SUPPLY CHAIN AND LOGISTICS MANAGEMENT

UNIT I
Supply Chain Management

UNIT I
Supply Chain Management
Definition and Role of Supply Chain Management- Scope and Importance- Evolution of
Supply Chain -Decision Phases in Supply Chain

1.1 Definition

Supply chain management (SCM) is the active integration and coordination of all supply
chain activities to provide you, the customer, with the best value. Providing you with the
best value means providing you with a quality product for a reasonable price.
Companies are able to provide customer value by coordinating the efforts of every
activity involved in their supply chains internally as well as externally among supply
chain members.

1.2 Role of Supply Chain Management

However, there are certain roles which need assistance and mutual participation. As
supply chain professionals connect different part of an industry it is easier for them to
help other departments execute their strategies. The following areas need the help of
supply chain managers for working together as a team.

 Selection and Management of Suppliers effectively for supporting manufacturing

processes.
 Making Transportation and Distribution efficient for marketing campaigns.
 Communicating with Customers periodically and monitoring a flow of the
products
 Responding to Delivery problems in a collaborative way.

Each of the above roles is a starting point of a separate Supply Chain Management
career.

Since the the stake for the different players is extremely high making it imperative for
the partners - including suppliers, manufacturers, distributors and customers behave as
if they are part of the same company. Thus scope of supply chain management is vast.

1.3. Scope and Importance of SCM

With Globalization  and resulting competition compelling the business entities the
world over to change and adapt the new technologies and concepts ,Supply Chain
Management, as concept and tool has emerged as the most important  field of
management today. Thanks to the advancement in the Information technology
,managing diverse affairs of the business starting from customer's customer to
supplier's supplier is easily attainable.

Management of supply chain as such is management of various functions carried out

in a continuous supply chain environment such as demand forecasting, production
planning, procuring raw materials for production, manufacturing , managing inventory,
processing input to convert into output and finally arranging smooth distribution of the
finished product to the retailers.

 
The geographic reach of Supply Chain Management is immense. Today, a firm
producing ready made men's shirt procures the raw materials from African countries,
gets manufacturing process done in Asia and sells the product in Europe. The
headquarter of the company is situated in Holland.

With great strides being made in the way information is generated, disseminated and
collected through the use of Internet , Emails etc great Supply Chains are being
witnessed in practically all the processing industries horizontally as well as vertically.
From complex and multi supply chains witnessed in production of Iron and Steel ,
cement etc to small values retail products such as clothes, vegetables are getting into
the domain of the supply chain , cutting across the boundaries of the nations. Very
aptly, the supply chain has thrown up relevant educational courses and plenty of jobs in
the  area of procurement, inventory  control, strategic planning, distribution,
transportationetc. 

As the reach of Globalization expands so shall the scope of Supply Chain Management
which is being recognized as a major competitive edge of business today.

1.4 Evolution of supply chain management

The evolution of supply chain management has been characterized by an increasing

degree of integration of separate tasks, a trend that was underlined in the 1960s as a
key area for future productivity improvements since the system was highly fragmented.
Although the tasks composing logistics have remained relatively similar, they initially
consolidated into two distinct functions related to materials management and physical
distribution during the 1970s and 1980s. This process moved further in the 1990s as
globalization incited a functional integration and the emergence of logistics in a true
sense; all the elements of the supply chain became part of a single management
perspective.
However, only with the implementation of modern information and communication
technologies did a more complete integration became possible with the emergence of
supply chain management. It allows for the integrated management and control of
information, finance and goods flows and made possible a new range of production and
distribution systems. Supply chain management has become a complex sequence of
activities aiming at value capture and competitiveness. More recently, the growing level
of automation of supply chains has been a dominant element of the evolution of both
physical distribution and materials management. This is particularly notable within
distribution centers that have experienced a remarkable push towards automation such
as storage, materials handling and packaging. Automation may eventually lead to
automated delivery vehicles.

Stepwise and according to improvements in information and communication

technologies, the two ends of the assembly line became integrated into the logistics of
the supply chain: the timely supply of raw materials and components from outside, and
the effective organization of distribution and marketing. High rack storage, which later
became automatically driven, or the internal movement of packages by flat robots were
early expressions of logistical engineering. Initially, logistics was an activity divided
around the supplying, warehousing, production and distribution functions, most of them
being fairly independent from the other. With the new organization and management
principles, firms were following a more integrated approach, thus responding to the
upcoming demand for flexibility without raising costs. At the same time, many firms took
advantage of new manufacturing opportunities in developing countries through
outsourcing and offshoring. As production became increasingly fragmented, activities
related to its management were consolidated. Spatial fragmentation became a by-
product of economies of scale in distribution.

1.5 Decision phases in supply chain

Decision phases can be defined as the different stages involved in supply chain
management for taking an action or decision related to some product or services.
Successful supply chain management requires decisions on the flow of information,
product, and funds that fall into three decision phases.

Here we will be discussing the three main decision phases involved in the entire
process of supply chain. The three phases are described below −

Supply Chain Strategy

In this phase, decision is taken by the management mostly. The decision to be made
considers the sections like long term prediction and involves price of goods that are very
expensive if it goes wrong. It is very important to study the market conditions at this
stage.
These decisions consider the prevailing and future conditions of the market. They
comprise the structural layout of supply chain. After the layout is prepared, the tasks
and duties of each is laid out.

All the strategic decisions are taken by the higher authority or the senior management.
These decisions include deciding manufacturing the material, factory location, which
should be easy for transporters to load material and to dispatch at their mentioned
location, location of warehouses for storage of completed product or goods and many
more.

Supply Chain Planning

Supply chain planning should be done according to the demand and supply view. In
order to understand customers’ demands, a market research should be done. The
second thing to consider is awareness and updated information about the competitors
and strategies used by them to satisfy their customer demands and requirements. As
we know, different markets have different demands and should be dealt with a different
approach.

This phase includes it all, starting from predicting the market demand to which market
will be provided the finished goods to which plant is planned in this stage. All the
participants or employees involved with the company should make efforts to make the
entire process as flexible as they can. A supply chain design phase is considered
successful if it performs well in short-term planning.

Supply Chain Operations

The third and last decision phase consists of the various functional decisions that are to
be made instantly within minutes, hours or days. The objective behind this decisional
phase is minimizing uncertainty and performance optimization. Starting from handling
the customer order to supplying the customer with that product, everything is included in
this phase.

For example, imagine a customer demanding an item manufactured by your company.

Initially, the marketing department is responsible for taking the order and forwarding it to
production department and inventory department. The production department then
responds to the customer demand by sending the demanded item to the warehouse
through a proper medium and the distributor sends it to the customer within a time
frame. All the departments engaged in this process need to work with an aim of
improving the performance and minimizing uncertainty.
 UNIT 2
Supply Chain Management

UNIT II
Sourcing and Co-ordination in Supply Chain -Role of Sourcing Strategy in Supply Chain
- Supplier Selection and Contract Negotiation, Creating a World Class Supply Base-
Supplier Development - World Wide Sourcing- Supply Chain Co-ordination – Effect of
Lack of Co-Ordination in Supply Chain and Obstacles – Building Strategic Partnerships
and Trust within a Supply Chain.

