Activities in Supply Chain and Logistics

Chandana Rathnayake USP, psc,MBA(LM)

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The Supply Chain Operations Reference Model (SCOR)
depicts six basic functions that the Council deemed to be
inherent to every supply chain
• The original model contained four functions—Plan,
Source, Make, and Deliver.

• Fifth critical function was added—Return.

• The Enable functions includes all those activities that

help to enable the supply chain activities.

• Benchmarks and best practices to help better manage

and measure supply chain management activities.
Plan

• The initial stage of the supply chain process is the planning stage. Thus
need to develop a plan or strategy in order to address how the products
and services will satisfy the demands and necessities of the customers. In
this stage, planning should focus on designing a strategy that yields
maximum profit. For managing all the resources required for designing
products and providing services, a strategy has to be designed by the
companies.

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Source

• After planning, the next step involves developing or sourcing. In this stage,
concentrate on building a strong relationship with suppliers of the raw materials
required for production. This involves not only identifying dependable
suppliers but also determining different planning methods for shipping,
delivery, and payment of the product.
• Companies need to select suppliers to deliver the items and services require to
develop product. So in this stage, supply chain managers need pricing, delivery
and payment processes and improving the relationships.

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Make

• The third step in the SCM process is manufacturing or making of

products that were demanded by the customer. In this stage, the products
are designed, produced, tested, packaged, and synchronized for delivery.
• Task of the supply chain manager is to schedule all the activities required
for manufacturing, testing, packaging and preparation for delivery.

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Return

• The final stage of supply chain management is referred as the return. In

the stage, defective or damaged goods are returned to the supplier by the
customer.
• Here, the companies need to deal with customer queries and respond to
complaints.
• The planners of supply chain need to discover a responsive and flexible
network for accepting damaged, defective and extra products back from
their customers and facilitating the return process for customers.

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Classification of Logistical Activities
• I. Inbound logistics; which is concerned with the smooth and cost effective inflow of
materials and other inputs (that are needed in the manufacturing process) from
suppliers to the plant. For proper management of inbound logistics, the management
has to maintain a continuous interface with suppliers (vendors).

• II. Outbound logistics (also called physical distribution management or supply chain
management); is concerned with the flow of finished goods and other related
information from the firm to the customer. For proper management of outbound
logistics, the management has to maintain a continuous interface with transport
operators and channels of distribution.

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Key Activities Involved in Logistics Management

Network Design
• Network design is one of the prime
responsibilities of logistics management.
This network is required to determine the
number and location of manufacturing
plants, warehouses, material handling
equipment’s etc. on which logistical
efficiency depends.

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Order Processing
• Customers’ orders are very important in logistics management. Order
processing includes activities for receiving, handling, filing, recording of
orders. Herein, management has to ensure that order processing is
accurate, reliable and fast.
• Further, management has to minimize the time between receipt of orders
and date of dispatch of the consignment to ensure speedy processing of
the order.
• Delays in execution of orders can become serious grounds for customer
dissatisfaction; which must be avoided at all costs.

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Procurement
It is related to obtaining materials from outside suppliers. It includes supply
sourcing, negotiation, order placement, inbound transportation, receiving
and inspection, storage and handling etc. Its main objective is to support
manufacturing, by providing timely supplies of qualitative materials, at the
lowest possible cost.

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Material Handling
• It involves the activities of handling raw-materials, parts, semi-finished
and finished goods into and out of plant, warehouses and transportation
terminals.
• Management has to ensure that the raw-materials, parts, semi-finished
and finished goods are handled properly to minimize losses due to
breakage, spoilage etc.
• Further, the management has to minimize the handling costs and the time
involved in material handling.

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Inventory Management
The basic objective of inventory management is to minimize the amount of
working capital blocked in inventories; and at the same time to provide a
continuous flow of materials to match production requirements; and to
provide timely supplies of goods to meet customers’ demands.

