Recent Developments in the field of Supply Chain

Management

Sudeep Peter
MBA IB Roll NO:25
School of Management Studies,
CUSAT, Kochi- 22.
E-mail:sudeepptr@gmail.com

Abstract: Supply chain management is defined as the management of a

network of interconnected businesses involved in the ultimate provision of
product and service packages required by end customers. Organizations
increasingly find that they must rely on effective supply chains, or networks,
to compete in the global market and networked economy. Vendor-managed
inventory (VMI) is a family of business models in which the buyer of a
product provides certain information to a supplier of that product and the
supplier takes full responsibility for maintaining an agreed inventory of the
material, usually at the buyer's consumption location. just-in-time (JIT) is an
inventory strategy that strives to improve a business's return on investment
by reducing in-process inventory and associated carrying costs. strategic
partnership involves a supplier / manufacturer partnering with a distributor or
wholesale consumer. Demand chain management is the management of
upstream and downstream relationships between suppliers and customers to
deliver the best value to the customer at the least cost to the demand chain
as a whole. These types of recent developments are included, which help an
organization to increase profit.

Keywords: Inventory, VMI, JIT, DCM, WMS

1.0 INTRODUCTION

Supply chain management is defined as the management of a network of

interconnected businesses involved in the ultimate provision of product and service
packages required by end customers (Harland, 1996).Supply Chain Management
spans all movement and storage of raw materials, work-in-process inventory, and
finished goods from point of origin to point of consumption (supply chain).

Another definition is provided by the APICS Dictionary when it defines SCM as the
"design, planning, execution, control, and monitoring of supply chain activities with the

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objective of creating net value, building a competitive infrastructure, leveraging
worldwide logistics, synchronizing supply with demand, and measuring performance
globally."

Importance of Supply Chain Management - Organizations increasingly find that they

must rely on effective supply chains, or networks, to compete in the global market and
networked economy. In Peter Drucker's (1998) new management paradigms, this
concept of business relationships extends beyond traditional enterprise boundaries
and seeks to organize entire business processes throughout a value chain of multiple
companies.

During the past decades, globalization, outsourcing and information technology have
enabled many organizations, such as Dell and Hewlett Packard, to successfully
operate solid collaborative supply networks in which each specialized business
partner focuses on only a few key strategic activities (Scott, 1993). This inter-
organizational supply network can be acknowledged as a new form of organization.
However, with the complicated interactions among the players, the network structure
fits neither "market" nor "hierarchy" categories (Powell, 1990). It is not clear what kind
of performance impacts different supply network structures could have on firms, and
little is known about the coordination conditions and trade-offs that may exist among
the players. From a systems perspective, a complex network structure can be
decomposed into individual component firms (Zhang and Dilts, 2004). Traditionally,
companies in a supply network concentrate on the inputs and outputs of the
processes, with little concern for the internal management working of other individual
players. Therefore, the choice of an internal management control structure is known
to impact local firm performance (Mintzberg, 1979).

In the 21st century, changes in the business environment have contributed to the
development of supply chain networks. First, as an outcome of globalization and the
proliferation of multinational companies, joint ventures, strategic alliances and
business partnerships, significant success factors were identified, complementing the
earlier "Just-In-Time", "Lean Manufacturing" and "Agile Manufacturing" practices.
Second, technological changes, particularly the dramatic fall in information
communication costs, which are a significant component of transaction costs, have
led to changes in coordination among the members of the supply chain network.

Many researchers have recognized these kinds of supply network structures as a new
organization form, using terms such as "Keiretsu", "Extended Enterprise", "Virtual
Corporation", "Global Production Network", and "Next Generation Manufacturing
System". In general, such a structure can be defined as "a group of semi-independent
organizations, each with their capabilities, which collaborate in ever-changing
constellations to serve one or more markets in order to achieve some business goal
specific to that collaboration".

