Guest Lecture Report on

SUPPLY CHAIN DRIVERS AND SUPPLY CONTRACTS

For the subject Supply Chain Management

Under the guidance of

Dr. Maninder Kaur

(Christ College, Pune)

EXECUTIVE SUMMARY
This report is an overview on the Guest lecture that was conducted on 12 December 2021 by Dr. Y. Rama
Krishna. This report focuses on Supply Chain Drivers, Supply Contracts and Types of Supply Contracts
namely Supply Contracts for Strategic Components, Contracts for Make to Stock, Contracts with
Asymmetric Information, Supply Contracts for non-strategic components. It also mentions the major supply
chain issues in our globalized era such as Complexity, Inventory deployment, Supply chain security,
Technology, etc.

The report has defined the supply Chain as a system of producing and delivering a product or service, from
the very beginning stage of sourcing the raw materials to the final delivery of the product or service to the
end users.

The former part of the report introduces Porter’s value chain five primary activities: inbound logistics,
operations, outbound logistics, marketing, sales and service. It also introduces the concept of Integrated
supply chain which is a process where all the parties involved with the fulfillment of a product are integrated
into a single system.

Then, the report emphasizes on the supply chain drivers that can make or break your forecast. It describes
the various Logistical drivers namely Facilities, Inventory, and Transportation and the Cross-Functional
drivers namely Information, Sourcing and Pricing.

It explains how companies can develop and manage these drivers to emphasize the ideal balance between
responsiveness and efficiency, depending on your business and financial requirements. Prioritizing
responsiveness enables companies to accommodate unexpected fluctuations in the market and changes in
customer preferences successfully. On the other hand, the push for efficiency increases productivity and
lowers products’ prices, making them available to a broad population segment.

It is followed by an example of the BOEING aircraft’s Global manufacturing and Supply chain.

The report defines Supply contracts as mutual agreements between the seller and buyer in supply chain. It
tells us that Competitive advantage can be achieved by managing Supply Chain Drivers efficiently through
Supply Contracts. It also states the reasons for supply contracts.

Further, it discusses the Impact of Supply Contracts on supply chain product-flow management. It explains
the detailed process of order fulfillment right from Product in to Product out.

Lastly, it deals with the various types of Supply Contracts and also explains in detail about the Sequential
Supply Chain, Risk Sharing, Buy- Back Contract, and Revenue Sharing Contract.
INTRODUCTION

SUPPLY CHAIN
In commerce, a supply chain is a system of organizations, people, activities, information, and resources
involved in supplying a product or service to a consumer. Supply chain activities involve the transformation
of natural resources, raw materials, and components into a finished product and deliver to the end customer.

In sophisticated supply chain systems, used products may re-enter the supply chain at any point
where residual value is recyclable. Supply chains link value chains. Suppliers in a supply chain are often
ranked by "tier", first-tier suppliers being those who supply direct to the client business, second-tier being
suppliers to the first tier, etc.

A typical supply chain begins with the ecological, biological, and political regulation of natural resources,
followed by the human extraction of raw material, and includes several production links (e.g., component
construction, assembly, and merging) before moving on to several layers of storage facilities of ever-
decreasing size and increasingly remote geographical locations, and finally reaching the consumer. At the
end of the supply chain, materials and finished products only flow there because of customer behaviour at
the end of the chain

The main objective of supply chain management is to monitor and relate production, distribution, and
shipment of products and services. This can be done by companies with a very good and tight hold over
internal inventories, production, distribution, internal productions and sales.

In the above figure, we can see the flow of goods, services and information from the producer to the
consumer. The picture depicts the movement of a product from the producer to the manufacturer, who
forwards it to the distributor for shipment. The distributor in turn ships it to the wholesaler or retailer, who
further distributes the products to various shops from where the customers can easily get the product.

Supply chain management basically merges the supply and demand management. It uses different strategies
and approaches to view the entire chain and work efficiently at each and every step involved in the chain.
Every unit that participates in the process must aim to minimize the costs and help the companies to improve
their long term performance, while also creating value for its stakeholders and customers. This process can
also minimize the rates by eradicating the unnecessary expenses, movements and handling.

SUPPLY CHAIN MANAGEMENT- ADVANTAGES

In this era of globalization where companies compete to provide the best quality products to the customers
and satisfy all their demands, supply chain management plays a very important role. All the companies are
highly dependent on effective supply chain process.

