Module – 1

Supply Chain Management Practices and Strategies

e-content, Glossary, References and Weblinks, Case studies.

I was relaxing in the garden one summer morning, I was thinking of, how many
products and services keep me comfortable and happy. Oops! I realised in a day’s life
it is many products. I still wonder how do so many products reach from the supplier to
me? How do the companies bring their products to me? Then, I realised it is all about
supply chains and supply chain management. The lessons on Supply Chain
Management Practices and Strategies will induce you to think as a customer and
design supply chains and supply chain management systems for Corporates.
The module is designed with three lessons namely
1. Supply chains.
2. Integrated Supply Chain Management.
3. Supply chain – Goals and Objectives

Learning Objectives
The Objectives of the module are to
• Link the customer view of the supply chain to the organizational perspective.
• Provide insights on supply chains and integrated supply chain management
processes.
• Trigger your thinking to design simple integrated supply chain management
systems.
• Comprehend objectives of supply chain, supply chain surplus, and strategic
selection of supply chain models.

Learning Outcomes
By the end of the module, the learner will be able to
• Identify the processes and practices that can lead to design and manage supply
chains.
• Suggest measures to effectively implement an integrated supply chain
management system.
• Comprehend the goals of supply chain of various organisations and their
related supply chain models.
• Define supply chain objectives and relate it to supply chain models.

Lesson – 1: Supply Chains

A supply chain is a flow of raw materials and processes that fulfills a customer need
Imagine you get up in the morning and look for a cup of coffee. You walk to the kitchen
shelf, take the coffee powder and sugar, and the milk from the refrigerator. You switch
on the stove, set the water to boil and follow the process to make coffee, with a cup of
coffee, you wonder what it takes to get the cup of coffee in the morning?. Then comes
the supply chain.

Let us consider the major raw material requirements for processing a cup of coffee
namely the cooking gas, utensils (coffee kettle and a cup), water, coffee powder,
sugar, and milk.

Moving backward as a consumer you can identify the primary supply chains that are
needed to get the cup of coffee:

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Supply Chain for a Cup Of Coffee.

In short, a supply chain is a process that satisfies customer needs and consists of
multiple entities that are linked through the flow of products, information, and funds.

Transferring the experience of coffee at home to a world-class Starbucks coffee, we

can understand the supply chain in the business sense:

Supply Chain of Starbucks

Starbucks Corporation with more than 24000 stores in 70 countries starts the journey
of customer fulfillment with a cup of coffee across the world with its hand-picked coffee
beans and other merchandise sourced across the globe. The goal of Starbucks supply
chain is to reduce cost and improve efficiency, it follows a Plan- Source – Make-
Deliver model of supply chain.

Plan
In 2008, Starbucks to meet the competition, planned and re-engineered its supply
chain with three major objectives namely
▪ Re-organize to centralize its fragmented supply chain
▪ Cut cost and improve services
▪ Design supply chains to meet their future capabilities.

Source
As a sustainable sourcing strategy, Starbucks worked directly with its nearly 300,000
coffee growers who met the Starbucks coffee and Farmers Equity standards and
Coffee Sourcing Guidelines (CSG). Starbucks' interaction with farmers ensures that
coffee beans are of the same quality and flavour. This empowers the suppliers to meet

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Quality standards, Ethical standards like protecting workers’ rights and human working
conditions, and Sustainability through social responsibility.

Make
The hand-picked coffee beans generally sourced from Latin America, Africa, and Asia
are shipped in ocean containers to its 6 company-owned coffee roasting plants in the
USA and Europe referred to as Green warehouses. The beans are roasted and
packed in the coffee roasting plants. The company also relies on 24 co-manufacturers
in United States, Canada, Europe, Asia, and Latin America. “One world one logistics
systems” of Starbucks reduced the transportation and logistics cost and increased
efficiency.

Deliver
After the coffee bean is roasted and packed, it is transported to Regional distribution
centres. Starbucks has 5 in the USA of which 3 is owned by Starbucks and 2 are third-
party logistics companies, 2 third-party logistics companies in Europe, and 2 third-
party logistics companies in Asia. The regional distribution centres carry everything
that a Starbucks store need from furniture to cappuccino cups.

