Supply chain

management
Dhwani mishra
 Supply chain consist of:Suppliers,
manufacturers ,warehouses,distibutor centers
and retail outlets--- Facilities
And the
 Raw material
 Work in process(WIP ) inventory
 Finished goods
 And the flow between the facilities.
Defination:it encompasses all activities involved in the
transformation of goods from the raw material stage
to the final stage when the goods and services reach
to the end consumers.
 Why is supply chain management so important?

◦ To gain efficiencies from procurement, distribution and

logistics
◦ To make outsourcing more efficient
◦ To reduce transportation costs of inventories
◦ To meet competitive pressures from shorter development
times, more new products, and demand for more
customization
Supply Chain Management - Introduction
◦ To meet the challenge of globalization and longer supply
chains
◦ To meet the new challenges from e-commerce
◦ To manage the complexities of supply chains
◦ To manage the inventories needed across the supply chain
 Why is supply chain management difficult?
◦ Different organizations in the supply chain may have different,
conflicting objectives
 Manufacturers: long run production, high quality, high productivity,
low production cost
 Distributors: low inventory, reduced transportation costs, quick
replenishment capability
 Customers: shorter order lead time, high in-stock inventory, large
variety of products, low prices
◦ Supply chains are dynamic - they evolve and change over time
Supply chain another view
 Inventory turnover: cost of goods sold
 Aggregate average
inventory value

 Weeks of supply: {Aggregate average inventory value} x52

weeks
cost of goods sold

 5
SCM ‘:KEY ISSUES
 Network planning:
 Whare house locations and capacities
 Plan location andproduction.
 Transportation flow between facilities. To minimize
cost and time.
 Inventory control:
 How should inventory be managed
 Why does inventory fluctuate and how does
minimize it.
 Supply contracts
 Impact of volume discount
 Pricing strategies.
 Distribution stratagies:
 Selection of DS
 Cost benefit of each strategy
 Integration and strategic partnering:
 What level of integration is best
 How can integration with partners be achieved
 What information and process can be shared.
 What partnership be implemented and in what
share.
 Outsourcing & procurement strategy:
 What are core supply chain capabilities and which
are not.
 Does our product design mandate requires a
different design approach
Procurement:
 Procurement is the acquisition of appropriate goods
and/or services at the best possible to total cost of
ownership and to meet the needs of the purchaser
in terms of quality and quantity, time, and location.
 Procurement also involves working in partnership
with suppliers, establishing relationships and
making sure that there can be a long term working
relationship.
 Procurement is about acquiring goods, not just at
the right price, but also in the right quality. The
goods acquired also have to be acquired in the right
quantity; too many and there are storage
implications as well as an interruption to cash flow.
Too few goods acquired and there is an interruption
Procurement can be defined as the process to
obtain materials, supplies, services and
contracts with the highest level of qualitative
services and the best total cost through open
and fair competition.
 Supplies of critical commodities tighten and

prices rise, companies can strategize to

mitigate these and other risks.
Procurement strategies: provide answer to following questions
1.what is effective purchasing strategy needing to put in place asbest practices purchasing
decisions and that can help them make their business a success.

2.how a firm ensure continuous supply of raw material without increasing the risk.

 Strategic items: focus long term partnership with

supplier as their supply risk is high and their
impact on profit margins are also high.
 Leverage item: high profit impact but low supply
risk.
 Bottleneck items: high supply risk & low profit
impact . Ensure continuous supply.
 Non critical items: low profit impact and low supply
risk .
 Procurement strategies within a business enterprise can vary
significantly by commodity:


Some commodities are better leveraged through global

contracts, supplier rationalization and single vendor sourcing,
 Other commodities are best left to regional buying.
 Likewise, some procurement processes are best controlled
centrally while others are best left to regional offices.
 . Strategic Sourcing requires a creative approach including the
identification and qualification of vendors, the geographical
and logistical aspects of the supplier, the sourcing strategy to
be used (RFx, Reverse Auction, etc.) and in the development
and negotiation of short or long-term contracts.
 Following a strict repetitive process for all sourcing events
(regardless of commodity) limits the flexibility of potential new
sources of supply and can lower the overall value of the
delivered product or service.
 ?
7 Steps To Procurement
 1. Gathering information about suppliers and who can supply what.

