SCM Assignment No.

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Q1. Define Supply chain management. Explain the significance and limitations of SCM.
Answer :-
Supply chain management is the management of the flow of goods and services and
includes all processes that transform raw materials into final products. It involves the active
streamlining of a business's supply-side activities to maximize customer value and gain a
competitive advantage in the marketplace.
The Significance of Supply Chain Management :
It is well known that supply chain management is an integral part of most businesses
and is essential to company success and customer satisfaction.
1. Boost Customer Service
Customers expect the correct product assortment and quantity to be delivered.

 Customers expect products to be available at the right location. (i.e., customer

satisfaction diminishes if an auto repair shop does not have the necessary parts in
stock and can’t fix your car for an extra day or two).
 Right Delivery Time – Customers expect products to be delivered on time (i.e.,
customer satisfaction diminishes if pizza delivery is two hours late or Christmas
presents are delivered on December 26).
 Right After Sale Support – Customers expect products to be serviced quickly. (i.e.,
customer satisfaction diminishes when a home furnace stops operating in the winter
and repairs can’t be made for days)
2. Reduce Operating Costs

 Decreases Purchasing Cost – Retailers depend on supply chains to quickly deliver

expensive products to avoid holding costly inventories in stores any longer than
necessary. For example, electronics stores require fast delivery of 60” flat-panel
plasma HDTV’s to avoid high inventory costs.
 Decreases Production Cost – Manufacturers depend on supply chains to reliably
deliver materials to assembly plants to avoid material shortages that would
shutdown production. For example, an unexpected parts shipment delay that causes
an auto assembly plant shutdown can cost $20,000 per minute and millions of
dollars per day in lost wages.
 Decreases Total Supply Chain Cost – Manufacturers and retailers depend on supply
chain managers to design networks that meet customer service goals at the least
total cost. Efficient supply chains enable a firm to be more competitive in the market
place.
3. Improve Financial Position
  Increases Profit Leverage – Firms value supply chain managers because they help
control and reduce supply chain costs. This can result in dramatic increases in firm
profits. For instance, U.S. consumers eat 2.7 billion packages of cereal annually, so
decreasing U.S. cereal supply chain costs just one cent per cereal box would result in
$13 million dollars saved industry-wide as 13 billion boxes of cereal flowed through
the improved supply chain over a five year period.
 Decreases Fixed Assets – Firms value supply chain managers because they decrease
the use of large fixed assets such as plants, warehouses and transportation vehicles
in the supply chain. If supply chain experts can redesign the network to properly
serve U.S. customers from six warehouses rather than ten, the firm will avoid
building four very expensive buildings.
 Increases Cash Flow – Firms value supply chain managers because they speed up
product flows to customers. For example, if a firm can make and deliver a product to
a customer in 10 days rather than 70 days, it can invoice the customer 60 days
sooner.
The Limitations of Supply Chain Management :
Supply chains continue to increase in complexity as they are leveraged to drive
higher value through increased output at lower costs. The more intricate supply chains
become, the more difficult (and necessary) it becomes to analyse risks simultaneously.
Risk analysis becomes more difficult as risk visibility decreases and complexity
increases. It is quite easy to see risk drivers in simple supply chains, but as additional
departments and components are added, risks become obscured.
Despite categorizations that make your supply chain seem like independently run
departments, the entire chain is still interconnected, and each division is dependent on all
others for overall success. Disruptive events in one area of a supply chain can have
damaging effects on other areas if the event is not controlled properly. Even worse, events
in your supply chain can disrupt departments outside of your supply chain, like Sales and
Marketing.
The probability of extensive damage is significantly increased when these disruptive
events occur unexpectedly. While these events can’t always be predicted, advanced
planning, forecasting of risk events and adopting a more holistic representation of your
business can prepare planners to react quickly and intelligently to mitigate damages.
For these reasons, supply chain network design tools are simply not enough when it
comes to risk management. Unfortunately, many such solutions only provide limited insight
rather than a holistic view of risk drivers and effective risk management options.
Q2. Explain the Bull whip effect. What are the measures to control this effect?
Answer :
 Imagine a person having a long whip in his hand, and if he gives a little nudge to the
whip at the handle, it creates little movements in the parts closest to the handle, but parts
further away would move more in an increasing fashion.
Similarly, in the supply chain world, the end customers have the whip handle and
they create a little movement in the demand which travels up the supply chain in increasing
fashion. As we move away from the customer, we can see bigger movements. On average,
there are six to seven inventory points between the end customer and raw material supplier
(as shown below in figure 1). Everyone tries to protect themselves from stock-out situations
and missed customer orders, by keeping extra inventory to hedge against variability in the
supply chain. Hence, huge buffers of inventories up to six months can exist between the end
customer and raw material supplier.
The bullwhip effect is a concept for explaining inventory fluctuations or inefficient
asset allocation as a result of demand changes as you move further up the supply chain. As
such, upstream manufacturers often experience a decrease in forecast accuracy as the
buffer increases between the customer and the manufacturer.
Measures to control this Bull whip effect
Every industry has its own unique supply chain, inventory placements, and
complexities. However, after analysing the bullwhip effect and implementing improvement
steps, inventories in the range of 10 to 30 percent can be reduced and 15 to 35 percent
reduction in instances of stock out situations and missed customer orders can be achieved.
Below are some of the methods to minimize the bullwhip effect.
1. Accept and understand the bullwhip effect
The first and the most important step towards improvement is the recognition of the
presence of the bullwhip effect. Many companies fail to acknowledge that high buffer
inventories exist throughout their supply chain. A detailed stock analysis of the inventory
points from stores to raw material suppliers will help uncover idle excess inventories. Supply
chain managers can further analyze the reasons for excess inventories, take corrective
action and set norms.
2. Improve the inventory planning process
Inventory planning is a careful mix of historical trends for seasonal demand, forward-looking
demand, new product launches and discontinuation of older products. Safety stock settings
and min-max stock range of each inventory point need to be reviewed and periodically
adjusted. Inventories lying in the entire network need to be balanced based on regional
demands. Regular reporting and early warning system need to be implemented for major
deviations from the set inventory norms.
3. Improve the raw material planning process
Purchase managers generally tend to order in advance and keep high buffers of raw
material to avoid disruption in production. Raw material planning needs to be directly linked
to the production plan. Production plan needs to be released sufficiently in advance to
respect the general purchasing lead times. Consolidation to a smaller vendor base from a
larger vendor base, for similar raw material, will improve the flexibility and reliability of the
supplies. This, in turn, will result in lower raw material inventories.
4. Collaboration and information sharing between managers
There might be some inter-conflicting targets between purchasing managers, production
managers, logistics managers and sales managers. Giving more weight to common company
objectives in performance evaluation will improve collaboration between different
departments. Also providing regular and structured inter-departmental meetings will
improve information sharing and decision-making process.
5. Optimize the minimum order quantity and offer stable pricing
Certain products have high minimum order quantity for end customers resulting in overall
high gaps between subsequent orders. Lowering the minimum order quantity to an optimal
level will help provide create smoother order patterns. Stable pricing throughout the year
inset.

Name :- Gaurav Pawar

SY BBA ( IB)
Roll No. 14646