Supply Chain Management Sum20

Supply Chain Management

The Supply Chain

 A supply chain is a sequence of organizations - their facilities, functions, and activities -

that are involved in producing and delivering a product or service.

 A supply chain is a system of organizations, people, activities, information, and resources

involved in moving a product or service from a supplier to a customer.

 A supply chain is actually a complex and dynamic supply and demand network.

Sometimes, it is termed as value chain.

Examples of Supply chains:

 Industrial Supply Chain - It deals with production of quality a product/service with

minimum cost and delivering it to customers at a competitive lesser price and time by
maintaining an attractive customer service.
 Agricultural Supply Chain – It deals with production of healthy agricultural products with
minimum cost and their faster delivery to customers with lesser prices and times by
maintaining appropriate customers services.
 Health Care Supply Chain – It deals with providing quality health service to patients with
competitively better prices and times.
 Educational Supply Chain – It deals with transmitting appropriate knowledge of a subject
to students in a specific period of time with an optimal cost along with a better students’
service.
 Transportation Supply Chain – It deals with delivering products/passengers safely from
one place to another in minimum time and cost.
 Financial Supply Chain – It deals with the practice of looking at all financial processes of
a company at the holistic level rather than viewing them as individual processes.
 Military Supply Chain – It deals with a cross-functional approach to procuring, producing
and delivering products and services for military materiel applications in order to achieve optimal
benefits.
 Humanitarian Supply Chain – It deals with the flow of relief aid and the related
information between the beneficiaries affected by disaster and the donors so as to
minimize human suffering and death.
 Environmental Supply Chain – It deals with obligation to responsible business practices
by integrating fair working conditions and good environmental practices throughout the
supply chains.

Industrial Supply Chain:

 Production of products or services and delivering them to customers also termed as
Operations Management.
 Supply Chain Management Sum20

 It includes collection of raw materials, conversion of inputs into output, and delivering
them to customers.
 It requires demand planning and fulfillment.

The general industrial supply chain flow is depicted below:

Integrated supply chain:

 The supply chain can be viewed as a series of integrated enterprises that must share
information and coordinate physical execution to ensure a smooth, integrated flow of
goods, services, information and cash through the pipeline. The scenario can be shown as
follows:

Product/Services

Information

Finances
 Supply Chain Management Sum20

Supply Chain Management (SCM)

 Supply chain management (SCM) is the proper management of a flow of goods and/or
services in order to satisfy customers’ demand effectively in a lesser time with a better
quality and price.

 It includes the movement and storage of raw materials, semi-finished goods, finished
goods, processing of a product/service maintaining its quality and inventory of work-in-
process, during transportation and finished goods.

 Thus it includes all the activities starting from the point of origin to the point of
consumption in supplying a product or a service, and reverse flow of goods, that is,
returns management within supply a chain function.

 Reverse flow is as important as forward flow in any supply chain. By examining a

consumer supply chain process flow, one can conclude that the reverse flow is a very
critical and important function within the supply chain to recover the product cost
comprehensively and at the same time helps in safe disposal of waste.

Organizations are being faced with more uncertainties from its task environment than before.
Environmental uncertainty is considered in terms of three types, namely, supply chain
uncertainty, demand or customer uncertainty, and technology uncertainty, based on its sources.
Today’s ever-changing business environment is defined by its highly competitive, dynamic and
complex nature, where customers are demanding more variability, better quality, higher
reliability and faster delivery. Moreover, sourcing, manufacturing and distribution activities are
becoming global, product life cycle is shortening, product range is expanding, and technological
developments are occurring at a faster pace than before. To respond to and control such uncertain
environment, organizations are internalizing fewer resources and capabilities, while increasing
their integration with supply chain partners. Supply chain integration, defined as the degree to
which a firm strategically collaborates with its supply chain partners and collaboratively
manages intra- and inter-organizational resources to achieve effective and efficient flow of
products, services, information, money and decisions, with the objective of providing the
maximum value to its customers. It has long been considered as a competitive advantage in
today’s global market. Continual focus of Wal-Mart on improving supply chain process provided
the ability to discount brand name product.

Change in Organizations
 Change is inevitable, but growth and improvement are optional.
 An organization either changes and gets better or gets worse without any change.
 When the rate of change outside an organization is faster than inside, the end of business
is near.
This change can be shown pictorially as follows:
 Supply Chain Management Sum20

Change

Time

Different rates of change with time are shown in the figure.

