Supply Chain and Logistics Management v1

What Is Supply Chain Management (SCM)?
―Supply chain management is the management of the flow of goods and services and includes all
processes that transform raw materials into final products. It involves the active streamlining of a
business's supply-side activities to maximize customer value and gain a competitive advantage in
the marketplace‖.- Investopedia
Key Takeaways:
◦ Supply chain management (SCM) is the centralized management of the flow of goods and services and
includes all processes that transform raw materials into final products.
◦ By managing the supply chain, companies can cut excess costs and deliver products to the consumer
faster.
◦ Good supply chain management keeps companies out of the headlines and away from expensive recalls
and lawsuits.
Important Definitions of SCM
1. Supply Chain Management (SCM) is the management and oversight of a product from its origin until
it is consumed. SCM involves the flow of materials, finances and information. This includes product
design, planning, execution, monitoring and control. The goal of this process is to reduce inventory,
increase transaction speed and improve work flow with profit in mind.
◦ Source: https://www.techopedia.com/definition/23789/supply-chain-management-scm
2. APICS, the global association for supply chain management professionals, defines supply chain
management as: ―the design, planning, execution, control, and monitoring of supply chain activities
with the objective of creating net value, building a competitive infrastructure, leveraging worldwide
logistics, synchronizing supply with demand, and measuring performance globally.‖
3. The process of strategically managing flows of goods, services, finance and knowledge, along with
relationships within and among organizations, to realize greater economic value through: Supporting
enterprise strategic objectives, Contributing to the achievement of strategic competitiveness of the
enterprise, Contributing to the enhancement of the competitive advantage of the enterprise and
Enhancing customer satisfaction.
◦ (Source: http://scma.com/on/careers/about-supply-chain-management)
What Are Logistics?
Logistics refers to the overall process of managing how resources are acquired, stored, and transported
to their final destination. Logistics management involves identifying prospective distributors and
suppliers and determining their effectiveness and accessibility. Logistics managers are referred to as
logisticians.
"Logistics" was initially a military-based term used in reference to how military personnel obtained,
stored, and moved equipment and supplies. The term is now used widely in the business sector,
particularly by companies in the manufacturing sectors, to refer to how resources are handled and
moved along the supply chain.
Demand planning, transportation (including fleet management), inventory management, material
handling and order fulfillment are all processes that fall under logistics.
Logistics is the management of the flow of things between the point of origin and the point of
consumption to meet the requirements of customers or corporations. The resources managed in
logistics may include tangible goods such as materials, equipment, and supplies, as well as food and
other consumable items.
Supply Chain Management and Logistics
Management
◦ Supply Chain Management and Logistics Management are sometimes confused and used interchangeably. They
are two aspects of a process.
◦ Supply chain refers to a large network of organisations that work collaboratively to deliver products from a
supplier to a customer.
◦ Logistics Management, on the other hand, is the coordination and moving of resources, and forms part of the
supply chain.
◦ Logistics Management focuses on the management of daily operations concerning the final product of the
organisation.
◦ Logistics Management‘s main aim is to allocate the right amount of a resource at the right time. It is also
ensuring that it gets to the set location in a proper condition while delivering it to the correct internal or external
customer.
◦ Logistics Management can be reduced to the fundamentals of the most efficient and effective ways to move
resources and products to the customer.
◦ Logistics management is able to create visibility within an organisation's supply chains, provide data on real-time
movements and therefore advise on and implement change that directly affects the organization as a whole.
The Differences Between Supply Chain and
Logistics Management
Logistics Supply Chain
Logistics is one activity in supply chain management. Supply chain management covers a wide range of activities,
including planning, sourcing materials, labor and facilities
management, producing and delivering those goods and services.
Logistics focuses on the efficient and cost-effective delivery of Supply chain management targets higher operational
goods to the customer. performance that will give the business a competitive advantage.
Logistics started with the military. Many say Alexander the The modern practice of supply chain management started in the
Great, born 356 B.C., as a logistics master. 20th century. The Ford Motor Company production lines perfected
the concept. Many credit logistician Keith Oliver as the person
who coined the term in the early 1980s.
Logistics are centered on the movement and transport of SCM oversees the development of raw materials into finished
goods within a company goods that move from the producer to the manufacturer. Those
goods get distributed to retailers or directly to consumers.
Historical Developments
1. Creation era
The term "supply chain management" was first coined by Keith Oliver in 1982. However, the
concept of a supply chain in management was of great importance long before, in the early 20th
century, especially with the creation of the assembly line.
The characteristics of this era of supply-chain management include the need for large-scale
changes, re-engineering, downsizing driven by cost reduction programs, and widespread attention
to Japanese management practices.
The term became widely adopted after the publication of the seminal book Introduction to Supply
Chain Management in 1999 by Robert B. Handfield and Ernest L. Nichols, Jr., which published
over 25,000 copies and was translated into Japanese, Korean, Chinese, and Russian.
Historical Developments contd..
2. Integration Era
This era of supply-chain-management studies was highlighted with the development of electronic
data interchange (EDI) systems in the 1960s and developed through the 1990s by the introduction
of enterprise resource planning (ERP) systems. This era has continued to develop into the 21st
century with the expansion of Internet-based collaborative systems. This era of supply-chain
evolution is characterized by both increasing value added and reducing costs through integration.
A supply chain can be classified as a stage 1, 2 or 3 network:
In a stage 1–type supply chain, systems such as production, storage, distribution, and material
control are not linked and are independent of each other.
In a stage 2 supply chain, these are integrated under one plan and enterprise resource planning
(ERP) is enabled.
A stage 3 supply chain is one that achieves vertical integration with upstream suppliers and
downstream customers.
3. Globalization Era
It is the third movement of supply-chain-management development, the globalization era,
can be characterized by the attention given to global systems of supplier relationships and
the expansion of supply chains beyond national boundaries and into other continents.
Although the use of global sources in organisations' supply chains can be traced back
several decades (e.g., in the oil industry), it was not until the late 1980s that a considerable
number of organizations started to integrate global sources into their core business.
This era is characterized by the globalization of supply-chain management in organizations
with the goal of increasing their competitive advantage, adding value, and reducing costs
through global sourcing.
4. Specialization Era (phase I): Outsourced manufacturing and distribution
In the 1990s, companies began to focus on "core competencies" and specialization. They abandoned
vertical integration, sold off non-core operations, and outsourced those functions to other companies.
This changed management requirements, as the supply chain extended beyond the company walls and
management was distributed across specialized supply-chain partnerships.
This transition also refocused the fundamental perspectives of each organization.
Original equipment manufacturers (OEMs) became brand owners that required visibility deep into their
supply base. They had to control the entire supply chain from above, instead of from within. Contract
manufacturers had to manage bills of material with different part-numbering schemes from multiple
OEMs and support customer requests for work-in-process visibility and vendor-managed inventory
(VMI).
.
5. Specialization Era (phase II): Supply-chain management as a service
Specialization within the supply chain began in the 1980s with the inception of transportation brokerages,
warehouse management (storage and inventory), and non-asset-based carriers.
Market forces sometimes demand rapid changes from suppliers, logistics providers, locations, or customers in their
role as components of supply-chain networks. This variability has significant effects on supply-chain infrastructure.
Supply-chain specialization enables companies to improve their overall competencies in the same way that
outsourced manufacturing and distribution has done; it allows them to focus on their core competencies ,thereby
increasing overall performance and efficiency. The ability to quickly obtain and deploy this domain-specific supply-
chain expertise without developing and maintaining an entirely unique and complex competency in house is a
leading reason why supply-chain specialization is gaining popularity.
Outsourced technology hosting for supply-chain solutions debuted in the late 1990s and has taken root primarily in
transportation and collaboration categories. This has progressed from the application service provider (ASP) model
from roughly 1998 through 2003, to the on-demand model from approximately 2003 through 2006, to the software
as a service (SaaS) model currently in focus today.
6. Supply-chain management 2.0 (SCM 2.0)
Building on globalization and specialization, the term "SCM 2.0" has been coined to describe both changes within
supply chains themselves as well as the evolution of processes, methods, and tools to manage them in this new
"era". The growing popularity of collaborative platforms is highlighted by the rise of TradeCard's supply-chain-
collaboration platform, which connects multiple buyers and suppliers with financial institutions, enabling them to
conduct automated supply-chain finance transactions.
Web 2.0 is a trend in the use of the World Wide Web that is meant to increase creativity, information sharing, and
collaboration among users. Web 2.0 help navigate the vast information available on the Web in order to find what is
being bought.
SCM 2.0 replicates this notion in supply chain operations. It is a combination of processes, methodologies, tools,
and delivery options to guide companies to their results quickly as the complexity and speed of the supply-chain
increase due to global competition; rapid price fluctuations; changing oil prices; short product life cycles; expanded
specialization; near-, far-, and off-shoring; and talent scarcity.
Foundation /Components of Supply Chain
Management
Components of Supply Chain Management
1. Planning
Planning is the first and most essential element of supply chain management. The purpose of the
planning component is to manage and plan all required resources in the organization to produce
products and services to meet the demand of customers.
Planning for their supply chain design is necessary for an organization. Then they determine which
metric they should use to ensure the efficiency and effectiveness of the supply chain of the
organization. The role of planning is to keep up with the organizational goal and to stay ahead in the
competition.
With the help of an action plan, the organization makes sure that it delivers value to its customers.
2. Sourcing
The second component of supply chain management is sourcing. The performance of an

organization largely depends on its suppliers. It is an essential job of an organization to choose the
right suppliers to deliver material and services that it requires to produce final products.
The organization gets into a contract with the suppliers, and suppliers provide products and
services to the organization. An organization uses different processes to manage its relationships
with the suppliers.
Various methods are part of sourcing.
The main processes that are part of sourcing are ordering for the material, Receiving material,
management of inventory, keeping communication with suppliers, and authorizing
suppliers’ payment
3. Production / Making / Manufacturing
The next component of supply chain management is the making component. It is the responsibility of
the supplier chain manager to coordinate the activities of production. Various activities are part of the
supply chain management process.
The example of these activities is accepting raw material, manufacturing products, testing the quality of
final products, discarding and recycling the stuff that does not match the quality standards, packing the
final products, and scheduling the final delivery.
Organizations regularly check the quality, the productivity of employees, and output of production to
make sure that the organization is creating products that meet the quality standards or not.
4. Distribution and Delivering
The delivery component of supply chain management is also referred to as logistics. The delivery
process is complex, and people choose your products influenced by the quality and speed of your
delivery.
The delivery component of the supply chain management process consists of activities like coordinating
customers‘ orders, scheduling delivery, method of payment, dispatching deliveries, invoicing customers,
and receiving the payment. The speed of your delivery of goods depends on the fleet of your vehicles.
Many organizations outsource their delivery work to specialized organizations to reduce their work and
also in cases when the delivery process requires special handling and extra efforts.
5. Returning
In this step, the organization returns the goods that are unwanted, defective, or in excess quantity.
The supplier should be willing to take back the products and scrap or recycle the faulty products.
In case the received products are surplus in volume, but in good shape, then it should be returned
to the warehouse for sale.
6. Enabling
The supply chain requires different support processes to keep a check on the information
following through the supply chain process. Supply chain management should abide by the
regulations. The methods like Human resource, finance, IT, Portfolio management, facilities,
product design, quality assurance, and sales are the essential processes of the enabling process.
How Supply Chain Management (SCM)
Works
Supply chain management (SCM) represents an effort by suppliers to develop and implement
supply chains that are as efficient and economical as possible.
Supply chains cover everything from production to product development to the information
systems needed to direct these undertakings.
SCM attempts to centrally control or link the production, shipment, and distribution of a product.
By managing the supply chain, companies can cut excess costs and deliver products to the
consumer faster.
This is done by keeping tighter control of internal inventories, internal production, distribution,
sales, and the inventories of company vendors.
The High Cost of Returns: Should Retailers
Rethink Their Policies?
PODCAST: Wharton marketing professor Thomas S. Robertson, University of Pennsylvania
https://knowledge.wharton.upenn.edu/article/high-cost-of-returns-should-retailers-rethink-policies/
Key Statements:
―There is evidence that handling returns well builds loyalty at the consumer level.‖ 10% of retail sales
were returned in 2018. That‘s about $369 billion.
―In this new world of returns, we‘re finding that the purchase decision that you think is made in-store
may actually be made at home.‖
―Your return policy helps define you as a retailer. If it is fair and equitable and consistent, that may very
much be to your benefit.‖
Why Flexible Return Policy ?
E-commerce returns have been a black hole for retailers.
Key Points of Research :

The research of almost 1,400 U.S. consumers during May 2020 found that consumers value
returns experiences just as much as delivery and payment experiences — even slightly more so.
Eighty-four percent (84 %) of those surveyed said the returns experience is important with regards
to their opinion of a retailer, with 83 percent saying the same for delivery and payment,
respectively.
The research found that almost three-quarters of respondents (74 percent) think retailers‘ returns
experiences need to be better.
Additional highlights from the research:
https://www.mytotalretail.com/article/a-positive-returns-experience-is-critical-to-customer-satisfaction-and-retention/
◦ Eighty-four percent of respondents said a positive returns experience encourages them to shop with a retailer again.
◦ When asked what would make respondents reconsider shopping with a retailer in the future
◦ 60 percent said if they had to pay shipping fees to return an item;
◦ 40 percent said if it took a long time to secure a refund on their return;
◦ 38 percent said if the returns policy window was too short;
◦ 32 percent said if they need to obtain a return authorization from customer support; and
◦ 30 percent said if they weren't able to track a returned item.
When asked what they would prefer from retailers when returning an item
◦ 8 percent of respondents said free returns;
◦ 45 percent said convenient locations to return an item(s) to;
◦ 44 percent said reusable/resealable packaging that can be used for returns;
◦ 41 percent said communications and visibility (e.g., tracking the parcel, confirmation of receipt, refund information, etc.);
◦ 38 percent said being refunded once the item has shipped; and
◦ 33 percent said no need to print a returns label.
Necessity of Supply Chain Management
Why is Supply Chain Management necessary
for your business?
 Interconnected Supply Chain
 Integrated & Co-operative Logistics
 Better Supply Chain for Better Business
 Seamless Movement
 Reduced overall operating costs
 Vitalized quality of life within the warehouse
 Improved visibility for Supply Chain
Operation
Why supply chain management is important
A positive or negative impact on the supply chain resounds throughout the business.
There are two core areas to the impact: customer happiness and ROI.
Happy customer = happy business = higher performance
In January 2018, Tobin Moore from Optoro pointed out this striking statistic at Retail‘s Big Show: If a
customer is happy with the way their return process was handled, they‘re 71 percent more likely to
become a repeat customer.
A smooth return process means an effective supply chain, one that‘s well connected and involves
communication along the chain. When the supply chain meets or exceeds the expectations of the
customer, it‘s because of efficiencies.
The entire business benefits through higher-order rates, positive sentiment in the customer‘s mind, and
lower cost-to-serve for the business.
Why supply chain management is important
Higher performance = more cost efficiency = higher pressure?
Higher performance is measured in terms of the efficiency of all processes and people to move goods and services
to market along the supply chain.
Increased supply chain efficiency can translate to pressure on the team and their capabilities, as costs and budgets
are held flat or reduced when they‘re expected to move the same or a greater volume of product at the same or a
higher quality level.
Improvements to profits for the business are measured via metrics like working capital turnover or cash conversion
performance; as business health improves, profitable cash management and revenue conversion are the result.
Flattening the cost curve often becomes a challenge unless two factors are considered: new capabilities (process
and data) that drive faster, higher-quality decisions; and this is done using a tool that scales favorably for the value it
delivers for the business.
Why is Supply Chain Management necessary for
business?
Interconnected Supply Chain –
◦ All the stakeholders from the producer, manufacturer, stockiest, supplier, to the consumer are the
main actors in the supply chain landscape. They are interconnected and constantly ought to be in
communication with each other for a product to go through various hands before reaching its final
destination. Considerable issues pertaining to the growth of corporations, partnerships, global brand
expansion, and outsourcing is dealt with by Supply Chain Management.
Integrated & Co-operative Logistics –

◦ Supply chain management (SCM) is the lifeline of all critical supplies for the existence of all
societies. Effective supply chain meets the needs of both producers and consumers and takes an
integrated & holistic approach towards management. If operations across different geographies are
cooperating and communicating in synergy, this only makes supply chains all the more efficient. This
facilitates the logistics to easily manage every part of an integrated supply chain in supplying the
inventory backed by more than one entity.
business? Contd…
Better Supply Chain for Better Business –
Having an enhanced supply chain enhances business prospects & sustainability. Delivering
correct product & correct quantity in a timely manner fulfills both producer‘s, distributors‘
requirements. Likewise, consumers too want to obtain the goods that they want to be delivered to
their doorsteps. Since the consumer is the king, having an effective supply chain management
provides direct improvement to consumer service. This ultimately leads to better business growth.
Seamless Movement –
A key reason for not being able to effectively deal with potential problems within their business
operations happens due to lack of risk management capability for many businesses. Supply Chain
Management streamlines the flow of everything taking care of unexpected natural disaster.
Globally, every organization‘s logistics are managed by supply chain managers. With effective supply
chain management, supply chain managers can easily diagnose problems/disruptions for seamless
movement of goods.
business? Contd…
•Reduced overall operating costs –
◦ Minimizing extraneous expenditure wherever you can, will help you maximize your ROI. Improving key
areas of your supply chain will help reduce your overall operating costs. This will allow you to
minimize purchasing expenses by expediting the delivery of the right amount of inventory at right
time to your warehouse and thereby avoid high inventory costs
Vitalized quality of life within the warehouse –

◦ Implementing automation and integrating the best practices will improve your supply chain. This will
optimize handling, storing, and picking times for all goods, and will significantly minimize the risk of
error in the warehouse, and beyond..
•Improved visibility for Supply Chain Operation –

◦ Visibility across the Supply Chain has a far-reaching impact on the success of a business. Lack of
synchronization in workflow causes problem. With SCM in place, visibility & transparency across
every stage of the supply chain is increased.
What is the supply chain management
process?
The supply chain management process is composed of four main parts: Demand management, Supply
management, Sales & Operations Management, and Product portfolio management.
1. Demand management
Demand management consists of three parts: demand planning, merchandise planning, and trade promotion
planning.
Demand planning is the process of forecasting demand to make sure products can be reliably delivered. Effective
demand planning can improve the accuracy of revenue forecasts, align inventory levels with peaks and troughs in
demand, and enhance profitability for a particular channel or product.
Merchandise planning is a systematic approach to planning, buying, and selling merchandise to maximize the return
on investment (ROI) while simultaneously making merchandise available at the places, times, prices, and quantities
that the market demands.
Trade promotion planning is a marketing technique to increase demand for products in retail stores based on special
pricing, display fixtures, demonstrations, value-added bonuses, no-obligation gifts, and other promotions. Trade
promotions help drive short-term consumer demand for products normally sold in retail environments.
What is the supply chain management process?
contd…
2. Supply management
Supply management is made up of five areas: supply planning, production planning, inventory planning, capacity
planning, and distribution planning.
Supply planning determines how best to fulfill the requirements created from the demand plan. The objective is to
balance supply and demand in a manner that achieves the financial and service objectives of the enterprise.
Production planning addresses the production and manufacturing modules within a company. It considers the
resource allocation of employees, materials, and of production capacity.
Production/supply planning consists of: Supplier management and collaboration ,Production scheduling
Inventory planning determines the optimal quantity and timing of inventory to align it with sales and production
needs.
Capacity planning determines the production staff and equipment needed to meet the demand for products.
Distribution planning and network planning oversees the movement of goods from a supplier or manufacturer to the
point of sale. Distribution management is an overarching term that refers to processes such as packaging, inventory,
warehousing, supply chain, and logistics.
What is the supply chain management
process?
3. Sales and operations planning (S&OP)
Sales and operations planning (S&OP) is a monthly integrated business management process that
empowers leadership to focus on key supply chain drivers, including sales, marketing, demand
management, production, inventory management, and new product introduction.
With an eye on financial and business impact, the goal of S&OP is to enable executives to make
better-informed decisions through a dynamic connection of plans and strategies across the
business.
Often repeated on a monthly basis, S&OP enables effective supply chain management and
focuses the resources of an organization on delivering what their customers need while staying
profitable.
What is the supply chain management process?
4. Product portfolio management

Product portfolio management is the process from creating a product idea creation to
market introduction. A company must have an exit strategy for its product when it
reaches the end of its profitable life or in case the product doesn’t sell well.
Product portfolio management includes:

• New product introduction
• End-of-life planning
• Cannibalization planning
• Commercialization and ramp planning
• Contribution margin analysis
• Portfolio management
• Brand, portfolio, and platform planning
Roles of Supply Chain Management
Business Roles: Societal Roles of SCM:

◦ Boost Customer Service ◦ Ensure Human Survival
◦ Reduce Operating Costs ◦ SCM Helps Sustains Human Life
◦ Decreases Purchasing Cost ◦ SCM Improves Human Healthcare
◦ Decreases Production Cost ◦ SCM Protects Humans from Climate Extremes
◦ Decreases Total Supply Chain Cost ◦ Improve Quality of Life
◦ Improve Financial Position ◦ Foundation for Economic Growth
◦ Increases Profit Leverage ◦ Improves Standard of Living
◦ Decreases Fixed Assets ◦ Job Creation
◦ Increases Cash Flow ◦ Opportunity to Decrease Pollution
◦ Protect Cultural Freedom and Development ◦ Opportunity to Decrease Energy Use
◦ Defending Human Freedom
◦ Protects Delivery of Necessities
Roles of Supply Chain Management: Explained
Boost Customer Service:
◦ Customers expect the correct product assortment and quantity to be delivered.
◦ Customers expect products to be available at the right location. (i.e., customer satisfaction diminishes if
an auto repair shop does not have the necessary parts in stock and can‘t fix your car for an extra day or
two).
Right Delivery Time:

◦ Customers expect products to be delivered on time (i.e., customer satisfaction diminishes if pizza delivery
is two hours late or Christmas presents are delivered on December 26).
Right After Sale Support :

◦ Customers expect products to be serviced quickly. (i.e., customer satisfaction diminishes when a home
furnace stops operating in the winter and repairs can‘t be made for days)
Reduce Operating Costs:
Decreases Purchasing Cost :
◦ Retailers depend on supply chains to quickly deliver expensive products to avoid holding costly inventories in
stores any longer than necessary. For example, electronics stores require fast delivery of 60‖ flat-panel plasma
HDTVs to avoid high inventory costs.
Decreases Production Cost :

◦ Manufacturers depend on supply chains to reliably deliver materials to assembly plants to avoid material
shortages that would shutdown production. For example, an unexpected parts shipment delay that causes an
auto assembly plant shutdown can cost $20,000 per minute and millions of dollars per day in lost wages.
Decreases Total Supply Chain Cost :

◦ Manufacturers and retailers depend on supply chain managers to design networks that meet customer service
goals at the least total cost. Efficient supply chains enable a firm to be more competitive in the marketplace. For
example, Dell‘s revolutionary computer supply chain approach involved making each computer based on a
specific customer order, then shipping the computer directly to the customer. As a result, Dell was able to avoid
having large computer inventories sitting in warehouses and retail stores which saved millions of dollars. Also,
Dell avoided carrying computer inventories that could become technologically obsolete as computer technology
changed rapidly.
Improve Financial Position
Increases Profit Leverage :
◦ Supply Chain Management help control and reduce supply chain costs. This can result in dramatic increases in
firm profits. For instance, U.S. consumers eat 2.7 billion packages of cereal annually, so decreasing U.S. cereal
supply chain costs just one cent per cereal box would result in $13 million dollars saved.
Decreases Fixed Assets :

◦ Firms can decrease the use of large fixed assets such as plants, warehouses and transportation vehicles in the
supply chain. Example: Managing with 6 warehouses than existing 10 warehouse
◦ Increases Cash Flow : Supply chain managers speed up product flows to customers. For example, if a firm can
make and deliver a product in 10 days rather than 70 days.
◦ Handling Disaster and emergencies : SCM knowledge and capabilities can be used to support medical missions,
conduct disaster relief operations, and handle other types of emergencies.
◦ Supply chain experts diagnose problems, creatively work around disruptions ( Emergencies ), and figure out how
to move essential products to people in need as efficiently as possible.
Societal Roles of SCM:
•Ensure Human Survival
• SCM Helps Sustains Human Life – Humans depend on supply chains to deliver basic necessities such as food
and water. For example, in 2005, Hurricane Katrina flooded New Orleans, LA leaving the residents without a way
to get food or clean water. During the first weekend of the rescue effort, 1.9 million meals and 6.7 million liters of
water were delivered.
•SCM Improves Human Healthcare

• During a medical emergency, supply chain performance can be the difference between life and death. For
example, medical rescue helicopters can save lives. Medicines and equipment necessary for treatment are made
available at the hospital .
•SCM Protects Humans from Climate Extremes

• Humans depend on an energy supply to homes and businesses for light, heat, refrigeration and air conditioning.
Logistical failure (a power blackout) can quickly result in a threat to human life. For example, massive storm
damages electrical power lines..
Improve Quality of Life:
Foundation for Economic Growth
◦ Countries with a highly developed supply chain infrastructure (modern interstate highway system, vast railroad
network, numerous modern ports and airports) are able to exchange many goods between businesses and
consumers quickly and at low cost. As a result, the economy grows. Poor nations have in common is poorly
developed supply chain infrastructure.
Improves Standard of Living

◦ With exchange goods between businesses and consumers quickly and at low cost , consumers can afford to buy
more products with their income thereby raising the standard of living in the society. In India the cost is 14 % .
Due to this India has embarked on a massive effort to develop its infrastructure.
Job Creation
◦ Supply chain professionals design and operate all of the supply chains in a society and manage transportation,
warehousing, inventory management, packaging and logistics information. As a result, there are many jobs in the
supply chain field. For example, in the U.S., this translates into 10,000,000 U.S. logistics jobs.
Improve Quality of Life contd….
Opportunity to Decrease Pollution
◦ Supply chain activities require packaging and product transportation. As a by-product of these activities, some
unwanted environmental pollutants such as cardboard waste and carbon dioxide emissions are generated. For
example, paper and paperboard accounted for 34% of U.S. landfill waste in 2005. Only 50% of the 84 million
tons of paper and paperboard waste were recycled. Also, carbon dioxide emissions from transportation
accounted for 33% of total U.S. CO2 emissions in 2005. As designers of the network, supply chain professionals
are in a key position to develop more sustainable processes and methods.
Opportunity to Decrease Energy Use

◦ Supply chain activities involve both human and product transportation. As a by-product of these activities, scarce
energy is depleted. For example, currently transportation accounts for 30% of world energy use and 95% of
global oil consumption. As designers of the network, supply chain professionals have the role of developing
energy-efficient supply chains that use fewer resources. Example : JSW , Automobile Transportation
Protect Cultural Freedom and Development:
Defending Human Freedom
◦ Citizens of a country depend on military logistics to defend their way of life from those who seek to end it.
Military logisticians strategically locate aircraft, ships, tanks, missiles and other weapons in positions that
provide maximum security to soldiers and other citizens. Also, superior logistics performance yields
military victory. For example, the B-2 Stealth Bomber is able to deliver bombs to target without being
detected by enemy radar.
Protects Delivery of Necessities

◦ Citizens of a country depend on supply chain managers to design and operate food, medicine and water
supply chains. that protect products from tampering. Sophisticated packaging techniques, state of the art
surveillance cameras, global positioning systems and RFID inventory tracking are some of the methods
used to deter terrorists from accessing these vital logistics systems.
Supply Chain Management - Decision Phases
• Supply Chain Management requires many
decisions relating to flow of information,
product, and funds. Each decision should
contribute to raise the supply chain surplus.
• Decision phases can be defined as the
different stages involved in supply chain
management for taking an action or
decision related to some product or
services.
• Successful supply chain management
requires decisions on the flow of
information, product, and funds that fall into
three decision phases.
• There three are main decision phases
involved in the entire process of supply
chain.
Supply Chain Management - Decision Phases contd..
Supply Chain Strategy
◦ During this phase , a company decides on the structure of the supply chain for next several years.
◦ In this phase, decision is taken by the management mostly. The decision to be made like long term prediction
and involves price of goods that are very expensive if it goes wrong.
◦ It is very important to study the market conditions at this stage. These decisions consider the prevailing and
future conditions of the market.
◦ Supply Chain Strategy comprise the structural layout of supply chain. After the layout is prepared, the tasks and
duties of each is laid out.
◦ All the strategic decisions are taken by the higher authority or the senior management. These decisions include
deciding manufacturing the material, factory location, which should be easy for transporters to load material and
to dispatch at their mentioned location, location of warehouses for storage of finished product or goods, etc.
◦ Companies continually revisit their supply chain strategies and make necessary mid-course corrections to realign
with the changing market conditions, technological development, and consumer preferences
Supply Chain Planning
◦ For decisions, made during this phase, the time frame considered is a quarter to a year.
◦ Supply chain planning should be done according to the demand and supply view. In order to understand
customers‘ demands, a market research should be done. The second thing to consider is awareness and
updated information about the competitors and strategies used by them to satisfy their customer demands and
requirements. As we know, different markets have different demands and should be dealt with a different
approach.
◦ This phase includes it all, starting from predicting the market demand to which market the finished goods will
be provided and from which plant.
◦ All the participants or employees involved with the company should make efforts to make the entire process as
flexible as they can. A supply chain design phase is considered successful if it performs well in short-term
planning.
◦ In the planning phase , companies must include uncertainty in demand, exchange rates, and competition over
this the time horizon in their decisions.
Supply Chain Operations
◦ The time horizon is weekly or daily. During this phase, companies make decisions regarding individual
customers orders.
◦ This phase consists of the various functional decisions that are to be made instantly within minutes, hours
or days. The objective behind this decisional phase is minimizing uncertainty and performance
optimization. Starting from handling the customer order to supplying the customer with that product,
everything is included in this phase.
◦ Firms allocate inventory or production to individual orders, set a date by which an order is to be filled,
generate pick lists at a warehouse, allocate an order to a particular shipping mode, set delivery schedules
of trucks, and place replenishment orders.
◦ For example, imagine a customer demanding an item manufactured by your company. Initially, the
marketing department is responsible for taking the order and forwarding it to production department and
inventory department. The production department then responds to the customer demand by sending the
demanded item to the warehouse through a proper medium and the distributor sends it to the customer
within a time frame. All the departments engaged in this process need to work with an aim of improving
the performance and minimizing uncertainty.
Covid-19 vaccine: How ready is India’s supply chain?
How India prepped Covid-19 Vaccination ? COVID-19 Vaccine Pfizer BioNTech

◦ Maximum shelf life is 9 months stored in a freezer at -80°C to -
• Storage: 60°C
◦ 29000 Cold chain points, ◦ 31 days at 2-8°C after thaw (assign immediately after removing
◦ 240 Walk-in coolers, from freezer)
◦ 70 Walk-in freezers, ◦ In addition, once removed from the fridge may be stored between
◦ 45000 Ice-lined refrigerators, 2 to 25°C for 2 hours prior to dilution
◦ 41000 Deep freezers, and ◦ In addition, once diluted may be stored between 2 to 25°C for a
further 6 hours
◦ 300 Solar refrigerators
◦ Once thawed, the vaccine cannot be re-frozen
• Coverage : ◦ During storage, minimise exposure to room light, and avoid
• Entire Length & breadth of India exposure to direct sunlight and ultraviolet light
• 36 states and Union Territories
• Varying Geographical conditions
• Very very large population
Storages challenges for Covid 19 vaccines
COVID-19 Vaccine AstraZeneca Vaccine COVID-19 Vaccine Moderna Vaccine

◦ Maximum shelf life is 6 months stored in a refrigerator ◦ Maximum shelf life is 7 months stored in a freezer at
between 2 to 8°C -25°C to -15°C
◦ Once removed from the fridge, may be stored between 2 ◦ Do not store on dry ice or below -40 ºC
to 25°C for up 6 hours
◦ 30 days at 2 to 8°C after thaw (assign immediately
◦ Once punctured, the vial must be used within 6 hours after removing from freezer)
◦ Must not be frozen ◦ Once removed from the fridge, may be stored
◦ During storage keep vials in outer carton to protect from between 8 to 25°C for up 24 hours
light ◦ Once punctured, the vial must be used within 6
hours
◦ Once thawed, the vaccine cannot be re-frozen
◦ During storage keep vials in outer carton to protect
from light
Current Trends in Supply Chain Management
◦ The supply chain continues to evolve rapidly,

keeping pace with the breakneck technological
advancements of the modern era.
◦ Though it can be difficult for managers and
business leaders to stay on top of these changes,
it‘s crucial to maintain the integrity of supply
chain and see your business succeed
◦ Rather than treading on the heels of change, we
should try to get ahead of the trends that are
shaping the future of supply chain management.
SOURCE: CHRISTINE EVANS,
04.13.2021
SUPPLY CHAIN MANAGEMENT
◦ The supply chain continues to evolve rapidly,

keeping pace with the breakneck technological
advancements of the modern era.
◦ Though it can be difficult for managers and
business leaders to stay on top of these changes,
it‘s crucial to maintain the integrity of supply
chain and see your business succeed
◦ Rather than treading on the heels of change, we
should try to get ahead of the trends that are
shaping the future of supply chain management.
SOURCE: CHRISTINE EVANS,
04.13.2021
SUPPLY CHAIN MANAGEMENT
Trends in Supply Chain Management
Consumer expectations are becoming increasingly higher. When once consumers were happy with
waiting a week to receive a package in the mail, today anything longer than two day delivery means that
many consumers will forget their order by the time it arrives, and maybe decide they would rather not
receive any item at all than wait.
Companies, retailers, and suppliers are now expected to comply and come up with creative ways to
meet consumer demands. Significant planning and resources that go in to managing a supply chain
that can deliver in such a short time frame.
Same day delivery requires companies to have inventory on hand in close proximity to the consumer
and to have streamlined logistics that would allow it to process, pack and ship an order almost
instantaneously.
Determining the right level of inventory is no easy task. In fact, forecasting and demand planning is the
biggest challenge in supply chain management today, according to a survey conducted by Tefen and the
Israeli Supply Chain Management Association. This challenge is only getting harder as the way people
shop keeps changing.
Some of the biggest global trends affecting consumer activities are:
◦ Changing consumer experience
◦ Growing ecommerce
◦ Crowding in urban centers
Changing Consumer Experience:

Shopping isn't just about walking into a store and buying things anymore. Many stores today offer
shoppers the option to buy online and pick up in store. Example : Macy‘s 4 hours pick up.
This quick service level requires strict inventory management in order to avoid shortfalls.
Companies need real time inventory management capabilities and need to set safety stock levels,
but also won't take up too much room at retailer locations.
In the future this trend could lead to new delivery challenges, like Instant Delivery. Amazon has
already started developing its response to this trend, delivery within 30 minutes via drones.
Growing Ecommerce :
The links between the physical world and the virtual world are shortening, which also renders some
links in the supply chain to be less relevant than they once were.
Online sales accounted for more than half of total retail sales growth in 2015, according to data from
the US Commerce Department. Ecommerce sales in 2015 totaled $341.7 billion, representing a 14.6%
increase from the previous year. Total retail sales in the US grew just 1.4% in 2015, and most of the
growth came from the online arena. In 2015, roughly 1.5 billion people bought something online and
that number is expected to continue increasing.
Selling straight to the customer online cuts out several links in a company's supply chain. The supply
chain can go straight from a warehouse to a customers without following the traditional chain through
different distribution centers and retailers.
Being less reliant on retail stores also means companies need to change their sales focus to
consumers instead of focusing on buyers or merchandisers from stores.
Crowding in Urban Centers:
Today, 54% of the world population lives in cities and that is expected to grow to 66% by 2050, according to the UN
DESA‘s Population Division's World Urbanization Prospects. In 1950, only 756 million people lived in urban centers,
and today that number is close to 4 billion.
There are also more "mega cities" today than ever. The UN defines a "mega city" as an urban center with a
population of at least 10 million. In 1950, there were 10 mega cities in the world. Today there are 28; 16 of which
are located in Asia, four in Latin America, three in Africa, three in Europe, and two in North America. By 2030, there
will be 41 mega cities, according to UN predictions.
Urban centers mean expensive real estate. Stores in big cities are small and most have no storage space other than
the shelves where customers pick out their goods. This means products need to be delivered to stores ready for
shelves and delivery drivers must restock shelves often.
People in urban centers also have higher expectations for convenience.
Supply Chain Evolution Trend
Direct Delivery Channels:
Delivery channels will become more direct. This means stores will have to offer more same day delivery
services, the ability to buy online and pick up at store, allow for instant shopping without a store, and
skip supply chain links.
Example: Tesco has mastered direct delivery channels. Customers can order online and choose a slot
of time for the groceries to be delivered, even on the same day. Tesco also offers a service called "click
+ collect," meaning consumers can shop online and pick up the order packed and bagged at a
convenient time at one of Tesco's 300 retail location in London.
Example: Cardinal Health, a Fortune 500 distributor of medical devices and pharmaceuticals. Many
patients with chronic diseases are required to visit hospitals often for treatment, even if the treatment
is noninvasive and easy to delivery. Cardinal Health seized an opportunity , Aging and chronically ill
patients.
Model of Cardinal Health
Cardinal Health strategy saves patients an estimate of about $200 billion a year, or 8% of US
healthcare costs.
Transparency:
Today's consumers expect transparency from retailers, from how things are made to how they are delivered. With
new advances in technology, such as the IoT (Internet of Things) and big data, companies are able to gain complete
visibility of their entire supply chain and make dynamic decisions and optimize their resources.
By 2020, it is expected that more than 50 billion items will be connected to the internet, only 17% of those items are
expected to be phones or traditional computers. Connecting other objects with sensors and software means that
communication, surveillance and automated analysis of real time information will be easier than ever.
Two companies looking to get ahead on the IoT trend are DHL and Cisco, which have worked together to create a
report on how the IoT can influence their operations. The report estimates that the IoT will generate more than $8
trillion in "Value at Stake," or untapped potential profits, over the next 10 years. Of that, $1.9 trillion is expected to
come from supply chain and logistics.
Collaboration:
Companies will need to work together to optimize their supplier chains. While working alone may seem
preferable, companies can save money and time if they share, whether it be space in a warehouse or
truck, or in a delivery system.
The city of Berlin, for example, has created a system to reduce the number of trips to deliver items
within the city. The program, called "BentoBox," is centered around a modular logistics hub where
deliveries and outgoing shipments are organized by their end location. Different urban freight operators
work together to organize packages and then deliver them within the city on electric bikes that can
carry up to 250 kg.
More than 140 courier businesses are participating in the BentoBox program in Berlin and the city
estimates that 85% of all packages in the city can be delivered by bicycles. The program is also being
tested in Lyon, France and Turin, Italy.
Agility and Flexibility:
The ability to change plans fast and react will become more and more important, as companies stuck in their
ways will find it harder to maintain profits if they can't keep up with trends.
This trend is prominent in the fashion world. Traditional fashion companies, including today's high end
brands, have a turnover time of 6-12 months. Clothing are designed in the company's location, and it can
take two months before samples are produced. When samples are approved, manufacturing takes place in
the Far East and then items are shipped to distribution centers and then to stores. The entire process, from
planning until items arrive in stores can take 6-12 months.
By this time, styles could have changed, or designers could have predicted the wrong fashion, but with the
lengthy development time, there is no easy fix. This problem then shows up in sales. In stores, only about
60% of merchandise is sold in season, and the remaining 40% is sold on sale at the end of the season to
make room for next season's designs.
Agility and Flexibility:
Low cost fashion brands have figured out how to become more agile and sell more products through ever changing trends.
Zara, for example, is known as a leader in "fast fashion," being able to get products from design to store shelves in just 6-8
weeks.
Zara conducts its design and manufacturing near its headquarters in Spain and delivers new items to stores every two
weeks. With more than 200 designers constantly working on spotting new trends and factories that are able to quickly
change to new products, Zara can have samples of new designs in just two weeks. With its large capacity, and proximity of
factories to stores, Zara can reduce manufacturing time significantly.
1. Artificial Intelligence and Automation 9. Circular Supply Chain
2. Increased Focus on Sustainability 10. Cloud-Based Solutions
3. Customization 11. Omnichannel Supply Chains Become the Norm
4. The Internet of Things 12. Agile Supply Chains
5. Digitization 13. Big Data Analytics and Supply Chain Logistics
Coming Together
6. Strengthened Relationships
14. Artificial Intelligence (AI) and Machine Learning
7. Risk Management and Resiliency
15. Using Prescriptive Analytics to Move Beyond the
8. Increased Visibility Limitations of Predictive Supply Chain Analytics
16. Robotics and Automation in Logistics
Current Trends in Supply Chain Management: Explained
1. Artificial Intelligence and Automation

◦ The use of artificial intelligence (AI) and automation is on the rise in many supply chains. Automation allows you
to streamline repetitive tasks, while AI — which attempts to mimic human intelligence and ―learn‖ — can assist
with more complex, challenging tasks.
◦ In a world where speed and precision are crucial for success, both AI and automation are valuable ways to speed
up your supply chain and remain competitive in your niche. Despite concerns about robots taking over human
jobs, AI and automation are everywhere. If you don‘t use them, your competitors will, leaving you far behind as
they enjoy greater levels of success.
◦ From making improvements to your assembly line to powering digital twin technology and everything in between,
there are countless ways to incorporate AI and automation into your organization‘s workflow. The key is finding
tasks and processes that will help you save time or energy; often, the best tasks are time-consuming,
complicated, or extremely rote. By turning these kinds of tasks over to a robot or computer, you and your staff can
spend more time on projects that only a human can do, giving you an even greater return on this investment.
2. Increased Focus on Sustainability
◦ As a growing number of consumers prioritize the environment, more businesses have increased their
sustainability efforts, which are now seeping into the supply chain. Because there are so many different
opportunities to focus on sustainability, you’ll need to tailor your efforts to suit the unique needs of your
organization.
◦ In the coming years, businesses may turn to more extreme or drastic measures in the name of
environmentalism. Some may choose to commit to sustainable manufacturing processes or attempt to
become zero-waste. However, these attempts at sustainability may not be sustainable for businesses in the
long-term. Such large shifts require a complete overhaul of each step of your supply chain, from how you
source raw materials to how your products are transported to customers.
◦ It’s best to start with something small, such as updating your packaging design, as your organization adjusts to
these changes or crafts a plan to make larger shifts. By making changes gradually and deliberately, you can
increase your organization’s long-term commitment to sustainability, without overlooking any crucial steps or
getting burnt-out.
3. Customization
◦ Expect to see an increasing level of customization in different parts of the supply chain. You may have to segment
your supply chain, building a customized strategy and approach for each segment.
◦ Your customers will likely continue to expect a personalized experience with your business. It can be difficult to
keep up with mass customization demands, and you‘ll have to consider different ways you can keep up. You may
need to look into customizing your own manufacturing, ordering services like CNC machining and injection
molding as you work to build prototypes and accelerate production without sacrificing quality or precision.
◦ Increasing customization becomes more realistic as you work on improving other aspects of your supply chain.
For instance, To manage personalized customer orders you can automate your order processing system, perhaps
putting ―standard‖ orders in one area and personalized ones in another.
◦ Essentially, look for ways to simplify other areas of your business, you can devote more time and attention to
customization in your products.
4. The Internet of Things (IoT)

◦ The Internet of Things (IoT) is a network of physical objects that, powered by sensors and software, are
connected to the internet. The IoT already plays a significant role in the supply chain, particularly when it comes
to logistics, but with increasingly diverse applications, it will likely continue to grow in importance. In just a few
short years, 50% of large companies could be using IoT and other advanced technologies to support supply chain
operations.
◦ In addition to providing more oversight in operations and transportation, IoT can be used to improve warehouse
management, fleet tracking, inventory control, and even technological and mechanical maintenance. IoT
technology could even be used to create entirely smart warehouses and fleets, increasing the efficiency and
accuracy of multiple areas of your supply chain.
◦ The value of the IoT cannot be overstated, as Depending on what kinds of IoT devices you use, you can use them
in conjunction with other pieces of technology for even greater benefit. For instance, the information collected by
a sensor in one of your warehouses could provide valuable data that helps you automate other processes, such
as forecasting and asset tracking. This high level of integration will be essential as the supply chain becomes
increasingly digital.
5. Digitization
◦ Digitization refers to the practice of putting information into a digital format. When it comes to securing
the future of the supply chain, digitization is non-negotiable. Experts believe that effective digitization can
make your entire supply chain more streamlined, mobile, and dynamic — all of which are highly beneficial
for your organization‘s bottom line.
◦ If you haven‘t gone fully digital, keep in mind that the transition can be challenging. You have to find the
right kind of technology to meet your organization‘s needs, implement it correctly, and work out any
internal difficulties. However, you can‘t afford to not digitize. It‘s already the present, and it‘ll only become
more integral to the supply chain in the future.
◦ If you are unwilling or unable to digitize your supply chain, you‘ll likely struggle to succeed going forward.
6. Strengthened Relationships
◦ Technology is a significant force in supply chain management, but so are the humans wielding it. There‘s a
lot of emphasis on beating your competitors in business, but everyone can enjoy more success by working
together. You will need to focus on fortifying your relationships with your team members, vendors, and
suppliers to increase collaboration and cooperation at each step in the supply chain.
◦ Communication should be your priority. Not only is it the first step to building any relationship, but it can
also provide you with valuable data and information. You can use this additional insight to help improve
your external and internal processes, helping everyone become more streamlined and efficient.
◦ Look for mutually beneficial ways to support both your and others‘ goals. Share information, proactively
solve problems to avoid creating more work, and address unexpected issues as they arise. The stronger
your relationship becomes, the more you both stand to gain from it.
7. Risk Management and Resiliency

◦ In an increasingly volatile and unpredictable world, the supply chain is constantly at risk of disruption. You
cannot control the weather, predict political events, or foresee the effects of an unprecedented pandemic
— but you can control how your supply chain prepares for and responds to these threats.
◦ It‘s your responsibility to decrease that risk as much as possible so your supply chain remains stable
during uncertain times. The steps you need to take to improve the resiliency and flexibility of your supply
chain will depend on what the biggest potential disruptions are. For instance, if you source raw materials
from a politically volatile area, you could look into sourcing that material from another geographic area
that is more stable. Should anything change, you can pivot quickly and minimize the impact of that
disruption.
◦ Simply put, thinking about the disruption and your planned response in advance will help you thrive amid
these shifts and uncertainties.
8. Increased Visibility
◦ Few things are as important for supply chain management as visibility and transparency. Increased
visibility will help you understand the state of your supply chain as a whole, as well as at each link, no
matter what kind of volatility threatens your organization.
◦ Thanks to the digitization of the supply chain, increasing visibility is now a highly achievable goal for many
organizations. With the right technological solutions, you and your team can access information on every
link in your chain at a moment‘s notice.
◦ With more visibility in your supply chain, you can prevent minor issues, such as order errors or delivery
delays, and respond to any problems that do arise more quickly. Being able to access that kind of
information quickly and easily is imperative to boost the efficiency, reliability, and resiliency of your entire
supply chain and organization.
9. Circular Supply Chain

◦ Traditionally, supply chains have been thought of as linear: starting as raw materials, goods flow in a straight line
through the supply chain until they are a finished, disposable product. Now, more people subscribe to the idea of
a circular supply chain, wherein raw materials, and even discarded products, are recycled and re-introduced into
the manufacturing process.
◦ The circular supply chain model helps with sustainability efforts, but it also has economic benefits for your
organization. The earth has a finite amount of raw materials, and as they become more scarce, they will increase
in price. Further, if you‘ve already paid for materials or a product, you would like to save by recycling. You stand to
save more money on reduced storage, transportation, and administrative costs, too.
◦ Strengthened professional relationships and increased reliance on technology (including AI and IoT) can also
help your efforts to operate under a circular supply chain. If you and the other people and companies you work
with are willing to share information and resources, you can further decrease waste and keep more materials in
production.
◦ Additionally, with the right technological solutions, you can stay updated on the current state of your materials
and products in real-time.
10. Cloud-Based Solutions

◦ Similar to digitization, cloud-based software solutions are the way of the future in supply chain
management. To stay competitive, you need accurate, agile, and accessible solutions for your
organization.
◦ Software-as-a-Service (SaaS) models are particularly useful for supply chain management. Not only is
SaaS reliable and secure, but it‘s highly efficient and convenient. All of your organization‘s data is stored
in the cloud, and you and your team can get the information you need at any time, from any place. With a
global and digital supply chain, the efficiency provided by SaaS solutions is crucial to support your
organization as you move into an increasingly fast-paced future.
◦ New developments will lead to unforeseen consequences, both positive and negative. To stay up-to-date
and position your organization for success, you‘ll have to attempt to anticipate and continue to adapt to
these still-unknown changes in the supply chain.
11. Omnichannel Supply Chains Become the Norm

◦ In response to customer demand, businesses will make big strides towards offering a true omnichannel buying
experience. Allowing customers to seamlessly shop online or in brick-and-mortar stores, omnichannel supply
chains place greater demands on logistic and supply chains with the simultaneous requirements of supplying
individual customer orders as well as replenishing stock at retail outlets. The switch from single- and multi-
channel supply to omnichannel supply requires a complete rethink of supply chain logistics.
12. Agile Supply Chains

◦ To effectively compete, supply chains need to be flexible and agile, as well as able to respond to changes on
short notice. This is a radical departure from traditional supply chain thinking that focuses on reliability,
consistency and low cost. One of the notable supply chain management trends is a switch from off-shore
manufacture to local or near-shore supply. Advantages of this include shorter delivery times and lower shipping
costs. With less money tied up in stock, organizations can respond more quickly to changes in demand.
13. Big Data Analytics and Supply Chain Logistics Coming Together
◦ Big Data is here, thanks to the digitization of the supply chain, the growth in IoT, and the greater
availability of customer data. Companies today have access to enormous amounts of data and are using
this to generate business intelligence ranging from understanding past performances to predicting future
trends. Using Big Data, it's possible to determine customer preferences and market trends, as well as
redefine the supply chain.
14. Artificial Intelligence (AI) and Machine Learning

• With greater access to Big Data, more organizations are turning to AI and machine learning to simplify
tasks and automate procedures. Gartner reports that in the four years to 2019, there was a 270%
increase in the number of organizations using artificial intelligence.
• Predictive analytics and machine learning algorithms are being used to improve planning and decision
support systems, identify purchasing patterns, automate tedious warehousing processes and manage
inventory.
• Many organizations are using AI to replace humans performing repetitive supply tasks and to perform
complex supply chain calculations.
15. Using Prescriptive Analytics to Move Beyond the Limitations of Predictive Supply
Chain Analytics
◦ Prescriptive analytics is being increasingly used as a supply chain decision-making tool. While other forms
of analytics, such as diagnostic and predictive analytics, focus on past and future trends, providing useful
insights, they share a common failing: They don't provide information needed to make informed decisions.
◦ In early 2019, Gartner predicted the prescriptive analytics market would grow at a 20.6 CAGR to 2022,
while more recent research suggests even faster growth.
16. Robotics and Automation in Logistics

◦ As companies respond to the conflicting demands of omnichannel supply chains, especially with regard to
the need for flexibility and agility, many are turning to robotics to speed up labor-intensive tasks. Robots
are ideal for repetitive tasks such as sorting, counting and even for fetching and carrying products in the
warehouse. The International Federation of Robots expects demand for robots and cobots (collaborative
robots) to grow by 10% in 2020, while Honeywell Robotics are confidently investing heavily in warehouse
robotics automation.
Wrap up: 2020 Supply Chain Trends
• When looking back on supply chain trends in 2019, it's interesting to note the focus even then on AI, IoT
and advanced analytics. This trend appears to be accelerating.
• What's also notable is the new focus on sustainability and circular supply chains as customers flex their
muscles regarding waste and the environment.
• Agility and omnichannel supply chains are becoming the norm, while the increased availability of Big Data
means organizations are now able to close the loop with prescriptive analytics and make informed supply
chain decisions.
Next Level Supply Chain
1. How Toilet Paper Broke the Supply Chain - Next

Level Supply Chain with GS1 US
https://www.youtube.com/watch?v=QCRxd1lB0Ls 28:30 min
GS1 US, a member of GS1, is an information standards organization that brings industry communities together to
solve supply chain problems through the adoption and implementation of GS1 Standards. GS1 Standards are the
most widely used supply chain standards system in the world.
GS1 standards, services and solutions are designed to improve the efficiency, safety and visibility of supply chains
across physical and digital channels in a wide variety of sectors. They form a business language that identifies,
captures and shares key information about products, locations, assets and more.
2. 14 Supply Chain Trends for 2021/2022: New Predictions To Watch Out For
https://financesonline.com/supply-chain-trends/ (Article for additional Reading )
Importance of New Warehouse Policy
The government has proposed a new warehousing policy that will set the roadmap for development of
exclusive warehousing zones in public-private partnership (PPP) mode to ease transportation and
reduce logistics cost in India.
The revised scheme has caught the attention of many corporates in India and some large multinational
companies are considering this option given the distinct advantage and ease of administration, unlike
other export formats.
‗Manufacturing & Other operation in Warehouse Regulation‘ MOOWR allowed the owner of the
warehoused goods to carry on manufacturing processes or other operations in such a warehouse.
Read more at:
https://economictimes.indiatimes.com/small-biz/trade/exports/insights/moowr-a-new-warehouse-scheme-can-play-a-key-part-in-indias-
trade/articleshow/84086199.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
Salient Points of New Warehouse Policy
Deferred Duty on Import of Raw Material: Until the clearance of finished Goods, duty on import of raw
material used in manufacturing or other operations is deferred. It will be waived in case finished goods
are exported.
Deferred Duty on Capital Goods: Until the clearance from a bonded facility, duty on capital goods used
in manufacturing or other operations, is deferred, and can be avoided if they are exported.
Seamless transfer between Warehouses: A licensee shall transfer warehoused goods from one bonded
facility to another without payment of duty. The liability to pay deferred duty is also transferred to the
owner of the new facility with the transfer of goods.
No Export Obligation: An entity may sell 100% of the goods manufactured in the bonded Warehouse
into the domestic market. However, the liability to pay duty on imported inputs would follow.
Appointment of warehouse keeper: The responsibility of the proper officer to oversee the operations of
a warehouse, has been shifted to a self-appointed warehouse keeper.
New policy to reduce India’s logistics costs by
5% over next 5 years
The
$94
Trillion
World
Econo
my in
One
Chart
The World Economy: Top 10 Countries
https://www.visualcapitalist.com/visualizing-the-94-trillion-world-economy-in-one-chart/
RANK COUNTRY GDP ( $T ) % OF WORLD GDP

1 US $22.9 24.4%
2 China $16.9 17.9%
3 Japan $5.1 5.4%
4 Germany $4.2 4.5%
5 UK $3.1 3.3%
6 India $2.9 3.1%
7 France $2.9 3.1%
8 Italy $2.1 2.3%
9 Canada $2.0 2.1%
10 Korea $1.8 1.9%
Significance of Growing GDP
GDP serves as a broad indicator for a country‘s economic output. It measures the total market value of final goods
and services produced in a country in a specific timeframe, such as a quarter or year. In addition, GDP also takes
into consideration the output of services provided by the government, such as money spent on defense, healthcare,
or education.
When GDP is increasing in a country, it is a sign of greater economic activity that benefits workers and businesses
(while the reverse is true for a decline).
At $22.9 trillion, the U.S. GDP accounts for roughly 25% of the global economy, a share that has changed
significantly over the last 60 years. The finance, insurance, and real estate ($4.7 trillion) industries add the most to
the country‘s economy, followed by professional and business services ($2.7 trillion) and government ($2.6 trillion).
China‘s economy is second in nominal terms, hovering at near $17 trillion in GDP. It remains the largest
manufacturer worldwide based on output with extensive production of steel, electronics, and robotics, among others.
The largest economy in Europe is Germany, which exports roughly 20% of the world‘s motor vehicles. In 2019, overall
trade equaled nearly 90% of the country‘s GDP.
India ?
Supply Chain Management in Service
Industry
• What is Supply Chain Management?
Supply chain management is the
management of the flow of goods and
services and includes all processes that
transform raw materials into final products.
It involves the active streamlining of a
business's supply-side activities to
maximize customer value and gain a
competitive advantage in the marketplace.
What are Services?
What are Services?
Services are the non-physical, intangible parts
of our economy, as opposed to goods, which
we can touch or handle.
Services, such as banking, education, medical
treatment, and transportation make up the
majority of the economies of the rich nations.
They also represent most of the emerging
nations‘ economies.
We can‘t store services.
You cannot touch it
Understanding Services
The five I‘s of services:
Economists often refer to the features of each service as
the 5 I‘s, which include:
◦ Intangibility: you cannot touch or handle them. Neither can
you transport, stock, manufacture, mine, or farm them.
◦ Inventory (Perishability): you cannot store them for future
use. Once the provider delivers the service, it irreversibly
vanishes.
◦ Inseparability: the provider must deliver the service at the
time of consumption. Unlike a good, a service can only be
delivered and consumed when the provider is present.
◦ Inconsistency: as in ‗variability‘. Each delivery of a particular
service is never exactly the same as the previous or future
ones. Each one is unique, even if the same customer
requests the same service.
◦ Involvement: both the consumer and provider of a service
participate in its provision. For example, during a haircut,
there are two participants – the customer and the
hairdresser. Unless both are present, the service is not
possible.
How Supply Chain Works Out for A Service
Industry?
Supply chain management is how a company handles the flow of procedures so that their
products or services can go from the point of raw materials, then stored, and shipped or shared
with the end customers.
A strategic supply chain management can also be useful in the service industry.
A supply chain will in fact simply implement strategies that will reduce spending, increase quality
and timely delivery of the service, along with an end result of increased profitability.
If the quality is increased in the input, then it will also be evident in the service itself, which will
lead to more customers recognizing the quality and buying the service.
DIFFERENCES IN THE SERVICE AND MANUFACTURING
INDUSTRY SUPPLY CHAINS
There are four main differences (Elliot Taylor, a writer for the Houston Chronicle states),
◦ For inputs : Manufacturing requires an input of physical labor (packaging, shipping, etc.) and the service industry
requires input of labor in the form of developing relationships or ―manipulating information.‖2
◦ In logistics, Manufacturers move physical material while in the service industry, no physical product is moved but
rather information is exchanged via phone, email, and more.2 Taylor point out that for service industries, new
software and tools are used to ―speed the flow of communication.‖2
◦ Finished goods are one of the largest differences between the two industries. In manufacturing, a finished good
is a raw material that has been ―completely transformed‖ whereas in a service industry, it is a ―closed file.‖2
◦ Optimization, both the manufacturing and the service industry are different but similar at the same time – both
industries work to improve their operations such as the speed of delivery or reducing costs.2
◦ ―Service firms have different operations requirements from manufacturers. Companies that maintain or repair
things, sell consulting, or provide health care or other services generally have higher labor content and lower
investments in plants and equipment.‖3 For this reason, a service-based company‘s most important asset is
their people.
◦ Relationships with other businesses are extremely important for the continued success of a firm.
◦ A service company must work hard to keep employees, business partners, and other people surrounding the
company happy.
Framework
of Supply
Chain for
Service
industry
(Source: Sakhuja &

Jain, 2012)
MALAYSIA'S SERVICE
SECTOR READINESS IN
SUSTAINABLE SERVICE
SUPPLY CHAIN
MANAGEMENT
Tourism Supply Chain
◦ ―Tourism: the temporary, short term movement of people to destination outside the place where they
normally live and work and their activities during their stay at these destinations‖.
◦ Tourism is a multi segment industry. It is an industry where the products are consumed on the spot
forming invisible exports. It is also a fragmented industry with high complexity due to the price sensitive
nature of demand and the intangibility, perish ability and inseparability.
◦ Tourism, like all other supply chains, operates through business-to-business relationships, and supply
chain management can be applied to deliver sustainable performance improvements alongside financial
performance, by working to improve the business operations of each supplier in the supply chain.
◦ The main differences between tourism supply chains and those of other sectors are that tourists travel to
the product, and the product that they buy has a particularly high service component . It involves a higher
proportion of people in the immediate production of the holiday experience.
◦ SCM in tourism will start from planning of a product, identifying the different sectors to be included in the
complete tourism product and also, in each sector of the product,
Supply Chain Management in Tourism
◦ The aim of supply chain management is to eliminate waste in the chain and to improve the customer
service.
◦ The elimination of waste : avoiding waiting time, inventory and production of non-requested products leads
to loss.
◦ In tourism it plays a very important role to deliver the quality service with minimum gaps or reduced gaps.
◦ Tourism supply chains involve many components – not just accommodation, transport and excursions, but
also bars and restaurants, handicrafts, food production, waste disposal, and the infrastructure that
supports tourism in destinations. These all form a part of the holiday product that is expected by tourists
when they purchase holidays.
◦ Quality depends on performance at all the links in the tourism supply chain.
◦ Another aspect of the tourism supply chain is the activities of customers while on holiday.
◦ The main strategies in any supply chain are sourcing strategy, distribution strategy, inventory strategy,
manufacturing strategy, customer service strategy and the strategy of integration.
SCM Strategies for Tourism contd…
Distribution Strategy:
In tourism industry, the distribution strategy has far reaching impact on the development of the
industry. It is essential that the channel decisions are sound so that the beginning and end process of
marketing are managed efficiently and effectively.
A basic understanding of the structure and working of the distribution system in travel industry,
including the middlemen who form the part of the system, is essential to understand the Economics of
the tourism industry.
The current practices insist on four types of sales distribution of tourism as a product.
◦ One stage system: This system provides direct sales from primary suppliers of the services to consumers through
its own reservation departments. Ex. airlines directly selling tickets to travellers through its reservation office.
◦ Two- stage system: This system involves single middlemen i.e Travel Agent.
◦ Three-stage system: This system involves two middlemen, Retail Travel Agent and Wholesaler or a Tour Operator.
◦ Four-stage system: This system involves a Retail Travel Agent, Wholesaler and additional middlemen known as
Speciality Chancellor, who is instrumental in the development of tour packages.
Inventory Strategy:
◦ An inventory of tourism products identifies the opportunities and constraints that a local authority has in
attracting visitors to their town/ city/region.
◦ The number and range of attractions and activities, things visitors can see and do, are particularly
important.
◦ Gaps in the product range and/or poor-quality facilities will make places less attractive to visitors. Lack of
transport and accommodation will deter visitors from travelling to and stopping at the destination.
◦ Until an inventory of attractions, activities, accommodation and transport has been completed and this is
matched with an understanding of visitor demand and Visitor satisfaction, destinations will be unsure
whether they are meeting visitor expectations.
◦ Attraction and activity sectors are the key areas. For Example, Tourist visit Switzerland for ‗fun and
excitement‘ and it is the service provider that provides this opportunity to the tourists.
Customer Service Strategy:
◦ The aim of the tour operator should be consistency. Consistency makes the customers happy 100% of the time.
◦ Customer service includes providing accommodation, flight details, and attractive tourist points.
◦ Employees are vital to achieve consistently high customer service. Organisations must have the right systems in
place in order to achieve their goals. If staff cannot take the right action when dealing with customers, the
business will suffer. It is about five times as expensive to win over a new customer as it is to work with an existing
one.
Integration Strategy:
◦ Supply Chain integration Strategy links all the business entities in the supply chain. In tourism the tour operators
act as producers as well as distributors. In an efficient supply chain, manufactures, suppliers, distribution
channels and customers are linked in the form of a chain to develop and deliver products as a single
organization of pooled skills and resources. Higher the integration process, greater is the success of supply chain
system.
◦ Tour operator or service provider has to integrate all the services together effectively to design the preferred
output to gain the competitive advantage.
Ensuring Effective SCM of Tourism Services
For effective supply chain management of tourism services, it is essential that different segments
of product (tourism) are managed in tune with changing habits and desires of users.
Accommodation:
◦ Accommodation facilities are found to be important aspect of Tourism product. For Hotel the location is
most important. Hotels are easily accessible to the tourist‘s sites or beaches or shop. The staff of the hotel
should be trustworthy, well trained, and well versed with technology.
◦ Hotels are of different Grades and categories to accommodate the tourists of all segments. The
restaurants and cafeterias are also found to be image creators. The accessibility and comfort of user is
important factor in satisfying experience.
◦ The guests staying in hotel should be able to avail the facilities like Quality Bedrooms, conference halls,
bars, shopping arcade, swimming pool, transportation arrangement, first aid facilities etc. While
developing the product, the quality of services comprising of efficiency, personal attention become
significant.
Ensuring effective supply chain management of
tourism services contd..
Transport:
◦ Tourists must experience comforts while travelling or while coming to the destination. Tourist sites are not
directly linked to the airports. Hence other transportation facilities like railways and road transport
facilities become significant. The transport facilities are well integrated. The tourist should be offered safe,
fast, convenient and economic transport services. The schedule and speed should be maintained.
◦ The seating arrangements should be comfortable. The drivers and the conductors and other window staff
should behave properly. There should not be any compromise with the safety principles.
◦ Inadequate Airline capacity is critical bottle neck for travel in India, particularly during peak season.
Shortly all districts will have an Airport. ―Vision 2040‖ : there will be 190-200 functioning airports in India
by 2040.
◦ Luxury Rail Travel in India have been developed for foreign and domestic tourists. Example: Palace on
Wheels, Deccan Odyssey, Maharaja Express, Golden Chariot, etc.
◦ The coast line rive cruises like Sunderbans (West Bengal) and back water of Kerala areas are attraction.
◦ Ship cruises: Mumbai, which is emerging as a cruise destination, is projected to receive 259 cruise ships
in 2019-20 with an estimated 1.81 lakh passengers. Jalesh Cruise
Price Structure of Luxury Tourist Trains
Maharaja Express: Peak Season
Palace on Wheels : Tariff Peak Season
Tariff for October 2021 to March 2022 Period : October 2022 to April 2023
Price(Per Total Occupancy Deluxe Presidential
Occupancy Junior Suite Suite
Person Per Amount(7N / Type Cabin Suite
Type
Night) 8D)
Twin/Dou
Single ble Cabin
INR 64600 INR 452200 $ 6975 $ 10880 $ 15180 $ 26070
Occupancy Price Per
Person
Twin Sharing INR 48620 INR 340340
Single
$ 12298 $ 20680 $ 30360 $ 52140
Super Deluxe Cabin
INR 134640 INR 942480
(Suite)
Food and Crafts
◦ Tour operators use local food and crafts as one of the tourist attractions of their packages. Key issues for
local sourcing of food supplies are quality, reliability and quantity of supply.
◦ Promotion of local sourcing requires training and technical support and investment – example: storage
and distribution facilities – to meet quality and reliability standards,
◦ Development of production and distribution networks to gather supplies from different local producers .
◦ Few tour operators have supply chain initiatives on the production and distribution of local, sustainable
food and crafts, rest work with their local suppliers.
◦ This requires constant supervision and commitment, Local sourcing and production will improve the
contribution of tourism to the local economy, both financially and in terms of employment, and also help to
preserve local skills in craft production.
◦ Example, The Surajkund International Crafts Mela is unique as it showcases the richness and diversity of the
handicrafts, handlooms and cultural fabric of India, & is the largest crafts fair in the world.
Destinations
◦ For tourism supply chain, destinations provide infrastructure and services.
◦ Destination initiatives for sustainable tourism seek to improve the quality of infrastructure –
◦ Example, Road approach, Security to Tourists (Lapakas ) Waste management and awareness programmes , Environment friendly
Transport systems to reduce impact and to increase the attractiveness of the destination .
◦ The Taj Mahal was the most visited ticketed monument by domestic visitors at about 4.4 million in financial year 2020. 650 thousand
foreign visitors
◦ Other initiatives include the promotion of linkages between tourism sites.
◦ Promotion of a wider range of tourism activities to give tourists ample options of gaining experience. It
helps diversify and spread the economic benefits of tourism. Everglades Grass land Airboat Tour
https://www.wootenseverglades.com/attractions/grassland-airboat-tours/
◦ Marketing, products and operations can then be adapted according to changes in tourist‘s requirement by
monitoring information obtained.
Conclusions
◦ The Strategy/ trends/models of supply chain management holds good for service sector also
◦ There are many components in tourism, like Accommodation, transport, food and Crafts Destination etc.
◦ There is need for Supply Chain Management to deliver quality service resulting in satisfying experience
◦ Higher the integration of services within a particular sector (intra relationship) and also amongst the
different sectors (inter relationship) of tourism, greater is the competitive advantage.
◦ Services in tourism like security of tourists, minimum waiting time at different locations, Environment
friendly operations etc forms the important constituents in strategies of SCM.
◦ Supply Chain Management is a strategic tool which facilitates cost reduction, optimum utilization of
resources, sustainability resulting in leadership position in today‘s global competitive market.
( https://www.ukessays.com/essays/business/supply-chain-in-tourism-services.php )
Applying SCM Strategy in Service Sector
• https://video.search.yahoo.com/search/video?fr=mcafee&ei=UTF-
8&p=supply+chain+management+in+service+sector&type=E211US714G0#id=1&vid=836e0a5f2f9f0da
83d752d89a42cf562&action=click 6:35 min
• GRA Director James Allt-Graham talks with GRA Director Dan Knox about applying traditional supply chain
strategies to the service sector. In the interview James answers the following questions: 00:22 - What are
the main drivers for the interest in supply chain engagement in the service industry? 01:03 - What is the
roles of supply chain in the ...
Managing
Supply Chain
for Market
Expansion
Discussion Points:
•Evaluating current and
potential markets
•Risk Assessment
•Risk Management
•Tune up your supply chain
before entering new markets
•Conclusion
Expanding Supply Chain Globally
◦ The advent of technological advances has created a world in which there are truly no boundaries for
international trade.
◦ To maintain or increase their competitive advantage, there must be a continuous effort to increase profits
by forging strategic relationships globally.
◦ This relationship is formed with lower-cost (and often distant) partners to increase current capacity and
expand the supply chain network.
◦ Access to new markets directly results in a more global supply chain.
◦ Despite many benefits of globalization, the interdependencies complicate the global supply chain create
inherent risks which are equally important to consider.
◦ The complexity associated with a global supply chain requires careful identification and assessment of
potential risks to the supply base.
◦ These risks can be classified into two main categories, external and internal.
◦ Internal risks are those resulting from the implementation of operational strategy or factors within a firm‘s
control; external risks are those outside a firm‘s control.
Factors to Consider:
Evaluating Current and Potential Markets
Understanding the range and limitations of your supply chain is critical for expansion.
Supply chain should be robust enough to withstand changing local, social, and environmental
demands at the same time remaining agile enough to react—and serve multiple markets
depending on business needs
Find answers to questions to help avoid the problems of entry:

• What markets are we not currently serving that can easily be reached by our current supply chain?
• Can we negotiate discounts with local suppliers to reduce carrier costs?
• Are there geographic restrictions on where our goods can be efficiently delivered?
• What about taxes or other regulatory considerations on moving goods across states/regions?
• Can we efficiently expand our product line using our current suppliers?
Factors to Consider:
External Supply Chain Risks
External risks can be driven by events either upstream or downstream in the supply chain. There are 5
main types of external risks:
◦ Demand risks — caused by unpredictable or misunderstood customer or end-customer demand
◦ Supply risks — caused by any interruptions to the flow of product, whether raw material or parts, within
your supply chain
◦ Environmental risks — from outside the supply chain; usually related to economic, social, governmental,
and climate factors, including the threat of terrorism
◦ Business risks — caused by factors such as a supplier's financial or management stability, or purchase
and sale of supplier companies
◦ Physical plant risks — caused by the condition of a supplier's physical facility and regulatory compliance.
◦ Intellectual property laws and how well they protect shared IP from being transferred to competitors.
Factors to Consider: Expanding Supply
Chain Globally
Internal Supply Chain Risks
Internal risks provide better opportunities for mitigation because they are within your business's
control. There are 5 main types of internal risks:
◦ Manufacturing risks — caused by disruptions of internal operations or processes
◦ Business risks — caused by changes in key personnel, management, reporting structures or business
processes, such as the way purchasers communicate to suppliers and customers
◦ Planning and control risks — caused by inadequate assessment and planning, which amount to ineffective
management
◦ Mitigation and contingency risks — caused by not putting contingencies (or alternative solutions) in place
in case something goes wrong
◦ Cultural risks — caused by a business's cultural tendency to hide or delay negative information. Such
businesses are generally slower to react when impacted by unexpected events.
Managing Risks: Expanding Supply Chain
Globally
Managing Risks
◦ After the risk factors have been identified and we can understand the level at which each factor can
be managed, an implementation plan is critical.
◦ There are a multitude of actions to manage supply chain risks, such as implementing a dual
sourcing plan supported by the right supply network design strategy. Important aspects of managing
risk within a global supply chain is developing a robust supply base.
◦ Company‘s implementation plan should include the following key activities:

◦ Develop the right sets of criteria to select Suppliers;
◦ Have the right Technology in place for collaboration;
◦ Determine the right Inventory optimization strategy; and
◦ Plan for Supplier development.
Risk Management in Market Expansion
Risk is inherent in the fast pace of business change. Some of the risks that every mid-market
organization faces each day fall under the supply chain umbrella.
A complex supply chain with large numbers of moving parts, tight customer fulfillment timelines,
and demand volatility has driven outsourcing to become the rule rather than the exception.
Risks common to the supply chain that middle-market business should consider:
◦ Outsourced manufacturing
◦ Environmental and social risks
◦ Last mile distribution centers
◦ Outsourced returns
◦ Regulatory and compliance risks
Risk Management in Market Expansion:
Outsourced Manufacturing:
◦ Outsourcing manufacturing can come with risks that are not immediately obvious.
◦ It may be difficult for company to financially consider expanding into new markets if the margins for your
mid-market business are flagging under the weight of price and total landed cost.
◦ The economics of outsourcing have changed in recent years:
◦ Companies studying outsourcing must also consider oil and natural gas prices, environmental concerns,
inflating wage rates, political climate, weather and other natural disasters, substandard and/or toxic
ingredients an outsourced supplier might use, and more.
◦ Any disrupted points in outsourced supply chain can cause a domino effect that produces lasting, negative
results for your customer
Risk Management:
Environmental and social risks
◦ Cone Communications (2013): 71% of consumers consider the environment when they shop. Consumers
are increasingly more informed and are prepared to vote with their dollars.
◦ Nielsen reports: more than half of consumers (55%) indicate willingness to pay extra for products and
services from businesses that reflect positive environmental and social impact.
◦ Two examples of environmental and social issues that can affect the supply chain all the way to the
customer level.
◦ On March 11, 2011, the Tōhoku earthquake and tsunami caused extensive and severe structural damage in
northeastern Japan.
◦ Economy - The economic cost was US$235 billion, making this the most expensive natural disaster in world
history.
◦ Transport - Japan‘s transport network suffered huge disruptions. Sections of the Tohoku Expressway were
damaged.
◦ In November of 2012, a garment factory fire killed more than 100 workers. In April of 2013, an eight-story
clothing factory building collapsed—both in Bangladesh.
◦ The brands associated with these manufacturers took a hit in the media and in sales; consumers were
outraged to learn about the conditions in these factories and demands for change spread across the
globe.
An eight-story clothing factory building
collapsed
The garment factory collapse on 24 April 2013 in Dhaka District,
Bangladesh, an eight-story commercial building called Rana Plaza
collapsed. The search & rescue ended on 13 May 2013.
A death toll of 1,134. Approx. 2,500 injured people were rescued .
It is considered the deadliest non-deliberate structural failure

accident in modern human history and the deadliest garment-
factory disaster in history.
The building contained clothing factories, a bank, apartments and

several shops. The shops and the bank on the lower floors were
immediately closed after cracks were discovered in the building.
The building's owners ignored warnings to avoid using the building

after cracks had appeared the day before. Garment workers were
ordered to return the following day and the building collapsed
during the morning rush-hour.
Risk Management:
Last mile Distribution Centers
◦ The ―last mile‖ of the supply chain is the final transportation of goods from the delivery center to the
customer‘s door.
◦ It can be hundreds of miles from the destination port to the store or distribution center.
◦ Customers expect cheap and fast delivery, often making purchasing decisions on the basis of shipping
costs — and that leaves little room for error. Time and Cost sensitivity
◦ Many companies have multiple store locations that each serve as an independent logistics silo.
◦ The mid-size business will need to determine whether this method or a consolidated distribution center
will provide the best last-mile delivery experience for the customer.
◦ Technologies and services that keep customers updated with the status of their order, streamline the
distribution and delivery process, and ensure products are delivered free of damage may be part of the
distribution center‘s offerings.
Risk Management:
Outsourced Returns
◦ Outsourcing customer returns seem alluring, BUT — After all, you are in business to sell products,
not sacrifice profits on returns — it may not be the right strategy for your mid-market company.
◦ The risks of outsourcing returns are softer than many other business risks, but they come at a level
that is very personal to your customer.
◦ If you wouldn‘t consider outsourcing customer service, you might not want to outsource returns.
◦ Ensuring the returns process is as painless as possible will be the last step in the transaction
experience a customer has with you and your product.
◦ There will always be customer returns. Third-party fulfillment and returns companies are intended to
be generic as they attempt to meet the needs of a wide variety of their customers.
◦ Unfortunately, they are often less efficient than the returns your company can process / manage by
itself. You know what your best sellers are, you know how best to package them, and you maintain
control of the entire process.
◦ Not processing the returns in-house, you may miss the opportunity to gain feedback about why the
items are being returned.
Risk Management:
Regulatory and Compliance Risks:

◦ Pharma and Biotech companies have great many stringent regulatory compliance to adhere.
◦ In 2012, 65% of global pharmaceutical/biotech companies ranked in regulatory compliance as both a top
supply chain and business concern.
◦ Businesses can lose both potential revenue and market share if a manufacturer must remove a product
from the market due to non-compliance with a new regulation.
◦ Regulatory compliance can increase complexity for manufacturers.
◦ Supply chain leaders should collaborate with regulatory affairs organizations to assess new and pending
regulations and changes.
Noncompliance can involve fines, supply chain disruptions, and delays --up to and including product
expiration.
Factors to Consider: Expanding Supply
Chain Globally
Conclusion:
◦ There are many risks involved in expanding to a global supply chain.
◦ The risk can be managed through continuous innovation, efficiency improvements and flexibility in an
ever-changing marketplace.
◦ Two more requirements for a successful global supply chain: information technology and talent.
◦ Having the right information technology in place allows for monitoring and collaboration with supply
partners, enabling faster information transfer.
◦ The quality of results from risk management is a direct result of having the right people in place.
◦ With the right strategy in place to ensure an agile and adaptive supply chain a firm can maintain
competitive advantage.
◦ The complexity involved in a global supply chain requires a greater degree of coordination.
What is GSCM
“Government compliance as a key driver of green supply chain management”
It is the integration of eco-friendly methods into the conventional supply chain so as to

minimize waste and carbon footprints and increase efficiency.
A business can transform its traditional supply chain to a green one by including the
“environment” factor in each and every stage of the supply chain – from product
development to manufacturing to distribution to end customers.
Benefit of GSCM
1. GSCM will help us to gain a competitive advantage and help to attract new customers.
2. Increased use of resources, improved efficiency and reduced production cost leading to economic
and environmental gains
3. It can lead to technological innovations
4. Green design resulting in financial gains
5. Improved quality of products and services gives higher customer delight and reputation.
6. Reduces risk by avoiding hazardous material that leads to environmental effect.
https://www.trademo.com/blog2020/12/29/what-is-green-supply-chain-and-its-benefits/
What does Green Supply Chain Management
entail?
◦ Main objective of green supply chain management: Bringing the eco-friendly aspect of operations
into a traditional supply chain is the
◦ Right from product design, raw material sourcing, manufacturing processes to end-of-life product
management,
◦ GSCM integrates environmental processes throughout the supply chain. This serves to mitigate the
environmental impact of not only the supply chain but also the entire organisation.
◦ The more eco-friendlier a supply chain becomes, the greater reach the company gets.
◦ Customers want to go into business with organisations that care about reducing their carbon footprint.
◦ Doable Goals :
◦ Reduction of waste generation,
◦ Reuse of raw materials,
◦ Less greenhouse gas emissions,
Green Supply Chain Management
• Specific Goal : Reduction of CO2 emissions,
• It is not only to mitigate the environmental impact of the supply chain, GSCM involves driving value
creation throughout the supply chain organisations to reduce total environmental impact.
• Other tangible benefits include; greater efficiency of assets, less waste production, greater innovation,
reduction of production costs, reuse of raw materials, increased profitability, perception of added value to
the client base, and so on.
• The approach is taken by each party to their upstream and downstream partners in the supply chain.
• Processes involved: product design, material sourcing and selection, manufacturing and production,
operation and end-of-life management.
• A greater degree of collaboration, transparency and integration of supply chain processes and systems is
required for the initiative to be effective.
Elements of GSCM
A. Green Procurement
Green procurement is an environmental purchasing that include the reduction, reuse and recycling of
materials in the process of purchasing.
B. Green Design
◦ Green Design is the systematic consideration of design issues associated with environmental safety and health
over the full product life cycle during new production and process development.
◦ Its scope encompasses many disciplines, including environmental risk management, product safety,
occupational health and safety, pollution prevention, resource conservation and waste management.
◦ A common approach is to replace a potentially hazardous material or process by one that appears less
problematic.
◦ This action can be undesirable if it results in the rapid depletion of a potentially scarce resource or increased
extraction of other environmentally problematic materials.
“80% of the environmental impact of a product is determined during its design,” according
to the German Environment Agency.
Elements of GSCM
C. Green Operations and Reverse Logistics
◦ Green operations relate to product manufacture/remanufacture, usage, handling, logistics and waste
management
D. Green Manufacturing and Remanufacturing

◦ Green manufacturing is defined as production processes which use inputs with relatively low
environmental impacts, which are highly efficient, and which generate little or no waste or pollution.
◦ Green manufacturing can lead to lower raw material costs, production efficiency gains, reduced
environmental and occupational safety expenses, and improved corporate image.
Green manufacturing aims to reduce the ecological burden by using appropriate material and
technologies,
◦ Remanufacturing refers to an industrial process in which worn-out products are restored to like-new
condition.
Elements of GSCM
E. Green Distribution
Green distribution process is defined as the integration of environmental issues into packaging,
transportation and logistics activities.
Green distribution practices are :

• Green packaging: the use of environmentally friendly materials and recycled packaging with improved
packaging designs and techniques help companies to reduce waste and costs.
• Green transportation and logistics: the consolidation of orders and route optimization are energy saving
ways and methods to reduce CO2 emissions.
Elements of GSCM
F. Waste Management
◦ Waste management: the reduction of perilous waste
generated as a by-product of the production process
and operations and subsequently treated, arranged
or disposed off.
◦ Waste reduction can be done at source or prevention
of pollution at every step of the organization‘s
procedures.
◦ Waste management helps to prevent the formation of
waste rather than managing it after it is generated.
◦ Effective waste management needs to focus on
―preventing‟ pollution at the source in products as
well as manufacturing processes rather than
―removing‟ it after it has been created.
The Greening of the Supply Chain: Transportation
• Transportation providers are looking to reduce their impact on the environment.
• According to the U.S. Environmental Protection Agency, commercial freight is a significant contributor to
total transport emissions.
• Experts predict that freight activity will nearly double by 2040, and that global freight-transport emissions
will exceed those from passenger vehicles by 2050.
• Comparing individual transportation modes, Trucking is the unfortunate leader in greenhouse gas (GHG)
emissions, with light-duty vehicles accounting for 59% of the total, and medium and heavy-duty trucks
23%.
• To offset some of those emissions, the American Trucking Associations suggests better matching the size
of a trailer with that of the load being carried. Smithfield Foods cut costs by $19 million in 2018 by
utilizing more fuel-efficient, lightweight trucks.
• Efficient route optimization is another tool that can help reduce environmental impacts while cutting down
on empty miles. Example: UPS reports savings of $400 million in recent years from the use of its routing
system.
The Greening of the Supply Chain contd….
• Change in the trucking industry: A shift toward the use of electric and autonomous vehicles.
• The year 2019 saw a flurry of announcements from truck manufacturers, thanks to a decline in
battery costs and an increase in state incentives and mandates for zero-emission buses and trucks.
• Another area of great interest is that of autonomous trucking, which can help to alleviate the driver
shortage while also reducing operating costs.
According to McKinsey, full autonomy will result in costs declining by about 45%, saving the
U.S. for-hire trucking industry between $85 billion and $125 billion.
Research from the Department of Energy reports that autonomous vehicles could bring fuel
savings of almost 90%..
Sustainable Supply Chain
What Is a Sustainable Supply Chain?
◦ A sustainable supply chain is one that fully integrates ethical and environmentally responsible practices
into a competitive and successful model.
◦ An ethical supply chain focuses on the need for corporate social responsibility, working to produce
products and services in a way that treats its workers and the environment ethically.
◦ As ethical supply chain practices become a greater and more immediate priority for businesses,
compliance goals and sustainability benchmarks are also becoming more standardized.
◦ The United Nations Global Compact has laid out 10 criteria for measuring supply chain sustainability.
These cover areas of environmental responsibility, labor practices, human rights, and corruption.
◦ These principles are built upon the realization that socially responsible practices and products are not
only good for people and the planet, but are also good for building positive brand awareness,
competitiveness, and long-term profitability.
◦ End-to-end supply chain transparency is critical; sustainability initiatives must extend from raw materials
sourcing, to last-mile logistics, and even to product returns and recycling processes.
The Sustainable Supply Chain
• Sustainability is an integral part of supply-chain strategies, it‘s also about the bottom line.
• Sustainability is also a major factor in winning shippers‘ business. Logistics providers and transportation
carriers will need to incorporate measurable sustainable practices within their business structure, or run
the risk of being sidelined by the competition.
• World Economic Forum: sustainable supply-chain practices can result in cost reductions of between 9%
and 16%.
• With the connectivity that the internet of things (IoT) offers, shippers can use data to quantify the benefits
of a sustainable approach to supply-chain management.
• By tracking shipments from beginning to end, for example, shippers can uncover a treasure trove of data
which can assist them determining the most sustainable transportation modes.
• Key measurements criteria include the percentages of each transportation mode used, time in transit,
total costs including fuel, mode of transport by lane, and carriers utilized.
Understanding Sustainable Supply Chain
Management
A measure of sustainability is the triple bottom line, bottom lines are social, financial and
environmental aspects‘ and the metrics to be measured are the profits, people engagement and impact
on the planet.
Corporate pressures on organisations to assess the level of viability of vendors and customers as well
as the environmental, social and economic impact of supply chains can be dealt with the help of SSCM.
SSCM brings into focus the entire manufacturing process, from procuring raw materials, reusing and
disposing of products, and labour practices to the organisation fulfilling its corporate social
responsibility.
SSCM helps companies to answer difficult questions like where do they get their raw materials from,
how are the workers being treated, are they creating jobs for their community and so on.
Better late than never, companies are looking at creating supply chains of top performers with the goal
of using them to create a better, more environmentally sound, and ultimately, more profitable company.
Green vs Sustainable Supply Chain
Management
The terms green and sustainable seem like synonyms but are most definitely not.
◦ While going green looks at only the environmental aspect of it, being sustainable is equivalent to taking
into account the social, economical and environmental impact of that particular product or organisation.
◦ Green supply chain management (GSCM) and sustainable supply chain management (SSCM) have several
overlapping elements, but they are not the same thing.
◦ GSCM contributes to the goal of SSCM. SSCM is the larger spectrum of operations where GSCM
contributes to one part. A green supply chain makes up one leg of the three-legged stool.
The traditional way of managing a supply chain will not cut it anymore.
Supply chain management will play an integral role in your company‘s success.
◦ With increasing pressure from customers and activists alike, the onus falls on the organisations to run
green as well as a sustainable supply chain.
Why should the two terms not be used
interchangeably?
1. Sustainability takes the notion of going green to the next level by satisfying certain set criteria to make
business sustainable.
2. Example, if a company reuses its raw materials, then it is following an eco-friendly method. If you are sourcing
those same raw materials from businesses that contribute adversely to global climate change, the method
becomes the opposite of a sustainable method.
3. Companies greening their processes need to be certified under the Environmental Management Systems – ISO
14001 certification. Taking care that manufacturing, packaging, internal recycling of materials and quality
management satisfy environment-friendly criteria, is all that is required for GCSM.
4. A sustainable supply chain, on the other hand, mandates that economic activity take place within
environmental and social thresholds or limits.
5. According to Allen White, co-founder of Global Initiative for Sustainability Ratings, ―Sustainability requires
contextualization within thresholds.‖ To determine whether a supply chain is sufficiently sustainable, we must
take into account external environmental and societal reference points.
The Sustainable Supply Chain Paradox
Research 2021
◦ A sustainable supply chain fully integrates ethical and environmentally responsible practices into a
competitive and successful model.
◦ Sustainability initiatives must extend from raw materials sourcing, to last-mile logistics, and even to
product returns and recycling processes.
◦ While sustainability is top of mind in most companies‘ mission or purpose statement, few have the
visibility and processes in place across the supply chain to achieve these goals today.
◦ There are key takeaways from a recent Oxford Economics study, ―The Sustainable Supply Chain Paradox:
Balancing the bottom line with the green line.‖
◦ Sustainability will be front and center post pandemic
◦ The need is clear, but the path to get there is not
◦ What is driving Sustainability?
◦ Sustainability – From design to decommission
◦ Sustainable Design for a Sustainable Product Lifecycle
◦ Sustainable Manufacturing to minimize waste and environment impact
◦ Operate assets and equipment in an energy-efficient manner
contd..
Sustainability will be front and center post pandemic
Sustainability was a major focus pre-pandemic, and it will be so again post pandemic.
The 2020s named the Decade of Action by the United Nations, which calls for ―accelerating sustainable
solutions to all the world‘s biggest challenges – ranging from poverty and gender to climate change,
inequality and closing the finance gap‖ by 2030.
https://www.un.org/sustainabledevelopment/decade-of-action/
Global supply chains sit right in the middle of these challenges, both as a major contributor to the
problems, and as a great area of focus where we can take action to address the problems.
A sustainable supply chain is one that fully integrates ethical and environmentally responsible
practices into a competitive and successful model.
End-to-end supply chain transparency is critical; sustainability initiatives must extend from raw
materials sourcing, to last-mile logistics, and even to product returns and recycling processes.
contd..
The need is clear, but the path to get there is not
If you look at most Corporate website for a company‘s values, purpose, or mission, sustainability is
often at the top of the list. The survey confirms this, stating that 65% of companies have created a
clear purpose statement around sustainability, with a further 23% said they are in the process of
doing so. That‘s 88% in total.
However, there‘s a long way to go in living up to that ―purpose.‖
For example, only half have reduced overall shipping miles. And while over two-thirds say they
would reduce the amount of business they do with a supplier shown to have unsustainable
practices, only a small percentage have the visibility into their multi-tier suppliers‘ processes that
would enable them to make that decision.
The Sustainable Supply Chain Paradox contd..
What is driving Sustainability?
Most respondents agree that having a clear purpose and mission is necessary to the long-term success
of their businesses, that a sustainable supply chain is a competitive differentiator, and that good
sustainability practices reduce risk.
The survey also highlighted the top three 3 market factors influencing sustainability initiatives as,
product and service innovation, customers demand, and increasing industry and governmental
regulations.
Sustainability – From design to decommission
Supply Chain sustainability is the management of environmental, social and economic impacts, and the
encouragement of good governance practices throughout the lifecycles of goods and services.
End-to-end supply chain transparency is critical, whether unhoused across your own facilities or
outsourced to trading partners.
Sustainability initiatives must extend from the design to the decommission of a product: from raw
materials sourcing, to last-mile logistics, and even to product usage, returns and recycling processes.
The Sustainable Supply Chain Paradox contd..
Sustainable Design for a Sustainable Product Lifecycle

Companies need to think ―sustainable‖ from the start of a products life, by designing products
and packaging that are biodegradable, and environmentally sustainable.
In the design process you need to be able to:

◦ Calculate the environmental costs for products throughout the lifecycle
◦ Simulate the manufacturing impact on the environment
◦ Link the Voice of Customer feedback to sustainable requirements
contd..
Sustainable Plans for a Sustainable Outcome:
◦ The saying goes, ―if you fail to plan, you plan to fail.
◦ And this is true of a sustainability initiative. Businesses need to do following:
◦ Drive Planning processes that strive to reduce emissions, and ethically satisfy demand with sustainable,
ethically sourced supply.
◦ Increase forecast and accuracy to reduce obsolete inventory
◦ Predict end-of-life scenarios and support circular processes
◦ Simulate CO2 footprint of the plan through procurement, production and transport, and production
◦ Report actual results to compare to the plan to identify successes and areas for improvement
contd..
Sustainable Manufacturing to minimize waste and environment impact :
◦ Manufacturing facilities are a huge area of opportunity to drive carbon reductions and sustainability
initiatives.
◦ But this involves:
◦ Monitoring energy usage as a function of production volume
◦ Measuring CO2 emissions against compliance commitments
◦ Capturing and utilizing Co- and By-Products to minimize waste
◦ Enforce Safety management for sustainable workforce
contd..
Sustainable Logistics that reduce mileage, emissions, and carbon footprint:
The logistics process that move goods around the globe are also a huge area of focus when it comes to
sustainability.
Track, measure and optimize CO2- and energy consumption in warehousing and transportation
functions
Consider delivery resources that are energy efficient or CO2 neutral (especially for inner city or last-mile
delivery tasks)
Optimized routing to run the shortest and least congested route to conserve energy, and reduce miles
and carbon footprint
Leverage Optimized 3D truck load planning to reduce empty miles traveled
contd..
Operate assets and equipment in an energy-efficient manner:
Sustainability through the full product or asset lifecycle is critical.
By having visibility into how they are performing at a customers site or home can enable you to:
Extending asset life and reduce energy consumption
Calculate and track the environmental impact of asset operations
Ensure the safety of operators or users and ensure environmental and safety compliance
contd..
Embrace your network of partners: a key part of a sustainability initiative
At the end of the day, no business operates alone, and leverages a network of contract
manufacturers, suppliers, 3PL’s and other trading partners.
1. Ensure visibility across all tiers of the network is critical. If a supplier 2 tiers down your
supply chain has unethical practices, it could be your brand that suffers.
2. Monitor and track compliance agreements to reduce risks
The survey concludes by stating that “executives must realize that sustainability can no longer
be treated as an afterthought. It is an integral part of the day-to-day activities that keep a
supply chain running, from design through to decommissioning,” and provides some sound
advice and recommendations for all areas across the supply chain and product lifecycle.
How Supply Chain transparency can help
the planet
1. How supply chain transparency can help the planet | Markus Mutz
◦ https://www.youtube.com/watch?v=ygxh6KR4BPk
◦ TED Talk by Markus Mutz / Duration: 13:29
2. Sustainable Supply Chains – Suzanne Greene, MIT / Duration 33:05 min

◦ https://www.youtube.com/watch?v=xD0OJEBepF8
3. Sustainable Supply Chains (with Valentina Carbone) - Ep 66

◦ https://www.youtube.com/watch?v=r35Szv-d250
17:43 to
Cost Reduction is a Top Priority in the Supply
Chain
https://epsnews.com/2014/07/21/cost-reduction-top-priority-supply-chain/
Reducing Supply Chain Costs
1. Focus on the Customer
◦ The needs of the customers should be at the forefront when considering supply chain structure and
strategy. Many supply chains follow policies and systems that conflict with their customers‘ requirements.
As a result, these companies deal with frequent customer issues and complaints, and additional costs
that are unnecessary.
◦ If you focus on your customers by offering options like next-day delivery or unlimited free shipping with a
paid monthly membership, you will provide the solutions they want and be more effective as a business.
2. Supply Chain Strategy

◦ Creating an effective supply chain strategy will help you frame your goals and be more efficient.
◦ Supply Chain‘s performance should be evaluated on a regular basis to ensure you are meeting your
customers‘ requirements and staying on top of your goals.
Reducing Supply Chain Costs contd…
3. Make Better Use of Space
• It costs to store inventory and supplies in your warehouse, so you should make it part of your plan to make the
most of this space. Take an assessment of your warehouse and decide whether you are achieving this goal. If
there are ways to reorganize your inventory, you may discover that you can save money and be more efficient in
the way you use your space.
4. Move Supplies Faster
• A 3PL provider can help you find ways to speed up shipments from suppliers so you can order closer to when you
need items. When inefficiency causes you to order in advance, you incur warehouse costs because you will need
space to store these items when customers order them.
• Additionally, you run the risk of losing or damaging stock because they sit around in the warehouse. By
outsourcing your warehousing and distribution, you can shorten the time it takes you to get items from your
supplier to fulfill customer orders.
5. Sales and Operations Planning
◦ Sales and operations planning (S&OP) are required for a supply chain to operate at its highest efficiency. Optimal
performance depends on proper planning, but it can be expensive and complicated.
◦ When you work with a 3PL provider, the team will eliminate waste and redundancies, help you plan better through
data analysis and forecasting, and increase visibility so everyone involved is up-to-date.
◦ The following problems, if they exist, should be addressed in the S&OP process:
• Uncontrolled SKU generation
• Frequent and unrestrained stockouts
• Commonly inaccurate forecasts
• High quantities of slow-moving or obsolete inventory
• Consistently adjusting demand and production schedules due to issues
6. Supply Chain Network Design
◦ Supply chain network design involves reducing costs and increasing reliability to minimize product handling
(Touch Point).
◦ Each ―touch point‖ between your supplier and your customer raises costs and increases the risk of error and
damaged products. A poorly designed network can lead to excessive handling, too many stock locations, and an
inadequate use of distribution locations. As a result, high distribution costs and poor customer service.
◦ Revising supply chain network design will require special software and analysis that can be costly and confusing
to manage . This is yet another reason why it saves to work with a 3PL partner. They have the software and
experience necessary to resolve issues in your network by designing an effective plan.
7. Automation
• One of the biggest benefits of working with a 3PL provider is access to automation software.
• Automation can help reduce supply chain costs and make operations more efficient.
8. Outsourcing Supply Chain Operation/Management

◦ Outsourcing supply chain management to a 3PL provider will help improve performance while reducing costs.
Warehousing and transportation are two of the most expensive aspects of your supply chain.
◦ An outsourced partner can provide more cost-effective and skilled services. Outsourcing, will give these benefits:
1. Reduced costs 2. Rapidly access services and resources 3.. More resourcing flexibility
4. More opportunity for cost-effective growth 5. Access to specialized services, technology, and equipment
9. Utilizing Assets
◦ Supply chains are complex systems, so finding ways to increase efficiency and reduce errors is vital.
◦ Evaluating assets and usage to find areas that need to be improved is one of the most straightforward ways to
improve supply chain performance.
10. Track/Measure Performance

◦ The next step to reduce your supply chain costs is to track your results. Observing your key performance
indicators (KPIs) will help determine realistic targets and set trackable steps to reaching those goals.
◦ Performance tracking will also help accurately forecast for base supply, logistics, and stock renewals.
Building a Responsive Supply Chain
What is a Responsive Supply Chain?
A responsive supply chain is one that is sensitive to meeting customer requirements. For example, an
online computer hardware assembler may update their product range every 90 days, when the new
models, which may have increased performance, will be at lower prices than the models they replaced.
A responsive supply chain is agile and flexible enough to meet the needs of the company and its
customers.
Organizations that have a responsive supply chain are able to ensure 4 key business functions:
◦ Order Fulfillment Accuracy - All customer orders are accurately fulfilled and quickly delivered to their end
destination.
◦ Scalable Delivery - Sales volume and demand continue to change due to economic fluctuations, new seasons,
and weather. A responsive supply chain can promptly adapt to these shifts and satisfy consumer expectations.
◦ Communication - There is an open line of communication between the business and its customers.
◦ Customer Happiness - Customers are more satisfied when they have the freedom to ask questions, return
products, or edit their orders. Providing high-quality and flexible customer service will ensure overall satisfaction.
Responsive Supply Chains
Michael Hugos - Responsive Supply Chains
https://www.youtube.com/watch?v=L0dUeY
csD2w 3:47 min
Responsive Supply Chain Strategy: L6 by

Rodney Thomas, Walton College
https://www.youtube.com/watch?v=3Tkqzo
LhvdM 7:33 min
Building a Responsive Supply Chain
Challenges in Building a Responsive Supply Chain
• A combination of fiercely competitive global markets, ever-changing and evolving consumer demands, and
disruptive geopolitical events means that organizations cannot rely on statistical forecasting models to operate
efficient supply chains.
• Risk mitigation strategies designed to prevent stock-outs and manage the surges and dips in demand are useful,
but they don‘t enable agility or demand-responsiveness.
• Developing business continuity plans with critical suppliers is an important part of supply chain management, but
it won‘t protect a business from truly unpredictable events, as recently evidenced by the COVID-19 pandemic.
• Supply chain managers are increasingly realizing that their existing processes aren‘t enough to shield them from
the sheer disruption caused by unpredictable global events.
• Organizations must redesign their supply chain to be more responsive to cater to their customers‘ needs in real-
time.
5 Ways : Building a Responsive Supply Chain
1. Embrace Flexible Contracting
◦ Flexible supplier contracting enables an organization to increase or decrease production as customer demand
fluctuates.
◦ This type of contract typically specifies the range of output an organization will require from their supplier and the
amount of time that would be allocated to them to amend their production levels almost like a notice period.
◦ Contracts with clauses of this kind require suppliers to plan for multiple demand scenarios.
2. Employ Range Forecasting