The regional distribution centres supply directly to the stores if it has a location
advantage, if not the stores are supplied from third party Central Distribution Centres.
Starbucks uses 33 third-party central distribution centres in the USA, 7 in the Asia /
Pacific region, and 3 in Europe, and all are well connected to the regional distribution
centres. The effective communication and scorecard assessment ensure consistency,
on-time delivery, reducing end to end supply chain cost, and enhanced enterprise
efficiency.

Further, Starbucks is vertically integrated to provide customer delight. Starbucks is

integrated backward through purchase agreements with coffee growers and company-
owned coffee bean farms in Costa Rica and China, Company-owned bean roasting
plants and warehousing, and distribution facilities. It is integrated forward with its
coffee shop selling Foods and Drinks, Coffee beans and appliances, and accessories.

The holistic supply chain model of Starbucks depicts that the success of Starbucks
infact is its definition and redefinition of its supply chain to meet the global challenges

So, “What is a Supply Chain?”

A supply chain is an inclusive network of raw material and merchandise suppliers,
manufacturers, logistics partners, distributors, retailers, and consumers who are linked
through the flow of products and services, information, and funds to meet a customer
need or rather a dream.

A supply chain is a
▪ Collection of suppliers linked to create one specific product/ service for a company.
▪ Every product has its supply chain, though certain suppliers are linked to multiple
products.
▪ It is a chain or network of nodes or "links," which can include multiple suppliers,
manufacturers and subcontractors, warehouses, distribution centres, and stores
from where a consumer purchases.
▪ Each link in a supply chain is sequenced in a specific direction and order.

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 ▪ Each link in a supply chain adds time, costs, and customer service.
▪ Supply chains are complicated and when managed well lead to competitive
advantage.
▪ It involves human interfaces, digital integration, and logistics partnership.
▪ Effective and responsive supply chains can be designed with Plan – Source –
manufacture – deliver model.
▪ To ensure effective control over supplies, value chain, and customer service,
the supply chain can be integrated either vertically or horizontally or both.
▪ Benchmarking best practices and adapting to them leads to sustainable supply
chains.

Exercises - 1
1. From your experience as a consumer depict a supply chain.
2. Name the brand you like and sketch the supply chain for it.

Lesson – 2: Integrated Supply Chain Management Processes and Practices

A supply chain is how you plan, source, make and deliver the product and services by
linking suppliers, distributors, manufacturers, logistics partners, retailers, and
consumers.

With this understanding let us now move on to understand What is Integrated Supply
Chain Management?

An integrated supply chain is about integrating the supply chain processes namely
plan – source – make – deliver. In the words of W.P. Carey, integrated supply chain
management is a process of linking the functions of buy it, make it, move it, sell it, and
service it.

In short, an integrated supply chain management is a process that links the plan –
source – make – deliver functions to provide efficient and responsive services to
customers.

Now let us understand the process of Integrated supply chain management by

understanding the supply chain of Amul- the taste of India. AMUL was launched in
1946, by the Gujarat Co-operative federation and has created the white revolution in
India with its focus on quality, value for money, availability, and service to customers.
The supply chain management process of Amul can be explained as follows:

Buy it: Dairy farmers in the villages supply milk to the Village Cooperative Societies
where milk is cooled and stored using chillers. Chilled milk is transported from the
Village cooperative societies to the District unions.

Make it: Milk is pasteurized in the District Union. Pasteurized milk is transported to the
State Co-operation Marketing Federation (GCMMF) factories where dairy products are
manufactured and branded

Move and Market it: Products are transported to various wholesale and retail stores.
Amul has an extended supply chain to Amul’s food factory Reverse logistics to return
milk churn, pouch milk tray, bottles, and damaged products to the dairy is effective in
Amul.