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2.0 RECENT DEVELPOMENTS IN THE FIELD OF SCM

2.1 Vendor-managed inventory

Vendor-managed inventory (VMI) is a family of business models in which the buyer of

a product provides certain information to a supplier of that product and the supplier
takes full responsibility for maintaining an agreed inventory of the material, usually at
the buyer's consumption location (usually a store). A third-party logistics provider can
also be involved to make sure that the buyer has the required level of inventory by
adjusting the demand and supply gaps.
As a symbiotic relationship, VMI makes it less likely that a business will unintentionally
become out of stock of a good and reduces inventory in the supply chain.
Furthermore, vendor (supplier) representatives in a store benefit the vendor by
ensuring the product is properly displayed and store staff are familiar with the features
of the product line, all the while helping to clean and organize their product lines for
the store.
One of the keys to making VMI work is shared risk. Often if the inventory does not
sell, the vendor (supplier) will repurchase the product from the buyer (retailer). In other
cases, the product may be in the possession of the retailer but is not owned by the
retailer until the sale takes place, meaning that the retailer simply houses (and assists
with the sale of) the product in exchange for a predetermined commission or profit. A
special form of this commission business is scan-based trading whereas VMI is
usually applied but not mandatory to be used.
This is one of the successful business models used by Wal-Mart and many other big
box retailers. Oil companies often use technology to manage the gasoline inventories
at the service stations that they supply (see Petrol soft Corporation).Home Depot uses
the technique with larger suppliers of manufactured goods (i.e. Moen, Delta, RIDGID,
Paulin). VMI helps foster a closer understanding between the supplier and
manufacturer by using Electronic Data Interchange formats, EDI software and
statistical methodologies to forecast and maintain correct inventory in the supply
chain.
Vendors benefit from more control of displays and more contact to impart knowledge
on employees; retailers benefit from reduced risk, better store staff knowledge (which
builds brand loyalty for both the vendor and the retailer), and reduced display
maintenance outlays
Consumers benefit from knowledgeable store staff who are in frequent and familiar
contact with manufacturer (vendor) representatives when parts or service are
required, store staff with good knowledge of most product lines offered by the entire
range of vendors and therefore the ability to help the customer choose amongst
competing products for items most suited to them, manufacturer-direct selection and
service support being offered by the store.

2.2 Just-in-time

Just-in-time (JIT) is an inventory strategy that strives to improve a business's return

on investment by reducing in-process inventory and associated carrying costs. Just In
Time production method is also called the Toyota Production System. To meet JIT
objectives, the process relies on signals or Kanban between different points in the
process, which tell production when to make the next part. Kanban are usually 'tickets'
but can be simple visual signals, such as the presence or absence of a part on a
shelf. Implemented correctly, JIT can improve a manufacturing organization's return

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on investment, quality, and efficiency. Quick notice that stock depletion requires
personnel to order new stock is critical to the inventory reduction at the center of JIT.
This saves warehouse space and costs. However, the complete mechanism for
making this work is often misunderstood. For instance, its effective application cannot
be independent of other key components of a lean manufacturing system or it can
"...end up with the opposite of the desired result." In recent years manufacturers have
continued to try to hone forecasting methods (such as applying a trailing 13 week
average as a better predictor for JIT planning, however some research demonstrates
that basing JIT on the presumption of stability is inherently flawed.

Main benefits of JIT include:

Reduced setup time. Cutting setup time allows the company to reduce or eliminate
inventory for "changeover" time. The tool used here is SMED (single-minute exchange
of dies). The flow of goods from warehouse to shelves improves. Small or individual
piece lot sizes reduce lot delay inventories, which simplifies inventory flow and its
management. Employees with multiple skills are used more efficiently. Having
employees trained to work on different parts of the process allows companies to move
workers where they are needed. Production scheduling and work hour consistency
synchronized with demand. If there is no demand for a product at the time, it is not
made. This saves the company money, either by not having to pay workers overtime
or by having them focus on other work or participate in training. Increased emphasis
on supplier relationships. A company without inventory does not want a supply system
problem that creates a part shortage. This makes supplier relationships extremely
important. Supplies come in at regular intervals throughout the production day. Supply
is synchronized with production demand and the optimal amount of inventory is on
hand at any time. When parts move directly from the truck to the point of assembly,
the need for storage facilities is reduced.
Problems

