UNIT – I

UNIT 1: INTRODUCTION TO SUPPLY CHAIN

Historical perspective Understanding Supply Chain: key issues in supply chain management
Objectives, importance, Decision phases -Examples of supply chains Supply chain
strategies, The supply chain becomes value chain Supply chain as a competitive weapon

SUPPLY CHAIN MANAGEMENT - MEANING

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 product‟s consumption. It
also comprises movement and storage of raw materials that are involved in work in progress,
inventory and fully furnished goods.

Supply chain management (SCM) is the broad range of activities required to plan, control and
execute a product's flow, from acquiring raw materials and production through distribution to
the final customer, in the most streamlined and cost-effective way possible.

The supply chain encompasses all activities involved in the transformation of goods from the
raw material stage to the final stage, until the goods and services reach the end customer.

Example: For a simple product like soap, the HUL supply chain involves ingredient
suppliers, transporters, the company‟s manufacturing plants, carrying & forwarding agents,
wholesalers, distributors and retailers.

SCM encompasses the integrated planning and execution of processes required to optimize
the flow of materials, information and financial capital in the areas that broadly include
demand planning, sourcing, production, inventory management and storage, transportation or
logistics and return for excess or defective products.

DEFINITIONS:
The design and management of seamless, value-added process across organizational
boundaries to meet the real needs of the end customer.

-Institute for Supply Management

Christopher (1998) defined the supply chain as the network of organizations that are
involved, through upstream and downstream linkages, in the different processes and activities
that produce value in the form of products and services in the hands of the ultimate customer.

Chopra and meindl (2001) “A supply chain consists of all stages involved,
directly or indirectly, in fulfilling a customer request”.

Handfield & Nichols (1999) “A supply chain encompasses all activities associated with the
flow and transformation of goods from the raw material stage, through to the end user, as well
as the associated information flows”.

A supply chain may be defined as an integrated process wherein a number of various business
entities like;

 Suppliers
 Manufacturers
 distributors and
  Dealers, Retailers etc.,
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.
OBJECTIVES OF SCM
A well designed SC is expected to support the strategic objectives of:-

1. Solving supplier‟s problems and beyond his level.

2. Customer service performance improvement.
3. Reduction of pre & post production inventory.
4. Minimizing variance by means of activities like standardization, variety reduction,
etc.
5. Minimum total cost of operation & procurement.
6. Product Quantity control.
7. Achieving maximum efficiency in using labour, capital & plant through the company.
8. Flexible planning and control procedures.

The objective of Supply Chain performance is to achieve low cost through tradeoffs through;

1) Collaborations

2) Enterprise Extensions

3) Integrated Service Providers

1) Collaborations: Is the mutually benefiting performance, resulting in low cost and high
efficiency.

Channel partners/function, which performs the same tasks can collaborate to improve
efficiency of each other.

The collaboration also reduces the time and provides a greater value to the customers.
 Collaboration can be also seen between competing organizations to share resources,
increase efficiency as well to reduce the cost of operations

Ex: Distribution of products of online marketers

2) Enterprise Extensions: Different firms with similar functions or different functions can
extent their enterprise support for effective and efficient as well cost effective performances
to deliver maximum value to their customers.

Example: McDonald’s Corporation along with its franchises, Joint ventured

companies, the 3rd Party Logistic Partners, the Marketing and Advertising agencies,
Suppliers of Raw materials as well kitchen equipment, building services as well as
Toys manufacturing and carry away package suppliers are extended enterprises.

3) Integrated Service Providers: Outsourcing of certain services, so as to better focus on

their core function.

Those functions, which requires high set up cost as well large base of human resource,
are mainly outsourced.

Ex: A company wants to use Tele-Calling services for better customer relationship
management (CRM), can outsource BPO services.

IMPORTANCE OF SUPPLY CHAIN MANAGEMENT

Supply chain management is an integral part of most businesses and is essential to company
success and customer satisfaction. The main importance of Supply Chain Management is:-

REDUCE OPERATING COSTS

 Decreases Purchasing Cost - Organizations generally prefer quick distributions of

costly products and raw materials to avoid expensive inventory Decrease Production
Cost - A reliable supply chain delivers materials to assembly plants and avoid any
costs that may occur due to delays.

IMPROVE CUSTOMER SERVICES

 Right quantity and quality - Customer expects delivery of right quantity and quality of
products.

 On-time delivery - Customers expect to receive the correct product mix and quantity
to be delivered on time. A reliable supply chain can help in avoiding any bottlenecks
and ensure customers get their products in the promised time frame

 Services – After sales services is one of the important aspects in any business. If any
kind of problem occur in the product, customer expects it to be fixed quickly. A right
supply chain ensures that customers get the service they want.
ADVANTAGES OF SUPPLY CHAIN MANAGEMENT

1) Reduced Costs

2) Increased Efficiency

3) Increased Profits

4) Increased productive Output

KEY ISSUES OF SUPPLY CHAIN MANAGEMENT

The supply chain management issues concern activities of the firm at various levels of
decision making, ranging from operational level to strategic level via tactical level.