The key benefits of supply chain management are as follows −

 Develops better customer relationship and service.

 Creates better delivery mechanisms for products and services in demand with minimum delay.

 Improvises productivity and business functions.

 Minimizes warehouse and transportation costs.

 Minimizes direct and indirect costs.

 Assists in achieving shipping of right products to the right place at the right time.

 Enhances inventory management, supporting the successful execution of just-in-time stock models.

 Assists companies in adapting to the challenges of globalization, economic upheaval, expanding

consumer expectations, and related differences.

 Assists companies in minimizing waste, driving out costs, and achieving efficiencies throughout the
supply chain process.

SUPPLY CHAIN MANAGEMENT - GOALS

Every firm strives to match supply with demand in a timely fashion with the most efficient use of resources.
Here are some of the important goals of supply chain management −

 Supply chain partners work collaboratively at different levels to maximize resource productivity,
construct standardized processes, remove duplicate efforts and minimize inventory levels.
  Minimization of supply chain expenses is very essential, especially when there are economic
uncertainties in companies regarding their wish to conserve capital.

 Cost efficient and cheap products are necessary, but supply chain managers need to concentrate on
value creation for their customers.

 Exceeding the customers’ expectations on a regular basis is the best way to satisfy them.

 Increased expectations of clients for higher product variety, customized goods, off-season
availability of inventory and rapid fulfillment at a cost comparable to in-store offerings should be
matched.

 To meet consumer expectations, merchants need to leverage inventory as a shared resource and
utilize the distributed order management technology to complete orders from the optimal node in the
supply chain.

Lastly, supply chain management aims at contributing to the financial success of an enterprise. In addition
to all the points highlighted above, it aims at leading enterprises using the supply chain to improve
differentiation, increase sales, and penetrate new markets. The objective is to drive competitive benefit and
shareholder value.

GENERIC VALUE CHAIN

A value chain is a set of activities that an organization carries out to create value for its customers. Porter
proposed a general-purpose value chain that companies can use to examine all of their activities, and see
how they're connected. The way in which value chain activities are performed determines costs and affects
profits, so this tool can help you understand the sources of value for your organization.

Rather than looking at departments or accounting cost types, Porter's Value Chain focuses on systems, and
how inputs are changed into the outputs purchased by consumers. Using this viewpoint, Porter described a
chain of activities common to all businesses, and he divided them into primary and support activities.
Primary Activities

Primary activities relate directly to the physical creation, sale, maintenance and support of a product or
service. They consist of the following:

 Inbound logistics – These are all the processes related to receiving, storing, and distributing
inputs internally. Your supplier relationships are a key factor in creating value here.
 Operations – These are the transformation activities that change inputs into outputs that are sold
to customers. Here, your operational systems create value.
 Outbound logistics – These activities deliver your product or service to your customer. These are
things like collection, storage, and distribution systems, and they may be internal or external to
your organization.
 Marketing and sales – These are the processes you use to persuade clients to purchase from you
instead of your competitors. The benefits you offer, and how well you communicate them, are
sources of value here.
 Service – These are the activities related to maintaining the value of your product or service to
your customers, once it's been purchased.

Support Activities

These activities support the primary functions above. In our diagram, the dotted lines show that each
support, or secondary, activity can play a role in each primary activity. For example, procurement supports
operations with certain activities, but it also supports marketing and sales with other activities.
  Procurement (purchasing) – This is what the organization does to get the resources it needs to
operate. This includes finding vendors and negotiating best prices.
 Human resource management – This is how well a company recruits, hires, trains, motivates,
rewards, and retains its workers. People are a significant source of value, so businesses can create
a clear advantage with good HR practices.
 Technological development – These activities relate to managing and processing information, as
well as protecting a company's knowledge base. Minimizing information technology costs,
staying current with technological advances, and maintaining technical excellence are sources of
value creation.
 Infrastructure – These are a company's support systems, and the functions that allow it to
maintain daily operations. Accounting, legal, administrative, and general management are
examples of necessary infrastructure that businesses can use to their advantage.
Companies use these primary and support activities as "building blocks" to create a valuable product or
service.