Within a JIT system

Just-in-time operation leaves suppliers and downstream consumers open to supply

shocks and large supply or demand changes. For internal reasons, Ohno saw this as
a feature rather than a bug. He used an analogy of lowering the water level in a river
to expose the rocks to explain how removing inventory showed where production flow
was interrupted. Once barriers were exposed, they could be removed. Since one of
the main barriers was rework, lowering inventory forced each shop to improve its own
quality or cause a holdup downstream. A key tool to manage this weakness is
production leveling to remove these variations. Just-in-time is a means to improving
performance of the system, not an end. Very low stock levels means shipments of the
same part can come in several times per day.

2.3 Strategic partnership

Strategic partnership involves a supplier / manufacturer partnering with a distributor or

wholesale consumer. Rather than approach the transactions between the companies
as a simple link in the product or service supply chain, the two companies form a

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closer relationship where they mutually participate in advertising, marketing, branding,
product development, and other business functions. As examples, an automotive
manufacturer may form strategic partnerships with its parts suppliers, or a music
distributor with record labels. There can be many advantages to creating strategic
partnerships. As Robert M. Grant states in his book Contemporary Strategy Analysis,
"For complete strategies, as opposed to individual projects, creating option value
means positioning the firm such that a wide array of opportunities become available".
Firms taking advantage of strategic partnerships can utilize other company's strengths
to make both firms stronger in the long run. Strategic partnerships raise questions
concerning co-inventor ship and other intellectual property ownership, technology
transfer, exclusivity, competition, hiring away of employees, rights to business
opportunities created in the course of the partnership, splitting of profits and
expenses, duration and termination of the relationship, and many other business
issues. The relationships are often complex as a result, and can be subject to
extensive negotiation.

2.4 Demand chain management

Demand chain management is the management of upstream and downstream

relationships between suppliers and customers to deliver the best value to the
customer at the least cost to the demand chain as a whole. The term demand chain
management is used to denote the concept commonly referred to as supply chain
management, however with special regard to the customer pull . In that sense,
demand chain management software tools bridge the gap between the customer
relationship management and the supply chain management. The organization’s
supply chain processes are managed to deliver best value according to the demand
of the customers. A study of the university in Wageningen (the Netherlands) sees
DCM as an extension of supply chain management, due to its incorporation of the
market orientation perspective on its concept. While the term "demand-driven supply
chain or network" denotes a set of concepts, the term "demand-driven execution" or
DDE is used to express the means of achieving those concepts.
Demand chain management is the same as supply chain management, but with
emphasis on consumer pull vs. supplier push. The demand chain begins with
customers, and then funnels through any resellers, distributors, and other business
partners who help sell the company’s products and services. The demand chain
includes both direct and indirect sales forces. Customers demand is hard to detect
because out of stock situations (OOS) falsify data collected from POS-Terminals.
According to studies of Corsten/Gruen the OOS-rate is about 8%. For products under
sales promotion OOS rates up to 30% exist. Reliable information about demand is
necessary for DCM therefore lowering OOS is a main factor for successful DCM.
Corsten and Gruen describe key factors for lowering OOS-rates:
 data accuracy
 forecast and order accuracy
 order quantity
 replenishment
 Capacity (time supply)
 Capacity (Pack out) and Planogram Compliance
 Shelf Replenishment
Implementation of system supported processes leads to the new technology Extreme
Transaction Processing described by Gartner Research. This technology allows

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processing the huge amount of data (POS, RFID) in real time providing information for
store managers, shelving managers and the supply chain.