2.1 Sourcing and Co-ordination in Supply Chain

Generally, coordination and coordinated decision making refers to separated entities

that work together for decision alignment in order to improve overall performance. This
has been a major issue of early economic theory that differentiated between the firm
and its hierarchies and price mechanisms as forms of coordination. If separate
companies coordinate, it is referred as combination or integration. In the context of
industrial engineering research and in particular SCM research, the related terms
cooperation, coordination, and collaboration are often used interchangeably without
clearly distinguishing them from each other. This can cause confusion and ambiguity.
Cooperation is defined as acting or working together for a shared purpose, working or
acting together toward a common end or purpose, being compliant,or as working with
someone toward a common goal.In the context of SCM, Quiett (2002) has interpreted
cooperation as “little more than toleration of each other.” While this view might be a bit
drastic, the other definitions imply that cooperation emphasizes mainly the alignment
towards a common goal and a shared purpose. The notion of “working together” in the
context of cooperation does not suggest a close operational working relationship, but
rather a positive attitude towards each other. Coordination refers to a more direct, active
cooperation. It is defined as “the act of making arrangements for a purpose,” the
“harmony of various elements,”“harmonious adjustment or interaction,” and making
separate things working together. Compared to cooperation, coordination indicates an
interactive, joint decision making process, where separate entities influence each
others’ decisions more directly. Besides horizontal coordination, i.e. coordination within
a supply chain tier, and vertical coordination, i.e. coordination across supply chain tiers,
for example between supplier and customer, coordination can also be distinguished
from mechanism of coordination. The fundamental mechanisms are markets and
hierarchies. Market structures refer mainly to incentive-driven coordination between
separate, legally independent companies whereas hierarchical structures indicate either
a high unilateral dependency or that companies are not legally independent or equity is
shared.High degrees of coordination are subject to antitrust actions because they are
believed to impede competition and reduce welfare. Collaboration is defined as working
together or with someone else for a special purpose or simply as working with
someone.In the last instance, collaboration is simply defined as a synonym for working
together. The other two definitions point out common objectives and efforts. Whereas
coordination is mainly conducted by sending the right signals or sharing the right
information and the same policies, collaboration indicates a joint, interactive process
that results in joint decisions and activities. By that, it also indicates a higher degree of
joint implementation and can be thought of as a teamwork effort. According to this
interpretation, coordination alone excludes joint implementation and operational efforts.
IV. THE SCM FRAMEWORK Within the SCM framework, the core SCM model is
labeled SCM cooperation. It is seen as a strategic directive that subsumes coordination
and collaboration. The distinction between these two is necessary in order to distinguish
different types of cooperation that are relevant to SCM. Cooperation can be divided into
intra-company cooperation, bilateral cooperation, and multilateral cooperation,
depending on the scope of the cooperation under consideration. In terms of cooperative
intensity, collaboration can be seen as more intensive than coordination because most
of the time it subsumes all characteristics of coordination as well. Therefore, in a
hierarchy of different levels of cooperation, collaboration would be Coordination aims at
achieving global optimization within a defined supply chain network. Interactive, joint
collaborative efforts aim to exploit hidden potential and consequently expand the
optimization potential, i.e. it shifts the efficient performance frontier upwards.

2.2 Role of Sourcing Strategy in Supply Chain

It is a process of acquiring raw materials and other components, products or services of

a company from its suppliers to execute its operations.

Sourcing is the entire set of business processes required to purchase goods and
services.

If you are in supply chain field, you should know that it’s a major decision whether you
outsource your production/function or perform in-house. Outsourcing results in the
supply chain functions being performed by a third party.

One of the most important issues a firm is facing is outsourcing and actions across
industries tend to be varied.
For example, W.W. Grainger, an MRO distributor, has constantly owned and managed
its distribution center. In contrast, outbound transportation of packages from distribution
centers to customers has consistently been outsourced to a third party.

2.3 World Wide Sourcing

As international demand grows for more and better products and services, competition
becomes more intense. Firms must keep up with rapidly changing technology while also
lowering their costs, increasing quality, and improving customer service at all stages of
the value chain. This is the reality of international trade.

It is the process of sourcing goods and services from the international market across
geopolitical boundaries. It aims to exploit global efficiencies such as lower cost skilled
labor, cheaper raw materials and other economic factors like tax breaks and low trade
tariffs. Examples are call centers in the Philippines, clothing and shoes manufactured in
China and Thailand.

2.4 - Supply Chain Co-ordination

1.
The concept of working together with the aim of improving supply chain performance by
aligning the plans and the objectives of individual enterprises. Learn more in: Risk and
Risk Aversion in Supply Chain Management

2.
Supply chain coordination aims at improving supply chain performance by aligning the
plans and the objectives of individual enterprises. It usually focuses on inventory
management and ordering decisions in distributed inter-company settings. Learn more
in: Collaboration of Single-Manufacturer Multi-Buyer Inventory Status With Credit Option
Under Fuzzy Demand

3.
A contract is said to coordinate the supply chain if no firm has a profitable unilateral
deviation from the set of supply chain optimal actions. Learn more in: The Economic
and Environmental Benefits of VMI Adoption in Multi-Retailer Systems

2.5 Effect of Lack of Co-Ordination in Supply Chain and Obstacles

Supply chain coordination improves if all stages, of the chain take actions that together
increase total supply chain profits. Supply chain coordination requires each stage of the
supply chain to take into account the impact its actions have on other stages. A lack of
coordination occurs either because different stages of the supply chain have objectives
that conflict or because information moving between stages gets delayed and distorted.
Different stages of a supply chain may have objectives that conflict if each stage has
different owner. As a result, each stage tries to maximize its own profits, resulting in
actions that often diminish total supply chain profits (see Chapters 10 and 12). Today,
supply chains consist of potentially hundreds, or even thousands, of independently
owned enterprises. For example, Ford Motor Company has thousands of suppliers from
Goodyear to Motorola, and each of these suppliers has many suppliers in turn.
Information is distorted as it moves within the supply chain because complete
information is not shared between stages. This distortion is exaggerated by the fact that
supply chains today produce a large amount of product variety. For example, Ford
produces many different models with many options for each model. The increased
variety makes it difficult for Ford to coordinate information exchange with thousands of
suppliers and dealers. The fundamental challenge today is for supply chains to achieve
coordination in spite of multiple ownership and increased product variety.

Lack of coordination results if each stage of the supply chain only optimizes its local
objective without considering the impact on the complete chain. Total supply chain
profits are thus less than what could be achieved through coordination. Each stage of
the supply chain, in trying to optimize its local objective, takes actions that end up
hurting the performance of the entire supply chain. Lack of coordination also results if
information distortion occurs within the supply chain.

As an example, consider the bullwhip effect P&G observed within the diaper supply
chain. As a result of the bullwhip effect, orders P&G receives from its distributors are
much more variable than demand for diapers at retailers. We discuss the impact of this
increase in variability on various measures of performance in the diaper supply chain.
Manufacturing Cost The bullwhip effect increases manufacturing cost in the supply
chain. As a result of the bullwhip effect, P&G and its suppliers try to satisfy a stream of
orders that is much more variable than customer demand. P&G can respond to the
increased variability by either building excess capacity or holding excess inventory, both
of which increase the manufacturing cost per unit produced. Inventory Cost.

The bullwhip effect increases inventory cost in the supply chain. To handle the
increased variability in demand, P&G has to carry a higher level of inventory than would
be required in the absence of the bullwhip effect. As a result, inventory costs in the
supply chain increase. The high levels of inventory also increase the warehousing
space required and thus the warehousing cost incurred. Replenishment Lead Time The
bullwhip effect increases replenishment lead times in the supply chain. The increased
variability as a result of the bullwhip effect makes scheduling at P&G and supplier plants
much more difficult compared to a situation with level demand. There are times when
the available capacity and inventory cannot supply the orders coming in. This results in
higher replenishment lead times within the supply chain from both P&G and its
suppliers. Transportation Cost The bullwhip effect increases transportation cost within
the supply chain. The transportation requirements over time at P&G and its suppliers
are correlated with the orders being filled. As a result of the bullwhip effect,
transportation requirements fluctuate significantly over time. This raises transportation
cost because surplus transportation capacity needs to be maintained to cover high-
demand periods. Labor Cost for Shipping and Receiving The bullwhip effect increases
labor costs associated with shipping and receiving in the supply chain. Labor
requirements for shipping at P&G and its suppliers fluctuate with orders. A similar
fluctuation will occur for the labor requirements for receiving at dis-tributors and
retailers. The various stages have the option of carrying excess labor capacity or
varying labor capacity in response to the fluctuation in orders. Either option increases
total labor cost. Level of Product Availability The bullwhip effect hurts the level of
product availability and results in more stock outs within the supply chain. The large
fluctuations in orders make it harder for P&G to supply all distributor and retailer orders
on time. This increases the likelihood that retailers will run out of stock, resulting in lost
sales for the supply chain. Relationships across the Supply Chain The bullwhip effect
negatively impacts performance at every stage and thus hurts the relationships between
different stages of the supply chain. There is the tendency to assign blame to other
stages of the supply chain because each stage feels it is doing the best it can. The
bullwhip effect thus leads to a loss of trust between different stages of the supply chain
and makes any potential coordination efforts more difficult. From the earlier discussion,
it follows that the bullwhip effect and the resulting lack of coordination have a significant
negative impact on the supply chain's performance. The bullwhip effect moves a supply
chain away from the efficient frontier by increasing cost and decreasing responsiveness.