INTEGRATED SUPPLY CHAIN

Integrated supply chain is a process wherein every phase from procurement of raw materials to production,
quality control to packaging, distribution or supply to eventual delivery is streamlined and inseparable. It is a
holistic collective of the various processes, which may be under complete control of one company or
multiple partners will come together to have collective control over the integrated process.
Advantages of Integrated Supply Chain:

1) Achieving Better Collaboration and More Visibility

As we already mentioned, an integrated supply chain refers to combining as many aspects as possible to
establish a robust collaboration between parties. The final goal remains to cut costs and waste, increase
productivity, and supply chain resilience while keeping up with sustainability standards. Instead of allowing
disparate enterprise departments to operate separately, an integrated supply chain strives to set centralized
management to ensure company-wide transparency.

According to a survey made by the industry-leading computing technology company, 82% of companies

managed to improve deliveries’ timeliness by cooperating across the enterprise. They were able to
streamline the manufacturing of new products, supplies, and other operations.

2) Meeting And Exceeding Customer Demand

The ability to surpass customer expectations is closely associated with improved visibility. Without insights
provided by an integrated supply chain, it is challenging to match supply with the growing demand.

Modern integrated logistics is supported by advanced technologies such as AI, ML, Blockchain, IoT, that
offer vast amounts of precious data to supply chain leaders. In turn, they utilize specifically designed
software to analyze the data and generate reports about customer behaviour, preferences, refund reasons, and
more. All this information may help the account managers have a bigger picture of the end-users and
increase their satisfaction rate.
 3) Increasing Revenues and Profit Margin
When a supply chain operates without any flaw, companies keep the revenue stream steady or even start to
earn more, leading to higher profit margins. Companies can achieve such effectiveness by creating an
innovative supply chain backed by cloud-enabled SCM, enterprise performance management (EPM), and
product lifecycle management (PLM) solutions. These tools can help businesses create and deliver products
speedier and thus gain more revenues.

However, companies driven by a desire to adopt as many techs as possible should carefully develop their
business strategies and know their goals not to waste massive investments and valuable resources.

4) Achieving More Flexibility

Flexibility is another benefit of ISC, allowing businesses to respond to fluctuations in demand and
disruptions in the business environment, such as rivals’ actions. By gathering data through the supply chain,
companies become aware of the market trends, better plan their core strategies, and more accurately develop
contingency planning. SCM’s flexibility is also an excellent way to manage cash flow without missing out
on opportunities to grow the business.

5) Reducing Waste and Becoming More Environment-Friendly

Running a sustainable supply chain is a challenging task, but it’s possible within ISC. The total waste can be
reduced because departments are no longer doing the same job twice or are trying to implement unnecessary
processes. For example, in a traditional supply chain, two departments may each potentially possess LTL
(less-than-full truckload) shipping sent out as scheduled. Sending out two LTLs rather than just one FTL
(full truckload) is costly. The situation is different within an integrated environment where diverse
departments collaborate and bundle deliveries, use practical and optimized routes, eliminate waste, and
avoid useless and costly activities.

6) Controlled Costs:
Integrated supply chain will always reduce costs, especially transactional costs which are unavoidable
among subsidiaries, partners or vendors. Having a centralized or integrated supply chain management, a
company is essentially doing away with frills that would have otherwise delayed the process and would have
also incurred needless costs.
 7) Quality Control:
Supply chain integration helps in ensuring quality. When there is a concerted attempt to keep a stringent
compliance check, it is immensely difficult to approve or pass along faulty products. There is only one
authority overseeing compliance throughout the process.

8) Competitive Edge:
With financial advantages, stricter compliance and better products, a company will be able to fight its
competition and emerge as the winner with integrated supply chain management.

MAJOR SUPPLY CHAIN ISSUES IN GLOBALIZED ERA:

The modern supply chain must evolve to meet new demands and supply chain challenges, and supply chain
managers need to plan ahead to keep everything flowing smoothly. A combination of consumer
expectations, more routes to market, international complexities and other factors creates significant
challenges throughout the supply chain network.

1)Increased Costs Throughout the Supply Chain

Profit margins are under pressure as costs creep up throughout the supply chain network. These costs come
from many areas, and a lack of visibility and accountability for reducing them can result in rising operational
expenses.