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Transportation
Transportation is that logistical activity which creates place utility.
Transportation or shipment is necessary for an uninterrupted supply. The
factors that have an impact on shipment are economic uncertainty and
instability, varying fuel prices, customers’ expectations, globalization,
improvised technologies, changing transportation industry and labour
laws.
• Transportation is needed for:
1. Movement of raw-materials from suppliers to the manufacturing unit.
2. Movement of work-in-progress within the plant.
3. Movement of finished goods from plant to the final consumers.

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Major Transportation Systems Include:
1. Railways 4. Waterways

2. Roadways 5. Pipelines.

3. Airways

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Choice and Mode of Carrier

A very important decision to be made is to choose the mode of

transportation. With the improvement in the means of transportation, modes
of transport that were not available in the traditional transportation modes
in the past can be now be a preferred choice.

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The choice of a particular mode of transportation is dependent on a
balancing of following considerations:

1. Speed of transportation system

2. Cost involved in transportation
3. Safety in transportation
4. Reliability of transportation time schedules
5. Number of locations served

For example, rail container service may offer a package that is cost-efficient and effective as
compared to a motor transport. While making a decision, the manager has to consider the
service criteria that need to be met, like the delivery time, date special handling requirements,
while also taking into consideration the element of cost, which would be an important factor.

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The manager has to understand the product flows, volume, frequency,
seasonality, physical features of products and special handlings necessities, if
any.
In addition, the manager has to make decisions the extent of outsourcing to be
done for each and every product. While considering all these factors, carefully
consider the fact that the networks need not be constant.
For example, in order to transport stock to regional cross dock facilities for
sorting, packaging and small loads to individual customers, stock destinations
can be assembled through contract transportation providers.

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Dock Level Operations

This comprises planning, routing and scheduling. For example, if a carriage

is being loaded with different customers’ orders, the function of the dock-
level managers is to assure that the driver is informed of the most efficient
route and that loads are placed in the order of the planned stops.

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SCM – Process flow

There are different types of flow in supply chain management:

• Material flow
• Information/Data flow
• Money flow
• Value flow
• Inefficiencies

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Material Flow

• Material flow includes a smooth flow of an item from the producer to the
consumer. This is possible through various warehouses among
distributors, dealers and retailers.
• The main challenge is ensuring that the material flows as inventory
quickly without any stoppage through different points in the chain. The
quicker it moves, the better it is for the enterprise, as it minimizes the
cash cycle.
• The item can also flow from the consumer to the producer for any kind of
repairs, or exchange for an end of life material. A process known as 3PL
is in place in this scenario. There is also an internal flow within the
customer company.
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Information Flow

•Information/data flow comprises the request for quotation, purchase order, monthly
schedules, engineering change requests, quality complaints and reports on supplier
performance from customer side to the supplier.
•From the producer’s side to the consumer’s side, the information flow consists of the
presentation of the company, offer, confirmation of purchase order, reports on action
taken on deviation, dispatch details, report on inventory, invoices, etc.
•For a successful supply chain, regular interaction is necessary between the producer
and the consumer. In many instances, we can see that other partners like distributors,
dealers, retailers, logistic service providers participate in the information network.
•In addition to this, several departments at the producer and consumer side are also a
part of the information loop.

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Money Flow

On the basis of the invoice raised by the producer, the clients examine the
order for correctness. If the claims are correct, money flows from the
clients to the respective producer. Flow of money is also observed from the
producer side to the clients in the form of debit notes.

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Warehousing

• Warehousing plays a vital role in the supply chain process. Customer want everything
at door step with efficient price.
• To neutralize the efficiency of inbound functions, it is ideal to accept materials in an
immediately storable conveyance, like a pallet, case or box. For labeling the structure,
tool selection and business process demand the types and quantities of orders that are
processed. Further, the number of stock-keeping units (SKU’s) in the distribution
centers is a crucial consideration.
• The Warehouse Management Systems (WMS) leads the products to their storage
location where they should be stored. The required functionality for the completion
and optimization of receiving, storing and shipping functions is then supplied.

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Value adding activities in warehouse

Cargo sorting - The sorting center handles

and sorts your cargo based on your
requirements (e.g. sorting of cartons on
customer PO level).