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Let us now map each of the processes

Process 1: Buy it
The upstream supply chain of Amul links the farmers and village cooperative societies.
The milk is procured at the local cooperative milk collection centre and transported to
the cold storage network and the process is as follows:
Buy it – links farmers to local cooperative milk collection societies
Every farmer who supplies milk to Amul is given a plastic card for identification.
Farmer's identification number is captured and transmitted to the local personal
computer. Milk weighed and fat content measured. The amount due to the farmer is
calculated based on the fat content. Value of the milk is printed on the slip and farmers
collect the payment. Village Co-operative society, in turn, provides cattle feed,
veterinary service, and rural health schemes to ensure the quality of milk and suppler
well- being.
The process at Amul from supplier identification to payment is digitally integrated with
Automatic Milk Collection Unit Systems (AMCUS). Amul has implemented Geographic
Information Systems (GIS) for tracking of milk at the village collection centres. The
Dairy Information and Service Kiosk (DISK) is set to establish a good supplier
relationship. The kiosk provides information to improve cattle yield and connects them
to procure or collaborate with dairy products and services suppliers. It also provides
information and functions as a decision support system for Village collection centres
to improve performance.

Process 2: Make it and move it

At Amul, the milk is pasteurized at the District Milk Unions referred to as the Cool
storage network. The internal supply chain of “Make it “starts with the milk being
received at District Milk unions with chilling plants.
Amul’s chillers (District Milk Unions) are strategically located in proximity to the villages
and delivery to local chillers is by insulated rail tankers and chilled trucks. Amul
facilitates prompt transportation to district facilities and further dispatch it to consumer
or processing units. Transport of processed products is through chilled trucks to
distribution centers. Electronic systems to track inventory provides information for
replenishment schedules.
Amul has interconnected its zonal offices, regional offices, and member diaries
through VSAT, and Gujarat Co-operative Federation has a strategic tie-up with IBM to
implement SAP ERP on IBM technologies. This will digitally connect end to end
business processes and ensure effective supply chain performance.

Process 3: Move it and sell it

The downstream supply chain of Amul indicates that processed milk and dairy
products move from dairy unions to GCMMF owned warehouses. Orders are received
by GCMMF (Devas Naka) and products are distributed through its 56 Sales offices,
and a network of 10,000 dealers and 100,000 retailers. Amul adopts a three-tier
downstream flow as. Manufacturing units - Company depots- Wholesale depots –
Retailers and Direct retailing through Amul utterly delicious parlours/franchisees.
Logistics decisions for distribution are controlled by Amul and the transportation cost
is borne by Amul. GCMMF monitors suppliers of milk and distributors of finished
goods. Effective reverse logistics minimizes cost. Amul has established a B2B and
B2C portal that links its supply partners, distributors, and customers, and it e -sells all
its products through cyber stores.

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Process 4: Integrate it
Amul as a Cooperative society has integrated its supply chain effectively both vertically
and horizontally. The basic advantage of Amul’s supply chain is
▪ It’s backward integration with dairy farmers who are members and the village
co-operative societies who function as collection centres.
▪ It’s forward integration to meet customers is through Amul utterly delicious
parlours/ franchisees and Amul ‘s cyberstores.

What are some of the lessons learnt from Amul’s integrated supply chain
management processes?
Lessons Learnt – Buy it
▪ Geographic proximity of supplies provides a competitive advantage
▪ Provide simple automated procurement services to reduce procurement time.
▪ Develop a long-term supplier relationship
▪ Provide support systems to suppliers for improved productivity and to meet
quality standards
▪ Partnering and revenue sharing with the supplier to indicate your growth is also
his growth.
▪ Digital integration provides better supplier service and ensures quality
assessment and speedy delivery by suppliers.
Lessons Learnt – Make it and move it
▪ Strategic location of manufacturing facilities that captures local manufacturing
advantages.
▪ Resources and internal logistics systems need to be designed to suit the
product and process type.
▪ Outsourcing decisions for supply chain processes and supporting processes
determine the success of supply chain management.
▪ Digital integration with enterprise resource planning enhances supply chain
efficiency and responsiveness.
Lesson learnt: Move it and sell it
▪ Storage, transportation, and logistics need to be monitored effectively.
▪ Cost and lead time in transportation is an important factor to be considered in
the supply chain.
▪ A network of distributors need to be maintained without conflict of interest
▪ Digital integration needs to trigger customer analysis, integrate demand
management with supply chains.
▪ Design Business portals and cyber stores for responsive supply chains.
Lessons Learnt – Integrate it
▪ Vertical and horizontal integration is the extended supply chain of any
organization
▪ Design effective processes that ensure quality, speedy delivery, and flexibility
across the supply chain partners.