2.5 Logistics engineering

Logistics engineering is a branch of systems engineering dedicated to the scientific

organization of the purchase, transport, storage, distribution, and warehousing of
materials and finished goods. Logistics engineering as a discipline is also a very
important aspect of systems engineering that includes reliability engineering. It is the
science and process whereby reliability, maintainability, and availability are designed
into products or systems. It includes the supply and physical distribution
considerations above as well as more fundamental engineering considerations. For
example, if we want to produce a system that is 95% reliable (or improve a system to
achieve 95% reliability), a logistics engineer understands that total system reliability
can be no greater than the least reliable subsystem or component. Therefore our
logistics engineer must consider the reliability of all subcomponents or subsystems
and modify system design accordingly. If a subsystem is only 50% reliable, one can
concentrate on improving the reliability of that subsystem, design in multiple
subsystems in parallel (5 in this case would achieve approximately 97% reliability of
that subsystem), purchase and store spare subsystems for rapid change out,
establish repair capability that would get a failed subsystem back in operation in the
required amount of time, and/or choose any combination of those approaches to
achieve the optimal cost vs. reliability solution. Then the engineer moves onto the
next subsystem.
Logistics engineers work with complex mathematical models that consider elements
such as mean time between failures (MTBF), mean time to failure (MTTF), mean time
to repair (MTTR), failure mode and effects analysis (FMEA), statistical distributions,
queuing theory, and a host of other considerations. Obviously, logistics engineering is
a complex science that considers tradeoffs in component/system design, repair
capability, training, spares inventory, demand history, storage and distribution points,
transportation methods, etc., to ensure the "thing" is where it's needed, when it's
needed, and operating the way it's needed all at an acceptable cost.

2.6 Operations management

Operations management is an area of business concerned with the production of

goods and services, and involves the responsibility of ensuring that business
operations are efficient in terms of using as little resource as needed, and effective in
terms of meeting customer requirements. It is concerned with managing the process
that converts inputs (in the forms of materials, labor and energy) into outputs (in the
form of goods and services). According to the U.S. Department of Education,
Operations Management [is the field concerned with managing and directing] the
physical and/or technical functions of a firm or organization, particularly those relating
to development, production, and manufacturing. [Operations Management programs
typically include] instruction in principles of general management, manufacturing and
production systems, plant management, equipment maintenance management,
production control, industrial labor relations and skilled trades supervision, strategic
manufacturing policy, systems analysis, productivity analysis and cost control, and
materials planning.

2.7 Order fulfillment

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Order fulfillment is in the most general sense the complete process from point of sales
inquiry to delivery of a product to the customer. Sometimes Order fulfillment is used to
describe the narrower act of distribution or the logistics function, however, in the
broader sense it refers to the way firms respond to customer orders.
In its broadest definition the possible steps in the process are:
 Product Inquiry - Initial inquiry about offerings, visit to the web-site,
catalog request
 Sales Quote - Budgetary or availability quote
 Order Configuration - Where ordered items need selection of options or
order lines need to be compatible with each other
 Order Booking - The formal order placement or closing of the deal
(issuing by the customer of a Purchase Order)
 Order Acknowledgment / Confirmation - Confirmation that the order is
booked and/or received
 Invoicing / Billing - The presentment of the commercial invoice / bill to
the customer
 Order Sourcing / Planning - Determining the source / location of item(s)
to be shipped
 Order Changes - Changes to orders, if needed
 Order Processing - Process step where the distribution center or
warehouse is responsible to fill order (receive and stock inventory, pick,
pack and ship orders).
 Shipment - The shipment and transportation of the goods
 Delivery - The delivery of the goods to the consignee / customer
 Settlement - The payment of the charges for goods / services / delivery
 Returns - In case the goods are unacceptable / not required

The order fulfillment strategy also determines the de-coupling point in the supply
chain (Olhager, 2003), which describes the point in the system where the "push" (or
forecast-driven) and "pull" (or demand-driven see Demand chain management)
elements of the supply chain meet. The decoupling point always is an inventory buffer
that is needed to cater for the discrepancy between the sales forecast and the actual
demand (i.e. the forecast error). It has become increasing necessary to move the de-
coupling point in the supply chain to minimize the dependence on forecast and to
maximize the reactionary or demand-driven supply chain elements. This initiative in
the distribution elements of the supply chain corresponds to the Just-in-time initiatives
pioneered by automobile manufacturers in the 1970s.
The order fulfillment strategy has also strong implications on how firms customize
their products and deal with product variety (Pil and Holweg, 2004). Strategies that
can used to mitigate the impact of product variety include modularity, option bundling,
late configuration, and build to order (BTO) strategies—all of which are generally
referred as mass customization strategies.

