TOPIC 1: INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

 Definition of supply chain and SCM

 Steps in the SC
 Importance
 Decision phases
 Flows in the supply chain
 Elements of sc
 Supply chain and logistics

1.1 What is a supply chain?

A supply chain is the network of all the individuals, organizations, resources,

activities and technology involved in the creation and sale of a product.

A supply chain encompasses everything from the delivery of source materials

from the supplier to the manufacturer through to its eventual delivery to the
end user. The supply chain segment involved with getting the finished product
from the manufacturer to the consumer is known as the distribution channel.

What is Supply chain management

Supply chain management (SCM) is the oversight of materials, information and

finances as they move in a process from supplier to manufacturer to wholesaler
to retailer and then to the consumer.

The three main flows of the supply chain are the product flow, the information
flow and the finances flow. These occur across three main stages: strategy,
planning and operation. SCM involves coordinating and integrating these flows
both within and among c

1
Figure 1: A diagram of the main stages of the supply chain.

Evolution of supply chain management :

2
Key Objectives Of Supply Chain Management (SCM)

The Supply Chain Management system is regarded to be the backbone of

today’s commercial organisations. Suppliers who adhere to SCM principles are
expected to deliver significantly more value to customers than those who have
not implemented SCM concepts into their operations. The following are the 7
most important objectives of Supply Chain Management.

1. Improving Efficiency

One of the most crucial objectives of Supply Chain Management is efficiency.

Efficiency is synonymous with waste minimisation. Waste can manifest itself in
a number of ways, including wasted materials, wasted money, wasted person-
hours, wasted delivery time, and many other forms. Keeping waste to a
minimum is a critical component of Supply Chain Management. SCM
contributes to waste reduction by managing manufacturing, inventory,
transportation, and logistics. It does this by identifying opportunities to improve
systems in order to reduce waste. If, for example, if a company shares
inventory data with a supplier and keeps it updated in real-time using ERP
software, the company may replenish inventory promptly to meet buyers’
demand.

3
2. Improving Quality

Another key objective is to ensure that the product is of the highest possible
quality. Quality Assurance can be characterised as adherence to various
customer-specified quality attributes, ranging from performance to specific
features. This includes adhering to food safety regulations, demonstrating
ethical and sustainable practices, and other similar actions. It is critical to
establish precise standards that involve supply partners from the start. Being
agile in managing change and variation to that supply chain. SCM has a direct
impact on the quality of a company’s products as well as its overall profitability.

3. Optimising Transportation and Logistics

The optimisation of transportation and logistics is yet another vital goal of

Supply Chain Management. In an independent business environment, each
company is responsible for its own role in ordering, shipping, and transporting
goods. Costs are relatively higher in this business strategy due to poor
scheduling and coordination. Supply Chain Management ensures that your
processes flow smoothly and that suppliers, manufacturers, wholesalers, and
retailers are always on the same page. SCM enables you to optimise
transportation and logistics activities with any vendors or purchasers with
whom you do business. Orders are automatically entered into a system, which
notifies other facilities that additional resources are required to fulfil this
request. This makes the entire process very smooth and seamless.

4. Reducing Costs

It is the goal of Supply Chain Management to reduce a company’s operating

expenses. It lowers the cost of all types of business expenses, such as the cost
of purchasing, manufacturing, and delivering goods, by establishing an
optimised supply chain. It is possible to shorten the holding period of both raw
materials and finished items by allowing a smooth flow of raw materials
between a supplier and a company and the movement of finished goods
between a company and its customers. This helps to reduce losses and keep the
overall cost of doing business as low as possible.

5. Enhancing Customer Satisfaction

4
One vital objective of SCM is to maximise customer satisfaction. The supply
chain is by far the most effective means of customer service. It has a direct
influence on the two most critical components of client satisfaction: pricing and
delivery. Having an efficient supply chain enables a company to outperform
competition in terms of retail pricing and profitability. Having high-performing
operations also helps to to meet or exceed customers’ expectations for product
delivery. Providing your customers with what they want, when they want it, and
at the lowest price possible is critical to maintaining their satisfaction.