Labelling - Label printing and placing

according to requirements (e.g. any type of
pallet or carton labelling, inner carton label,
etc).

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Value adding activities in warehouse

Kitting & Product Customization - Create

bundles or customised product for any market or
customer requirements (e.g. SKU building,
bundling, product boxing, localising or kitting).

Re-packaging - Repackaging of cargo based on

specified requirements (e.g. repacking cargo
from damaged box into a new box).

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 Value adding activities in warehouse
Consolidating - A form of warehousing that pulls together small shipments from a number
of suppliers in the same geographical area and combines them into larger, more economical,
shipping loads intended for the same area.

• Reduce warehousing, cost of capital, and inventory reduction

• Reduce invoicing costs
• Reduce logistics costs with fewer small quantity orders
• Reduce unit cost by consolidating raw material and packaging spend
• Improve manufacturing efficiency by reducing changeovers, leading to reduced unit cost
• Reduce inventory for both finished goods and raw materials (including packaging)
• Increase forecast accuracy due to elimination of small products
• Increase margins and business profitability due to the reduction in operations costs
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 Value adding activities in warehouse
Break bulk - A break bulk warehouse fundamentally sorts
and splits the individual orders and arranges for local
delivery. Break bulk helps in ensuring economical large
bulk transportation from origin into smaller sized local
deliveries.
Mixing - Mixing is very similar to the break-bulk function.
But only involve the products from one manufacturer. Once
the products receive to the warehouse from several
production plants, mix them up as to the customer
requirement in the warehouse and distribute.
Cross docking - Cross docking is unloading incoming
delivery vehicles and loading the materials directly into
outbound delivery vehicles, omitting traditional warehouse
logistical practices and saving time and money.
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Sourcing and Procurement

• Sourcing and procurement are a vital part of the supply chain

management. The company decides if it wants to perform all the exercises
internally or if it desires to get it done by any other independent firm.

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Supply Chain Contracting

• A supply contract specifies parameters governing the buyer-supplier

relationship.
• Contracts have a significant impact on the behavior and performance of
all stages in an SC. Two groups of contracts can be distinguished:

• Contracts for product availability and SC profit.

• Contracts to coordinate SC costs.

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Contracts for Product Availability and SC Profit

• The supplier designs a contract that encourages the buyer to purchase

more items and increase the level of product availability, the supplier
shares a part of the buyer’s demand uncertainty.
• Buyback or returns contracts (a salvage price is used at which a retailer
can return unsold inventory for a certain amount).
• Revenue-sharing contracts (a share of the retailer’s revenue is paid to
the supplier).
• Quantity flexibility contracts (the manufacturer allows the retailer to
change the quantity ordered after observing demand).

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Coordinate SC Costs

• Based on quantity discount contracts, A quantity discount contract

decreases overall costs but leads by tendency to higher lot sizes.
• This in turn facilitates higher levels of inventory in the SC. It is typically
reasonable for commodity products for which the supplier has high fixed
costs per lot.

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Returns Management

• Returns management can be defined as the management that invites the merger
of challenges and opportunities for inbound logistics.
• A cost-effective reverse logistics program links the available supply of returns
with the product information and demand for repairable items or re-captured
materials.

Speed:
It is a must to have quick and easy returns management and automate decisions
regarding whether to produce return material authorizations (RMAs) and if so,
how to process them. Basically, the tools of speed return processing include
automated workflows, labels & attachments and user profiles.

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Visibility:

For improving the visibility and predictability, information needs to be

captured initially in the process, ideally prior to delivering the return to the
receiving dock. Most effective and easily implementable approaches for
obtaining visibility are web-based portals, carrier integration and bar-coded
identifiers.

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Control:
In case of returns management, synchronizing material movements is a
common issue that needs to be handled. The producers need to be very
cautious and pay close attention to receipts and reconciliation and update
the stakeholders of impending quality issues.
The key control points in this process are regulatory compliance,
reconciliation and final disposition and quality assurance.
Software solutions can assist in speeding up the returns management by
supporting user profiles and workflows that state supply chain partners and
processes, by labeling and documentation that tracks the material along
with the web-based portals and by exception-based reporting to deliver
information for timely reconciliation.

