Supply Chain Management

MKRakesh
Ph.D scholar
Mahatma Gandhi Kashi Vidyapeeth
Varanasi
mkrakesh@rediffmail.com

hrough the past decades !e ha"e seen an increasing rate of glo#ali$ation of the
economy and there#y also of supply chains. Products are no longer produced and
consumed !ithin the same geographical area. %"en the different parts of a product may&
and often do& come from all o"er the !orld. his creates longer and more comple' supply
chains& and therefore it also changes the re(uirements !ithin supply chain management.
his again affects the effecti"eness of computer systems employed in the supply chain.
) longer supply chain !ill often in"ol"e longer order to deli"ery lead times. *laherty
+,-. states& in accordance !ith the discussion in Section& that the conse(uences of longer
lead times !ill often #e less dependa#le forecasts as these ha"e to #e made earlier&
reduced production fle'i#ility& i.e. greater difficulties to ad/ust to order changes& higher
le"els of in"entory. herese M. *laherty. Glo#al 0perations Management. McGra!12ill&
3e!14ork& ,556.

he e"ident ans!er to the pro#lem of longer lead times is to speed up the supply chain.
7ut a limit is often reached #eyond !hich further effort to shorten lead times are futile&
especially in international supply chains. )nother approach is to restructure the supply
chain. his simply means to reconsider the strategic le"el decisions priorly made. ) third
approach identified #y *laherty +,-. is changing coordination8 he order& forecasting&
procurement& and information sharing procedures among the mem#ers of the supply
chain. 9e !ill d!ell on the issue of coordination in the ne't section.
Glo#ali$ation also #rings foreign competition into markets that traditionally !ere local.
:ocal companies are there#y forced to respond #y impro"ing their manufacturing
practices and supply chain management. 7hatnagar et al. +;. states that attempts ha"e
focused& among others& on reduction of in"entory le"els& and increased fle'i#ility through
reduced lead times. 4et again !e see ho! industry focuses on the issues of in"entory
management and fle'i#ility to maintain high le"els of customer satisfaction.
Definitions
Supply chain management <SCM= is the process of planning& implementing and
controlling the operations of the supply chain as efficiently as possi#le. Supply Chain
Management spans all mo"ement and storage of ra! materials& !ork1in1process
in"entory& and finished goods from point1of1origin to point1of1consumption
raditionally& marketing& distri#ution& planning& manufacturing& and the purchasing
organi$ations along the supply chain operated independently. hese organi$ations ha"e
their o!n o#/ecti"es and these are often conflicting. Marketing>s o#/ecti"e of high
customer ser"ice and ma'imum sales dollars conflict !ith manufacturing and distri#ution
goals. Many manufacturing operations are designed to ma'imi$e throughput and lo!er
costs !ith little consideration for the impact on in"entory le"els and distri#ution
capa#ilities. Purchasing contracts are often negotiated !ith "ery little information #eyond
historical #uying patterns. he result of these factors is that there is not a single&
integrated plan for the organi$ation111there !ere as many plans as #usinesses. Clearly&
there is a need for a mechanism through !hich these different functions can #e integrated
together. Supply chain management is a strategy through !hich such integration can #e
achie"ed.
here seems to #e a uni"ersal agreement on !hat a supply chain is. ?ayashankar et al.
+@;. defines a supply chain to #e
) net!ork of autonomous or semi1autonomous #usiness entities collecti"ely responsi#le
for procurement& manufacturing& and distri#ution acti"ities associated !ith one or more
families of related products.
:ee and 7illington +,A. ha"e a similar definition8
) supply chain is a net!ork of facilities that procure ra! materials& transform them into
intermediate goods and then final products& and deli"er the products to customers through
a distri#ution system.
)nd Ganeshan and 2arrison +,@. has yet another analogous definition8
) supply chain is a net!ork of facilities and distri#ution options that performs the
functions of procurement of materials& transformation of these materials into intermediate
and finished products& and the distri#ution of these finished products to customers.
)ccording to 9ikipedia.org
Supply Chain Management <SCM=8 Supply chain management <SCM= is the process of
planning& implementing& and controlling the operations of the supply chain !ith the
purpose of satisfying customer re(uirements as efficiently as possi#le. Supply chain
management spans all mo"ement and storage of ra! materials& !orkBinBprocess
in"entory& and finished goods from pointBofBorigin to pointBofBconsumption
<http8CCen.!ikipedia.orgC!ikiCSupplyDChainDManagement=.
he definition one )merican professional association put for!ard is that Supply Chain
Management encompasses the planning and management of all acti"ities in"ol"ed in
sourcing& procurement& con"ersion& and logistics management acti"ities. Emportantly& it
also includes coordination and colla#oration !ith channel partners& !hich can #e
suppliers& intermediaries& third1party ser"ice pro"iders& and customers. En essence& Supply
Chain Management integrates supply and demand management !ithin and across
companies. More recently& the loosely coupled& self1organi$ing net!ork of #usinesses
that cooperates to pro"ide product and ser"ice offerings has #een called the Extended
Enterprise.
Logistics is that part of the supply chain process that plans, implements, and controls the
efficient, effective flow and storage of goods, services, and related information from the
point-of-origin to the point-of-consumption in order to meet customers' requirements.
F%fficient Management of the Supply Chain <source& make and deli"er= in order to
ma'imi$e the "alue for money to the customerG.
En other !ords Supply Chain Management means integration and management of Supply
Chain organi$ation and acti"ities through coordinated and colla#orati"e strategic
alliances& efficient #usiness processes and high le"els of information sharing to create a
"alue chain that !ould pro"ide mem#er organi$ations a sustaina#le competiti"e
ad"antage and in turn pro"ide "alue for money to the customer. Enstead of #rand "ersus
#rand or store "ersus store& it is no! supply chain "ersus supply chain. En this emerging
highly competiti"e and dynamic en"ironment& the ultimate success of the 7usiness entity
!ill depend on management>s a#ility to integrate the company>s complicated net!ork of
#usiness relationships. he graphic !ill e'plain the process of Entegration in the Supply
Chain net!ork.

he #roader "ie! of SCM is depicted in the a#o"e figure in a simplified supply chain
net!ork structure. his !ould e'plain the #asic difference #et!een :ogistics and SCM.
Supply Chain is inter1company integration of #usiness process and relationships and
!here as :ogistics is intra1company integration.
) 9orking Definition of Supply Chain Management8
9e can define the supply chain as the flo! of information and material to and from
suppliers and customers. he o#/ecti"es of Supply Chain Management <SCM= are to8
Ma'imi$e supply chain responsi"eness and fle'i#ility to customers&
Minimi$e total supply chain cycle time& costs& in"entory& andH
Ma'imi$e supply chain capacity& utili$ation& and Return on )ssets <R0)=.
here are four fundamental operating principles at !ork in SCM 8
Set up the simplest& most direct& flo! of information possi#le to and from those !ho
produce it to those !ho use it.
Set up the simplest& most direct& flo! of material possi#le to and from those !ho produce
it to those !ho use it.
%sta#lish the smoothest possi#le drum#eat or rhythm of production and usage.
Create the a#ility to react to pro#lems through short lead1times eliminating the need for
in"entories.
Why Supply Chain Management?
%'perience sho!s that the gains to #e made in cost& lead1time and (uality through
!orking in partnership !ith customers and suppliers are significant. En industry after
industry one o#ser"es that8
;-I1A-I of total costs are supplier related <material "ersus direct la#or or o"erhead
costs=.
Supplier lead times are longer than one>s o!n production lead times.
Et goes !ithout saying that the (uality of your product depends on the (uality of material
your supplier pro"ides. 9ith customers a!arding more and more #usiness #ased on total
price& (uality and deli"ery& the !hole process from one>s supplier recei"ing ra! material
to one>s customer using the product has to #e the target for #reakthrough impro"ement.
%'perience sho!s that customers use the products !e produce in much more predicta#le
!ays than then it first appear. 9e assume that a customer>s order pattern is related to
hisCher usage pattern. 0ften !e do not look #eyond the order pattern for information
a#out actual usage. 9orse yet !e tend to create !ide s!ings and unpredicta#ility in
#uying patterns that !ould other!ise #e sta#le and predicta#le.
he consumer products industry learned that it often incurred more costs than #enefits
through consumer promotions. hey trained consumers to !ait for a sale& then #uy and
stock product until the ne't sale. S!ings in demand !ere amplified through the supply
pipeline adding cost as the #ulge !orked its !ay through the system. Retail stores
clogged #ackrooms !ith in"entory or ran out of stock. Distri#utors added in"entory to
co"er une'pected demand. Manufacturers added finished goods in"entory& increased
production through o"er1time& and put pressure on their suppliers to deli"er more in
shorter lead1times. 9al1Mart #roke the cycle !ith Every-Day-Low prices. ) master in
logistics& 9al1Mart understood that it !as more profita#le to al!ays offer the lo!est
competiti"e prices to the consumer in return for more sta#le& predicta#le demand. he
more predicta#le the demand& the easier it is to synchroni$e acti"ities to true customer
demand throughout the supply chain. he result is #etter on1time deli"ery& fe!er stock1
outs& and higher customer satisfaction !ith less in"entory& reduced administrati"e !ork
and lo!er o"erall costs.
Managing multiple flo!s8
0rgani$ations increasingly find that they must rely on effecti"e supply chains& or
net!orks& to successfully compete in the glo#al market and net!orked economy. En Peter
Drucker>s <,55J= management>s ne! paradigms& this concept of #usiness relationships
e'tends #eyond traditional enterprise #oundaries and seeks to organi$e entire #usiness
processes throughout a "alue chain of multiple companies.
During the past decades& glo#ali$ation& outsourcing and information technology ha"e
ena#led many organi$ations& such as Dell and 2e!lett Packard& to successfully operate
solid colla#orati"e supply net!orks in !hich each speciali$ed #usiness partner focuses on
only a fe! key strategic acti"ities <Scott& ,55K=.
he concept in"ol"ed in a supply chain can #e !ell understood #y the follo!ing list
of figured models.
) Generic Supply chain model
Essues in Supply Chain Management
he classic o#/ecti"e of logistics is to #e a#le to ha"e the right products in the right
quantities (at the right place at the right moment at minimal cost. *igure <from
Suppliers Manufacturers Distri#utors Customers
3%V%M1!orkgroup +,5.= translates this o"erall o#/ecti"e into four main areas of concern
!ithin supply chain management.

Figure: 2ierarchy of 0#/ecti"es.
he t!o middle #o'es in the lo!er ro! of *ig. & deli"ery relia#ility& and deli"ery times& is
#oth aspects of customer service& !hich is highly dependent on the first #o'& flexi!ility&
and on the last #o'& inventory.
Empro"ing Supply Chain Management
he a#o"e sections descri#e issues and challenges of supply chain management. Et is
time to approach solutions. ) key to impro"ed supply chain management lies in
integration and coordination& look to Section for a discussion. Section introduces
important tools of supply chain managers& modeling and simulation.
Goal and Principle of SCM
SCM goal8
Pro"iding enhanced "alue to customers at the least otal cost
Value& Velocity and Visi#ility
SCM Principles8
Lltimate customer focus
3et!ork of organi$ations !orking for common purpose and mutual #enefits
Process orientation
otal systems thinking
Cost Dimensions
En"entory
ransportation
9arehousing
Enformation
*igure #elo! sho!s us the relation ship #et!een some of the components of supply
chain.
Deli"ery and lead1time.
En"entory Costs
9arehouse cost
SCM *rame!ork
) frame!ork to understand the "arious issues in"ol"ed in SCM is pro"ided #y the
pyramid structure for the SCM paradigm <fig.= the pyramid allo!s issues to #e analysed
on four le"els8
Strategic8 0n the strategic& le"el it is important to kno! ho! SCM can contri#ute to the
enterprisesM #asic F"alue propositionG to the customers. Emportant (uestions that are
addressed at this le"el include8 9hat are the #asic and distincti"e ser"ices needs of the
customersN 9hat can SCM do to meet these needsN Can the SCM capa#ilities #e used to
pro"ide uni(ue ser"ices to the customersN %tc.
Structural8 )fter the strategic issues are dealt !ith& the ne't le"el (uestion<s= that should
#e asked are8 Should the organi$ation market directly or should it use distri#utors or other
intermediaries to reach the customersN 9hat should the SCM net!ork look likeN 9hat
products should #e sourced from !hich manufacturing locationsN 2o! many !arehouses
should the company ha"e and !here should #e locatedN 9hat is the mission of each
facility <full stocking& fast mo"ing items only& cross1docking etc.=N
*unctional8 his is the le"el !here operational details are decided. *unctional e'cellence
re(uires that the optimal operating practices for transportation management& !arehouse
operations& and materials management <!hich includes forecasting& in"entory
management& production scheduling& and purchasing= #e designed. hese strategies
should keep in "ie! the trade1offs that may need to #e made for the o"erall efficiency of
the system. )chie"ing functional e'cellence also entails de"elopment of a process1
oriented perspecti"e on replenishment and order fulfillment so that all acti"ities in"ol"ed
in these functions can #e !ell integrated.
*ig. SCM *rame!ork Pyramid
Source8 7ased on !ork done #y 9illiam C.Capacino.
Emplementation8 9ithout successful implementation& the de"elopment of SCM strategies
and plans is meaningless. 0f particular importance are the organi$ational and information
systems issues. 0rgani$ational issues centers on the o"erall structure& indi"idual roles and
responsi#ilities& and measurement systems needed to #uild an integrated operation.
Enformation systems are Fena#lersG for supply chain management operations and
therefore must #e carefully designed to support the SCM strategy. Supply chain managers
must consider their information needs relati"e to decision support tools& application
soft!areMs& data capture& and the systemMs o"erall structure.
Et is important to note that the decisions made !ithin the SCM strategy pyramid are
interdependent. hat is& it must #e understood !hat capa#ilities and limitations affect the
functional and implementation decisions and consider those factors !hile de"eloping a
supply chain management strategy and structure.
he SCM models used in practice lie in a continuum #et!een t!o e'treme models8 on
one end of the spectrum lies the "ertically integrated supply chain model in !hich the
organi$ation has direct control o"er each and e"ery component of the supply chain& !hile
on the other end of the spectrum lies the hori$ontally di"ersified supply chain model
<ideally= in !hich the num#er of participant is as large as the num#er of distinct parts of
the supply chain. En a "ertically integrated supply chain system& the organi$ation can
control e"ery component of the chain and can make "arious changes to the system to
optimi$e the chain "ery easily. 7ut in a hori$ontally di"ersified supply chain the tendency
!ill #e to optimi$e only the functions that the organi$ation is in"ol"ed in& thus conscious
efforts must #e made #y the "arious participants in the supply chain for the integration of
their respecti"e components in the supply chain. Ef an organi$ation can #e identified as
the ma/orCdominant partner in the supply chain& then this organi$ation has to take an
initiati"e in seeking the co1operation of the other participants in the supply chain.
he type and structure of the supply chain that is esta#lished depends on many factors&
some of the ma/or factors are8
Geographical8 Ef the supply chain is stretched across the glo#e then it may not #e possi#le
to incorporate some of the principles of lean production like ?E deli"ery& fle'i#le
manufacturing& and co1ordination among suppliers and customers. Et can lead to uncertain
transportation schedules& unpredicta#le lead1time and may need larger in"entory carriage.
Cultural8 he difference in the FcultureG of the participants in the chain <the difference
can #e due to geographical factors or corporate practices= can lead to friction and distrust.
his may hamper the de"elopment of close ties.
Go"ernment :egislation8 he la!s of the country may prohi#it the sharing of information
a#out some facet of the supply chain and thus& may lead to a restricti"e participation #y
one or more participant in the supply chain.
Decisions on hree :e"els
Supply chain management decisions are often said to #elong to one of three le"elsH the
strategic& the tactical& or the operational le"el. Since there is no !ell defined and unified
use of these terms& this Section descri#es the ho! they are used in this thesis.
*igure8 sho!s the three le"el of decisions as a pyramid shaped hierarchy. he decisions
on a higher le"el in the pyramid !ill set the conditions under !hich lo!er le"el decisions
are made.