Key Point The bullwhip effect reduces the profitability of a supply chain by making it
more expensive to provide a given level of product availability. In the next section we
discuss various obstacles to achieving coordination in the supply chain. The Impact of
Bullwhip Effect on Supply Chain Performance, Performance Measure, Impact of
Bullwhip Effect, Manufacturing cost Increases Inventory cost Increases Replenishment
lead time Increases Transportation cost Increases Shipping and receiving cost
Increases Level of product availability Decreases Profitability Decreases.

2.6 Building Strategic Partnerships and Trust within a Supply Chain.

Designing a Relationship with Cooperation and TrustManaging Supply Chain

Relationships for Cooperation and TrustMove to a trust-based relationship–Supply
chain relationships are based on power or trust–Ultimately, trust-based relationships
better than power-based Cooperation and trust work because:–Alignment of incentives
and goals–Actions to achieve coordination are easier to implement–Supply chain
productivity improves by reducing duplication or allocation of effort to appropriate stage–
Greater information sharing results.
 UNIT III
Supply Chain Management

3.1 Supply Chain Network

A supply-chain network (SCN) is an evolution of the basic supply chain. Due to rapid
technological advancement, organisations with a basic supply chain can develop this
chain into a more complex structure involving a higher level of interdependence and
connectivity between more organisations, this constitutes a supply-chain network.

A supply-chain network can be strategically designed in such a way as to reduce the

cost of the supply chain; it has been suggested by experts that 80% of supply chain
costs are determined by location of facilities and the flow of product between the
facilities. Supply chain network design is sometimes referred to as 'Network Modelling',
due to the fact a mathematical model can be created to optimise the supply-chain
network.

Companies have been led to modify their basic supply chain, investing in the tools and
resources to develop an improved SCN design that takes into account taxation
regulations, new entrants into their industry and availability of resources, has resulted in
more complex network designs.

Designing a SCN involves creating a network that incorporates all the facilities, means
of production, products, and transportation assets owned by the organisation or those
not owned by the organisation but which immediately support the supply-chain
operations and product flow. The design should also include details of the number and
location of facilities: plants, warehouses, and supplier base. Therefore, it can be said
that a SCN design is the combination of nodes with capability and capacity, connected
by lanes to help products move between facilities

3.2 Building Blocks of Supply Chain Network

The network of interconnected businesses comprises of the following SCM building

blocks.

 Customer Relationship Management (CRM),

 customer service management,
 demand management,
  order fulfilment,
 management procurement and,
 manufacturing procurement (Wu, et. al., 2016).

These SCM building blocks remain the same for business to business (B2B) and
business to customer (B2C) types of business models.

SCM building blocks

Customer relationship management (CRM)

CRM plays an important role in the business process as it helps understand how to
provide tailor-made products and services to the customers to satisfy their needs and
demands (Wu, et. al., 2016). CRM through supply chain network and through the
delivery of products builds competitive advantages. This boosts the competitive edge of
the company against the competitors.

Customer relationship management provides insights regarding the size of the supply
chain that should address the needs of the customers properly. It familiarises the
concept of one size does not fit well for all customers. Furthermore, the geographic
locations of the customers, their preferences in terms of delivery are considered by the
supply chain network (Logistics Bureau, 2013). Segmentation of supply chain is done by
the analysis of customer needs in the process of CRM.

Segmentation offers several advantages that help in efficiently and responsively cater to
the demands of the customers (Christopher, 2016). It also tackles the issues of demand
variability effectively. Better information about the customers buying behaviour can be
obtained. These benefits make the supply chain more effective to cater to the needs of
customers. This information helps in order processing and extending knowledge about
the customers (Laudon and Traver, 2016).

Customer service management

Customer service management in the SCM building blocks effectively manages

customer service on the basis of customer’s preferences, tastes, and perceptions to
deliver best of products and services (Laudon and Traver, 2016). The customer service
management main responsibility lies in refining the relationship with the customers.
Customer’s service management considers supply chain management ability to deliver
products or services in a limited frame of time and it does not welcome any negligence
in this respect. The customer service remains deliberated due to the factors such as
changed occurring in the supply chain and requirements to gain higher efficiency
(Christopher, 2016).

Demand management

Demand management helps in the productivity and delivering of products and services
at the right quantity and at the right time (Christopher, 2016). It provides agility to a
supply chain network that makes it more responsive to customers’ needs. Furthermore,
demand management assists the organization to gather valuable insights into how to
manage demands and meet the customers’ requirement. It enhances the ability of an
organization to plan and forecast as well as increases visibility regarding the demands
of the customers (Wu, et. al., 2016).

The demand management also assists to manage and improve inventory levels,
enhance customers’ service, enhance inventory planning and optimize promotion and
trade planning (Wu, et. al., 2016). The demand management assists in developed sales
or demand forecasts. It is found that if demand forecasting is not considered by an
organization, the more costs to supply chain management can incur as well as the
organization may suffer from a low margin. Thus, the demand management assists
supply chain in manufacturing, procurement and distribution functions (Gligor, 2014).

Order fulfilment

Order fulfilment is a key block of the SCM building blocks that effectively helps in the
fulfilment of customers orders (Wu, et. al., 2016). The order fulfilment considers network
designing and process designing that assists an organization to fulfil customers
requests while minimizing the delivery costs. Therefore, the order fulfilment considers
cross-functionality of the organization and builds coordination of main suppliers and
customers.

Order fulfilment also takes into consideration of networking strategies such as allocating
inventories in the physical buildings, transportation strategies such as trying new
processes and carriers and making changes in the distribution centres (Christopher,
2016). Order fulfilment function consideration provides various benefits such as faster
fulfilment, faster order processing, and frequent fulfilment of products (Monczka, et. al.,
2015).

Managing procurements

Management procurement tasks comprise of:

 financial purchases,
 development of quality standards,
 price negotiation,
 purchase of goods and services,
 aligning purchase to the company ethics and policies,
 control of inventory and,
 disposal of waste (Christopher, 2016).

Furthermore, the management of procurement assists the organization to formulate

strategies regarding criteria to choose suppliers for the company (Monczka, et. al.,
2015). The company can benefit from waste reduction and preservation of
environmental assets, biodiversity and other finite assets. In manufacturing, the focus is
on to obtain cheaper and better raw materials in terms of quality and delivery (Monczka,
et. al., 2015). Manufacturing procurement efficiently manages the suppliers for the raw
material (Christopher, 2016).

3.3 Role of Distribution in Supply Chain

Distribution management refers to the process of overseeing the movement of goods

from supplier or manufacturer to point of sale. It is an overarching term that refers to
numerous activities and processes such as packaging, inventory, warehousing, supply
chain, and logistics.

Modern distribution management encompasses more than just moving products from

point A to point B. It also involves gathering and sharing relevant information that can be
used to identify key opportunities for growth and competitiveness in the market. Most
progressive companies now use their distribution forces to obtain market intelligence
which is vital in assessing their competitive position. There are basically two types of
distribution: commercial distribution (commonly known as sales distribution) and
physical distribution (better known as logistics). Distribution involves diverse functions
such as customer service, shipping, warehousing, inventory control, private trucking-
fleet operations, packaging, receiving, materials handling, along with plant, warehouse,
store location planning, and the integration of information.

Advantages of a Distribution Management Strategy

Aside from keeping profits up, there are many reasons a company may want to use a
distribution management strategy. First, it keeps things organized. If there was no
proper management system in place, retailers would be forced to hold stock in their own
locations—a bad idea, especially if the seller lacks proper storage space.

A distribution management system also makes things easier for the consumer. It allows
them to visit one location for a variety of different products. If the system didn't exist,
consumers would have to visit multiple locations just to get what they need.