Major contributors to increased costs include:

 Rising price of fuel to transport goods by road, sea or air

 Increasing commodity prices raising the cost of raw materials
 Higher labor costs from suppliers and manufacturers
 Complex international logistics leading to higher charges for storage, transfer and management of
products

2)Supply Chain Complexity Due to Multiple Channels to

Market
Consumers buy products across multiple channels, and as routes to market increase, the underlying supply
chain must adapt. Supply chain managers need to develop variations on supply chain processes to address
each of the channels:

 eCommerce websites selling directly to consumers require fast last-mile delivery and local
logistics.
 Traditional retailers and wholesalers need large storage locations close to major metropolitan
areas, combined with accurate inventory control to ensure product availability.
 Third-party marketplaces like Amazon require a deep understanding of fulfilment options and
close compliance with their terms and conditions.
 Drop shipping retail requires fast international services so that consumers receive goods quickly.
Supply chain managers must manage multiple supply chains, third parties and other organizations to ensure
a good end customer experience, regardless of how they order and receive products.

3)Need for Improved Speed, Quality and Service

Consumers have never had more choice, and every industry is facing disruption. Every touchpoint with an
end user needs to be focused on providing excellent products and services. Quality and speed are becoming
as important as pricing when it comes to purchasing goods:

 Consumers want retail goods immediately and online goods within a few days.
 Products must meet the quality requirements demanded by consumers.
 Raw materials, goods and finished products must meet safety and other compliance regulations
mandated by law, in all countries where they’re available.
 The environmental sourcing of goods is becoming more important to ethically-aware consumers.
The most successful products are those that meet consumer requirements of quality, availability and price.
The underlying supply chain is vital to meeting those needs.

4)Risk in the Supply Chain Creates Pressure

International complexity, environmental changes, economic pressures and trade disputes all put pressure on
the supply chain. This pressure can easily turn into risks and issues that snowball throughout the network,
causing significant problems:

 Suppliers, manufacturers, logistics, clients and customers are spread across multiple countries,
time zones and continents, requiring careful coordination and management.
  Adding more steps to the supply chain creates exponential complexity for upstream and
downstream partners.
 Siloed data and a lack of visibility increases the difficulty of reporting, business intelligence and
good decision-making.
 Regulations, compliance and quality management demands strong agreements, contracts and
controls with supply chain organizations.
Supply chain managers must develop contingencies and mitigating action plans to prioritize and eliminate
risks and manage issues when they occur.

5)The Impact of Supply Chain Volatility

Volatility and complexity don’t just create problems at a specific point in the supply chain, instead the
impact can ripple throughout the entire infrastructure. Supply chain managers must deal with these issues
promptly before they create delays, backlogs, bottlenecks and other issues.

Political circumstances and protectionism are introducing tariffs across trade routes that results in additional
fees, delays and increased customs processing time. This means slower international shipping and the ability
for competitors in different countries to take advantage of lower tariffs.

Increasing volumes of internationally-sourced goods are driving up port congestion. This creates additional
pressures as ships, trucks and trains need to wait to load, unload and transfer products. These issues are
exacerbated as port authorities and operators charge organizations to store goods at the port.

An ongoing, chronic shortage of long-haul drivers is creating major issues with trucking capacity, leading to
delays when transporting goods across countries. The pressures on the role of the truck driver is making it a
less attractive profession, and logistics providers are finding it more difficult to attract and retain the right
people.

These are endemic problems in the supply chain, and it’s almost impossible to resolve them on a local or
organizational level. Instead, supply chain managers need to understand the major issues impacting supply
chains around the world and create strong reporting and management plans to resolve issues quickly.

6)Other Demands on the Supply Chain

Other areas supply chain managers need to consider include:

 Speed to market bas ed on jus t-in-time manufacturing  – This requires certainty around
the location and timeliness of raw materials, parts and products.
  Demand for products bas ed on s ales and marketing cycles  – Consumer demand for
product lines must be predicted and identified early and planned into supply and manufacturing.
 Inventory management based on balancing availability and cos ts  – Retailers want
to cycle through inventory more quickly and not have so much of their cost sunk into slow-
moving products, requiring faster upstream supply chain management.
 New products require fast prototyping and development  – Bringing a new product to
market demands a reliable, fast and high-quality supply chain.

DRIVERS OF SUPPLY CHAIN PERFORMANCE

Five supply chain drivers, Production, Inventory, Location, Transportation, and Information, influence the

performance of the supply chain.  Companies can develop and manage these drivers to emphasize the ideal
balance between responsiveness and efficiency, depending on your business and financial requirements. 