GLOBALIZATION:

One of the biggest challenges that companies are facing is how to reduce their supply chain
cost. In order to satisfy customers‟ price expectations, companies have opted to relocate
manufacturing to low cost countries around the world in an effort to reduce direct and
indirect costs and to minimize taxes. But, having global suppliers contributes significantly to
complexity that comes from extended delivery lead times. Customers not only want lower
prices, but they also want their products on time.

CUSTOMER PREFERENCES:

As stated above, global supply chains are complex. Add to that product features that are
constantly changing, and the challenge is even greater. A product is released and customers
rapidly pressure companies to come up with the next big thing. Innovation is important since
it allows companies to stay competitive in the market, but it‟s also a challenge. To enhance a
product, companies have to redesign their supply network and meet market demand in a way
that‟s transparent for customers.

MARKET GROWTH

 Another factor that presents a challenge is the pursuit of new customers. The cost of a
developing a product, from R&D to product introduction, is significant. Therefore,
companies are trying to expand their distribution to emerging markets in order to
 grow revenues and increase market share. Companies all around the world are
expected to expand in their home and foreign markets. The introduction to new
markets is difficult due to trading policies, fees, and government policies.

 The effectiveness and efficiency of the Supply Chain depends upon the contribution
and performances of the channel partners and the processes with which they will be
operated.

EVOLUTION AND HISTORY OF SUPPLY CHAIN MANAGEMENT

History of Supply Chain Management: The History of Supply Chain Management can be
studied under different eras.

SUPPLY CHAIN MANAGEMENT - 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.
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.
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.
COMPONENTS OF SCM
✓ Planning
✓ Sourcing
✓ Making
✓ Delivering
✓ Returning
✓ Enabling

PLANNING- Enterprises need to plan and manage all resources required to meet customer
demand for their product or service. They also need to design their supply chain and then
determine which metrics to use in order to ensure the supply chain is efficient, effective,
delivers value to customers, and meets enterprise goals.
SOURCING - Companies must choose suppliers to provide the goods and services needed to
create their product. After suppliers are under contract, supply chain managers use a variety
of processes to monitor and manage supplier relationships. Key processes include ordering,
receiving, managing inventory, and authorizing supplier payments.
MAKING - Supply chain managers coordinate the activities required to accept raw
materials, manufacture the product, test for quality, package for shipping, and schedule for
delivery. Most enterprises measure quality, production output, and worker productivity to
ensure the enterprise creates products that meet quality standards.
DELIVERING - Often called logistics, this involves coordinating customer orders,
scheduling delivery, dispatching loads, invoicing customers, and receiving payments. It relies
on a fleet of vehicles to ship product to customers. Many organizations outsource large parts
of the delivery process to specialist organizations, particularly if the product requires special
handling or is to be delivered to a consumer‟s home.
RETURNING - The supplier needs a responsive and flexible network to take back defective
excess or unwanted products. If the produce is defective it needs to be reworked or scrapped.
If the product is simply unwanted or excess it needs to be returned to the warehouse for sale.
ENABLING - To operate efficiently, the supply chain requires a number of support
processes to monitor information throughout the supply chain and assure compliance with all
regulations. Enabling processes include finance, HR, IT, facilities, portfolio management,
product design, sales, and quality assurance.

Supply Chain Management is

 The processes of design and management
 Across organizational boundaries
 With the goal of matching supply and demand
 In the most cost effective way

SUPPLY CHAIN STAGES

A typical supply chain may involve a variety of stages.

✓ Each stage in a supply chain is connected through the flow of products, information, and
funds.

✓ These flows often occur in both directions and may be managed by one of the stages or an
intermediary.

SUPPLY CHAIN MANAGEMENT FLOWS

SCM Can be divided into 3 main flows

 The Product Flow

 The information Flow

 The Finances Flow

THE PRODUCT FLOW

The product flow includes the movement of goods from a supplier to a customer, as well as
any customer returns or service needs.

THE INFORMATION FLOW

The information flow involves transmitting orders and updating the status of delivery.

THE FINANCIAL FLOW

The financial flow consists of credit terms, payment schedules, and consignment and title
ownership arrangements.
SCM - STRATEGIC SOURCING

Strategic sourcing can be defined as a collective and organized approach to supply chain
management that defines the way information is gathered and used so that an organization
can leverage its consolidated purchasing power to find the best possible values in the
marketplace.

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.

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. The motto is
to motivate the appropriate suppliers with the right structural layout to respond to the
demands.

BUILDINGTHESTRATEGY

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, 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.

COMMUNICATION WITH NEWSUPPLIERS

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.

