SCM Module 1 - For Reference PDF

Supply Chain Management
Module 1: Introduction of SCM
Compilation of Reference Material from Several Books. To be used for

Academic Purpose Only.
Nature/ Features
• Two-way flow- Value creation & Feedback
• Sharing of sales information in real time
• Management of Inventories-Reduces inventory by reducing
uncertainty. Making inventory available in the right place at the
right time. Avoids understocking or overstocking
• Customer Focus-Focus on increasing customer service,
providing goods to customers as per their requirement
(forecasting of demand).
• Supplier Relationship Management-To enable smooth Raw
material procurement
• Managing Logistics and Shipping- Coordination with
transportation and warehousing
• Return Management-Proper handling and inspection of
damaged or defective goods
Contemporary developments in SCM

Bar Coding
 Bar coding is a sequence of parallel lines of different thickness
with spaces in between.
 Bars are nothing but items of information in the codified form,
which can be read with the help of scanner
 Use of barcodes- dated back to 1952 (USA Supermarkets)
 Bar codes contain information wrt country code, manufacturer
name, product details, date of manufacture, material content etc
 Bar codes are used in diverse industries such as pharmaceutical,
consumer goods, electronics, automobiles etc

Advantages Disadvantages
It allows real time data to be Barcode scanning requires
collected accurately and special device called Barcode
rapidly with the help of Scanner which emits light and
barcode readers collects reflected light to
decode the Barcode
It enables fast data entry Barcode scanner or reader
operations and reduces human works with computers or POS
errors terminals
It is mature and proven Barcodes do not have read/
technology which reduces write capabilities
processing lead time and
paper work
It is less expensive It requires optical line of sight
(LOS ) scanning
It is smaller and lighter It is labour intensive as it
compared to RFID (Radio requires to be scanned
frequency identification) tags individually
and easy to use
It is less secured as compared
to RFID which can be easily
forged
It is susceptible to
environmental damage
Scratched or crumpled
barcodes may cause problems
while scanning

Electronic Data Interchange (EDI)
• EDI is identified as inter-company and intra company
computer- to-computer exchange of business documents in
standard formats.
• The communication is through electronic media rather than
traditional forms of mails, courier or fax
• Application- Indian Customs uses EDI
Reductions in – (i) Document Lack of awareness of its
preparation and processing time; benefits
(ii) Inventory carrying cost; (iii)
Personnel costs; (iv) Information
float; (V) Shipping errors; (vi)
Returned goods; (vi) Lead time;
(viii) Order cycle times and (ix)
Ordering costs
Better customer focus High setup costs
Better working relationships with Lack of standard formats
trading partners
Increased internal and external Incompatibility of
productivity computer hardware and
software
Increased ability to compete
internationally

Decreased operating costs-
through reduced clerical post,
paper work, telephone/ fax costs
EDI may lead to increase in cash
flow and billing accuracy
Just in Time (JIT)

Just-in-time, or JIT, is an inventory management method in which
goods are received from suppliers only as they are needed. The main
objective of this method is to reduce inventory holding costs and
increase inventory turnover.
Just in time requires carefully planning the entire supply chain and
usage of superior software in order to carry out the entire process till
delivery, which increases efficiency and eliminates the scope for error
as each process is monitored. Some of the important effects of a just-
in-time inventory management system are as follows:
 Reduces inventory waste
 Decreases warehouse holding cost
 Gives the manufacturer more control
 Local sourcing
 Smaller investments
Reduces inventory waste- Risk of running out of stock-
overproduction (supply exceeds of you project the demand
the demand) leading to incorrectly you are at risk of
accumulation of inventory. In running out of stock
JIT you only order what you
require (As per the demand)
and hence it reduces inventory
waste.
Decrease warehouse cost Lack of control over time
frame
Gives the manufacturer more Lack of planning- company