Distribution Management as a Marketing Function

The fundamental idea of distribution management as a marketing function is that the

management of distribution happens in an ecosystem that also involves the
consideration of the following:

 Product: Not always a tangible object, product can also refer to an idea, music,

or information.
 Price: This refers to the value of a good or service for both the seller and the
buyer, which can involve both tangible and intangible factors, such as list price,
discounts, financing, and likely response of customers and competitors.
 Promotion: This is any communication used by a seller to inform, persuade,
and/or remind buyers and potential buyers about the seller’s goods, services,
image, ideas, and the impact it has to society.
 Placement: This refers to the process that ensures the availability,
accessibility, and visibility of products to ultimate consumers or business users in
the target channels or customers where they prefer to buy.

3.4 Factors influencing Distribution network design

Distribution refers to the steps taken to move and store a product from the supplier
stage to the customer stage in the supply chain. Distribution is a key driver of the overall
profitability of a firm because it directly impacts both the supply chain cost and the
customer experience. Performance of a distribution network is evaluated along two
dimensions: customer needs that are met and cost of meeting customer needs.
*Response time is the time between customer order placement and when customer
receives the order
*Product variety is the number of different products/configurations that a customer
desires from the distribution network
*Product availability is the probability of having a product in stock when a customer
order arrives
* Customer Experience includes the ease with which the customer can place and
receive their order
*Order visibility is the ability of the customer to track their order from placement to
delivery
*Returnability is the ease with which a customer can return unsatisfactory merchandise
and the ability of the network to handle such situations.

3.5 Performance Measures in Decisions in the Supply chain World

Supply chain performance measure can be defined as an approach to judge the

performance of supply chain system. Supply chain performance measures can broadly
be classified into two categories −

 Qualitative measures − For example, customer satisfaction and product quality.

 Quantitative measures − For example, order-to-delivery lead time, supply chain
response time, flexibility, resource utilization, delivery performance.

Quantitative Measures

Mostly the measures taken for measuring the performance may be somewhat similar to
each other, but the objective behind each segment is very different from the other.

Quantitative measures is the assessments used to measure the performance, and

compare or track the performance or products. We can further divide the quantitative
measures of supply chain performance into two types. They are −

 Non-financial measures
  Financial measures

Non - Financials Measures

The metrics of non-financial measures comprise cycle time, customer service level,
inventory levels, resource utilization ability to perform, flexibility, and quality. In this
section, we will discuss the first four dimensions of the metrics −

Cycle Time

Cycle time is often called the lead time. It can be simply defined as the end-to-end delay
in a business process. For supply chains, cycle time can be defined as the business
processes of interest, supply chain process and the order-to-delivery process. In the
cycle time, we should learn about two types of lead times. They are as follows −

 Supply chain lead time

 Order-to-delivery lead time

The order-to-delivery lead time can be defined as the time of delay in the middle of the
placement of order by a customer and the delivery of products to the customer. In case
the item is in stock, it would be similar to the distribution lead time and order
management time. If the ordered item needs to be produced, it would be the summation
of supplier lead time, manufacturing lead time, distribution lead time and order
management time.

The supply chain process lead time can be defined as the time taken by the supply
chain to transform the raw materials into final products along with the time required to
reach the products to the customer’s destination address.

Hence it comprises supplier lead time, manufacturing lead time, distribution lead time
and the logistics lead time for transport of raw materials from suppliers to plants and for
shipment of semi-finished/finished products in and out of intermediate storage points.

Lead time in supply chains is governed by the halts in the interface because of the
interfaces between suppliers and manufacturing plants, between plants and
warehouses, between distributors and retailers and many more.

Lead time compression is a crucial topic to discuss due to the time based competition
and the collaboration of lead time with inventory levels, costs, and customer service
levels.

Customer Service Level

The customer service level in a supply chain is marked as an operation of multiple

unique performance indices. Here we have three measures to gauge performance.
They are as follows −
  Order fill rate − The order fill rate is the portion of customer demands that can
be easily satisfied from the stock available. For this portion of customer
demands, there is no need to consider the supplier lead time and the
manufacturing lead time. The order fill rate could be with respect to a central
warehouse or a field warehouse or stock at any level in the system.
 Stockout rate − It is the reverse of order fill rate and marks the portion of orders
lost because of a stockout.

 Backorder level − This is yet another measure, which is the gauge of total
number of orders waiting to be filled.

 Probability of on-time delivery − It is the portion of customer orders that are

completed on-time, i.e., within the agreed-upon due date.

In order to maximize the customer service level, it is important to maximize order fill
rate, minimize stockout rate, and minimize backorder levels.

Inventory Levels

As the inventory-carrying costs increase the total costs significantly, it is essential to

carry sufficient inventory to meet the customer demands. In a supply chain system,
inventories can be further divided into four categories.

 Raw materials
 Work-in-process, i.e., unfinished and semi-finished sections
 Finished goods inventory
 Spare parts

Every inventory is held for a different reason. It’s a must to maintain optimal levels of
each type of inventory. Hence gauging the actual inventory levels will supply a better
scenario of system efficiency.

Resource Utilization

In a supply chain network, huge variety of resources is used. These different types of
resources available for different applications are mentioned below.

 Manufacturing resources − Include the machines, material handlers, tools, etc.

 Storage resources − Comprise warehouses, automated storage and retrieval
systems.

 Logistics resources − Engage trucks, rail transport, air-cargo carriers, etc.

 Human resources − Consist of labor, scientific and technical personnel.

  Financial resources − Include working capital, stocks, etc.

In the resource utilization paradigm, the main motto is to utilize all the assets or
resources efficiently in order to maximize customer service levels, reduce lead times
and optimize inventory levels.

Finanacial Measures

The measures taken for gauging different fixed and operational costs related to a supply
chain are considered the financial measures. Finally, the key objective to be achieved is
to maximize the revenue by maintaining low supply chain costs.

There is a hike in prices because of the inventories, transportation, facilities, operations,

technology, materials, and labor. Generally, the financial performance of a supply chain
is assessed by considering the following items −

 Cost of raw materials.

 Revenue from goods sold.

 Activity-based costs like the material handling, manufacturing, assembling rates

etc.

 Inventory holding costs.

 Transportation costs.

 Cost of expired perishable goods.

 Penalties for incorrectly filled or late orders delivered to customers.

 Credits for incorrectly filled or late deliveries from suppliers.

 Cost of goods returned by customers.

 Credits for goods returned to suppliers.

In short, we can say that the financial performance indices can be merged as one by
using key modules such as activity based costing, inventory costing, transportation
costing, and inter-company financial transactions.

3.5 Models for Supply Chain Decision Making.

The supply chain operations reference model (SCOR) is a management tool used to
address, improve, and communicate supply chain management decisions within a
company and with suppliers and customers of a company (1). The model describes the
business processes required to satisfy a customer’s demands. It also helps to explain
the processes along the entire supply chain and provides a basis for how to improve
those processes.

The SCOR model was developed by the supply chain council with the assistance of 70
of the world’s leading manufacturing companies. It has been described as the “most
promising model for supply chain strategic decision making (2).” The model integrates
business concepts of process re-engineering, benchmarking, and measurement into its
framework (2). This framework focuses on five areas of the supply chain: plan, source,
make, deliver, and return. These areas repeat again and again along the supply chain.
The supply chain council says this process spans from “the supplier’s supplier to the
customer’s customer (3).”

Plan

Demand and supply planning and management are included in this first step. Elements
include balancing resources with requirements and determining communication along
the entire chain. The plan also includes determining business rules to improve and
measure supply chain efficiency. These business rules span inventory, transportation,
assets, and regulatory compliance, among others. The plan also aligns the supply chain
plan with the financial plan of the company (3).

Source

This step describes sourcing infrastructure and material acquisition. It describes how to
manage inventory, the supplier network, supplier agreements, and supplier
performance. It discusses how to handle supplier payments and when to receive, verify,
and transfer product (3).

Make

Manufacturing and production are the emphasis of this step. Is the manufacturing
process make-to-order, make-to-stock, or engineer-to-order? The make step includes,
production activities, packaging, staging product, and releasing. It also includes
managing the production network, equipment and facilities, and transportation (3).

Deliver

Delivery includes order management, warehousing, and transportation. It also includes

receiving orders from customers and invoicing them once product has been received.
This step involves management of finished inventories, assets, transportation, product
life cycles, and importing and exporting requirements (3).