Figure: 2ierarchy of Supply Chain Decisions.
0n the strategic le"el long term decisions are made. )ccording to Ganeshan and 2arrison
+,@.& these are related to location& production& in"entory& and transportation. :ocation
decisions are concerned !ith the si$e& num#er& and geographic location of the supply
chain entities& such as plants& in"entories& or distri#ution centers. he production
decisions are meant to determine !hich products to produce& !here to produce them&
!hich suppliers to use& from !hich plants to supply distri#ution centers& and so on.
En"entory decisions are concerned !ith the !ay of managing in"entories throughout the
supply chain. ransport decisions are made on the modes of transport to use.
Decisions made on the strategic le"el are of course interrelated. *or e'ample decisions on
mode of transport are influenced #y decisions on geographical placement of plants and
!arehouses& and in"entory policies are influenced #y choice of suppliers and production
locations. Modeling and simulation is fre(uently used for analy$ing these interrelations&
and the impact of making strategic le"el changes in the supply chain.
0n the tactical le"el medium term decisions are made& such as !eekly demand forecasts&
distri#ution and transportation planning& production planning& and materials re(uirement
planning. he operational le"el of supply chain management is concerned !ith the "ery
short term decisions made from day to day. he #order #et!een the tactical and
operational le"els is "ague. 0ften no distinction is made.
Ma/or 3et!ork Design Decisions
3um#er O locations of facilities <plants& !arehouses O stores=
Capacities <si$e= of facilities
Product mi' at plants
)llocation of plants to !arehouses
)llocation of !arehouses to stores
SLPP:4 C2)E3 1 3%90RK O M%M7%RS
Supply Chain 3et!ork Structure8
)ll participate in a supply chain from the ra! materials suppliers to the ultimate
consumer. 2o! much of this supply chain needs to #e managed !ill depend on se"eral
factors& such as the comple'ity of the product& the num#er of accepta#le suppliers& and
the a"aila#ility of ra! materials. Dimensions to consider include the comple'ity of
supply chain net!ork& length of the supply chain and the num#er of suppliers and
customers at each le"el. Et is o#"ious that one firm !ill #e participating in se"eral supply
chains. *or most manufacturers& the supply chain looks like a chain of relationships and
processes. 0ne !onders ho! many such relations and processes needs hand holding. he
closeness of the relationship at different points in the supply chain !ill differ.
Management !ill need to choose the le"el of partnership appropriate for particular supply
chain links. 3ot all links throughout the supply chain should #e closely coordinated and
integrated. he most appropriate relationship is the one that #est fits the specific set of
circumstances. Determining !hich parts of the supply chain deser"e management
attention must #e !eighed against firm capa#ilities and the importance to the firm.
En order to understand these relationships !ell and to focus on the appropriate ones& one
should ha"e e'plicit kno!ledge a#out the follo!ing8
Mem#ers of the ChainH 3et!ork StructureH and *lo!s <Enformation& Product and Cash=.
Supply Chain Mem#ers8
9hile determining the net!ork structure& it is necessary to identify the mem#ers of the
supply chain !ho !ill operate !ithin the net!ork structure. Encluding all types of
mem#ers may cause the total net!ork to #ecome highly comple'& since it may e'plode in
the num#er of mem#ers added from tier le"el to tier le"el. o integrate and manage all
process links !ith all mem#ers across the supply chain !ould& in most cases& #e counter1
producti"e& if not impossi#le. he key is to sort out some #asis for determining !hich
mem#ers are critical to the success of the company and the supply chain& and thus should
#e allocated managerial attention and resources. he mem#ers of a supply chain include
all companiesCorgani$ations !ith !hom the focal company interacts directly or indirectly
through its suppliers or customers& from point of origin to point of consumption.
2o!e"er& to make a "ery comple' net!ork more managea#le it !ould #e appropriate to
classify mem#ers into t!o categories. 0ne !hich deals !ith primary mem#ers !ho carry1
out "alue adding acti"ities in an independent en"ironment are considered as *ront enders
and the group of companies !hich support these front enders can #e considered as
Support group or #ack1room #oys.
En contrast& support group mem#ers are companies that simply pro"ide resources&
kno!ledge& utilities or assets for the primary mem#ers of the supply chain. *or e'ample&
supporting companies include KP: Companies& Entegrators& *reight *or!arders& 7anks
and E net!orking companies and all others !ho participate in the chain to support the
*ront enders or *ocal companies. he same company can perform #oth primary and
supporti"e acti"ities. :ike!ise& the same company can #e performing primary acti"ities
related to one process and supporti"e acti"ities related to another process. )n e'ample
from one of the case studies is E Company& !hich manufactures 2ard Disk Dri"es
<E7M=& is a mem#er of Support group !hen their finished product is 2DD. E7M is
considered as a *ront ender !hen they are supplying their Computers. Ef !e re"ie! the
case of Entel& it plays #oth the roles. hey !ork !ith PC manufacturing companies
closely !hen designing the processors and also play the role of support function !hile
supplying the processors as a supplier. )t the time of design de"elopment of the
processor Entel is adding "alue to the process and !hen they turn into supplier& they
#ecome support group of the Supply Chain net!ork of a PC manufacturing company. Et
should #e noted that the distinction #et!een primary and supporting supply chain
mem#ers is not o#"ious in all cases. 3e"ertheless& this distinction pro"ides a reasona#le
managerial simplification and yet captures the essential aspects of !ho should #e
considered as key mem#ers of the supply chain and make the /o# all the more easier.
he definitions of primary and supporting mem#ers make it possi#le to define the point1
of1origin and the point1of1consumption of the supply chain. he point1of1origin of the
supply chain occurs !here no pre"ious primary suppliers e'ist. )ll suppliers to the point1
of1origin mem#ers are solely supporting mem#ers. he point1of1consumption is !here no
further "alue is added& and the product andCor ser"ice is consumed.
3et!ork Structure8
!o structural dimensions of the net!ork are essential !hen descri#ing& understanding&
analy$ing& and managing the supply chain. hese dimensions are the hori$ontal structure&
the "ertical structure. he hori$ontal structure refers to the num#er of tiers across the
supply chain. he supply chain may #e long& !ith numerous tiers& or short& !ith fe! tiers.
)s an e'ample& the net!ork structure for #ulk cement is relati"ely short. Ra! materials
are taken from the ground& com#ined !ith other materials& mo"ed a short distance& and
used to construct #uildings. 9here as the Supply Chain of a detergent product is
different and lengthy. Consider a customer !alking into any one of our departmental
stores looking for a detergent. he Supply Chain #egins !ith the customer and his or her
need for detergent. he ne't stage of this supply chain is the Departmental store retail
store that the customer "isits to purchase the detergent. hese departmental stores must
#e storing their products in their replenishment !arehouses or !arehouse managed #y the
third parties or VME !arehouses pro"ided #y the supplier. his is the last stage of phase1
, of the detergent supply chain. En the ne't stage !e ha"e the detergent manufacturer
<say& Proctor O Gam#le <POG==. POG supply chain includes the ra! material supply&
packing material suppliers& and ser"ice support suppliers.
he "ertical structure refers to the num#er of suppliersCcustomers represented !ithin each
tier. ) company can ha"e a narro! "ertical structure& !ith fe! companies at each tier
le"el& or a !ide "ertical structure !ith many suppliers andCor customers at each tier le"el.
En the companies studied different com#inations of these structural "aria#les !ere found.
En one e'ample& a narro! and long net!ork structure on the supplier side !as com#ined
!ith a !ide and short structure on the customer side. Encreasing or reducing the num#er
of suppliers andCor customers !ill influence the structure of the supply chain. *or
e'ample& as some companies mo"e from multiple to single source suppliers& the supply
chain may #ecome narro!er. 0utsourcing logistics& manufacturing& marketing or product
de"elopment acti"ities is another e'ample of decision making that likely !ill change the
supply chain structure. Et may increase the length and !idth of the supply chain& and
like!ise influence the hori$ontal position of the focal company in the supply chain
net!ork. En the companies studied& the supply chains looked different from each
company>s perspecti"e. he reason for this is that the integration and management of
#usiness processes across company #oundaries !ill #e successful only if it makes sense
from each companyMs perspecti"e.
Process and *lo!s
) Supply chain is dynamic and in"ol"es the constant flo! of information& product and
funds #et!een different stages as e'plained in the graphic gi"en a#o"e. %ach stage of the
supply chain performs different processes and interacts !ith other stages of the supply
chain. Successful supply chain management re(uires a change in the mindset from
managing indi"idual functions !ithin an organi$ation to integrating acti"ities among
supply chain partners into key supply chain processes as e'plained in the #elo! gi"en
graphic. raditionally& #oth upstream and do!nstream portions of the supply chain ha"e
interacted as disconnected entitles recei"ing sporadic flo!s of information o"er time. he
sourcing department placed orders as pro/ected #y the PSE <Production& Sales and
En"entory Planning= team and marketing& responding to customer demand& interfaced
!ith "arious distri#utors and retailers and attempted to satisfy this demand. 0rders !ere
periodically gi"en to suppliers and their suppliers had no "isi#ility at the point of sale or
use. Satisfying the customer often translated into demands for e'pedited operations
throughout the supply chain as mem#er firms reacted to une'pected changes in demand.
0perating a supply chain re(uires continuous information flo!s among the supply chain
partnersCparticipants& !hich in turn help to create the #est product flo!s. he customer
remains the primary focus of the process. )chie"ing a good customer focused system
re(uires processing information #oth accurately and in a timely manner for (uick
response systems that re(uire fre(uent changes in response to fluctuations in customer
demand. Controlling uncertainty in customer demand& manufacturing processes& and
supplier performances are paramount to effecti"e supply chain management.
he sharing of information among supply chain mem#ers !ith in the supply chain
net!ork is a fundamental re(uirement for effecti"e supply chain management. Decision
makers at all le"els !ithin the supply chain net!ork are pro"ided !ith timely and (uality
information they need& in the desired format& regardless of !here !ithin the supply chain
this information originates. *ulfilling this re(uirement is a formida#le challenge in front
of any organi$ation. Most of the supply chains fail due to lack of (uality information at
the right time. Differed decisions al!ays lead to unaccepta#le results. Decisions are
differed due to lack of appropriate information. Recent de"elopments in technology ha"e
#rought information to the forefront of resources from !hich for!ard1thinking firms can
culti"ate genuine competiti"e ad"antage to meet the challenges at the market place.
hese technologies pro"ide the means for multiple organi$ations to coordinate their
acti"ities in an effort to truly manage a supply chain. )s the rate of these technological
ad"ances increases& the cost associated !ith this information has decreased.
Simultaneously the speed !ith !hich this "ital information can #e made useful and
applica#le in a "ariety of #usiness situations continues to increase.
Supply Chain %na#lers8
he #elo! mentioned four Supply Chain ena#lers need to #e in place if Supply Chain
optimi$ation initiati"es are to succeed.

