UNIT -I

INTRODUCTION
Role of Logistics and Supply chain Manageiment: Scope and Importance
Evolution of Supply Chain Decision Phases in Supply.Chain -Còmpetitive and
Supply chain Strategies -Drivers of Surply Chain Performance and Obstacles.

1.1. INTRODÚCTION TO SUPPLY CHAIN

Asupply chain consists of all partËes involved, irectly or indirectly, in falfilinga
Customier requcsi. The supply chan includes not only the manufactúrerand suppliers,
but also transporters, warehouses, retailers, and even customers themselves. within
each organization, such as a manufacturer, the supply chain includes all functions
involved in recëivingand filing a customer request.These functions include, but are
not limited to, new product development, marketing, operations,. distribution,
· ipance, and customer service.
4. sUPPLY CHAIN MANAGEMENT
"Supply Chain Management is the integration of the business process from
the end user through originai supplier who provides products, services and
infornation that adds value for the cüstomers"
Supply Chain Mahagement (SCMis the management of the flow of goods
and services, inyolves the movement and storage of raw inaterials, wors
in-process inventor÷, and-of fnished goods as well as: end to end order
fulfillment from point of origin to point of consumption.
SuppBy Ch¡in Management is primarily concemed with the efficient
integration of suppliers, factories, warehouses and stores so that products
is produced and distributed in the right guantities, to minimize total system
cost subject to satisfying customer service réquirements
1.2 Supply Chaln Marnagement.
Consumer

irategia
E---S- Dlstribution
Consümer

OutboundTransport
Storageaction

Information
Flow
Operations Flow
Money
Material
Flow

JnboundTránsport
Storage
action

Sourcng|

-Vendor

Fig. I.1.
 1.3
ent. Introduction:
Hedishrasdt
Supply Chain Management is the "design, planning, excution, control,
and monitoring of supply-chain activities with the objective of creating net
value building a competitive infrastructure, leveraging worldwide
logistics, synchronizing supply with demand and measuring performance
globally.
Supply Chain management. can also be defined as a systematlc flow of
materials, goods, and related information' among suppliers, comparies,
retailers, and consum¹rs.
There are three diferent types of flow in supply chain management as
shownin Fig: 1.1:
(a) Material flow
(6) Informàtion/Data flow
(c) Money flow
1.1.2. MATERIAL FLOW
/ Material flowincudes asmooth flowof an item from the producer to the
consumer (This is possible through various warehouses. among
distributors, dealers and retailers.
The main challenge we face is in ensuting that the material flows as
inventory quickly without any stoppage through different points in the.
chain) The quicker it' moves, the better it, is fot the company, as it
minimizes the cash cycle.
4 The îterD an also flow from the consumer to the producer for any kind of,
Tepairs, or exchange for an end of life material.
1.13. INFORMATIÓN FLOW..
/Inforation/data fow comprises the request for quotation, purchase order,
monthly schedutes, engincering change requests, quality complaints and
reports on supplier performance from customer side to the supplier.
From the producer's side to the consumer's side, the infomation flow
Tayar consists of purchase ordet, dispatch details, report on inventory, invoices,
etc.
 230

L4
Supply Chain Management.
1A.4. MONEY FLOW
Money flows from the customer side to the respective producer for the
product which they buy through retailer, distributor and wholesaler.
In shTrt, to achieve an efficient and effective supply chain, it is
essential to
manage all three flows. properly with minimal efforts. It is a difficult task
for a supply chain managèr, to identify which information is critical for
decision- making.
Y2/sCoPE OF SUPPLY CHAIN MANAGEMENT
(0Minimizes Operating Cose
(t) BoostsCustomer Service
(i) Manages Distribution
(iv) Ensures Coordination
(v)Better Inventory Management
v Beter Supplier Management i/
()Minimizes Operating Cost
Supply chain management focuses on reducing the overall operating cost
of the, organization. It aims 'at bringing efficiency and raising the
profitability of organizations
By developing. a proper chain it brings dowi the purchasing cost,
productien cost and delivery çost.
, It enables sm0oth flow of raw materials from the supplier to an
organization which reduce_ the holding period of materials with the
supplier and avoids any losses due to delay in pYoduction.
4 Sitilarly, compariesare not required to hold on expensive inventories for
a longertime aid distritbute quickly tbrough the supply chain.
-()Boosts Cu_tomer Service
* Supply chain management helps in providing better service to.customers.
All production strategies are framed in accordance with requirements of
customers to manufacture right product.
 Introduction 1.5
nt