To sum up, integrated supply chain management is about linking 5 functions namely
buy it, make it, move it, sell and service it, integrate it and this is achieved by well-
designed and unique supply chain processes namely Customer analysis, Supplier
partnership, Inventory management, Materials and lead time management,
Manufacturing and outsourcing, Storage, logistics, and transportation, Selling and
servicing. Through perfectly designed downstream, internal and upstream supply
chains that are vertically and horizontally integrated.

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Effectively integrated supply chains are achieved by
▪ Proper mapping of all the functions and activities across the supply chain and
eliminating unnecessary processes. (lean supply chain management)
▪ Creating a culture that respects quality, speedy delivery and flexibility to meet
the changing demand, among the team members and the extended supply
chain partners (agile supply chain management)
▪ Focusing on sustainable supply chains (Green supply chains management)

Exercise
Now an exercise for you to help you comprehend and design integrated supply chain
management systems
▪ List the integrated supply chain processes that can create a competitive
advantage.
▪ The cooking gas agent supplying cooking gas cylinders to your house is worried
about the spiralling distribution cost and diminishing profits. He cannot pass on
the price fluctuations to the customer as he has to distribute the cooking gas
cylinders at the government rates. map his supply chain and give five
suggestions to improve its efficiency at a reduced cost.

Lesson – 3: Supply Chain – Goals and Strategies

Supply chain is a sequence of functions and activities involved in delivering a product
or service. It is a complex network of organisations who supply, partner, and
collaborate to fulfill a customer need.

This is also referred to as value chain consisting of three parts namely

• Upstream supply chain (Procurement and inbound logistics)
• Manufacturing or operations logistics (Material management, inventory and
internal logistics),
• Downstream supply chain (Outbound logistics, marketing, and after-sales).

Supply chain function determines the success and failure of an organisation as it is

customer-centric and directed towards customer satisfaction.

Objective of Supply Chain and Supply Chain Management

Imagine you are arriving home late and you want a quick dinner you call a home
service and order your dinner. the moment you place your order the supply chain
process starts and it ends when you receive the order bur the success of the supply
chain is achieved if you have received the order as specified by you, the food is tasty
and fresh and if it reached you within the time anticipated and made you feel you have
not paid more for the service. From the customer perspective and the organisational
perspective.

The goal of the supply chain is to optimise the 7Rs namely providing to the right
customer the right product of the right quantity and right condition for the right price at
the right place and right time and this is possible only through the integration of
processes that ensure effective flow of products, information, and funds.

From the organisational perspective, the goal of supply chain is to optimise the 7Rs at
the least cost and minimum lead time this in financial terms is the Supply Chain
surplus

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Supply Chain Surplus
The objective of every supply chain is to maximise the overall value generated or
supply chain surplus
Supply chain surplus = Customer value- Supply chain cost

Customer Value is the benefit that a customer gets from the product or service and
from the firm’s perspective it indicates revenue generated from the customer. Supply
chain cost involves the cost of the flow of product/service, information, and funds.
Effective supply chains are achieved by optimising the supply chain assets and
products, information and funds flow to maximise supply chain surplus. The supply
chain decisions focus on responsive deliveries at the lowest cost and supply chain
decisions in connection with supply chain surplus should be viewed from the
competitor’s perspective.