"rgani#ational $nfrastructure
%echnology
&trategic 'lliances
(uman )esources *artnership
"rgani#ational $nfrastructure+ Et is all a#out organi$ing the functional areas and
coordinating the Change Management to achie"e the corporate o#/ecti"e of retaining the
customer and making profits to sustain in the #usiness.
%echnology+ )ll forms of technology to impro"e the efficiency of the Supply Chain.
&trategic 'lliances+ 0ne cannot #e good at e"ery thing and physically #e e"ery!here B
0ne has to relay on your partners and focus only on your core competencies to achie"e
the corporate goal.
(uman )esources *artnership+ Et is a#out respecting the contri#utions made #y the
employees in achie"ing the corporate goals and encouraging them #y compensating
ade(uately to continue their good !ork.
he a#o"e1mentioned ena#lers ha"e to #e successfully deployed in the organi$ation to
impro"e performance of the Supply Chain Dri"ers. he follo!ing are the four Supply
Chain Dri"ers8
$nventory
%ransportation
,acilities and
$nformation.
2a"ing identified the Supply Chain Dri"ers& !e ha"e to identify the 0#stacles also and
they are8
Product ProliferationH
Decreasing Product :ife CyclesH
Demand "aria#ilityH
Supply Chain fragmentationH
Glo#ali$ation andH
Difficulty in e'ecuting ne! strategies.
Many o#stacles& such as gro!ing product "ariety and shorter life cycles& use and through
concepts and e"er demanding customers ha"e made it increasingly difficult for Supply
Chains to achie"e strategic fit. 0"ercoming these o#stacles offers a tremendous
opportunity for firms to use SCM to gain competiti"e ad"antage.
SCM encompasses a !ide "ariety of interdisciplinary topics& such as supplier selection&
(uality management across the supply chain& scheduling& logistics& information flo!s&
distri#ution channels& and customer satisfaction. Et is "ital to note that the SCM acti"ities
should #e integrated into a firmMs operations and corporate strategies so that firms can
gain competiti"e ad"antage and impro"e their performance in their respecti"e industries.
Strategic importance of SCM8
Se"eral reasons are contri#uting to the increased attention to supply chain management
#y the industry and the academia.
*irst& glo#ali$ation has created more alternati"es for companies regarding the
supplier and distri#utor decisions. Glo#al supply chain management can #e a source of
competiti"e ad"antage for organi$ations.
Second& there has #een an increase in the partnership relationships #et!een supplier1
manufacturer and manufacturer1distri#utor pairs in se"eral industries. *urthermore& a
mo"e from po!er1#ased relationships #et!een suppliers and #uyers to!ards more of a
net!ork model necessitates a higher le"el of integration and coordination.
hird& the perception of effecti"e purchasing and distri#ution as a strategic issue has
added to the concern for effecti"e supply chain management. *irms are trying to create
competiti"e ad"antages #y coordinating the flo! of materials and information !ith their
suppliers and distri#utors.
*inally& trends such as outsourcing of non1core operations and reduction of the supplier
#ase not only forces firms to cooperate !ith other companies do!n or up their supply
chains #ut also re(uires a high le"el of integration of these comple' form of operations
for mutual #enefits.
)s a result of glo#ali$ation& the choices that are a"aila#le to a company regarding the
suppliers& processes& transportation modes& and distri#utors are #ecoming numerous
!hich& in turn& creates a comple' en"ironment and uncertainty in supply chains. Lnlike
the traditional approach to materials management& SCM "ie!s the chain as a single entity
and emphasi$es full integration of its elements& most specifically of the customers into
the chain. De"elopments in information& communication& and transportation technologies
facilitate this integration.
SCM role in operations and corporate strategies8
)s a result of the importance of supply chain management& as discussed in academic and
popular press& companies should de"elop a supply chain strategy. More importantly& the
supply chain strategy must #e integrated !ith the o"erall #usiness strategy. ) challenge
to formulating successful supply chain strategies is the fact that the supply chain
management is a colla#orati"e effort among companies in the entire supply chain.
2o!e"er& functional integration is necessary first !ithin the organi$ation #efore
integration can #e e'tended to the entire supply chain. *ollo!ing figure illustrates this
integration and its possi#le impacts on company and supply chain performance.

SCM Philosophies8
he integration at the #usiness le"el !ith the suppliers& distri#utors& and customers
re(uires commitment of all the organi$ations !ithin the supply chain at the top
management le"el. En addition& as it is presented on otal (uality management <PM= is
a crucial part of SCM. En a supply chain& acti"ities are coordinated among the
constituents #ased on the information gathered from the end customers regarding the
products and ser"ices. En addition& each part of the chain is dependent on the others in
the areas of customer satisfaction and (uick response. Many ha"e highlighted the
Supply Chain Management
%'ternal

in"ironment

Opportuniti
es and
Threats
Enternal

in"ironment

Strengt
hs and
Weakne
sses
Corporate1
:e"el

Strategies
7usiness1
:e"el

Strategies
*unctional1
:e"el

Strategies

0peration
s

Marketin
g
Research
and

De"elop
ment

Enformati
on

Systems

*inance

2uman

Resource
s
Suppliers
Distri#utor
s and
Customer
s
importance of a shared strategy for the de"elopment of PM and continuous
impro"ement in a supply chain.
En"entory management is a crucial acti"ity under supply chain management. %'cess
in"entories !ithin the supply chain are an indication of poor in"entory management and
may #e a call for the implementation of SCM. he companies !ithin the supply chain
can follo! an integrated in"entory management approach and coordinate their acti"ities
#ased on the demand from the end customers to reduce the channel in"entories. Such a
/oint effort may lead to a reduction in the channel in"entories.
Vertical disintegration is another common approach undertaken in supply chain
management practices. Et is said that supply chain management is a mo"e a!ay from
fully1"ertically1integrated systems. 2o!e"er& the channel mem#ers do not operate
completely independently #ut the acti"ities are coordinated among the independent
mem#ers. SCM is not only coordination of material flo!s #ut also of information flo!s.
herefore& information sharing is a key element for the success of SCM implementation.
:ogistics has a "ery #road scope including purchasing& transportation& !arehousing& and
customer ser"ice acti"ities. Et is pointed out that transportation cost is the single largest
component of logistics cost. herefore a /oint effort #y the mem#ers of the supply chain
can reduce costs and increase the efficiency of the chain as a !hole and its pieces. SCM
can #e "ie!ed as the strategic management of an inter1#usiness net!ork. oyota is a
good e'ample of a firm that strategically manages the supply chain and gains competiti"e
ad"antages from this type of #eha"ior.
SCM Challenge8
he challenge of supply chain management is to constrain plans !ith multiple constraints
such as materials& capacity <production and distri#ution=& time and locations&
transportation& holding capacity& line and product se(uencing& lot si$ing of production
(uantities& production changeo"ers and do!n times& ramp up cur"es !hen s!itching
#et!een schedules or machines& campaign planning& multi1staging of production and
distri#ution& and #ills of materials. he end result of all these constraints is
Qcom#inatorial e'plosionG.
Key (uestions to #e addressed in implementing SCM is8
9hat are the true demand patternsN 7ehind those patterns& !hat are the forces at !ork
i.e.& the dri"ersN
2o! can E get control o"er information that is there #ut hidden or getting to me late
andCor distortedN 2o! can E get access to up1to1date information& as close to real time and
on1demand& as possi#leN
9hat are the ne! rules of engagement in a more cooperati"e rather than ad"ersarial
customer supplier relationshipN o !hom do the #enefits of SCM accrueN
he potential #enefits of implementing SCM are significant. )nalysis sho!s that
time after time& industries after industry& the #reakthrough impro"ement possi#le through
SCM are as follo!s8
Empro"ements I
Manufacturing throughput time A;15;
Supplier lead time A;15;
Cost of poor (uality ;-1A;
Producti"ity @-1;-
En"entory ;-15-
%(uipment changeo"er time A;15-
Space R-1J-
)dministrati"e process time A;15;
) Supply Chain Management Road Map
he full #enefits of SCM come in taking an integrated approach to implementation. En
our e'perience the elements of a successful implementation strategy include8
:eadership 1 Setting clear strategic goals and a tone of cooperation.
Customers 1 Edentifying& measuring and impro"ing on the dimensions of
ProductCser"ice that dri"e loyalty in the marketplace
Culture 1 :earning #y getting concrete results& ac(uiring the skills to
Replicate and sustain impro"ements #y in"ol"ing employees.
Process 1 7uilding ne! capa#ilities through process re1 design.
Suppliers 1 9orking !ith fe!er suppliers as partners.
%"ery organi$ation com#ines the elements of a successful SCM strategy in !ays that are
appropriate to its #usiness structure and organi$ation culture.
R. SLPP:4 C2)E3 EMP:%M%3)E03
9hether one is implementing SCM as a *ortune @-- glo#al enterprise& or a medium
si$ed family company& the first steps are to8
,. Clarify strategic imperati"es.
3othing sparks the imagination like a compelling need. Create a "ision of !here
the #usiness could #e in three to fi"e years. 7reak the "ision do!n into stretch
goals attaina#le in ,@ to ,J months.
@. Get input from the marketplace to identify opportunities. Validate senior
management>s "ie! of !here the #usiness needs to #e !ith input from the
marketplace& direct high le"el contact !ith customers and non1customers. Lse
that Contact to start measuring !hat is important to the marketplace. :ook for
potential SCM partners among e'isting key accounts.
K. Design in the capa#ility to replicate and sustain results. Pick a cadre of high
potential managers& appoint them full1 time to de"eloping and Emplementing the
SCM strategy. hey should participate in the market contact as !ell as first
process re1design pilots that in"ol"e customers andCor suppliers. Position this
group of managers as internal consultants !hose mission is to teach others to
replicate the success of the pilots.
R. Pilot !ith a customer or supplier. Clear a#out strategic imperati"esH pick a
supplier or customer !ith !hom you can 9ork to de"elop ne! capa#ilities. )
key selection criterion is that the customer or supplier you chose shares similar
strategic o#/ecti"es <e.g.& !ants to compete on the #asis of ser"ice= and #elie"es
that more is to #e gained #y cooperating than taking the traditional ad"ersarial
instance.