Return
Companies must be prepared to handle the return of containers, packaging, or defective
product. The return involves the management of business rules, return inventory,
assets, transportation, and regulatory requirements (3).

Benefits of Using the SCOR Model

The SCOR process can go into many levels of process detail to help a company
analyze its supply chain. It gives companies an idea of how advanced its supply chain
is. The process helps companies understand how the 5 steps repeat over and over
again between suppliers, the company, and customers. Each step is a link in the supply
chain that is critical in getting a product successfully along each level. The SCOR model
has proven to benefit companies that use it to identify supply chain problems. The
model enables full leverage of capital investment, creation of a supply chain road map,
alignment of business functions, and an average of two to six times return on
investment (4).

This is just a brief overview of the SCOR model. It contains many more details and
levels that can be analyzed within a company. A link to the SCOR model can be found
on this page. A PowerPoint presentation that describes the entire SCOR process can
also be downloaded.

UNIT IV
Supply Chain Management

4.1 Logistics Management Definition and Scope of Logistics

According to Council of logistics management: “Logistics is the process of planning,

implementing and controlling the efficient, effective flow and storage of goods, services
and related information from point of origin to point of consumption for the purpose of
conforming the customer requirement”.

Scope and importance of logistics management:

The scope of logistics management is very wide. It is not confined to manufacturing
operations alone. It is pervasive in all types or organizations whether government or
private, wholesalers or retailers.

Definition and scope of logistics management

According to Council of logistics management: “Logistics is the process of planning,

implementing and controlling the efficient, effective flow and storage of goods, services
and related information from point of origin to point of consumption for the purpose of
conforming the customer requirement”.

The scope of supply chain management is usually bounded on the supply side by your
supplier's suppliers and on the customer side by your customer's customers.The
logistics plays an important role between sources of demand and sources of supply.
The supply chain management is the planning and management of all activities involved
in sourcing and procurement, conversions, and logistics management activities,
including coordination and collaboration with suppliers, intermediaries, third party
service providers and customers to facilitate integration of supply and demand
management within and across companies.Supply chain management is used in filling
the gaps and the logistics is used in closing the gaps. Thus we can say that the supply
chain management and logistics are part and parcel of a solution to the same purpose.
Overall productivity of the organization increases if the supply chain management and
logistics goes hand in hand.

Scope of Supply Chain Management

The need of supply chain management has been identified as follows:

Improve operations

Increasing levels of outsourcing

Increasing transportation costs

Competitive pressures

Increasing globalization

Increasing importance of e-commerce

Manage inventories

4.2 Functions & Objectives of Supply Chain Management

The following are the major objectives of supply chain management and which are
implemented by various organisation to enhance their competitiveness.

1. Logistics:
“Keeping the cost of transporting materials as low as possible consistent with safe and
reliable delivery.” Here the supply chain management system enables a company to
have constant contact with its distribution team, which could consist of trucks, trains, or
any other mode of transportation. The system can allow the company to track where the
required materials are at all times. As well, it may be cost effective to share
transportation costs with a partner company if shipments are not large enough to fill a
whole truck and this again, allows the company to make good decision

2. Fulfillment:
Ensuring the right quantity of parts for production or products for sale arrive at the right
time. This is enabled through efficient communication, ensuring that orders are placed
with the appropriate amount of time available to be filled. The supply chain management
system also allows a company to constantly see what is on stock and making sure that
the right quantities are ordered to replace stock.

3. Production:Ensuring production lines function smoothly because high-quality parts

are available when needed.”. Production can run smoothly as a result of fulfillment and
logistics being implemented correctly. If the correct quantity is not ordered and delivered
at the requested time, production will be halted, but having an effective supply chain
management system in place will ensure that production can always run smoothly
without delays due to ordering and transportation.

4. Costs:“Keeping the cost of purchased parts and products at acceptable levels.”

Supply chain management reduces costs by increasing inventory turnover on the shop
floorand in the warehouse controlling the quality of goods thus reducing internal and
external failure costs and working with suppliers to produce the most cost efficient
means of manufacturing a product.

5. Revenue & profit:“Ensuring no sales are lost because shelves are empty. Managing
the supply chain improves a company‟s flexibility to respond to unforeseen changes in
demand and supply. Because of this, a company has the ability to produce goods at
lower prices and distribute them to consumers quicker than companies without supply
chain management thus increasing the overall profit.
6. Cooperation:
“Among supply chain partners ensures 'mutual success.'”. Collaborative planning,
forecasting and replenishment (CPFR) is a “longer-term commitment, joint work on
quality, and support by the buyer of the supplier‟s managerial, technological, and
capacity development.” This relationship allows a company to have access to current,
reliable information, obtain lower inventory levels, cut lead times, enhance product
quality, improve forecasting accuracy and ultimately improve customer service and
overall profits. The suppliers also benefit from the cooperative relationship through
increased buyer input from suggestions on improving the quality and costs and though
shared savings. Consumers can benefit as well through the higher quality goods
provided at a lower cost.

4.3 Customer Value Chain

A value chain is the full range of activities – including design, production, marketing and
distribution – businesses conduct to bring a product or service from conception to
delivery. For companies that produce goods, the value chain starts with the raw
materials used to make their products, and consists of everything added before the
product is sold to consumers.

Value chain management is the process of organizing these activities in order to

properly analyze them. The goal is to establish communication between the leaders of
each stage to ensure the product is placed in the customers' hands as seamlessly as
possible

Primary activities include the following:

 Inbound logistics are the receiving, storing and distributing of raw materials
used in the production process.
 Operations is the stage at which the raw materials are turned into the final
product.
 Outbound logistics are the distribution of the final product to consumers.
 Marketing and sales involve advertising, promotions, sales-force organization,
distribution channels, pricing and managing the final product to ensure it is
targeted to the appropriate consumer groups.
 Service refers to the activities needed to maintain the product's performance
after it has been produced, including installation, training, maintenance, repair,
warranty and after-sale services

 maintenance, repair, warranty and after-sale services.

The support activities help the primary functions and comprise the following:

 Procurement is how the raw materials for the product are obtained.
 Technology development can be used in the research and development stage,
in how new products are developed and designed, and in process automation.
 Human resource management includes the activities involved in hiring and
retaining the proper employees to help design, build and market the product.
 Firm infrastructure refers to an organization's structure and its management,
planning, accounting, finance and quality-control mechanisms.
4.4 Service Phases and attributes

The most important and critical aspect of customer service in supply chain management
is physical distribution of the product, that is, making the right product available at the
right place and the right time, followed by the motivation of service success facilitators
such as channel members to complete the physical distribution. This is a vital point for
supply chain management.

For FMCG or mass-consumed products wherein product distribution is dependent on

the length and breadth of the channel needs the logistics programs customized to the
requirements of the channel partners. For these programs to be successful, the channel
members like supply chain personnel need to be serviced and motivated by the
manufacturers. The services extended to this trading community require different
attributes in supply chain management from those for satisfying the end customers.

Order processing time

Order process time is the most important measure of customer service in physical
distribution. It is the time between the placement of an order by the buyer and the
supply of the material by the seller against and order. This involves the supply of all the
material against the order placed within the agreed time frame, without any error either
in documentation or physical supply. This customer service attributes helps in building a
long term buyer-seller relationship.

Delivery consistency

This refers to the consistency in maintaining the same delivery period for delivering the
material to the buyer over a period of time. For example, if the supplier dispatches the
material per the agree delivery time for 97 orders against 100 repeat orders received
during the year t may be said that the supplier’s delivery consistency is 97 percent, and
per the present industry norms it is an excellent delivery performance.

Delivery frequency

The frequency of delivery is the key element in customer service. The customer does
not want to carry an excess inventory but wants his operations to run without
interruptions. As a result, the customer prefers frequent deliveries in small lots. This
may increase transportation cost, but it reduces the inventory related cost drastically
with the net result being a reduction in the overall supply chain cost.

Stock availability

Stock availability is an important measure of customer service. With excess stocks, the
supplier may extend an excellent service to the customer, but inventory related cost
reduces the profit margin of business operations. Hence the firm needs to strike a
balance between the inventory level and the desired customer service level through
integrated logistics operations.

