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What is Supply Chain Management

What is Supply Chain Management

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Published by Rajas Mudafale

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Published by: Rajas Mudafale on Jun 16, 2012
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Unit 1
Building Blocks of a Supply Chain NetworkPerformance MeasuresDecisions in the Supply Chain WorldModels for Supply Chain Decision-Making
To introduce the major building blocks, major functions, major business processes,performance metrics, and major decisions(strategic, tactical, and operational) in supply chain networksTo provide an insight into the role of Internet Technologies and Electronic Commerce insupply chain operations and to discusstechnical aspects of key ITEC components in supply chain management.
To bring out the role of stochastic models (Markov chains, queueing networks); optimizationmodels (LP, ILP, MILP, GA, Constraint Programming); and simulation in supply chain planning anddecision-making. This will provide the foundation for design and analysis of supply chains.
What is Supply Chain Management? 
A SUPPLY CHAIN is a network of supplier, manufacturing, assembly, distribution, andlogistics facilities that perform the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these productsto customers. Supply chains arise in both manufacturing and service organizations. SUPPLYCHAIN MANAGEMENT (SCM) is a systems approach to managing the entire flow of information, materials, and services from raw materials suppliersthrough factories and warehouses to the end customer. SCM is different from SUPPLYMANAGEMENT which emphasizes only the buyer-supplier relationship.Supply chain management has emerged as the new key to productivity and competitivenessof manufacturing and service enterprises. The importance of this area is shown by asignificant spurt in research in the last five years and also proliferation of supply chainsolutions and supply chain companies (e.g. i2, Manugistics, etc.). All major ERP companiesare now offering supply chain solutions as a major extended feature of their ERP packages.Supply chain management is a major application area for Internet Technologies andElectronic Commerce (ITEC). In fact, advances in ITEC have contributed to growingimportance of supply chain management and SCM in turn has contributed to many advancesin ITEC.
1.2. Two Faces of Supply Chain Management 
 SCM has two major faces to it. The first can be called loosely as the back-end and comprisesthe physical building blocks such as thesupply facilities, production facilities, warehouses, distributors, retailers, and logisticsfacilities. The back-end essentially involvesproduction, assembly, and physical movement. Major decisions here include:
(supplier selection, optimal procurement policies, etc.)2.
(plant location, product line selection, capacity planning, productionscheduling, etc.)3.
(warehouse location, customer allocation, demand forecasting, inventorymanagement, etc.)4.
(selection of logistics mode, selection of ports, direct delivery, vehiclescheduling, etc.)5.
Global Decisions
(product and process selection, planning under uncertainty, real-timemonitoring and control, integrated scheduling)
Supply Chain Network
A supply chain network consists of physical, financial and information networks that involvethe movement of materials, funds and related information through the logistics process, fromthe acquisition of raw materials to delivery of finished products to the end user.The network shown in
 Exhibit 10.1
has four levels of facilities. Products flowdown stream from
, from plants to
distribution centres
, and fromdistribution centers to
Exhibit 10.1: Supply Chain Network
 Stochastic models (Markov chains, queueing networks), optimization models (LP, ILP,MILP, heuristics), and simulation provide the basis for the above decisions.The second face (which can be called the front-end) is where IT and ITEC play a key role.This face involves processing and use of information to facilitate and optimize the back-endoperations. Key technologies here include: EDI (for exchange for information across differentplayers in the supply chain); Electronic payment protocols; Internet auctions (for selectingsuppliers, distributors, demand forecasting, etc.); Electronic Business Process Optimization;E-logistics; Continuous tracking of customer orders through the Internet; Internet-basedshared services manufacturing; etc.
Supply Chain Decisions
We classify the decisions for supply chain management into two broad categories -- strategic andoperational. As the term implies, strategic decisions are made typically over a longer time horizon.These are closely linked to the corporate strategy (they sometimes {\it are} the corporate strategy),and guide supply chain policies from a design perspective. On the other hand, operational decisionsare short term, and focus on activities over a day-to-day basis. The effort in these type of decisions isto effectively and efficiently manage the product flow in the "strategically" planned supply chain.
There are four major decision areas in supply chain management: 1) location, 2) production,3) inventory, and 4) transportation (distribution), and there are both strategic and operationalelements in each of these decision areas.
Location Decisions
The geographic placement of production facilities, stocking points, and sourcing points is the naturalfirst step in creating a supply chain. The location of facilities involves a commitment of resources to along-term plan. Once the size, number, and location of these are determined, so are the possiblepaths by which the product flows through to the final customer. These decisions are of greatsignificance to a firm since they represent the basic strategy for accessing customer markets, andwill have a considerable impact on revenue, cost, and level of service. These decisions should bedetermined by an optimization routine that considers production costs, taxes, duties and dutydrawback, tariffs, local content, distribution costs, production limitations, etc. (See Arntzen, Brown,Harrison and Trafton [1995] for a thorough discussion of these aspects.) Although location decisionsare primarily strategic, they also have implications on an operational level.
Production Decisions
The strategic decisions include what products to produce, and which plants to produce them in,allocation of suppliers to plants, plants to DC's, and DC's to customer markets. As before, thesedecisions have a big impact on the revenues, costs and customer service levels of the firm. Thesedecisions assume the existence of the facilities, but determine the exact path(s) through which aproduct flows to and from these facilities. Another critical issue is the capacity of the manufacturingfacilities--and this largely depends the degree of vertical integration within the firm. Operationaldecisions focus on detailed production scheduling. These decisions include the construction of themaster production schedules, scheduling production on machines, and equipment maintenance.Other considerations include workload balancing, and quality control measures at a productionfacility.
Inventory Decisions
These refer to means by which inventories are managed. Inventories exist at every stage of thesupply chain as either raw materials, semi-finished or finished goods. They can also be in-processbetween locations. Their primary purpose to buffer against any uncertainty that might exist in thesupply chain Since holding of inventories can cost anywhere between 20 to 40 percent of their value,their efficient management is critical in supply chain operations. It is strategic in the sense that topmanagement sets goals. However, most researchers have approached the management of inventoryfrom an operational perspective. These include deployment strategies (push versus pull), controlpolicies --- the determination of the optimal levels of order quantities and reorder points, and

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