*L3CE03):EE%S O 7%3%*ES 0* SCM
*unctionalitiesC)reas of SCM
)reas of SCM Description
Demand
Planning
Demand planning aims to reduce forecast errors and to
suggest #uffers considering demand "aria#ility. En order to
impro"e accuracy of forecasting& colla#orati"e forecasting
is essential.
Master Planning
Pro"ide multi1site planning. Master planning #ased on
material& capacity& transportation& and other constraints&
simultaneously.
Procurement
Constraints such as Vendor capacities& costs and lead1time
can #e modelled as part of supply chain resulting in
superior plans.
ransportation Considering dynamic transportation re(uirement and
generate 0ptimi$ing transportation plan.
Manufacturing Plan considering material& capacity and other constraints
!hich impact on manufacturing.
%SP%C%D 7%3%*ES 0* SCM
%'pected #enefits from SCM can #e descri#ed as follo!s8
hroughput impro"ements8 7etter co1ordination of material and capacity pre"ents loss of
utili$ation !aiting for parts.
Cycle time reductions8 7y considering constraints as !ell as its alternati"es in the supply
chain& it helps to reduce cycle time.
En"entory costs reductions8 Demand and supply "isi#ility lo!ers the re(uirements of
in"entory le"els against uncertainty. )#ility to kno! !hen to #uy materials #ased on the
customer demand& logistics& capacity and other materials needed to #uild together.
0ptimi$ed transportation8 7y optimi$ing logistics and "ehicle loads.
Encrease order fill rate8 Real1time "isi#ility across the supply chain <alternate routing&
alternate capacity= ena#les to increase order fill rate. )nalysis of the supply chain
management can help to predict propagation of distur#ances to do!nstream.
Encrease customer responsi"eness8Lnderstanding the capa#ility to deli"er #ased on
material& capacity& and logistics.
Empro"ing the Supply Chain
9e all understand the importance of impro"ing our supply chain& #ut "ery fe! people
ha"e accurately defined the critical success dri"ers needed to achie"e impro"ements.
Mary :ou *o'& senior "ice president of consulting at Manugistics& suggests that success
depends on the se"eral primary dri"ers& including the follo!ing8
9ell1defined processes !ith !ell1defined guidelines for decision1makingH
Remo"al of organi$ational and functional #arriersH
%arly "isi#ility to changes in demand all along the supply chainH
) single set of plans that dri"es the supply chain operations and integrates information
across the supply chain.
9hile the first dri"er in this list is a gi"en in most organi$ations& the importance of the
remaining dri"ers is "ery high. 0rgani$ations that promote the formations of Qfunctional
silosQ are less likely to achie"e coordination !ithin the "arious components of the supply
chain than organi$ations that !ork !ithout functional #arriers. his also necessitates the
integration of data across the enterprise so that& common information is shared #y all
planners in the supply chain. he task of impro"ing the supply chain can #e e'tremely
comple' and difficult. Various decisions integral to making impro"ements are
forecasting& purchasing& production& storage& and distri#ution. *orecasting initiates the
entire process of supply chain management in all en"ironments of )ssem#le to 0rder
<)0=& Make to Stock <MS= and Make to 0rder <M0=. 0ne needs to kno! ho! much
to make and !hat to make #efore any of the other decisions can #e triggered. ) good
system !ill offer modules tailored to the decision #eing made& and !ill pro"ide an end1
to1end solution starting !ith forecasting& planning& and scheduling& and ending up !ith
transportation planning.
Et>s important for organi$ations to ha"e hori$ontal and "ertical "isi#ility into their supply
chains. %"ery decision in"ol"ed in purchasing& producing& storing& and distri#uting goods
are interlinked. ) change in any one dimension initiates a trickledo!n effect on the
remaining components in the supply chain. *or e'ample& planning for upcoming seasonal
#uilds impacts production& distri#ution& and materials. Matching a competitor>s @- percent
price cut impacts the entire supply chain of an organi$ation. Ef a single production line in
a facility is do!n for a day& production must #e rescheduled or mo"ed across the
enterprise to a"oid delays in meeting customer demands& etc. )s a result& good supply
chain management systems need to #e a#le to reconcile changes #oth hori$ontally and
"ertically in a computationally efficient manner.
Generally& constraints can #e categori$ed under three groups8 material1related constraints&
production1related constraints& and distri#ution1related constraints. En the past& soft!are
companies ha"e speciali$ed in materials <MRP "endors=& capacity <finite1capacity
schedulers=& and some ha"e crossed into #oth material and capacity #ut !ith limitations
on "olumes or locations. En an age of rapid impro"ements in computing technology and
#etter solution methodology& ho!e"er& it>s possi#le to take a #roader perspecti"e of the
entire supply chain and sol"e for "ery large SKL counts11pro"ided you don>t try to sol"e
the entire #usiness pro#lem as one computational pro#lem. he trick is to sol"e the
#usiness pro#lem and& yet& a"oid the #lack hole of Qcom#inatorial e'plosion.Q
Reengineering impro"ement into the supply chain8
he success of any supply chain mainly depends on the capa#ility to reengineer the
process in order to impro"e the producti"ity and look for cost inno"ations and reduced
lead times. ) critical part of streamlining supply chains in"ol"es reengineering the firmMs
key processes to meet customer needs. Reengineering is a process aimed at producing
dramatic changes (uickly. 2ammer and Champy define it as the fundamental rethinking
and radical redesign of #usiness processes to achie"e dramatic impro"ements in critical
contemporary measures of performance such as cost& (uality ser"ice& and speed.
Empro"ement through reengineering cannot #e accomplished in a hapha$ard manner.
hese changes must #e supported at the top and dri"en through an o"erall management
plan. ) typical reengineering process proceeds through four stages as e'plained in the
#elo! gi"en graphic8
Lnderstanding the present condition and design the strategy keeping in "ie! of the of
#usiness o#/ecti"eH
Plan the process&
0perate the system&
)nd measure the performance.
)rmed !ith the facts collected in the first stage& reengineering teams identify areas for
impro"ement keeping in mind the #usiness o#/ecti"e. his stage is "ery crucial and "ery
critical stage in the !hole process. 0ne should clearly understand and analy$e the
present situation as !ell as the #usiness o#/ecti"e in order to design the Supply Chain
strategy. 0rgani$ational energy needs to focus on the firm>s mission statement& !hich
defines the #usiness o#/ecti"e. he mission statement dri"es the #usiness re(uirements in
the organi$ation. ) complete assessment is made of the firm>s culture& strategies&
#usiness practices& and processes. hey analy$e !here "alue !as added for the final
customer !ith particular emphasis on customer contact points and product information
transfers& !hich are currently ineffecti"e or inefficient. )fter identifying impro"ement
points the creati"e phase of redesigning #usiness process and information flo! #egins.
he outcomes of the creati"e phase !ill fundamentally change #oth the nature of the
!ork and ho! it is performed.
Ef this analysis pro"ides meaningful information and indications to!ards impro"ements&
the management !ill re"ie! the situation and implements its #usiness solution across the
supply chain. ypically& impro"ements are re(uired in one of the areas to enhance supply
chain performance. )n e'ample of this reengineering is the ne! Mercedes17en$ micro
car& !hich is #ased on the principle of systems supply. his reengineering of the process
results in delegating more design acti"ities to suppliers reducing the amount of
engineering and la#or at the primary manufacturer. he result is passing the sa"ings of
these efficiencies along to the customer in the form of increased "alue.
he operations !ill pro"ide the "ital information in the form of feed #ack a#out the
impro"ements and the performance should #e measured against the #enchmark
esta#lished at the time of strategy design to understand the progress and inno"ations. Ef
necessary& one should not hesitate to re1in"ent the !heel in order to impro"e the process
Measure the Performance
(How are we doing?) (How are we doing?)
Design Supply Chains & Strategies
(What do we do?)
Design Supply Chains & Strategies
(What do we do?)
Operate the Systems
(Do it!) (Do it!)
Plan the Processes
(How do we do it?) (How do we do it?)
Measure the Performance
(How are we doing?) (How are we doing?)
Measure the Performance
(How are we doing?) (How are we doing?)
Design Supply Chains & Strategies
(What do we do?)
Design Supply Chains & Strategies
(What do we do?)
Design Supply Chains & Strategies
(What do we do?)
Design Supply Chains & Strategies
(What do we do?)
Operate the Systems
(Do it!) (Do it!)
Operate the Systems
(Do it!) (Do it!)
Plan the Processes
(How do we do it?) (How do we do it?)
Plan the Processes
(How do we do it?) (How do we do it?)
and in turn to achie"e customerMs delight. his is a ne"er1ending acti"ity as long as there
is a #uyer and a seller in the market place. 7usiness community is #ecoming a!are of the
emerging paradigm of supply chain competition. he successful integration and
management of key #usiness processes across participating mem#ers of the supply chain
!ill determine the ultimate success of the single enterprise. Managing the supply chain
cannot #e left to chance. *or this reason& professionals are stri"ing to interpret and
determine ho! to manage the company>s supply chain net!ork& and achie"e the potential
of SCM.
En com#ination& the SCM definition and the ne! frame!ork mo"e SCM philosophy to its
ne't e"olutionary stage. he process of implementing the SCM in any organi$ation
in"ol"es identifying the supply chain mem#ers& !ith !hom it is critical to link& !hat
processes need to #e linked !ith each of these key mem#ers& and !hat typeCle"el of
integration applies to each process link. he o#/ecti"e of SCM is not simply ma'imi$ing
the return on in"estment to the stakeholders of the company #ut the !hole supply chain
net!ork including the end1customers. Conse(uently& supply chain process integration and
reengineering initiati"es should #e aimed at #oosting total process efficiency and
effecti"eness across mem#ers of the supply chain.
his is considered as the ne't stage to :ogistics Management. En order to conclude if the
:ogistics Management is integrating "arious "alue adding acti"ities !ith in the
organi$ation& then the Supply Chain Management is integrating processes& flo!s and
acti"ities !ith in the Supply Chain net!ork& !hich includes "arious other companies !ho
participate in the net!ork. he o#/ecti"e of Supply Chain Management is a cut a#o"e
:ogistics Management.
ools to Support %ffecti"e Planning
*or an e'tended period of time in the late ,5A-s and ,5J-s& the concept of Distri#ution
Re(uirements Planning <DRP= !as offered as a complete supply chain management
solution. DRP pro"ides the capa#ility to model distri#ution #ills& and translates time1
phased demand into supply re(uirements. Et also o#eys calendaring re(uirements for
shutdo!ns and closings. 7y itself& DRP does not sol"e the supply1planning pro#lem. Et
does& ho!e"er& enhance the capa#ilities of the logistics net!ork of an organi$ation. here
is no one computation that !ill sol"e the entire planning and scheduling pro#lem. Et>s not
possi#le to scale up a detail1dri"en solution to e'tend it across the enterprise in a
computationally efficient manner since the pro#lem of planning and scheduling is
inherently intracta#le. herefore& different computations e'ist for different $ones of
planning. 9hile designing scala#le algorithms for the "arious planning and scheduling
le"els& it>s essential to apply a #est of #reed approach. his approach might #e a hy#rid of
mathematical programming techni(ues& goal dri"en heuristics& and rules #ased logic. 7ut
#e sure to apply the right tool at the right time& ho!e"er& and keep a#reast of the latest in
ne! search methodologies #eing researched in artificial intelligence and optimi$ation.
9ith regard to the three1le"el planning areas& efficient algorithms are designed #y
allo!ing for true mathematical optimality in the :e"el 0ne area. En the :e"el !o area&
feasi#ility for all constraints is of primary importance gi"en the e'tremely dynamic
nature of #usinesses o"er the shorter time hori$on. Mathematical optimality can #e
pro"ided& #ut at a cost of computational time11!hich most users aren>t !illing to gi"e up.
En the third le"el& certain pro#lems are #est sol"ed #y heuristic <line scheduling=
approaches. De"elopers of supply chain soft!are cannot and should not #e committed to
pro"iding only one solution methodology& as this !ill not allo! for #est of #reed
algorithmic approaches to sol"ing the large enterprise1!ide supply chain pro#lem.
SLPP:4 C2)E3 D%CESE03S O M0D%:E3G )PPR0)C2%S