Thus, the dynamics of the global environment today requires new thinking and perspectives. So,
an examination of the major external forces or change drivers shaping the economic and political
environment is essential. Here we have the intention to understand the impact of these forces of
change on business and other organizations and hence the requirement of supply chain
management.
The major external forces or change drivers are
1) Globalization
2) Technology
3) Organizational Consolidation (the action or process of making something stronger or
more solid)
4) The empowered customer
5) Government Policy and regulation

Globalization
 Globalization is the tendency of businesses, technologies, or philosophies to spread
throughout the world, or the process of making this happen.
 The global economy is characterized as a totally interconnected marketplace,
unhampered by time zones or national boundaries (time and distance are compressed).
Thus companies seeking to rationalize their global networks, ask questions as follows:
Where in the world
1) Should they source their materials and/or services?
2) Should they manufacture or produce their products and/or services?
3) Should they market and sell their products and/or services?
4) Should they store and/or distribute their products?
5) What global transportation alternatives should they consider?

Some important issues or challenges for supply chains of the global economy are
1) More volatility (instability) of supply and demand created by acts of terrorism,
contamination of food products, Natural catastrophes, global competition of sources of
supply and markets, etc.
2) Shorter product life cycles
 Supply Chain Management Sum20

i. Leads to duplication of products and services quickly, and hence imposes

challenges for inventory management.
ii. Technology companies are particularly vulnerable to the threat of their new
products being reengineered.
iii. The risk of obsolescence in certain sectors.

3) The blurring (vague impression) of traditional organizational boundaries.

4) It is the result of companies’ necessity to adjust or transform their business model or the
way that they do business in a competitive global economy.
5) Outsourcing to another domestic or global company that can provide what they need
more efficiently.

Technology
 Vast stores of data and information at our fingertips via internet which can be used to
create unbelievable set of opportunities for collaboration in supply chain.
 Outsourcing to less-developed countries has been enhanced by technology.
 Collaboration opportunities with individuals and companies throughout the globe have
been enhanced.
 Organizational managers have been taking advantage of opportunities presented by
technology on warehousing operations, order fulfillment, transportation carrier
collaboration, procurement (action of obtaining something) and in customer service.

Thus technology has had more impact on supply chain as a facilitator of change as companies
have transformed their processes.

Organizational Consolidation

The term business consolidation refers to the combination of several business units or different
companies into a single, larger organization.

 Business consolidation is used to improve operational efficiency by reducing redundant

personnel and processes.
 More collaboration is being practiced between organizations in the supply chains to gain
mutual cost savings and improved customer service.
 The importance of consolidation and power shift is that the large retailers are accorded
special consideration from consumer companies. The retailers may be provided value-added
services such as vendor-managed inventory, VMI (VMI is a business model where the buyer
of a product provides information to a vendor of that product and the vendor takes full
responsibility for maintaining an agreed inventory of the material, usually at the buyer's
consumption location).

 During the 1980 and especially the 1990, retail giants such as Wal-Mart, Sears, Kmart,
Home Depot, Target, Krogner, McDonald’s etc. became the powerful market leaders because
of organizational consolidation.
 Supply Chain Management Sum20

The empowered customer

 Educated enlightened (progressive) economically viable consumers are empowered by
updated information due to emergence of updated technology.
 Consumers want and demand quality products within a time frame and more convenient
offerings according to their schedules.
 Understanding of customers’ behavior is important to business organizations in order to
update their supply chain functions.

Thus the ‘power’ of consumers has caused much change in how supply chains function.

Government Policy and Regulation

Governments create rules and regulations to regulate business practices in order to maintain
competitive business environment for delivering quality products and services to customers. To be
dynamic with the changing business environment, the governments change these rules and
regulations from time to time forcing businesses to change the way they operate. Thus business is
keenly affected by government policy. The impacts of government policy and regulations on
individual businesses and their supply chains are as follows:
 Impact on transportation: The transportation industries are greatly affected by the changes
in government rules and regulations. These changes impact the bottom line of truck drivers,
carriers, shippers, consignees and even consumers. As regulations changes, trucking
companies are forced to increase shipping costs, in turn, driving the cost of products in the
market to rise.
 Impact on financial sector: Changes in the government rules and regulations directly affect
the financial institutions. In fact, these changes affect the financial affairs of every business
and every individual. The changes in the interest rate by the central bank of a country affect
the entire economy of a country and hence the business organizations.
 Impact on communication industry: Communications industry is broadly defined as the
business of conveying information. As such, it covers television and radio broadcasting,
telegraphs, publishing, advertising, telecommunications, motion pictures, home videos,
public relations, computer databases, and other information industries. Thus the
communication industry is greatly affected by the changes in the government rules and
regulations.
Therefore, continual improvement in the management of supply chain of producing products or
providing services is required in order to cope with the changing environment.