It properly anticipates the demands of customers tefore initia:ing the

e
production. Right product available to right cost provide better satisfaction
to customers.
i) Distribution
Distribution of products at the right time and the right location is a
complex taskfor every organization.
. Supply chain management accclerated the ovéralldistribution system of
an organization.
* t coordinates. with various transportation channiels and wzrehouses for
attainingfaster movement of goods.
Supply chain ensures that all products get delivered at the right location
within the time limit.
By developing a proper nework for movement of goods it has to ease the
whole distribution system.
(v) Ensures Coordination
Proper coordination among ali partners of business increase productivity
and profitability.
& 0t evelops proper çhannel throungh which empBoyees, supplièr and
-customers can easily interact with business.
Customers cái also access their brands for any information through self
'portals which are developed as apart of the customer suppaut system. This
enables a better exchange of information and brings coordination among
partners.

(v) Better Inventory Management

3 Maintaining an optimum inventory is à must for uninterrupted operation of
every business.
t keeps record of all inventories that is rawmaterials, spare pàrts: and
inyentory
misned goods. Supply chain ensures that the proper amount of
is always maintained within the orgaization.
 1.6 Supply Chain Management

*" Ihey work towards avoiding situations like under stocking o

overstocking.
Supply chain managers frame proper strategies for procuring, producin
and nainteining all inventories as per requirements.
(vi)Better Supplier Management
Supply chain management works on strengthening the relationships
between business vnd supplicrs.
It tracks and records cevety tranisacionwith the suppliers.
Proper. supply chain enables.timely prourement of all required raw
materialsfrom suppliers.
$* It develops a proper network through which suppliers and business can
easily /interact. Supply chain management solutions provide a self-service
portal thrOugh which suppliers can contact the company in case of any
issues or problems.
:

1.3. IMPORTANCE OF SUPPLY CHAIN MANAGEMENT (SCM)

SCMplays a vital role in organization activities and an essential element
to operational efficiency which can be applied to customer satisfaction and
company's success.
%/: isjust lik the backbone of an organization which manages the ctitical
issues of the business organization such as rapid growth of
multinatiónal
corporations, global expansion and envioninenta! concerns which
indirectly or dramaticaly affects the corjorate strategy.
SCM offers various tools and techniques thàt help business
diagnose the problems and also provide solutions of these organization to
around the business disruptions
envirohunent,
It lays an important role in ngving goods
more quickly to their
destinations.
The most important thing in .today's business is
managing competition
among partners and in order to in this competition SCM helps
business
organization in a very efficient mander.
Introduction
future so bright and
Al the benefits and importance of SCM makes its most critical
becomes the
because of emerging trends in orpapization SCM
business discipline in the world today.
Other benefits and importance of supply chain 'management are:
Reduces inventory costs
informationsharing betwéen
Provides better medium for
partners
Improves customer satisfactionas wel as servicë
/ Maintains better trust between parthers
V Provides efficient manufäcturing strategy
Improve process integrationy
Improves bottom line (by decrèasing the use offixed
assets in thesupply chain).
Increàse cash flow
Improves quality'and gives higher ptofit imargin
1A. ROLE OF LOGISTICS IN SUPPLY CHAIN
14.1: LOGSTICS DEFINTIONS
logistics can: be defined. as a management of -procurement,
transportation,storage and distribution of goods and materials.
Definition according to customer:
¢ Getting the right product, tó the 'right custoime;, in the right quantity, in
theright condition, at the right placé, 'at the right time, ànd at the right cost
142. IMPORTANCE OF LOGISTICS
o Required goods to be stored and distributed efficiently from one location'
toanother
Itis a part of supply chain, which involves the integration of information,
transportation, and inventory, warebousing, material-handling. and
packaging.
 Supply Chain Manageinent
While supply chain covers the entire range of activities involving the
procurement of raw materials, transportati¡n of the raw as well as the
fnished product, as wel as the storage and distribution of goods and
materials
1.4.3, LOGISTICS ACTIVITIES
$ Transportation aras