Decisions for supply chain management are classified into t!o #road categories 11
strategic and operational. )s the term implies& strategic decisions are made typically o"er
a longer time hori$on. hese are closely linked to the corporate strategy <they sometimes
are the corporate strategy=& and guide supply chain policies from a design perspecti"e. 0n
the other hand& operational decisions are short term& and focus on acti"ities o"er a day1to1
day #asis. he effort in these types of decisions is to effecti"ely and efficiently manage
the product flo! in the QstrategicallyQ planned supply chain.
here are four ma/or decision areas in supply chain management8
,= :ocation& @= production& K= in"entory& and R= transportation <distri#ution=& and there are
#oth strategic and operational elements in each of these decision areas.
:ocation Decisions8
he geographic placement of production facilities& stocking points& and sourcing points is
the natural first step in creating a supply chain. he location of facilities in"ol"es a
commitment of resources to a long1term plan. 0nce the si$e& num#er& and location of
these are determined& so are the possi#le paths #y !hich the product flo!s through to the
final customer. hese decisions are of great significance to a firm since they represent the
#asic strategy for accessing customer markets& and !ill ha"e a considera#le impact on
re"enue& cost& and le"el of ser"ice. hese decisions should #e determined #y an
optimi$ation routine that considers production costs& ta'es& duties and duty dra!#ack&
tariffs& local content& distri#ution costs& production limitations& etc. )lthough location
decisions are primarily strategic& they also ha"e implications on an operational le"el.
Production Decisions8
he strategic decisions include !hat products to produce& and !hich plants to produce
them in& allocation of suppliers to plants& plants to DC>s& and DC>s to customer markets.
)s #efore& these decisions ha"e a #ig impact on the re"enues& costs and customer ser"ice
le"els of the firm. hese decisions assume the e'istence of the facilities& #ut determine
the e'act path<s= through !hich a product flo!s to and from these facilities. )nother
critical issue is the capacity of the manufacturing facilities11and this largely depends the
degree of "ertical integration !ithin the firm. 0perational decisions focus on detailed
production scheduling. hese decisions include the construction of the master production
schedules& scheduling production on machines& and e(uipment maintenance. 0ther
considerations include !orkload #alancing& and (uality control measures at a production
facility.
En"entory Decisions8
hese refer to means #y !hich in"entories are managed. En"entories e'ist at e"ery stage
of the supply chain as either ra! material& semi1finished or finished goods. hey can also
#e in process #et!een locations. heir primary purpose to #uffer against any uncertainty
that might e'ist in the supply chain. Since holding of in"entories can cost any!here
#et!een @- to R- percent of their "alue& their efficient management is critical in supply
chain operations. Et is strategic in the sense that top management sets goals. 2o!e"er&
most researchers ha"e approached the management of in"entory from an operational
perspecti"e. hese include deployment strategies <push "ersus pull=& control policies 111
the determination of the optimal le"els of order (uantities and reorder points& and setting
safety stock le"els& at each stocking location. hese le"els are critical& since they are
primary determinants of customer ser"ice le"els.
ransportation Decisions8
he mode choice aspect of these decisions is the more strategic ones. hese are closely
linked to the in"entory decisions& since the #est choice of mode is often found #y trading1
off the cost of using the particular mode of transport !ith the indirect cost of in"entory
associated !ith that mode. 9hile air shipments may #e fast& relia#le& and !arrant lesser
safety stocks& they are e'pensi"e. Mean!hile shipping #y sea or rail may #e much
cheaper& #ut they necessitate holding relati"ely large amounts of in"entory to #uffer
against the inherent uncertainty associated !ith them. herefore customer ser"ice le"els
and geographic location play "ital roles in such decisions. Since transportation is more
than K- percent of the logistics costs& operating efficiently makes good economic sense.
Shipment si$es <consolidated #ulk shipments "ersus :ot1for1:ot=& routing and scheduling
of e(uipment are key in effecti"e management of the firm>s transport strategy.
Supply chain modeling approaches
Clearly& each of the a#o"e t!o le"els of decisions re(uire a different perspecti"e. he
strategic decisions are& for the most part& glo#al or Qall encompassingQ in that they try to
integrate "arious aspects of the supply chain. Conse(uently& the models that descri#e
these decisions are huge& and re(uire a considera#le amount of data. 0ften due to the
enormity of data re(uirements& and the #road scope of decisions& these models pro"ide
appro'imate solutions to the decisions they descri#e. he operational decisions&
mean!hile& address the day1to1day operation of the supply chain. herefore the models
that descri#e them are often "ery specific in nature. Due to their narro! perspecti"e& these
models often consider great detail and pro"ide "ery good& if not optimal& solutions to the
operational decisions.
o facilitate a concise re"ie! of the literature& and at the same time attempting to
accommodate the a#o"e polarity in modeling& !e di"ide the modeling approaches into
three areas 111 -etwor. Design& )ough /ut methods& and simulation !ased methods. he
net!ork design methods& for the most part& pro"ide normati"e models for the more
strategic decisions. hese models typically co"er the four ma/or decision areas descri#ed
earlier& and focus more on the design aspect of the supply chainH the esta#lishment of the
net!ork and the associated flo!s on them. QRough cutQ methods& on the other hand& gi"e
guiding policies for the operational decisions. hese models typically assume a Qsingle
siteQ <i.e.& ignore the net!ork= and add supply chain characteristics to it& such as e'plicitly
considering the site>s relation to the others in the net!ork. Simulation methods are a
method #y !hich a comprehensi"e supply chain model can #e analy$ed& considering #oth
strategic and operational elements. 2o!e"er& as !ith all simulation models& one can only
e"aluate the effecti"eness of a pre1specified policy rather than de"elop ne! ones. Et is the
traditional (uestion of Q9hat EfNQ "ersus Q9hat>s 7estNG
Rough Cut Methods8
hese models form the #ulk of the supply chain literature& and typically deal !ith the
more operational or tactical decisions. Most of the integrati"e research <from a supply
chain conte't= in the literature seems to take on an in"entory management perspecti"e. En
fact& the term QSupply ChainQ first appears in the literature as an in"entory management
approach. he thrust of the rough1cut models is the de"elopment of in"entory control
policies& considering se"eral le"els or echelons together. hese models ha"e come to #e
kno!n as Qmulti1le"elQ or Qmulti1echelonQ in"entory control models. Multi1echelon
in"entory theory has #een "ery successfully used in industry. Q0PEMET%RQ is one of
the most comple' models to date 111 to manage E7M>s spare parts in"entory. hey
de"elop efficient algorithms and sophisticated data structures to achie"e large1scale
systems integration.
)lthough current research in multi1echelon #ased supply chain in"entory pro#lems sho!s
considera#le promise in reducing in"entories !ith increased customer ser"ice& the studies
ha"e se"eral nota#le limitations. *irst& these studies largely ignore the production side of
the supply chain. heir starting point in most cases is a finished goods stockpile& and
policies are gi"en to manage these effecti"ely. Since production is a natural part of the
supply chain& there seems to #e a need !ith models that include the production
component in them. Second& e"en on the distri#ution side& almost all pu#lished research
assumes an ar#orescence structure& i. e. each site recei"es re1supply from only one higher
le"el site #ut can distri#ute to se"eral lo!er le"els. hird& researchers ha"e largely
focused on the in"entory system only. En logistics1system theory& transportation and
in"entory are primary components of the order fulfillment process in terms of cost and
ser"ice le"els. herefore& companies must consider important interrelationships among
transportation& in"entory and customer ser"ice in determining their policies. *ourth& most
of the models under the Qin"entory theoreticQ paradigm are "ery restricti"e in nature& i.e.&
mostly they restrict themsel"es to certain !ell1kno!n forms of demand or lead1time or
#oth& often (uite contrary to !hat is o#ser"ed.
0ptions8
here are four options a"aila#le to com#at the Qe'plosionQ effecti"ely. hey
include the follo!ing8
hro! up your hands in despair and do nothing. his is the easiest option& #ut !ill result
in the continued escalation of supply chain costs.
Lse the coin toss principle. Some organi$ations use this principle to make e"ery
decision ar#itrarily. his process o#"iates the need for any planning or scheduling
soft!are& #ut can #e detrimental to the !ell #eing of the organi$ation.
7oil the ocean. Some supply chain solutions are #uilt #y aggregating detail1oriented
solutions from the manufacturing realm. his implies sol"ing for e"ery decision at all
times. %"ery time there is a change in any one data point in the system& one needs to
resol"e for the entire pro#lem. his reasoning makes little sense from the perspecti"e of
the decision1making cycles that e'ist in all #usinesses. 9hile this process !ill lead to
generating optimal solutions at all times& there are still some pro#lems. 4ou !ill need
more economical& faster computersH other!ise you !ill #e memory1#ound& and you !on>t
#e a#le to generate rapidly entire supply chain solutions that can scale large "olumes in
real time.
Decision scope #ased planning. he supply chain pro#lem is mainly a QcalendaringQ
game& intimately tied to the time1phased nature of decision1making cycles in the #usiness
!orld. 7e sure to e'amine the scope of the decision #eing made& as !ell as the authority
of the decision maker. his means sol"ing the pro#lem #y pro"iding tools to support
"arious le"els of decision1making& namely those that are strategic& tactical& and
operational in nature. Since decisions made at each of these le"els differ significantly& the
solution procedures em#edded in these tools "ary. hese tools also should #e configured
so that they are fully integrated& !hich !ill reduce implementation costs as !ell as time1
to1#enefit.
he system must meet the need8
9e li"e in a dynamic en"ironment. Prices change& machines #reak do!n& trucks
fail to sho! up at agreed upon destinations& customers generate sudden orders& and on
and on. 7ut !e still plan e"en under uncertainty. his doesn>t imply that planning is
futile& #ut that care should #e taken to make the right decisions at the right time. *or
e'ample& don>t commit a priority order that is three months out since the demand profile
may change significantly o"er the ne't fe! planning periods. his order commitment
process shouldn>t #e !ithin the scope of a strategic tool& #ut should #e used as a guideline
for other supply chain decisions& such as resource planning. ) decision to in"est in a ne!
piece of machinery& ho!e"er& needs to #e made !ith a time hori$on that is e"en longer
due to the lead1time for deli"ery. his can e"en #e accomplished #y using historical data
or incomplete information.
) multi1le"el approach8
herefore& !e can conclude that in order to #uild an effecti"e supply chain
management system that sol"es the entire #usiness pro#lem& scales for "olumes& and
doesn>t re(uire high maintenanceH a company needs to adopt a multi1le"el planning
approach.
)n e'ample of a multi1le"el approach !ould #e a three le"el planner. )t each
le"el& a series of decisions are
made #ased on the decision>s scope and the associated timeline. hat information is
passed on to the su#se(uent le"els. he le"els can #e tied together at the data le"el& at the
algorithm le"el& or it can #e a hy#rid of #oth. :isted #elo! are the decision le"els that
might #e found in an e'ample of a three1le"el planner8
:e"el10ne Decisions8 hese decisions are in the area of #usiness planning& and they
ha"e a long1term effect on the supply chain. Very often& detailed information is not
a"aila#le or relia#le. Senior management is fre(uently the decision maker and user of this
information. Puick response is not a re(uirement at this le"el since these decisions are
not made or re"isited e"ery day %'amples of :e"el 0ne decisions are dynamic sourcing&
capacity planning& and pre#uilt planning.
:e"el !o Decisions8 hese decisions are in the area of tactical planning& and they ha"e
a shorter life than :e"el 0ne decisions. Detailed information is a"aila#le& and the data
pro#a#ly is "ery relia#le. hese decisions are constrained #y :e"el 0ne decisions !ith
some lee!ay to account for sudden changes in data. )t this le"el& (uick response is nice
to ha"e& and occasionally is something you must ha"e. )n e'ample of a :e"el !o
decision is one that needs to commit priority orders and o#ey commitments made in
:e"el 0ne.
:e"el hree Decisions8 hese decisions are in the area of operational planning and
scheduling. he effect of these decisions re"er#erates throughout the ne't couple of days
or shifts& and they are constrained #y :e"el 0ne and :e"el !o decisions. Puick
response is an a#solute necessity& and the concepts of )"aila#le to Promise <)P= and
Capa#le to Promise <CP= need to #e designed to !ork upstream !ith the other le"els.
%'amples of :e"el hree Decisions are pre"alent in the area of line scheduling& material
and in"entory allocation& and transportation planning.
his three1le"el approach emphasi$es the fact that supply chain management is a
series of #usiness decisions characteri$ed #y distinct #usiness models& !hich are largely
influenced #y location topology& product granularity& and elapsed cycle time. he
challenge in #uilding a layered system is to a"oid the pro#lem of the Qdeadly em#race&Q
!hich occurs !hen a decision made at a higher le"el is completely redone at a lo!er
le"el and the upstream data isn>t updated. 9hen the data isn>t updated& it causes
reconciliation errors #oth upstream and do!nstream. )s a result& the trickle1do!n effect
should #e o#ser"ed and effecti"e loop #ack mechanisms should #e pro"ided to na"igate
#et!een le"els. ) strong loop #ack mechanism also allo!s for complete integration of
the entire suite& !hich reduces the num#er of interfaces to maintain !hile implementing
the entire suite of supply chain tools. he fe!er the num#er of interfaces& the easier a
system !ill #e to maintain in the long term. Et !ill also reduce the chances of a failed
#atch or interacti"e runs.
Key factors8
9hile designing solutions to a pro#lem& pay attention some key factors8
he information a"aila#le and its associated detail. Ef an organi$ation is trying to do a
long1term #usiness plan11for e'ample& ,J months out11it>s highly possi#le that the
forecast num#ers for SKL demand !ould either #e una"aila#le or e'tremely inaccurate.
his leads us to promote an aggregate le"el of planning for long1range decisions.
Scope and authority of decision makers. 0ften& the use of "arious modules in supply
chain management soft!are attracts different le"els of users. ) senior le"el logistics
manager rarely !ill #e the primary user of line scheduling soft!are& and a line
scheduler11in most cases11!ill not #e a user of long1range planning tools. his means that
the tools should #e #uilt to suit a primary audience. he le"el of detail displayed or used
also should #e modified accordingly& !hile keeping in mind the concept of loop #acks
and the Qdeadly em#race.Q
he lasting impact of the decision. 0pening and closing !arehouses and manufacturing
facilities are decisions that ha"e a lasting impact on the #usiness. )s a result& these types
of decisions need to #e made !ith the entire supply chain in mind& since& ultimately& there
!ill #e a trickle1do!n effect of these decisions on the rest of the manufacturing
components.
Response time re(uired making the decision. Gi"en the inherent dra!#acks in
economical computing technology& as !ell as the processing speed of e'isting machines&
turn1around time to generate solutions #ecomes an important criterion in deciding the
inputs and outputs in a layer. Et !ould #e unaccepta#le for a line scheduler to ha"e to !ait
a couple of hours to generate an optimal schedule #y using a comple' mathematical
programming formulation of the scheduling pro#lem. Et>s also essential that supply chain
solutions #e integrated so that the task of maintaining the "arious interfaces is lessened.
he result !ill allo! for optimal use of the implementers> time. ) good solution must
also pro"ide end1to1end "isi#ility from forecasting all the !ay do!n to transportation
planning. *urthermore& it>s essential to pro"ide users !ith the a#ility to na"igate through
the supply chain <i.e.& to go through the "arious le"els !ithin and across the supply chain