 2. Contacting suppliers and asking for quotes or tenders.

 3. Ensuring the suppliers are capable of supplying what is required,

usually through background checks or using quality management

tools.
 4. Negotiations, not just on the price that is being offered, but also

about the delivery of goods, availability of supplies and whether

these supplies can be offered on a ‘just in time’ basis, meaning that
there is no surplus of goods at any given point.
 5. Drawing up and awarding the contract, then the contract being

fulfilled, with the goods and services being delivered by the supplier.
 6. The goods and services that have been delivered are used by the

buyer. The efficacy of the goods and services, as well as the

performance of the supplier are then assessed.
 7. The cycle starts again with the same supplier being used for the

delivery of goods and services or the selection process for new

suppliers is undertaken once again.
 E-Market Place : is a virtual online electronic exchange where
firms register as sellers or buyers to communicate and conduct
business communications over the Internet. These E-Market
Places offer their services by providing electronic catalogues,
creating business proposals, negotiating on the business terms
etc.
 Independent E-Market Places
This category is accessible to all buyers and sellers in particular
region or industry. This may be created by a third party who is
neither buyer nor seller. The sole purpose of creating such
market places is revenue benefits.
Buyer Oriented E-Market Places
These market places are managed by consortium of buyers and
are open to all the existing suppliers.

Vertical and Horizontal E-Market Places

Vertical market places address the requirements of specific
industry whereas the horizontal market place addresses
functional or regional requirements.
 To qualify as an E-Market Place, the site should be
open to multiple buyers, sellers and needs to
perform one or more commerce related functions
like forward or reverse auctions, vendor catalogues,
online tendering ,fixed price ordering etc. The E-
Market Place does not actually take the physical
possession of the goods or services traded instead
it only ensures the exchange of goods or services
by matching the right buyer and seller thus making
the market structure liberal where no buyer or
seller can dominate the structure of market.
E-procurement is done with a software application that includes features for
supplier management and complex auctions. The new generation of E-Procurement is
now on-demand or a software-as-a-service.
 There are seven main types of e-procurement:
 Web-based ERP (Enterprise Resource Planning): Creating and approving purchasing

requisitions, placing purchase orders and receiving goods and services by using a
software system based on Internet technology.
 e-MRO (Maintenance, Repair and Overhaul): The same as web-based ERP except that

the goods and services ordered are non-product related MRO supplies.
 e-sourcing: Identifying new suppliers for a specific category of purchasing

requirements using Internet technology.

 e-tendering: Sending requests for information and prices to suppliers and receiving

the responses of suppliers using Internet technology.

 e-reverse auctioning: Using Internet technology to buy goods and services from a

number of known or unknown suppliers.

 e-informing: Gathering and distributing purchasing information both from and to

internal and external parties using Internet technology.

 e-marketsites: Expands on Web-based ERP to open up value chains. Buying

communities can access preferred suppliers' products and services, add to shopping
carts, create requisition, seek approval, receipt purchase orders and process
electronic invoices with integration to suppliers' supply chains and buyers' financial systems.
Benefits of e-procurments
 New trade relationships can be formed between buyers and traders.

Acts as a medium for the buyers and suppliers by initiating a trading relationship with them.
 Update information and price details ensure best deals.

 There are no time constraints as the trade is possible on 24 x 7 clock basis.

For buyers it becomes easy to struck a deal with the prospected supplier instead of spending
time contacting each supplier and also there is high level of trust involved because these
buyers only deal with the registered suppliers.

