“Definition of Supply Chain Management”

“A supply chain is a network of manufacturers, suppliers, distributors,

transporters, storage facilities & retailers that perform functions like
procurement & acquisition of material, processing &transformation of the
material into intermediate & finished tangible goods, & finally, the physical
distribution of the finished goods to intermediate or final customers.”

A firm’s supply chain includes both its upstream supplier networks &
the downstream distribution networks, apart from its internal functional
departments.

Origin of Supply Chain Management

Supply Chain Management existed for some time before it started to be
used as a description of any computer system. The Japanese work out the concept
of JIT in electronics & automobile industries which has brought up revolution in
the field of production & inventory control due to “pull system”
 Introduction

Supply Chain Management is the network consisting of Customers, Retailers,

Distributors, Manufacturer and Supplier.

It is a network of organizations that are having linkage both upstream &

downstream in different process & activities. Every interface in the supply chain
represents movement of goods, information flow, transfer of documents and
purchase & sale.
 Flows in Supply Chain Management

 Material flows: Involve physical product flows from suppliers to customers

through the chain, as well as the reverse flows via product returns, servicing
recycling & disposal.

 Information flows: Involve demand forecast, order transmission & delivery

status reports.

 Financial flows: Involve credit card information, credit terms, payment

schedules & consignment & title ownership arrangements.
 Types of Supply Chain Management

 Pull-based SCM: Pull-based SCM is also known as modern approach to SCM.

It is known as demand supply network. In this approach, the actual
consumption pulls distribution, which in turn pulls production, in term pulling
material supply.

 Push-based SCM: Push-based system is also known as traditional approach

to SCM. In this approach, materials & products are flowing from supplier to
consumer, via production & distributor unit.
 Upstream & Downstream in SCM
 Upstream: Order sent by customer through payment received by suppliers.

 Downstream: Order received by supplier through payment sent by customer.

SUPPLIER

PUSH BASED
SCM

CUSTOMER

MATERIAL
SUPPLY

PUSH

PRODUCTION

PUSH

DISTRIBUTION

PUSH

CONSUMPTION
 Components of Supply Chain Management
A Supply chain may consist of a variety of components depending on the
business model selected by a firm. A typical supply chain consists of the following
components:

 Customers
 Distributors/Retailers
 Manufacturers
 Suppliers

CUSTOMERS

The customer forms the focus of any supply chain. A customer activates the
Processes in a supply chain by placing an order with the retailer. The customer
order is filled by the retailer, either from the existing inventories, or by placing a
fresh order with the wholesaler/manufacturer. In some cases a customer by
passes all these supply chain components by getting in touch with the
manufacturers directly. For example: In the case of an online purchase of a
computer from dell computers, the customers place an order directly with the
manufacturers.

RETAILERS/ DISTRIBUTORS

The retailer acts as a link between the customers and the distributors/
manufacturers. He caters to the needs of the customer by making the products
available at his store. As part of this process, retailer places order with the
manufacturers to replenish the stock.

MANUFACTURERS

The manufacturer plays a key role in deciding the structure of a supply

chain. Depending on the market situation, the manufacturer either uses the pull or
the push strategy to generate demand required for the movement of products in
the supply chain. The manufacturer then plans for a production schedule
depending on the resultant demand.
SUPPLIERS

Suppliers facilitate the manufacturers Production process by ensuring

continuous supply of raw materials. Manufacturers place orders with suppliers on
the basis of forecasted customers demand. Since it is very difficult to forecast
demand accurately, manufacturers try to integrate their processes with those of
the suppliers to be in a better position to respond to fluctuation in customer
demands. Suppliers help manufacturers to decrease their inventory levels by
arranging for just–in–time supplies.
 SCM includes the following functions
 Supplier management: The goal is to reduce number of suppliers & get them
to become partners in business relationship. The benefits are reduced
Purchase order (PO) processing cost, increased numbers of purchase orders
processed by fewer employees & reduced order processing cycle times.

 Inventory management: The goal is to shorten the order-ship-bill cycle. The

inventory management solution enables the reduction of inventory levels,
improves inventory turns & eliminates out-of-stock occurrences.

ORDER PAYMENT RECEIVED BY SUPPLIER

SENT BY

CUSTOMER

ORDER
RECEIVED
PAYMENT SENT BY CUSTOMER BY
SUPPLIER

 Distribution management: The goal is to move documents related to

shipping (purchase order, advanced ship notices etc.). Paperwork that
typically took days to cycle in the past can now be sent in moments & contain
more accurate data, thus allowing improved resource planning.

 Channel management: The goal is to quickly disseminate information about

changing operational conditions to trading partners. Electronically linking
production with their international distributor & reseller networks
eliminates thousands of labour in the process.
 Payment management: The goal is to link the company & the suppliers &
distributors so that payments can be sent & received electronically.

 Financial management: The goal is to enable global companies to manage

their money in various exchange accounts. Companies must work with
financial institutions to boost their ability to deal on a global basis.