Responsiveness to customer demands and expectations drives continuous innovation in products and how
customers are served.  Prioritizing responsiveness enables companies to accommodate unexpected
fluctuations in the market and changes in customer preferences successfully. 

On the other hand, the push for efficiency increases productivity and lowers products’ prices, making them
available to a broad population segment.  Yet efficiency requires predictability and stability, which has been
hard to come by since March of 2020.
1. PRODUCTION –
This driver can be made very responsive by building factories that have a lot of excess capacity and
use flexible manufacturing techniques to produce a wide range of items.  To be even more responsive,
a company could do their production in many smaller plants that are close to major groups of
customers so delivery times would be shorter.  If efficiency is desirable, then a company can build
factories with very little excess capacity and have those factories optimized for producing a limited
range of items.  Further efficiency can also be gained by centralizing production in large central plants
to get better economies of scale, even though delivery times might be longer.

2. INVENTORY –
Responsiveness can be had by stocking high levels of inventory for a wide range of products. 
Additional responsiveness can be gained by stocking products at many locations so as to have the
inventory close to customers and available to them immediately.  Efficiency in inventory management
would call for reducing inventory levels of all items and especially of items that do not sell as
frequently.  Also, economies of scale and cost savings can be gotten by stocking inventory in only a
few central locations such as regional distribution centers (DCs).
3. LOCATION –
A location decision that emphasizes responsiveness would be one where a company establishes many
locations that are close to its customer base.  For example, fast-food chains use location to be very
responsive to their customers by opening up lots of stores in high volume markets. Efficiency can be
achieved by operating from only a few locations and centralizing activities in common locations.  An
example of this is the way e-commerce retailers serve large geographical markets from only a few
central locations that perform a wide range of activities.

4. TRANSPORTATION –
Responsiveness can be achieved by a transportation mode that is fast and flexible such as trucks and
airplanes.  Many companies that sell products through catalogs or on the Internet are able to provide
high levels of responsiveness by using transportation to deliver their products often within 48 hours or
less.  FedEx and UPS are two companies that can provide very responsive transportation services.
And now Amazon is expanding and operating its own transportation services in high volume markets
to be more responsive to customer desires.  Efficiency can be emphasized by transporting products in
larger batches and doing it less often.  The use of transportation modes such as ship, railroad, and
pipelines can be very efficient. Transportation can also be made more efficient if it is originated out of
a central hub facility or distribution center (DC) instead of from many separate branch locations.

5. INFORMATION –
The power of this driver grows stronger every year as the technology for collecting and sharing
information becomes more wide spread, easier to use, and less expensive.  Information, much like
money, is a very useful commodity because it can be applied directly to enhance the performance of
the other four supply chain drivers.  High levels of responsiveness can be achieved when companies
collect and share accurate and timely data generated by the operations of the other four drivers. An
example of this is the supply chains that serve the electronics market; they are some of the most
responsive in the world.  Companies in these supply chains, the manufacturers, distributors, and the
big retailers all collect and share data about customer demand, production schedules, and inventory
levels. This enables companies in these supply chains to respond quickly to situations and new market
demands in the high-change and unpredictable world of electronic devices (smartphones, sensors,
home entertainment and video game equipment, etc.).

THE RIGHT MIX OF EFFICIENCY AND RESPONSIVENESS

Even within supply chains that emphasize responsiveness, there are segments of those supply chains that
should focus on efficiency. Efficiency is critical wherever there are high volumes of predictable products
moving between facilities. For example, segments of supply chains that connect factories with warehouses
or distribution centers should be as efficient as possible. They should use the most efficient transportation
modes and delivery schedules, and those facilities should automate their operations as much as possible.

However, segments of supply chains that connect distribution centers to end use customers usually focus on
responsiveness. These segments are known as “last mile” deliveries. They use transportation modes and
delivery schedules that emphasize responsiveness because customers have come to expect fast delivery of
products. In every supply chain some operations will need to focus on efficiency, and others on
responsiveness. That mix continues to shift over time as customer preferences, market conditions, and
technologies change.

So what moves the Supply Chain in the globalized world?

The answer is by managing your supply chain drivers efficiently through supply contracts.

