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SYNOPSIS

WHAT DO WE MEAN BY SUPPLY CHAIN MANAGEMENT?


 Supply chain management (SCM) is the management of a network of
interconnected businesses involved in the ultimate provision of product and
service packages required by end customers.
 It spans all movement and storage of raw materials, work-in-process
inventory, and finished goods from point of origin to point of consumption.
 It encompasses the planning and management of all activities involved in
sourcing, procurement, conversion, and logistics management activities. It also
includes the crucial components of coordination and collaboration with channel
partners, which can be suppliers, intermediaries, third-party service providers,
and customers.
In essence, Supply Chain Management integrates supply and demand management within
and across companies.

CONTENTS
1. INTRODUCTION
2. WHAT IS A SUPPLY CHAIN
3. SUPPLY CHAIN MODELLING
4. ISSUES IN SCM
5. ACTIVITIES OF SCM
5.1) STRATEGIC
5.2) TACTICAL
5.3) OPERATIONAL
6. DEVELOPMENT OF SCM
7. METRIC & DATA COLLECTION
8. COMPONENTS OF SCM INTEGRATION
8.1) THE MANAGEMENT COMPONENTS OF SCM
8.1.1) REVERSE SC
9. SUPPLY CHAIN BUSINESS PROCESS INTEGRATION
10. SUPPLY CHAIN NETWORK
11. THEORIES OF SCM
12. SUPPLY CHAIN SUSTAINABLITY
13. SUPPLY CHAIN OPTIMIZATION
14. FLOWCASTING
15. GLOBALIZATION
16. IMPROVING SCM
17. SUPPLY CHAIN RISK MANAGEMENT
18. SUPPLY CHAIN SECURITY
19. VALUE CHAIN
20. VALUE REFERENCE MODEL
21. VALUE NETWORK
21.1) EXTERNAL VALUE NETWORK
21.2) INTERNAL VALUE NETWORK
22. IMPORTANT TERM & CONCEPT
23. FLEXIBILITY, INVENTORY, & CUSTOMER SERVICE
24. TWO UNUSUAL EXAMPLE OF SCM
25. CONCLUSION
26. REFERENCES
SUPPLY CHAIN MANAGEMENT
INTRODUCTION:
In the 21st century, changes in the business environment have contributed to the
development of supply chain networks. In general, such a structure can be defined
as "a group of semi-independent organizations, each with their capabilities, which
collaborate in ever-changing constellations to serve one or more markets in order
to achieve some business goal specific to that collaboration" (Akkermans, 2001).
First, as an outcome of globalization and the proliferation of
multinational companies, joint ventures, strategic alliances and business
partnerships, there were found to be significant success factors, following the
earlier "Just-In-Time", "Lean Manufacturing" and "Agile Manufacturing" practices.
Second, technological changes, particularly the dramatic fall in information
communication costs, which are a significant component of transaction costs, have
led to changes in coordination among the members of the supply chain network
(Coase , 1998).
Many researchers have recognized these kinds of supply network
structures as a new organization form, using terms such as "Keiretsu", "Extended
Enterprise", "Virtual Corporation", "Global Production Network", and "Next
Generation Manufacturing System". Organizations increasingly find that they must
rely on effective supply chains, or networks, to successfully compete in the
global market and networked economy. In Peter Drucker's (1998) new management
paradigms, this concept of business relationships extends beyond traditional
enterprise boundaries and seeks to organize entire business processes throughout a
value chain of multiple companies.
During the past decades, globalization, outsourcing and information technology
have enabled many organizations, such as Dell and Hewlett Packard, to successfully
operate solid collaborative supply networks in which each specialized business
partner focuses on only a few key strategic activities (Scott, 1993). This inter-
organizational supply network can be acknowledged as a new form of organization.
However, with the complicated interactions among the players, the network
structure fits neither "market" nor "hierarchy" categories (Powell, 1990)
NOW WHAT IS A ‘SUPPLY CHAIN’?
A supply chain is the system of organizations, people, technology, activities,
information and resources involved in moving a product or service from supplier to
customer. Supply chain activities transform natural resources, raw materials and
components into a finished product that is delivered to the end customer. In
sophisticated supply chain systems, used products may re-enter the supply chain at
any point where residual value is recyclable. Supply chains link value chains.
A BASIC SUPPLY CHAIN.
SUPPLY NETWORK
A supply network is a pattern of temporal and spatial processes carried out at
facility nodes and over distribution links, which adds value for customers through
the manufacturing and delivery of products. It comprises the general state of
business affairs in which all kinds of material (work-in-process material as well
as finished products) are transformed and moved between various value-add points
to maximize the value added for customers.
A supply chain is a special instance of a supply network in which raw materials,
intermediate materials and finished goods are procured exclusively as products
through a chain of processes that supply one another.
In the semiconductors industry, for example, work-in-process moves from
fabrication to assembly, and then to the test house. The term "supply network"
refers to the high-tech phenomenon of contract manufacturing where the brand owner
does not touch the product. Instead, she coordinates with contract manufacturers
and component suppliers who ship components to the brand owner. This business
practice requires the brand owner to stay in touch with multiple parties or
"network" at once.
A SUPPLY CHAIN NETWORK.
SUPPLY CHAIN MODELING
There are a number of different modeling techniques that have been used to model
the supply chain. Some of the important models that have been used in supply chain
management are.
1) The supply chain operations reference (SCOR) model; and
2) The ERP reference models.

A DIAGRAM OF A SUPPLY CHAIN(CONCEPTS).

The red arrow represents the flow of materials and information and the green arrow
represents the flow of information and backhauls. The elements are (a) the initial
raw material supplier, (b) a component supplier, (c) a manufacturer, (d) a
retailer, (e) the final customer.
There are a variety of supply chain models, which address both the upstream and
downstream sides.
The SCOR (Supply Chain Operations Reference) model, developed by the Supply Chain
Council, measures total supply chain performance. It is a process reference model
for supply-chain management, spanning from the supplier's supplier to the
customer's customer. It includes delivery and order fulfillment performance,
production flexibility, warranty and returns processing costs, inventory and asset
turns, and other factors in evaluating the overall effective performance of a
supply chain.
SCOR MODEL
The Global Supply Chain Forum (GSCF) introduced another Supply Chain Model. This
framework is built on eight key business processes that are both cross-functional
and cross-firm in nature. Each process is managed by a cross-functional team,
including representatives from logistics, production, purchasing, finance,
marketing and research and development. While each process will interface with key
customers and suppliers, the customer relationship management and supplier
relationship management processes form the critical linkages in the supply chain.
ISSUES IN SUPPLY CHAIN MANAGEMENT
The classic objective of logistics is to be able to have the right products in the
right quantities (at the right place) at the right moment at minimal cost. Figure
(from NEVEM-workgroup translates this overall objective into four main areas of
concern within supply chain management.

Figure: HIERARCHY OF OBJECTIVES.