 Sales force productivity: The goal is to improve the communication & flow
of information among the sales, customers & production functions.
 DISTINGUISH BETWEEN LOGISTICS
MANAGEMENT & SCM
LOGISTICS MANAGEMENT SUPPLY CAHIN MAAGEMENT

1) Inbound Logistics in-processing All players in supply chain from raw

inventory & outbound Logistics i.e. material source to finished product
scope is within the organization. consumer, vendors, warehousers,
customers & their customers.

2) It is created in business by internal It is created in business by external

integration of logistics functions integration of roles of various players
helded by various management in the supply chain.
functions within organization.

3) Logistics originated in the military SCM is a logical extension of logistics

planning. management.

4) It is a supply driven. It is a demand driven.

5) Main objective is to reduce logistic Main objective is to achieve higher

cost by integrating resources. profitability by value creation.

6) Logistics is a part of Supply Chain Supply Chain Management is an

Management. extension of logistics management.

7) Logistics management is a narrower Supply Chain Management is a broader

concept. concept.
 Objectives of Supply Chain Management
The prime objective of SCM is to reduce or eliminate the buffers of
inventory that exists between organization in a chain through the sharing of
information on demand & current stock level.

 Solving supplier's problem and beyond his level.

 Customers service performance improvement.

 Reduction of pre and post production inventory.

 Minimum total cost of operations & procurement.

 Product quality control.

 Achieving maximum efficiency in using labour, capital & plant throughout

the company.

 Flexible planning & control procedures.

 Supply Chain Management & Vertical Integration

SCM is not the same as vertical integration. Vertical integration normally

implies ownership of upstream suppliers & downstream customers.

Earlier vertical integration used to be desirable strategy increasingly the

companies are focusing on their core business i.e. activities that they do really
well & where they act a differential advantage.

SCM raise the challenges of integrating & coordinating the flow of material
from multitude of suppliers & similarly managing the distribution of finished
products by way of multiple intermediaries.

Transferring cost upstream & downstream leads to logistics “MIOPIA” as all

cost ultimately will make way to the final market place to be reflected in the price
paid by the end users.
 Advantages of Supply Chain Management

 Benefits to the Customers:

The customer will get benefits by dealing with a well managed vendor due to
an effective supply chain organization in place are as follows:

Natural benefits will come due to consideration of the problems supplier &
further back supplier and their involvement in the process of developments.

 Improved customer service through fewer shortages.

 Improved product cost.
 Better delivery performance.
 Quicker response to changes in demand.
 Optimal purchase cost due to possibility of long-term purchase contracts.

 Benefits to the Company:

 Reduction in tied-up capital & administrative costs due to reduction/

elimination of inventory at all levels.
 Reduction in time & money lost through production line stoppage.
 More flexibility in planning.
 Sustained growth of sales & company business.
 Increased shareholder value.
Example of Supply Chain Management
 Coca-Cola SCM
The Coca-Cola System (C.C.S):

o Sells over 1 billion servings of our beverages daily in over 200 countries.

o Produces in over 860 facilities located in over 150 countries.

o Employs more than 300,000 people.

o Targeting assessments at over 10,000 supplier facilities globally.

 The Coca-Cola system’s Manual Distribution Center (MDC) model, which is
currently being implemented in various forms in some 25 countries around the
world, offers an interesting distribution example.

 The Coca-Cola Company has made the MDC model a key component of its
public commitment to the Business Call to Action, an initiative launched by
the British Prime Minister Gordon Brown in 2007.

 Coca-Cola Company (CCC) is the largest non-alcoholic beverage company in

the world, manufacturing nearly 500 brands and 3,000 beverage products,
and serving 1.6 billion consumers a day.
 In the 200 countries and territories in which it operates, CCC provides
beverage syrup to its bottling partners, who then manufacture, package,
distribute and sell products for local consumption.

 CCC has more than 300 bottling partners worldwide, which are local
companies that are either independently owned or partially or fully owned by
CCC.

 It has had a presence in Africa since 1928 and today is one of the
continent’s largest private sector employers, operating about 160 bottling
and canning plants through its local bottling partners and working with more
than 9,00,000 retail outlets.

 CCC and its bottling partners (collectively known as “the Coca-Cola system”)
are renowned for their ability to make their products available to consumers
in even the most remote locations.

 In the most developed, urban parts of the continent, the system uses the
more traditional model of supplying large retailers such as grocery stores,
hotels, universities, and other institutions using delivery trucks.
 COCA-COLA Supply Chain

CCS is one of the Coca-Cola system’s largest bottlers in Africa, operating 18

bottling plants and directly employing more than 7,900 people in East and
Southern Africa.

Suppliers Coca-Cola System Selling Beverages

The coca-
Ingredients cola Customers
company

Warehouse
&
Water Consumer
Distributors
s

Bottling Vending
Partners machines
Packaging
& coolers