in real time=.
%V):L)E03 0* SLPP:4 C2)E3 P%R*0RM)3C% M%)SLR%S8
Cost& acti"ity time& customer responsi"eness& and fle'i#ility ha"e all #een used as supply
chain performance measures either singly or /ointly. 4et the measures used thus far
possess some significant !eaknesses. Supply chain models ha"e predominately utili$ed
t!o different performance measures8 <,= cost and <@= a com#ination of cost and customer
responsi"eness. Costs may include in"entory costs and operating costs. Customer
responsi"eness measures include lead1time& stock out pro#a#ility& and fill rate.
Single Supply Chain Performance Measures8
he use of a single performance measure is attracti"e #ecause of its simplicity. 2o!e"er&
one must ensure that if a single performance measure is utili$ed& this measure ade(uately
descri#es the system performance. Et !as earlier identified and e"aluated "arious
indi"idual supply chain performance measures. 7ut significant !eaknesses !ere present
in each of the performance measures e"aluated& #ased on such criteria as inclusi"eness&
uni"ersality& measura#ility& and consistency. Repeatedly& the most consistent !eakness
for these performance measures !as inclusi"eness. En order for a measure to #e
inclusi"e& it must measure all pertinent aspects of the supply chain. Consider an e'ample
in !hich a company decides to use cost as the measure of supply chain performance.
)lthough the supply chain may #e operating under minimum cost& it may simultaneously
demonstrate poor customer response time performance& or lack fle'i#ility to meet random
fluctuations in demand.
Cost as a Single Supply Chain Performance Measure8
)lthough cost as a resource measure is important& there are do!nfalls to relying on cost
as the sole performance measure. Many shortcomings !ere identified in traditional
management accounting. he pro#lems include a lack of rele"ance of the cost categories&
cost distortions <especially o"erhead=& and infle'i#ility& such as reports that are too late to
#e "alua#le. Many pitfalls !ere also identified supply chain management and one
identified pitfall is the incorrect assessment of in"entory costs. hey identify t!o
commonly omitted in"entory costs8 <,= o#solescence and <@= re!ork due to engineering
changes. his pro#lem is magnified #y current cost accounting methods& such as
o"erhead calculations& and omitted in"entory costs. %'isting supply chain models ha"e
typically restricted themsel"es to traditional cost measures& and ha"e not yet utili$ed the
ad"antages of strategic cost management of the supply chain.
Goals of Performance Measure ypes8
Performance Measure
ype
Goal Purpose
Resources 2igh le"el of %fficiency %fficient resource management is
Critical to profita#ility.
0utput 2igh le"el of
Customer Ser"ice
9ithout accepta#le output& customers !ill
urn to other supply chains.
SLPP:4 C2)E3 0PEMET)E03
o reali$e its true potential& a supply chain must #e considered not as a group of
autonomous organi$ations& #ut rather as a synergistic organism. %ach part of the system
depends either directly or indirectly on all the other parts to function smoothly. Such a
system e'ists today in the most efficient& producti"e and ad"anced automoti"e production
facilities in the !orld. Et is usually called lean production. *or se"eral years no! !e ha"e
#een inundated !ith information touting the great sa"ings to #e gained through
optimi$ation of the Qsupply chain.Q he fundamental #asis for such claims is "alidH
impro"ing operational performance should reduce lead times& stocking le"els& and costs.
) recent report& ho!e"er& found that the num#er of days of in"entory in the supply chain
for the grocery industry1a leader in supply chain management1has increased o"er the past
ten years.
9hat could #e going !rongN )re the theories /ust not practical for the real !orldN he
ans!er lies not in the theory& #ut rather in the e'ecution. o #etter understand !hat>s
happening& !e must take a moment to consider e'actly !hat the supply chain is. )
supply chain is represented #y a num#er of organi$ations& from those !ho produce and
refine ra! materials to those !ho process the resulting compounds into products or
components of products. ) typical plastics supply chain& for e'ample& might start !ith an
oil company& then e'tend to refiners and chemical companies& a plastics compounder& and
a molder. he final manufacturing organi$ation1the one that #rings all the components
together in a product ready for the consumer1must also #e included. )t the end of the
chain are the packaging and distri#ution channels that lead to the consumer and finally
the retail operation that presents and sells the merchandise.
he traditional approach has #een to "ie! the supply chain as a series of discrete
organi$ations functioning #asically as stand1alone operations. Enformation passes from
one link of the chain to another in a hapha$ard fashion& !ith little or no consideration for
the need for accurate and timely data throughout the chain. o reali$e its true potential&
ho!e"er& a supply chain must #e considered not as a group of autonomous organi$ations&
#ut rather as a synergistic organism. %ach part of the system depends either directly or
indirectly on all the other parts to function smoothly. 2o! can indi"idual
organi$ations de"elop an initiati"e that addresses such a !ide range of re(uirementsN
Such a system is not only possi#leH it e'ists today in the most efficient& producti"e& and
ad"anced automoti"e production facilities in the !orld. Et>s usually called Qlean
production.Q
:ean production in"ol"es a synergy #et!een all of the organi$ations participating in
automoti"e production. Ef oyota needs a part& the supplier is called in to design it&
schedule it& train the !orkers to install it& and e"en determine the costs. Should something
"ary from the schedule& the companiesM pool resources to resol"e the issueN %ach
organi$ation in the production system is !illing to suppress its indi"idualism for the good
of the total system& thus attaining a synergistic organi$ation that functions more
effecti"ely and efficiently than !ould e"er #e possi#le !ith the indi"idual component
groups. )pplying this concept to our supply chain& !e ha"e !hat is #est descri#ed as
Qlean distri#ution.Q his is not a fad management techni(ue& program& or initiati"e. Et is a
fundamental change in the #usiness approach. %na#ling lean distri#ution in"ol"es a
conscious effort #y all players to sculpt a ne! entity that outperforms the old supply
chain in e"ery !ay.
his is not something that !ill /ust happen& nor is it a short1term pro/ect. )t the center of
a lean distri#ution system is an organi$ation that acts as the o"erall data manager. his
entity has responsi#ility for passing demand information throughout the system in near1
real time <all elements of the system updated at least once a day=. %ach functional part of
the supply chain then uses this timely data to allo! for optimi$ation of its core
competence. Gone !ould #e the error factors and in"entory fluff created #y forecast
systems !orking !ith dated data. Gone !ould #e the guess!ork of interpreting a
customerMs purchase order into meaningful #usiness data. Gone !ould #e a significant
surplus that is #eing held in the total supply chain& from ra! materials to !ork1in1
progress to #uffer stock in the !arehouse. he resulting e"olution !ill #e a true synthesis
of the supply chain& and optimi$ation of performance. Such a change& ho!e"er& presents
o#stacles #oth at the organi$ational and system le"el. Most #usinesses are not adept at
change and fle'i#ility Rather& companies inad"ertently foster an en"ironment of rigidity&
a Qstay the courseQ attitude. Change is not encouraged& and learning from #oth mistakes
and successes is more accidental than planned. )ddressing this attitude is the first step
to!ard lean distri#ution. 0nce this has happened& the rest !ill follo!.
0ptimi$ation re(uires 3e! echnology8
En the early 5-s& integrated supply programs in !hich suppliers took a greater
responsi#ility for managing in"entories and stock replenishments #egan to emerge. 0ften&
this in"ol"ed sole sourcing and streamlining of the procurement process. oday>s most
ad"anced supply1chain1management programs go further. hey include a total
outsourcing or elimination of tool cri#s& consigned or "endor1managed in"entories& and
automated point of1use dispensing <and return= of high1use& high1cost& and mission
critical items.
0ptimi$ed systems rely on sophisticated soft!are to manage and report on the flo!
through the supply chain. he payoff for a !ell1concei"ed and properly e'ecuted
program can #e dramatic. Case studies re"eal that tool and supply use can #e cut #y ,-I
to @-I. Stock outs& e'pedited orders& and emergency shipments can #e "irtually
eliminated. En addition& procurement costs can #e reduced #y @-I to K-I& in"entories
can #e reduced #y o"er ;-I& and in"entory accuracy can #e increased to near ,--I.
he emergence o"er the last fe! years of supply1chain1management systems is more than
an e'tension of the MRP and %RP systems no! in place. En a true supply1chain
management system& transaction monitoring keeps constant "igil o"er key e"ents&
including use& in"entory le"els& orders& shipments& receipts& delays& and more. Decision1
support systems include predicti"e models that can assist all mem#ers of the supply chain
in forecasting demand and making ad/ustments in order si$e& shipping dates&
transportation means& and other dynamic "aria#les as circumstances change. hird1
generation supply1chain management systems are no! emerging. %na#ling technologies
ha"e #een de"eloped to #ring supply1chain management to le"els of efficiency that !ere
uno#taina#le /ust a fe! years ago. )d"anced systems can no! automatically control&
track& and manage the issuing and return of critical items at the point1of1use.
Collecting data in real time and linking usage to process "aria#le <9hat /o# !as the tool
used forN 9hat machine !as the maintenance part used onN= Pro"ide the #asis for ne!
types of analyses. Communications net!orks& including Enternet1ena#led systems&
transmit accurate& real1time data to any internal or e'ternal mem#er of the supply chain
any!here in the !orld. %lectronic links can #e esta#lished to e'isting MRPC%RP
accounting& in"entory& and purchasing systems.
Suppliers& shippers and distri#utors can all #e armed !ith the most current information
a"aila#le from the shop floor. )nalytical tools pro"ide key mem#ers of the supply chain
!ith graphical reports so they can (uickly analy$e the flo! of material and changes in
use patterns. his permits ad/ustments and inter"ention #efore supply chain pro#lems
occur. hese ne! technologies let manufacturing managers and all other mem#ers of the
supply chain !ork together more efficiently than e"er #efore. En the years to come& the
competiti"e edge !ill go to manufacturers that successfully optimi$e the flo! of
materials into their plants. Supply1chain1management technology !ill #e their secret
!eapon.
0ptimi$e the %'tended Supply Chain8
odayMs Supply Chain Managers ha"e gone one step ahead in optimi$ing the Supply
Chains. he larger the 0rgani$ation and the greater the num#er of e'ternal suppliers and
the Supply Chains are Comple'. 0rgani$ations like General Motors ha"e included
second tier and third tier suppliers also into their Supply Chain 3et!ork and closely
monitor the product mo"ement. his strategy is rather called as a proacti"e thinking
process and nothing is left to chance. Supply Chain integrators are #ecoming
indispensa#le in these circumstances. he #enefits of such a solution include reduced
lead times to market place& lo!er costs& lo! in"entory le"els& no productions stoppages
and producti"ity impro"ements. oday e"erything is measura#le and particularly the
performance of a Supply Chain. 0ne can set performance norms and compare the actual
performance in order to !ork on impro"ements. he accounta#ility of all Stake holders
in the Supply chain has increased tremendously.
SR)%GE%S *0R SLPP:4 C2)E3 0PEMET)E03
Designing efficient supply chain strategies8
Continuous replenishment programme using %DE links for information sharing
Capture Point1of1Sale data for accurately and immediately updating forecast
En"est in supply chain partnership programmes #oth on the Fin1#oundG and Fout1#oundG
side.
Entegrate material planning and control systems !ith %RP to #enefit from impro"ed data
"isi#ility.
De"elop ro#ust in"entory control mechanisms to accurately fi' reorder points and order
le"els.
Designing responsi"e supply chain strategies8
)ccept uncertainty in demand O large forecast errors as the reality
De"ise strategies for managing uncertainty
Empro"e responsi"eness #y cutting lead times
Postponement strategiesCDelayed differentiation
Deploy standardi$ation& modular design and product platform strategies
Postponement strategies8
Packaging postponement sa"ings in transportation <#ulk containers= handle multi1lingual
re(uirements <2P printers= )ssem#ly postponement lo! le"els of in"estment in *G
a#ility to handle a large "ariety through modular design <computer 1 the case of Dell=
Manufacturing postponement final stages of mfg. delayed until firm orders are recei"ed
<7enetton dyeing of fa#rics=
2% 2LM)3 RESKS E3 M)3)GE3G SLPP:4 C2)E3S
Supply Chain Management has emerged as a key le"er in creating "alue for todayMs
companies as they seek to lo!er costs& increase asset producti"ity& and impro"e lead
times and customer relationships. he success of supply chain largely depends on the
people !ho manage and operate the Supply Chains. odayMs management faces many
serious (uestions a#out ho! to deal !ith Upeople issuesM in their organi$ations8
9hat makes todayMs !orkforce so different from years pastN
9hy donMt the old approaches to human resource management !ork no!N
2o! to recruit the right people for the right /o#N
9hich should take precedence8 recruitment or retentionVor #othN
9hat moti"ates the employeesN
9hat do employees really !ant from an organi$ationN
9hat are the #est !ays to keep employees moti"ated and engagedN
Endeed& the challenge of #uilding and maintaining a high1performance talent #ase is a tall
one for many organi$ations& especially !hen you consider the enormous impact of the
digital economy and the !a"e of technology1dri"en change that has follo!ed in its !ake.
4et& it is also one of the most critical topics on the minds of todayMs management all
around the glo#e. )ccording to one research& J- percent of glo#al leaders think Upeople
issuesM are more important than K years ago& and 6J percent #elie"e that retaining and
de"eloping e'isting talent has #ecome more important than ac(uiring ne! #lood.
he strategic fit that a company aims is achie"ed through #alancing responsi"eness and
efficiency in its supply chain that #est meets the needs of the companyMs competiti"e
strategy. o understand ho! a company can impro"e supply chain performance in terms
of responsi"eness and efficiency& !e must e'amine the four ena#lers of supply chain8
0rgani$ational Enfrastructure&
echnology&
Strategic )lliances&
2uman Resources Management.
9ithin the 2uman resources management the focus areas are8
2o! /o# descriptions are designed&
2o! positions are filled&
2o! people are recogni$ed and compensated&
2o! career paths are directed.
he right person for the right /o#8
Glo#ally& a high employee turno"er rate and a tight la#or market make hiring and
retaining the right person for a /o#& crucial. Et takes more than /ust good intuitionVit
re(uires defining& documenting and communicating !hat people do and ho! they do it.
he success of the Supply Chain mainly depends on the human resources. Lltimately&
hiring the !rong person could end up costing you more than you #argained for. En fact&
5J percent of all resumes contain some sort of fraud. En addition& turno"er from hiring an
employee& !ho has misrepresented himCherself in person& or on paper& !ill cost a
company one and half times the salary of the indi"idual in lost producti"ity lost /o#
acti"ities and disruption of !orkflo!. Research conducted #y Colum#ia Lni"ersity
indicates that AK percent of employee turno"er is due to misleading /o# descriptions and
in some cases no /o# descriptions at allW Ef the organi$ation is "ague on /o# descriptions
or do not pro"ide descriptions at all& it may #e the #asis for discrimination claims from
employees !ho donMt !ork out.
Gone are the days !hen people !ere hired to merely fill a "oid. oday& the ta#les ha"e
turned. %mployees !ant to !ork in an en"ironment that makes them feel good a#out
themsel"es. heyMre looking for direction& feed#ack and empo!erment. Ef they are not
supported #y management and allo!ed to flourish in their careers #oth employer and
employee lose. ?o# description is the first step in filling a position. Ef !e go !rong here&
the entire process may go !rong and the o#/ecti"e !ill #e defeated.
he /o# descriptions should include8
he /o# title
he department
he grade
9ork relationships
7rief summary of /o# function or main purpose of the /o#
Main duties and responsi#ilities !ith indication of I of time spent
0ccasional duties !ith indication of I of time spent
)ny special !orking conditions