The two middle boxes in the lower row of Fig. delivery reliability, and delivery
times, are both aspects of customer service, which is highly dependent on the
first box, flexibility, and on the last box, inventory.
ACTIVITIES OR FUNCTIONS OF SCM
Supply chain management is a cross-function approach to manage the movement of raw
materials into an organization, certain aspects of the internal processing of
materials into finished goods, and then the movement of finished goods out of the
organization toward the end-consumer. As organizations strive to focus on core
competencies and becoming more flexible,
they have reduced their ownership of raw materials sources and distribution
channels. These functions are increasingly being outsourced to other entities that
can perform the activities better or more cost effectively. The effect is to
increase the number of organizations involved in

SUPPLY CHAIN PLANNING PROCESSES


satisfying customer demand, while reducing management control of daily logistics
operations. Less control and more supply chain partners led to the creation of
supply chain management concepts. The purpose of supply chain management is to
improve trust and collaboration among supply chain partners, thus improving
inventory visibility and improving inventory velocity.
Several models have been proposed for understanding the activities required to
manage material movements across organizational and functional boundaries. SCOR is
a supply chain management model promoted by the Supply Chain Council. Another
model is the SCM Model proposed by the Global Supply Chain Forum (GSCF). Supply
chain activities can be grouped into strategic, tactical, and operational levels
of activities.
Strategic
• Strategic network optimization, including the number, location, and size of
warehousing, distribution centers, and facilities
• Strategic partnership with suppliers, distributors, and customers, creating
communication channels for critical information and operational improvements such
as cross docking, direct shipping, and third-party logistics
• Product life cycle management, so that new and existing products can be
optimally integrated into the supply chain and capacity management
• Information Technology infrastructure, to support supply chain operations
• Where-to-make and what-to-make-or-buy decisions
• Aligning overall organizational strategy with supply strategy

Tactical
• Sourcing contracts and other purchasing decisions.
• Production decisions, including contracting, scheduling, and planning
process definition.
• Inventory decisions, including quantity, location, and quality of inventory.
• Transportation strategy, including frequency, routes, and contracting.
• [Benchmarking] of all operations against competitors and implementation of
best practices throughout the enterprise.
• Milestone payments
• Focus on customer demand.
Operational
• Daily production and distribution planning, including all nodes in the
supply chain.
• Production scheduling for each manufacturing facility in the supply chain
(minute by minute).
• Demand planning and forecasting, coordinating the demand forecast of all
customers and sharing the forecast with all suppliers.
• Sourcing planning, including current inventory and forecast demand, in
collaboration with all suppliers.
• Inbound operations, including transportation from suppliers and receiving
inventory.
• Production operations, including the consumption of materials and flow of
finished goods.
• Outbound operations, including all fulfillment activities, warehousing and
transportation to customers.
• Order promising, accounting for all constraints in the supply chain,
including all suppliers, manufacturing facilities, distribution centers, and other
customers.
DEVELOPMENTS IN SUPPLY CHAIN MANAGEMENT
Six major movements can be observed in the evolution of supply chain management
studies: Creation, Integration, and Globalization (Lavassani et al., 2008a),
Specialization Phases One and Two, and SCM 2.0.
1. Creation Era
The term supply chain management was first coined by an American industry
consultant in the early 1980s. However the concept of supply chain in management,
was of great importance long before in the early 20th century, especially by the
creation of the assembly line. The characteristics of this era of supply chain
management include the need for large scale changes, re-engineering, downsizing
driven by cost reduction programs, and widespread attention to the Japanese
practice of management.
2. Integration Era
This era of supply chain management studies was highlighted with the development
of Electronic Data Interchange (EDI) systems in the 1960s and developed through
the 1990s by the introduction of Enterprise Resource Planning (ERP) systems. This
era has continued to develop into the 21st century with the expansion of internet-
based collaborative systems. This era of SC evolution is characterized by both
increasing value-added and cost reduction through integration.
3. Globalization Era
The third movement of supply chain management development, globalization era, can
be characterized by the attention towards global systems of supplier relations and
the expansion of supply chain over national boundaries and into other continents.
Although the use of global sources in the supply chain of organizations can be
traced back to several decades ago (e.g. the oil industry), it was not until the
late 1980s that a considerable number of organizations started to integrate global
sources into their core business. This era is characterized by the globalization
of supply chain management in organizations with the goal of increasing
competitive advantage, creating more value-added, and reducing costs through
global sourcing.

