25-02-2023

SCM - Introduction

Operations Transforming input resources into products and services

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The Path to Innovation in LSCM

 From mind to market

 From lab to land

 From plough to plate

 From farm to fork

 From bench (lab) to bedside

 From Feelings to Finished Products

What is SC and SCM ?

Supply Chain (SC) …

Flow of products and services from:

• Raw materials, Intermediate products,
End product manufacturers, Wholesalers
and distributors and also Retailers……to
Customers
• Connected by transportation and storage
activities
• Integrated through information, planning,
and integration activities
• Cost and service levels

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• Supply Chain Management (SCM) …

…… is a set of approaches utilized to

efficiently integrate suppliers, manufacturers,
warehouses, and stores…and Customers.

So that merchandise is produced and

distributed…

… with right quantities, to the right

locations, and at the right time…

in order to optimize system wide costs while

satisfying service level requirements.

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Coronavirus’ impact on Logistics & Supply

Chains

With the humanitarian crisis from coronavirus evolving on a

daily-basis……

…… businesses have grappled with ‘how to continue serving

their customers and communities‘ in India and around the
world.

https://www.weforum.org/agenda/2022/01/challenges-supply-chains-covid19-2022

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The Medical Refrigerators help store vaccine vials that require

extremely cold temperatures.

Kamal Nandi, Business Head and Executive Vice President, Godrej

Appliances said…

… “We have received an order of Rs 95 crore for 9,000 medical

refrigerators (with storage temperature of 2-8°C) and 3,000
chest freezers (with storage temperature of -25°C) from the
health ministry, the Government of India.

……There is another 3,000 units order for medical refrigerators

from UNICEF India,” he added.

Godrej Appliances to launch ultra-cool freezers in India for

COVID-19 vaccine storage…. Dec 23, 2020.

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Nandi said, in January 2021, the company will be launching a

vertical freezer with a storage temperature of -70°C which will be
an ultra-cool freezer.

The Pfizer vaccine for COVID-19 needs to be stored at -70°C…

…… while the Moderna vaccine needs a temperature of -20°C
(though it can be kept in the refrigerator at +2°C to +8°C for up
to a month).

The AstraZeneca-Oxford vaccine needs a storage temperature of

+2°C to +8°C.

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SCM - Network Perspective

Suppliers Manufacturers Distributors Retailers

R c
Distributor u
Supplier R s
R t
Supplier Plant o
R m
Distributor e
Supplier R
r
R s

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Supply Chain Management Network

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Supply Chain Network Flows

Real-Time Access to SCM Information is Critical to Maintain Cost-

Efficient Operations

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Current Supply Chains

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Plant C1

S1 RD C 1 R1
C1000

C1
S2 RD C 2 D1
R2

WH C1000

RD C 3

S3
C1

RD C 4 R3

S4 C1000
D2
C1

R4
C1000

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Components of SCN
Upstream Supply Chain

• Organization’s first tier suppliers & their suppliers.

Internal Supply Chain

• Processes used by an organization to transform their

inputs to outputs.

Downstream Supply Chain

• Processes involved in delivering the product/service

to the final customers.

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Supply Chain Processes & Functions

Demand Forecasting
Material Requirement Planning
Demand Planning

Component Production
Requirement Plan

Supplier Plant Warehouse Logistics Retailer

Order Management

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Supply Chain Processes & Functions

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Examples of supply chain

Li & Fung SUPPLY CHAIN

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Examples of supply chain

The Amul Model

The Amul Model of dairy development is a three-

tiered structure with…

…… the dairy cooperative societies at the village

level federated under a milk union at the district
level and a federation of member unions at the
state level.

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The Amul model has helped India to emerge as the

largest milk producer in the world.

More than 15 million milk producers pour their milk in

1,44,500 dairy cooperative societies across the country.

Their milk is processed in 184 District Co-operative

Unions and marketed by 22 State Marketing Federations,
ensuring a better life for millions.