 For Suppliers it is beneficial as new RFQ can come their way from new and existing registered
customers. It provides a wider sales channel than the traditional and existing ones.
Nestle pumps up coffee supply chain
 - Nestle will be investing US$487 million to
address farming, sourcing and consumption
across its coffee supply chain.
 The company has invested CHF 200 million in

the coffee industry over the past ten years, and

purchases around 10% of the world's green
coffee each year.
 Nestle will increase the amount of coffee bought

directly from farmers to 180,000 tons over the

next five years, with 90,000 tons of Nescafe
coffee sourced
Contd…………
 The company will deliver 220 million high-
yield disease-resistant plants to farmers over
the next decade and establish 300
demonstration farms cultivating best
practices.
 Nestle also recently announced it will stop

purchasing palm oil from suppliers linked to

deforestation
Outsourcing(make Vs buy decision)
 Outsourcing is usually the term used when a
company takes a part of its business and gives
that part to another company.it is of two types
 Offshore outsourcing: refers to outsourced
projects when a company on another continent
is involved in providing services.
 Nearshore outsourcing :refers to outsourced
projects that are outside the country, but on the
same continent e.g. a US company outsourcing
activities to a company in Canada would be
called near shore outsourcing.
Outsourcing cataegories
 Dependency on capacity
 Dependency on knowledge
 Category of product
 Modular product:componenets are

independent of each other, they are

interchangeable, and customer preference
decides the product configuration.
 Integral product: they can be design only as a

system.
Bharti airtel
 Key network management activities threw
Nokia , Siemens, & Ericsson
 IT services threw IBM
 Call centre operations threw Hinduja TMT,

IBM Daksh, Teletech India

 Objective: to focus more on designing

innovative offerings , customer relationship

and brand building.
Outsourcing Benefits
 Economies of scale
 Risk pooling
 Reduce capital investment
 Focus on core competencies
 Increased ability to gain accesses to new

technologies and innovation.

 The ability to use supplier technical

knowledge.
Criterias for outsourcing
 Customer importance
 Component clock speed
 Competitive position
 Capable suppliers
 architecture
 IBM Outsourcing strategy
 1. microprocessor design and built by Intel
 2.operating system was provided by

Microsoft.
 Marketing is done by IBM with 40% of Market

share.
CISCO
Long term contract sin with his suppliers
resulting in the huge inventory write down.
Risk in outsourcing
 Loss of competative knowledge
Supply contracts
 Supply contracts are types of contracts that establish the terms of a
working relationship between a vendor and a customer.
 In the best of situations, the supply contract protects the rights of

both parties. The client knows what to expect in terms of the

goods received and how they will be delivered. In turn, the supplier
knows what the client is likely to need and how payment will be
submitted. As long as both parties honor their responsibilities to
one another, the business relationship is likely to be a profitable
one for everyone involved.

 A supply contract is often necessary in order to lock in discounted

pricing and other benefits that the supplier is agreeing to provide
to the client for a specific period of time.
 The terms of a supply contract often define everything from the

means whereby the products are delivered, terms of payment, and

any other aspect of the relationship that the two parties have
determined to be necessary.
Need for supply contract

 To make trade –off between cost and risk for

commodity products.
 To motivate supply chain parties to revel their

true forecast of customer demand.

 To achieve global optimization.
Parts of supply contract
 Pricing & volume discount
 Minimum & Maximum purchase quantity.
 Delivery lead time
 Product or material quality
 Product return policy
 Payment mode
Aspect that is very common to a supply contract is the creation of sections
and clauses that govern how the supplier will provide goods and services to
the customer.
Terms for shipping,
Additional charges that may apply for expedited shipping above the terms
defined in the contract.
Guarantees of shipment within a specific time frame after the order is placed,
such as within twenty-four hours of receiving the order.
 An invoice is essentially a detailed bill left by vendors
and outside suppliers for goods or services rendered to
a company. A typical invoice might list the quantity of
each item, prices, billable hours, service description and
a contact address for payment. While some expenses
may be paid out of a general fund or petty cash
account, an invoice is usually paid through an
accounts payable department by the posted due date.
Types of supply contract
 Buy-Back contract: parties refund for all
unsold goods.
 Revenue-Sharing: buyer shares revenue with

supplier in return for discount wholesale

price.
 Quantity Flexibility: full refund for a limited

number of unsold goods.