Evolution of Supply Chain Management

4. Specialization Era—Phase One—Outsourced Manufacturing and Distribution


In the 1990s industries began to focus on “core competencies” and adopted a
specialization model. Companies abandoned vertical integration, sold off non-core
operations, and outsourced those functions to other companies. This changed
management requirements by extending the supply chain well beyond the four walls
and distributing management across specialized supply chain partnerships.
This transition also re-focused the fundamental perspectives of each respective
organization. OEMs became brand owners that needed deep visibility into their
supply base. They had to control the entire supply chain from above instead of
from within. Contract manufacturers had to manage bills of material with different
part numbering schemes from multiple OEMs and support customer requests for work
-in-process visibility and vendor-managed inventory (VMI).
The specialization model creates manufacturing and distribution networks composed
of multiple, individual supply chains specific to products, suppliers, and
customers who work together to design, manufacture, distribute, market, sell, and
service a product. The set of partners may change according to a given market,
region, or channel, resulting in a proliferation of trading partner environments,
each with its own unique characteristics and demands.
5. Specialization Era—Phase Two—Supply Chain Management as a Service
Specialization within the supply chain began in the 1980s with the inception of
transportation brokerages, warehouse management, and non asset based carriers and
has matured beyond transportation and logistics into aspects of supply planning,
collaboration, execution and performance management.
At any given moment, market forces could demand changes within suppliers,
logistics providers, locations, customers and any number of these specialized
participants within supply chain networks. This variability has significant effect
on the supply chain infrastructure, from the foundation layers of establishing and
managing the electronic communication between the trading partners to the more-
complex requirements, including the configuration of the processes and work flows
that are essential to the management of the network itself.
Supply chain specialization enables companies to improve their overall
competencies in the same way that outsourced manufacturing and distribution has
done; it allows them to focus on their core competencies and assemble networks of
best in class domain specific partners to contribute to the overall value chain
itself – thus increasing overall performance and efficiency. The ability to
quickly obtain and deploy this domain specific supply chain expertise without
developing and maintaining an entirely unique and complex competency in house is
the leading reason why supply chain specialization is gaining popularity.
Outsourced technology hosting for supply chain solutions debuted in the late 1990s
and has taken root in transportation and collaboration categories most dominantly.
This has progressed from the Application Service Provider (ASP) model from
approximately 1998 through 2003 to the On-Demand model from approximately 2003-
2006 to the Software as a Service (SaaS) model we are currently focused on today.
6. Supply Chain Management 2.0 (SCM 2.0)
Building off of globalization and specialization, SCM 2.0 has been coined to
describe both the changes within the supply chain itself as well as the evolution
of the processes, methods and tools that manage it in this new "era".
Web 2.0 is defined as a trend in the use of the World Wide Web that is meant to
increase creativity, information sharing, and collaboration among users. At its
core, the common attribute that Web 2.0 brings is it helps us navigate the vast
amount of information available on the web to find what we are looking for. It is
the notion of a usable pathway. SCM 2.0 follows this notion into supply chain
operations. It is the pathway to SCM results – the combination of the processes,
methodologies, tools and delivery options to guide companies to their results
quickly as the complexity and speed of the supply chain increase due to the
effects of global competition, rapid price fluctuations, surging oil prices, short
product life cycles, expanded specialization, near/far and off shoring, and talent
scarcity.
SCM 2.0 leverages proven solutions designed to rapidly deliver results with the
ability to quickly manage future change for continuous flexibility, value and
success. This is delivered through competency networks composed of best of breed
supply chain domain expertise to understand which elements, both operationally and
organizationally, are the critical few that deliver the results as well as the
intimate understanding of how to manage these elements to achieve desired results,
finally the solutions are delivered in a variety of options as no-touch via
business process outsourcing, mid-touch via managed services and software as a
service (SaaS), or high touch in the traditional software deployment model.
METRICS AND DATA COLLECTION
Management can be defined as the planning, execution, and control of goal oriented
activities. Today's supply chains are too complicated to be controlled based on
intuition. It is necessary to have access to statistical data on the performance
of the supply chain. A metric is a standard of measurement of performance. Figure
(from NEVEM-workgroup) shows the role of metrics in a control cycle. As we see the
metrics give the basis on which to evaluate the performance of processes in the
supply chain. They give managers the opportunity to follow the development of the
supply chain. We see from the figure that the choice of which data to collect is
of utmost importance. Only by collecting relevant data, can relevant metrics be
calculated and performance be evaluated. A supply chain in which the appropriate
data is not regularly collected cannot be properly managed.
FIGURE: A CONTROL CYCLE.
Components of Supply Chain Management Integration: The
Management Components Of SCM
The SCM components are the third element of the four-square circulation framework.
The level of integration and management of a business process link is a function
of the number and level, ranging from low to high, of components added to the link
(Ellram and Cooper, 1990; Houlihan, 1985). Consequently, adding more management
components or increasing the level of each component can increase the level of
integration of the business process link. The literature on business process re-
engineering, buyer-supplier relationships, and SCM suggests various possible
components that must receive managerial attention when managing supply
relationships. Lambert and Cooper (2000) identified the following components which
are:
• Planning and control
• Work structure
• Organization structure
• Product flow facility structure
• Information flow facility structure
• Management methods
• Power and leadership structure
• Risk and reward structure
• Culture and attitude

However, a more careful examination of the existing literaturewill lead us to a


more comprehensive structure of what should be the key critical supply chain
components, the "branches" of the previous identified supply chain business
processes, that is, what kind of relationship the components may have that are
related with suppliers and customers accordingly. Bowersox and Closs states that
the emphasis on cooperation represents the synergism leading to the highest level
of joint achievement (Bowersox and Closs, 1996). A primary level channel
participant is a business that is willing to participate in the inventory
ownership responsibility or assume other aspects of financial risk, thus including
primary level components (Bowersox and Closs, 1996). A secondary level participant
(specialized), is a business that participates in channel relationships by
performing essential services for primary participants, thus including secondary
level components, which are in support of primary participants. Third level
channel participants and components that will support the primary level channel
participants, and which are the fundamental branches of the secondary level
components, may also be included.
Consequently, Lambert and Cooper's framework of supply chain components does not
lead us to the conclusion about what are the primary or secondary (specialized)
level supply chain components (see Bowersox and Closs, 1996, p.g. 93). That is,
what supply chain components should be viewed as primary or secondary, how these
components should be structured in order to have a more comprehensive supply chain
structure, and to examine the supply chain as an integrative one (See above
sections 2.1 and 3.1).
Reverse Supply Chain Reverse logistics is the process of planning, implementing
and controlling the efficient, effective inbound flow and storage of secondary
goods and related information opposite to the traditional supply chain direction
for the purpose of recovering value or proper disposal. Reverse logistics is also
referred to as "Aftermarket Customer Services". In other words, anytime money is
taken from a company's Warranty Reserve or Service Logistics budget, that is a
Reverse Logistics operation.

SUPPLY CHAIN BUSINESS PROCESS INTEGRATION


Successful SCM requires a change from managing individual functions to integrating
activities into key supply chain processes. An example scenario: the purchasing
department places orders as requirements become appropriate. Marketing, responding
to customer demand, communicates with several distributors and retailers as it
attempts to satisfy this demand. Shared information between supply chain partners
can only be fully leveraged through process integration.
Supply chain business process integration involves collaborative work between
buyers and suppliers, joint product development, common systems and shared
information. According to Lambert and Cooper (2000) operating an integrated supply
chain requires continuous information flow. However, in many companies, management
has reached the conclusion that optimizing the product flows cannot be
accomplished without implementing a process approach to the business. The key
supply chain processes stated by Lambert (2004) are:
• Customer relationship management
• Customer service management
• Demand management
• Order fulfillment
• Manufacturing flow management
• Supplier relationship management
• Product development and commercialization
• Returns management
Best in Class companies have similar characteristics. They include the following:
a) Internal and external collaboration b) Lead time reduction initiatives c)
Tighter feedback from customer and market demand d) Customer level forecasting
One could suggest other key critical supply business processes combining these
processes stated by Lambert such as:
a. Customer service management
b. Procurement
c. Product development and commercialization
d. Manufacturing flow management/support
e. Physical distribution
f. Outsourcing/partnerships
g. Performance measurement