6. Improving Distribution

Businesses benefit from Supply Chain Management because it streamlines the

distribution process. In order to facilitate the speedier movement of goods, it is
necessary to achieve proper coordination between various transportation
channels and warehouses. Supply Chain Management enables businesses to
reduce overhead costs while also delivering items more quickly. As a result, the
entire distribution system is improved, allowing for the delivery of products at
the appropriate time and location.

Hence, it is wise to invest in effective technology that allows you to manage

inventory quickly, generate thorough reports, automate delivery, provide real-
time tracking, and perform other distribution functions seamlessly.

7. Maintaining Better Coordination

Supply Chain Management strives to improve coordination between the

business’s various stakeholders. A channel is established, allowing employees,
customers, and suppliers to communicate with the company efficiently.
Managers can quickly direct their staff, and employees can communicate with
their supervisors via the established channel in the event of an emergency.
Additionally, customers can obtain necessary information via self-portals
established as part of the customer support system. It facilitates information
sharing between all stakeholders and contributes to building an organisation
with exceptional coordination.

Supply chain models

5
There are several common supply chain business models that supply chains fit
into. The models have two main focuses: responsiveness and efficiency. Each
model strives for some combination of both but approaches those goals
differently. In addition, models tend to favor one over the other. Organizations
can evaluate the value proposition of each in relation to their goals and
constraints, and choose which suits them best.

The model types are:

 Continuous flow model -- works best for mature industries with a degree
of stability.
 Agile model -- works best for industries with unpredictable demand and
products that are made to order.
 Fast chain model -- works best for products with a short lifecycle, such as
fashion items.
 Flexible model -- works best for industries with a level of stability and a
few relatively predictable demand peaks.
 Custom configured model -- focuses on customizing.
 Efficient chain model -- works best for highly competitive markets in
which pricing plays a large part.

The models are subject to overlap and should be designed by the supply chain
manager to fit the unique supply chain.

1.2 Steps in the supply chain

The fundamental steps of a supply chain in order are as follows:

 Sourcing raw materials.

 Refining those materials into basic parts.
 Combining those basic parts to create a product.
 Order fulfillment/Sales.
 Product delivery.
 Customer support and return services.

The amount of time it takes any one of these processes from start to
completion is known as lead time. Supply chains are managed by supply chain
managers, who monitor lead time and coordinate the processes in each step to
maximize customer satisfaction.

Supply chains can be contrasted against value chains -- they contribute to the
end product in different ways. Supply chains aim to meet customer demands.

6
Value chains seek to add value to a product on top of its inherent value. The
purpose of the value chain is to give the company a competitive advantage in
the industry. Supply chain management and value chain management are two
slightly different perspectives on the same basic process and work in tandem to
meet two slightly different definitions of "demand."

DIFFERENCES BETWEEN SUPLLY CHAIN AND LOGISTICS MANAGEMENT

OINTERS LOGISTICS MANAGEMENT SUPPLY CHAIN MANAGEMENT

Definition Logistics management can be Supply chain management can

defined as the process of be defined as the integrated
planning, implementing and management of all the linkages
controlling the efficient and and value added activities from
effective flow and storage of the supplier to the customer's
goods and services and related customer in such a
information from the point of waythatenhanced customer
origin to the point of value is achieved at lower costs.
consumption for the purpose of
meeting customer requirement.

Embodies It comprises of in-bound It comprises of all the players in

logistics, in-plant logistics and the supply chain from the raw
out-bound logistics. material source to finished
product consumer, vendors,
their vendors, shippers,
warehouses, service providers,
customers and their customers.

Main Logistics cost reduction by Supply chain profitability by

Objective integrating the resources across value creation.
the pipeline.

7
 How this is By internal integration of By external integration of roles
created in logistics functions handled by of various players in the supply
business? various management functions chain.
within organization.

Origin It originated from a very old It originated as a logical

concept in military planning. extension of logistical
management.

Focus Logistical management tries to SCM focuses on value creation

take the product to the in the supply chain. Hence this
consumer at a minimum is customer focused or demand
logistical cost. Hence it is supply driven.
driven.

Scope Logistics is a narrow concept. SCM is a broader concept.