◦ Range forecasting is an effective way for organizations to ready their supply chain for future, unknown events.
This method sees an organization outlining a range of possible future demand outcomes, which allows supply
chain managers to better implement contingency plans and develop more accurate contracting terms with their
suppliers.
◦ This also helps a supply chain prepare for variations in supply and demand.
◦ It can also be applied in the context of product pricing.
Contd..
3. Multi-sourcing
◦ The coronavirus pandemic has brought to light the enormous risk of relying on a single-source supplier. If a
critical supplier can no longer meet requirements due to factory closures, increased demand, bankruptcy, or
shipping and border delays, an entire supply chain can be impacted.
◦ To avoid the resulting production delays and supply chain bottlenecks, organizations must ensure they do not
depend on one supplier for crucial product components.
◦ Multi-sourcing ( Supply Chain Diversification ) involves procuring a material, part, or product from several
different suppliers. Organizations can split demand across multiple vendors to alleviate pressure and reduce risk.
4. Evaluate Company Culture

◦ Company culture is cited as the number one driver of a more responsive supply chain. Better collaboration, which
includes the sharing of data, equips supply chain leaders with the intelligence necessary to predict future
demand.
◦ Research has found that organizations with multiple reporting channels and decision-makers struggle to
effectively share information.
◦ Supply chain leaders must have the authority to own decision-making across all locations and throughout the
entire supply chain, embracing a "plan centrally and execute locally" model.
Contd..
5. Invest in Technology That Enables a Responsive Supply Chain

Sophisticated modern supply chain technologies enable a more flexible approach to supply chain
management.
Service Oriented Architectures (SOA), a targeted, ―pluggable architecture,‖ has spawned an uptick
in technology vendors developing niche, tailored supply chain solutions.
Real-time visibility and radical transparency are now possible with the assistance of AI, IoT,
Advanced Analytics, and Blockchain.
JAMNALAL BAJAJ INSTITUTE
OF
MANAGEMENT STUDIES
Supply Chain and Logistics
Management
Semester VI
MMM / MFM 2019-22
UNIT - II
DATE: 19 / 20 JANUARY 2022
Supplies in Supply Chain Management?
Growing dependence on suppliers in every aspect of an
organization, from business to IT needs?
All the necessary things in the corporation relate to the

suppliers and there will be a long list of suppliers at some
time.
The need to manage supplier relationships, information,

contracts and more increases rapidly, while the need to follow
the rules remains:
◦ To realize the best value from its expense, through organizing the
supplier analysis of cost, risk and performance.
◦ To realize a 360-degree visibility in the supplier ecosystem, there is
need for an SCM system.
Supply Issues in Supply Chain Management
Supply Issues in Supply Chain Management
The COVID-19 pandemic continues to disrupt the Supply Chain ecosystem with new and
unforeseen barriers to both productivity and profitability.
In 2022, there are new challenges companies must tackle to remain successful within the
competitive e-Commerce space.
A shift to online retail, increase in consumer confidence, pent-up demand, and amassed savings
all add up to a tremendous opportunity .
Suppliers and manufacturers from all over the world have largely been put to the test,
encountering massive stock shortages, fulfillment delays, and lengthy backorders on common
inventory items.
Supply chain crisis hits operations, profitability and growth
Supply Chain Challenges in 2021-2022
1. Material Scarcity
Insufficient inputs a concern since the pandemic began, due to an abrupt rise in consumer demand like
never before .
Companies and suppliers are struggling to meet this demand from limited availability for many parts
and materials.
We‘ve encountered everything from furniture manufacturers facing foam shortages to bike
manufacturers losing payment terms due to maxed out component suppliers.
Survey by the Institute for Supply Management (ISM) revealed ‗record-long lead times, wide-scale
shortages of critical basic materials, rising commodities prices, and difficulties in transporting products
across industries.‘
2. Increasing Freight Prices
Contrary to initial expectations, the need for container shipping increased considerably.
Worldwide lockdown created a surge in eCommerce sales, led to a greater import demand for raw
materials and manufactured consumer goods (a large percentage of which are moved in shipping
containers).
Demand being substantial than anticipated, with insufficient shipping capacity and an
unprecedented shortage of empty or available containers.
This scarcity has led to a spike in pricing. Freight rates from China to the West Coast have jumped
by 240%.
3. Difficult Demand Forecasting
Demand forecasting in a global pandemic has added a new layer of complexity to many companies‘
supply chain management.
The onset of COVID-19 shattered the forecasts for retailers and suppliers of consumer goods/services.
All were clueless to : how much inventory to stock or manufacture at any given time.
The challenge is trying to improve predictions for customer demand, while in many ways have to
rely on gut instinct rather than data-driven research.
In this situation, supply chain managers are encouraged to abandon their bias, pursue new data sets
for forecast models, and continually refine their results for the greatest accuracy.
4. Port Congestion
Port congestion remains one of the top challenges for the world‘s supply chains.
Port owners, carriers, and shippers are collectively scrambling for a viable solution to this.
Congestion occurs whenever a ship arrives at a port but cannot load (or unload). Creating major
bottlenecks at several busy global docks.
Due to this congestion and the backlog, companies are unable to get their goods out the door on
time — carriers are also unable to adhere to their delivery commitments.
5. Changing Consumer Attitudes
Consumer attitudes and behaviors changed in big ways during the pandemic, like lower delivery
times, home delivery, etc..
The challenge comes in having an agile supply chain that can optimize fulfillment and handle
accelerated demand.
―The pandemic drove eCommerce demand to an all-time high. While a rise in order volume was a
plus for merchants, new infrastructural needs and supply chain disruptions were major points of
concern.— Daniel Gdowski, VP of Marketing at ShipMonk
6. Digital Transformation
When it comes to supply chain operations, digital transformation and IoT can be a mixed
blessing.
There are several technologies to enhance the traditional supply chain, including: Artificial
Intelligence, drones and Robots, etc, for managing and on-demand delivery.
Even though these systems/services are intended to make e-commerce processes more efficient
and cost-effective in the long run, the challenge lies in implementing them across a company‘s
existing supply chain.
Tips to overcome supply chain issues
Keep liquidity in your business
◦ Protect your business with flexible access to capital. Having cash on hand is often the difference between
meeting demand and going out of stock.
◦ With sharp ebbs and flows of inventory expected, it‘s wise to consider a flexible line of credit that can be
used to stock up on evergreen or perennial items in high demand and pay for priority
manufacturing/shipping, or even air freighting.
Work with a freight forwarder

◦ Partner with a freight forwarder — or multiple — to manage and track the shipment of goods. Retailers who
work with a freight forwarder benefit from their vast knowledge of the supply chain.
◦ Also their ability to handle unforeseen obstacles in real-time (such as delayed goods or rerouted services).
◦ Freight forwarders can negotiate at scale by aggregating shipments of smaller retailers.
Tips to overcome supply chain issues
Identify alternative shipping ports
◦ Hedge your bets by seeking out alternative ports to meet your fulfillment needs and stay on
schedule, regardless of unforeseen events or a sudden spike in customer orders.
Improve Demand Forecasting

◦ Without fail, the best way to improve forecasting is by using automations.
◦ eCommerce sellers are always looking for a balance between their inventory levels, warehousing
costs, and the demand from their customers to prevent stockouts or inventory shortages.
◦ With automated inventory alerts, forecasting tools, and cash on hand, merchants can stock up with
confidence based on predicted product demand and/or sales.
Difference between Procurement and
Purchasing
The difference between procurement and purchasing is that one is a strategic process and the
other is a transactional function when sourcing and acquiring products and services.
Procurement concentrates on the strategic process of product or service sourcing, for example
researching, negotiation and planning,
Purchasing process focuses on how products and services are acquired and ordered, such as
raising purchase orders and arranging payment.
Procurement and purchasing are two separate business processes.
Both relate to the sourcing and acquisition of goods and services and can often be seen as part of
the procurement department.
Procurement Vs Purchasing
Procurement: Strategic Process Purchasing: Transactional Activities
◦ Identify needs and requirements ◦ Receive purchase requisitions
◦ Source and evaluate local, national or ◦ Evaluate quotes from suppliers
international supplier(s)
◦ Raise and process purchase orders (PO)
◦ Negotiate terms, conditions and contracts
◦ Receive goods/services and warehouse
◦ Build and manage supplier relationships management
◦ Perform cost savings and profit margin ◦ Process and organise payment with supplier
analysis
What is Purchasing Management ?
Purchase Management: is procuring the inputs for production.

◦ Purchase departments buy raw materials, parts, machinery, and services used by production .
◦ The objective is to procure the right equipment, materials, supplies and services in the right quantity, of
the right quality, from the right suppliers, at the right time, at the lowest price.
◦ Increase in competition and market demand and scarcity of resources have forced organizations to
reexamine their purchasing activities.
◦ The purchasing department functions have expanded considerably and include activities such as verifying
the credentials of suppliers, inspecting the quality of the material to be purchased, ensuring the timely
delivery of the material, etc.
◦ The value of purchased items varies and adds up to more than 50% of sales in all industries.
◦ Purchase management is a significant activity in many organizations because of the high cost involved ,
increasing quality benchmarks, and increasing global competition
Importance of Purchase Management
Purchase management is considered to be very important function of materials management in a
company. Its importance is felt even outside the formal scope of materials management.
As the purchase decisions commit a very large portion of financial resource of the company
purchase function is said to be highly important.
Purchase personnel deal with large number of external agencies while performing their functions.
Hence, they represent company‘s reputation in the outside world.
As they negotiate and finalize deals worth lot of money for the company their integrity is of utmost
importance for the organization.
Importance of Purchasing
1. Purchasing function provides materials to the factory without which wheels of machines cannot move.
2. A one percent saving in materials cost is equivalent to a 10 percent increase in turnover. Efficient buying can
achieve this.
3. Purchasing manager is the custodian of his firm‘s purse as he spends more than 50 per cent of company‘s
earnings on purchases.
4. Increasing proportion of one‘s requirements are now bought instead of being made as was the practice in the
earlier days. Buying, therefore, assumes significance.
5. Purchasing can contribute to import substitution and save foreign exchange.
6. Purchasing is the main factor in timely execution of industrial projects.
7. Materials management have now evolved considerably.

Objectives of Purchasing
1. To pay reasonably low prices for the best values obtainable, negotiating and executing all company commitments.
2. To keep inventories as low as is consistent with maintaining production.
3. To develop satisfactory sources of supply and maintain good relations with them.
4. To secure good vendor performance including prompt deliveries and acceptable quality.
5. To locate new materials or products as required.
6. To develop good procedures, together with adequate controls and purchasing policy.
7. To implement such programmes as value analysis, cost analysis, and make-or-buy to reduce cost of purchases.
8. To maintain as economical a department as is possible, commensurate with good performance.
9. To keep top management informed of material development which could affect company profit or performance.
10. To achieve a high degree of co-operation and co-ordination with other departments in the organisation.
5 R’s of Purchasing Management
1. Right Price:
◦ Right price is determined by costing the production process of the supplier. Right price is determined by
allowing reasonable profit for the supplier and insisting and helping to reduce cost.
◦ Tender system should be used to identify lowest responsible bidder rather than lowest bidder. Principles
normally used to ensure right price are cost structure and learning curve.
2. Right Quantity:
◦ Right quantity of purchase is the one that ensures no excess and no shortage.
◦ High priority items are subjected to EOQ analysis to determine the right quantity for purchase. This
ensures overall minimum cost for inventory.
5 R’s of Purchasing Management
3. Right Quality:
◦ In an item purchased should ensure adhering to mutually accepted standard ( Quality ) by supplier and
customer at the time of finalizing the purchase order.
◦ The accepted standard may be a drawing, a sample, a grade or a universal standard like DIN, IS, BS etc.
4. Right Place:
◦ It is the one where the item is going to enter the value stream. If the item is not available here, when
needed, it is in short supply for the process.
5. Right Time:
◦ It is as decided by production schedule for meeting customer‘s requirements.
Typical Purchase Management Process
Customer Supplier Relationship
What is Supplier Relationship Management?
Supplier Relationship Management (SRM) is a management concept used by procurement and supply chain
professionals.
Supplier relationship management is a systematic approach for developing and managing partnerships.
As supply chains become more complex there is a greater need to cultivate clear, measurable ways to evaluate every
supplier.
SRM focusses on optimising efficiencies and creating value for all stakeholders. The goal of SRM is to encourage
mutual growth and value creation with targeted suppliers based on a foundation of trust, open communication and a
win-win mindset.
It identifies critical suppliers to a business and serves as the foundation for collaboration between buyer and
supplier. Identifying supplier relationships that align with corporate objectives can result in greater efficiencies all
round
Building mutually beneficial relationships takes time but with open and effective communication suppliers will gain a
clear understanding of your company-specific needs.
This knowledge helps to eliminate supply chain delays and if issues do arise, ensures troubleshooting is a relatively
painless process because valuable relationships have been established.
What is Customer Supplier Relationship?
Customer Supplier Relationship

◦ It is the business relation between the customers and the suppliers in terms of product quality, services,
complaint handling, deliveries etc.
◦ Customers and Suppliers are the vital cogs in business.
◦ Both have the same goal- to satisfy end consumers.
◦ Hence, having a healthy customer supplier relationship is imperative for any business.
Importance of Customer Supplier Relationship:

◦ It is of great importance in quality management across organization and should be maintained at all levels
of supply chain.
◦ It should ideally be a win-win situation for both parties in order to make it a long term and trustworthy
alliance.
Factors of Customer Supplier Relationships
From the Suppliers‘ end:

1. Sensitivity to customers‘ needs
2. High level of business satisfaction
3. Innovation & development
4. Good financial management
From the Customers‘ end :
1. Timely payment
2. Personalization of the relationship
3. Flexibility
4. Share information
What is Supplier Relationship Management?
Supplier relationship management is a systematic approach for developing and managing
partnerships.
The goal of SRM is to encourage mutual growth and value creation with targeted suppliers based
on a foundation of trust, open communication and a win-win mindset.
This differs from non-partnerships, which are predominantly governed by contract administration,
contract management and vendor rating.
According to the Council for Supply Chain Management Professionals (CSCMP), supplier
relationship management is a comprehensive approach to planning and managing an
organization‘s interactions with providers of goods and services.
Principles of Customer Supplier Relationship
1. Quality is utmost important for both 6. Quality audit should be decided between the
customer & supplier. supplier & customer.
2. Despite business interdependence, both 7. In case of any disputes, customer & supplier
parties should be independent. should settle matters properly.
3. Supplier should be provided the exact 8. Customer supplier relationship can be

requirements by the customer. strengthened by continuous communication.
4. Customer supplier contract should clearly 9. Basic activities like procurement, inventory
mention price, quantity, payment terms, planning etc. should be well planned.
delivery etc.
10. Customer & supplier should work together
5. Supplier should ensure good quality of the to grow together.
products.
Why Companies need a Supplier
Relationship Management Strategy?
◦ The business landscape is ever changing, numerous innovations have allowed companies to transcend borders
and become global entities.
◦ While the opportunities are numerous so are the challenges; in this fiercely competitive global marketplace
success requires companies to pay closer attention to supplier relations.
◦ Global leaders should retain suppliers with vested interest in the long-term success of the company. These
partners should be willing to extend more value-added services, flexibility and resources.
◦ To attain this level of trust with suppliers, companies should approach these relationships with the same care
they use when approaching customers.
◦ A vigorous supplier relationship management (SRM) strategy can assist organizations in maximizing partnership
value, minimize risk, and manage costs through the entire supplier relationship lifecycle.
Formulating a Supplier Relationship
Management Strategy
1. Become the Customer of Choice 2. Connect Your Supply Chain
◦ Launch of the company‘s Supplier Advisory ◦ Supply chain concepts are generally understood
Council. in a linear pattern of consecutive planning : plan-
◦ This advisory board is to serve as the first step source-make-distribute-return/dispose.
towards a more comprehensive supplier policy ◦ Example: lithium batteries, which are
and the building block for the SRM strategy. intermediate parts destined to be incorporated
◦ ―In order to reach a level of earned preferential into finished goods such as laptops, cameras or
treatment, Company has to build stronger bonds cell-phones. The transportation of lithium
and greater trust into supplier relationships.‖ batteries is dangerous, as they overheat, which
can cause significant damage.
◦ By working closely with its suppliers an
organization can receive the best sales terms, ◦ In electronics supply chains, transparency and
fluctuating manufacturing capacity when needed visibility is key to ensuring that products get to
and first access to the latest innovations, market as promised.
◦ To do this, the production and transportation of
all component parts must be closely monitored
and coordinated.
Management Strategy
3. Foster Partnerships based on Trust 4. Manage Working Capital
◦ Omni-channel shopping has given customers a ◦ To establish and maintain leadership,
wider selection of goods and a platform for price organizations must innovate.
comparison. ◦ Some companies choose to extend accounts
◦ Businesses are finding it challenging to forecast payable as long as possible to free up capital to
demand and they risk inventory costs or stock be invested into R&D and innovation.
outs. ◦ This requires strong supplier relations, built on
◦ Organizations need more flexibility in their supply trust as most times delaying payment can erode
chains and should seek stronger partnerships partnerships,.
with their suppliers, ( not transactional ◦ These strategies are even more beneficial in the
relationships based on costs and delivery times ) retail space where suppliers consider special
, focus more on long-term mutually beneficial arrangements on payments in exchange for
relationships. better shelf space and product visibility.
◦ SRM software, much like a CRM system allows
supply chain personnel to keep track of supplier
interactions and address concerns early.
Management Strategy
5. Set clear expectations and KPIs 6. Find opportunities and improve supply chain
◦ Suppliers success depend on customers, sustainability
understanding their demand, needs, and ◦ Consumers are becoming increasingly more
receiving honest feedback. concerned with how their products are
◦ A comprehensive supplier management strategy manufactured and sourced.
helps organizations arrange suppliers based on ◦ According to the Nielsen Company: 55% of global
different tiers of importance and reliability. online consumers in over 60 countries assert
◦ Suppliers should be held accountable for their that they are willing to pay more for products and
promises; all communications, formal and services provided by companies that are
informal should be properly logged and followed committed to positive social change and
up with. environmental protection.
◦ Organizations should keep detailed information ◦ There are numerous examples of global leaders
on supplier communications, contracts, and fail consumer expectations.
improvement based on their internal key ◦ These organizations depend on a vast network of
performance indicators. global suppliers but in the eyes of consumers it is
their responsibility to ensure that their practices
have minimal impact.
10 Tips to Improve Supplier Relationships
1. Be Proactive
Addressing issues, challenges and problems as they arrive prevents them from festering into something more
serious. Early and frank discussion and action will build trust and respect.
2. Communicate regularly and effectively
Communication creates a shared understanding. A shared understanding helps avoid confusion and
disagreement. Effective communication includes a regular and healthy dose of face-to-face discussion. Contract
Managers should avoid hiding behind emails. And remember, communication is a two-way street.
3. Establish roles and responsibilities and remember them
Performance = ability x motivation x clarity of role description. Both parties need to clearly understand their own
role, the role of their counterpart and how the two fit together to leverage value and achieve mutually beneficial
outcomes.
4. Understand the contractual obligations

There is a widely held view that a good contract relationship is one where the contract can be
used as a door stop! Right? Wrong.
Service takers, contract managers and shareholders alike need to have confidence that the
supplier is delivering what they are being paid to.
In a positive contract relationship, both sides understand and uphold their obligations.
5. Always Behave Ethically and Honestly
Trust is hard to gain and easy to lose. Gaining a reputation for behaving ethically and honestly will
go a long way to developing trust and trust will go a long way to developing relationships.
6. Regularly review the deliverables and performance

Every contract manager wants to know that they are receiving the service they need and to the
standard they expect. Performance review should be more than just an exercise in measurement.
It should be an exercise in continual improvement.
7. Identify and monitor risks
Risks can‘t be managed until they are identified and monitored. Work with your supplier to ensure that
risks are identified at all levels of operations.
8. Seek professional advice
You probably don‘t diagnose your own medical problems or fix your own car. Know when the time is
right to seek third party advice – be that from a lawyer, a subject matter expert or a consultant.
9. Be reasonable and fair

Nobody responds to a manager who is heavy handed, unreasonable or unfair. Be consistent in
how you manage your supplier. Take a balanced approach and be mindful of extenuating
circumstances that may be impacting upon a situation.
10. Establish the basis of the working relationship
Set the foundations for the relationship from the get-go. That means understanding the
relationship you want before you even start the process. Then write a contract, engage the market,
manage negotiations and undertake transition in a manner that reflects the intended working
relationship.
While not all organisations exhibit these behaviours, those that do, develop stronger, more reliable
and more cost-effective long-term relationships.
Some Excerpts: HBR Article
―The Big Three [U.S. automakers] set annual cost-reduction targets [for the parts they purchase].
To realize those targets, they‘ll do anything. [They‘ve unleashed] a reign of terror, and it gets worse
every year. You can‘t trust anyone [in those companies].‖ —Director, interior systems supplier to
Ford, GM, and Chrysler, October 1999
―In my opinion, [Ford] seems to send its people to ‗hate school‘ so that they learn how to hate
suppliers. The company is extremely confrontational. After dealing with Ford, I decided not to buy
its cars.‖ —Senior executive, supplier to Ford, October 2002
―Toyota helped us dramatically improve our production system. We started by making one
component, and as we improved, [Toyota] rewarded us with orders for more components. Toyota is
our best customer.‖ —Senior executive, supplier to Ford, GM, Chrysler, and Toyota, July 2001
The Supplier-Partnering
Hierarchy
The Supplier-Partnering Hierarchy
1. Understand How Your Suppliers Work 3. Supervise Your Suppliers
◦ Toyota and Honda believe they can create the ◦ Japanese automakers don‘t take a hands-off
foundations for partnerships only if they know as approach; they believe suppliers‘ roles are too
much about their vendors as the vendors know vital for that. ( Notion of treating equals )
about themselves. ◦ They use elaborate systems to measure the way
their suppliers work, to set targets for them, and
2. Turn Supplier Rivalry into Opportunity to always monitor their performance.
◦ There is a key difference between the way ◦ Controls are the flip side of the trust that Toyota
American and Japanese companies fuel the and Honda have in their suppliers.
rivalry between their suppliers.
◦ Honda uses a report card to monitor its core
◦ U.S. manufacturers set vendors against each suppliers, some of which may be even second- or
other and then do business with the last supplier third-tier vendors.
standing.
◦ In contrast with most American companies,
◦ Toyota and Honda also spark competition Toyota and Honda expect their suppliers‘ senior
between vendors—especially when there is managers to get involved whenever issues arise.
none—but only with the support of their existing That expectation often causes problems.
suppliers.
4. Develop Compatible Technical 5. Share Information Intensively but Selectively
Capabilities ◦ Chrysler‘s philosophy seemed to be, ―If we
◦ The notion of sourcing components from low- inundate vendors with information and keep
wage countries in Asia fascinates Western talking to them intensely, they will feel like
companies. Many U.S. automakers and their partners.‖
suppliers have set multibillion-dollar targets for ◦ Toyota and Honda share information carefully
purchasing components from China as if that when they‘re developing new products with their
would be an accomplishment in itself. suppliers. Divides components into two
◦ Toyota and Honda don‘t source from low-wage categories: those that vendors can design by
countries much; their suppliers‘ innovation themselves and those that must be developed at
capabilities are more important than their wage Toyota.
costs. ◦ The two Japanese companies know that sharing
◦ Toyota and Honda have invested heavily in a lot of information with everyone ensures that no
improving the ability of their first-tier vendors to one will have the right information when it‘s
develop products. needed.
6. Conduct Joint Improvement Activities ◦ Honda, for example, has stationed several
engineers in the United States, and they lead
◦ Many American suppliers celebrated when
kaizen (continuous improvement) events at
they first received business from Toyota or
suppliers‘ facilities.
Honda.
◦ Toyota teaches suppliers its famed Toyota
◦ They knew that in addition to new business,
Production System. The company has also set
they would get opportunities to learn, to
up jishuken, or study group teams, to help the
improve, and to enhance their reputations with
manufacturer and its suppliers learn together
other customers.
how to improve operations.
◦ Because Toyota and Honda are models of lean
management, they bring about all-around
improvements in their suppliers.
Making supplier relationships work
https://www.kearney.com/operations-performance-transformation/article?/a/making-
supplier-relationships-work : A Presentation Topic
Defining Ethical and Sustainable Sourcing
Ethical Sourcing:
◦ Ethical sourcing is defined as the process of ensuring the products being sourced are obtained
responsibly and sustainably.
◦ It is a component of sustainable sourcing but not the same thing.
Ethical sourcing thereby sets ethical and social principles first, in order to ensure fair income for local
communities and avoid unethical labour practices such as child labour or slavery.
◦ Ethical sourcing thereby exceeds the formal accountability as imposed by governments.
Sustainable Sourcing:
◦ Sustainable sourcing is the integration of social and environmental performance factors into the process
of selecting suppliers.
◦ It includes purchasing sustainably preferable products and services (products made from recycled or
remanufactured materials), as well as green purchasing guidelines that might pertain to certain products
or commodities.
Sustainable Supply Chain Management
Sustainable Supply Chain Management:
◦ Sustainable Supply Chain Management (SSCM) is the integration of environmental and social impact
along the procurement and production processes of a focal company and its suppliers, also the
distribution of its products and services towards customers.
◦ SSCM can focus on making existing supply chains sustainable, as well as making products and services
themselves sustainable.
◦ SSCM contributes to a holistic and long-term strategic perspective of a company and its supply chain,
going beyond formal accountability, environmental and social regulations imposed by governments, and
goes beyond perspectives regarding the Triple Bottom Line as a balancing act.
2020’s - Decade of Supply Chain
Sustainability
◦ One of the most significant shifts of this century is the rising importance of sustainability for businesses
—particularly around environmental, social, and ethical performance.
◦ Why?
◦ Increasing awareness of the catastrophic effects of climate change and the destruction of natural resources
◦ A growing concern for human rights violations, inhumane working conditions, corruption, and more are driving
companies to incorporate sustainability into their values and their mission statements.
◦ Furthermore, the sustainability movement shows no sign of slowing down.
◦ Companies are expanding their focus beyond their own four walls.
◦ The increasingly globalized nature of our world has created supply chains with dozens of tiers across the
globe.
◦ Sustainability risks have grown with globalization—but so have efforts to combat the dangers.
Measuring Sustainability: Sustainable
Apparel Coalition
The Higg Index
◦ The Higg Index is a suite of tools for the ◦ Across topics such as water use, carbon
standardized measurement of value chain emissions, and labor conditions, consumer goods
sustainability brands, retailers, manufacturers, governments,
NGOs, and consumers can use the Higg Index to
inform their individual sustainability strategies
◦ It is comprised of a core set of five tools that and drive collective industry transformation.
together assess the social and environmental
performance of the value chain and the
environmental impacts of products, ◦ They developed the methodologies of the Higg
Index over ten years using the latest scientific
research, in partnership with SAC members,
◦ These are: consultants, stakeholders, and industry experts.
1. Higg Facility Environmental Module (FEM),
2. Higg Facility Social & Labor Module (FSLM),
3. Higg Brand & Retail Module (BRM), https://apparelcoalition.org/the-higg-index /
4. Higg Materials Sustainability Index (MSI), and
5. Higg Product Module (PM) https://www.youtube.com/watch?v=rK-Or8yIffU
SUSTAINABLE SOURCING BENEFITS
The three primary benefits of sustainable
sourcing practices are to manage risks,
reduce costs and increase revenue.
Each driver has different elements to it that

motivate the business:
◦ Manage Risks: Brand protection, supply chain
disruptions, fines and litigations
◦ Reduce Costs: Vendor rationalization, reduced
administration, the total cost of ownership
◦ Increase Revenue: Service differentiation,
access to new markets, competitive advantage
SUSTAINABLE SOURCING BENEFITS
THE SHIFTING MINDSET ON SUSTAINABILITY
Sustainable sourcing also provides
the following opportunities to According to research in "Sustainability as a Business Strategy" from the SIG
University learning module, the mindset of consumers is drastically changing
businesses: when it comes to sustainability.
Mitigate risks Consumers are now more aware and conscious of the brands they purchase
from and the companies they work for, and they desire to make decisions that
Increase competitiveness support sustainable enterprises.
67% of consumers prefer to work for socially responsible companies
Attract new consumers
66% of consumers will pay extra for products and services from socially
Develop new markets responsible companies
Speed up innovation 52% of consumers made at least one purchase in the past six months from
socially responsible companies
Predict future earnings
52% of consumers check product packaging to ensure sustainable impact
49% of consumers prefer to volunteer/donate to organizations engaged in
social and environmental programs
Triple Bottom Line
―The triple bottom line wasn‘t designed to be just an

accounting tool. It was supposed to provoke deeper
thinking about capitalism and its future.‖—John Elkington
in his Harvard Business Review article.
Triple bottom line theory expands business success metrics

to include contributions to Environmental Health, Social
well-being, and a just economy.
The triple bottom line illustrates that if an organization is

only focused on profit—ignoring people and the planet—
it cannot account for the full cost of doing business and
thus will not succeed long term.
Frameworks for ethical and sustainable
sourcing
A variety of initiatives have been developed in order to foster ethical and sustainable sourcing in
globalized supply chains.
The Ethical Trading Initiative (ETI) was founded in 1998 with the aim to encourage companies to
act responsible and to promote decent work in their supply chains.
The ETI brings together companies, trade unions and non-governmental organizations in order to
promote ethical trade. Based on the conventions of the International Labor Organization (ILO), ETI
developed a ‗Base Code‘.
This base code provides guiding principles for ethical relationships between focal companies and
their supply chain partners.
Frameworks for ethical and sustainable
sourcing contd…
Another global initiative focusing on sustainability issues is:
◦ The United Nations (UN) Global Compact, with the aim to encourage companies to adopt sustainable and
socially responsible policies.
◦ The UN Global Compact consists of ten principles, focusing on human rights, labour, environment, and
anti-corruption.
◦ UN Global Compact launched initiatives to encourage transparency and traceability in global supply
chains (UN Global Compact, 2014), as well as principles of responsible management education.
◦ Other initiatives are focusing on specific products or product groups, such as Fair-Trade Labelling
Organizations International (FLO), Forest Stewardship Council (FSC), Global Organic Textile Standard, and
Roundtable on Sustainable Palm Oil (RSPO).
(for an overview of global sustainability initiatives by product (group), see UN Global Compact,
2014).
Ten Principles of the UN Global Compact
◦ Corporate sustainability starts with a company‘s value system and a principles-based approach to doing
business.
◦ This means operating in ways that meet fundamental responsibilities in the areas of human rights, labour,
environment and anti-corruption.
◦ By incorporating the Ten Principles of the UN Global Compact into strategies, policies and procedures, and
establishing a culture of integrity, companies are upholding their basic responsibilities to people and
planet, but also setting the stage for long-term success.
◦ The Ten Principles of the United Nations Global Compact are derived from:
The Universal Declaration of Human Rights,
The International Labour Organization‘s Declaration on Fundamental Principles and Rights at Work,
The Rio Declaration on Environment and Development, and
The United Nations Convention Against Corruption.
UN Global Compact 2014
Human Rights: Environment:
Principle 1: Businesses should support and respect the protection of Principle 7: Businesses should support a precautionary approach to
internationally proclaimed human rights environmental challenges;
Principle 2: Make sure that they are not complicit in human rights Principle 8: undertake initiatives to promote greater environmental
abuses. responsibility;
Principle 9: encourage the development and diffusion of environmentally
Labour: friendly technologies.
Principle 3: Businesses should uphold the freedom of association and the
effective recognition of the right to collective bargaining; Anti-Corruption:
Principle 4: The elimination of all forms of forced and compulsory labour; Principle 10: Businesses should work against corruption in all its forms,
including extortion and bribery.
Principle 5: The effective abolition of child labour;
Principle 6: The elimination of discrimination in respect of employment
and occupation.
Ethical and Sustainable Supply Chain:
Challenges contd…
A McKinsey report on sustainability shows :
◦ The direct impact that supply chain operations have on the environment as they try to compete with a
growing consumer base.
◦ More than 90 percent of the damage caused to the environment by consumer-packaged goods (CPG)
producers — including 80 percent of greenhouse gas emissions — comes from the supply chain.
◦ Nearly 2 billion people are expected to become global consumers by 2025, a 75-percent increase over
2010.
◦ CPG companies will need to cut greenhouse gas emissions by more than 90 percent by 2050 in order to
meet climate change agreements.
◦ Unfortunately, less than 20 percent of supply chain managers say they have the necessary visibility into
sustainability practices in the supply chain to make this happen
Ethical and Sustainable Supply Chain:
Challenges contd…
Pull Factor:
◦ As consumer demand increases, generating a greater need for products, ingredients and raw materials, global
supply chains become more complex.
◦ That translates directly into increased environmental impacts.
◦ Resultant Issues: Greenhouse gas emissions, water scarcity, issues related to land use, toxic waste, water
pollution, deforestation, air quality and energy use.
◦ Global Supply chains span countries and continents, across multiple suppliers, each with its own quality and
sustainability standards.
Push Factor:
Why is more ethical and sustainable supply chains is a good practice for any business?
◦ Because it improves regulatory compliance, enhances business branding and reputation, reduces waste and
overhead, and leads to responsible environmental sourcing.
◦ Consumers are more conscientious than ever before. They expect organizations to meet ethical and sustainability
standards, and supply chains aren‘t exempt from scrutiny.
◦ Companies must do significant changes: Ensure environmental stewardship, decreased damage, and
sustainable sourcing, manufacturing and product distribution.
Trends of Supply Chain Sustainability
◦ There is revived corporate emphasis on sustainability.
EcoVadis‘ ratings track performance
◦ Especially as the global investment community‘s interest in environmental,
of more than 65,000 businesses in
social, and governance factors has spiked.
supply chains across 160 countries.
◦ There‘s more pressure and new motivation to serve a purpose that is
Over the past 13 years, research measured by more than quarterly earnings and growth.
uncovered three major trends that ◦ Pressure isn‘t only from investors, but customers and employees too;
depict why the 2020s will be a big 62% percent of customers want companies to take action on sustainability.
decade for supply chain 40% of millennials have chosen a job because of company sustainability.
sustainability:
◦ Trend 1: Social purpose is now core to ◦ The new goal: building long-term, sustainable value.
business commitments. ◦ 181 CEOs of large global companies signed a ―Statement of Purpose of a
◦ Trend 2: Supply chain sustainability Corporation‖ that prioritized sustainability, stewardship, and people
performance varies by region and alongside profits.
across themes.
◦ Trend 3: Sustainability is becoming a ◦ 2020 World Economic Forum‘s Davos Manifesto : urged companies to
critical risk management tool. engage all stakeholders and promote respect for human rights throughout
their global supply chains.
Six Steps to Ethical and Sustainable Supply
Chain
1. Reduce waste by simplifying supply chain processes.
◦ Supply chains can be improved through major changes,
◦ But it‘s more common to see results through small, iterative improvements.
◦ Good analytics and reporting combined with Machine Learning to continually improve processes
throughout the supply chain.
◦ Every change that reduces waste, speeds up delivery or enhances quality makes an incremental
improvement to sustainability.
2. Ensure ethical sourcing and introduce transparency.