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Post-Sales Service

• The post sales service in supply chain is an essential factor as businesses

offer solution instead of products.
• The post sales services comprise selling spare parts, installing upgrades,
performing inspection, maintenance and repairs, offering training &
education and consulting.

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SCM – Performance Measures

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

the performance of supply chain system. Classified into two;

 Quantitative measures: For example, order-to-delivery lead time,

supply chain response time, flexibility, resource utilization, delivery
performance.
 Qualitative measures: For example, customer satisfaction and product
quality.

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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.
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Vendor-Managed Inventory

• Inventory typically exists to manage uncertainty of supply and demand

(safety stock) and to take advantage of economy of scale (cycle
inventory).
• Modern markets require more flexibility from SCs. Customer orders and
demand change frequently.
• Building up high inventory, companies can increase their flexibility on
the one hand. On the other hand, if demand changes, these inventory
mountains will lead to losses.

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Vendor-Managed Inventory contd.

In order to face this challenge, SC coordination strategies extensively use

the Internet and new IT.

• Coordination instead of uncertainty

• Integrated SC
• Transparency of demand and inventory

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One of the strategies for SC coordination is vendor-managed inventory
(VMI). With VMI, the vendor controls inventory on the buyer side. The
buyer provides information on inventory and sales.

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Vendor-Managed Inventory contd.

• The main advantage of this concept is that the real-time inventory

information is made available to the supplier (manufacturer of a
wholesaler) and a customer (distributor or retailer) relinquishes control of
inventory to them.
• The vendor reviews every item that a customer carries and is responsible
for the inventory plan.
• Efficiency increases in process activities are based on Electronic Data
Interchange (EDI) and collaborative SC.

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Advantages of VMI

For the Vendor;

• Early recognition of fluctuation in demand.
• Optimization of production planning; increased volume.
• Enforcement of discipline: measurements and communication.
• Better planning and resource use via visibility.
• Improved market analysis and elimination of non-value-added
activities.
• Closer customer ties and preferred status.

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Advantages of VMI contd.

For the Buyer;

• Increase of inventory availability.
• Reduction of procurement activities.
• Fewer stock-outs with higher inventory turnover.
• Optimal product mix.
• Lower operating, purchasing, and administrative costs.
• SC relationship strategic strength.
• Greater customer satisfaction and increased sales.

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Advantages of VMI contd.

• For Overall SC;

• Optimization of inventory management and cost reduction.
• Decrease of fixed capital (stocks).
• Improvement of financial planning.
• Supports long-term collaboration.

• For End-User - Increased service level and reduced stock outs.

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Supply Chain Resilience and Sustainability

• Ecological problems, natural disasters, and society development

challenges, the necessity for new viewpoints on SCM has become even
more obvious.
• Main goals of SCM—maximizing service level and minimizing costs—
will be enhanced by the third component—maintaining SC resilience and
sustainability.

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Supply Chain Sustainability

• Triple-bottom-line:
“economy-ecology-society”. Joint
consideration of all these elements is
crucial for SCM in the long-term
perspective.
• In SCM such concepts as “Closed-
Loop Supply Chain” and “Reverse
Logistics” have been developed.

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Case Study Coca-Cola “Closed-loop Supply Chain” and
“Reverse Logistics”
• The bottling partners also organize collaboration with
suppliers.
• Leading supplier of liquid packaging materials .
• Electronic access to inventory levels and sales forecasts at
Coca-Cola with no time delay.
• Coca-Cola receives exact delivery quantities and times.
This has enabled Coca-Cola to reduce inventory levels for
packaging material by 50%.
• The bottling partners stay in close contact with grocery
stores, supermarkets, convenience stores, cinemas and all
other customers.
• Every empty Coca-Cola bottle is recyclable it is up to
consumers to take responsibility for recycling.
• Coca-Cola system developed Plant Bottle packaging, a
polyethylene terephthalate (PET) plastic bottle made
partially from plants and that is completely recyclable.
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