Supply Chain Management Facilities:

 Warehouses
 Factories
 Processing centers
 Distribution centers
 Retail outlets
 Offices
 Supply Chain Management Sum20

Functions and Activities of supply chain

 Forecasting
 Purchasing
 Transportation management
 Warehousing management
 Inventory management
 Information management
 Quality assurance
 Scheduling maintenance
 Production and delivery
 Customer service

Major Supply chain Management Issues

 The challenge to develop efficient and effective supply chain(s) management requires
organizations to address a number of issues as follows:
 Appropriate Supply Chain Networks Development
 Identification of Complexities involved and Their Remedies
 Proper Inventory Deployment
 Proper Management of Information System
 Obtaining Optimal Cost/Value
 Organizational Relationships Principles
 Performance Measurement metrics
 Adoption of Updated Technologies
 Transportation Management
 Supply Chain Security

Benefits of Supply Chain Management

 Lower inventories
 Higher productivity
 Greater agility (alertness, liveliness, quickness)
 Shorter lead times
 Higher profits
 Greater customer loyalty
 Integration of separate organizations into a cohesive operating system

Global Supply Chains

 Increasingly more complex because of the following:
 Language
 Culture
 Currency fluctuations
 Political
 Transportation costs
 Local capabilities
 Finance and economics
 Environmental
 Supply Chain Management Sum20

Elements of Supply Chain Management

Logistics Movements

Logistics is responsible for the movement of products from vendors to the delivery at customers’
door, including moves through manufacturing facilities, warehouses and third parties, such as
packagers or distributors. This movement includes

• Movement within the facility

• Incoming and outgoing shipments
• Bar coding
• EDI (Electronic Data Interchange )
• Distribution
• JIT (Just-in-time) Deliveries

Materials Handling
Material Handling is the movement, storage, control and protection of materials, goods and
products throughout the process of manufacturing, distribution, consumption and disposal. The
focus is on the methods, mechanical equipment, systems and related controls used to achieve
these functions. Atypical material handling scenario is shown below.
 Supply Chain Management Sum20

E-Business
Online Business or e-business is any kind of business or commercial transaction that includes
sharing information through the internet. Commerce constitutes the exchange of products and
services between businesses, groups and individuals and can be seen as one of the essential
activities of any business. Thus it is the use of electronic technology to facilitate business
transactions
 Applications include
 Internet buying and selling
 E-mail
 Order and shipment tracking
 EDI (Electronic Data Interchange)
Advantages of E-Business
 Companies can:
 Have a global presence
 Improve competitiveness and quality
 Analyze customer interests
 Collect detailed information
 Shorten supply chain response times
 Realize substantial cost savings
 Create virtual companies
 Level the playing field for small companies

Requirement of a successful Supply Chain

 Requires linking the market, distribution channels processes, and suppliers effectively
 Supply chain should enable members to:
 Share forecasts
 Determine the status of orders in real time
 Access to inventory data of partners
 Trust building among trading partners
 Supply Chain Management Sum20

 Effective communications management

 Supply chain visibility (SCV) (Supply chain visibility is the ability of parts, components or
products in transit to be tracked from the manufacturer to their final destination. The goal of
SCV is to improve and strengthen the supply chain by making data readily available to all
stakeholders, including the customer).
 Event-management capability (A manageable feature, faculty, function, process, service or
discipline that represents an ability to perform something which yields an expected set of
results).
 The ability to detect and respond to unplanned events
 Performance metrics for evaluation of performances

Supply Chain Operations Reference (SCOR) Metrics

Collaborative Planning, Forecasting, and Replenishment (CPFR)

CPFR is an approach which aims to enhance supply chain integration by supporting and assisting
joint practices. CPFR seeks cooperative management of inventory through joint visibility
and replenishment of products throughout the supply chain. It
 Focuses on information sharing among trading partners
 Eliminates typical order processing
 Deals with freezing of forecasts and then converting into a shipping plan

Effective Supply Chain Development Criteria

1. Develop strategic objectives and tactics
2. Integrate and coordinate activities in the internal supply chain
3. Coordinate activities with suppliers and customers
4. Coordinate planning and execution across the supply chain
5. Form strategic partnerships
 Supply Chain Management Sum20

Supply Chain Performance Drivers

1. Quality (maintenance of quality)
2. Cost (producing products or proving service with minimum cost)
3. Flexibility (the willingness and ability to rapidly respond to changing circumstances).
4. Velocity (responding to wants and needs of customers in a competitively minimum time)
5. Customer service (Providing faster customer service but maintaining better quality with
reasonable minimum cost).

The Bullwhip Effect in Supply Chain Management

The bullwhip effect refers to the phenomenon of increasing fluctuations in inventory in response
to shifts in customer demand as one concerned moves further up the supply chain. The bullwhip
effect scenario can be highlighted pictorially as follows:

Just as fluctuations in demand ripple throughout the entire supply chain, the bullwhip effect can
have serious consequences throughout all aspects of business. This variable and unpredictable
demand leads to significant supply chain inefficiencies: buying and storing excessive inventory,
lost revenues, ineffective transportation, missed production schedules, out-of-stock products,
unfulfilled orders, poor customer service, higher costs for consumers, etc.