◦ Supply chain managers need visibility into how suppliers extract or produce raw materials to ensure
they‘re following sustainability standards.
◦ Blockchain technology is a useful way to capture and verify supplier sourcing practices.
◦ Internet of things (IoT) devices can monitor and report on working conditions and environmental factors.
◦ Marketplaces can also bring transparency to a company‘s suppliers. The more interconnected they
become, the more visible they are to those that access them.
Chain
3. Minimize Overproduction through efficient Supply and Demand planning.
◦ Misalignment between supply and demand results in too much or too little production of raw materials,
manufacturing of goods and distribution of products.
◦ This creates rework and waste.
◦ Artificial intelligence, machine learning and predictive analytics can forecast likely demand and ensure
more efficient supply and manufacturing processes.
4. Decrease Fossil Fuel consumption by optimizing routes.

◦ Until logistics moves to electric and other more sustainable vehicle options, route optimization is one of
the best ways to reduce the environmental impact of transportation and distribution.
◦ A.I. can work with GPS devices to optimize international, national and local shipping routes.
◦ Advanced analytics can even update routes in real time, to take account of congestion and other issues.
Chain
5. Fully utilize Containers and Transportation : consolidate shipments.
◦ An empty container is a wasted container. https://indiaseatradenews.com/matchlog-raise-3-million-from-
blue-ashva-capital-and-others-to-decarbonise-shipping-industry/
◦ Predictive analytics forecast where and when goods will arrive, allowing for the consolidation of shipments
from multiple suppliers to multiple final destinations.
https://indiaseatradenews.com/beyond-speed-the-promising-implications-of-5g-for-the-logistics-industr/
◦ This makes the most efficient use of assets (e.g., containers and trailers) and transportation, reducing the
total amount of greenhouse gases generated per unit of cargo.
6. Monitor for existing Environmental Risks.

◦ Many supply chains are already impacted by climate change and other environmental factors.
◦ Issues such as wildfires in the western U.S., rising sea levels, water scarcity and lower agricultural yields
have a profound impact on the efficiency, quality and speed of the supply chain.
◦ Supply chain technology helps to predict these risks and allows supply chain managers to mitigate their
impact and put contingency plans in place.
Ethical and Sustainable Souring Companies
Four Companies who succeed by focusing on ethical sourcing and manufacturing:

1. Patagonia
Patagonia, an American outdoor clothing company, has used organically grown cotton for all of its products since
switching from pesticide-heavy cotton crops in 1994.
2. Starbucks
Starbucks is committed to 100% sustainably sourced coffee, and uses a system called C.A.F.E. (Coffee and Farmer
Equity Practices) in order to optimize its sustainable sourcing.
3. H&M Clothing retailer
H&M is committed to supply chain transparency. They publish a list of 98.5% of their suppliers‘ names and
addresses on their website and update it on a quarterly basis.
4. The Dr. Pepper Snapple Group
The Dr. Pepper Snapple Group features a social responsibility section on its website which explains the company‘s
policies regarding ethical sourcing and outlines the code of conduct it expects each of its suppliers to follow.
Hennes & Mauritz
Environment Impact: a Myth or Reality ?
Earth's sixth mass extinction has begun according to scientists
A study from the International Union for Conservation of Nature (IUCN) found that hundreds of
land animals could go extinct in the next 20 years.
Environment Impact: a Myth or Reality ?
◦ Extinctions have been happening at an alarming rate in recent decades with human involvement and
climate change blamed for creating habitats unsuitable for many species of wildlife.
◦ A major study by the International Union for Conservation of Nature (IUCN) Red List of Threatened Species
and Bird Life International has found that the earth may be on the brink of a mass extinction event.
◦ In the last 500 million years, there have been five occasions when 75-90% of all species have gone
extinct, in what is called a mass extinction.
◦ Data collected as part of the IUCN‘s report shows that 77 of the species who are most in danger have lost
94% of their populations in the last century.
◦ More than 400 species of vertebrate became extinct in the last 100 years, a figure that would take
around 10,000 years to reach in the normal course of evolution.
◦ Experts warn that ‗extinction breeds extinction‘, as species reliant on lifeforms that become extinct also
suffering as a consequence.
Circles of Sustainability
Circles of Sustainability is a method for
understanding and assessing sustainability,
and for managing projects directed towards
socially sustainable outcomes.
The method is mostly used for cities and

urban settlements.
It is a method for understanding urban

politics and urban planning, as well as for
conducting sustainability analysis and
profiling sustainable development.
Operations Issues in Supply Chain
Management:
Topics :

Management:
◦ Demand Forecasting,
◦ Resource Planning Systems;
◦ Inventory Management;
◦ Process Management:
◦ Lean and Six Sigma in the Supply Chain
Demand Forecasting
• Year 2014: Walgreens had a $1 Billion
forecasting blunder that led to the exit of two
executives.
◦ Year 2001: Nike had a demand planning
software implementation failure that led to a
$100 million loss in sales.
◦ Demand forecasting forms an essential

component of the supply chain planning.
◦ It‘s the driver for almost all supply chain related
decisions.
◦ Demand forecasting is one of the most difficult
aspects of supply chain planning.
◦ Demand is often volatile making demand
forecasting both an art and a science.
Demand Forecasting
◦ Demand forecasting is a field of predictive analytics which tries to understand and predict customer
demand to optimize supply decisions,
◦ Demand forecasting in supply chain management refers to the process of planning or predicting the
demand of materials to ensure that the right products and in the right quantities is timely delivered to
satisfy customer demand without creating a surplus.
◦ Forecasts are determined with complex algorithms that analyze past trends, historic sales data, and
potential events or changes that could be factors in the future
◦ Demand forecasting is central to decision making and operations in organisations.
◦ As the volume of forecasts increases, due to an increased product customisation (more SKUs ), or a
reduction in the length of the forecasting cycle, there is a pressing need for reliable automated
forecasting.
◦ The demand for a particular product or service is typically associated with uncertainties that can make
them volatile and challenging to predict.
◦ Demand unpredictability is the managers' concerns in the supply chain that can cause large forecasting
errors, issues in the upstream supply chain and impose unnecessary costs
Characteristics of Forecasts
“I think there is a world market for maybe five computers.” (Chairman of IBM, 1943)
“Computers in the future may weigh no more than 1.5 tons.‖ (Popular Mechanics, 1949)
“There is no reason anyone would want a computer in their home.” (President, DEC, 1977)
◦ 1. Forecasts are always inaccurate and thus should have both the expected value of the forecast and a measure
of forecast error.
◦ 2. Long-term forecasts are usually less accurate than short-term forecasts. ( Long Term > Higher Std. Dev.)
◦ 3. Aggregate forecasts are usually more accurate more accurate than disaggregate forecasts.
Example: GDP, Population of a country.
◦ 4. The farther up the supply chain a company is ( from consumer ), the greater the distortions of information it
receives ( Bullwhip effect). Collaborative forecasting based on sales to the end customer helps upstream
enterprises reduce forecast error.
The Importance of Demand Forecasting
◦ Improper forecasting can have significant negative short term and long term impacts on a business's longevity
and success.
◦ When a demand forecasting process accurately predicts future customer demand, businesses are much more
efficient, effective, and productive.
Many business planning processes and business decisions are directly affected by demand forecasting:
◦ Employee scheduling
◦ Cash flow
◦ Capacity planning
◦ Supply chain management
◦ Inventory planning
◦ Market research
◦ New product formulation
◦ Inventory control
◦ Risk assessment
◦ Performance evaluation
Impacts of Demand Forecasting on Supply
Chain Management
1. Improved supplier relations and purchasing terms:
◦ Demand Forecasting drives the raw material planning process which facilities the Purchasing Managers to
release timely purchase order to suppliers.
◦ Visibility and transparency of raw material demand improve supplier relations and empowers Purchasing
Managers to negotiate favorable terms for their companies.
2. Better capacity utilization and allocation of resources:
◦ Based on the current inventory levels, raw material availability and expected customer orders, production
can be scheduled effectively.
◦ This leads to improved capacity utilization and judicious allocation of manufacturing resources.
3. Optimization of inventory levels:
◦ A proper Demand Forecast provides vital information for driving the desired raw material, WIP and finished
goods inventory levels.
◦ This reduces the Bullwhip effect across the Supply Chain, leading to optimization of inventory levels and
reduction in stock-out or over-stocking situations.
Impacts of Demand Forecasting on Supply
Chain Management
4. Improved distribution planning and logistics:
This is particularly evident in businesses dealing with multiple SKUs and wide distribution networks.
Distribution and Logistics Managers are enabled to balance inventory across the network and negotiate favorable terms with
Transporters.
5. Increase in customer service levels:

With optimized inventory levels and improved Distribution Planning and Logistics, customer service metrics like on-time
delivery (OTD), on-time in-full (OTIF), case-fill/fill-rate, etc. are improved due to right sizing and right positioning of inventory.
6. Better product lifecycle management :

Medium to long range Demand Forecasts provide better visibility of new product launches and old product discontinuations.
This drives synchronized raw material, manufacturing and inventory planning to support new product launches and most
importantly, reducing the risk of obsolescence of discontinued products.
7. Facilitates performance management:

Management can set KPIs and targets for various functions like Sales, Finance, Purchase, Manufacturing, Logistics, etc.
based on the medium to long range plans derived from the Demand Forecasting process.
Organizational efficiency, effectiveness, and improvement initiatives can be designed for key areas of the company.
Core Components of Demand Management
https://blog.arkieva.com/demand-management-best-practices/ 3 slides
1. Gather data and institutionalize one source to create a demand management repository.
◦ The starting point is determining what data is available and establishing a method to securely capture and store
it in a repository. This includes current orders, shipment history, prior forecasts, current estimates, etc.
◦ Knowing what data you need requires knowing what methods you will use to create demand estimates, this
drives an iterative process. It is critical to ensure everyone in the organization uses this common source.
2. Capture information from the sales force.

◦ This component enables the sales force to input and reviews its estimates of demand in a controlled process at
different levels of aggregation.
3. Manipulate, Mold, and Analyze (MMA).

◦ It is critical to have software that enables all participants to access the data they are entitled to see and
manipulate as well as mold it as desired.
◦ Typical MMA activities include filters, dynamic hierarchies, aggregation/disaggregation, tree structures, slices,
drill downs, comparisons, tracking changes over time (orders moved in or been pushed out), etc.
◦ These must be seamlessly integrated with analytics and visualization that supports department preferences.
Core Components of Demand Management
4. Developing and implementing set of methods to create a demand estimate or forecast.
◦ For simplicity we will assume the end result is a ―point‖ estimate – for each product or logical grouping, a
single estimated value is agreed upon for each time period (day, week, monthly).
◦ All quality forecasts require the successful collaboration between individuals with their varying expertise
and analytical methods. Management must nourish collaboration, each member.
◦ Without the right software to support collaboration, real collaboration is dead on arrival.
◦ A mechanism for ongoing evaluation and alerts.
◦ Typically, a complete new forecast is done once a month. In between it is critical there is a monitoring and
alert process in place.
Best Practices Demand Management
Observations
1. Measure forecast accuracy consistently and 5. Isolate the cause of variability. For example, the
adjust. product level forecast may be highly variable;
breaking out the data to ship-to level may indicate
2. Begin with a clear understanding of your demand the variability is limited to a few customers.
streams: historical patterns; differences between
customers or products; geographic patterns, etc. 6. Creating a quality demand estimate is hard work!
In the early stages, avoid evaluating how much
demand can be met through marketing programs. 7. Working with a firm experienced in the software
and creating the methods can be of immense help.
3. Understand the difference between precision and
accuracy. ?
4. Use the forecasting methods appropriate for each
product group (segment ). Sometimes the drive for
consistency will lead a business to use the same
forecasting method for every item – this is a recipe
for disaster.
Demand Sensing
◦ Demand sensing is a forecasting method that leverages new techniques such as Artificial
Intelligence, machine learning and real-time data capture to create an accurate forecast of demand based
on the current realities of the supply chain.
◦ Traditionally, forecasting accuracy was based on time series techniques which create a forecast based on
prior sales history and draws on several years of data to provide insights into predictable seasonal
patterns.
◦ However, past sales are frequently a poor predictor of future sales.
◦ Demand sensing is fundamentally different in that it uses a broader range of demand signals (including
current data from the supply chain) and different mathematics to create a more accurate forecast that
responds to real-world events such as market shifts, weather changes, natural disasters and changes in
consumer buying behavior.
◦ Demand sensing software has been developed by several different companies such
as Gartner, Netstock, GEP, SAP among many others.
Demand Sensing
Demand sensing is the future of short-term
forecasting - by Sara El Mekkaoui
https://www.youtube.com/watch?v=4BqV2
mTHcDI 6:27 minutes
Demand Sensing in SAP IBP - What Does

Demand Sensing Do
https://www.youtube.com/watch?v=OsL6Gt0W3Yc
10;33 minutes
Improve Forecast Accuracy with Demand
Sensing
https://blog.arkieva.com/demand-sensing/ 3 slides
Effective application of demand sensing can help reduce short-term forecast errors by up to 40 to 50 percent and increase
inventory accuracy by up to 15 to 20 percent. And for wide distribution networks, in-transit inventory can be re-positioned,
and regional inventory can be re-balanced to optimize the inventory distribution as per regional demands.
Methods to effectively use demand sensing to improve forecast accuracy :

1. Use point of sale customer order data for short-term forecasting
Point of sale data at retail stores is the most established method of demand sensing. POS data has vital real-time
information like the product sold, quantity, date and time, region, etc.
Consolidated POS data can be compared to short-term forecast and deviation beyond the agreed norms can be used to
adjust the short-term forecast.
2. Analyze order history to sense demand for B2B manufacturers

While point of sale data is valuable in improving the demand signal at the tail end of the supply chain, for manufacturers
further removed from the point of sale or end customer, inventory buffers along the supply chain tend to make POS data
unreliable.
For the upstream manufacturer, improving forecast accuracy with demand sensing techniques is often achieved
by analyzing historical data including, sales history, open order history, as well as current open orders.
Sensing
3. Track macroeconomic indicators to improve forecasts
Many industries are directly affected by macroeconomic indicators like gross domestic product, overall stock market,
employment data and housing sales data.
Major movements of these macroeconomic indicators can be linked to change in end customer demand. Proactive steps
can be taken to adjust the short-term forecast to avoid missed customer orders or excess inventories.
4. Track competitor promotional offers

One can be caught unexpectedly by last-minute promotional offers and discounts by a competitor. Most companies will have
little or no time to react to such situations.
Marketers can predict the impact in sales due to such competitor moves and adjust the sales forecast accordingly.
5. Take advantage of competitor stock outs by repositioning inventory.

A competitor can face sustained stock out situations due to raw material shortages, quality problems, production
breakdowns, etc. During such phase, their demand shifts to alternative products available on the shelf.
Regional inventories can be re-positioned to cater to this unexpected demand and production can be increased for the short
term.
Sensing
6. Adjust forecasts for changes in weather and natural calamities
Many industries are seasonal and directly affected by weather conditions. Early onset or withdrawal of
certain weather conditions directly affect the sales of the product. Natural calamities also affect sales
of many products.
Adjustment in the short-term sales forecast, raw material procurement, production plan and distribution
plans can be adjusted according to the end customer demand.
Demand sensing is generated from large volumes of structured and unstructured big data.
This data is so large that it‘s impossible to process and analyze the data with traditional tools and
techniques.
Also, expertise is required to collect, sense, interpret and represent the data for effective
implementation. Contact us to get started with your demand sensing initiatives.
Effective Forecasting Process P/204/ Pearson
1. Understand the Objective of Forecasting:

◦ Every forecast supports decisions. Production level, Inventory level, or Order level. All parties affected should be aware.
Example : Walmart, Big Bazaar planning for discount sale.
2. Integrate Demand Planning and Forecasting Throughout The Supply Chain:

◦ Company should link its forecast to all planning activities throughout the supply chain. These include capacity planning,
production planning, promotion planning, purchasing , etc.
3. Identify Major Factors That Influence the Demand Forecast:

◦ Identify demand, supply, and product-related phenomena that influence the demand forecast to decide on the accuracy of the
forecast desired.
◦ Demand ( growing, declining or seasonal ): Supply ( alternate supply sources with short lead time); Product side ( variants of
products, complementary products , new variants being introduced. )
4. Forecast at the Appropriate Level of Aggregation :

◦ Aggregate forecasts are more accurate than disaggregate forecast
5. Establish Performance and Error Measures for the Forecast:

◦ Companies should establish clear performance measures to evaluate the accuracy and timeliness of the forecast.
Forecasting methods used in Supply
Chains https://www.shopify.com/enterprise/forecasting-methods-supply-chain#3a
https://altametrics.com/en/demand-forecasting/methods-of-demand-forecasting.html
Quantitative Methods: Qualitative Methods:

Quantitative projective forecasting methods use In the case of new product or business launches
historical data to estimate future sales. when data is nonexistent or hard to come by, it can
be difficult to make supply chain forecasts.
Working largely on the assumption that the future
will mirror the past, these involve complex Historical data becoming irrelevant or less accurate,
mathematical formulas are typically performed by such as when a global pandemic has skewed
computer software and may include: historical data. That‘s where qualitative forecasting
comes in. :
1. Moving Average Forecasting
1.Historical Analogies
2. Exponential Smoothing
2. Sales force composition
3. Auto-regressive integrated moving average
3. Market Research
4. Multiple aggregation prediction algorithm
4. The Delphi method
5. Life Cycle Modeling
Quantitative Methods of Forecasting
Time-Series forecasting methods:
◦ Last Period Demand
◦ Simple Average
◦ Moving Average
1. Moving Average Forecasting:

◦ Pros: Easy
◦ Cons: Doesn't allow for seasonality or trends
◦ Best for: Low-volume items
One of the simplest methods for forecasting.

This method examines data points by creating an average series of subsets from complete data.
As it‘s based on historical averages, moving average forecasting doesn‘t take into account that recent
data may be a better indicator of the future and should be given more weight. It also doesn‘t allow for
seasonality or trends. As a result, this method is best for inventory control for low-volume items.
2. Exponential Smoothing:
◦ Pros: Easy; takes historical and recent data into account
◦ Cons: Can be prone to lag, causing forecasts to be behind
◦ Best for: Short-term forecasts or non-seasonal items
Picking up where average forecasting leaves off, this method takes into account historical data,
but gives more weight to recent observations. It‘s similar to adaptive forecasting, which takes into
account seasonality.
Variations on exponential smoothing including Holt‘s Forecasting Model ( also called Trend-
Adjusted Exponential Smoothing or double exponential smoothing) and Holt-Winters Method (also
known as triple exponential smoothing), which factors in both trends and seasonality.
Exponential Smoothing Methods : https://www.youtube.com/watch?v=8QmAQkdhMNc 5:36 minutes

Holt-Winter’s Method for Time Series
Analysis
◦ Exponential Smoothing: Simple exponential smoothing as the name suggest is used for forecasting when
the data set has no trends or seasonality.
◦ Holt‘s Smoothing method: Holt‘s smoothing technique, also known as linear exponential smoothing, is a
widely known smoothing model for forecasting data that has a trend.
◦ Winter‘s Smoothing method: Winter‘s smoothing technique allows us to include seasonality while making
the prediction along with the trend.
◦ Hence, the Holt winter‘s method takes into account average along with trend and seasonality while
making the time series prediction.
( Charles Holt and Peter Winter )

3. Auto-regressive integrated moving average (ARIMA):
◦ Pros: Very accurate
◦ Cons: Costly; time-consuming
◦ Best for: Timeframes of <18 months
One method that fits within the ARIMA category is Box-Jenkins. Costly and time-consuming, this time
series forecasting method is also one of the most accurate. It‘s best suited for forecasting within
timeframes of 18 months or less.
The Box-Jenkins Model is a mathematical model designed to forecast data ranges based on inputs from
a specified time series. The Box-Jenkins Model can analyze several different types of time series data
for forecasting purposes.
The Methodology uses differences between data points to determine outcomes.
The methodology allows the model to identify trends using autoregresssion, moving averages, and
seasonal differencing to generate forecasts.
4. Multiple Aggregation Prediction Algorithm (MAPA):
◦ Pros: Prevents over and under-estimating
◦ Cons: Still relatively new; not as proven
◦ Best for: Seasonal items
A relatively new method that‘s specifically designed for seasonality, MAPA smooths out trends to
help prevent over or under-estimating demand. Although not nearly as popular as Holt or Holt-
Winters, research has shown it performs better.
The idea can be summarized as:
◦ Aggregate the time series with various temporal hierarchies (monthly, quarterly, half-year, etc.)
◦ Generate a forecast for each temporal aggregation
◦ Use a disaggregation technique to transform all those high-level temporal forecasts into a single unified
temporality (weekly or monthly).
5. Life cycle Modeling :
◦ Life cycle modeling is a supply chain
forecasting method that analyzes the growth
and development of a new product.
◦ It requires data across different market
groups such as creators, early and late
adopters, and the early and late majority.
◦ The data then determines the future
performance and demand of a specific
product across multiple markets.
◦ This helps brands determine how to distribute
and market products, and how long the
product will be in demand.
Qualitative Methods of Forecasting
In the case of new product or business launches when data is nonexistent or hard to come by, it
can be difficult to make supply chain forecasts.
There‘s also the case of historical data becoming irrelevant or less accurate, such as when a
global pandemic has skewed historical data. That‘s where qualitative forecasting comes in.
Methods include:
◦ 1. Historical analogies
◦ 2. Sales force composition
◦ 3. Market research
◦ 4. The Delphi method
1. Historical Analogies :
◦ Pros: May be more accurate in the mid to long-term
◦ Cons: Poor accuracy in the short-term
◦ Best for: Similar items
Historical analogy forecasting predicts future sales by assuming a new product will have a sales
history parallel to a present product (either one sold by you, or a product sold by a similar
competitor).
A comparative analysis, it has poor accuracy in the short-term, although may be more accurate in
the medium and long-term.
2. Sales Force Composition :
◦ Pros: Fairly easy to collect
◦ Cons: Poor to fair accuracy
◦ Best for: When quantitative methods aren't feasible
Sometimes called ―collective opinion,‖ this method relies on the personal insights and opinions of
experienced managers and staff, gathered as a team exercise. According to Harvard Business Review,
panels of this nature typically have a poor to fair accuracy.
The sales agents forecast the sales in their respective territories, which is then consolidated at
branch/region/area level, after which the aggregate of all these factors is consolidated to develop an
overall company sales forecast.
The sales force composite method is the bottom-up approach where the sales force gives their opinion
on sales trend to the top management. Since, the salesmen are the people, who are very close to the
market, can give a more accurate sales prediction on the basis of their experience with the direct
customers.
3. Market Research :
◦ Pros: Provides insights into your target demographic
◦ Cons: Can be time and/or money intensive
This research may include surveying, polling, or using focus groups of your target demographic.
The market research demand forecasting technique uses customer surveys and questionnaires in
order to predict future demand.
This forecasting technique is ideal for businesses that do not have historical sales data available such
as when a new product is released.
Data supplied from market research initiatives can assist to identify economic indicators and
customer's personal information. This data is invaluable in planning sales or marketing campaigns that
target a specific demographic of customers.
4. The Delphi Method :
◦ Pros: Unbiased
◦ Cons: Reliability is uncertain
The Delphi technique has a strong human bias. The Delphi technique primarily relies on expert opinion and
eventually a unified expert consensus.
In this technique, individual questionnaires are sent to a panel of experts, with responses aggregated and shared
with the group after each round until they reach a consensus. Since the panel doesn‘t collaborate, bias is eliminated
from the process.
This is considered one of the most effective and dependable qualitative methods for long-term forecasting.
One advantage of the Delphi technique is the anonymity it provides, ideally decreasing bias.
Flip side : it limits collaborative potential between businesses and experts.
https://www.youtube.com/watch?v=Axq7hNLOal8 1:36 minutes

Choosing Forecasting Model ?
Which forecasting model a firm should use depends on :
1, Time Horizon to Forecast
2, Data availability
3. Accuracy required
4, Size of Forecasting Budget
5. Availability of qualified personnel
6. Firm‘s degree of Flexibility ( ability to quickly react to changes )
7. Investment Plan ( Large Capital )
What is the best method of supply chain
forecasting?
Regardless of what method of supply chain forecasting you use, there will be inherent errors due
to assumptions, so it‘s impossible to achieve 100% accuracy—although you‘ll generally find that
much like the weather, short-term forecasts are more accurate than long-term forecasts.
There is one thing our experts agreed on, though: Qualitative methods rely on the opinions of
consumers and market or industry experts, which are ultimately subjective and less accurate.
How to Choose the Right Forecasting Technique

by John C. Chambers, Satinder K. Mullick, and Donald D. Smith
https://hbr.org/1971/07/how-to-choose-the-right-forecasting-technique
What makes Supply Chain Forecasting
difficult?
1. Major Events, Political conditions and Changing Regulations
◦ War, Earth quake, Floods , National unrest , Political upheavals – all affect Supply Chain
◦ Suez Canal blockage disrupted the Global Supply Chain
◦ COVID-19 has wreaked havoc on supply chain forecasting systems in more ways than one.
◦ Online shopping became everyone‘s favorite lockdown activity (by May 2020, online orders had nearly
doubled what they were the previous year), supply chains were crippled.
◦ Ecommerce merchants sourcing products or supplies from China saw lead times increase from mere days
to entire months.
◦ Bottlenecks at borders, ports and airports were created by staffing issues and new health regulations,
alongside soaring shipping costs.
difficult?
2. Product Returns :
Free returns are now considered a cost of doing business, but they‘ve also changed how
customers shop. It‘s not unusual for online shoppers to order multiple sizes, colours or products,
find the right fit, and then return the rest.
―The percentage of products being returned and the reasons those returns happen can vary
widely based on the product category you sell and seasonality,‖
―Many brands forget to include returns when forecasting inventory. ―It‘s important to have an idea
of what percentage of returns are able to be restocked and resold.‖
difficult?
3. Trends and changing demand patterns:
Trends and fads come and go and without sufficient stock, you can miss out on a surge in demand
altogether.
For ecommerce merchants with bricks-and-mortar locations, managing these demands can be even
more complex, as customers will change channels where they shop, making it difficult to predict where
to stock inventory.
4. Seasonality of Products :
―Not factoring in seasonality and current events is one of the biggest mistakes I see ecommerce
merchants making when it comes to supply chain forecasting,‖ says Robinson.
―It‘s hard to react to a booming holiday sales period a few weeks before.‖
What makes Supply Chain forecasting
difficult?
5. Supplier or Manufacturer lead time :
―Each supplier—and sometimes each individual SKU—needs a different lead time,‖
In addition to recognizing that different products require different lead times, it‘s important to take into account
warehouse and shipping lead times, which may be affected by overseas holidays.
Chinese New Year may slow fulfillments from China, while holiday peaks may cause peak delays or congestion at
ports, slowing deliveries. This is where building strong relationships and communications with your suppliers
becomes vital.
6. Siloed Data :
Siloed data can affect the accuracy of supply chain forecasting.
―Too many merchants use different software for different parts of their business. Add in working across multiple
websites, marketplaces and fulfilment locations and you can see where the headache comes from,‖
―It‘s worth either investing in all-in-one software to unify your sales and inventory data or putting the hard yards in to
pull it all together via spreadsheets.‖
Resource Planning Systems
Enterprise Resource Planning:
◦ Enterprise resource planning (ERP) refers to a type of software that organizations use to manage day-to-day
business activities such as accounting, procurement, project management, risk management and compliance,
and supply chain operations.
◦ ERP systems tie together a multitude of business processes and enable the flow of data between them. By
collecting an organization‘s shared transactional data from multiple sources, ERP systems eliminate data
duplication and provide data integrity with a single source of truth.
◦ Today, ERP systems are critical for managing thousands of businesses of all sizes and in all industries. To these
companies, ERP is as indispensable as the electricity that keeps the lights on.
ERP Solutions Providers

◦ Some familiar names are leaders in ERP software.
◦ Oracle Corp. (ORCL) originally supplied a relational database that integrated with ERP software developed by SAP
(SAP) before entering the broader enterprise market in a big way in the early 2000s.
◦ Microsoft (MSFT) has long been an industry leader, with many customers using multiple software applications
from the company.
◦ As cloud-based solutions have grown in popularity in recent years, the traditional ERP industry leaders have seen
challenges from upstarts such as Bizowie and WorkWise.
How Does an ERP System Work?
ERP systems work by using a defined, standard data structure. Information entered by one department is immediately
available to authorized users across the business. This uniform structure helps keep everyone on the same page.
For example, say a local food distribution chain has multiple locations that often share stock and personnel. As quality, sales and employee
data from these sites is fed into the ERP system, it‘s formatted to indicate which location it comes from.
Real-time data is then woven into business processes and workflows across departments.
Leaders can see if one location is doing significantly better at avoiding spoilage than a sister site a few towns over and work
to figure out why?
Operations can make sure staffing levels align with traffic patterns. Finance can compare sales to help executives decide
whether to consolidate.
ERP systems deliver the most value when a company has modules for each major business function and ensures timely,
accurate data entry. The more stakeholders have access, the better.
When a company uses business systems from multiple vendors, integrations are generally possible to make data
automatically flow into the ERP.
This real-time data can then be used throughout the ERP to benefit any process or workflow.
ERP in Supply Chain Management
Network of ERP
Roles & Users of ERP
Finance/Accounting :
◦ The accounting team is often the first adopter. This group will track and report on all transactions and
other financial information in the system, including accounts payable (AP), accounts receivable (AR) and
payroll.
◦ With ERP, financial planning and analysis (FP&A) experts — whether a separate role or part of the
accounting department — can turn comprehensive financial data into forecasts and reports on revenue,
expenses and cash flow.
Supply Chain :
◦ Employees focused on operations, a group that includes purchasing agents, inventory planners,
warehouse managers and senior supply chain leaders, rely on the ERP system to ensure a smooth and
continuous flow of goods from supplier to customer.
◦ They count on accurate, detailed information provided by the system to optimize inventory levels, prioritize
orders, maximize on-time shipments, avoid supply chain disruptions and identify inefficient or manual
processes.
Roles & Users of ERP
Sales and Marketing :
◦ An ERP solution can increase the productivity of and drive better results for your sales team by automating
lead management and monitoring the interactions prospects have with your company.
◦ Reps can document discussions and change the status of prospects as they move through the sales
funnel. Using those same records, marketing can automate and manage outreach across all channels,
from email to display ads to social media, and measure the effectiveness of those messages and
channels to better allocate its budget.
Human Resources :
◦ The HR department tracks all employee information and broader workforce trends in the ERP. It can
quickly find contact information, compensation and benefits details and other documents for each
employee.
◦ HR can also monitor metrics like retention by department, average pay by title, promotion rate and other
metrics to better allocate its own staff and assist line-of-business managers.
Benefits of Using ERP in a SCM
1. Efficient Management of Demand & Procurement
◦ ERP automates demand planning, creating demand upon receiving orders. When an order is received, the
software implements scheduling.
◦ Team members are able to see real-time information about how resources are being used in production and can
better plan production jobs and product delivery.
◦ Warehouse resource management, transportation of materials, and other supply chain tasks can be automated
or optimized to improve efficiency as well.
2. Reliable Processing & Documentation