4.5 Value added logistics services

The purpose of supply chains is to add value to production and distribution. Depending
upon the markets and the value chains they are servicing, supply chains can be
differentiated according to criteria such as costs, time reliability and risk. Efficient
logistics contributes to added-value in four major interrelated ways:

 Production costs. Derived from the improved efficiency of manufacturing with

appropriate shipment size, packaging and inventory levels. Thus, logistics
contributes to the reduction of production costs by streamlining the supply chain.
 Location. Logistics adds value by taking better advantage of various locations,
implying access to expanded markets (more customers) and lower distribution
costs.
 Time. Added value derived from having goods and services available when
required along the supply chain (e.g. lower lead times) with better inventory and
transportation management.
 Control. Added value derived from controlling most, if not all, the stages along
the supply chain, from production to distribution. By better synchronizing cycles
and lead times, logistics enables better marketing and demand response, thus
anticipating flows and allocating distribution resources accordingly.

A variety of factors are jointly shaping the configuration of supply chains:

 Logistics costs. Considers the full array of costs to make products available to
the final consumer, namely transport, warehousing and transshipment. Supply
chain managers are particularly sensitive to the stability of the cost structure
(consistent costs) implying that routes having cost fluctuations may be discarded
in favor to routes of a higher cost, but with less volatility. Costs are therefore a
standard criteria where the cheapest routing option is sought, as long as the cost
structure remains stable as supply chains are unlikely to be modified if a cost
advantage is only temporary. The concept of cost is relative since its importance
is in relation to the value of the cargo being carried. Cost considerations tend to
concern more containerized goods that have a low value, such as commodities
(e.g. paper) than high value goods (e.g. electronics).

 Transit time. A factor that is increasingly being considered since it strongly

influence inventory carrying costs and inventory cycle time in supply chain
management. So, for cargo that has a higher value (clothing) or is perishable
(reefers) the routing option that is the fastest and/or shortest will be preferred.
  Reliability. Relates to a factor that is mitigated by contemporary supply chain
management practices. For several supply chains, time can be a secondary
factor as long as shipments arrive at the distribution center within an expected
time frame. If shipments are regular and that this reliability remains consistent, it
is possible to organize supply chains accordingly by having more inventory in
transit.
 Supply chain risk. Relates to a factor that is generally imponderable and
involving the level of confidence that the shipment will reach its final destination
within expected costs, time and reliability considerations. In some cases, risk can
also involve potential cargo damage or theft. Low risks routes are obviously
preferred over higher risk routes.

4.6 Role of logistics in Competitive strategy

A notable element within firms today is the classic contrast between the contribution of
logistics to competitive advantage and the ability of firms to apply logistics principles in
their day-to-day and strategic plans. It is not amusing that some companies relegate
logistics issues away from the strategic platform where they objectively belong. This is
an error in logistics strategic planning and should not be overlooked. A unified,
comprehensive and integrated planning process will achieve competitive advantage
through value and customer service, which should result in superior customer
satisfaction that will anticipate future demand for logistics services and the management
of the entire supply chain's resources.

The strategic planning of logistics should, nonetheless, happen in the context of overall
corporate goals and plans. This requires an understanding of how the different elements
and activities of logistics interact in terms of trade-offs and the total cost to the
organisation. There is undeniably an increase in complexity in logistics and the supply
chain, which necessitates better planning, which can come from trained logistics
professionals.

Procurement, transportation, and warehousing and inventory management can no

longer be practised as usual if a competitive advantage is to be attained. Organisations
thus need to take a proactive approach in their strategic logistics planning process and
differentiate their activities from a uniform and predictable model to more responsive
models in order to handle increasing complexity.

Manage logistics costs

Transport is a key function of a firm's logistics activities, therefore, the costs associated
with a particular logistics network have to be accurately captured and managed.
Transport rates determine what a particular shipment will cost per unit weight for
particular distances. Organisations should thus be capable of managing this aspect
efficiently if they wish to achieve competitive advantage.
Warehousing costs are also critical for network analysis and can be examined in terms
of fixed, storage and handling costs. The capacity of a warehouse facility will determine
the flow through the facility. Management should ensure that capacities are at their
optimum and avoid unwarranted excessive surplus capacity as this raises fixed costs
associated with a facility. Related to warehouse management is the management of
inventory, a critical element in logistics strategic planning. Inventory is a key element of
every organisation's balance sheet and affects the financial performance of an
organisation. The inventory turnover ratio is an indicator of the efficiency with which an
organisation manages its inventory.

Furthermore, service level requirements are a very important consideration when it

comes to supply chain and logistics strategies meeting service level criteria as set by
management. It is often the case that customers cannot be targeted with the same
service level, owing to the heterogeneity of their composition, hence, firms plan specific
service levels for different customers.

Logistics can have a significant effect on the overall performance of an

organisation

To identify opportunities for long-term competitive advantage, organisations must be

aware of and examine emerging management issues in logistics before considering the
right logistics strategies to gain competitive advantage in the dynamic world of global
competition.

The forces of today's intensely competitive business environment call for significant
changes in how business processes are conducted. As a consequence, many
organisations have focused on reducing costs through increased productivity, while also
attempting to improve quality and service at the same time.

The result of continually reducing costs and striving to improve service is that a
company begins to find itself in the dilemma of being a commodity provider rather than
a value-added supplier. To be a value-added supplier means to provide a level of
service which stands above the rest - this can rarely be achieved without a focus on
logistics strategy.

At Commerce Edge, we understand the importance of logistics at the heart of an

organisation's competitive strategy. We can assist you with your training needs, to
enable - and improve - your organisation's logistics services to your customers.

4.7 Global Logistics –Green Logistics.

Green logistics describes all attempts to measure and minimize the ecological impact
of logistics activities. This includes all activities of the forward and reverse flows of
products, information and services between the point of origin and the point of
consumption. It is the aim to create a sustainable company value using a balance of
economic and environmental efficiency. Green logistics has its origin in the mid 1980s
and was a concept to characterize logistics systems and approaches that use advanced
technology and equipment to minimize environmental damage during operations

The "ecological concern" in logistics determines how far the logistics or the supply chain
of a company is faced with the issue of environmental protection and resource
conservation. Basically, a supply chain is affected of various influencing factors in this
context. The main influencing factors are the stakeholders of the organization and the
rising costs of energy and commodity.

Some of the key stakeholders in this context are:

 The state with growing international and national regulations

 Customers and consumer with increasing awareness and demand for ecofriendly
products and (logistics) services
 Employees who want to work in an environmentally and socially responsible
company
 Society with increasing claims for more corporate social responsibility (CSR)
 Companies themselves; dealing with their own motivation

There is also the pressure of lenders, investors, insurers and investors. Indications of
this are new forms of investment in the capital market, such as the Dow Jones
Sustainability Index, that tracks the stock performance of the world's leading companies
in terms of economic, environmental and social criteria.

The dimension of ecological concern of a company is the product of these complex and
varying factors.

UNIT V
 Supply Chain Management

5.1 Information Systems in Supply Chain and Logistics Management

Business, the world over, is struggling to sustain competitiveness in a rapidly

globalizing economy. The world is fast being transformed into a single entity. As
far as business is concerned, boundaries are melting away. Economic
happenings in one part of the globe are creating powerful ripples and even
aftershocks across the rest of the world. Cost-competitiveness has become the
buzzword in the industry. Globalization in twenty-first century presented great
scope and access to the worldwide market for the corporates but at the same
time it shoved ample challenges to respond to more aware and demanding
customer.

The challenge lies in creating economic value through vibrant organization,

innovations and the application of strategic tools. In such a challenging
environment, supply chain management has become the most powerful cost
reduction tool in the armoury of business. Effective supply chain management
and creation of value by managing its key factors will help an organization
develop distinctive competence and create a competitive edge. Interest in SCM
has increased steadily worldwide since the 1980s when companies began to see
the benefits of collaborative relationships. The supply chain concept is still
nascent in India. However, the need for the same, at this stage, is more than ever
before because of the challenges unleashed on the competitiveness of the Indian
Industry by deregulation and globalization.