Supply Chain Schematic


a) Customer service management process
Customer Relationship Management concerns the relationship between the
organization and its customers. Customer service provides the source of customer
information. It also provides the customer with real-time information on promising
dates and product availability through interfaces with the company's production
and distribution operations. Successful organizations use following steps to build
customer relationships:
• determine mutually satisfying goals between organization and customers
• establish and maintain customer rapport
• produce positive feelings in the organization and the customers
b) Procurement process
Strategic plans are developed with suppliers to support the manufacturing flow
management process and development of new products. In firms where operations
extend globally, sourcing should be managed on a global basis. The desired outcome
is a win-win relationship, where both parties benefit, and reduction times in the
design cycle and product development are achieved. Also, the purchasing function
develops rapid communication systems, such as electronic data interchange (EDI)
and Internet linkages to transfer possible requirements more rapidly. Activities
related to obtaining products and materials from outside suppliers requires
performing resource planning, supply sourcing, negotiation, order placement,
inbound transportation, storage, handling and quality assurance, many of which
include the responsibility to coordinate with suppliers in scheduling, supply
continuity, hedging, and research into new sources or programs.
c) Product development and commercialization
Here, customers and suppliers must be united into the product development process,
thus to reduce time to market. As product life cycles shorten, the appropriate
products must be developed and successfully launched in ever shorter time-
schedules to remain competitive. According to Lambert and Cooper (2000), managers
of the product development and commercialization process must:
1. coordinate with customer relationship management to identify customer-
articulated needs;
2. select materials and suppliers in conjunction with procurement, and
3. develop production technology in manufacturing flow to manufacture and
integrate into the best supply chain flow for the product/market combination.
d) Manufacturing flow management process
The manufacturing process is produced and supplies products to the distribution
channels based on past forecasts. Manufacturing processes must be flexible to
respond to market changes, and must accommodate mass customization. Orders are
processes operating on a just-in-time (JIT) basis in minimum lot sizes. Also,
changes in the manufacturing flow process lead to shorter cycle times, meaning
improved responsiveness and efficiency of demand to customers. Activities related
to planning, scheduling and supporting manufacturing operations, such as work-in-
process storage, handling, transportation, and time phasing of components,
inventory at manufacturing sites and maximum flexibility in the coordination of
geographic and final assemblies postponement of physical distribution operations.
e) Physical distribution
This concerns movement of a finished product/service to customers. In physical
distribution, the customer is the final destination of a marketing channel, and
the availability of the product/service is a vital part of each channel
participant's marketing effort. It is also through the physical distribution
process that the time and space of customer service become an integral part of
marketing, thus it links a marketing channel with its customers (e.g. links
manufacturers, wholesalers, retailers).
f) Outsourcing/partnerships
This is not just outsourcing the procurement of materials and components, but also
outsourcing of services that traditionally have been provided in-house. The logic
of this trend is that the company will increasingly focus on those activities in
the value chain where it has a distinctive advantage and everything else it will
outsource. This movement has been particularly evident in logistics where the
provision of transport, warehousing and inventory control is increasingly
subcontracted to specialists or logistics partners. Also, to manage and control
this network of partners and suppliers requires a blend of both central and local
involvement. Hence, strategic decisions need to be taken centrally with the
monitoring and control of supplier performance and day-to-day liaison with
logistics partners being best managed at a local level.
g) Performance measurement
Experts found a strong relationship from the largest arcs of supplier and customer
integration to market share and profitability. By taking advantage of supplier
capabilities and emphasizing a long-term supply chain perspective in customer
relationships can be both correlated with firm performance. As logistics
competency becomes a more critical factor in creating and maintaining competitive
advantage, logistics measurement becomes increasingly important because the
difference between profitable and unprofitable operations becomes more narrow.
A.T. Kearney Consultants (1985) noted that firms engaging in comprehensive
performance measurement realized improvements in overall productivity. According
to experts internal measures are generally collected and analyzed by the firm
including
1. Cost
2. Customer Service
3. Productivity measures
4. Asset measurement, and
5. Quality.
External performance measurement is examined through customer perception measures
and "best practice" benchmarking, and includes 1) customer perception measurement,
and 2) best practice benchmarking. Components of Supply Chain Management are 1.
Standardization 2. Postponement 3. Customization

AN OVERVIEW OF SUPPLY & DISTRIBUTION


SUPPLY CHAIN NETWORK
Due to the rapid advancement of technology such as pervasive or ubiquitous
wireless and internet networks, connective product marking technologies like RFID
and emerging standards for the use of these defining specific locations using
Global Location Number(s), the basic supply chain is rapidly evolving into what is
known as a Supply Chain Network.
Origins of the Concept
All organizations have or can purchase the components to build a supply chain
network, it is the collection of physical locations, transportation vehicles and
supporting systems through which the products and services your firm markets are
managed and ultimately delivered.
Physical locations included in a Supply Chain Network can be manufacturing plants,
storage warehouses, carrier crossdocks, major distribution centres, ports,
intermodal terminals whether owned by your company, your suppliers, your transport
carrier, a third-party logistics provider, a retail store or your end customer.
Transportation modes that operate within a Supply Chain Network can include the
many different types of trucks, trains for boxcar or intermodal unit movement,
container ships or cargo planes.
The many systems which can be utilized to manage and improve a Supply Chain
Network include Order Management Systems, Warehouse Management System,
Transportation Management Systems, Strategic Logistics Modeling, Inventory
Management Systems, Replenishment Systems, Supply Chain Visibility, Optimization
Tools and more.
Emerging technologies and standards such as the RFID and the GS1 Global Standards
are now making it possible to automate these Supply Chain Networks in a real time
manner making them more efficient than the simple supply chain of the past.
Optimizing a company's supply chain network for carbon emissions is an effective
way for business to assist in combating Global Warming.
THEORIES OF SUPPLY CHAIN MANAGEMENT
Currently there exists a gap in the literature available in the area of supply
chain management studies, on providing theoretical support for explaining the
existence and the boundaries of supply chain management. Few authors such as
Halldorsson, et al. (2003), Ketchen and Hult (2006) and Lavassani, et al. (2008b)
had tried to provide theoretical foundations for different areas related to supply
chain with employing organizational theories. These theories includes:
• Resource-based view (RBV)
• Transaction Cost Analysis (TCA)
• Knowledge-based view (KBV)
• Strategic Choice Theory (SCT)
• Agency theory (AT)
• Institutional theory (InT)
• Systems Theory (ST)
• Network Perspective (NP)