Activity Logistics activities are SCM functions outside the

limitation conducted within the organization.
organization.

Flow There are two types of flows in There are three types of flows
logistics are - in SCM are -
Value flow (flow of goods and Value flow, Information flow.
Driver Efficiency
services) (what we
and Information Responsiveness
flow. And Financial flow.
do) (what customer
sees)
Drivers of
Inventory Cost of holding Availability supply chain
Transportation Consolidation Speed performance:

Facilities Consolidation/ Proximity /

Dedicated Flexibility

Information What 8information is best suited for each

objective
Barriers of supply chain management:
 Organizational barriers
 Lack of visibility
 Reluctance to share skills
 Attitudinal problems
 Traditional mindset
 Inability to see long terms benefits
 Distrust
 Inadequate information flow.

Features of supply chain management:

 Complexity
 Two way flows
 Breaking the organizational barriers
 Sharing of sales information in real time
 Inventory visibility-reduces inventories by reducing uncertainties.
 Compresses value chain by slashing lead –times thereby quickening
cash flow.

9
  Customer focus (customer orientation,help the customer to be a
better supplier!) pull system
 Levels of customer service
 Supply chain collaboration.
Supply Chain Flows
 Product flow: the movement of goods from a supplier to a customer,
through the manufacturer,distributor and retailer.
 Information flow: it involves transmitting orders and updating the
status of delivery. The information flow is useful for the success of the
supply chain management.
 Financial flow: it consists of credit terms,payment schedule,discounts
information and consignment and title ownership arrangements.

The five key functions of Supply chain Management are:

 Procure-collection of materials required
 Make-manufacturing of the product
 Move-shifting of the product to store
 Store-maintenance of product till customer demands
 Service-supply of product when customer demands.
Importance of supply chain management:
 Benefits to the customer: Improved customer service through fewer
shortages. Improved product cost. Quicker response to changes in
demand.,Optimal purchase cost due to possibility of long-term
purchase contracts.
 Benefit to the company: The firm carrying out the Best Chain
Management will have the competitive edge in the market.

10
 It will generate goodwill in the eyes of customers. By this company
gets the responsibility, authority and competence to manage them in
the best interest of itself.
 Reduction in tide-up capital and administrative costs due to reduction
or elimination of inventory at all level.
 Reduction in time and money lost through production line stoppage,
More flexibility in planning, Sustained growth of sales and company
business, Increased shareholder value.
 Service response: Service response logistics relates to the
coordination of nonmaterial activities to fulfill service efficiently &
effectively. Many service response logistic activities relate closely to
the logistic activity of communication, finance movement and
information flow.
 Integration of information: Information integration is sharing of
information among supply chain member’s from supplier,
manufacturer, distributor, retailer and finally to the customer’s. In
supply chain management the information factor is moving from top
to bottom and bottom to top. Hence, the firm can adapt to changes
and provide response whenever needed.
 Technology Assimilation: It is very important to note that all the
participants in the chain are well aware and knowledgeable about the
same. So, it is essential to see that accepted technology has to be
assimilated properly within the people. Supply chain should access the
market through both physical channel and cyber based channel to
serve the needs of customer.
 Workflow coordination:Workflow coordination is the efficiency of
order fulfillment processes for the products in the supply chain.

11
 Streamlining workflow activities among supply chain partners is
possible with workflow coordination of activities like procurement,
order execution, design optimization and financial exchanges.
 Synchronization: There has to be appropriate matching of time period
at all stages in supply chain management. The goal of synchronization
in supply chain integration is to develop production and delivery
mechanisms & processes that can produce goods to the actual end
user rate of demand for the smallest time period manageable.
 Trust: Trust is very important factor in SCM. Trust is required in the
organization and across the supply chain partners. As the supply chain
function on the information shares between the partners. Hence, the
information should be true.
 Quick response: The supply chain management helps the
management adopts the activity like JIT and EDI system. Quick
response system can positively affect the inventory management.
 Efficient customer response: It creates link between manufacturer and
retailer, to reduce, order-cycle time. In ECR, the retailer and supplier
work closely together, to capture point of sale information and send
the information back through the channel of distribution. When the
information is received, orders are automatically cut and the product
sent to the grocery store. Inventory falls, order cycle time reduces and
cost drops, all in a paperless environment. If properly implemented,
ECR can reduce customer prices substantially.