5.2 SUPPLY CHAIN MANAGEMENT

A Supply is understood as the quantity of goods available for use or the actual
(or planned) replenishment of a product (or component).

A Supply Chain is defined as a set of three or more companies (of a company, an

immediate supplier and an immediate customer) directly linked by one or more of
the upstream and downstream flows of products, services, finances and
information from a source to a customer.
Figure 1 – A Typical Supply Chain Management

Ellram and Cooper (1993) view SCM as "an integrating philosophy to manage the total
flow of a distribution channel from supplier to ultimate customer. SCM is the systematic,
strategic coordination of the traditional business functions within a particular company
and across business within the supply chain, for the purposes of improving the long
term performance of the individual companies and the supply chain as a whole.

SCM is a philosophy for conducting business, a strategy to gain competitive advantage

through the coordination of all processes starting form the procurement of material form
Mother Earth to providing the final product to the final consumer and efficient managing
the information systems necessary to monitor all of these activities. It links all the
partners, which include the intra-organizational members, and the inter-organizational
members including suppliers, manufacturers, distributors, wholesalers, retailers, third
party logistics providers and service providers into a seamless process.

Today SCM is no longer a support function but it is in fact regarded as one of the key
functions which would definitely give the organization a competitive edge in the market.
The importance of SCM has evolved over the years. One of the reasons could be the
fact that large corporations have started operations globally with multi-locational plants
with several warehouses and the emergence of multinational companies. Another
important factor is the emergence of new technologies, especially Information
Technology.

5.3. Future of IT in Supply Chain Management

Information Technology is an organized collection of computer hardware, software,

data, telecommunications, database management, other technologies and personnel
designed to capture, store, update, manipulate, analyze and immediately display
information about worldwide business activities. It is a tool for providing past, present
and projected information on internal operations and external activities.

Over the years, technology has progressed rapidly on the information and
communication front providing cheap but powerful computing power. Information
Technology has evolved from just a support function to an essential tool of decision
making process. The developments in IT have resulted in many possible alternative
solutions for managing the supply chain effectively. The evolution of IT in business can
be explained in four stages as follows: -
Stage I

Initially, IT was used to automate routine functions which involved replacing clerical
systems. Applications such as payroll, order entry, general ledger, accounts receivables
etc. were automated. Such automation resulted in clerical and administrative savings.

Stage II

During this stage, the applications of IT become more sophisticated and the focus was
on effective use of assets and control of overall expenses to enhance profitability.
Applications that were developed concentrated on creating systems for online cash
management, sales analysis, resource scheduling, inventory management etc.

Stage III

At this stage, the price for computing started reducing drastically with advances in
technology. The applications developed created new opportunities for enhancing
revenues instead of merely saving costs. These applications ran on extensive
communication networks and made use of information storage and retrieval techniques.
Examples of such applications include financial consolidation, credit card authorization
and payment systems, JIT inventory management, Enterprise Resource Planning
(ERP).

Stage IV

Innovative enterprises began using IT during the same time to create systems for
improving decision making process. It extended the reach of management control
beyond the conventional boundaries of the organization.

5.4. E Business in Supply Chain Management

SCM is essentially an information-driven function. Time and responsiveness play a vital

role in SCM and information technology has an important role to play toward this goal.
The most critical task in any information-driven function is processing of large chunks of
data and maintaining a large database. In the past, these records were maintained
manually. Today, any global company cannot survive without thinking of integrating its
supply chain. Another milestone has been the recent development of the Internet. All
these developments are bringing the world closer and closer. SCM is a function that
calls for extensive coordination with both external and internal environment.

IT has a substantial role to play in customer servicing. Cargo management companies

like DHL, FedEx etc are using this medium extensively for better customer servicing and
information flow. If a customer wants to know the status of his shipment, all he needs to
do is to log on to the website and enter his airway bill number. Immediately, within
seconds he gets the status.
Many companies feel that their current information management systems do not provide
adequate support for their supply chain initiatives. Consequently there is an ever-
increasing need for fully integrated supply chain information management solutions
which incorporate all the functionality of network strategy/ supply configuration, demand
planning, transportation management and warehouse management.

5.5. IT- BASED TOOLS FOR SUPPLY CHAIN MANAGEMENT

A number of IT-based SCM tools are now available to provide intelligent decision
support and execution management. They can be transaction processing systems
focused on day –to-day operations; operational planning systems or strategic planning
tools used to redesign the supply chain infrastructure. Some of the major developments
in IT which are transforming the supply chain today are as follows:-

1. Electronic Data Interchange (EDI)

Electronic Data Interchange (EDI) is the inter-organizational exchange of business

documentation in a structured machine-processable form. It consists of standardized
electronic message formats for common business documents such as request for
quotations, purchase orders, invoices and other standard business correspondence
documents. These electronic transactions sets enable the computer in one company to
communicate with the computer in another organization without actually producing
paper documents. All human efforts required to sort and transport the document are
eliminated.

A fully integrated EDI solution adds speed and efficiency to business processes
enabling the organization to maximize resources, minimize waste and increase
customer satisfaction. The key benefits of EDI are: -

* EDI helps in reducing transaction costs across the supply chain of an organization
through a reduction in labour and material costs, communication costs and
administrative costs.

* With no data re-entry, EDI ensures grater accuracy of information while reducing the
likelihood of costly errors.

* Reduced inventory and its associated costs is one of the biggest advantages of EDI.

* Critical information is available instantly, enabling quicker response to changes in the

marketplace.

* EDI increases business opportunities by making it easier for customer to do business

with the company.

2. Enterprise Resource Planning (ERP)

ERP is a philosophy where one tries to integrate the value chain of the organization to
reduce the wastage or slack of the entire process of delivering the end product right
from the sourcing of raw materials.

ERP is a comprehensive planning and control framework that has evolved over a thirty
year time. It finds its genesis in materials requirement planning (MRP), manufacturing
requirement planning (MRP II), relational Database management systems (RDBMS)
and 4th generation computer languages (4GL). It also is influenced by just in time (JIT)
and computer integrated manufacturing (CIM) and takes advantage of latest IT
developments such as client-server computing and Internet.

The key benefits of ERP are: -

* ERP links all the activities in the organization with customer orders and thus the
customer becomes the key focus of all departments.

* An ERP system regulates the flow of goods from a number of manufacturing sites to
the stocking points. It captures and consolidates related data from the retailer that can
be used to change the production schedule quickly.

* ERP as a tool can enhance overall performance by reduction of costs, increased per
capita productivity and improved quality of goods and services.

3. Internet commerce

Internet is transforming the entire nature of supply chains by eliminating middlemen,

making commerce more democratic and creating a frictionless economy. Internet
commerce is changing the manner in which the entire supply chain is managed today. It
is reducing entry barriers for the new entrants and the costs of operations for the
existing ones at the same time and also offering the customers a wider choice for
selection.

4. Bar Coding

A bar code is a grouping of parallel bars (usually blocks) of varying widths separated by
light spaces (usually white) of varying width. Scanner is used to read the bars and
spaces and it uses software to interpret their meaning. In the supply chain, the accurate,
rapid identification of products and use of this information in controlling the entire
process have been key factors. The following are the benefits of bar code technology in
supply chain:-

* Speed data entry

* Enhances data accuracy
* Reduces materials handling labour
* Verifies orders at receiving and shipping
* Improves customer service
5. Communication Technology

Information and Communication Technology (ICT) also significantly enhances the

supply chain performance through faster and widespread communication. Applications
of radio frequency, satellite communications and image processing technologies have
overcome the problems caused by product movement and geographic decentralization.
Improved customer service is provided in the form of more timely definition of tasks,
quicker transport tracing, and faster transfer of sales and inventory information. The
availability of shared information has led to increase efficiency and effectiveness across
the supply chain.

5.6. Conclusion

In today's competitive global environment, the onus is now on supply chain

management. Companies whose SCM is competitive will gain in the long run. The
advances in information technology have transformed the supply chain elements and
enabled organizations to make significant improvements in productivity and
competitiveness. The IT- enabled options available today for supply chain facilitate real
time information flow through networking and electronic data transfer, faster response
time and improved decision making, through timely availability of relevant information.