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. It‟s 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 supplier‟s 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.

SUPPLY CHAIN STRATEGY

Determines the nature of material procurement, transportation of materials, manufacture of

product or creation of service, distribution of product –Consistency and support between
supply chain strategy, competitive strategy, and other functional strategies is important.
RELATIONSHIP BETWEEN COMPETITIVE STRATEGY & SUPPLY CHAIN
STRATEGIES:

Value Chain begins with new product development, which creates specification for the
product - Marketing and Sales generate demand by publicizing the customer priorities that
products and services will satisfy

 Marketing also brings customer input back to new product development

 Using new product specifications, operations transforms inputs to outputs

to create product

 Distribution either takes the product to the customer or brings the customer
to the product

 Service responds to customer requests during or after the sale

 Finance, accounting, information technology, and human resources

support and facilitate the -functioning of the value chain

 To execute a company‟s competitive strategy, all these functions play a

role, and each must develop its own strategy Achieving Strategic Fit
Strategic fit.
UNIT – II
 UNIT II: SUPPLY CHAIN SYNERGIES

Collaborate with supply chain partners Supply Chain Drivers and Design Drivers of supply
chain performance: Framework for structuring Facilities, including warehouse, Inventory,
Transportation, Information, Sourcing, and Pricing – Yield management /Revenue
management.

SUPPLY CHAIN DRIVERS

The supply chain drivers are grouped under two main drivers:

1. Logistics drivers

2. cross functional drivers

The following are the important drivers of the supply chain

LOGISTICS DRIVERS:

1. Facilities- warehouse or storage locations or factory location

2. Inventory- stock of rawmaterials or finished goods

3. Transportation- moving of goods from one place to another

CROSS FUNCTIONAL DRIVERS:

1. Pricing- cost of goods

2. Information - Information is nothing but the customer needs and wants

3. Sourcing - procuring raw materials for production activities

 Role in Competitive Components of the driver’s
Drivers Role in SC Strategy decision
Flexible.
Facilities Dedicated or Economies of scale Location
Higher numbers or
Combined smaller Capacity
Product focus facilities Facility-related Metrics
Cycle, Safety and Seasonal
Inventory How much/many? Is it the cost? (JIT) Or inventory
Cost Quantity? Availability of the product
Inventory-related metric
Faster mode is Design of transportation
Transportation good but Faster mode = greater network
will incur higher
cost responsibility Choice of transportation
mode Transportation-related
metric
allows Enable efficient flow of Push vs pull Coordination and
coordination of all information information sharing Sales and
Information
Stages operations planning Enabling
technologies Information-
related metrics

Amount to be Optimal pricing Pricing and economies of

charged strategies scale Everyday low vs
Pricing
high low pricing Fixed
vs menu pricing Pricing-
related metrics

crucial for efficient

Sourcing supply chain Fully vertically In-house or outsource
The five drivers provide a useful framework for thinking about supply chain capabilities.
Decisions made about how each driver operates will determine the blend of responsiveness
and efficiency a supply chain is capable of achieving. The five drivers are illustrated in the diagram
below:

FRAMEWORK FOR STRUCTURING FACILITIES

WAREHOUSING

Warehousing plays a vital role in the supply chain process. In today‟s 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. The management of warehousing functions
demands a distinct merging of engineering, IT, human resources and supply chain skills.

INVENTORY

• Inventory exists because of a mismatch between supply and demand

• Source of cost and influence on responsiveness

• Impact onMaterial flow time: time elapsed between when material enters the
supply chain to when it exits the supply chain

• If responsiveness is a strategic competitive priority, a firm can locate larger

amounts of inventory closer to customers

• If cost is more important, inventory can be reduced to make the firm more
efficient
TRANSPORTATION

•Moves the product between stages in the supply chain.

• Impact on responsiveness and efficiency.

• Faster transportation allows greater responsiveness but lower efficiency.

• Also affects inventory and facilities.

• If responsiveness is a strategic competitive priority, then faster transportation

modes can provide greater responsiveness to customers who are willing to pay for
it.

•Can also use slower transportation modes for customers whose priority is price (cost)

•Can also consider both inventory and transportation to find the right balance.

Mode of transportation:

o Air, truck, rail, ship, pipeline, electronic transportation.

o Vary in cost, speed, size of shipment, flexibility.

Route and network selection

o Route: path along which a product is shipped.

o Network: collection of locations and routes.

INFORMATION

• The connection between the various stages in the supply chain – allows
coordination between stages.

•Crucial to daily operation of each stage in a supply chain – e.g., production scheduling,
inventory levels.

• Allows supply chain to become more efficient and more responsive at the same
time (reduces the need for a trade-off).

• Push (MRP) versus pull (demand information transmitted quickly throughout the
supply chain)

•Coordination and information sharing.

Forecasting and aggregate planning