oceans of information about when and where merchandise is
manufactured, picked, packed and shipped. It's going to create rivers of
numbers telling retailers about the expiration dates of their perishable items-
numbers that will have to be stored, transmitted in real-time and shared with
warehouse management, inventory management, financial and other
enterprise systems. In other words, it is going to have a really big impact.
⇒ The a b c...... D of RFID: "DATA"

26
 In current systems, you may know there are 10 items on the shelf, and
that information is compiled in an enterprise planning software system. With
RFID, you know there are 10 items, their age, lot number, and expiration date
and warehouse origin. It's like knowing there are 1,000 people in a city. With
RFID, you know their names. Think like you are a HR manager of a global
corporation who remembers all the employees by their names!! Wouldn't that
be great? That's the power of RFID- the DATA.

Radio frequency identification (RFID) can be broadly categorized as an

'e-tagging' technology. RFID enables passive object tagging and automatic
data capture, using RF sensing as opposed to optical sensing in the case of
barcodes. RFID is fast, reliable, and does not require physical sight or contact
between reader/scanner eliminating the problems mentioned for barcodes. The
range of sensing RFID tags from a reader varies from a few centimeters to a
few meters, depending on the frequency and the type of tags (active or
passive). The amount of data that can be stored inside RFID tag ranges from
few bits to 1 MB for active tags.

⇒ Benefits:

The main benefit of RFIDs is that, unlike barcodes, RFID tags can be
read automatically by electronic readers. Imagine a truck carrying a container
full of widgets entering a shipping terminal in China. If the container is
equipped with an RFID tag, and the terminal has an RFID sensor network,
that container's whereabouts can be automatically sent to Widget Co. without
the truck ever slowing down. It has the potential to add a substantial amount
of visibility into the extended supply chain.

The benefits are divided into two parts

(a) Benefits to Organisation:
 Inventory Management:-
 Maintain a real-time view of tagged inventory as it flows through
the supply chain.
 Track discrete movement of tagged inventory.
 Trigger alerts around inventory movement based on business rules
you construct.
 Allowing just-in-time practices.
 Maximizing warehouse space:-

27
 With the high costs associated with storage real estate, the goal is
to maximize warehouse space. This will improve utilization without
undermining the ease with which goods can be moved in and out.

 Minimizing goods shrinkage:-

Theft combined with imprecise inventory management can create

a significant shortfall in actual versus expected goods available. Within the
retail environment goods shrinkage is widely perceived to account for up to
one per cent of stock, representing a significant dent in profit margin.

(b) Benefits to Consumers:

Value Innovation in customer service

Marks & Spencer, a British retailer, has just extended a trial in

which tags are applied to suits, shirts and ties for men, allowing retailers to
monitor and replenish stock levels with far more accuracy at the end of each
day to make sure that every size, style and color remains in stock. Beyond
improving efficiencies, the smart tags could help to drive sales. One example
of improving customer service: a customer could take a tagged suit to a kiosk,
which could then suggest a matching shirt and tie.

Minimizing errors in delivery

Misdirected deliveries or incorrect orders can immediately result

in on-shelf out-of-stock situations leading to reduced sales and damaged
customer relationships. Indeed, for organizations relying on the delivery of
specific components to fulfill their own order schedule, such errors can have a
serious impact on customer satisfaction.

RFID tags represent a significant step forward from traditional

bar code technology and offer highly reliable data most notably, the US
Department of Defense requires their suppliers to ship products with RFID
tags from 2006 onwards. Therefore, the broad adoption of RFID is on its way.
By 2010, RFID should be ubiquitous throughout industries. Right now the
two biggest hurdles to widespread RFID adoption are the cost of building the
infrastructure and the lack of agreed-upon industry standards.

28
 Some Key technologies which are going to change the face of SCM in coming
days are:
1. EDI (for exchange for information across
different players in the supply chain);
2. Electronic payment protocols;
3. Internet auctions (for selecting suppliers,
distributors, demand forecasting, etc.);
4. Electronic Business Process Optimization;
5. E-logistics;
6. Continuous tracking of customer orders
through the Internet;
7. Internet-based shared services manufacturing;
etc.

SUPPLY CHAIN MANAGEMENT PROBLEMS

Supply chain management must address the following problems:

1.) Distribution Network Configuration:

Number and location of suppliers, production facilities, distribution

centers, warehouses and customers.

2.) Distribution Strategy:

Centralized versus decentralized, direct shipment, cross docking, pull or

push strategies, third party logistics.

3.) Information:

Integrate systems and processes through the supply chain to share

valuable information, including demand signals, forecasts, inventory and
transportation.

4.) Inventory Management:

Quantity and location of inventory including raw materials, work-in-

process and finished goods.