SUPPLY CHAIN SUSTAINABILITY


Supply chain sustainability is a business issue affecting an organisation’s supply
chain or logistics network and is frequently quantified by comparison with SECH
ratings. SECH ratings are defined as social, ethical, cultural and health
footprints. Consumers have become more aware of the environmental impact of their
purchases and companies’ SECH ratings and, along with non-governmental
organisations ([NGO]s), are setting the agenda for transitions to organically-
grown foods, anti-sweatshop labour codes and locally-produced goods that support
independent and small businesses. Because supply chains frequently account for
over 75% of a company’s carbon footprint many organisations are exploring how they
can reduce this and thus improve their SECH rating.
Supply chain sustainability is a business issue affecting an organisation’s supply
chain or logistics network in terms of environmental, risk, and waste costs.
Sustainability in the supply chain is increasingly seen among high-level
executives as essential to delivering long-term profitability and has replaced
monetary cost, value, and speed as the dominant topic of discussion among
purchasing and supply professionals.
Background
Supply chains are critical links that connect an organisation’s inputs to its
outputs. Traditional challenges have included lowering costs, ensuring just-in-
time delivery, and shrinking transportation times to allow better reaction to
business challenges. However, the increasing environmental costs of these networks
and growing consumer pressure for eco-friendly products has led many organisations
to look at supply chain sustainability as a new measure of profitable logistics
management. This shift is reflected by an understanding that sustainable supply
chains frequently mean profitable supply chains.
Many companies are limited to measuring the sustainability of their own business
operations and are unable to extend this evaluation to their suppliers and
customers. This makes determining their true environmental costs highly
challenging and reduces their ability to remove waste from the supply chains.
One of the key requirements of successful sustainable supply chains is
collaboration. The practice of collaboration — such as sharing distribution to
reduce waste by ensuring that half-empty vehicles do not get sent out and that
deliveries to the same address are on the same truck — is not widespread because
many companies fear a loss of commercial control by working with others.
Investment in alternative modes of transportation — such as use of canals and
airships — can play an important role in helping companies reduce the cost and
environmental impact of their deliveries.
Three Tiers of Sustainability
In 2008, The Future Laboratory produced a ranking system for the different levels
of sustainability being achieved by organisations. This was called the Three Tiers
of Sustainability:
Tier 1: Getting the basics right
This is the base level and is the stage in which the majority of organisations are
at. Companies employ simple measures such as switching lights and PCs off when
left idle, recycling paper, and using greener forms of travel with the purpose of
reducing the day-to-day carbon footprint. Some companies also employ self-service
technologies such as centralised procurement and teleconferencing.
Tier 2: Learning to think sustainably
This is the second level, where companies begin to realise the need to embed
sustainability into supply chain operations. Companies tend to achieve this level
when they assess their impact across a local range of operations. In terms of the
supply chain, this could involve supplier management, product design,
manufacturing rationalisation, and distribution optimisation.
Tier 3: The science of sustainability
The third tier of supply chain sustainability uses auditing and benchmarks to
provide a framework for governing sustainable supply chain operations. This gives
clarity around the environmental impact of adjustments to supply chain agility,
flexibility, and cost in the supply chain network. Moving towards this level means
being driven by the current climate (in which companies recognise cost savings
through green operations as being significant) as well as pushing emerging
regulations and standards at both an industry and governmental level.
SUPPLY CHAIN OPTIMIZATION
Supply Chain Optimization is the application of processes and tools to ensure the
optimal operation of a manufacturing and distribution supply chain. This includes
the optimal placement of inventory within the supply chain, minimizing operating
costs (including manufacturing costs, transportation costs, and distribution
costs). This often involves the application of mathematical modeling techniques
using computer software.
WHAT NEED IS BEING ADDRESSED?
Typically, supply chain managers are trying to maximize the profitable operation
of their manufacturing and distribution supply chain. This could include measures
like maximizing gross margin return on inventory invested (GMROII)( balancing the
cost of inventory at all points in the supply chain with availability to the
customer ), minimizing total operating expenses (transportation, inventory and
manufacturing), or maximizing gross profit of products distributed through the
supply chain. Supply chain optimization addresses the general supply chain problem
of delivering products to customers at the lowest total cost and highest profit.
This includes trading off the costs of inventory, transportation, distributing and
manufacturing.
Supply chain optimization has applications in all industries manufacturing and/or
distributing goods, including retail, industrial products, and consumer packaged
goods (CPG).
WHAT APPROACHES AND SOLUTIONS EXIST?
The classic supply chain approach has been to try to forecast future inventory
demand as accurately as possible, by applying statistical trending and "best fit"
techniques based on historic demand and predicted future events. The advantage of
this approach is that it can be applied to data aggregated at a fairly high level
(e.g. category of merchandise, weekly, by group of customers), requiring modest
database sizes and small amounts of manipulation. Unpredictability in demand is
then managed by setting safety stock levels, so that for example a distributor
might hold two weeks of supply of an article with steady demand but twice that
amount for an article where the demand is more erratic.
Then, using this forecast demand, a supply chain manufacturing and distribution
plan is created to manufacture and distribute products to meet this forecast
demand at lowest cost (or highest profitability). This plan typically addresses
the following business concerns: - How much of each product should be manufactured
each day? - How much of each product should be made at each manufacturing plant? -
Which manufacturing plants should re-stock which warehouses with which products? -
What transportation modes should be used for warehouse replenishment and customer
deliveries?
The technical ability to record and manipulate larger databases more quickly has
now enabled a new breed of supply chain optimization solutions to emerge, which
are capable of forecasting at a much more granular level (for example, per article
per customer per day). Some vendors are applying "best fit" models to this data,
to which safety stock rules are applied, while other vendors have started to apply
stochastic techniques to the optimization problem. They calculate the most
desirable inventory level per article for each individual store for their retail
customers, trading off cost of inventory against expectation of sale. The
resulting optimized inventory level is known as a model stock. Meeting the model
stock level is also an area requiring optimization. Because the movement of
product to meet the model stock, called the stock transfer, needs to be in
economic shipping units such as complete unit loads or a full truckload, there are
a series of decisions that must be made. Many existing distribution requirements
planning systems round the quantity up to the nearest full shipping unit. The
creation of for example, truckloads as economic shipment units requires
optimization systems to ensure that axle constraints and space constraints are met
while loading can be achieved in a damage-free way. This is generally achieved by
continuing to add time-phased requirements until the loads meet some minimum
weight or cube. More sophisticated optimization algorithms (ORTEC) take into
account stackability constraints, load and unloading rules, palletizing logic,
warehouse efficiency and load stability with an objective to reduce transportation
spend (minimize 'shipping air').
Optimization solutions are typically part of, or linked to, the company's
replenishment systems distribution requirements planning, so that orders can be
automatically generated to maintain the model stock profile. The algorithms used
are similar to those used in making financial investment decisions; the analogy is
quite precise, as inventory can be considered to be an investment in prospective
return on sales.
Supply chain optimization may include refinements at various stages of the product
lifecycle, so that new, ongoing and obsolete items are optimised in different
ways: and adaptations for different classes of products, for example seasonal
merchandise.
Whilst most software vendors are offering supply chain optimization as a packaged
solution and integrated in ERP software, some vendors are running the software on
behalf of their clients as application service providers.
WHAT ARE THE CLAIMS FOR SUPPLY CHAIN OPTIMIZATION?
Firstly, the techniques being applied to supply chain optimization are claimed to
be academically credible. Most of the specialist companies have been created as a
result of research projects in academic institutions or consulting firms: and they
point to research articles, white papers, academic advisors and industry reviews
to support their credibility.
Secondly, the techniques are claimed to be commercially effective. The companies
publish case studies that show how clients have achieved reductions in inventory
whilst maintaining or improving availability. There is limited published data
outside of these case studies, and a reluctance for some practitioners to publish
details of their successes (which may be commercially sensitive), therefore hard
evidence is difficult to come by.
INVENTORY OPTIMIZATION
Inventory optimization is the second type of modeling and optimization capability.
Inventory optimization is a relatively new approach and technology, specifically
focused on modeling uncertainty and variability and minimizing the risks they
impose on the supply chain. Because of this need to capture and quantify these
risks, inventory optimization employs stochastic methods of analysis and
optimization. Advanced inventory optimization solutions also consider crucial
interdependencies that they can model and optimize multiechelon/ multi-stage
supply chain networks. Similar to network design, inventory optimization models
the supply chain with a "total supply chain cost" perspective, and uses
optimization-based solvers to output optimal answers. The outputs of inventory
optimization are optimal inventory locations (stocking points) and optimal
inventory amounts (target inventory levels) required to achieve customer service
targets, and drive planning approach decisions. This type of design is both
strategic and tactical in nature, therefore the modeling horizon is typically
quarterly, monthly, and sometimes weekly. This planning is accomplished at the
product line, potentially down to the SKU level (as appropriate), in order to
capture the effects of item-level variability. This approach also enables
inventory optimization to model and capture the correlation of demand streams, and
the benefits of risk pooling at appropriate points in the supply chain. Inventory
optimization utilizes a process flow approach to connecting the supply chain—
nodes represent process steps, each with an associated time and cost. Demand and
demand variance, supply lead-times and their variances, direct and indirect costs,
target services levels, and inventory holding costs are some of the primary costs
and constraints considered by inventory optimization.