 Sales rebate: incentives for meeting target

sales
 Capacity reservation contract
 Advance purchase contract
 Long term contract
 Flexible contract
 Spot purchase
 Portfolio contract
 RFQ: Request for Qualifications
 it would be used to check what a company's

qualifications are to ensure that they can be

included on the list of companies to be
invited to bid or tender.
 This would include things like compliance

certificates for certain types of work,

insurance, financial statements to check
stability, what their policies are on training,
safety, security and environment for example
(these will vary from country to country).
 A request for quotation (RFQ) is a document
that an organization submits to one or more
potential suppliers eliciting quotations for a
product or service. Typically, an RFQ seeks an
itemized list of prices for something that is
well-defined and quantifiable,
RFP:
 RFP is to determine which suppliers are likely to
be the most capable of meeting organizational
needs and to select those suppliers that should be
invited to submit bids.
 An RFP typically asks for more than a price,

including: basic corporate information, financial

information and documents, and corporate history.
 The bidder returns a bid or proposal by a set date

and time known as a bid opening. The proposals

are used to evaluate a bidder's suitability as an
institutional partner.
 Difference between RFP & RFQ

RFQ is asking you to specify how much you will charge to perform a task
and an RFP is asking you to specify how you would solve the problem
and how much you would charge for implementing your solution.
A request for quotation is typically used in procurement where the
item(s) being procured are commodities, where numerous suppliers
could supply the same thing and the wish to base their buying decision
on price per item volume. It's where the buyer knows exactly what they
want and can specify it accurately.

A request from proposal is by it's nature a bit more of a complicated

beast. It is usually where there is a business need or problem and there
is no commoditised item that will fit the bill. The client knows the need,
but is looking for potential solutions from potential suppliers. They
aren't just looking for the lowest price, but what's often described as the
most "economically advantageous tender". Best value to you and me.
 Bull whip effect
Bullwhip effect is an observed phenomenon in
forecasted driven distribution channels.
 The increase in variability as we travel up in

supply chain is known as bullwhip effect.

 These variablity results in higher inventories

level and higher cost at all level of supply

chain.
 Reason for Bullwhip Effect
 Demand forecasting
 Lead time
 Price fluctuation
 Inflated orders
Importance of sharing information
 Helps reduce variability in the chain.
 Helps supplier to make better forecast
 Enables the coordination of manufacturing

and distribution system & strategies

 Enable retailer to better serve their customer

and react supply problems more rapidly

 Enable lead time reduction.
 Safety stock (also called buffer stock) is a term used by
logisticians to describe a level of extra stock that is maintained to
mitigate risk of stockouts (shortfall in raw material or packaging)
due to uncertainties in supply and demand. Adequate safety
stock levels permit business operations to proceed according to
their plans.[1] Safety stock is held when there is uncertainty in the
demand level or lead time for the product; it serves as an
insurance against stockouts.

 The amount of safety stock an organization chooses to

keep on hand can dramatically affect their business. Too
much safety stock can result in high holding costs of
inventory. In addition, products which are stored for too
long a time can spoil, expire, or break during the
warehousing process. Too little safety stock can result in
lost sales and, thus, a higher rate of customer turnover.
As a result, finding the right balance between too much
and too little safety stock is essential.
Methods for coping the Bullwhip
effect
 Reducing uncertainty by centralizing demand
information on actual customer demand.
 Reducing variability by eliminating price promotions.
 Use of every day low pricing strategy.
 Reduction in lead time.
 Make every party of supply chain strategic partner and

share information with them.

 Provide incentives to the retailers on providing

customer data available

to rest of supply chain.
Threw legal contracts.
 Locating desired products.
ABC INDUSTRIES
 Goods supply chain
 125 SKUs: food products, fabric care, edible oil,
 132;warehouses
 3500: distributors
 1.6 million: retail outlets
 Problems; inventory buildup, expired product, stock
outs, over packed warehouse, interwar house transfer,
increase operating cost etc
 Solution-installation of ERP system
 Results: improved forecast by 14%,
 Distributors skewness reduced, less frequent stock
outs.