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 SUPPLY CHAIN MANAGEMENT CURRENT KEY
TOPIC: TRADEOFF CURVES
One of the fundamental tradeoffs in supply chain management is that
between inventory levels and customer service. For any given supply chain,
increasing the level of service (product/spare part availability) typically means
higher levels of inventory. Most companies have discovered their "best place"
on the curve, depending on what their customers require and what their
competition offers. However, supply chain strategies can shift the entire
curve, lowering your inventory levels without adversely affecting your
customers (or the reverse, improving customer service levels with no increase
in inventory). How might this work? Through effective supply chain
management you may be able to reduce lead times. This would shift the curve
to the right, speeding up customer response times without raising inventories.
Supply Chain Module SCM106 reviews a strategy called postponement, or
risk pooling, that can lower the curve, allowing you to maintain (or enhance)
service levels with less finished-goods inventory.

This tradeoff curve provides a perfect example of how silo behavior (in
which functional areas lose sight of cross-functional optimizations) can cause
problems in supply chains. One of the first steps in improving a supply chain
is making sure that organizational responsibility for inventory levels and
customer service are appropriately managed. These two responsibilities
should not be separated - in fact, they should report to the same desk. Doing
so enables a company to set expectations and properly manage this tradeoff,
without costly swings from one place on the curve to another as different
functional groups "fight" for either lower inventories or higher service.

30
 CURRENT SITUATION OF SUPPLY CHAIN
MANAGEMENT

Nowadays, one of the few outcomes in the constantly changing

business world is that organizations can no longer compete solely as
individual entities. Increasingly, they must rely on effective supply chains, or
networks, to successfully compete in the global market and networked
economy (Baziotopoulos, 2004). Peter Drucker’s (1998) management’s new
paradigms, this concept of business relationships extends beyond traditional
enterprise boundaries and seeks to organize entire business processes
throughout a value chain of multiple companies.

During the past decades, globalization, outsourcing and information

technology have enabled many organizations such as Dell and Hewlett
Packard, to successfully operate solid collaborative supply networks in which
each specialized business partner focuses on only a few key strategic activities
(Scott, 1993). This inter-organizational supply network can be acknowledged
as a new form of organization. However, with the complicated interactions
among the players, the network structure fits neither “market” nor “hierarchy”
categories (Powell, 1990). It is not clear what kind of performance impacts
different supply network structures could have on firms, and little is known
about the coordination conditions trade-offs that may exist among the
players.From a system’s point of view, a complex network structure can be
decomposed into individual component firms (Zhang and Dilts, 2004).

Traditionally, companies in a supply network concentrate on the inputs

and outputs of the processes, with little concern for the internal management
working of other individual players. Therefore, the choice of internal
management control structure is known to impact local firm performance
(Mintzberg, 1979).

In the 21st century, there have been few changes in business

environment that contributed to the development of supply chain networks.
First, as an outcome of globalization and proliferation of multi-national
companies, joint ventures, strategic alliances and business partnerships were
found to be significant success factors, following the earlier “Just-In-Time”,
“Lean Management” and “Agile Manufacturing” practices (MacDuffie and
Helper, 1997; Monden, 1993; Womack and Jones, 1996; Gunasekaran, 1999).
Second, technological changes, particularly the dramatic fall in information

31
communication costs, a paramount component of transaction costs, has led to
changes in coordination among the members of the supply chain network
(Coase, 1998).

Many researchers have recognized these kinds of supply network

structure as a new organization form, using terms such as “Keiretsu”,
“Extended Enterprise”, “Virtual Corporation”, Global Production Network”,
and “Next Generation Manufacturing System” (Drucker, 1998; Tapscott,
1996; Dilts, 1999). In general, such structures, can be defined as “a group of
semi-independent organizations, each with their capabilities, which
collaborate in ever-changing constellations to serve one or more markets in
order to achieve some business goal specific to that collaboration”
(Akkermans, 2001).

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 CASE STUDY 1:
MATRIX LABORATORIES (INDIA) LTD.

This study focuses on the inventory-related issues at bonded stock

rooms (BSR’s) and depots in a huge supply chain network of a leading
consumer products company dealing in cosmetics and other personal care
products.

⇒ Organization Background:

Matrix Laboratories (India) Ltd. is a leading consumer Products

Company dealing in cosmetics and personal care products with its head office
located at London (U.K). The company had a supply chain network of 3
factories with bonded stock rooms (BSR) attached for despatch to the depots
and 35 depots for servicing distributors. Goods move from the factory to the
BSR. BSR dispatches stocks to Mother CFAs (depot). Other depots receive
stocks from the Mother depot and sell them to distributors.

⇒ Key Concerns for the Company:

1. To reduce inventory level at the BSR and depots.

2. To improve inventory accuracy at stocking points
including both BSRs and depots.
3. To identify the damaged stocks across the chain and
initiate action in a timely manner.