Purpose and fre(uency of contact !ith others.
ips8
7e specific
7e /ustifia#le in relation to the /o# needs
3ot #e unnecessarily restricti"e.
he Challenge8
he challenges faced #y todayMs Supply Chains are comple' and todayMs supply chain
needs constant impro"ements. Some of the challenges are8
Comple' Customer e'pectationsH
Complicating net!orksH
Encreasing competitionH
Demanding lead times.
he tools identified to address these challenges are8
StrategiesH
echnologyH
)nd People.
he #alancing and integration of these three tools !ill help the organi$ations to address
the a#o"e1mentioned challenges. Ef one looks at the three tools carefully& one can reali$e
the people play the important role. he right strategy depends on the people and people
and impro"ements select the right technology and the people de"elop inno"ations. )nd
finally people manage all the Strategies& technologies and people. he real challenge lies
in recruiting the right person for the right /o# and retaining. 9e often come across
situations similar to this8
01e need the !est person for this 2o!, !ut we don't want to !e accused of favoritism 30
0$'m spending so much time on staffing that $ don't have time to do the rest of my 2o!0
01e .eep hiring the wrong people, !ut $ don't .now why.0
4our challenge is3
o find the right person for the right /o#& #ut !ho !ill also fit in !ith the team and the
organi$ation. he t!o selection criteria are %ligi#ility and Suita#ility. %ligi#le
candidates are those !ho ha"e all the technical a#ilities and the suita#le candidate is the
right fit for the organi$ation.
ip for Selection8
Edeal *it 1 2igh %ligi#ility and 2igh Suita#ilityH
Lnfit 1 :o! %ligi#ility and :o! Suita#ilityH
Poor *it 1 2igh %ligi#ility and :o! Suita#ilityH
Surprise *it 1 :o! %ligi#ility and 2igh Suita#ility.
R0:% 0* E E3 SLPP:4 C2)E3
7ack #one of Supply Chain Decisions8
Enformation X echnology X Communication
)reas of E usage8
Sourcing
Manufacturing
Deli"ering
Supply Chain 0ptimi$ation
Supply Chain Decision Making.
Strategic ools8
)d"anced Planning and Scheduling <)PS=H PreactorH RSS Solutions etc.
Supply Chain 0ptimi$ation8 Caps :ogistics.
actical ools8
7usiness Process 0ptimi$ation ools8
i@ echnologies
Manugistics.
0perational ools8
%nterprise Resources Planning8
S)P
7))3
0racle
?D %d!ards.
Communication ools8
Data Capturing
7)R C0DE3G
R*ED )GS.
Data Communication8
%DE
*lat *ile transfers
SM:
Enternet
%DE Messages in a Supply Chain8
%DE is the tool that can ena#le #usinesses to achie"e dramatic increases in speed& !hile
they reali$e at the same time the #enefits of impro"ed accuracy in the transfer of critical
information. Documents transferred directly from computer to computer mo"e in orders
of magnitude more (uickly than paper documents& !ith no loss of accuracy.
he importance of Enformation *lo!s and echnology
)ll these years& the decisions taken in the area of Supply Chain !ere going !rong
#ecause of lack of accurate information a#out En"entory Pipe lineH Customer
re(uirementsH Customer #eha"ior patternH Vendor information and many other
kno!ledge data#ases. 9ith ad"ent of Enformation echnology and Enternet& the flo! of
information has re"olutioni$ed the Supply Chain and the industry as !ell as the customer
#enefited immensely from this de"elopment. oday the manufacturer is a#le to find out
the "endors information and product <component= a"aila#ilityH the current in"entory
le"elsH and Customer present demand. 9ith this information the demand pro/ections
ha"e impro"ed and the manufacturer is slo!ing shifting to pull system from the push
system.
Ef !e re"ie! the #road spectrum of industries and their present Supply Chain style& !e
!ill get to kno! that more and more industries are mo"ing to!ards Pull System. he
#elo! gi"en ta#le !ill e'plain the Supply Chain Style of fe! industries.
Endustry PushCPull Method
E and 2igh ech Endustry Pull
)utomoti"e Push and Pull
Consumer Goods Push and Pull
Medical Care Pull and Push
*ood Push
he main o#/ecti"e for shifting from the Push to Pull style is to minimi$e the En"entory in
the pipe line and to sa"e costs. 0ne more reason is customi$ation. En todayMs !orld the
customer is drifting to!ards more customi$ed products compared to standard shelf
products. his has resulted in postponement in production. his impacted the pre1
production En"entory strategy also. More and more suppliers are encouraged to support
the VME <Vendor Managed En"entory= concepts or ?E concept. )gain the main
o#/ecti"e is to eliminate the in"entory in the pipeline and sa"e the En"entory carrying
costs. 9e may ha"e to recogni$e the fact that all industries cannot mo"e to!ards pull
style of Supply Chain. hey still ha"e to continue !ith the Push method. 2o!e"er& the
information a"aila#ility has eliminated the risk of e'cess in"entory to large e'tent.
Particularly consumer goods and food industry has #enefited infinitely from the
information flo! such as P0S. Enternet and %DE has ena#led the flo! of information and
totally eliminated the clerical errors that may creep into the information data #ase. En
todayMs !orld entire Supply Chain is "isi#le to all the stakeholders. he transparency
ushers confidence in the En"estors& Manufacturers and the Customers. he #elo! gi"en
diagram !ill illustrate the transparency in the Supply Chain information flo!.
Empro"ement in :ead1time and transportation costs through E8
9ith the ad"ent of Pull system& the transportation system !as put under tremendous
pressure to perform and deli"er the products on time and e"ery time at a "ery competiti"e
price. his has triggered off ne! initiati"es in the transportation system. )s the "olume
has increased #ut the si$e of the consignment has decreased. his has resulted in
consolidations to sa"e costs and impro"e lead times. Companies like LPS and *ed%'
ha"e populari$ed the transportation of small consignments (uickly and cost effecti"ely.
he transportation industry "ery (uickly and efficiently responded to the challenges
thro!n at them #y the Endustry. he re(uirements of each organi$ation are uni(ue and
different from the others. his has resulted in !itnessing concepts such as
consolidationsH cross1dockH cross1dock mergingH multi1modal etc. *lo! of information
also helped the transportation industry to large e'tent. GPS is "ery effecti"ely used to
track1n1trace the mo"ement of goods from origin to destination and are a#le to pro/ect the
%D <e'pected time of deli"ery= more accurately. his also helps the production lines to
!ork !ith /ust re(uired in"entories and a"oid e'cess in"entory.
odayMs !orld is called the FGlo#al VillageG& the entrepreneurs are !illing to tra"el
distances to put up their manufacturing facilities in order to sa"e money. 9e ha"e seen
the dominance of Me'ico& China& Malaysia and Endia speciali$ing in cost effecti"e
production centers. his !as made possi#le due to (uick and efficient transportation
system& !hich is a#le to deli"er the product to any corner of the !orld !ith a "ery
competiti"e lead1time. he #elo! gi"en graphic !ould gi"e you an understanding ho!
the information flo! in the transportation industry has helped the supply chain.
Speed of Enformation Mo"ement and )nalysis
Dynamic data& such as customer orders& status information and in"entories& is "ery
sensiti"e to the fre(uency of updating. Measuring accuracy is relati"e to the purpose for
!hich it is used. hink of decisions as a process. hat process has #asic elements8
Data collection and con"ersion
)nalysis
Essuing an action.
%ach step of the process has a lead1time. 0ne of the primary o#/ecti"es of impro"ing
supply chain management is to increase the information flo! rate and there#y decrease
the o"erall lead1time of the decision making process. his is done #y attacking each
process element separately& analy$ing the cause of lead1time then implementing
impro"ements.
0ther factors
0ther factors !hich influenced the Supply Chains performance to large e'tent are
Customer Ser"icesH :i#erali$ed Go"ernment PoliciesH StrategicCColla#orati"e )lliancesH
Enformation Sharing. *inding the right SCM strategy for an organi$ation can #e "ery
difficult #ecause of the great "ariety of products& customers& ser"ices in the #usiness
community today.
9hile the "alue chain and marketing approaches propose generic ideas and capa#ilities&
proponents of the supply chain approach go a step further and identify specific acti"ities&
#acked #y detailed processes that can impro"e a firmMs competiti"e ad"antage and
success. Supply chain management encompasses end1to1end management of a product or
ser"ice. 3ote that !hen all the supply chain categories are linked together they form he
Supply Chain Management System.
*igure8 Key categories of the supply chain8 ogether they form the Supply
Chain Management System
)cti"itiesCfunctions
Supply chain management is a cross1functional approach to manage the mo"ement of ra!
materials into an organi$ation& certain aspects of the internal processing of materials into
finished goods& and then the mo"ement of finished goods out of the organi$ation to!ard
the end1consumer. )s organi$ations stri"e to focus on core competencies and #ecoming
more fle'i#le& they ha"e reduced their o!nership of ra! materials sources and
distri#ution channels. hese functions are increasingly #eing outsourced to other entities
that can perform the acti"ities #etter or more cost effecti"ely. he effect is to increase the
num#er of organi$ations in"ol"ed in satisfying customer demand& !hile reducing
management control of daily logistics operations. :ess control and more supply chain
partners led to the creation of supply chain management concepts. he purpose of supply
chain management is to impro"e trust and colla#oration among supply chain partners&
thus impro"ing in"entory "isi#ility and impro"ing in"entory "elocity.
Se"eral models ha"e #een proposed for understanding the acti"ities re(uired to manage
material mo"ements across organi$ational and functional #oundaries. SC0R is a supply
chain management model promoted #y the Supply Chain Management Council. )nother
model is the SCM Model proposed #y the Glo#al Supply Chain *orum <GSC*=
+@.
. Supply
chain acti"ities can #e grouped into strategic& tactical& and operational le"els of acti"ities.
Strategic8Strategic net!ork optimi$ation& including the num#er& location& and si$e of
!arehouses& distri#ution centers and facilities.
Strategic partnership !ith suppliers& distri#utors& and customers& creating communication
channels for critical information and operational impro"ements such as cross docking&
direct shipping& and third1party logistics.
Product design coordination& so that ne! and e'isting products can #e optimally
integrated into the supply chain& load management
Enformation echnology infrastructure& to support supply chain operations.
9here1to1make and !hat1to1make1or1#uy decisions
)ligning o"erall organi$ational strategy !ith supply strategy.
actical8Sourcing contracts and other purchasing decisions.
Production decisions& including contracting& locations& scheduling& and planning process
definition.
En"entory decisions& including (uantity& location& and (uality of in"entory.
ransportation strategy& including fre(uency& routes& and contracting.
7enchmarking of all operations against competitors and implementation of #est practices
throughout the enterprise.
Milestone payments
*ocus on customer demand.
0perational8Daily production and distri#ution planning& including all nodes in the supply
chain. Production scheduling for each manufacturing facility in the supply chain <minute
#y minute=. Demand planning and forecasting& coordinating the demand forecast of all
customers and sharing the forecast !ith all suppliers.
Sourcing planning& including current in"entory and forecast demand& in colla#oration
!ith all suppliers.
En#ound operations& including transportation from suppliers and recei"ing in"entory.
Production operations& including the consumption of materials and flo! of finished
goods.
0ut#ound operations& including all fulfillment acti"ities and transportation to customers.
0rder promising& accounting for all constraints in the supply chain& including all
suppliers& manufacturing facilities& distri#ution centers& and other customers...
En the @,st century& there ha"e #een a fe! changes in #usiness en"ironment that ha"e
contri#uted to the de"elopment of supply chain net!orks. *irst& as an outcome of
glo#ali$ation and the proliferation of multi1national companies& /oint "entures& strategic
alliances and #usiness partnerships& there !ere found to #e significant success factors&
follo!ing the earlier Q?ust1En1imeQ& Q:ean ManufacturingQ and Q)gile ManufacturingQ
practices.
+R.
Second& technological changes& particularly the dramatic fall in information
communication costs& !hich are a paramount component of transaction costs& ha"e led to
changes in coordination among the mem#ers of the supply chain net!ork <Coase& ,55J=.
De"elopments in Supply Chain Management
Si' ma/or mo"ements can #e o#ser"ed in the e"olution of supply chain management
studies8 Creation& Entegration& and Glo#ali$ation <:a"assani et. al.& @--J
a
=& Speciali$ation
Phases 0ne and !o& and SCM @.-.
,. Creation %ra
he term supply chain management !as first coined #y an )merican industry consultant
in the early ,5J-s. 2o!e"er the concept of supply chain in management& !as of great
importance long #efore in the early @-th century& especially #y the creation of the
assem#ly line. he characteristics of this era of supply chain management include the
need for large scale changes& reengineering& do!nsi$ing dri"en #y cost reduction
programs& and !idespread attention to the ?apanese practice of management.
@. Entegration %ra
his era of supply chain management studies !as highlighted !ith the de"elopment of
%lectronic Data Enterchange <%DE= systems in the ,56-s and de"eloped through the ,55-s
#y the introduction of %nterprise Resource Planning <%RP= systems. his era has
continued to de"elop into the @,st century !ith the e'pansion of internet1#ased
colla#orati"e systems. his era of SC e"olution is characteri$ed #y #oth increasing "alue1
added and cost reduction through integration.
K. Glo#ali$ation %ra
he third mo"ement of supply chain management de"elopment& glo#ali$ation era& can #e
characteri$ed #y the attention to!ards glo#al systems of supplier relations and the
e'pansion of supply chain o"er national #oundaries and into other continents. )lthough
the use of glo#al sources in the supply chain of organi$ations can #e traced #ack to
se"eral decades ago <e.g. the oil industry=& it !as not until the late ,5J-s that a
considera#le num#er of organi$ations started to integrate glo#al sources into their core
#usiness. his era is characteri$ed #y the glo#ali$ation of supply chain management in
organi$ations !ith the goal of increasing competiti"e ad"antage& creating more "alue1
added& and reducing costs through glo#al sourcing.
R. Speciali$ation %ra 11 Phase 0ne 11 0utsourced Manufacturing and Distri#ution
En the ,55-s industries #egan to focus on Fcore competenciesG and adopted a
speciali$ation model. Companies a#andoned "ertical integration& sold off non1core
operations& and outsourced those functions to other companies. his changed
management re(uirements #y e'tending the supply chain !ell #eyond the four !alls and
distri#uting management across speciali$ed supply chain partnerships.
his transition also refocused the fundamental perspecti"es of each respecti"e
organi$ation. 0%Ms #ecame #rand o!ners that needed deep "isi#ility into their supply
#ase. hey had to control the entire supply chain from a#o"e instead of from !ithin.
Contract manufacturers had to manage #ills of material !ith different part num#ering
schemes from multiple 0%Ms and support customer re(uests for !ork 1in1process
"isi#ility and "endor1managed in"entory <VME=.
he speciali$ation model creates manufacturing and distri#ution net!orks composed of
multiple& indi"idual supply chains specific to products& suppliers& and customers !ho
!ork together to design& manufacture& distri#ute& market& sell& and ser"ice a product. he
set of partners may change according to a gi"en market& region& or channel& resulting in a
proliferation of trading partner en"ironments& each !ith its o!n uni(ue characteristics
and demands.
;. Speciali$ation %ra 11 Phase !o 11 Supply Chain Management as a Ser"ice
Speciali$ation !ithin the supply chain #egan in the ,5J-s !ith the inception of
transportation #rokerages& !arehouse management& and non asset #ased carriers and has
matured #eyond transportation and logistics into aspects of supply planning&
colla#oration& e'ecution and performance management.
)t any gi"en moment& market forces could demand changes !ithin suppliers& logistics
pro"iders& locations& customers and any num#er of these speciali$ed participants !ithin
supply chain net!orks. his "aria#ility has significant effect on the supply chain
infrastructure& from the foundation layers of esta#lishing and managing the electronic
communication #et!een the trading partners to the more1comple' re(uirements&
including the configuration of the processes and !ork flo!s that are essential to the
management of the net!ork itself.