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•Establishment of a direct linkage between milk

producers and consumers by eliminating middlemen

• Milk Producers (farmers) control procurement,

processing and marketing Professional management

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Inventory Management

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What Is Inventory?

Stock of items kept to meet future demand

Purpose of inventory management

 how many units to order
 when to order

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Types of Inventory

 Raw materials

 Purchased parts and supplies

 Work-in-process (partially completed)

products (WIP)

 Items being transported

 Tools and equipment

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Why Is Inventory Required?

 Uncertainty in customer demand
 Shorter product lifecycles
 More competing products

 Uncertainty in supplies
 Quality/Quantity/Costs/Delivery Times

 Delivery lead times

 Incentives for larger shipments

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Why Is Inventory Required? (2)

Inventory
Optimization

No Shortage
No Idle
Of
Inventories
Inventories

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Why Is Inventory Required? (3)

 Break in Production process

 Fail to reach to market in time
 Loss of Productivity
 Reduced levels commitment to
Customers

Shortage
Of
Inventories

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Why Is Inventory Required? (4)

 Accumulation of inventories = Increased capital cost

 Increased indirect costs towards
storage, safety etc.
 Obsolescence of inventory

Idle
Inventories

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Effect of Reorder Qty on Average Inventory

Investment with Constant Demand and Lead
time
Demand = 20 units/day with Lead time constant = 10 d

Demand = 20 units/day with Lead time constant = 10 d

Demand = 20 units/day with Lead time constant = 10 d

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Demand Uncertainty

Demand increased to 25 units/day with Lead time constant

Demand is constant at 20 Units/day and Lead time increased to 12 days

Demand increased to 25 Units/day and Lead time increased to 12 days

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Assumptions

P = Ordering cost

Q items per order: Order quantities are fixed, i.e., each

time the warehouse places an order, it is for Q items.

D = Demand per annum (number of units)

C = Annual inventory carrying cost accrued per unit

held in inventory per day that the unit is held (also
known as, holding cost) as a % of product cost

V = Average cost of one unit of inventory

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Deriving EOQ

Total Annual cost (TAC) = (V x C x Q/2) + (P x (D/Q))

(I.C. cost) (Ord. cost)
dTAC = d(V x C x Q/2) + d(P x (D/Q))
dQ dQ dQ

dTAC = VC/2 + (PD (-Q- 2 ))

dQ
= VC/2 – PD/Q 2
Setting VC/2 –PD/Q 2 = 0
VC/2 = PD/Q 2
Q2 = 2PD/VC
2 KD
Q*  2PD/VC
h

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EOQ: Example
 Let us determine the best ordering policy :
P = Ordering cost = $ 40
D = Demand per annum = 4,800 units
C = Annual inventory carrying cost accrued per unit held in
inventory per day that the unit is held = 25 % of product cost
V = Average cost of one unit of inventory = $ 100 per unit

2 KD
Q*  2PD/VC
h

2 KD
2(40) (4800) 23,84,000
KD
Q*  ---------------
Q*  ---------------
h
100 x 0.25
h25
Q*= 124 units

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Cost trade-offs required to determine the most Economical Order

Quantity

Order Qty. No. of Orders Ordering cost ($) Inventory carrying Total cost ($)
cost ($)
(Q) (D/Q) P x (D/Q) (Q/2 x C x V)
D = 4800 nos. P = $ 40

40 120 4,800.00 500.00 5,300.00

60 80 3,200.00 750.00 3,950.00
80 60 2,400.00 1,000.00 3,400.00
100 48 1,920.00 1,250.00 3,170.00
120 40 1,600.00 1,500.00 3,100.00
140 34 1,360.00 1,750.00 3,110.00
160 30 1,200.00 2,000.00 3,200.00
200 24 960.00 2,500.00 3,460.00
300 16 640.00 3,750.00 4,390.00
400 12 480.00 5,000.00 5,480.00

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