⇒ Findings:

The company appointed an external Supply Chain expert from US to help

them out of their problems stated above. The expert found out some
discrepancies which are as follows.

A). High Inventory Levels:

Total average inventory holding at BSRs was 8.2 weeks of sales and at depots
was 6.5 weeks of sales.

33
They were very high across the distribution chain because:
 Sales and despatch forecasts that were not in line with actual primary /
secondary sales.

 There was no process to periodically review and refine the Annual

Forecasts, in line with market feedback.

 Stocking across all points in the distribution chain was driven by a

push-oriented system that did not have provisions to be tuned to market
requirements.

 Actual safety stocks maintained at depots were significantly higher that

target safety stocks agreed at the beginning of the year. No system was
in place to monitor and correct the same during the year.

 Stock allocation from depots was manual. Orders received from

distributors were manually processes and no process was in place to
automatically collate orders and allocate stocks.

B). High Levels of Old / Withdrawn /Damaged / Slow-moving stocks:

Depots were holding High inventory of old/withdrawn stocks and damaged

stocks for a long time (over 3 months) Book and physical stocks had
discrepancy of over 30%. Dead stocks were allowed to accumulate in the
system mainly because:

1. There was an absence of visibility into inventory details across stocking

points.
2. The process to monitor and act on dead stocks was not adhered to.
3. Records of slow-moving / old /withdrawn / damaged stocks were not
maintained methodically at the stocking points. Records were inaccurate.
4. Communication of details of dead stocks to the relevant teams was
based on manually filed reports which were time-taking and open to error.

C). Inaccuracy in inventory records:

The organisation did not have a clear policy on periodic reconciliation of

physical stock with book records. Thus inaccuracies grew over time,
compounded with process failure on accounting for dead stocks.

34
Action Steps Undertaken:

The expert advised and undertook some steps in the organization as follows:

 Bin card system was implemented for each rack at the CFAs and the
delivery staff was trained in relevant bin card maintenance practices.

 A process to regularly reconcile physical and book stocks using the cycle-
count process was implemented.

 An IT solution was identified and implemented for:

∗ Accounting the Cycle count process, providing MIS on
deviations and accounting the adjustment notes.
∗ Computing the forecast using consolidated orders, with factoring
for promotions and seasonality.
∗ Calculating safety stock level based on number of weeks of sales
target.
∗ Facilitating communication of closing stock data from BSR and
depots to logistics department.
∗ Facilitating communication of damaged and un-saleable stock
quantity to commercial department.
∗ Automatically allocating stocks using FIFO principle at the
depots.

 Demand planning and forecasting were made a periodic activity using the
above IT solution to align forecasting with market orders and actual sales.
The process of setting safety stocks at depots was made periodic and
dynamic, based on updated sales data.

 Norms were set to act on damaged /old and other dead stocks. Clear action
steps were laid down to liquidate or destroy these stocks.

35
  Responsibility and accountability were set to in the organisation to monitor
and authorise activities in this regard based on visibility provided by the IT
solution.

⇒ Benefits:

Due to above steps were implemented properly the results were fascinating
and this increased the profits of the company by 20%.

(a) The organisation achieved an inventory record accuracy (book stocks

correctly reflecting physical stocks) of 95% within 2 months .
(b) The company achieved (Within 2Planning cycles i.e. 2 Months)

(i.) Stock level reduction

 From 8.2 weeks to 5.5 weeks at the BSR.
 From 6.5 weeks to 4 weeks at the depots which included damaged
inventory.
 Reduction in stock value holding across the supply chain.

(c) Transparency of saleable and damaged stocks quantities across the

supply chain resulting in more accurate demand planning, stock
allocation and production.

(i.) Better management of damaged and un-saleable stocks:

 Sales realisation on salvaging and selling damaged stocks at a
discounted price.
 Timely destruction of unusable and potentially harmful products.
 Timely action on transport, handling, stock management and product
development fronts to reduce damages.

(ii.) Reduction in proportion of old and damaged stocks;

(iii.) Facilitation of ensuring fresher stocks in the market.

This was achieved mainly by reducing inventory levels across the chain and
also by better stock management at the depots.

36
 CASE STUDY 2: INFOSYS’ SCM SOFTWARE
SOLUTIONS

Infosys' Supply Chain Management solutions help organizations in

creating strategic differentiation and operational superiority by configuring
and implementing solutions that are aligned with the elements of
organization’s competitive strategy. The Supply Chain Management solutions
and services help manage and optimize the many facets of Supply Chain
Planning, Sourcing & Procurement, Inventory Optimization, Warehouse
Management, Logistics Distribution & Transportation and Supply Chain
Integration. Moreover the organization can recover their investments earlier.
This is because of the "extended work day" concept of the Global Delivery
Model (GDM), which Infosys pioneered. Infosys' Global Delivery Model
(GDM) also reduces the Total Cost of Ownership (TCO) by cutting
operational costs to the tune of anything between 20-35%. The results are:
robust implementations, faster roll-outs and de-risked upgrades of the highest
quality; all delivered with the on-time, on-budget, and on-spec industry-
benchmark of Infosys Predictability.

