1st Sem Supply Chain Management Instructor: J.

Chinyuna

Supply Chain Management

Supply chain management is the process of managing the movement of the raw materials
and parts from the beginning of production through delivery to the consumer. In
many organizations, operational supply chain decisions are made hundreds of times
each day affecting how products are developed, manufactured, moved, and sold. The
complexity of the supply chain varies with the size of the business and the intricacy
and quantity of items manufactured, but most supply chains have elements in
common, such as the following:

 Customers: Customers start the chain of events when they decide to purchase a
product that has been offered for sale by a company. If the product has
to be manufactured, the sales order will include a requirement that needs
to be fulfilled by the production facility.
 Planning: The planning department will create a production plan to produce the
products to fulfill the customer’s orders. To manufacture the products,
the company will then have to purchase the raw materials needed.
 Purchasing: The purchasing department receives a list of raw materials and services
required by the production department to complete the customers’
orders.
 Inventory: The raw materials are received from the suppliers, checked for quality
and accuracy, and moved into the warehouse.
 Production: Based on a production plan, the raw materials are moved to the
production area. These raw materials are used to manufacture the
finished products ordered by the customer and then sent to the
warehouse where they await shipping.
 Transportation: When the finished product arrives in the warehouse, the shipping
department determines the most efficient method to ship the products so
they are delivered on or before the date specified by the customer.

Take a look at the following video about BYU ice-cream production. Can you identify each
of the elements, above, in BYU’s supply chain? (video BYU)

Benefits of supply chain management

SCM produces benefits such as new efficiencies, higher profits, lower costs and increased
collaboration. SCM enables companies to better manage demand, carry the right amount of
inventory, deal with disruptions, keep costs to a minimum and meet customer demand in
the most effective way possible. These SCM benefits are achieved through choosing effective
strategies and appropriate software to manage the growing complexity of today's supply
chains.

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1st Sem Supply Chain Management Instructor: J.Chinyuna

5 Typical stage in a supply-chain (discuss on the video 1 presented, pls take note)

5. 4. 3. 2.
Supplier Manufact Wholesale Retailers 1.
ures rs/Distrib Customers
utors

What Supply Chain is NOT..

1. SC is not just the movement of product or supply from suppliers to manufacturers to
distributors to retailers to customers along a chain.

SC movements.
*PRODUCT
*INFORMATION
*FUNDS

 Product in the SC moves forward towards the end customer while funds move
backward from customers to retailers and ultimately to the suppliers.
 Information flows along both directions of the supply chain.

2. SC might not necessarily have only one player at each stage.

 In reality, most SC are actually networks, in which, a manufacturer may receive
material from several suppliers and the supply several distributors.
Flipkart- biggest online store for mobiles, fashion, electronics, home appliances, etc.
2 SC of flipkart to serve its customers-
1. Warehouse Stocking Model
2. Back to Back Order Fulfilment Model

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1st Sem Supply Chain Management Instructor: J.Chinyuna

Objectives of supply chain

*Maximize the overall VALUE generated
*VALUE = Supply Chain Surplus/Profitability

Supply Chain Surplus = Customer Value – Supply Chain Cost

REVENUE
generated from the the overall COST
customer across the supply
chain

Sources of Revenue and Cost

1. Revenue – one source i.e. CUSTOMER
2. Cost – 3 sources
i. flow of product
ii. flow of Information
iii. flow of funds
(explain to the video presented Video 2)

1. Customer buys 1 kg apples and pays Rs. 200/- to reliance.

Revenue generated by reliance Store = Rs. 200/-

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1st Sem Supply Chain Management Instructor: J.Chinyuna

2. Total Cost of the SC= Sum of all costs incurred by the SC to produce/procure and
distribute the apples.
Total cost=Rs. (45+2.5+15+2.5+5+15+2.5+10+2.5)
=> Total Costs = Rs. 100/-

3. Supply Chain Profitability=Revenue-Costs=Rs. (200-100)/-

Supply Chain Profitability = Rs. 100/-

Important things to Remember in SCP

I. Supply Chain success should be measured in terms of SCP and NOT in terms of profit
at individual stage.
 Focus on individual stages – reduction in overall supply chain profits.
 Focus on growing overall profitability – pushes all members to grow the size of
overall pie.
II. All flows of information, product and funds generate cost within the supply chain.
 Effective SCM involves the management of supply chain assets and product,
information, and fund flows to maximize total supply chain surplus.

Decision Phases in a Supply Chain

3 categories depending upon a.) frequency of each decision and b.) the time frame during a
decision phase has impact.

The 3 categories or phases as follows-

1. Supply Chain Strategy and Decision
- during this phase, a company decides how to structure the supply chain over the
next several years. Hence, these decisions are expensive to alter on short notice.

 Companies must account for the UNCERTAINTY in market conditions over the
chosen time frame of several years.
 The company decides about the supply chain configuration, the resource allocation,
the includes process.
For e.g.
* The location and capacities of production and warehousing facilities
*the products to be manufactured or stored at various locations
*The modes of transportation
*the type of information system to be utilized

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1st Sem Supply Chain Management Instructor: J.Chinyuna

2. Supply Chain Planning

- the time frame considered is a quarter to a year.
- Companies start the planning phase with a forecast (for the chosen time frame) of
demand and other factors such as costs/prices etc.
- Companies must include these in their decisions –
1.) Uncertainty in Demand 2.) Exchange Rates 3.) Competition over the
time frame

 planning phase can include the following-

 w/c markets will be supplied from w/c locations
 the subcontracting of manufacturing
 the inventory policies to be followed
 the timing and size of marketing and price promotions.

3. Supply Chain Operation

 the time frame horizon is weekly or daily
 at this phase, supply chain design is considered fixed with planning policies already
defined.
 Companies make decisions regarding individual customer orders.

 This phase can include the decisions about the following –

 Allocate inventory or production to individual orders
 Set a date that an order is to be filled
 Generate pick lists at warehouse
 Allocate an order to a particular shipping mode and shipment
 Set delivery schedules of trucks

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1st Sem Supply Chain Management Instructor: J.Chinyuna

 Place replenish orders

 The goal in this phase is to exploit the reduction of uncertainty and optimize
performance in the short term (minutes, hours or days).

Importance of supply chain decisions

 Supply chain design, planning and operation decisions play a significant role in the
success and failure of a firm.
 To stay competitive, supply chains must adapt to changing technology and customer
expectations.

Activity 1.1