Supply chain speciali$ation ena#les companies to impro"e their o"erall competencies in
the same !ay that outsourced manufacturing and distri#ution has doneH it allo!s them to
focus on their core competencies and assem#le net!orks of #est in class domain specific
partners to contri#ute to the o"erall "alue chain itself B thus increasing o"erall
performance and efficiency. he a#ility to (uickly o#tain and deploy this domain specific
supply chain e'pertise !ithout de"eloping and maintaining an entirely uni(ue and
comple' competency in house is the leading reason !hy supply chain speciali$ation is
gaining popularity.
0utsourced technology hosting for supply chain solutions de#uted in the late ,55-s and
has taken root in transportation and colla#oration categories most dominantly. his has
progressed from the )pplication Ser"ice Pro"ider <)SP= model from appro'imately ,55J
through @--K to the 0n1Demand model from appro'imately @--K1@--6 to the Soft!are
as a Ser"ice <SaaS= model !e are currently focused on today.
6. Supply Chain Management @.- <SCM @.-=
7uilding off of glo#ali$ation and speciali$ation& SCM @.- has #een coined to descri#e
#oth the changes !ithin the supply chain itself as !ell as the e"olution of the processes&
methods and tools that manage it in this ne! QeraQ.
9e# @.- is defined as a trend in the use of the 9orld 9ide 9e# that is meant to increase
creati"ity& information sharing& and colla#oration among users. )t its core& the common
attri#ute that 9e# @.- #rings is it helps us na"igate the "ast amount of information
a"aila#le on the !e# to find !hat !e are looking for. Et is the notion of a usa#le path!ay.
SCM @.- follo!s this notion into supply chain operations. Et is the path!ay to SCM
results B the com#ination of the processes& methodologies& tools and deli"ery options to
guide companies to their results (uickly as the comple'ity and speed of the supply chain
increase due to the effects of glo#al competition& rapid price commoditi$ation& surging oil
prices& short product life cycles &e'panded speciali$ation& nearCfar and off shoring& and
talent scarcity.
SCM @.- le"erages pro"en solutions designed to rapidly deli"er results !ith the agility to
(uickly manage future change for continuous fle'i#ility& "alue and success. his is
deli"ered through competency net!orks composed of #est of #reed supply chain domain
e'pertise to understand !hich elements& #oth operationally and organi$ationally& are the
critical fe! that deli"er the results as !ell as the intimate understanding of ho! to
manage these elements to achie"e desired results& finally the solutions are deli"ered in a
"ariety of options as no1touch "ia #usiness process outsourcing& mid1touch "ia managed
ser"ices and soft!are as a ser"ice <SaaS=& or high touch in the traditional soft!are
deployment model.
Supply chain #usiness process integration
Successful SCM re(uires a change from managing indi"idual functions to integrating
acti"ities into key supply chain processes. )n e'ample scenario8 the purchasing
department places orders as re(uirements #ecome appropriate. Marketing& responding to
customer demand& communicates !ith se"eral distri#utors and retailers as it attempts to
satisfy this demand. Shared information #et!een supply chain partners can only #e fully
le"eraged through process integration.
Supply chain #usiness process integration in"ol"es colla#orati"e !ork #et!een #uyers
and suppliers& /oint product de"elopment& common systems and shared information.
)ccording to :am#ert and Cooper <@---= operating an integrated supply chain re(uires
continuous information flo!. 2o!e"er& in many companies& management has reached the
conclusion that optimi$ing the product flo!s cannot #e accomplished !ithout
implementing a process approach to the #usiness. he key supply chain processes stated
#y :am#ert <@--R=
+6.
are8
Customer relationship management
Customer ser"ice management
Demand management
0rder fulfillment
Manufacturing flo! management
Supplier relationship management
Product de"elopment and commerciali$ation
Returns management
0ne could suggest other key critical supply #usiness processes com#ining these processes
stated #y :am#ert such as8
Customer ser"ice management
Procurement
Product de"elopment and commerciali$ation
Manufacturing flo! managementCsupport
Physical distri#ution
0utsourcingCpartnerships
Performance measurement
a= Customer ser"ice management process
Customer Relationship Management concerns the relationship #et!een the organi$ation
and its customers.Customer ser"ice pro"ides the source of customer information. Et also
pro"ides the customer !ith real1time information on promising dates and product
a"aila#ility through interfaces !ith the company>s production and distri#ution operations.
Successful organi$ations use follo!ing steps to #uild customer relationships8
determine mutually satisfying goals #et!een organi$ation and customers
esta#lish and maintain customer rapport
produce positi"e feelings in the organi$ation and the customers
#= Procurement process
Strategic plans are de"eloped !ith suppliers to support the manufacturing flo!
management process and de"elopment of ne! products. En firms !here operations e'tend
glo#ally& sourcing should #e managed on a glo#al #asis. he desired outcome is a !in1
!in relationship& !here #oth parties #enefit& and reduction times in the design cycle and
product de"elopment are achie"ed. )lso& the purchasing function de"elops rapid
communication systems& such as electronic data interchange <%DE= and Enternet linkages
to transfer possi#le re(uirements more rapidly. )cti"ities related to o#taining products
and materials from outside suppliers re(uires performing resource planning& supply
sourcing& negotiation& order placement& in#ound transportation& storage& handling and
(uality assurance& many of !hich include the responsi#ility to coordinate !ith suppliers
in scheduling& supply continuity& hedging& and research into ne! sources or programmes.
c= Product de"elopment and commerciali$ation
2ere& customers and suppliers must #e united into the product de"elopment process& thus
to reduce time to market. )s product life cycles shorten& the appropriate products must #e
de"eloped and successfully launched in e"er shorter time1schedules to remain
competiti"e. )ccording to :am#ert and Cooper <@---=& managers of the product
de"elopment and commerciali$ation process must8
coordinate !ith customer relationship management to identify customer1articulated
needsH
select materials and suppliers in con/unction !ith procurement& and
de"elop production technology in manufacturing flo! to manufacture and integrate into
the #est supply chain flo! for the productCmarket com#ination.
d= Manufacturing flo! management process
he manufacturing process is produced and supplies products to the distri#ution channels
#ased on past forecasts. Manufacturing processes must #e fle'i#le to respond to market
changes& and must accommodate mass customi$ation. 0rders are processes operating on
a /ust1in1time <?E= #asis in minimum lot si$es. )lso& changes in the manufacturing flo!
process lead to shorter cycle times& meaning impro"ed responsi"eness and efficiency of
demand to customers. )cti"ities related to planning& scheduling and supporting
manufacturing operations& such as !ork1in1process storage& handling& transportation& and
time phasing of components& in"entory at manufacturing sites and ma'imum fle'i#ility in
the coordination of geographic and final assem#lies postponement of physical
distri#ution operations.
e= Physical distri#ution
his concerns mo"ement of a finished productCser"ice to customers. En physical
distri#ution& the customer is the final destination of a marketing channel& and the
a"aila#ility of the productCser"ice is a "ital part of each channel participant>s marketing
effort. Et is also through the physical distri#ution process that the time and space of
customer ser"ice #ecome an integral part of marketing& thus it links a marketing channel
!ith its customers <e.g. links manufacturers& !holesalers& retailers=.
f= 0utsourcingCpartnerships
his is not /ust outsourcing the procurement of materials and components& #ut also
outsourcing of ser"ices that traditionally ha"e #een pro"ided in1house. he logic of this
trend is that the company !ill increasingly focus on those acti"ities in the "alue chain
!here it has a distincti"e ad"antage and e"erything else it !ill outsource. his mo"ement
has #een particularly e"ident in logistics !here the pro"ision of transport& !arehousing
and in"entory control is increasingly su#contracted to specialists or logistics partners.
)lso& to manage and control this net!ork of partners and suppliers re(uires a #lend of
#oth central and local in"ol"ement. 2ence& strategic decisions need to #e taken centrally
!ith the monitoring and control of supplier performance and day1to1day liaison !ith
logistics partners #eing #est managed at a local le"el.
g= Performance measurement
%'perts found a strong relationship from the largest arcs of supplier and customer
integration to market share and profita#ility. 7y taking ad"antage of supplier capa#ilities
and emphasi$ing a long1term supply chain perspecti"e in customer relationships can #e
#oth correlated !ith firm performance. )s logistics competency #ecomes a more critical
factor in creating and maintaining competiti"e ad"antage& logistics measurement #ecomes
increasingly important #ecause the difference #et!een profita#le and unprofita#le
operations #ecomes more narro!. ).. Kearney Consultants <,5J;= noted that firms
engaging in comprehensi"e performance measurement reali$ed impro"ements in o"erall
producti"ity. )ccording to e'perts internal measures are generally collected and analy$ed
#y the firm including
Cost
Customer Ser"ice
Producti"ity measures
)sset measurement& and
Puality.
%'ternal performance measurement is e'amined through customer perception measures
and Q#est practiceQ #enchmarking& and includes ,= customer perception measurement&
and @= #est practice #enchmarking. Components of Supply Chain Management are ,.
Standardi$ation @. Postponement K. Customi$ation heories of Supply Chain
Management
Currently there e'ists a gap in the literature a"aila#le in the area of supply chain
management studies& on pro"iding theoretical support for e'plaining the e'istence and the
#oundaries of supply chain management. *e! authors such as 2alldorsson& et al. <@--K=&
Ketchen and 2ult <@--6= and :a"assani& et al. <@--J
#
= had tried to pro"ide theoretical
foundations for different areas related to supply chain !ith employing organi$ational
theories. hese theories include8
Resource1#ased "ie! <R7V=
ransaction Cost )nalysis <C)=
Kno!ledge1#ased "ie! <K7V=
Strategic Choice heory <SC=
)gency theory <)=
Enstitutional theory <En=
Systems heory <S=
3et!ork Perspecti"e <3P=
Components of Supply Chain Management Entegration
he management components of SCM
he SCM components are the third element of the four1s(uare circulation frame!ork.
he le"el of integration and management of a #usiness process link is a function of the
num#er and le"el& ranging from lo! to high& of components added to the link <%llram and
Cooper& ,55-H 2oulihan& ,5J;=. Conse(uently& adding more management components or
increasing the le"el of each component can increase the le"el of integration of the
#usiness process link. he literature on #usiness process reengineering&
+A.
#uyer1supplier
relationships&
+J.
and SCM
+5.
suggests "arious possi#le components that must recei"e
managerial attention !hen managing supply relationships. :am#ert and Cooper <@---=
identified the follo!ing components !hich are8
Planning and control
9ork structure
0rgani$ation structure
Product flo! facility structure
Enformation flo! facility structure
Management methods
Po!er and leadership structure
Risk and re!ard structure
Culture and attitude
2o!e"er& a more careful e'amination of the e'isting literature
+,-.
!ill lead us to a more
comprehensi"e structure of !hat should #e the key critical supply chain components& the
Q#ranchesQ of the pre"ious identified supply chain #usiness processes& that is& !hat kind
of relationship the components may ha"e that are related !ith suppliers and customers
accordingly. 7o!erso' and Closs states that the emphasis on cooperation represents the
synergism leading to the highest le"el of /oint achie"ement <7o!erso' and Closs& ,556=.
) primary le"el channel participant is a #usiness that is !illing to participate in the
in"entory o!nership responsi#ility or assume other aspects of financial risk& thus
including primary le"el components <7o!erso' and Closs& ,556=. ) secondary le"el
participant <speciali$ed=& is a #usiness that participates in channel relationships #y
performing essential ser"ices for primary participants& thus including secondary le"el
components& !hich are in support of primary participants. hird le"el channel
participants and components that !ill support the primary le"el channel participants& and
!hich are the fundamental #ranches of the secondary le"el components& may also #e
included.
Conse(uently& :am#ert and Cooper>s frame!ork of supply chain components does not
lead us to the conclusion a#out !hat are the primary or secondary <speciali$ed= le"el
supply chain components <see 7o!erso' and Closs& ,556& p.g. 5K=. hat is& !hat supply
chain components should #e "ie!ed as primary or secondary& ho! these components
should #e structured in order to ha"e a more comprehensi"e supply chain structure& and
to e'amine the supply chain as an integrati"e one <See a#o"e sections @., and K.,=.
7a$iotopoulos re"ie!ed the literature to identify supply chain components.
+,,.
7ased on
this study& 7a$iotopoulos <@--R= suggests the follo!ing supply chain components8
*or customer ser"ice management8 Encludes the primary le"el component of customer
relationship management& and secondary le"el components such as #enchmarking and
order fulfillment.
*or product de"elopment and commerciali$ation8 Encludes the primary le"el component
of Product Data Management <PDM=& and secondary le"el components such as market
share& customer satisfaction& profit margins& and returns to stakeholders.
*or physical distri#ution& manufacturing support and procurement8 Encludes the primary
le"el component of enterprise resource planning <%RP=& !ith secondary le"el components
such as !arehouse management& material management& manufacturing planning&
personnel management& and postponement <order management=.
*or performance measurement8 Encludes the primary le"el component of logistics
performance measurement& !hich is correlated !ith the information flo! facility
structure !ithin the organi$ation. Secondary le"el components may include four types of
measurement such as8 "ariation& direction& decision and policy measurements. More
specifically& in accordance !ith these secondary le"el components& total cost analysis
<C)=& customer profita#ility analysis <CP)=& and asset management could #e concerned
as !ell.
*or outsourcing8 Encludes the primary le"el component of management methods& and the
strategic o#/ecti"es for particular initiati"es in key areas of information technology&
operations& manufacturing capa#ilities& and logistics <secondary le"el components=.
%'tra end
Re"erse Supply Chain Re"erse :ogistics is the process of planning&implementing and
controlling the efficient& effecti"e in#ound flo! and storage of secondary goods and
related information opposite to the traditional supply chain direction for the purpose of
reco"ering "alue or proper disposal. Re"erse logistics is also referred to as Q)ftermarket
Customer Ser"icesQ. En other !ords& anytime money is taken from a company>s 9arranty
Reser"e or Ser"ice :ogistics #udget& that is a Re"erse :ogistics operation.
9hat is Green Supply ChainN
Green supply chain management <GSCM= in"ol"es traditional supply chain management
practices& !hich integrate en"ironmental criteria. ) green supply chain imitates nature&
running in cycles that mimic natural energy and material cycles. Mo"ing from a linear to
more of a cyclical material and energy flo! means keeping !astes !ithin the industrial
system in order to conser"e energy and pre"ent the dissipation of harmful materials into
the en"ironment. En order to design a green supply chain the entire inputs and outputs in
the product life cycle need to #e holistically considered. Enputs include energy& materials&
and other resources. 0utputs include products& !aste& and re"enues generated.
Lnnecessary inputs can #e eliminated and outputs can #e re1used.
Companies are not in #usiness to sol"e the !orld of en"ironmental pro#lems. 4et&
managers are starting to look at en"ironmental pro#lems as #usiness issues !here many
can gain sustained competiti"e ad"antage. Companies charting green supply chain
strategies are finding that #oth the #uyer and seller can #enefit through shared cost
sa"ings& among other things. Successful strategies consider the entire life cycle !here
opportunities for impro"ement are noted at each stage of the product life cycle& from ra!
material sourcing through manufacturing& use& and product end1of1life. he follo!ing
guidelines can help companies get ahead of the green cur"e and transform GSCM into a
#usiness "alue dri"er& rather than a cost center8