Participants in supply chain management and their roles?

1. Suppliers: They are organization that provides goods and services to
purchasing organization (a manufacturer or a distributor). It is often used

12
 synonymously with vendors but may also refer to an internal company
resource.
2. Manufacturers: They are the companies engaged in the original
production and assembly of products, equipment and services. They
sometimes refer to companies that purchase such products or services
manufactured or assembled in accordance with company specifications.
3. Distributors:These are the external entities that sell for suppliers or
manufacturers directly and often collect all payments from customers
and maintain an inventory of the supplier’s or manufacturer’s products.
4. Customer: They are the end receivers or users of the product or service.
They are an essential part of the supply chain as they are the ultimate
consumers of the products and services.

Drivers of Supply Chain Management?

Driver Efficiency Responsiveness

Inventory Cost of holding Availability

Transportation Consolidation Speed

Facilities Consolidation / Proximity /

Dedicated Flexibility

Information What information is best suited for each

objective
 Thes
e drives form the basis for supply chain management.
 Efficiency is the manufacturer’s side point of view.
 Responsiveness is the what customer seeks from their point of view

13
  Inventory: manufacturer being efficient will reduce its cost oflding as
much as possible but at the same time will make the product available
for the customer.
 Transportation: consolidation effort done by the manufacturer will
reduce the cost and will make the product reach fast.
 Facilities: dedicated /consolidation effort from manufacturer side
brings flexibility /proximity effect for customers.
 Information is what flows from both end to for both sides benefit.

Supply chain challenges

Modern supply chains are complex and present several common challenges.
These are:

 Potential lack of transparency. Having transparency enables stakeholders

to understand the status of the supply chain.
 Waste due to inadequate production cycle. Businesses that inaccurately
gauge their supply, demand or capabilities may end up with an
overstocked inventory.
 Unsatisfied business partners and customers. The ultimate goal of SCM is
to meet customer expectations. This involves managing those
expectations realistically, but also providing a valuable product.
 Lost or delayed goods. Goods that go missing at any point in the chain
ultimately delay the whole process and can impact customers negatively.
 Increasing customer expectations. New technology and businesses raise
customer expectations, which can be difficult to manage, and impossible
to meet if not properly managed.
 Resiliency to sudden changes in the supply chain. External factors can
cause unforeseen changes in a supply chain, so best practice is to prepare
for the unexpected and be able to pivot if need be.

Today’s Supply Chain Challenges

14
  Global supply chain with long lead times
 Rising and shifting customer expectations
 Increase in labor costs in developing countries Increase in labor costs in
developing countries
 Increase in logistics costs
 Importance of sustainability
 Unprecedented Volatility

Supply chain best practices

 Use lean SCM and logistics techniques. Lean increases flexibility and
minimizes inventory waste.
 Increase inventory velocity. Companies need to ensure their supply
doesn't outweigh demand, and that they can capitalize on distributed,
quickly changing demand. Lean is one way to do this.
 Enterprises need to collaborate with other businesses in their supply
chain to optimize the entire chain, not just one company's process. The
relationship with suppliers is especially important.
 Shorten cycles. As supply chains become more complex, they get longer,
and so do processes. Businesses should aim to keep them as short as
possible to meet customer expectations.
 Use supply chain technology. Technology allows managers to integrate
their supply chains and collaborate more effectively.
 Implement useful metrics. Well-defined metrics allow managers to
accurately gauge the efficiency of the chain.

REVISION QUESTIONS
1. Explain the concept of “supply chain” briefly. (3 marks)(March 2011)
2. Discuss how Supply chain management and Logistical management are
different from each other.

15
3. What is “Extended Enterprise”?
4. How did Supply Chain Management evolve from traditional Logistics
Management?
5. Comment on the impact of “Bull Whip Effect” in supply chain and show
how this can be neutralized?
6. Explain supply chain management with its advantages in current business
Environment

16