5.7 E procurement

E-procurement (electronic procurement, sometimes also known as supplier

exchange) is the business-to-business or business-to-consumer or business-to-
government purchase and sale of supplies, work, and services through the Internet as
well as other information and networking systems, such as electronic data interchange
and enterprise resource planning.

The e-procurement value chain consists of indent management, e-Informing, e-

Tendering, e-Auctioning, vendor management, catalogue management, Purchase Order
Integration, Order Status, Ship Notice, e-invoicing, e-payment, and contract
management. Indent management is the workflow involved in the preparation of
tenders. This part of the value chain is optional, with individual procuring departments
defining their indenting process. In works procurement, administrative approval and
technical sanction are obtained in electronic format. In goods procurement, indent
generation activity is done online. The end result of the stage is taken as inputs for
issuing the NIT.

Elements of e-procurement include request for information, request for proposal,

request for quotation, RFx (the previous three together), and eRFx (software for
managing RFx projects).

Alongside with increased use of e-procurement, needs for standardization arise.

Currently, there is one globally developed open extensible markup language based
standard framework built on a rich heritage of electronic business experience. It
consists of five layers - messaging, registry and repository, collaboration protocol, core
components and business processes.

5.8 E Logistics

E-logistic is the logistical process that governs everything related to the online
marketplace. It is a relatively novel concept. It is a dynamic set of communication
computing and collaborative technologies that transform key logistical processes to be
customer-centric by sharing data, knowledge and information with supply chain
partners. It helps in coping with newly arising logistics challenges. The key elements of
e-logistics are multi channel operation, cross border functionality, warehouse layout and
inventory, planning and forecasting and performance management. Success in e-
logistics depends on the focus selected for the online shop. Proper collaboration,
transparent communication with customers for delivery and returns are the other key
factors that determines the success of e-logistic.

Process involved in e-logistics: -

1)Method of payment

2)Check product availability

3)Arrange shipments

4)Insurance

5) Replenishment

6)Contact with customers

7)Returns

The difference between logistics and e-logistics are as follows: -

 Logistics refers to planning, execution of transport and handling of goods. E-

logistics is basically automating the logistic process.
 Logistics plans, implements and controls the efficient, effective flow and storage
of goods, services, and related information from the point-of-origin to the point-of-
consumption in order to meet customers. E-logistics can be defined as the
application of Internet based technologies to traditional logistics processes.
5.9 Logistics Resource Management

Key Issues for an Efficient Logistics Process

The logistics process is relevant to the entire company and interacts with external
stakeholder such as vendors, suppliers and customers. Given its importance to the
company and to the consumers, it is imperative that the process work as smoothly and
as efficiently as possible. To achieve this end, there are five key issues that need to be
highlighted:

Product Movement

Often, this is seen as the only real job of a logistics function. While there are other
aspects to the area, the movement of products itself is not as straightforward as it is
made to appear. The way the material is moved from point A to point B needs to follow
the direction and strategy of the organization. If the ultimate goal is to make sure that
the product reaches the consumers as fast as possible, then cost reductions may not be
a concern. On the other hand, if a company is focusing on cost efficiency, then the
goods will need to be moved in the best possible way at the least possible cost.

In addition, there is a need for a balance between planning and flexibility in moving
goods. The movement plan must be able to adjust according to any potential changes in
the business plans. It must also be able to manage changing environments and
possible obstacles and delays. In movements to geographically dispersed locations and
their particular peculiarities.

Information Movement

Adding to the generic concept of logistics, there is a step beyond the traditional
movement of materials and this is the movement of information. This includes current
location information about the products, as well as the incoming orders and delivery
timelines. This information is crucial for good decision making and needs to be both
timely and accurate.

This information must flow openly between suppliers, warehouses, consumers and the
company itself. There also needs to be a flow of information internal to the company
between various departments and stakeholders. Ideally, an IT system should be in
place to ensure this flow of information. This system needs to be dynamic and able to
handle all ends of the process from production, material and requirement planning to
financial and sales forecasts. These systems need to be present at both a macro level
and a micro level, with both types of views available so that the right information is
available for the right person.
Timely Service

The importance of time in the world of logistics cannot be stressed enough. In order to
operate in the global market and its ever-changing forecasts, customer requirements,
product launches and a multitude of other issues, there needs to be an ever present
focus on time. Any raw materials need to be ordered accurately and need to arrive on
time and as ordered. Any orders places must be filled quickly and correctly. Lead times
are shrinking in all areas and in all fields and may make the difference between a
successful company and one on the way out.

Cost

As with all matters of business in today’s world, cost is a key measure of logistic
success and effectiveness. Containing costs in all areas such as freight charges,
warehouse space and labor among other things is vital to corporate profit margins.
There needs to be an understanding that high prices do not mean the best quality.
Conversely, the lowest price may also not make good business sense. Instead, there
need to be solutions that offer the best value for money and value to the business.

Integration

Bringing all stakeholders and elements of the logistics process together is an important
elements of logistics optimization and is called integration. This is a vital point for the
continued success of the process. For the process to work well over the long-term, all
its relevant parts need to perform at an optimal level.

Traditionally, organizational chart driven organizations will find it difficult to integrate

since different areas will be locked into pre-defined silos. Internal integration being vital
to efficient logistics, this compartmentalized way of work needs to be re-imagined since
it fragments a process and slows down development.

Both internal and external integration are vital to success. External integration with
suppliers and vendors ensures that they become partners who understand how things
work and why they work that way. When logistics vision is shared, there is a higher
chance of success. Similarly, integrating with consumers offers its own benefits. These
include a better understanding of their needs and a higher chance of satisfying them.
Forming relationships with a customer makes them feel values and important and forms
a competitive advantage for the company.

Rules to Optimize Logistics

Logistics and supply chains often offer the biggest opportunity to reduce costs and
increase efficiency. For many companies, better decision making can lead to cost
reductions by up to 40 percent. Over the years, through automation and process
improvement, many organizations have managed to reduce human effort but in order to
achieve true results, the following rules must be observed.
 Set Quantifiable and Measurable Objectives: Objectives are the end results
any optimization effort aims to achieve. These objectives need to be clear and
precise. It is important for any effective goals to be easily quantifiable and hence
east to measure. This is the only way a target return on investment can be set
and then measured.

 Explicitly Consider Variability: It is a given that there will be variability in all

possible logistics processes. This means that a trip along the same route may
take different times according to external factors along that route such as traffic
or construction. Also, there may be a different number of items delivered each
day along the same route between the same entities. An assumption that no
variability exists may lead to incorrect decisions and poor logistics management.

 Ensure that data is Accurate, Timely and Comprehensive: The right data is
essential to any optimization decision or process. Any solutions based on
incorrect data will lead to more damage than benefits. Regarding any parts of the
process, there needs to be detailed and comprehensive data regarding all the
different parts of an activity to ensure that no important elements are left out.

 Ensure Integration of Automated Data: The amount of detailed data required

for optimized logistics needs to not only be automated but also to be unified and
integrated. This will ensure that there are no difficulties and errors in manual data
entry and that comprehensive data is available to those that need the
information.

 Ensure Efficient Execution of Optimization Plans: Optimization is only as

successful as the people who are tasked with executing the plan. Field teams, as
well as relevant stakeholders need to be able to follow simple directions and
execute them as directed. These actions then turn into measurable items that
can be used to gauge the return on investment for any optimization endeavor.

 Educate and Train People: Any technical or complicated aspects of a logistics

system or process can only be successful if the people running them have all the
knowledge, skills and expertise required to execute the plans.

 Ensure that Processes Exist to Support Optimization: Logistics optimization

needs to be an ongoing supportive effort that needs to continuously monitor both
the current process and the current problems. There needs to be analysis on
whether the system in place is still supporting the current problems of the
marketplace. This will allow the company to keep a streamlined process in place,
benefit from any potential opportunities and avoid any potential disasters.

 Provide Proof of Return on Investments: Management will always expect a

substantial return on their investment into the optimization of a logistics process.
This needs to offset the cost of technology, people and operations in a significant
way. For this, there first needs to be a true depiction of the total cost of
optimization activities as well as a benchmark comparison to best practices. The
second step is to identify metrics before the implementation of an optimization
programs and compare these to figures after the process optimization.