◦ An ERP system can also create invoices, which are sent straight to the customer once products have shipped.
◦ It can create and transmit required import and export documentation required for cross-border shipments.
◦ It automatically collects an archive of shipment and delivery data as well to reduce errors and ensure on-time
delivery and better customer service.
3. Enhanced Collaboration
◦ ERP and supply chain management processes are especially helpful in streamlining coordination between
businesses and vendors.
◦ When suppliers are connected to ERP system, they can work more effectively to meet your goals and
reduce bottlenecks, such as recognizing when certain supply inventories are low and ensuring resource
availability.
4. Increased Visibility
◦ With more visibility and transparency, businesses can create smarter strategies around how they use their
resources, from parts to personnel.
◦ ERP software can give your team a detailed, real-time look into your operations so you can see where
things are going well and where they‘re not, allowing you to target specific inefficiencies for better
outcomes.
5. Complete Visibility of Process Flow:
◦ This is one of the most crucial selling points for any ERP software.
◦ It allows complete access to every process in the business for better traceability. And, it is done by making the
relevant data of each process available to the users.
◦ It eventually leads to streamlined completion of the tasks which enables timeliness delivery and accurate
tracking. The user-friendly interface makes it easy to identify the process flows
6. Improve Planning & Reporting:

◦ ERP software help in improving the planning for business tasks.
◦ It is always a good way to implement ERP software across various departments to get a better view of reporting
for crucial processes and tasks.
◦ This helps the organization to have a standard process of reporting at every step.
◦ The planning and reporting feature helps in generating useful insights quickly to eliminate the scope of
operational and logistical faults.
Benefits of Using ERP in SCM
7. Better Efficiency in Ensuring Timeliness :
◦ ERP software majorly helps in reducing business costs by implementing a comprehensive system for optimizing
operations.
◦ The ERP and SCM integration helps in reducing the time and effort, which is taken up by the employees to
complete their tasks.
◦ The ERP software for supply chain management also supports employees efficiency by assisting them to come
up with more advanced practices for the growth of the business.
◦ This also enables innovativeness and timeliness in terms of delivery and procurement of products.
8. Better Customer Services & Problem-Solving:

◦ The information of consumers and service partners is seamlessly streamlined.
◦ The sales team through the ERP software can focus on building a wide customer base and making stronger
relationships.
◦ The integrated platform can really solve the issue of consumers and service partners in a better way.
9, Cloud Capabilities
◦ Though ERP systems are available as on-premise
solutions, cloud ERP software has become
popular in recent years.
◦ The major benefits of cloud ERP are dedicated
data security and mobility. Using a cloud-hosted
ERP solution means that the system can be
accessed anywhere, anytime on mobile devices
as long as there‘s an internet connection.
◦ This allows for quicker action without the need for
team members to be together, which can be
valuable with the fast-moving aspects of supply
chains.
What Is Inventory Management? Invetopedia
Inventory Management :
◦ The process of ordering, storing, using, and selling a company's inventory.
◦ This includes the management of raw materials, components, and finished products, as well as
warehousing and processing of such items.
◦ The focus is on settings where the desire is to maintain a stock of Inventory that can be delivered to
customers on demand.
Key Points:
◦ Inventory management is the entire process of managing inventories from raw materials to finished
products.
◦ Inventory management tries to efficiently streamline inventories to avoid both gluts and shortages.
◦ Two major methods for inventory management are just-in-time (JIT) and materials requirement planning
(MRP).
Inventory and Inventory System
Inventory—stock of any item/resource used in an
organization. Carried in anticipation of use and
can include:
◦ Raw materials
◦ Finished products
◦ Component parts
◦ Supplies
◦ Work-in-process, etc.
Inventory System—set of policies & controls that

monitor levels of inventory and determines :
◦ What levels should be maintained,
◦ When stock should be replenished, and
◦ How large orders should be.
Objective and Requirement
Objective of Inventory Control: Requirements of an Effective Inventory
Management:
To achieve satisfactory levels of customer
◦ A system to keep track of inventory
service while keeping inventory costs within
◦ A reliable forecast of demand
reasonable bounds
◦ Knowledge of lead times
◦ Improve the Level of customer service
◦ Reasonable estimates of :
◦ Reduce the Costs of ordering , and
◦ Holding costs
◦ Reduce the costs of carrying inventory
◦ Ordering costs
◦ Shortage costs
◦ A classification system
Purposes of Inventory
1.To maintain independence of operations:
◦ Supply of materials at a work centre allows flexibility in operations. Making a new setups are costly.
( Reduce no. of setups).
◦ In Assembly line , it is desirable to have a cushion of several parts within the workstation to compensate /
match shorter performance times and longer performance times
2. To meet variation in product demand:

◦ If the exact demand is known. It may be possible to produce/manufacture exactly meeting the demand. (
But not always economical).
◦ However demand is not completely known, a safety or buffer stock must be maintained to absorb
variation.
3, To allow flexibility in production scheduling:
◦ A stock of Inventory relieves the pressure on the production system to get the goods out.
◦ This causes longer lead times , which permit production planning for smoother flow and lower-cost operating
( larger lot size)
◦ High setup costs favour producing larger no. of units once the setup has been made.
4. To provide a safeguard for variation in raw material delivery time:

◦ When material is ordered from a vendor, delays can occur for a variety of reasons:
variation in shipping time, a shortage of materials at vendor‘s plant, strike at plant, trucks ,
shipment of incorrect or defective material.
5. To take advantage of economic purchase-order size;
◦ There are costs to place an order: office costs like human resources, labour, phone calls, typing , postage, etc.
◦ Larger the order fewer the orders to be written.
◦ Also, shipping costs favour larger orders- Lowest per unit cost.
6. Many other domain- specific reasons :

◦ Depending on the situation, inventory may need to be carried/ maintained.
◦ Example: in-transit inventory is material being moved from the suppliers to customers and depends on the order
quantity and transit lead time.
◦ Example: Inventory bought in anticipation of price changes.
But be aware that inventory is costly and large inventory is undesirable.

Long cycle times are caused by large amounts of inventory, which is also undesirable.
Dependent vs Independent Demand
Independent vs. Dependent Demand:
Independent Demand:
◦ Demand for the final end-product or demand not
related to other items; demand created by
external customers
◦ Finished product A B(4) D(1) Component parts
E(1) E(2)
◦ Independent demand is uncertain
Dependent Demand :
◦ Dependent demand is certain
◦ Dependent C(2) Demand (Derived demand for
component B(1) E(3) parts, subassemblies, raw
materials, etc. used to produce final products)
Inventory Costs
Inventory carrying cost is the total of all expenses related to storing unsold goods. The total
includes intangibles like depreciation and lost opportunity cost as well as warehousing costs.
A business' inventory carrying costs will generally total about 20% to 30% of its total inventory
costs.
In making any decision that affects inventory size, following costs must be considered:
1. Holding ( or carrying) costs:

◦ This broad category includes: the costs for storage facilities, handling, insurance, pilferage, breakage,
obsolescence, depreciation, taxes, and the opportunity cost of capital.
◦ High holding costs favour low inventory levels and frequent replenishment
Inventory Holding Cost
Holding cost is estimated as %age of the cost of product and is the sum of following major
components:
◦ 1. Cost of Capital : This is the dominant component of holding cost for a product. Approach is to evaluate
the weighted -average cost of capital (WACC), which takes into account the required return on the firm‘s
equity and the cost of its debts.
Inventory Holding Cost
◦ 2. Obsolescence ( or spoilage ) Cost :
◦ It is the estimate of the rate at which the value of the stored product drops because its market value or quality
falls. Range : can be virtually zero. Example: Perishables.
◦ Even non-perishables can have high obsolescence rates if they have short life cycles
◦ Examples: Product Life cycle – 6 months, obsolescence rate of 200 %. Crude oil : long time to get spoiled.
◦ 3. Handling Cost:
◦ Handling cost should include only incremental receiving and storage costs that vary with the quantity received.
◦ 4. Occupancy Cost:
◦ If the firm is charged based on number of units held in storage, it is direct occupancy cost,
◦ If extra space is to be hired ( step function ) will cause sudden increase in cost.
◦ 5. Miscellaneous Costs:
◦ Relatively small costs
◦ These include theft, security, damage, additional insurance charges,
Assessment of Inventory Holding Cost
Inventory Holding Costs (Approximate Ranges):
Category Cost as % of Inventory Value

◦ Housing costs (building rent, depreciation, operating cost, taxes, insurance) 6% (3 - 10%)
◦ Material handling costs (equipment, lease or depreciation, power, operating cost) 3% (1 - 3. 5%)
◦ Labor cost from extra handling 3% (3 - 5%)
◦ Investment costs (borrowing costs, taxes, and insurance on inventory) 11% (6 - 24%)
◦ Pilferage, scrap, and obsolescence cost 3% (2 - 5%
◦ Overall carrying cost 26%
Inventory Cost
2. Setup ( or production change) costs:
◦ Setup cost is incurred to configure a machine for a production run. This cost is considered a fixed cost of the associated
batch, so its cost is spread over the number of units produced.
◦ Setup costs include the labor to position tools and materials next to the machine, the labor to configure the machine,
and the scrap cost of test units run on the machine.
◦ The real cost of a setup is the time wasted while a machine is not operational, since this can represent lost income (if
there is a backlog of work).
◦ When setup times have been minimized, this creates more productive capacity, which can generate more throughput for
a business when the setup happens to be associated with a bottleneck operation.
◦ Consequently, there is usually an emphasis on shortening equipment setup times in order to reduce setup costs and
increase throughput.
Setup Costs
◦ Clean-up costs
◦ Re-tooling costs
◦ Adjustment costs etc.
Inventory Costs
3.Ordering Costs :
Ordering costs include payroll taxes, benefits and the wages of the procurement department, labor costs etc.
These costs are included in an overhead cost pool and allocated to the number of units produced in each
period.
◦ Transportation costs
◦ Cost of finding suppliers and expediting orders
◦ Clerical costs of preparing purchase orders
◦ Receiving costs
◦ Cost of electronic data interchange
Inventory Costs
4. Shortage Costs:
Shortage costs, also known as stock-out costs, occurs when businesses become out of stock for various reasons.
When demand exceeds the available inventory for an item, the demand and customer goodwill may be lost.
The associated cost is called shortage cost.
Estimated shortage costs as equal to the product's contribution margin.
If the customer would accept a back order, the cost to the manufacturer is not significant.
Some of the reasons might be as below :

◦ Emergency shipments costs
◦ Disrupted production costs
◦ Customer loyalty and reputation
Total Inventory Cost
Supply Chain Inventory Models
1. Single-Period Model:
◦ One time purchasing decision (Examples: selling T-shirts at a football game, newspapers, fresh bakery
products, fresh flowers)
◦ Seeks to balance the costs of inventory between over stock and under stock.
◦ In a single-period model, items are received in the beginning of a period and sold during the same period.
The unsold items are not carried over to the next period.
• The unsold items may be a total waste, or sold at a reduced price, or returned to the producer at some
price less than the original purchase price.
• The revenue generated by the unsold items is called the salvage value.
SINGLE PERIOD INVENTORY MODEL
https://www.youtube.com/watch?v=189fsLDnWuc 10:33 minutes
Single-Period Model
Single-Period Model
2. Multi-Period Inventory Models :
◦ 2.1 Fixed-order Quantity Model: • Event triggered (Example: running out of stock)
◦ 2.2 Fixed-time period Model: • Time triggered (Example: Monthly sales call )
INVENTORY MODELS | FIXED ORDER QUANTITY & FIXED TIME PERIOD MODE
https://www.youtube.com/watch?v=n98sYRONHEM 5:13 minutes
Inventory Planning and Accuracy
◦ Inventory accuracy is one of the most important aspects of supply chain management.
◦ Valuable resources are tied up in inventory stock.
◦ Knowing exactly what you have and where it‘s located is critical to managing stock, avoiding high carrying
cost and shipping orders to customers efficiently and on time.
◦ Effective and accurate inventory control is crucial to maintaining the right balance between customer
satisfaction and company revenues.
◦ Inventory accuracy is vital to an organisation‘s long-term success. Profits depend on the sale of inventory
stock and if you don‘t know what or how much you are selling then you could be missing an opportunity to
maximize sales.
◦ Having poor and inaccurate inventory control can be costly because it causes issues :
1. unplanned stock-outs, 2. the shipping of wrong products to customers,
3. wasted resources trying to locate misplaced items ,and 4. inventory shrinkage.
Inventory Accuracy
Inventory Accuracy ?
Inventory accuracy refers to how well the inventory records agree with physical count.
◦ Inventory accuracy is a metric that measures the difference between records of warehouse stock and real-life
inventory.
◦ Inventory accuracy is critical for preventing stockouts, shortages, shrinkage, controlling inventory quality, for
maintaining a positive customer experience.
◦ Any inaccuracy can cause a heap of troubles throughout your supply chain. A registered product that doesn‘t exist
could get sold. Your records could show plenty of stock when you‘re down to your last unit.
◦ That‘s why combating inaccurate inventory is so important.
◦ To calculate inventory accuracy, divide the number of counted items that perfectly match by the total number of
items counted.
Cycle Counting:
Cycle counting refers to Physical Count of items in inventory.
◦ Cycle counting is a method of checks and balances by which companies confirm physical inventory counts match
their inventory records.
◦ This method involves performing a regular count and recording the adjustment of specific products. Over time,
they have counted all their goods.
Methods for Inventory Accuracy
1. Get Counting:
◦ Cycle counting is one of the best ways to identify problem areas and to maintain high levels of inventory accuracy.
◦ An effective cycle counting program improve accuracy because of partial physical counts every day until cycled
through your entire inventory stock.
◦ Cycle counting is continuous, when you finish one cycle, start the next.
◦ With cycle counting, you can potentially eliminate the need for full physical inventory counts that disrupts
operations and take employees away from their primary duties.
◦ Cycle counting can be integrated into normal daily operations.
2. Get Tracing:
◦ Traceability is the capacity to track items back to their original source, together with each place the stock moved,
or it was handled. Establish product traceability throughout entire inventory channels by choosing supply chain
partners who offer systems that are compatible with your inventory systems.
◦ Traceability also helps to prevent costly waste by pinpointing the processes where waste occurs.
◦ Improving traceability is a major step in reducing waste.
◦ Ensure that no product is ever moved unless the movement is authorised and recorded.
◦ Without reliable traceability, it‘s difficult for businesses to locate the source of inventory discrepancies.
Methods for Inventory Accuracy
3. Get Automated
◦ Inventory management software saves time and
resources,
◦ It enables greater visibility, better inventory accuracy,
speeds up processes and removes the scope for 3 Ways to Increase Inventory Accuracy
human error.
◦ Technology such as wireless RFID tags and
https://www.youtube.com/watch?v=SoO
sensors improve inventory accuracy. QqV1Udog 5:19 minutes
◦ RFID devices will integrate with a warehouse
management or inventory control systems, updating
data to provide accurate details of the movement and
location of stocked items.
◦ With numerous inventory management systems to
choose from, it is important to select a method that is
right for your specific needs, one that will adapt and
grow with your business.
ABC Classification System
ABC Classification System:
Classifying inventory according to some
measure of importance and allocating control
efforts accordingly.:
◦ A - Very important
◦ B - Moderate important
◦ C - Least important
ABC Classification System

◦ • Demand volume and value of items vary
◦ • Items kept in inventory are not of equal
importance in terms of:
– dollars invested
– profit potential
– sales or usage volume
– stock-out penalties
Inventory Control Strategies
◦ There are various programmes of quality inventory control available for companies to adopt such as :
Just-in-Time ( JIT ), Lean Manufacturing, Six Sigma and Total Quality Management.
What to Select ?
◦ Know your current inventory accuracy rate so that you are aware of what you are working with.
◦ Weigh up the pros and cons of each method to understand the system that will work best for your
business and stick with it.
◦ Ensure that everyone in the company takes ownership of inventory accuracy and that they receive the
necessary training to support and implement inventory control programmes.
◦ Individual business units need to understand how their functional area directly or indirectly impacts
inventory accuracy.
◦ Check your results regularly to make sure you are achieving and sustaining continuous improvement and
inventory accuracy.
Inventory Management Methods
1. Just-in-Time Management (JIT) —

◦ This manufacturing model originated in Japan in the 1960s and 1970s. Toyota Motor (TM) contributed the
most to its development.1
◦ The method allows companies to save significant amounts of money and reduce waste by keeping only the
inventory they need to produce and sell products.
◦ This approach reduces storage and insurance costs, as well as the cost of liquidating or discarding excess
inventory.
◦ JIT inventory management can be risky. If demand unexpectedly spikes, the manufacturer may not be able
to source the inventory it needs to meet that demand, damaging its reputation with customers and driving
business toward competitors.
◦ Even the smallest delays can be problematic; if a key input does not arrive "just in time," a bottleneck can
result.
2. Materials Requirement Planning (MRP) —
◦ This inventory management method is sales-forecast dependent.
◦ Manufacturers must have accurate sales records to enable accurate planning of inventory and to
communicate those needs with materials suppliers in a timely manner.
◦ For example, a Ski manufacturer using an MRP inventory system might ensure that materials such as
plastic, fiberglass, wood, and aluminum are in stock based on forecasted orders.
◦ Inability to accurately forecast sales and plan inventory acquisitions results in a manufacturer's inability to
fulfill orders.
3. Economic Order Quantity (EOQ) —
◦ This model is used in inventory management by calculating the number of units a company should add to
its inventory with each batch order to reduce the total costs of its inventory.
◦ Assuming constant consumer demand.
◦ The costs of inventory in the model include holding and setup costs.
◦ The EOQ model seeks to ensure that the right amount of inventory is ordered per batch so a company
does not have to make orders too frequently and there is not an excess of inventory sitting on hand.
◦ It assumes that there is a trade-off between inventory holding costs and inventory setup costs, and
total inventory costs are minimized.
How to Calculate Economic Order Quantity Model or EOQ Model

https://www.youtube.com/watch?v=A88uoWbxG2M 4:48 minutes
4. Days Sales of Inventory (DSI) —
◦ It is a financial ratio that indicates the average time in days that a company takes to turn its inventory,
including goods that are a work in progress, into sales.
◦ DSI is also known as the average age of inventory, days inventory outstanding (DIO), days in inventory (DII),
days sales in inventory or days inventory and is interpreted in multiple ways.
◦ Indicating the liquidity of the inventory, the figure represents how many days a company‘s current stock of
inventory will last.
◦ Generally, a lower DSI is preferred as it indicates a shorter duration to clear off the inventory,.
◦ The average DSI varies from one industry to another.
Management
Topics to be covered:
◦ Business Process Management
◦ Lean Management
◦ Six Sigma Management
◦ Lean Six Sigma Management
Business Process Management (BPM)
What is business process management (BPM)?
◦ Business process management (BPM) is the discipline of improving a business process from end to end by
analyzing it, modeling how it works in different scenarios, executing improvements, monitoring the
improved process and continually optimizing it.
◦ A business process is an activity or set of activities that will achieve an organizational goal.
◦ BPM is not a one-time task, but rather an ongoing activity that involves persistent process reengineering.
◦ BPM is not a technology. It often involves using intelligent BPM approaches to automate tasks or workflow,
but automation is not required.
◦ Organizations engaged in BPM can choose one of the various BPM methodologies,
which include Six Sigma and Lean Management.
What is the purpose of BPM?
BPM is used on an ongoing basis for business process improvement.
A business process can involve any one of hundreds or thousands of tasks and the workflows and approvals
required to complete the task. Common examples include the following:
◦ Fulfilling a product order;
◦ Updating the associated accounts;
◦ Updating relevant databases;
◦ Approving and remitting an invoice; and
◦ Onboarding a new employee.
It aims to improve the order, insight and efficiency of the collective workflows that make up a business process. BPM
reduces chaos within workflows and eliminates ad hoc workflow management.
The goal for organizations engaged in BPM is to take control of their processes and continually optimize them.
This approach creates a more efficient organization better able to deliver products and services and adapt to
changing needs.
BPM Lifecycle
BPM consists of several steps. Many BPM
experts refer to these five:
◦ Design: Analyze the existing process to see what
can be improved. Then, plan the business
process as it should ideally exist,
using standardization and automation.
◦ Model: Look at how the business process
operates in different scenarios.
◦ Implement.: Execute improvements, including
standardization and process automation.
◦ Monitor.: Track improvements to see how they
perform.
◦ Optimize: Continue to improve the business
process.
Other experts list six or more steps, including

analyze, manage and automate.
Business Process
Management Advantages
BPM is not a one-time task. Processes must be
managed on a continuing basis.
Companies should focus on improving them
from start to finish and not simply look at
individual tasks.
BPM helps managers in the following ways:
◦ Understand the processes that happen within
their organizations;
◦ Analyze them from start to finish;
◦ Continually improve processes and business
strategy;
◦ Have a greater impact on business outcomes;
◦ Adapt business process to market trends and
industry requirements; and
◦ Capitalize on emerging technologies.
Generic BPM Methodology
How it is done today? What steps are taken today to

process that claim, appeal, patient, order…
Why do we do it that way? Is it necessary? Can we do it

better? Can we eliminate that step, consolidate that
activity, automate that work?
OK. Let‘s Fix it and do it better, even if it is only a subset

of things we could do. Every bit of improvement matters.
(Here, BPMS tools can help enforce that we do it the
new way).
Let‘s keep Track of the new process and see how we are
doing compared to the old way.
Is there More we can do? If so, let's repeat the process.

Benefits of Supply Chain BPM
1. Increased customer satisfaction
◦ With the rapid and consistent decision making which BPM makes possible, customers are likely to be
impressed with the speed at which products and services are delivered. In today‘s fast moving digital
world – whether in B2B or B2C businesses – people have gotten used to speedy service and have little
patience for delays.
◦ With the streamlining of processes leading to reduction in errors, customer complaints will be reduced –
freeing up customer service staff for more positive tasks.
◦ This means, supply chains who can deliver the fastest, most consistent service, are likely to attract
customers away from their less efficient rivals.
2. Clear roles and responsibilities

◦ The reduction in the number of processes, and steps within those processes, helps employees at all levels
of an organisation being clear on what is expected of them.
◦ It reduces the chance of any confusion between roles or responsibilities.
◦ Accountability also becomes clearer – with clear roles and responsibilities, mistakes can easily be tracked
to their source, allowing for the quick diagnosis and rectification of any weak spots in the process.
Benefits of Supply Chain Business
Process Management
3. Reduced costs
◦ The automated and streamlined nature of sustainable BPM naturally lends itself to cost saving.
◦ BPM allows for an automation of the decision-making process. This makes it possible for decisions to be made
quickly and consistently within a predetermined set of parameters.
◦ With process related decision-making being automated and centralised, work takes less time to complete, and
products are developed and brought to the supply chain more quickly – leading to a pronounced effect on the
bottom line.
4. Fewer errors
◦ There exists a childhood game – known as ―Chinese Whispers‖ – distortion.
◦ BPM allows for open and clear communication between departments, reducing this effect significantly.
◦ Business processes work in pretty much the same way. the more people in the chain, the greater the distortion
◦ BPM aims to reduce business processes down to the minimum number of processes, with the minimum number
of steps necessary for each.
◦ There will always be some processes that are resistant to standardisation, however by streamlining as many as
possible, the number of links in the chain is reduced, and the chance of costly mistakes is minimised.
Benefits of Supply Chain Business Process
Management
5. Increased employee satisfaction
◦ With streamlined processes, easy to understand and clearly defined roles and responsibilities, the removal of
barriers to communication, top level management support, clear accountability, the agility and flexibility to
respond to new challenges and situations that don‘t fit the mould.
◦ BPM will reduce the stress levels of employees at all levels. People can come to work, knowing exactly what is
expected of them, safe in the knowledge that, if problems arise they won‘t need to wait for requests to pass
through a hierarchy before they can act on them.
◦ With the supply chain running smoothly, satisfied customers, and multi-level cooperation, a business will become
a far more enjoyable environment for its staff. And happy staff work harder.
Conclusion
◦ BPM will become more and more prevalent in supply chain industries as time progresses
◦ Early adopters of BPM are likely to gain an advantage, as customers are likely to be drawn to them as opposed to
their non-BPM enabled competitors.
◦ Therefore, the sooner BPM is adopted, the better it will be for all levels of supply chain business.
Lean Management
Definition of Lean Management:
◦ It is a method aimed at improving a company‘s performance and, more specifically, the quality and profitability of
its output.
◦ Formalised by American researchers at the Massachusetts Institute of Technology (MIT).
◦ ―Lean‖, in effect, means ―no frills‖.
◦ Lean Management optimizes processes by reducing time spent on non-value-added tasks ;
Like -unnecessary operations or transport, waiting, overproduction, etc., ;
causes of poor quality and complications.
◦ There are two main objectives: Complete customer satisfaction and the success of each employee.
◦ The idea is reducing something to the essential, by removing the unnecessary.
Lean management focuses on:

◦ Defining value from the standpoint of the end customer.
◦ Eliminating all waste in the business processes.
◦ Continuously improving all work processes, purposes and people.
Lean Management
The origins of Lean Management: What is Lean Management ?
◦ In the late 1940s, Toyota laid the foundations for
Lean Manufacturing,. https://www.techtarget.com/searchcio/definition/bu
siness-process-
◦ The goal was to reduce processes that did not management#:~:text=Business%20process%20man
add value to the end product.
agement%20(BPM)%20is,process%20and%20contin
◦ Managed to achieve significant improvements in ually%20optimizing%20it.&text=BPM%20is%20not%
terms of productivity, efficiency, cycle time and
profitability. 20a%20technology. 2:11 minutes
◦ Through this significant impact, Lean thinking has
spread to many industries and has evolved into
the 5 core principles of Lean Management as
outlined by the Lean Management Institute. https://edisciplinas.usp.br/pluginfile.php/537
◦ The term ―Lean‖ was coined by John Krafcik (CEO
3958/mod_resource/content/4/krafcik_TEXT
of Google‘s self-driving car project, Waymo, from O_INTEGRAL.pdf 12 pages
2015 to 2021) in his 1988 article ―Triumph of
the Lean Production System‖.
5 Core Principles of Lean Management
To implement Lean Management effectively , follow the 5 core principles of this method.
1. Identify Value
◦ What does every business strive to do? Offer a product or service that a customer is willing to pay for. To do so,
it must add value to its offering as defined by its customers‘ needs.
◦ The value of offering lies in company‘s ability to solve the customer‘s problem and, more specifically, in the part
of the solution that the customer is actively willing to pay for. Any other activity or process that does not add value
to the end product is considered waste.
◦ First identify the value you want to bring to your offering and then define it very clearly. This first step will help
move on to the second one more easily.
2. Map the Value Chain

◦ Map the workflow of your business. This should include all actions and people involved in delivering the end
product to the customer. Identify the steps in the process that do not add any value.
◦ Applying Lean principle will show you where value is being generated and to what extent the different steps in
the process do or do not add value.
◦ Once mapped out your value chain, it is easier to see which processes belong to which teams and who is
responsible for monitoring, evaluating and improving each process.
◦ This overview will allow you to identify and eliminate steps that do not add value.
3. Create a continuous workflow
◦ Once identified the value chain, you will need to ensure that each team‘s workflow remains smooth. This may
take some time.
◦ Developing a product or service involves interdepartmental teamwork. Bottlenecks and interruptions can occur
at any time.
◦ However, by breaking down tasks into smaller chunks and visualizing the workflow, you can easily detect and
remove obstacles to the process.
4. Create a traction system

◦ A stable workflow enables your teams to complete their tasks much faster and with less effort.
◦ However, in order to ensure this stability, create a traction system within the framework of the Lean methodology.
◦ In such a system, work is only produced when there is demand. Thus, resources is optimized: they are only
mobilised when there is a real and concrete need.
◦ Take the metaphor of a restaurant. You go in and you place your order. The restaurateur takes your order and
starts preparing your meal. He does not cook a large quantity of dishes in advance, as there is no real demand
and these potentially superfluous dishes may become wasted resources.
5. Continuous improvement
◦ Once you have completed all the above steps, you have built your Lean Management system. However, be
sure to pay attention to this last and most important step.
◦ Remember that system is not isolated and static. Problems can arise with any of the previous steps. This
is why you will need to ensure that employees at all levels are involved in the continuous improvement of
the process.
◦ There are several techniques for encouraging continuous improvement.
◦ For example, each team can hold a daily meeting to discuss what has been done, what remains to be
done and any obstacles – an easy way to optimize the process every day.
◦ The growing popularity of Lean principles is due to the fact that they focus on improving all aspects of a
work process and involve all levels of a company‘s hierarchy.
Lean Focus on Components of Supply Chain
1. Lean Suppliers:
◦ Prices of Lean Suppliers are lower due to the efficiency of lean processes, their quality has improved to the
point that the inspection at the next link is not needed.
◦ Lean suppliers deliver on time and their culture is one of continuous improvement.
◦ Lean suppliers are able to respond to changes.
2. Lean Procurement:
◦ A key to lean procurement is automation. The term e-procurement relates to automatic transaction, sourcing,
bidding and auctions using Web-based applications.
◦ The key to lean procurement is visibility. Suppliers must be able to see into the customers’ operation and
customers must be able to see into the suppliers’ operations .
3. Lean Manufacturing :
◦ Lean Manufacturing systems produce what the customers want, in the quantity they want, when they want, and
with minimum resources.
◦ Applying lean concepts in manufacturing presents the greatest opportunity for cost reduction and quality
improvement.
Lean Focus on Components of Supply Chain
4. Lean Warehousing :
◦ This relates to eliminating non-value-added steps and waste in product storage processes.
◦ Functions include: receiving material; putting-away/storing; replenishing inventory; picking inventory; packing for
shipment ;and shipping.
◦ Waste can be found in many warehousing processes like ; shipping defects, which creates returns;
overshipment of products; excess inventory, which require extra space ; excess motions and handling;
inadequate information systems.
5. Lean Logistics:
◦ Key areas include: optimized mode selection and pooling orders; combined multi-stop truckloads;
optimized routing ; cross docking ; import/export transportation processes; and backhaul minimization.
◦ These logistics functions need to be optimized by eliminating non-value-adding activities and adding value-adding
activities
6. Lean Customers:
◦ Lean customers have a great understanding of their business needs and specify meaningful requirements.
◦ They value speed and flexibility and expect high level of delivery performance.
◦ Lean customers are interested in establishing effective partnerships with their suppliers.
◦ Lean customers expect value from the products they purchase and provide value to the customers.
Implementing a Lean Supply Chain
Womack and Jones in their seminal work : Lean Thinking provide:
◦ Value must be defined jointly for each product family, along with a target cost based on the customer‘s
perception of value.
◦ All firms along the value streams must make an adequate return on their investments related to the value
stream.
◦ The firms must work together to identify and eliminate muda.
◦ When cost targets are met, the firms along the stream will immediately conduct new analyses to identify
remaining muda and set new targets.
◦ Every participating firms has the right to examine every activity in every firm relevant to the value stream
as part of the joint search for the waste.
Lean Services
Many lean techniques have been successfully applied by services firms.
1. Organize Problem Solving Groups:
◦ Quality Groups; Quality Circles. Example: British Airways used quality teams as a fundamental part of its strategy to
implement new service practices..
2. Upgrade Housekeeping:
◦ It means that only the necessary items are kept in a work area, that there is a place for everything, and that everything
is clean and constant state of readiness.
◦ The employees clean their own areas.
◦ Example: McDonald‘s and Disneyland have recognized the critical nature of housekeeing.
◦ Customers perceive that they are receiving better service.
3. Upgrade Quality:
◦ The only cost-effective way to improve quality is to develop reliable process capabilities.
◦ Process quality is quality at source- it guarantees first-time production of consistent and uniform products and
services.
◦ Example: McDonald‘s is famous for building quality into its service deliver process. Industrialized, part-time , casual
workers.
◦ Quality does not mean producing best, it means consistently producing services : Customers find money‘s worth
Lean Services contd..
4. Clarify Process Flows:

◦ Clarification of process flows can dramatically improve performance.
◦ Example: 1. FedEx changed air flight patterns from origin-to-destination to origin-to-hub. This revolutionalised Air
transport industry.
2. Supermaids sends in a team of house cleaners, each with specific responsibilty, to clean a part of
each house quickly with parallel process.
3. Suburban Season Tickets
5. Revise Equipment and Process Technologies:
◦ Revising technologies involves evaluation of the equipment and processes for their ability to meet the process
requirements,
◦ To process consistently within tolerance, and to fit the scale and capacity of the work group.
◦ Example: 1. A hospital reduced operating room setup time so it had the flexibility of to perform a wider raneg of
operations without reducing the operating room availability.
2. Ticketing processing, Printers , Paper Roll, cartridge, etc
6. Level of the Facility Load:

◦ Service Firms synchronize production with demand. They use various methods to leveling demand so they
can avoid making customers wait.
◦ Example: 1. PRS tickets token number issued, Hospitals Out patients rush, 2. Happy Hours by restaurants
◦ These are examples of creating uniform facility loads. Off-peak discounts and peak-period surcharge
7. Eliminating Unnecessary Activities:

◦ Eliminate a step that does not create value.
◦ Reengineer a step that add value for further refinement, like increase process consistency or reduce the
time to perform the task.
◦ Example: 1. Hospital made checklist for instruments in operation room, 2. Speedy-Lub changed from
drive-in to drive-through; From hoist to Pit
8. Reorganize Physical Configuration:
◦ Work area configurations frequently require reorganization in lean implementation.
◦ Example: Some hospitals reorganized facility like Tests, X-ray and injections in smaller group based on the
type of problem rather than in separate building.
9. Introduce Demand-Pull Scheduling:

◦ Due to the nature of service production and consumption, demand-pull ( customer-driven) scheduling is
necessary.
◦ Example: The original Wendy‘s restaurants – Cook could see the cars enter the parking lot. Putting the
patties on the grill for each car.
10. Develop Supplier Network:

◦ Supplier networks in lean context refers to cooperative association of suppliers and customers working
over long term for mutual benefit.
◦ Example: 1. McDonald‘s biggest food purchasers of world. 2. Manpower supplier and other employment
agencies have established lean type relationships.
Value Stream Mapping
◦ Value stream mapping (VSM) is defined as
a lean tool that employs a flowchart documenting
every step in the process.
◦ It is a fundamental tool to identify waste, reduce
process cycle times, and implement process How to create Value Stream Map effectively
improvement.
https://www.youtube.com/watch?v=KPTOE
◦ VSM helps users create a solid implementation
GnFMCI
plan that will maximize their available resources
and help ensure that materials and time are used 4:53 minutes
efficiently.
Value Stream Mapping
Six Sigma
Six Sigma (6σ) is a set of techniques and tools for process improvement.
◦ Introduced by American engineer Bill Smith while working at Motorola in 1986.
◦ A six sigma process is one in which 99.99966% of all opportunities to produce some feature of a part are
statistically expected to be free of defects. No more than 3.4 occurrences per million events
◦ Six Sigma strategies seek to improve manufacturing quality by identifying and removing the causes of defects
and minimizing variability in manufacturing and business processes.
◦ This is done by using empirical and statistical quality management methods, by hiring people who serve as Six
Sigma experts.
◦ The term Six Sigma originates from statistical modeling of manufacturing processes.
◦ The maturity of a manufacturing process can be described by a sigma rating indicating its yield or the percentage
of defect-free products it creates—specifically, to within how many standard deviations of a normal
distribution the fraction of defect-free outcomes corresponds.
https://www.simplilearn.com/what-is-six-sigma-a-complete-overview-article 8:59 minutes
Additional Reading : https://goleansixsigma.com/wp-content/uploads/2012/02/DMAIC-The-5-Phases-of-Lean-

Six-Sigma-www.GoLeanSixSigma.com_.pdf 15 pages : Go Lean Six Sigma
Bell Curve Depicting Normal Distribution
The 5 Key Principles of Six Sigma
The concept of Six Sigma has a simple goal – delivering near-perfect goods and services.
Business transformation for optimal customer satisfaction
Goals are achieved through a two-pronged approach:

1. Focus on the Customer
◦ This is based on the popular belief that the "customer is the king."
◦ The primary goal is to bring maximum benefit to the customer.
◦ For this, a business needs to understand its customers, their needs, and what drives sales or loyalty.
◦ This requires establishing the standard of quality as defined by what the customer or market demands.
2. Measure the Value Stream and Find Your Problem

◦ Map the steps in a given process to determine areas of waste.
◦ Gather data to discover the specific problem area that is to be addressed or transformed.
◦ Have clearly defined goals for data collection, including defining the data to be collected, the reason for the data
gathering, insights expected, ensuring the accuracy of measurements, and establishing a standardized data
collection system.
◦ Ascertain if the data is helping to achieve the goals, whether or not the data needs to be refined, or additional
information collected.
◦ Identify the problem. Ask questions and find the root cause.
3. Get Rid of the Junk
◦ Once the problem is identified, make changes to the process to eliminate variation, thus removing defects.
◦ Remove the activities in the process that do not add to the customer value.
◦ Streamline functions to achieve quality control and efficiency.
4. Keep the Ball Rolling

◦ Involve all stakeholders.
◦ Adopt a structured process where your team contributes and collaborates their varied expertise for
problem-solving.
◦ Six Sigma processes can have a great impact on an organization, so the team has to be proficient in the
principles and methodologies used.
◦ Specialized training and knowledge are required to reduce the risk of project or re-design failures and
ensure that the process performs optimally.
5. Ensure a Flexible and Responsive Ecosystem
◦ The essence of Six Sigma is business transformation and change.
◦ When a faulty or inefficient process is removed, it calls for a change in the work practice and employee
approach.
◦ A robust culture of flexibility and responsiveness to changes in procedures can ensure streamlined
project implementation.
◦ The people and departments involved should be able to adapt to change with ease,
◦ To facilitate this, processes should be designed for quick and seamless adoption.
The Six Sigma Process : DMAIC
1. DEFINE 2. MEASURE
◦ The Six Sigma process begins with a customer- ◦ The second phase is focused on the metrics of
centric approach. the project and the tools used in the
measurement. How can you improve?
Step 1: The business problem is defined from the How can you quantify this?
customer perspective.
Step 1: Measure your problem in numbers or with
Step 2: Goals are set. What do you want to achieve? supporting data.
What are the resources you will use to achieve the
goals?
Step 2: Define performance yardstick. Fix the
limits for "Y.―
Step 3: Map the process. Verify with the
stakeholders that you are on the right track
Step 3: Evaluate the measurement system to be
used. Can it help you achieve your outcome?
4. IMPROVE
3. ANALYZE : ◦ This process investigates how the changes in "X"
◦ The third phase analyzes the process to discover the impact "Y." This phase is where you identify how you
influencing variables. can improve the process implementation.
Step 1: Determine if your process is efficient and Step 1: Identify possible reasons. Test to identify
effective. Does the process help achieve what you which of the "X" variables identified in Process III
need? influence "Y.―
Step 2: Quantify your goals in numbers. For Step 2: Discover relationships between the variables.
instance, reduce defective goods by 20%.
Step 3: Establish process tolerance, defined as the
Step 3: Identify variations using historical data. precise values that certain variables can have, and
still fall within acceptable boundaries,
For instance, the quality of any given product.
Which boundaries need X to hold Y within
specifications?
What operating conditions can impact the outcome?
5. CONTROL :
◦ In this final phase, determine that the
performance objective identified in the previous
phase is well implemented and that the designed
improvements are sustainable.
Step 1: Validate the measurement system to be
used.
Step 2: Establish process capability.

Is the goal being met?
For instance, will the goal of reducing defective
goods by 20 percent be achieved?
Step 3: Once the previous step is satisfied,

implement the process.
Lean Six Sigma
Six Sigma focuses on reducing process variation and enhancing process control, whereas lean drives out waste (non-value
added processes and procedures) and promotes work standardization and flow.
The distinction between Six Sigma and lean has blurred, with the term "lean Six Sigma" being used more often because
process improvement requires aspects of both approaches to attain positive results.
Lean Six Sigma is a fact-based, data-driven philosophy of improvement that values defect prevention over defect detection.
It drives customer satisfaction and bottom-line results by reducing variation, waste, and cycle time, while promoting the use
of work standardization and flow, thereby creating a competitive advantage.
It applies anywhere variation and waste exist, and every employee should be involved.
INTEGRATING LEAN AND SIX SIGMA
Lean and Six Sigma both provide customers with the best possible quality, cost, delivery, and a newer attribute, nimbleness.
There is a great deal of overlap between the two disciplines; They both approach their common purpose from slightly
different angles:
• Lean focuses on waste reduction, whereas Six Sigma emphasizes variation reduction.
• Lean achieves its goals by using less technical tools such as kaizen, workplace organization, and visual controls, whereas
Six Sigma tends to use statistical data analysis, design of experiments, and hypothesis testing.
SIX SIGMA BELT ROLES & RESPONSIBILITIES
Yellow Belt:
Serves as a basic introduction to Lean Six Sigma for
those new to the domain.
Green Belt:
Intermediate program that prepares you to work on
process improvement projects within a company.
Black Belt:
Advanced program that prepares you to manage and
lead project teams.
Master Black Belt:
Prestigious program that prepares you to educate
others and become a master in the domain.
Improving Supply Chain with Lean Six
Sigma
Lean Six Sigma can help enhance supply chain efficiency in the following areas.
1. Perfect Order Fulfillment –
◦ This is measured in the percentage of orders meeting delivery performance with complete and accurate
documentation and no delivery damage.
◦ Six Sigma methodology can help maximize order fulfillment by identifying where possible problems lie, such as
outdated planning processes and inefficient execution systems.
◦ Lean can then be used to target areas of waste and enhance performance.
2. Reduce Order Fulfillment Cycle Time –

◦ A Lean Six Sigma review of the company‘s order fulfillment system helps identify problems that need to be
addressed.
◦ This review will most likely conclude that some obvious improvements are in order.
◦ Improvement may require system integration, automated picking, automated shipping planning, automated
shipment verification and reduced paperwork.
◦ The Six Sigma DMAIC cycle can help improve current processes; DMADV can help implement new processes.
DMADV : Define—Measure—Analyze—Design—Verify
Improving Supply Chain with Lean Six
Sigma
3. Increase Supply Chain Flexibility –
◦ Supply chain performance requires a quick response to changes in supply and demand through the ups
and downs of business cycles, as well as during crises.
◦ Companies with the most agile supply chains are those that are tailored to the needs of the customer.
◦ Establishing critical to quality (CTQ) customer requirements in the Define Phase of Six Sigma helps
companies build customer focus and thus flexibility into their supply chains.
4. Zero Errors –
◦ Any supply chain that is losing efficiency because of a high error rate in the system is a prime candidate
for Lean improvement.
◦ The Poka-Yoke or mistake-proofing Lean approach prevents mistakes by forcing the user to do a task one
way. (ATM, Spell Check)
5. Implementing the 5S Lean method –
◦ Sort out, Set in Order, Shine, Standardize, and Sustain – also reduces errors that interrupt the supply
chain efficiency.
Improve Supply Chain with Lean Six Sigma
6. Zero Waste –
◦ Lean methodology was created to eliminate waste, which can be defined as activities that don‘t add value to the
product or customer.
◦ Lean helps supply chains function more efficiently by targeting and eliminating non-value added processing:
◦ Over-production – Producing more ahead of demand as the result of a speculative forecast results in high inventory
costs.
◦ Transportation – Unneeded movement of materials adds to production cost and cycle time. Lean seeks to eliminate
unnecessary transportation.
◦ Non-value added processing – Poor production facility layouts cause additional work that adds no value to the
product. Lean simplifies production to make the supply chain operate more efficiently.
7. Increased Revenue –
◦ Organizations that use Lean Six Sigma to make their supply chains operate more efficiently are able to provide a
consistent service level to their customers.
◦ Dependable service leads to satisfied customers, which gives organizations more pricing power and higher
revenues.
◦ Organizations can create a competitive advantage, increase revenue and improve employee morale.
Distribution Management
Distribution management refers to the process of overseeing the movement of goods from supplier or manufacturer to point of sale. It is an overarching term that refers to numerous activities and processes
such as packaging, inventory, warehousing and logistics.
• Distribution management is an important part of the business cycle.
• The profit margins of businesses depend on how quickly they can turn over their goods. The more they sell, the more they earn, which means a better future for the business.
• Having a successful distribution management system is also important for businesses to remain competitive and to keep customers happy.
Key takeaway:
• Distribution management manages the supply chain for a firm, from vendors and suppliers to manufacturer to point of sale, including packaging, inventory, warehousing, and logistics.
• Adopting a distribution management strategy is important for a company's financial success and corporate longevity.
• Distribution management helps keep things organized and keeps customers satisfied.
Distribution management is critical to a company's ability to successfully attract customers and operate profitably.
Executing it successfully requires effective management of the entire distribution process.
The larger a corporation, or the greater the number of supply points a company has, the more it will need to rely on automation to
effectively manage the distribution process
Understanding Distribution
Management Distribution vs. Logistics:
Logistics:
Logistics deal with the overall strategy and planning of the flow of goods and processes involved in the
effective supply and transportation of goods
Logistics includes activities and processes such as supply management, bulk and shipping packaging,
temperature controls, security, fleet management, delivery routing, shipment tracking and warehousing.
Distribution:
Distribution is a management system within logistics that is focused on order fulfillment throughout
distribution channels.
A distribution channel is the chain of agents and entities that a product or service moves through on its way
from its point of origin to a consumer.
Examples of distribution channels include e-commerce websites, wholesalers, retailers and 3rd party or
independent distributors.
Distribution includes activities and processes such as commercial packaging, order fulfillment and order
shipping.
Importance of Distribution
Management in SCM
Distribution:
The Steps taken to move and store a product from the supplier stage to customer stage. Distribution occurs between every pair of stages in the Supply Chain.
Distribution is a key driver of the overall profitability
It directly affects both Supply Chain Cost and Customer Value.
Example:
• In apparel retail industry, distribution affects about 35% of the Revenue.
1.
• 2. In Cement distribution cost is 30% of cost of production and selling.
Two of the World‘s most profitable companies have built the entire business around outstanding distribution design and operations.
Examples:
• . 7-Eleven, Japan : Effective distribution provides a very high level of customer responsiveness at a reasonable cost.
1
• 2. Walmart : Distribution helps to provide high availability levels of relatively common products a very low cost.
Appropriate Distribution network is used to achieve a variety of supply chain objectives: Low Cost to High Responsiveness.
◦ Example: Dell 2007 PC direct to customers, waiting time vs HP PC walk away from stores;
◦ Apple Computer opened many retail stores.
Firms have many options when designing the distribution network .

Customer Value affected by Structures of Distribution
Network
Customer Value is affected by various factors.
But here we are discussing the elements of customer service
influenced by structure of the Distribution Network:
1. Response Time: It is the amount of Time it takes for customer to receive an order
2. Product Variety: It is the number of different products or configurations that are
offered by distribution network.
3. Product Availability: It is the probability of fulfilling a customer order from inventory.
4. Customer Experience: It is the ease with which customers can place and receive
orders and the extent to which this experience is customized. Also experiential aspects (
getting a cup of Coffee)
5. Time to Market: It is the time it takes to bring a new product to the market. (Zara)
6. Order Visibility: It is the ability of customers to track their orders from order
placement to delivery.
7. Returnability: It is the ease with which a customer can return unsatisfactory
merchandise and the ability of the network to handle such returns.
Factors & Channels of
Distribution
5 Factors That Influence Distribution Management What Are the 4 Channels of Distribution?
There were historically three distribution channels: Wholesaler. Retailer and Distributer
Many things can influence distribution management. The five most common factors are:
Wholesaler:
1. Unit perishability – if it‘s a perishable item then time is of the essence to prevent loss, Goods are distributed from manufacturers to wholesalers in this channel. For example, manufacturers distribute their brands of products to
wholesalers.
2. Buyer purchasing habits – peaks and troughs in purchasing habits can influence distribution patterns and therefore varying
distribution needs that can be predicted, Retailer:
3. Buyer requirements — e.g. changes in a retailer‘s or manufacturer‘s just in time inventory demands, Goods are distributed from manufacturer or wholesaler to retailers. For example, big name designer clothing and accessories are
distributed to higher end retailing chains such as Neiman Marcus, Nordstrom and Macy‘s.
4. Product mix forecasting – optimal product mixes vary according to seasons and weather or other factors and
Distributor:
5. Truckload optimization – relies on logistics and fleet management software. To ensure every truck is full to capacity and routed
according to the most efficient path. This channel moves goods from the source or manufacturer to an authorized distributor. For example, a Ford factory distributes various Ford
makes and models to authorized Ford dealerships for sale to consumers or company fleets.
Ecommerce:
This is the newest and most disruptive distribution channel wherein goods and services are represented virtually online and then distributed
directly to the buyer. Ecommerce as a fourth channel has led to rapid changes and makes distributors rethink their traditional strategies.
5 top Distribution Strategies utilized in
Supply Chain Management
1. Intensive Distribution 3 . Selective Distribution
The intensive distribution strategy makes a product available at every outlet plausible. The primary objective Whereas intensive distribution targets all outlets available and exclusive distribution uses a sole distributor,
of intensive distribution is to reach as much of the market as possible. selective distribution occurs when a limited number of selected outlets are chosen.
Businesses that engage in mass marketing may prefer the intensive distribution method. Both fast moving The selective distribution strategy is an ideal choice for businesses that are looking for a middle point
consumer goods and consumer durable products are suitable for intensive distribution. between intensive and exclusive distribution strategies.
An intensive distribution strategy is commonly undertaken when there are many competitors for a product
and if a specific distributor does not supply the product a customer will likely purchase the product from a
competitor instead. If increased product availability will result in more sales, intensive distribution is an ideal
strategy for a business to choose. 4. Direct Distribution
2. Exclusive Distribution Direct distribution occurs when a business sends an item directly to an end customer. Alternatively, direct
distribution can refer to a very short supply chain process.
Certain companies chose to work with a sole exclusive distributor concerning their products reaching end
customers. Exclusive distribution is useful for companies that deal with high value goods and have an eCommerce merchants and retail businesses commonly utilize direct distribution methods.
excellent brand reputation.
Direct distribution can be much more cost efficient and less time consuming than indirect distribution
Exclusive distribution is preferable for businesses that customers are willing to travel to and have a high methods.
emotional investment in. For example, a luxury clothing brand may only have storefronts in select
regions, catering to a customer base that has the time and money needed to acquire their products.
5. Indirect Distribution
Exclusive distribution is advantageous for avoiding competition in the market. Due to an exclusive agreement
made between distributors and the brand, distributors are not at risk of partnering with competing brands.
With a decreased need to focus on its distribution base, the brand can instead focus on its marketing Instead of a product going directly from a supplier to an end customer, indirect distribution occurs when a
initiatives and promotional activities. product travels between multiple providers. As a result, indirect distribution methods generally result in a
longer supply chain.
As the global supply chain expands and grows, indirect distribution is becoming more widespread.
In fact, it is not unusual for a product to go through dozens of distribution centers throughout its supply chain
journey.
What is a Distribution Network?
A distribution network can be seen as the flow of goods from a producer or supplier to an end consumer.
The network consists of storage facilities, warehouses, and transportation systems that support the movement of
goods until they reach the end consumer.
The process of ensuring the consumer receives the product from the manufacturer is done through direct sales or by
following a retail network.
Depending on the size of an enterprise or business, distribution networks vary in structure and sizes. Companies like
Amazon or Apple are likely to own more sophisticated and complicated distribution networks, transportation, and
logistics systems.
When defining the structure of a distribution network, the most crucial factors are the product demands of the end
customer, customer experience, product variety and product availability, response time, and product returnability.
Building the Ideal Distribution
Network or Model
Distribution networks transform over time as businesses expand and aim to reach more consumers. Therefore, they need to be set up in a way that allows for
long-term optimization.
In order to determine the ideal and efficient distribution network and supply chain, the satisfaction of customer demand comes into play.
Satisfying overall customer demand has to be done at low costs and required service levels. It requires strategic planning and specialized supply chain
management.
Distribution networks are built by considering all key service and cost drivers.
◦ One of the most important drivers for distribution and supply chain modeling is customer location. Businesses need to identify where their customers are located in order to find a
distribution structure that works efficiently, at a cost that is low and will not result in a large impact on the price of the product for the end consumer. The location of the customer
allows for logistics planning.
◦ Another key driver is the order quantity and frequency. It is pivotal for a business to know how often consumers purchase a product and the purchase volumes associated with the
product. It helps in inventory delivery management.
◦ Transportation costs and the mode of transportation required are also key drivers in building a distribution model. Determining the order frequencies and the location of consumers
aid in determining the right type of transport needed and the costs associated with the transportation modes and vehicles required.
◦ Warehousing is also an important driver in designing an efficient distribution network. The business must determine the ideal warehouse locations, size, ease of access, and costs,
to ensure that the right selection is made to best suit the distribution needs and ensure overall customer satisfaction.
◦ In cases where the goods are being exported or imported, it is also important for the businesses to identify points of entry.
◦ Other key drivers include factory and supplier locations and service level requirements.
Distribution Network Design
Benefits of Deciding on a Distribution Network • Performance of a distribution Network is evaluated along
two dimensions:
– Value provided to the customer
The two forms of distribution that a manufacturer can decide on are either direct distribution – Cost of meeting the customer needs
or indirect distribution.
Direct distribution is a direct sale from the manufacturer to the end consumer, whereas the
indirect distribution involves setting up or linking to an existing distribution network, which
normally encompasses warehousing, etc.
• Changing the Distribution Network design affects following
Supply Chain Costs:
The benefits of making use of existing distribution networks or setting one up include:
1. Inventory
1. Reduction in costs:
2. Transportation
3. Facilities
◦ Setting a new distribution point could be costly for certain businesses and manufacturers. An
existing distribution network provides speed and ease, as well as increasing reach for products 4. Information
(geographically), thereby eliminating the costs and challenges associated with time, human
resources, and capital required.
2. Greater customer reach
An efficient distribution network allows for wider customer reach because it should
ideally enhance the speed at which products reach the end consumer and opens up
opportunities to reach other geographic areas.
Interplay of various Drivers
Relationship between number of
facilities and Transportation cost
2. Domestic and Global Logistics
Domestic logistics:
• It is the process of managing the flow of goods through the supply chain, from the place where they are made to the
place where they are consumed ( Domestic Market).
• It involves tracking and coordinating the flow of goods and services from their sources until the customer receives a final product within the same country.
• In managing domestic supply lines, all the production and transporting takes place within a single set of national borders
• Example: It might involve shipping seeds and fertilizer to farmer, sending harvested grain to a processing mill, trucking flour to an industrial bakery, sending containers full of loaves of bread to a
distribution center, and then delivering them to restaurants.
Global logistics:
• Global logistics involves the movement of goods—by truck, train, ship, or plane—as well as preparation, packaging and storage of goods in distribution centers and other logistics real estate
facilities.
• The global logistics industry facilitates this worldwide flow of goods.
• In 2016, the global volume of merchandise trade was $16 trillion, according to the World Trade Organization.
• Growth in global logistics is fueled by three fundamental trends:
◦ increasing consumption,
◦ rising e-commerce, and
◦ ongoing reconfiguration of the supply chain to move goods more quickly and efficiently.
CONSIDERATIONS of GLOBAL LOGISTICS
SYSTEM
Time, cost and quality are key drivers of success in global Global logistics requires close and intricate collaboration
logistics. between a host of business partners.
As a consequence, location is a leading consideration.

• Mode of Transportation:
Shipping companies, airlines, railroads and
Other considerations include cost and availability of suitable trucking companies move goods.
labor; presence and reliability of essential business partners;
geopolitical and geographic risk and stability. • Global delivery services manage the
movement of goods.
Because global logistics connects critical components of the • Logistics real estate companies own and
supply chain—from a product‘s point of origin to its point of
consumption—to ensure timely and efficient distribution, location operate facilities that are essential nodes
is a key success factor for distribution centers, transport hubs, for transport, management and storage,
terminals and other infrastructure.
• IT systems: A host of service providers
Typically, the most functional and compelling infrastructure is provide the software, security, labor and
located near or adjacent to highly trafficked transport routes and business intelligence that keep the global
dense population centers to serve large numbers of consumers. logistics system working.
Design Options for a Distribution Network
There are two key decisions when designing a distribution network:

◦ Will product be delivered to the customer location or picked up from a prearranged site?
◦ Will product flow through an intermediary (or intermediate location)?
Based on the choices for the two decisions, there are six distinct distribution network designs that are classified as follows:
1. Manufacturer storage with direct shipping
2. Manufacturer storage with direct shipping and in-transit merge
3. Distributor storage with package carrier delivery
4. Distributor storage with last mile delivery
5. Manufacturer / distributor storage with costumer pickup
6. Retail storage with customer pickup
Link for further Reading:

◦ Book: Supply Chain Management: Strategy, Planning, and Operations; by Sunil Chopra & Dharam Vir Kalra,
OR
◦ https://www.vskills.in/certification/tutorial/design-options-for-a-distribution-network-2/
Manufacturer storage with direct shipping and in-transit merge

Manufacturer Storage with
Direct Shipping Network :
Performance Analysis of
various Factors
Global Location Decisions
Introduction:
• Facility location must be part of the firm‘s
supply chain strategy.
• Companies can locate anywhere in the World
due to increased globalization, technology,
transportation, & open markets.
• Location still matters- industry clusters show
that innovation & competition are
geographically concentrated.
• Global location decisions involve location of
the facility, defining its strategic role, &
identifying the markets it serves
Global Location Strategies
Dr. Kasra Ferdows suggests 6 location types: HBR article From
the Magazine (March–April 1997) (Making the Most of Foreign Factories by Kasra Ferdows)
https://hbr.org/1997/03/making-the-most-of-foreign-factories
1. Offshore factory:
• An offshore factory is established to gain access to low wages or other factors integral to low-cost production.
• Its responsibilities are limited to the low-cost production of specific items that are then exported either for further work or for
sale.
• Such a factory is not expected to be innovative; its managers follow the instructions, methods, and plans handed down to them;
and they rely on others to provide the expertise in new processes, products, and technologies.
• It is relocating the production or assembly of goods to another country.
• Companies usually do this because labor costs in the other country are low and , or raw materials in the other country are cheap.
• Offshore manufacturing specifically means relocating manufacturing abroad and then selling the goods in the company‘s home
country.
2. Source Factory:
The primary purpose for establishing a source factory is low-cost production, but its strategic role is
broader than that of an offshore factory.
A source factory develops and produces a part or a product for a company‘s global markets.
Its managers have greater authority over procurement (including the selection of suppliers), production
planning, process changes, outbound logistics, and product-customization and redesign decisions.
A source factory has the same ability to produce a product or a part as the best factory in the
company‘s global network.
Source factories tend to be located in places where production costs are relatively low, infrastructure is
relatively developed, and a skilled workforce is available.
3. Server Factory
• A server factory supplies specific national or regional markets.
• It typically provides a way to overcome tariff barriers and to reduce taxes, logistics costs, or exposure to foreign-
exchange fluctuations.
• Although it has relatively more autonomy than an offshore plant to make minor modifications in products and
production methods to fit local conditions, its authority and competence in this area are very limited.
4. Contributor Factory
• A contributor factory also serves a specific national or regional market, but its responsibilities extend to product and
process engineering as well as to the development and choice of suppliers.
• A contributor factory competes with the company‘s home plants to be the testing ground for new process technologies,
computer systems, and products. It has its own development, engineering, and production capabilities.
• A contributor factory also has authority over procurement decisions and participates in the choice of key suppliers for the
company.
5. Outpost Factory
• An outpost factory‘s primary role is to collect information.
• Such a factory is placed in an area where advanced suppliers, competitors, research laboratories, or customers
are located.
• Because every factory obviously must make products and have markets to serve, virtually all outpost factories
have a secondary strategic role—as a server or an offshore, for example.
6. Lead Factory
• A lead factory creates new processes, products, and technologies for the entire company.
• This type of factory taps into local skills and technological resources not only to collect data for headquarters but
also to transform the knowledge that it gathers into useful products and processes.
• Its managers have a decisive voice in the choice of key suppliers and often participate in joint development work
with suppliers.
• Many of its employees stay in direct contact with end customers, machinery suppliers, research laboratories,
and other centers of knowledge; they also initiate innovations frequently.
Strategic Roles Summarized
An offshore factory is established to gain access to low wages or other factors integral to low-cost production.
A source factory also is established to gain access to low-cost production; but unlike an offshore factory, it has the
resources and the expertise to develop and produce a part or a product for the company‘s global markets.
A server factory is a production site that supplies specific national or regional markets. Server factory uses government
incentives & low exchange risk & tariff barriers to reduce taxes & logistics costs.
A contributor factory both serves a local market and assumes responsibility for product customization, process
improvements, product modifications, or product development.
An outpost factory is established primarily to gain access to the knowledge or skills that the company needs. Contributor
factory- Firm involved in product development, production planning, procurement decisions, & developing suppliers.
A lead factory has the ability and knowledge to innovate and create new processes, products, and technologies for the
company. Lead factory is source of innovation & competitive advantage of the organization.
Example: Hewlett-Packard‘s successful plant in Singapore, which was established in 1970 as an offshore plant. It took
about a decade and the investment of substantial resources for the factory to become a source plant for calculators and
keyboards, and another decade for it to assume a lead position for keyboards and inkjet printers.
Factors affecting Global Location Decisions
There are 13 major factors identified.
For each major factor a set of specific sub-factors are identified.
The Table of factors and sub-factors covers both quantitative and qualitative aspects relevant
to location decisions and includes operational, strategic, economic, political, social and
cultural dimensions. This comprehensive set of factors and sub-factors is used in the Delphi
study.
https://www.researchgate.net/profile/Bart-
Maccarthy/publication/241701935_Factors_affecting_location_decisions_in_international_operations_-
_a_Delphi_study/links/56523e7908aeafc2aaba9bed/Factors-affecting-location-decisions-in-international-operations-a-Delphi-
study.pdf
Factors affecting Global Location
Decisions
Global Location Strategies Environmental Issues
Critical Location Factors Labor Issues Right-to-work Laws
Regional Trade Agreements & the WTO Access to Suppliers & Cost
Competitiveness of Nations
Utility Availability & Cost
Government Taxes & Incentives
Quality-of-Life Issues
Currency Stability
Land Availability & Cost
Access & Proximity to Markets/Customers
Major factors Influencing Global
Location Decisions
1. Costs:
◦ Overall, costs are the most important factors highlighted in this study. Firms attempt to minimise costs while simultaneously
maximising customer service and this is reflected in location decisions. Christopher (1994) notes that location decisions are a
fundamental factor of profitability in international logistics.
◦ Although wage rates were ranked in the top ten of key sub-factors, this may be significant only for low-value operations such as
textiles and clothing.
◦ Other sub-factors such as the cost of acquiring land in some countries may dominate the decision process in some instances.
2. Infrastructure:
◦ Infrastructure is also of major concern in international location decisions. The intensive competition in today‘s global business
environment results in pressure to reduce the time to bring products to markets as well as demands by customers for higher
levels of quality and improved delivery reliability.
◦ The existence, quality and reliability of modes of transportation, the quality and reliability of utilities and telecommunication
systems have been highlighted in the study.
◦ Adequate modes of transportation are necessary to bring raw materials from suppliers to plants and to deliver products to
markets as quickly and reliably as possible, enabling firms to reduce total cycle time effectively.
◦ Therefore, many firms seek to locate in countries where facilities and utilities are in good condition and are reliable
Major factors influencing
international location decisions
3. Labour characteristic:
◦ location analysis is also driven by labour characteristics. The quality of the labour force is
an increasingly critical issue.
◦ It is also necessary to investigate the availability of workers. In some cases, it may be possible to send skilled workers from a parent company but
recruitment of local workers is usually necessary.
◦ Not only must firms consider the worker availability, they must also consider the attitude and motivation of local workers as this will influence
productivity.
◦ Firms need to investigate local labour characteristics thoroughly for each location alternative before making international decisions
4. Government and Political factors:

◦ This factor was ranked fourth of 13 major factors overall, but here are only a few studies.
◦ Attempt to capture it in location models as it is difficult to measure and analyse (Phatak, 1995). However, in practice, it can prove very important to
the success of organisations.
◦ Sudden changes in a business environment may affect profit and other aspects of business. Chase and Aquilano (1995) agree that political risks in
both the country of location and the host country should have a direct impact on a location decision.
◦ Consistency of government policies towards industrial development could also affect the growth of a business.
◦ It was also noted in this study that the attitude of government to inward investment is a major contribution to the development of business.
Major factors influencing
international location decisions
5. Economic factor:
◦ Economic factors such as tax incentives and tax structure, financial incentives, custom duties, inflation and
interest rates have been receiving more emphasis in location choices and the study has highlighted the
general importance of economic factors. However, surprisingly their sub-factors were not ranked highly.
◦ It was commented that the rankings of economic sub-factors are relevant only for some geographical areas.
◦ It was argued that an additional economic sub-factor – the strength of currency against the US dollar – should
be ranked highly as the fluctuations in exchange rates of currencies could directly affect many international
operations.
◦ Some companies such as Colgate have lost more than ten million dollars from foreign exchange transactions,
whereas others such as Exxon have gained a large amount of money from such transactions (Phatak, 1995).
Major factors influencing Global Location
Decisions
Service Response Logistics
The Primary Concerns of Service Response Logistics
• Service Response Logistics (SRL): The management and coordination of the organization‘s service activities
• The four primary activities of SRL
◦ Service capacity
◦ Waiting times
◦ Distribution channels, and
◦ Service quality
Demand management tactics are important, as services cannot be inventoried & customer demand must be met.
Waiting can be annoying, aggravating, agonizing, frustrating and expensive.

Everyone acknowledges that waiting would be required before final delivery of services, but it‘s always felt that
occupied time is short compared to unoccupied time.
Experts have come out with two laws of service:
1. The first law states that difference of perception of service experience and expectation gives an idea of how satisfied a customer is.
2. The second law states that first impressions can influence the rest of the service experience.
The Primary Concerns of Service
Response Logistics (Continued)
Service Capacity 3. Capacity Management when Demand exceeds Capacity
• Service capacity is the # of customers per day the firm‘s service system is designed to serve To minimize the cost of hiring and laying off employees, the following strategies deal with
periods of high demand:
• When demand exceeds capacity, firms turn away customers or hire personnel to meet
demand ◦ Cross-Training & Sharing Employees
• Hiring, training, supervising, & equipping personnel is costly (≈ 75% of operations costs) ◦ Using part-Time Employees
• Therefore, service managers must forecast demand & provide capacity to meet the forecast ◦ Using Customers- ―Hidden employees‖
demand. ◦ Using Technology
◦ Using Employee Scheduling Policies
Capacity Utilization = Actual customers served per period Capacity ◦ Using demand management techniques
Capacity Mgmt when Demand exceeds Capacity

Capacity Management when Available Service Capacity exceeds
Demand
1. Level demand strategy Instead of disposing of excess capacity, the following strategies deal with low demand:
◦ Capacity remains constant regardless of demand. ◦ Finding other uses for service capacity
◦ Using demand management techniques
2. When demand exceeds capacity: Manage Demand

◦ Queue management tactics deal with excess customers:
Reduce Demand during peak times
◦ Adjusting capacity to meet demand: The fundamental idea
here is to adjust, stretch, and align capacity to match customer demand.
Queue Dynamics Managing Queue Times
Waiting/Queue Times:
Consists of the management of actual waiting time & perceived waiting time
• What is the average arrival rate of the customers?
Managing Perceived Waiting Times: • In what order will customers be serviced?
• What is the average service rate of providers?
Often, Actual demand exceeds forecast of demand & design capacity
• How are customer arrival & service times distributed?
• How long will customers wait before they either leave or lower their perceptions of service quality?
• How can customers wait even longer without lowering their perceptions of service quality?
Maister‘s First & Second Laws of Service:
Managing Queue Times:
Law 1: Satisfaction = (perception – expectation): • Queuing System Design – Service Characteristics:
Customers compare expectations with perceptions. –may result in a trickledown effect where happy 1. Provided either by single server or by multiple servers who act in series or in parallel
customers tell others about it (can work both ways)
2. Multiple servers acting in parallel is referred to as a multiple channel queuing system
3. Multiple servers acting in series is referred to as a multiple phase queuing system
Law 2: It is hard to play catch-up ball:
4. The single channel, single phase configuration is the most basic
First impressions influence the rest of the service experience
• Another characteristic of the service is the time required to complete each of the services provided
(to try to equal or surpass one's opponent in competition)
Waiting time management techniques:
• Keep Customers Occupied

• Start the Service Quickly
• Relieve Customer Anxiety
• Keep Customers Informed
• Group Customers Together
• Design a Fair Waiting System
Waiting Times: Perception and
Reality
Thirty-seven billion hours—that is the approximate amount of time Americans spend waiting in lines every year.
The actual time spent in lines is not really the problem, though.
This means that the actual wait time, no matter how brief or well managed, is not the issue.
The real issue is perceived wait times - how long people feel like they are waiting.
Research from Columbia Business School shows that the number of people in line affects customer behavior more
dramatically than how quickly the line moves.
Customers seem to prefer more lines with fewer people in each line than one long line that feeds into multiple
tellers or cashiers, even if the later is in fact the more efficient system.
Thus, the optimal solution is a system that reduces both the perception and the reality of wait times
Six ways to reduce Queue Waiting
Times
The question is therefore this:
How do businesses ensure their queues are both organized and effective?
Following Six queue management strategies can help to shorten wait times (both actual and perceived) and improve the customer experience.
1. Implement a queue management system with both in-location and virtual queue options.
• Choosing and implementing a queue management system is an ideal first step.
• That‘s because these systems enable a retailer or bank to collect the data they need to drive beneficial immediate and longer-term decisions.
• For example: a good queue management system can help customers by facilitating self-service through a real-time concierge interface.
• Simultaneously, it can help staff by managing customers‘ arrival times and allowing staff to focus on providing the best-possible service during their in-person interactions with customers.
2. Be transparent and keep customers informed.