Explaining this with an example of two occasions when a customer wants to buy a kg
of apples.
▪ Occasion one: he visits the supermarket with his family and picks one kg of apples
▪ Occasion two: he visits his friend in the hospital and buys a kg of apples from the
juice shop near the hospital

With little differentiation in the quality of apple, let us calculate the supply chain surplus
for a kg of apple in these two occasions
Occasion Customer with the family visits a Customer visiting his
supermarket on a Sunday and friend in the hospital and
buy a kg of apples buying a kg of apples at
the local fruit stall near the
hospital
Customer Spent some family time and at the Buys the apples based on,
experience time complete the task of quality, availability, and
replenishing his monthly stock proximity to purchase
Customer Sum of customer value for (1 kg of sum of customer value for
value apples +label on the apple (1 kg of apple+ quality
+convenience +family time + luxury +convenience +quick
enjoyed and loyalty +store purchase + proximity)
atmosphere and experience)
. 150 per kg . 120 per kg
Supply chain Sum of (procurement cost + cost at sum of (procurement cost at
cost three-tier supply chain + single tier supply chain +
transportation cost reservation and short distance transportation
storage cost + inventory and other cost + replenishment cost +
resource cost + store expenses minimal reverse logistics
+wastage and reverse logistics cost cost)
+taxation)
. 120 per kg .80 per kg
Supply chain . 150 – 120 .120 – 80
surplus
Customer . 30 . 40
value –
Supply chain
cost

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Does that mean the supply chain of a local fruit stall more competitive than the
supermarkets?
In the real sense, apart from the profits (supply chain surplus), the competitiveness of
a supply chain is determined by how efficient and how responsive is the supply chain
to meet customer requirements and competitive challenges. In the above case, the
success lays in how successfully the supermarket and local fruit stall leverages the
market conditions.

The local fruit seller can leverage on

▪ Replenish to sale from local markets
▪ Less inventory, logistics and storage cost
▪ Forward integration (juice shop) to reduce wastage
▪ Compete on price rather than product or service differentiation
The supermarket can leverage on
▪ Economies of scale
▪ Bulk purchase and bulk selling
▪ Improved customer service and customer value
▪ Backward integration and outsourcing
▪
So, Supply chain management decision is based on what should the supply chain aim
at Efficiency or Responsiveness or both.

Efficiency-oriented supply chain vs responsiveness-oriented supply chains

The aims, supply chain models and its applicability based on efficiency and
responsiveness can be summarised as follows
Supply chain Efficiency Responsiveness
Orientation
Goals • Low-cost supply chain • Meeting changing customer
• High utilization of assets needs
• Reduced lead time and • Shortening Lead time
wastage • Respond to innovative
• Availability and quality products and variety-
meets customer seeking customers
expectation • High service level quality
Supply chain • Efficient supply chain • Agile supply chain model
models model • Custom configured supply
• The fast supply chain chain model
model
• Continuous supply chain
model
Applicability • Demand has become • Demand is very uncertain
more certain and supply is • Firms earn High Margins
predictable when demand meets supply
• Margins are lower and • Product innovation, variety,
intense competition and availability attract
• Price influences consumer customers.
choice • Cost is a secondary
consideration

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In short, the objectives of a supply chain are to
• Ensure continuity in production and delivery of products to the consumer
• Reduce cost and maximise asset utilisation
• Provide a better value for the product by reducing cost and increasing customer
experience
• Respond quickly to market changes
• Innovate new products and processes to meet customer needs and
• Improve quality of products and services.
These objectives can be achieved by designing the supply chain to be efficient and
responsive to the demand conditions.

Conclusion
To conclude, the objective of any supply chain management systems are to:
1. Optimise the 7Rs (providing to the right customer the right product of the right
quantity and right condition for the right price at the right place and right time.
2. Maximize the supply chain surplus and
3. Balance Efficiency and responsiveness of the supply chain
These objectives of the supply chain help in the decision of which supply chain model
to opt for in a given market condition?
And two noteworthy points are:
▪ Strategic choice of efficiency-oriented supply chain model or responsiveness-
oriented supply chain model depends on the industry type, competition, and
customer choice.
▪ To achieve strategic fit, the supply chain model can be shifted from one type to
the other and as the product moves through the product life cycle and as the
demand-supply characteristics change.