Warehousing andstorage
Industrial packaging
Materials handling
Inyentory control
Order fulfllment
4/Demand forecasting
$/Production plarining/scheduling.
Procurement
.Customer service
Facility location
Returm goods handing
Parts and service support
Sorap isposal
Conçept of Seven R's in Lógistics
$ Right Product
$ Right Quantity
Right Condition
3, Right Place.
Right Time
Right Cústomer.
3 Right Price
Introduction 1.9
1.5. EVOLUTION OF SUPPLY CHAIN MANAGEMENT
1960 s 1980 s 1990 9 2000s 2010s

Fragmentation Consolidaton Integration Value Captu'e Automation

Demahd Forecasting

Sourcing / Purchasing
Material
Requirement Planning Management
Production Planning

Manufacturing Inventory
Warehousing Warethouslng Supply Chain
Loglstics Managerent
Material Handing Materal Handling

Packaging Packaging
.Goods Inventory informallon Technology

Distribution Planning Markting / Sales

Material
Order Processing Management Strateie Planning.
Transportaion Finance

Customer Service

Fig. L2,.
The evolution of supply chain management has been characterized by
an increasing degree of iptegration,of.separate tasks, a trend that _was
underlined in the 1960s &s a keyarea for future prodoctivity improvements
since the system was highly fragmented,
Alhough the tasks composing, logistics have remained relatively similat,
they initially consolidated into two distinct functions related to maerials
management and physical distribution during the 1970s'and1980s.
3 This process moved further. in the 1990s.as globalization incited a.
funçtional integration and the emergènce of logistics in a true sense, all the
 clements. of the supply chain 1anagement
perspect/ve. became part of a single
However;, only wth the management
communi cation implementation of modern
more complete information and
possible with thetechnologies did a
integration becarme
It allows for ëmergence supply chain management.
of
the integrated \
finance and goods flows and made management and control of- information,
distribution systems. possible a new range of
Supply.chain production and
sequence of activities aimíng at value'management
has become a
complex
captureand competitiveness
This digitalization is
have experienced a particularly notable within distribution centers that
remarkable push towards automation such as
materjals handling, and packaging. storage,
1.5.1. CREATION ERA
The term "supply ch¡in
1982, manmagement" was first coined by Keith Oliver in
The concept of a supply
chain in management was of
long before, in the èarly 20th great importance
assembly ine. century, eapecially with the creation of the,'
The characteristics of this era
of
need-'for large-scale changes; supply chain management inchude the
reduction programs, and -re-engineering, downsizing drËven by cost
practices. widespread attention to Japanese management
1.5.2. INTEGRATION ERÁ
This era of supply chain management studies was
highlighted with the
development electronic data interchange (EDI) systems in the' 1960s,
of
and developed through the 1990s by the int:oduction of enterprise
resource:
planning (ERP) systems:
This era bas continued to.devélop into the 21 st century with the expansion
of Internet-based collaborative systems.
 Introduction
L11
This era of supply chain evolution is
characterizd by both increasing
value addedand cost reductions through integration.
1.5.3. GLOBALIZATION ERA
The third movement of supply chain management development, the
globalization era, can be charactérized by the attention given to global
systems of supplier relationships and the expansion of supply chains
..beyond national boundaries and into other continents.
1.5.4. SCM 2.0
SCM 2.0 is atrend in the use of the W/ that means to increase
creativity, information sharing £nd collaboration among users(End Users).
SCM 2.0 designed to rapidly deliver results with the quickly m¡nage the
futurechange for continuous flexibility,value and success.