SUPPLY CONTRACT

A contract generally establishes the terms of a relationship between two parties. The same generally applies
in a supply contract, in which the parties are on the one hand a vendor (who contracts to supply the goods)
and on the other hand a client/customer/purchaser (who contracts to buy the goods). The contract serves to
protect the rights of both parties, defining what they can expect, their obligations, and what they are entitled
to. The customer will generally know the nature of the goods they will get, the quantity and
the delivery method and date, while the supplier knows the price and how payment will be received.

ADVANTAGES OF SUPPLY CONTRACT

 planning ahead is easier

 providing security of supply, for the buyer, and of orders for the supplier
 pre-agreed pricing formula – predictable prices
 the buyer can get a better price in return for the commitment
 less admin – you don’t have to maintain purchase orders over and over again

DISADVANTAGES OF SUPPLY CONTRACT

 Disadvantages for supplier

– Being blocked from selling to other retailers

– Harsh retailers: GM and its suppliers

 Disadvantages for retailer

– Being blocked from buying from other suppliers

– Retailer complacency

– Lack of incentives for improvement

 Supplier agreements cover such issues as:

 Supply conditions, including volume, price, discounts, ordering periods, take or pay and delivery
times

 Payment terms

 Specifications of goods or services supplied (scope of goods)

 Warranty periods for defective goods or services

 Sharing of resources

 Sharing of expertise

 Risk sharing

 Product return policies

ROLE OF SUPPLY CONTRACTS IN ORDER FULFILLMENT

When an end-user places an order on the platform, a notification regarding such order and quantity is
received to the Retailer which is then passed on the necessary Supplier for such delivery.

On receipt of such information from the Retailer, the Supplier processes such order in accordance to the
requirements by the Retailer.

The Service Provider collects such products either directly from the Supplier or a warehouse maintained by
the Retailer and transports the same to the end-user.

The End-User may on receipt of such Product may complete the order or notify the Retailer of any exchange
or damage in the Product or any other specifications divergent to the specifications mentioned.

TYPES OF SUPPLY CONTRACT

I] Supply contracts for strategic components

Sequential Supply Chain

i) Sequential Contracts
A buyer and a supplier.

Buyer’s activities: generating a forecast determining how many units to order from the supplier placing an
order to the supplier so as to optimize his own profit.

Purchase based on forecast of customer demand.

Supplier’s activities: reacting to the order placed by the buyer. Make-To-Order (MTO) policy.

ii) Buy- back contracts

Seller agrees to buy back unsold goods from the buyer for some agreed-upon price.

Buyer has incentive to order more.

Supplier’s risk clearly increases.

Increase in buyer’s order quantity.

Decreases the likelihood of out of stock.

Compensates the supplier for the higher risk.

iii)  Revenue Sharing Contract

Buyer shares some of its revenue with the supplier in return for a discount on the wholesale price. Buyer
transfers a portion of the revenue from each unit sold back to the supplier.

iv) Quantity-Flexibility Contracts

Supplier provides full refund for returned (unsold) items.

As long as the number of returns is no larger than a certain quantity.

v) Sales Rebate Contracts

Provides a direct incentive to the retailer to increase sales by means of a rebate paid by the supplier for any
item sold above a certain quantity.

vi) Global Optimization and Supply Contracts

Unbiased decision maker unrealistic.

Requires the firm to surrender decision-making power to an unbiased decision maker.

Carefully designed supply contracts can achieve as much as global optimization.

Global optimization does not provide a mechanism to allocate supply chain profit between the partners.
Supply contracts allocate this profit among supply chain members.

Effective supply contracts allocate profit to each partner in a way that no partner can improve his profit by
deciding to deviate from the optimal set of decisions.

II] Contracts for MTS (Make-to-stock) / MTO (Make-to-order)

i) Pay-back Contracts
Buyer agrees to pay some agreed-upon price for any unit produced by the manufacturer but not purchased.

Manufacturer incentive to produce more units.

Buyer’s risk clearly increases.

Increase in production quantities has to compensate the distributor for the increase in risk.

ii) Cost-Sharing Contracts

Buyer shares some of the production cost with the manufacturer, in return for a discount on the wholesale
price.

Reduces effective production cost for the manufacturer.

Incentive to produce more units.