2.8 Warehouse management system

A warehouse management system, or WMS, is a key part of the supply chain and
primarily aims to control the movement and storage of materials within a warehouse
and process the associated transactions, including shipping, receiving, put away and
picking. The systems also direct and optimize stock put away based on real-time
information about the status of bin utilization. The objective of a warehouse

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management system is to provide a set of computerized procedures to handle the
receipt of stock and returns into a warehouse facility, model and manage the logical
representation of the physical storage facilities (e.g. racking etc), manage the stock
within the facility and enable a seamless link to order processing and logistics
management in order to pick, pack and ship product out of the facility. Warehouse
management systems can be stand alone systems or modules of an ERP system or
supply chain execution suite. The primary purpose of a WMS is to control the
movement and storage of materials within a warehouse – you might even describe it
as the legs at the end-of-the line which automates the store, traffic and shipping
management. In its simplest form, the WMS can data track products during the
production process and act as an interpreter and message buffer between existing
ERP and WMS systems. Warehouse Management is not just managing within the
boundaries of a warehouse today; it is much wider and goes beyond the physical
boundaries. Inventory management, inventory planning, cost management, IT
applications & communication technology to be used are all related to warehouse
management. The container storage, loading and unloading are also covered by
warehouse management today. Warehouse management today is part of SCM and
demand management. Even production management is to a great extent dependent
on warehouse management. Efficient warehouse management gives a cutting edge to
a retail chain distribution company. Warehouse management does not just start with
receipt of material but it actually starts with actual initial planning when container
design is made for a product. Warehouse design and process design within the
warehouse (e.g. Wave Picking) is also part of warehouse management. Warehouse
management is part of Logistics and SCM. Warehouse Management monitors the
progress of products through the warehouse. It involves the physical warehouse
infrastructure, tracking systems, and communication between product stations.
Warehouse management deals with receipt, storage and movement of goods,
normally finished goods, to intermediate storage locations or to final customer. In the
multi-echelon model for distribution, there are levels of warehouses, starting with the
Central Warehouse(s), regional warehouses services by the central warehouses and
retail warehouses at the third level services by the regional warehouses and so on.
The objective of warehousing management is to help in optimal cost of timely order
fulfillment by managing the resources economically. Warehouse management =
"Management of storage of products and services rendered on the products within the
four walls of a warehouse"

2.8 Service management

Service Management is integrated into Supply Chain Management as the joint

between the actual sales and the customer. The aim of high performance Service
Management is to optimize the service-intensive supply chains, which are usually
more complex than the typical finished-goods supply chain. Most service-intensive
supply chains require larger inventories and tighter integration with field service and
third parties. They also must accommodate inconsistent and uncertain demand by
establishing more advanced information and product flows. Moreover, all processes
must be coordinated across numerous service locations with large numbers of parts
and multiple levels in the supply chain.
Among typical manufacturers, post-sale services (maintenance, repair and parts)
comprise less than 20 percent of revenue. But among the most innovative companies
in Service, those same activities often generate more than 50 percent of the profits.

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Benefits

The main drivers for a company to establish or optimize its Service Management
practices are varied:
 High service costs can be reduced, i.e. by integrating the service
and products supply chain.
 Inventory levels of service parts can be reduced and therefore
reduce total inventory costs.
 Customer service or parts/service quality can be optimized.
 Increasing service revenue.
 Reduce obsolescence costs of service parts through improved
forecasting.
 Improve customer satisfaction levels.
 Reduce expediting costs - with optimized service parts inventory,
there is no need to rush orders to customers.
 Minimize technician visits - if they have the right part in hand, they
can fix the problem on the first visit.

3.0 CONCLUSION

These are the recent developments in the field of supply chain management. These
developments increase the importance of supply chain management in an
organization. By adopting these developments an organization can increase their
profit by reducing cost and adding value to their product.

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