1.6. DECISION PHASES IN SUPPLY CHAIN

Decision phases can be defined as the different stages involved in supply
chain management for taking an acion or decision related to some product
or services.
Succe_sful supply chain management requires decisions,on the flow of.
information, product, and funds that fa<l into three decision phases.
* Here we will b discussing th¹ three maii decision phass involved in the
entire process.of supply chain. The three phases are described below:
A. Supply Chain Strategy
B. Supply Chain Planning
C. Supply Chain Operations
A. Supply Chain Strategy'
*.In this phase, decision is taken by the management mostly.
prediction
3. The decision to be made' considers the 'sections like long term
and involves price of goods that ate very cxpensive if it goes wrong.
t is very important to study the market condiions at this stage.
Srm.

Supply Chaln Management

These decisions considèr the prevailing and future conditions of the
market. They comprise the structural layout of supply chain
Althe strategio decisions are taken by the higher authority or the senior
managemnt.
$ These decisions inclide 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.
B. Supply Chain Planning
It is ashort term process.
Supplychain planning should bedone according to the demand and supply
view.
4 In order to understand customers' demands, à market research should be
done.
The second thing to consider is awareness and updated information about
the competitors 'and stategies used by them to satisfy their customer
demands and requirements.
This phase inchydes it al, starting from predicting the market demand to
which market vwill be provided the finished goods tò whach plant is
planned in this stage.
$ Asupply chain design phase is considered süccessful if it performs well in
short-term planning,
Cc Supply Chain Öperations
The third and last decision phase consists of the various functional
decis[ons 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 th» customr order to
Supplying he customer with that product, everything is inchuded ip this
phase.
Introductión
For xample, imagine a customer demanding an item'manufactured by
your company. Iaitialy, the marketing department is re_ponsible for
taking the order and forwarding it to production departnent and inventory
department.
The production department then responds to the customer demand by
sending the demanded item to the warehouse through a proper mediun
and the distributor sends it to the customer within a time frarne.
3 All the departments engaged in this process need to work with an aim of
improvingthe performance and minimizing uncertainty.
17..COMPETITIVE ANDSUPPLY CHAIN STRATEGIES
Designing a frm's supply chin to meet the. competitive prioritiés of the
fim's operations strategy.
Supply hain strategy to ensure superior value to the end qustomer in an
efficient manner
Optimum decision making þetween tradeoffs and costs.
Ianovation to obtain còmpetitiv advantage.
7.1. CUSTOMER SERVICE AND COST TRADE OFFS
Costs are directlyassoçiated with service provision.
Higher serviçe in low cost is desirable.
eficiency by
. A fim cannot operate beyond a certain limit in incrcasing its
increasing costs for higher services.
levels at certain costs.
* The firm's revenu is also affected by its service
There are 4 components of Customer Service:
RsponsiNenasg
1. Order Delivery Lead Time
2. Responsiveness:
3. Delivery Reliability ProdutNan
4. Product V¡riety
 Supply Chain Management ntrod