III] Contracts with Asymmetric Information

i) Capacity Reservations Contract

Buyer pays to reserve a certain level of capacity at the supplier.

A menu of prices for different capacity reservations provided by supplier.

Buyer signals true forecast by reserving a specific capacity level.

ii) Advance Purchase Contract

Supplier charges special price before building capacity.

When demand is realized, price charged is different.

Buyer’s commitment to paying the special price reveals the buyer’s true forecast.

IV] Supply Contracts for Non-Strategic Components

i)Long term Contracts

Contracts specify a fixed amount of supply to be delivered at some point in the future.

Supplier and buyer agree on both price and quantity.

Buyer bears no financial risk.

Buyer takes huge inventory risks due to: uncertainty in demand, inability to adjust order quantities.

ii) Flexible or Option Contracts

Buyer pre-pays a relatively small fraction of the product price up-front.

Supplier commits to reserve capacity up to a certain level.

Initial payment is the reservation price or premium.

If buyer does not exercise option, the initial payment is lost.

Buyer can purchase any amount of supply up to the option level by: paying an additional price (execution
price or exercise price) agreed to at the time the contract is signed.

Total price (reservation plus execution price) typically higher than the unit price in a long-term contract.

Flexible or Option Contracts

Provide buyer with flexibility to adjust order quantities depending on realized demand.

Reduces buyer’s inventory risks.

Shifts risks from buyer to supplier.

Supplier is now exposed to customer demand uncertainty.

Flexibility contracts.

Related strategy to share risks between suppliers and buyers.

A fixed amount of supply is determined when the contract is signed.

Amount to be delivered (and paid for) can differ by no more than a given percentage determined upon
signing the contract.

iii) Spot Purchase

May use independent e-markets or private e-markets to select suppliers.

Focus: Using the marketplace to find new suppliers

Forcing competition to reduce product price.

iv) Portfolio Contract

Buyer signs multiple contracts at the same time.

Optimize expected profit.

Reduce risk.

Contracts differ in price and level of flexibility hedge against inventory, shortage and spot price risk.

Meaningful for commodity products.

A large pool of suppliers each with a different type of contract.

OBJECTIVES
1) To learn in detail about the supply chain activities and its advantages, goals, etc

2) To learn how inputs are changed into outputs purchased by customers using Porter’s value chain tool.

3) To study the integrated supply chain and its advantages in the globalised world.

4) To know more about the Supply chain issues that arise in this globalised era.

5) To study in detail about the drivers of supply chain performance.

6) To analyze how companies can develop and manage these drivers to emphasize the ideal balance between
responsiveness and efficiency, depending on your business and financial requirements. 

7) To learn about Supply Contracts and the Types of Supply contracts.

8) To research how supply contracts help in order fulfilment.

9) To gain information about the various types of contacts and their conditions
LEARNING OUTCOMES
Supply chain management is an important part for every organization as it improves the effectiveness,
efficiency, management of resources, etc. it also establishes good and prominent relations with the stake
holders like suppliers, customers, etc. it integrates and combines the entire business activities and take care
of each and every step that ultimately helps in achieving satisfaction of the customers and goals of the
company.

ISC platform generates real-time reports for the flow of the products across the entire network. It is aimed to
improve SCM, enable accurate procurement and demand planning, boost inventory, and transportation
management.
Supply chain capabilities are guided by the decisions you make regarding the five supply chain drivers. 
Each of these drivers can be developed and managed to emphasize responsiveness or efficiency depending
on changing business requirements. The five drivers provide a useful framework for thinking about supply
chain capabilities.
The supply contract protects the rights of both parties. The client knows what to expect in terms of the goods
received and how they will be delivered. In turn, the supplier knows what the client is likely to need and how
payment will be submitted.

BIBLIOGRAPHY

Websites
 https://innovecs.com/blog/integrated-supply-chain/

 https://www.blumeglobal.com/learning/supply-chain-competitive-advantage/

 https://en.wikipedia.org/wiki/Wikipedia:About

 https://www.tutorialspoint.com/supply_chain_management/index.htm

 https://www.mindtools.com/pages/article/newSTR_66.htm

 https://aims.education/integrated-supply-chain-management/
 https://www.contractstore.com/business-services/manufacture-supply/long-term-
supply/

 https://www.wolterskluwer.com/en/expert-insights/five-supply-chain-drivers