control- works on a demand not able to forecast the
pull basis. They respond to trends of demand especially
customers demand in case of seasonal sales
(manufacturing of in demand period.
product is boosted and products
that are not in demand i.e slow
moving products are reduced)
Local sourcing- faster delivery/
decrease transportation cost
Smaller investment
Distribution Requirement Planning (DRP)
Distribution requirements planning (DRP) is a systematic process to

make the delivery of goods more efficient by determining which
goods, in what quantities, and at what location are required to meet
anticipated demand. The goal is to minimize shortages and reduce the
costs of ordering, transporting, and holding goods.
Also known as distribution replenishment planning, DRP is a time-

based approach that determines when inventory is likely to be
depleted and plans replenishment to avoid shortages. DRP uses a tree-
like structure where a central facility, such as a warehouse, supplies
regional facilities which then supply other facilities in the tree. This
structure can contain any number of layers.
A key element of DRP is the DRP table, which usually includes

elements that are important in the process, including:

 forecast demands
 current inventory levels
 target safety stock
 recommended replenishment quantities
 replenishment lead times
DRP distribution works by either a pull or push method. The pull

method has goods move up through the network by fulfilling
customer orders. This provides more availability for consumers
because local management controls the availability of the goods.
However, managing distribution inventory can be difficult because
every order is new to the supplying location as demand flows up the
network. This is called the "bullwhip effect:" small changes in
consumer demand that generate large swings in demand higher up the
network.
In contrast, the push method sends goods down through the network.
It generally has lower costs because shipments are planned globally
and stored centrally. However, service levels can suffer if central
planning is too far removed from the actual demand.
DRP ideally combines the service levels of pull with the efficiency of
push, but this depends on accurate forecasts and stable processes to be
successful. If both of these exist, DRP produces high fulfilment
performance with minimal inventory. Companies usually try to hedge
their bets by using safety stock, but that can reduce the overall
effectiveness of the DRP strategy, resulting in higher inventory levels
or shortages.
A number of vendors include DRP modules in their ERP software.

Process Tools for Supply Chain Management

Ways to improve supply chain/Supply chain best practices

Logistics v/s Supply Chain Management
Logistics Management Supply Chain Management
Inbound logistics All players in the supply chain

from raw materials source to
In process inventory-
movement from one plant to finished product (Suppliers,
vendors, warehouses, customers
another
etc)
Outbound logistics
Managed internally (internal Managed externally (external
integration) within an integration) – by various
organizations (by various players in the supply chain
management functions)
Objective- cost reduction Objective- profitability

Very old concept in military Logical extension of logistics
planning management
Supply driven- tries to take the Demand driven or customer
product to the consumer at focussed-Focusses on value
minimum logistical cost. creation
Evolution of Supply Chain Management

Importance of Supply Chain Management

Strategies of Supply Chain Management


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Supply Chain Management

Module 1: Introduction of SCM

Compilation of Reference Material from Several Books. To be used for

Contemporary developments in SCM

Compilation of Reference Material from Several Books. To be used for

Compilation of Reference Material from Several Books. To be used for

Compilation of Reference Material from Several Books. To be used for

Just in Time (JIT)

Gives the manufacturer more Lack of planning- company

Distribution Requirement Planning (DRP)

Distribution requirements planning (DRP) is a systematic process to

Also known as distribution replenishment planning, DRP is a time-

A key element of DRP is the DRP table, which usually includes

Compilation of Reference Material from Several Books. To be used for

DRP distribution works by either a pull or push method. The pull

A number of vendors include DRP modules in their ERP software.

Compilation of Reference Material from Several Books. To be used for

Compilation of Reference Material from Several Books. To be used for

Compilation of Reference Material from Several Books. To be used for

Inbound logistics All players in the supply chain

Compilation of Reference Material from Several Books. To be used for

Evolution of Supply Chain Management

Compilation of Reference Material from Several Books. To be used for

Compilation of Reference Material from Several Books. To be used for

Compilation of Reference Material from Several Books. To be used for

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