1.Order DeliveryLeadTime
The time taken by the supply chain ftom placement of order to delivery is
knowa as OrderDelivery Lead Time:
& The time take from sourcing, of matcrial to delivery is known as Supply 1.72.
'Chain Lecad Time..
Diterent types of models are followed to make efficient delivery like
Make to Stock (MTS), Make to Order (MTO0) &Configure to Order
(CTO).
2. Responisiveness
* The fim's ability to handle the uncertainties of market demand.
Based on uncertainties, products are classified into:
() Functional Products
(b) Innovative Products
3.Dellvery Rellablity
Tbe fraction of satisfaction obtatned by the customer within the
promised
delivery leadtime.
For acbieving higher reliability, &quiçk inventory turnover is
istock outs needs tobe preventcd. needed,
CÕst management at this stage is very important
4. Preduct Varlety
$ Variety Explosion h¡s occurred in large number of Drl
goods.
- It will also increase cost.
$ t increases complexity in supply chain.
Outsourdng
A Make-or-buy decision is. a manageria! choice between whether to
oUtsource aprocess or do itin-bous.
Outsourcing: Paying suppliers and distributors to perfom proce_ses and
provide needed services and materials,
Introdiction ..
L15
Example: Bharti Airtel Outsources its Netwórk Operations.
.Toyota outsources its electronic parts.
1.72.,$OME OTHER SUPPLY CHAIN STRATEGIES
Of shoring - is moving abusiness process ánd operating it out of a
foreign location for example the manufacturing process where labour is
cheaper or expertise higher.
Vendor Rationalization - is the process of shrinking the supply base by
reducing the number of active suppliers.
Forward lategration - involves buying part of thê process th¡t occurs
after the company's manufacturing process.,
Backward Integration involves buying prt of the supply, chain that
occurs prior to the company's manufacturing procèss
Eiicient Supply Chains is directly ihked:to customer satisfaction. t
gets your productsinto the hands ofthe people who need then quickly and
at the bestprice.
ResponsiveSupply Chains t has to bè responsive to the needs of thé
customers that is order-fill accuracy in today's highly competitive maket,
aguarantee of quick deliver is a real selling

T6. DRVERS OF SUPPLY CHAIN PERFORMANCE ANDOBSTACLES

Drlvers ofSC performance

Facilities
Inventory
", Transportation
Iafomation
$ Sourcing
Pricing
Facltes.
Places where inventory is stoYed, assembled, or fabricated
 ento

Suppiy Chatn Management

Production sites and storage sites
¢ Decisions regarding location, capacity ánd flexibiliies of facility have a
significant impact on SC performance
Inventory
Raw materials, work in progress (WIP), finished goods-within asupply
chain
Changes in inventory policies can dramatically, ater the efficiericy and
responsiveness of asupply chain
Transportation
Moving inventory from point to pojnt in a supply chain.
Combinations of transportation modes and routes can affect the
performance of supply chain.
Information
&.Data and analysis regarding inventory, tránsportatioa, facilitie_ throughout
the supply chain
Potentially the biggest driver of supply chain petformance
$ This driver allow the managemient with the better opportunity to make. the
supply chain more responsive and efficient.
Sourcing
Distinguish the functions'a firm perfoms and functions that areoutsourced
;.Pricng,
Price associated with goods ánd services provided by a fim to the supply
chain

1.9. OBSTACLES OF SUPPLYCHAIN

Increaslng varlety of products
Increased variety (mass -customization), tend to caise uncertainty, and
mcertainty frequentlý results in increased. çost and. decreased
Tesponstvehess
Introduction

Decreasing product Iife cycles

This inakes the job of achieving strategic fit more difficult as supply chain
must constantly adapt to manufacture and deliver new próduct itn addition
to coping with these product's demand unicertainty
Increasingly demanding customers
& Today's customers are demanding faster fulillment, better quality and
better performing products for the same price they paid years agomeans
that the supply chain must provide more just to maintain its business
Fragmentation of supply chäin ownership
Now-a-days most fims have become less vertically integrated
* More members in supply chain forproviding goods
Many owners withits own policies and interests, the chain (network)
complicated to coordinate
Globalization

Supply chains are more global.

Global supply chains create mariy benefits such as ability to source from a
global bäse.of suppliers who may offer better or cheaper goods than were
availablein acompany's home nation.
$ Suppliers are apart making coordination much more dific
3 Rernibval of trade barier,results in increased competition om global
companies.
Difficulty executing new strategis
Creating successful strtegy is not easy.
Skillful execútion of strategy. is as important as creating successhul
strategies.
 1.18 Supply Chain Management