Infosys’ supply chain management solutions include:

i. Fulfillment Management.
ii. Collaborative Vendor Managed Inventory (VMI).
iii. Sales and Operations Planning.
iv. Order Management.
v. Manufacturing Planning and Scheduling.
vi. Supplier Collaboration.
vii. Procurement Management.
viii. Network Design and Optimization.
ix. Track and Trace.

The Client:

37
 The client is a global leader in pressure-sensitive technology, self-
adhesive base materials, and self-adhesive consumer and office products and
specialized label systems and ranks among the Fortune 500. With sales of
almost USD $5 billion, the client is best known for its office automation and
consumer products, self-adhesive materials, reflective and graphic materials,
peel-and-stick postage stamps, industrial labeling solutions, Radio Frequency
Identification (RFID) labels, label stock and related services and systems,
automated retail tag and labeling systems, specialty tapes and chemicals.

Business Need and Challenges:

For the client, success required managing short product lifecycles,

focusing on customer service, and most importantly, reducing supply chain
costs. Optimized supply chain management is crucial for the success of
companies in this industry, and a key component of supply chain management
is accurate forecasting and demand planning.

The client was looking for a way to make its supply chain more
streamlined, and hence more cost-effective. Specifically, the client had been
looking at forecasting the US sales for each Stock Keeping Unit (SKU). It
wanted to move towards a demand planning model that was based around
collaborative and consensus forecasting. To facilitate this, the office products
division of the client had already implemented i2 Demand Planning (DP), but
poor forecast accuracy and sub-optimal forecasting process took its toll on
overall system efficiencies and diminished user confidence.

The Infosys Solution:

Infosys was engaged to conduct diagnostics to identify issues in DP

implementation and to tune-up the overall forecasting process. An Infosys
team was deployed to identify the requisite improvements with a quick turn
round time of 5 weeks.

The Infosys team conducted diagnostics to identify issues with current

implementation and potential opportunities to optimize the system. The team
then came up with 24 recommendations for improvement of utilization, user
productivity and forecast accuracy. These recommendations were analyzed
from two aspects viz. 'ease of implementation' and 'delivered business value'
to arrive at the priority classification for implementation.

38
 In the second phase, the Infosys team was asked to implement eight of
the statistical modeling initiatives, clubbed under four Clusters with an
objective to improve forecasting process, user productivity (by making the
system user friendly and flexible) and implementing various advanced
features of DP that were not being used. The above scope was completed
within a short span of four months leveraging the Infosys' Global Delivery
Model with significant productivity/ process improvements.

Benefits:

 Enhanced version management capability, reducing hours of manual

work.
 Increased forecast accuracy - Error reduction by 2% and bias
improvement by 8mn units over the year.
 Flexible process to manage historical data cleansing and accounting
for future promotions.
 Increased user confidence by making the process more transparent
and flexible.
 A sustainable and repeatable knowledge base through user education
and training.
 A roadmap for future enhancements.

CONCLUSION

Supply chain management (SCM) is the combination of art and science that
goes into improving the way your company finds the raw components it needs
to make a product or service and deliver it to customers. It is the process of
planning, implementing, and controlling the operations of the supply chain
with the purpose to satisfy customer requirements as efficiently as possible.
Supply chain management spans all movement and storage of raw materials,
work-in-process inventory, and finished goods from point-of-origin to point-
of-consumption.

Supply chain management has emerged as the new key to productivity and
competitiveness of manufacturing and service enterprises. The importance of
this area is shown by a significant spurt in research in the last five years and
also proliferation of supply chain solutions and supply chain companies. All
major ERP companies are now offering supply chain solutions as a major
extended feature of their ERP packages.

39
 BIBLIOGRAPHY

Websites visited:

1. <http://www.infosys.com/services/packaged-
applications/supply_chain_management_home.asp>

2. <http://www.lancoglobal.com/index.html>

3. <http://en.wikipedia.org/wiki/Supply_chain_mamagement>

4. <http://en.wikipedia.org/wiki/Demand_chain_management>

Reference books:

1. Notes of NMIMS.

2. Arntzen, B. C., G. G. Brown, T. P. Harrison, and L. Trafton. Global

Supply Chain Management at Digital Equipment Corporation.
Interfaces, Jan.-Feb., 1995.

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