FLOWCASTING
Collaborative Flowcasting is a business process that connects real time daily
consumer demand to trading partners in the retail supply chain to create an
integrated and comprehensive Model of the Business. While the concept is simple
and intuitive, technology has historically limited the ability of software
applications to scale economically a complete retail supply chain (in a time-
phased manner and one year into the future) to the volumes required by the largest
retailers and their suppliers
The Collaborative Flowcasting process starts at the head of the retail supply
chain (the retail store) and creates a unique sales forecast for every product in
every store and calculates time phased requirements one year into the future all
the way from the store shelf to the factory. This process enables retail trading
partners to manage their entire retail supply chain inside a single system and
driven by A Single Set of Numbers.
The Collaborative Flowcasting business process described in Andre Martin, Mike
Doherty and Jeff Harrop’s book “Flowcasting the Retail Supply Chain.”
Actual results to date demonstrate that deploying the Collaborative Flowcasting
business process will enable retailers and their trading partners to increase
store in- stock availability into the 98-99+% range resulting in sales increases
of 3%-4% at no additional incremental costs. Inventories across retail supply
chains in factories and DC’s will be reduced in the 20% to 40+% range and the cost
of operating retail supply chains will also be reduced in the 2 to 10+% range.
GLOBALIZATION
Through the past decades we have seen an increasing rate of globalization of the
economy and thereby also of supply chains. Products are no longer produced and
consumed within the same geographical area. Even the different parts of a product
may, and often do, come from all over the world. This creates longer and more
complex supply chains, and therefore it also changes the requirements within
supply chain management. This again affects the effectiveness of computer systems
employed in the supply chain.
A longer supply chain will often involve longer order to delivery lead times.
Flaherty states, in accordance with the discussion in Section, that the
consequences of longer lead times will often be;
• less dependable forecasts as these have to be made earlier,
• reduced production flexibility, i.e. greater difficulties to adjust to order
changes,
• higher levels of inventory.
The evident answer to the problem of longer lead times is to speed up the supply
chain. But a limit is often reached beyond which further effort to shorten lead
times are futile, especially in international supply chains. Another approach is
to restructure the supply chain. This simply means to reconsider the strategic
level decisions priorly made. A third approach identified by Flaherty is changing
coordination: The order, forecasting, procurement, and information sharing
procedures among the members of the supply chain. We will dwell on the issue of
coordination in the next section.
Globalization also brings foreign competition into markets that traditionally were
local. Local companies are thereby forced to respond by improving their
manufacturing practices and supply chain management. Bhatnagar et al states that
attempts have focused, among others, on reduction of inventory levels, and
increased flexibility through reduced lead times. Yet again we see how industry
focuses on the issues of inventory management and flexibility to maintain high
levels of customer satisfaction.
IMPROVING SUPPLY CHAIN MANAGEMENT
The above sections describe issues and challenges of supply chain management. It
is time to approach solutions. A key to improved supply chain management lies in
integration and coordination important tools of supply chain managers, modeling
and simulation.
Integration and Coordination
Definitions
The Webster's dictionary defines to integrate as: To make into a whole by bringing
all parts together; unify. In an enterprise, integration can simply mean that each
unit of the organization will have access to information relevant to its task and
will understand how its actions will impact other parts of the organization
thereby enabling it to choose alternatives that optimize the organization's goals.
The key to integration is coordination. To coordinate is to manage dependencies
among activities so as to achieve coherent operation of the entire system in
question.
General and Multi-Plant Coordination
Much research effort has been put into optimizing the performance of supply
chains. The major part of the early work tends to focus on very limited segments,
e.g. only material procurement, manufacturing, or distribution, and treat these as
separate systems. Though this might lead to improved performance in the segment in
question, the complex interaction among supply chain segments is ignored. Thereby
potential gains from coordination are lost.
In later years we have seen an increasing focus on the integration of different
segments of the supply chain. As for example Cohen and Lee and Chandra and Fisher
who treat integration and coordination of production and distribution functions.
These efforts are what Bhatnagar et al., who have reviewed the existing works on
coordination, refer to as general coordination. Bhatnagar et al. distinguish
between two broad levels of coordination. General coordination is the integration
of different functions, e.g. inventory and production planning, sales, and
distribution.

Figure: A very schematic illustration of what Bathnagar et al. calls General


Coordination (top) and Multi-Plant Coordination (bottom).
The other level of coordination identified, is that on which production decisions
are coordinated among the plants of an internal supply chain. This is referred to
as multi-plant coordination. The objective of multi-plant coordination is to
coordinate the production plans of several plants in a vertically integrated
manufacturing company so that the overall performance of the company is improved.
Still according to Bhatnagar et al., in order for such coordination to be
efficient, the effects of uncertainty of final demand, uncertainties in production
process at each plant, and capacity constraints at each plant must be taken into
consideration. Fig. illustrates, in a very schematic way, the principles of these
two levels of coordination. Batnagar et al. conclude that there is much overlap
and interaction between the two coordination levels, but there is today(1992) no
unified body of literature on the issue. Research effort is required.
RECENT DEVELOPMENTS
The trend to provide software as a service is a new business model that is now
being applied to building and designing optimization solutions. Services are
charged as used, rather than through licensing installed or hosted software.
Information Technology: An Unrealized Potential?
The rapid development within the information technology and software engineering
gives unprecedented opportunities for integration and coordination. The modern
computer networks have the ability to rapidly distribute information to all
concerned entities of an enterprise. The networks also present an infrastructure
for coordination of planning and operational processes, not only within
organizations, but also among them.
Chee et al. states that there is an unrealized potential for using information
technology in support of network coordination (1996). A survey was done of more
than forty computer manufacturers. It was found that only about 15% of the
partners were communicating through EDI. It was also found that much of the
coordination activity occurs above the operational level.
Modeling and Simulation
A good explanation to the notions of modeling and simulation are given by Law and
Kelton. The facility or process of interest is usually called a system, and in
order to study it scientifically we often have to make a set of assumptions about
how it works. These assumptions, which usually take the form of mathematical or
logical relationships, constitute a model that is used to try to gain some
understanding of how the corresponding system behaves. If the relationships that
compose the model are simple enough, it may be possible to use mathematical
methods (such as algebra, calculus, or probability theory) to obtain exact
information on questions of interest; this is called an analytic solution.
However, most real-world systems are too complex to allow realistic models to be
evaluated analytically, and these models must be studied by means of simulation.
In a simulation we use a computer to evaluate a model numerically, and data are
gathered in order to estimate the desired true characteristic of the model.
Modeling has been used as a tool within supply chain management for several
decades. Early models of the supply chain, or segments thereof, where evaluated
analytically. As is stated by the above quote, this method is not powerful enough
to understand real-world systems. Swaminathan et al. states that in recent years
simulation as a tool for understanding issues of organizational decision-making
has gained considerable attention and momentum. They mention the use modeling and
simulation on the supply chain with different purposes, including studies of the
effects of various supply chain strategies on demand amplification and a study of
the effect of sharing supplier available-to-promise information.
Modeling and simulation is most often used to test the impact strategic level
decisions have on supply chain performance. This may for example be the impact of
restructuring the supply chain by reducing the number of plants, changing modes of
transport, or relocating warehouses. Simulation as a method, does not give the
optimal solution. It simply allows the user to test different solutions.
Simulations are run with various parameters or ``set-ups'', and the results are
analyzed and compared to arrive at the optimal solution among those tested.