TWO MARK QUESTIONS AND ANSWERS

1, Whad is a supply chain?
LA supply chain is a network between àcompany arid its suppliers to produce
andistribute a specifie product in fulGlling a customer request.jThis network
includes differcnt activities, people, entitics, information, and resourcçs.
|840
The supply chain includes:
Manufacturers
Suppliers
$ Transporters
Warehouses
& Retailers
Customers
Whatis Sup ChainManagemen(SCM)?
Süpply chain management is the management of the flow of goods and
services and includes all..processes that transform raw materials into final
products It involyes the active streatmlining of abusiness's supply-side activities
to maximize custorner value and 'gain a competitive advantage in the
narketplace.
vale
Whatis the ohjective ofsaqyly cha~n?
$. Tomaximize theoverall value generated
:

To maximize the overall profít

4 Witksgrýychuinsupls? Coiore
Supply çhain surplus is the value additjon by suply chain function- of an
organization. t is calculated by the following fornula:
Supply chain surplus =Reyenue generated from a,customer - Total cost
incurred to produce and de<iver the product.
5, Write angy hree inportance ifSCM.
Improves customer satisfactlon as well as service.
 Introduction
1.19
Reduces inventory costs.
Increases cash flow.
Próvides better medium for information sharing between partners.
Factors to be used to measure supply chain management
$ Responsiveness
Efficiency
I. Ls dosn the Supp Chain Drivers
A.Logical Drivers
$ Pacility
Inventory
Transportation
B. Cross Functional Drivers
Infomation
Sourcing
&. Picing
8. What is yalue?
The value a supply chain generates is the difièrence between what the final
product is worth to the custonér and the costs the supply chain incurs in fling
the customer request."
9., What arethe keyelenments of supply chain management?
wess Supply chain management also covers coordination and collaboration with
channcl partaers, such as customers, suppliers, distributors and service
próviders.
Demand Management
Communic¡tion commuiliu
Integration
:Collaboration
 Supply Chain Management
120

A0. SWhat is the main goal ofsupply chain management?

supply
Açhieve Eficient Pulfillment. On the most basic level, the purpose of
in customer facing
ch£in marnagement is to make inventory readily available
reduce waste,
positions to fulfill demand. Such steps will help the organization
drive out costs, and achieve efficiencies in the supply chain.
H What arethefunctons of SCM?
To Integration. Punchots
Öperations.
Purchasing.
Distribution:
12. Bring out the role ofsupply chain manager.
the flow of goods and
Supply chain management. (SCM); the managenent of
materials, of work-in
services; involves the moveinent and storage of raw
point of
process inventory, and of finished goods from point of origin to
c£nsumption. Marketing channels play an important role in- supply chain
managemient,.
. 13. Whatis supply chan performance?
judge
Supply chaín perfoTmance measure can be defined as an approach to
measures
the performance of supply chain system. Supply ch¡in performance
- For
can-broadly be classified into two categories -Qualitative measures
example, custofner satisfacion aind product quality.:
1D Whats the difernctbebeen suppy chain and value chaàn?.
Supply chain involves all partes in fulfilling a cu_tomer request and leading
activities a
to customer satisfaction a value chain is .a set of interrelated
company uses to create a competitive advantage.
15. What are the the declslon phases ofsupply chain management?
The three decision phases that occur within asupply chain are
Supply chain strategy (or design), Plannin
& Supply chain planning and oper
Supply chain operation.
 Introduction
1.21)
REVIEW QUESTIONS
1. Discuss the goal of supply chain and explain the
impact: of supply chain
decisions on the success of a fim.
2. Howwould you describe the various drivers in supply chain?
3. State the importance of Supply Chain
Management.
4. Elucidate the Evolution of Supply Chain
5. State the various decision phases
Management in detail.
involved in Supply Chain.
6. What do you mean by the concept
7. What are the obstacles in
competitive and supply chain strategies?
supply chain?
8. How would you'show your
9. How would you
únderstanding on the objectives of suppiy chain?
escribe the goal of a.supply chain and explain he
supply chain decisions on the success of a firm? impact of
10. Define Supply Chain
Management and explain its objective and scope,