Points to Ponder:
Three examples of well-known supply chain masters namely Walmart, Amazon, and Tesla
as quoting from Smart street Inc USA (https://www.smartsheet.com/supply-chain-
management) is presented for you as a transcript
On reading the brief on the supply chain innovations, comment on the following:
1. What is the supply chain objective of these firms?
2. What is the supply chain model that these firms have followed and how are they
different?
3. Explain how they have balanced efficiency and responsiveness of the supply chain

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 Module – I Glossary
Supply Chain A supply chain is a flow of raw materials and processes that fulfill
a customer need.
A supply chain is a process that satisfies a customer need and
consists of multiple entities that are linked through the flow of
products, information and funds
A supply chain is an inclusive network of raw material and
merchandise suppliers, manufacturers, logistics partners,
distributors, retailers, and consumers who are linked through the
flow of products and services, information, and funds to meet a
customer need or rather a dream.
Supply Chain model Supply framework that consists of four supply chain decision
areas namely Plan-Source-Make- Deliver,
Supply Chain Integrated supply chain management is a process that links the
Management (SCM) plan – source – make – deliver functions to provide efficient and
responsive services to customers.
Integrated supply chain management is a process of linking the
functions of buy it, make it, move it, sell it, and service it. (W.C.
Carey)
Upstream supply chain Upstream supply chain includes all operations that enable the
flow of materials into the manufacturing process. It consists of
procurement and inbound logistics.
Procurement Procurement involves sourcing and purchasing all the
inputs/resources needed to manufacture a product or to provide
a service.
Inbound Logistics Inbound logistics includes a chain of activities related to
receiving raw materials, holding inventory, and issuing them to
the operations.
Downstream supply Downstream supply chain includes all operations that enable the
chain flow of materials from the organisation to the customers. It
includes outbound logistics, marketing and sales, and services.
Outbound logistics Outbound logistics includes a chain of activities related to
warehousing and distribution of finished goods to the customers
Internal supply chains Internal supply chain refers to a chain of activities within an
organisation that results in providing a product/service to the
customer.
Extended supply Supply chain is extended to collaborate with the suppliers and
chains/supply chain trading partners and the customers
network
Vertically integrated Supply Chains when the firm controls the supplies and
supply chains distribution.
Backward integration – supply chains integrate the firm with the
suppliers.
Forward integration -supply chains integrate the firm with the
distribution channels that carry the products to the consumers.
Horizontally integrated Supply chains that integrate with companies of similar products
Supply chains or services.

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 Module – I Glossary
Bench Comparing the supply chain practices of a firm to the best in the industry
Marking and best practices from other companies.
Customer Customer value is the satisfaction of a customer.
value Customer Value is the revenue generated from customers.

Cost of Supply chain cost is the overall cost of the flow of product/service,
supply chain information and funds.
Supply chain Supply chain surplus is the overall value generated
surplus Supply chain surplus = Customer value- Supply chain cost

References:
• Sunil Chopra and Peter Meindl, (2015), “Supply Chain Management:
Strategy, Planning and Operation”, 6th Edition, Pearson Higher Education,
New Delhi.
• Donal J Bowersox, David J Closs, M Bixby Cooper (2008), “Supply Chain
Logistics Management”, 2nd Edition, Tata McGraw Hill, New Delhi.
• Michael H. Hugos (2011), “Essentials of Supply Chain Management”, 3rd
Edition, Wiley Publications, US.
• Robert B. Handfield, Ernest Nichols (2016), “Introduction to Supply Chain
Management”, 1st Edition, Pearson Education, New Delhi.

Weblinks
o From bean to cup: How Starbucks transformed its supply chain,
http://www.supplychainquarterly.com/topics/Procurement/scq201004st
arbucks/
• http://www.supplychainquarterly.com/topics/Procurement/scq201004st
arbucks
o escm at Amul, https://www.slideshare.net/karanshah101/amul-ppt-
finale-
o What is supply chain, https://www.smartsheet.com/supply-chain-
management.

Course Coordinator Content Writer

Dr. P. Chitramani
Professor in Business Administration
School of Commerce and Management
Avinashilingam Institute for Home Science
and Higher Education for Women.
Dr. P. Chitramani
Professor in Business Administration
School of Commerce and Management
Avinashilingam Institute for Home Science
and Higher Education for Women.

Reviewer 1 Reviewer 2
Dr.B.Sudhakar Dr. N. Vivek
Professor and Director Professor
Department of Management Studies. PSG Institute of Management
Hindustan College of Arts and Science. PSG College of Technology.

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