SUPPLY CHAIN RISK MANAGEMENT


Supply Chain Risk Management (SCRM) is a discipline of Risk Management which
attempts to identify potential disruptions to continued manufacturing production
and thereby commercial financial exposure.
Supply Chain Exposures
Sometimes, it's possible for Supply Chain Logistics techniques such as Supply
chain optimization to prejudice contingency planning which would otherwise reduce
the overall risk level for that particular supply chain.
Contingency Options
Some options to engineer an acceptable risk level include:
• Managing stock
• Considering alternative sourcing arrangements
• Business Interruption / Contingency Insurance
SUPPLY CHAIN SECURITY
Supply chain security refers to efforts to enhance the security of the supply
chain: the transport and logistics system for the world's cargo. It combines
traditional practices of supply chain management with the security requirements of
the system, which are driven by threats such as terrorism, piracy, and theft.
Typical supply chain security activities include:
• Credentialing of participants in the supply chain.
• Screening and validating of the contents of cargo being shipped.
• Advance notification of the contents to the destination country.
• Ensuring the security of cargo while in-transit via the use of locks and
tamper-proof seals.
• Inspecting cargo on entry.
Key initiatives
There are a number of supply chain security initiatives in the United States and
around the world today. These include:
• The Customs Trade Partnership against Terrorism (C-TPAT), a voluntary
compliance program for companies to improve the security of their corporate supply
chains.
• The Authorized Economic Operator as part of the World Customs Organization
SAFE framework of standards
• The Container Security Initiative, a program led by U.S. Customs and Border
Protection in the Department of Homeland Security focused on screening containers
at foreign ports.
• Efforts for countries around the world to implement and enforce the
International Ship and Port Facility Security Code (ISPS Code), an agreement of
148 countries that are members of the International Maritime Organization (IMO).
• Pilot initiatives by companies in the private sector to track and monitor
the integrity of cargo containers moving around the world using technologies such
as RFID and GPS.
• The International Organization for Standardization have released a series of
Standards for the establishment and management of supply chain security. ISO/PAS
28000 - Specification for security management systems for the supply chain, offers
public and private enterprise an international high-level management standard that
enables organisations to utilise a globally consistent management approach to
applying supply chain security initiatives
VALUE CHAIN
The value chain, also known as value chain analysis, is a concept from business
management that was first described and popularized by Michael Porter in his 1985
best-seller, Competitive Advantage: Creating and Sustaining Superior Performance.
A value chain is a chain of activities. Products pass through all activities of
the chain in order and at each activity the product gains some value. The chain of
activities gives the products more added value than the sum of added values of all
activities. It is important not to mix the concept of the value chain with the
costs occurring throughout the activities. A diamond cutter can be used as an
example of the difference. The cutting activity may have a low cost, but the
activity adds much of the value to the end product, since a rough diamond is
significantly less valuable than a cut diamond.
The value chain categorizes the generic value-adding activities of an
organization. The "primary activities" include: inbound logistics, operations
(production), outbound logistics, marketing and sales (demand), and services
(maintenance). The "support activities" include: administrative infrastructure
management, human resource management, technology (R&D), and procurement. The
costs and value drivers are identified for each value activity. The value chain
framework quickly made its way to the forefront of management thought as a
powerful analysis tool for strategic planning. The simpler concept of value
streams, a cross-functional process which was developed over the next decade,[1]
had some success in the early 1990s[2].
The value-chain concept has been extended beyond individual organizations. It can
apply to whole supply chains and distribution networks. The delivery of a mix of
products and services to the end customer will mobilize different economic
factors, each managing its own value chain. The industry wide synchronized
interactions of those local value chains create an extended value chain, sometimes
global in extent. Porter terms this larger interconnected system of value chains
the "value system." A value system includes the value chains of a firm's supplier
(and their suppliers all the way back), the firm itself, the firm distribution
channels, and the firm's buyers (and presumably extended to the buyers of their
products, and so on).
Capturing the value generated along the chain is the new approach taken by many
management strategists. For example, a manufacturer might require its parts
suppliers to be located nearby its assembly plant to minimize the cost of
transportation. By exploiting the upstream and downstream information flowing
along the value chain, the firms may try to bypass the intermediaries creating new
business models, or in other ways create improvements in its value system.
The Supply-Chain Council, a global trade consortium in operation with over 700
member companies, governmental, academic, and consulting groups participating in
the last 10 years, manages the Supply-Chain Operations Reference (SCOR), the de
facto universal reference model for Supply Chain including Planning, Procurement,
Manufacturing, Order Management, Logistics, Returns, and Retail; Product and
Service Design including Design Planning, Research, Prototyping, Integration,
Launch and Revision, and Sales including CRM, Service Support, Sales, and Contract
Management which are congruent to the Porter framework. The SCOR framework has
been adopted by hundreds of companies as well as national entities as a standard
for business excellence, and the US DOD has adopted the newly-launched Design-
Chain Operations Reference (DCOR) framework for product design as a standard to
use for managing their development processes. In addition to process elements,
these reference frameworks also maintain a vast database of standard process
metrics aligned to the Porter model, as well as a large and constantly researched
database of prescriptive universal best practices for process execution.
VALUE REFERENCE MODEL
A Value Reference Model (VRM) developed by the global not for profit Value Chain
Group offers an open source semantic dictionary for value chain management
encompassing one unified reference framework representing the process domains of
product development, customer relations and supply networks.
The integrated process framework guides the modeling, design, and measurement of
business performance by uniquely encompassing the plan, govern and execute
requirements for the design, product, and customer aspects of business.
The Value Chain Group claims VRM to be next generation Business Process Management
that enables value reference modeling of all business processes and provides
product excellence, operations excellence, and customer excellence.
Six business functions of the Value Chain:
• Research and Development
• Design of Products, Services, or Processes
• Production
• Marketing & Sales
• Distribution
• Customer Service
VALUE NETWORK
A value network is a complex set of social and technical resources. Value networks
work together via relationships to create social goods (public goods) or economic
value.
This value takes the form of knowledge and other intangibles and/or financial
value. Value networks exhibit interdependence. They account for the overall worth
of products and services. Companies have both internal and external value
networks.
External value networks
External facing networks include customers or recipients, intermediaries,
stakeholders, complementors, open innovation networks and suppliers.
Internal value networks
Internal value networks focus on key activities, processes and relationships that
cut across internal boundaries, such as order fulfillment, innovation, lead
processing, or customer support. Value is created through exchange and the
relationships between roles. Value networks operate in public agencies, civil
society, in the enterprise, institutional settings, and all forms of organization.
Value networks advance innovation, wealth, social good and environmental well-
being.
Important terms and concepts
Tangible value
All exchanges of goods, services or revenue, including all transactions involving
contracts, invoices, return receipt of orders, request for proposals,
confirmations and payment are considered to be tangible value. Products or
services that generate revenue or are expected as part of a service are also
included in the tangible value flow of goods, services, and revenue (2). In
government agencies these would be mandated activities. In civil society
organizations these would be formal commitments to provide resources or services.
Intangible value
Two primary subcategories are included in intangible value: knowledge and
benefits. Intangible knowledge exchanges include strategic information, planning
knowledge, process knowledge, technical know-how, collaborative design and policy
development; which support the product and service tangible value network.
Intangible benefits are also considered favors that can be offered from one person
to another. Examples include offering political or emotional support to someone.
Another example of intangible value is when a research organization asks someone
to volunteer their time and expertise to a project in exchange for the intangible
benefit of prestige by affiliation (3).
All biological organisms, including humans, function in a self-organizing mode
internally and externally. That is, the elements in our bodies—down to individual
cells and DNA molecules—work together in order to sustain us. However, there is no
central “boss” to control this dynamic activity. Our relationships with other
individuals also progress through the same circular free flowing process as we
search for outcomes that are best for our well-being. Under the right conditions
these social exchanges can be extraordinarily altruistic. Conversely, they can
also be quite self-centered and even violent. It all depends on the context of the
immediate environment and the people involved.
FLEXIBILITY, INVENTORIES, AND CUSTOMER SERVICE
Satisfied customers is the desired end result of any supply chain management
strategy the three key terms within supply chain management:
Customer satisfaction
says something about the level of satisfaction among a company's customers. It is
in this sense a very vague term. Therefore customer service is often discussed in
terms of the metrics which are used to measure it. Typical measures of customer
service are a company's ability to fill orders within due date (fill rate), or its
ability to deliver products to customers within the time quoted (on-time
deliveries). Other metrics should be used to for example evaluate the delivery
performance of orders that are not delivered on-time. A way to indicate this is to
measure the average time from order to delivery.
Inventories:
Manufacturing entities have inventories for raw products (RPI), products in the
production process (WIP), and finished products (FGI). In addition there are often
warehouses or distribution centers between the different levels of the supply
chain. Inventories are costly. Binding capital in inventories prevents the company
from investing this capital in projects of higher return. The holing cost
inventories are therefore often set as high as 30 - 40% of the inventory value! In
addition it is desirable to avoid so-called dead inventory, i.e. inventory that is
left when a product is no longer on the market (often referred to as end of life
(EOL) write-off).
As we see it is in every company's interest to keep inventory levels at a minimum.
Much effort has been put into this, for example an entire manufacturing paradigm
has come out of it. A main objective of the Just in Time (JIT) paradigm is to
virtually abolish inventories. The efforts made have been more or less successful
Flexibility
can be defined as the ability to respond to changes in the environment. In the
case of a manufacturer, flexibility is the ability to change the output in
response to changes in the demand. In a supply chain the flexibility of one entity
is highly dependent on the flexibility of upstream entities (see Fig.). The
overall flexibility of a supply chain will therefore depend on the flexibility of
all the entities in a supply chain, and their interrelations.

Figure: Illustrating how flexibility, inventories, and customer service are


interrelated.
TWO UNUSUAL EXAMPLE OF SCM
Two unusual examples of SCM, wal-mart & dell computers both highly successful both
multinationals. Wal-Mart being the pioneering exponent of scm rightly explained to
the entire world the necessity of producing as per the market demand & decreasing
on the concept of inventory sustainenability in fact Wal-Mart is the largest
retailer in the world. Dell on the other hand an ideal when concerned by SCM
processes utilization, i.e. manufacturing products where they can be made cheaply
using different by parts from areas where they can be availed with least cost,
better efficiency ,& best technology utilization. SCM has in fact diversified its
utility in various fields taking from manufacturing, retail, construction and even
military. Armed forces are thought to the initial users of SCM, but its utility is
not only restricted to army rather antisocial elements like gangsters and
terrorists also use SCM for their activities. The 93 Bombay blast, the attack of
9/11 on the US , the whole underworld mafia of MUMBAI, PARIS etc. are some of the
best studied examples of SCM and its utilities. When we say best studied there is
one more example & that is the example of MUMBAI DABBABALAS, it is really
surprising to know that these people with meager literacy and even more meager
advantage of technology are able to provide food to such a huge population without
any delay or mistake. In fact their example has become a case study in the
curriculum of the most elite B-schools. The exact utility of SCM can be summed up
using following analysis.
CONCLUSION:
Supply chain management is a major competitive weapon in 21th century business
chain, it is a strategic business issue in today’s economy because of continuous
changes regarding: Globalization, Outsourcing, Customization, Shorter Product Life
Cycles. Because “A 5% reduction in costs can have the same effect on the bottom
line as a 25% increase in turnover”. Entrepreneurship and innovation are needed to
respond to change and thus provide competitive advantage and SCM inculcates this
very ideal in business. Finally speaking SCM has emerged as a boon to human, their
needs ,and finally to their industry and their Earth, but non judicious use of
boon may also lead to a bigger bane.
REFERENCES
scmlowdown.com (Lee H, Billington C (1995) The Evolution of Supply-Chain
Management Models and Practice at Hewlett-Packard, Interfaces 25 (5), pp 42-63,
Sept/Oct 1995.)
scmmicro.com/ Ganeshan R, Harrison T P (1995) An Introduction to Supply Chain
Management, Penn lcm.csa.iisc.ernet.in/scm/supply_chain_intro.html State
University Saunders M J (1997) Strategic Purchasing and Supply Chain Management,
Pitman, London
EPA (2000) The Lean and Green Supply Chain.Posted on course website as EPA 2000.
supply-chain/offerings/scm-practice /Tirole J (1988) The Theory of Industrial
Organization, MIT Press, Cambridge, MA)
wikipedia.org/wiki/Supply_chain_management /scm/scmfig.

THE END