• Customers mind waiting more when they don‘t know how long their wait will last. For instance, a bank client may come into a local branch on his/her lunch hour, hoping to get in and out and
head back to work. If he/she comes in and there are other people in line ahead, he/she might try to guess how long her wait will be, and that guess will affect his/her decision to stay or go.
• In contrast, if he/she knows he/she will get service before lunch hour is over, he/she is much more likely to stay.
• Banks can avoid wait time uncertainty by making wait times public. A clearly visible display board showing approximate wait times helps keep customers informed.
• It also helps prevent customers from possibly misjudging a long line and leaving.
• When using virtual queues, businesses should also proactively notify customers of their place in line.
• If customers have to continue checking their wait time themselves, the virtual option may cause just as much tension as waiting in person.
• But if they receive convenient notifications that they are ―moving up‖ in line, they are less likely to become frustrated.
Six ways to reduce queue waiting
times
3. Offer Appointment Scheduling.
• Another excellent way to reduce customer uncertainty in relation to wait times is to offer appointment scheduling.
• Open-access scheduling, also known as advanced-access or same-day scheduling, allows customers to choose the time that best works for them.
• This helps that when a customer arrives, they can immediately get the service they need.
• This advance scheduling also gives staff members the opportunity to prepare for the customer‘s visit.
• They can look at the information they have about the customer and be ready with personalized service as soon as the customer arrives.
4. Speed up Service time.

• Overall, staff members can much more quickly and effectively serve a client if they are at least somewhat familiar with the person they are helping.
• Virtual queues and hybrid queues help provide staff with relevant information while also keeping clients engaged.
• With these types of queues, customers can begin their wait by checking in via a digital system and filling in key information, such as their name and details about their orders or services. Initially, this keeps them busy and minimizes their perceived
wait time.
• It also gives the staff relevant information about the customer so they can be prepared to assist them.
• The result is faster service and improved customer satisfaction.
Benefits of virtual queues
◦ Virtual queues provide benefits for both customers waiting in line, and businesses offering the virtual waiting experience.
For customers, a virtual queue provides better service, a more enjoyable waiting experience, and gives them back their time.
◦ Examples:
◦ When used in a retail environment, customers can take this time to browse the store – and potentially add more items to their baskets.
◦ When used in banks, this is a great time to spread awareness about financial products. Ensure that your branch is stocked with both print and
multimedia materials about other products offered.
◦ Since you‘re providing customers with a stress-free waiting experience, virtual queues help you attract and retain more customers.
Six ways to reduce queue waiting
times
5. Use Queue data to optimize staffing and pinpoint staff training needs.
• The information that Queue management systems provide can let managers know what kinds of problems are taking the longest to solve.
• It also helps managers know if staff are adequately trained to handle such problems.
• If a staff member is taking noticeably longer (or noticeably shorter) to serve customers, managers can identify why that is.
• This can be an opportunity to improve training and also evaluate the success of overall training procedures.
6. Provide entertainment or education while customers wait.

• Not all businesses can provide musical water fountains or fancy games
• All businesses can, however, make sure their customers have things to do and look at while they are waiting.
• Wait times are an opportunity to engage patrons. For instance, companies can offer digital signage and video displays of new products or upcoming promotions.
• Banks can offer screens that cycle through financial tips, promotions for specific banking services and products, and information about the bank‘s core mission and areas of
expertise.
• Another way to keep customers engaged is through the use of surveys or fun quizzes.
• There are two benefits of such interactive activities:
◦ (1) They give customers something to do with their wait time while
◦ (2) Also providing valuable customer feedback.
Advantages of Effective Queue Management:
◦ Queues can be complicated to manage. However, when done right, they will not only fulfill customers‘ needs but also benefit banks and retail stores in both short-term and
long-term ways.
◦ By considering ways to reduce waiting times, businesses embrace the potential for improved customer service experiences, increased brand loyalty,
and greater overall efficiency.
Managing Service Quality-
Managing Service Quality-
Service Delivery Process Quality involves an interaction between a customer and a service employee.
Service quality depends on the firm‘s employees to satisfy customers varying expectations.
The Biggest Challenges in Supply Chains
5. Suppliers’ Conflicting Obligations: Independent suppliers all have

Before bothering with the specifics of integration, it’s important to one honest goal - make as much money as possible by taking on as
understand what problems plague supply chains in the first place: many orders as possible. In non-integrated chains, this means they
1. Order Changes and Cancellations: This happens at the end of might have some tolerance for overlap between different customers’
the supply chain, and sends reverberations throughout. The orders. Should one customer decide to increase production, another
retailer is stuck with excess product, the wholesaler deals with suddenly might be out of a production facility because the supplier
fewer orders and backing up inventory, and every other supplier overcommitted.
feels the waves. Consumer whim dictates changes and
cancellations, meaning there’s little way to predict it, and every 6. Adversarial Relationships: Whether for the conflicting obligations
case could have different reasoning.
cited above, or for simple reasons of maintaining secrecy and
2. Workers Unavailable: Companies provide quotes and negotiation advantages, customers and suppliers may have a
production orders based on expected capacity, and when relationship that’s more foe than friend. They don’t share risks or
workers are ill or otherwise unexpectedly absent, that can
dramatically affect a supplier’s capability. This scenario is benefits and lose out on potential gains from working more closely
especially true in the age of automation, where fewer workers together.
are required but each is responsible for overseeing the smooth
production of many more units. 7. Transactional Relationships: Even when not adversarial, supplier
and customer relationships in non-integrated chains could be
3. Production Facility Failure: Like with workers, unexpected
mechanical or software problems with manufacturing plants can “just business,” emphasizing direct delivery and cost with no added
devastate a supply chain, especially if it is operating on just-in- value. Every deal is a new negotiation, focused on the bottom line,
time, Lean manufacturing methodologies. and terribly short-sighted.
4. Late Delivery of Materials: This logistical problem can stem from 8. Limited Communications: Non-integrated supply chains may only
a number of transportation issues, from as mundane as a traffic
collision to as severe as genuine theft and piracy, depending on talk to firms just one or two links away from them, whether up or
which regions the supply chain serves. down the chain. If they have a buying relationship with the link
before them, focused on minimizing cost, and a selling relationship
with the next link, focused on maximizing profit, they can’t learn
about bigger impending problems or greater opportunities further up
or down the chain.
Integration Issues in Supply Chain
Management Book 2 page 281
• Supply chain coordination improves if all stages of the chain • This distortion is exaggerated by the fact that supply chains
take actions that are aligned and increase total supply Chain today produce a large variety of products.
surplus. • Example: Ford produces different models, with several options
• Supply chain coordination requires each stage of the supply for each model. The increased variety makes it difficult for Ford
chain to share information and take into account the impact its to coordinate information exchange with thousands of suppliers
actions have on other stages. and dealers.( 30,000)
• A lack of coordination occurs either because different stages of • The fundamental challenge today is for supply chains is to
the supply chain have objectives that conflict or because achieve coordination in spite of multiple ownership and
information moving between stages is delayed and distorted. increased product variety.
• Different stages of a supply chain may have conflicting
objectives if each stage has a different owner.
• As a result, each stage tries to maximize its own profits,
resulting in actions that often diminish total supply chain profits.
• Not only does each stage focus on its own objectives, but
information is also often distorted as it moves across the supply
chain because complete information is not shared between
stages.
The Bullwhip Effect
• One outcome of the lack of supply chain
coordination is the bullwhip effect, in which
fluctuations in orders increase as they move up
the supply chain from retailers to wholesalers to
manufacturers to supplier.
• The bullwhip effect (the Forrester effect) is

defined as the demand distortion that travels
upstream in the supply chain from the retailer
through to the wholesaler and manufacturer due
to the variance of orders which may be larger
than that of sales.
Bullwhip Effect In Supply Chain
What causes the bullwhip effect in supply How can the supply chain reduce the bullwhip effect?
chain?
• Demand forecast updating: Members of the The bullwhip effect in the supply chain can be reduced through shared
supply chain updating their demand forecasting. knowledge with suppliers and customers. If members of the supply chain
Inaccurate forecasts from over-reliance on can determine what information is causing the overreactions this can be
historical demand to predict future demand resolved. Communications and response times can be improved using
• Order batching: Members of the supply chain modern technology.
rounding up or down the quantity of orders
• Price fluctuations: Usually driven by discounting The bullwhip effect can also be mitigated through actions in these areas:
resulting in larger quantities of purchases. • Reduced lead times
• Rationing and gaming: Buyers and sellers • Revision of reordering procedures/better forecasting methods and visibility
delivering over or under their order quantities tools
• Lead-time issues such as manufacturing delays • Limitations of price fluctuations
• A lack of communication and alignment • Integration of planning and performance measurement
between each link or stakeholder organization in
the supply chain • Foster supply chain communication and collaboration.
Effect and Obstacles of Coordination
The lack on performance due to lack of Coordination
Obstacles to Coordination in Supply Chain
The lack of coordination in a supply chain increases variability and hurts
the supply chain surplus under various heads. There are direct adverse
Any factor that leads to either local optimization by different stages of the
impacts.
supply chain or an increase in information delay, distortion, and variability
within the supply chain is an obstacle to coordination.
Lack of coordination increases manufacturing cost in the supply chain.
If managers in a supply chain are able to identify the key obstacles, they can
Manufacturing cost Impact of the Lack of Coordination: then take suitable actions to help achieve coordination.
• Inventory Cost Increases: High level of Inventory and warehousing
capacity: Higher manufacturing capacity
We divide the major obstacles into five categories:
• Replenishment Lead time Increases: available capacity and • Incentive obstacles :
inventory can not supply the orders, thus high lead time.
• Transport Cost Increases: Surplus transportation capacity need to • Information processing obstacles :
be maintained to cover high-demand periods • Operational Obstacles:
• Labor cost for shipping & receiving Increases: either carry excess • Pricing obstacles :
labour capacity or vary as per demand.
• Behavioral obstacles:
• Level of product availability Decreases: fluctuations in orders make
it harder to supply all distributors and retailers
• Relationship across the Supply Chain Decreases: lack of
coordination has negative effect at every stage and thus hurts the
relationships among different stages of supply chain.
Ref. 1. Book Supply Chain Management by Sunil Chopra & Dharan Vir Kalra, Chapter 10, OR
2. https://phantran.net/obstacles-to-coordination-in-a-supply-chain/
• Incentive obstacles :
• When incentives offered to different stages or participants in a supply chain lead to actions that increase variability and reduce total supply chain profits –
misalignment of total supply chain objectives and individual objectives
• Local optimization within functions or stages of a supply chain
• Sales force incentives
• Information processing obstacles :
• When demand information is distorted as it moves between different stages of the supply chain, leading to increased variability in orders within the supply
chain
• Forecasting based on orders, not customer demand
• Forecasting demand based on orders magnifies demand fluctuations moving up the supply chain from retailer to manufacturer
• Lack of information sharing
• Operational Obstacles:
• Actions taken in the course of placing and filling orders that lead to an increase in variability
• Ordering in large lots (much larger than dictated by demand)
• Large replenishment lead times
• Rationing and shortage gaming
• Pricing obstacles :
• When pricing policies for a product lead to an increase in variability of orders placed
• Lot-size based quantity decisions
• Price fluctuations (resulting in forward buying)
• Behavioral obstacles:
• Problems in learning, often related to communication in the supply chain and how the supply chain is structured
• Each stage of the supply chain views its actions locally and is unable to see the impact of its actions on other stages
• Different stages react to the current local situation rather than trying to identify the root causes
• Based on local analysis, different stages blame each other for the fluctuations, with successive stages becoming enemies rather than
partners
• No stage learns from its actions over time because the most significant consequences of the actions of any one stage occur elsewhere,
resulting in a vicious cycle of actions and blame
• Lack of trust results in opportunism, duplication of effort, and lack of information sharing.
Managerial levers to achieve Coordination
https://phantran.net/managerial-levers-to-achieve-coordination-in-a-supply-chain/ Page 289
Having identified obstacles to coordination, we now focus on actions a manager can take to help
overcome the obstacles and achieve coordination in the supply chain.
The following managerial actions increase total supply chain profits and moderate information
distortion:
◦ Aligning goals & incentives
◦ Improving information visibility & accuracy
◦ Improving operational performance
◦ Designing pricing strategies to stabilize orders
◦ Building strategic partnership & trust
Managerial levers to achieve Coordination in SCM
1. Aligning goals & incentives: • PRICING for coordination:
Suitable pricing schemes can help coordinate the supply chain.
Managers can improve coordination by aligning goals and incentives
so that every participant in supply chain activities works to maximize • A manufacturer can use lot-size-based quantity discounts if large
total supply chain profits. fixed costs associated with each lot.
• For products for which a firm has market power, a manufacturer can
• Aligning goals across the supply chain: Coordination requires use two-part tariffs and volume discounts to help achieve
every stage of the supply chain to focus on the supply chain coordination
surplus or the total size of the pie rather than just its individual
share. Create Win-win situation. • Given demand uncertainty, manufacturers can use buyback,
revenue-sharing, and quantity flexibility contracts to spur retailers to
• Example: Walmart pays Hewlett-Packard (HP) for each printer sold provide levels of product availability that maximize total supply chain
and gives HP the power to make replenishment decisions while limit- profits
ing the amount of printer inventory that can be held at a store. This
setup improves coordination because both parties gain if the supply • Buyback contracts have been used in the publishing industry to
of printers at a store matches demand. increase total supply chain profits. Quantity flexibility contracts have
helped Benetton increase supply chain profits.
• ALIGNING incentives across functions :
• ALTERING SALES FORCE INCENTIVES FROM SELL-IN TO SELL-THROUGH
• All facility, transportation, and inventory decisions should be • Manufacturers should link incentives for the sales staff to sell-
evaluated based on their effect on profitability or total costs, through by the retailer rather than sell-in to the retailer. This action
not functional costs. eliminates any motivation the sales staff may have to encourage
• This helps prevent situations such as a transportation forward buying. Elimination of forward buying helps reduce
manager making decisions that lower transportation cost but fluctuations in the order stream.
increase overall supply chain costs • If sales force incentives are based on sales over a rolling horizon,
the incentive to push product is further reduced.
2. Improving information visibility & accuracy: Implementing collaborative forecasting and planning:
Managers can achieve coordination by improving the visibility and accuracy ◦ Once customer demand data are shared, different stages of the supply
of information available to different stages in the supply chain. chain must forecast and plan jointly if complete coordination is to be
achieved.
SHARING customer demand data:
◦ The key is to ensure that the entire supply chain is operating with a
• Sharing customer demand data across the supply chain can help common forecast.
reduce the bullwhip effect.
• In reality, the only demand that the supply chain needs to satisfy Designing single-stage control of replenishment:
is that from the final customer. If retailers share demand data
with other supply chain stages, all stages can forecast future ◦ Designing a supply chain in which a single stage controls replenishment
demand based on customer demand. decisions for the entire supply chain can help diminish information
distortion.
• Sharing of demand data helps reduce information distortion
because all stages now respond to the same change in customer ◦ Several industry practices, such as continuous replenishment programs
demand. (CRPs) and vendor- managed inventories (VMIs) provide a single-point
control over replenishment.
• Example: Walmart has routinely shared its POS data with its
suppliers. ◦ Walmart typically assigns one of its suppliers as a leader for each major
product category to manage store-level replenishment. This gives
Dell shares demand data as well as current inventory positions of suppliers visibility into sales and a single decision maker for
components with many of its suppliers via the Internet replenishment decisions.
3. Improving Operational Performance: REDUCING LOT SIZES:
Managers can help dampen information distortion by improving ◦ A reduction of lot sizes decreases the amount of fluctuation that can
accumulate between any pair of stages of a supply chain, thus decreasing
operational performance and designing appropriate product distortion.
rationing schemes in case of shortages.
◦ Walmart and Seven- Eleven Japan have been very successful at reducing
REDUCING REPLENISHMENT LEAD TIME: replenishment lot sizes by aggregating deliveries across many products and
suppliers.
• If lead times are short enough, replenishment can be
scheduled to actual consumption, thus eliminating the need for ◦ Managers can reduce lot sizes without increasing transportation costs by filling
a truck using smaller lots from a variety of products
a forecast.
◦ Managers can also reduce lot sizes by using milk runs that combine shipments
• Managers can take a variety of actions at different stages of for several retailers on a single truck
the supply chain: Ordering on line or through electronic data
interchange (EDI).; share long-term plans with suppliers;
RATIONING BASED ON PAST SALES AND SHARING INFORMATION TO
• At manufacturing plants, increased flexibility and cellular LIMIT GAMING
manufacturing can be used to achieve a significant reduction ◦ Managers can design rationing schemes that discourage retailers from
in lead times. artificially inflating their orders in case of a shortage.
• Advance shipping notices (ASNs) can be used to reduce the ◦ ―Turn-and-earn‖ allocate the available supply based on past retailer sales
lead time. rather than current retailer orders
• Walmart has used many of these approaches to significantly ◦ The availability of flexible capacity can also help in this regard, because flexible
capacity can easily be shifted from a product whose demand is lower than
reduce lead time within its supply chain. expected to one whose demand is higher than expected.
4. Designing Pricing Strategies to Stabilize Orders: 5. Building Strategic Partnerships and Trust
◦ Managers find it easier to use the levers to achieve coordination if trust
Information distortion can be reduced by devising pricing strategies that and strategic partnerships are built within the supply chain.
encourage retailers to order in smaller lots and reduce forward buying.
◦ Sharing of accurate information that is trusted by every stage results in
MOVING FROM LOT-SIZE-BASED TO VOLUME-BASED QUANTITY a better matching of supply and demand throughout the supply chain.
DISCOUNTS:
◦ A better relationship also tends to lower the transaction cost between
◦ Volume-based quantity discounts result in smaller lot sizes, thus supply chain stages.
reducing order variability in the supply chain.
◦ A high level of trust allows a supply chain to become more responsive at
◦ Volume- based discounts with a fixed end date at which discounts will lower cost.
be evaluated may lead to large lots close to the end date. Offering the
discounts over a rolling time horizon helps dampen this effect. ◦ Actions such as information sharing, changing of incentives, operational
improvements, and stabilization of pricing typically help improve the
STABILIZING PRICING: level of trust.
◦ Managers can dampen the bullwhip effect by eliminating promotions ◦ Growing the level of cooperation and trust within a supply chain
and using every day low pricing (EDLP). The elimination of promotions requires a clear identification of roles and decision rights for all parties,
removes forward buying by retailers and results in orders that match effective contracts, and good conflict resolution mechanisms.
customer demand.
◦ P&G, Campbell Soup, and several other manufacturers have
implemented EDLP to dampen the bullwhip effect.
What Is Supply Chain Integration?
◦ The integration of supply chain has been around since 1989 and its ◦ Supply chain integration is recognized as an important factor to attain
simple definition can be found as below: superior supply chain performance, as it offers a host of competitive
"Integration of supply chain is how everyone in the team and company advantages – including complete transparency all the way from supplier
and its trading partners work in sync to achieve the same business to customer
objectives via integrated business process and information sharing" ◦ Supply chain integration is a large-scale business strategy that brings as
◦ Supply chain integration means that the information and many links of the chain as possible into a closer working relationship
communication systems of all stakeholders are able to seamlessly with each other.
exchange information through all planning, execution and completion of The goal is to improve response time, production time, and reduce
transport and logistics operations throughout a product‘s life time. costs and waste.
◦ Supply chain integration is a process where all the parties involved with ◦ Every link in the chain benefits.
the fulfillment of a product are integrated into a single system.
This requires significant coordination and alignment in order to ensure ◦ An integration may be done tightly through a merger with another firm
everyone is effectively working toward the same goal at all times. in the supply chain, or loosely through sharing information and working
more exclusively with particular suppliers and customers.
◦ Having the parts required for a product show up where they are needed,
when they are needed, helps to not only prevent delays in the ◦ In the latter case, the supply chain isn‘t truly ―owned‖ by one company,
manufacturing process, but also eliminates a lot of wasted time, storage but the various links operate almost as if one company to increase
space, and more. efficiency and benefit everyone through steady, reliable business.
When done properly, supply chain integration will bring parties that are
often at odds together with a single focus.
https://www.smartsheet.com/integrated-supply-chain-management-vertical-and-horizontal
Horizontal Integration vs. Vertical Integration
Horizontal Integration:
◦ Horizontal integration involves any moves related
to the same ―level‖ of the chain as the
organization making them.
◦ Integration could include merging with or
purchasing firms that supply similar products,
such as a central processing unit (CPU)
manufacturer buying another in order to serve a
larger swath of the CPU market.
◦ This type of relationship could help the firm gain
many more customers, and give them greater
control over the price and supply of CPUs.
Horizontal Integration vs. Vertical Integration
Vertical Integration:
◦ Vertical integration refers to any moves that include
different levels of the chain.
◦ It could involve merging or buying out a link ahead of or
before your organization, or possibly developing your
own capabilities for handling the entire supply chain,
front to back.
◦ For example, if the CPU manufacturer mentioned earlier
also purchased a smartphone product development firm,
they would control more levels of their supply chain - the
major parts and the product.
◦ This type of acquisition could gain the firm greater
control over their costs, give them a larger share of
profits, and reduce waste and time spent in production.
Supply Chain Integration Model
Graham C. Stevens, who was a senior managing consultant at Peat Marwick 4-Stage Integration Model:
McLintock in London published the article called "Integrating the Supply
Chain" in the International Journal of Physical Distribution & Logistics - Baseline: each department in the same company manages supply chain
Management. According to him, companies that manage the supply chain as issues separately. At this stage, "Functional Silo" is a major problem.
one entity would get ahead of the ones who don't. He also suggested a 4- Functional Silo is the way each function works on their own objectives.
stage integration model or framework as below, While it can have some benefits, it is quite inefficient.
- Functional Integration: all the different departments within a company

will work together to help to improve efficiency and reduce cost. This
could be done by combining orders, scheduling jobs together, or other
important steps.
- Internal Integration: All the departments within a company are

connected using the same systems. This will almost always involve using
some type of IT infrastructure solution that allows the departments to
work efficiently together, share their needs, and identify collaboration
opportunities.
- External Integration: The final stage involves external vendors as well

as all of the internal departments. Each company in the same supply
chain joins hands and work together to achieve the same goal to satisfy
the customer service and customer's requirements. Providing a vendor
with system access, and encouraging them to function almost as another
department helps to generate the best possible results. Lean
manufacturing is a good example of successful external integration.
Examples of Supply Chain Integration
In order to understand more about the integration, we will cover 3 - Extended Enterprise: this term appeared in 1993 in the article
works worth mentioning as below: called "Strategic Control in the Extended Enterprise" which was the
result of 40 companies who implemented the information system.
The result of this study was that, when companies embarked on
the information system initiatives,
1. organization boundaries become blurred,
2. the inter-firm relationship got stronger and
3. this change helped to create the new marketing and distribution
channel structure.
- Virtual Integration: in 1998, Harvard Business Review conducted an

interview with Michael Dell and published the article called "The
Power of Virtual Integration". Dell has become the first example of
true "Extended Enterprise" because it used an information system
and a closer relationship with trading partners to create the new
distribution channel called "Direct Model". They simplified inventory
management practices a lot.
- Super Efficient Company: Michael Hammer (2001) explained in

"Supply Efficient Company" that the true challenge was to streamline
the process you share with other companies. In this article, he
explained how real companies incorporated the reengineering
concept to improve integration.
Supply Chain Integration
in Practice
Based on the literature survey, 7 elements have been identified that can
help to improve both internal and external integration as below:
1. It's not just a technology project: The integration is not just about linking
different ERP system together. The concept is more profound and requires the
right mindset.
2. Segment customers and anticipate changing needs: This is how Dell how has
mastered the virtual integration by paying lots of attention to the final customer.
3. Relocate work: In the beginning, Dell knew very well that they couldn't
compete with IBM or HP so they thought they should focus on the core
competency and let the other companies did what they did best.
4. No activity should be done more than once: Michael Hammer suggested that,
by eliminating duplicated activities between companies, they could get the
business results quickly and could maintain momentum.
5. The entire process should be managed in one database: Technically, it doesn't

have to be in one database. But the point is to share the same versions of all
information to all trading partners so people can make an accurate decision
quickly.
6. Trading partners should agree on the same metrics: Unrealistic expectations

can happen in any form of relationship. The clearly defined performance measure
(as in six sigma program) is the best thing to prevent the inter-company conflicts.
7. Encourage face-to-face contact: This is the only collaboration lesson that can't
be found in scholarly articles. Real international business people like Dell
realized that you can't underestimate the power of face-to-face meetings because
it helps a lot with the idea generation.
SCM - Performance Measures
Supply chain performance measure can be defined as an approach to judge the Non - Financials Measures
performance of supply chain system. Supply chain performance measures can
broadly be classified into two categories − The metrics of non-financial measures comprise cycle time, customer service level,
inventory levels, resource utilization ability to perform, flexibility, and quality.
◦ Qualitative measures − For example, customer satisfaction and product
quality. 1. Cycle Time
◦ Quantitative measures − For example, order-to-delivery lead time, supply
chain response time, flexibility, resource utilization, delivery performance. Cycle time or lead time is defined as the end-to-end delay in a business process. For
supply chains, cycle time can be defined as the business processes of interest,
supply chain process and the order-to-delivery process. There are two types of lead
The performance of a supply chain can be improvised by using a multi- times:
dimensional strategy, which addresses how the company needs to provide ◦ Supply chain lead time
services to diverse customer demands. ◦ Order-to-delivery lead time
◦ The order-to-delivery lead time can be defined as the time of delay in the
Quantitative Measures: middle of the placement of order by a customer and the delivery of products to
the customer.
Mostly the measures taken for measuring the performance may be somewhat ◦ In case the item is in stock, it would be similar to the distribution lead time and
order management time. If the ordered item needs to be produced, it would be
similar to each other, but the objective behind each segment is very different the summation of supplier lead time, manufacturing lead time, distribution lead
from the other. time and order management time.
◦ The supply chain process lead time can be defined as the time taken by the
Quantitative measures is the assessments used to measure the performance, supply chain to transform the raw materials into final products along with the
time required to reach the products to the customer‘s destination address.
and compare or track the performance or products. We can further divide the
quantitative measures of supply chain performance into two types. They are −
Lead time compression is a crucial topic to discuss due to the time based
◦ Non-financial measures competition and the collaboration of lead time with inventory levels, costs, and
customer service levels.
◦ Financial measures
Customer Service Level Inventory Levels
The customer service level in a supply chain is marked as an operation As the inventory-carrying costs increase the total costs significantly, it
of multiple unique performance indices. There are three measures to is essential to carry sufficient inventory to meet the customer
gauge performance as follows : demands.
◦ Order fill rate − The order fill rate is the portion of customer demands
that can be easily satisfied from the stock available. For this portion of In a supply chain system, inventories can be further divided into four
customer demands, there is no need to consider the supplier lead time categories.
and the manufacturing lead time. The order fill rate could be with
respect to a central warehouse or a field warehouse or stock at any ◦ Raw materials
level in the system. ◦ Work-in-process, i.e., unfinished and semi-finished sections
◦ Stockout rate − It is the reverse of order fill rate and marks the portion ◦ Finished goods inventory
of orders lost because of a stockout.
◦ Spare parts
◦ Backorder level − This is yet another measure, which is the gauge of
total number of orders waiting to be filled.
◦ Probability of on-time delivery − It is the portion of customer orders that Every inventory is held for a different reason. It‘s a must to maintain
are completed on-time, i.e., within the agreed-upon due date. optimal levels of each type of inventory.
In order to maximize the customer service level, it is important to Hence gauging the actual inventory levels will supply a better scenario
maximize order fill rate, minimize stockout rate, and minimize of system efficiency.
backorder levels.
Resource Utilization Financial Measures
In a supply chain network, huge variety of resources is used. The measures taken for gauging different fixed and operational costs related
These different types of resources available for different to a supply chain are considered the financial measures. key objective:
maximize the revenue by maintaining low supply chain costs.
applications are mentioned below:
◦ Manufacturing resources − Include the machines, material The financial performance indices can be merged as one by using key
handlers, tools, etc. modules such as activity based costing, inventory costing, transportation
◦ Storage resources − Comprise warehouses, automated storage costing, and inter-company financial transactions.
and retrieval systems.
◦ Logistics resources − Engage trucks, rail transport, air-cargo The financial performance of a supply chain is assessed by considering the
carriers, etc. following items −
◦ Human resources − Consist of labor, scientific and technical
Cost of expired perishable goods
personnel. Cost of raw materials .
◦ Financial resources − Include working capital, stocks, etc.
Revenue from goods sold Cost of goods returned by customers
In the resource utilization paradigm, the main motto is : Activity-based costs like the material handling, Penalties for incorrectly filled or late
manufacturing, assembling rates etc. orders delivered to customers
to utilize all the assets or resources efficiently in order to
maximize customer service levels, reduce lead times and Inventory holding costs. Credits for incorrectly filled or late
optimize inventory levels. deliveries from suppliers
Transportation costs. Credits for goods returned to
suppliers
How to Measure Supply Chain Performance
The appropriate metrics to manage and measure the success ◦
In 2017, APICS (the Association for Operations Management)
of a company‘s operation vary significantly by industry, by published the 12th ( current version )of the SCOR model.
individual company, and by the scale of the business. Metadata, block chain, and omnichannel are now also integrated
as evaluation processes.
There are a number of well-known models and frameworks ◦ The supply chain operations reference (SCOR) model is designed
for operations, logistics and supply chain management. Two to evaluate supply chain for effectiveness and efficiency of sales
of the most prominent are the SCOR model and the Balanced and operational planning (S&OP).
Scorecard. ◦ SCM is complex, and S & OP implementation can be difficult, but
the SCOR model is intended to help standardize the process and
create a measurable way to track results. It works across
SCOR Model: industries using common definitions that apply to any supply chain
◦ The supply chain operations reference (SCOR) model helps process.
businesses evaluate and perfect supply chain management ◦ Using the SCOR model, businesses can judge how advanced or
for reliability, consistency, and efficiency. mature a supply chain process is and how well it aligns with
◦ The SCOR model divides the supply chain into ideal business business goals.
processes and process categories.
◦ The first SCOR model was issued by the Supply Chain Council back Balance Score Card
in 1996. Made up of various companies, the association looks to ◦ Balanced Scorecard approach, it was invented by Robert S. Kaplan
optimize the value chain. Today, after several adjustments, the and David P Norton of the Harvard Business School.
SCOR model has become an industry-independent framework for
corporate and supply chain decisions. ◦ A balanced scorecard combines multiple different categories of
measurements that can be used at all levels of the supply chain.
SCOR Model of Performance Measurement
◦ Supply-chain operations reference (SCOR) model is a process reference model
developed and endorsed by the Supply-Chain Council as the cross-industry,
standard diagnostic tool for supply chain management.
◦ The SCOR model describes the business activities associated with satisfying a
customer's demand, which include plan, source, make, deliver, return and
enable.
◦ Use of the model includes analyzing the current state of a company's processes
and goals, quantifying operational performance, and comparing company
performance to benchmark data.
◦ SCOR has developed a set of metrics for supply chain performance, and
Supply Chain Council members have formed industry groups to collect best
practices information that companies can use to elevate their supply chain
models.
◦ This reference model enables users to address, improve, and communicate
supply chain management practices within and between all interested parties
in the extended enterprise.
◦ The model is based on four major "pillars":
◦ Process modeling and re-engineering
◦ Performance measurements
◦ Best practices
◦ Skills
Major Pillars of SCOR Model
Process Modeling and reengineering Performance measurements: (subsequent slide)
The SCOR model is based on six management processes Model: Best practices:
◦ Plan: Planning processes include determining resources, requirements,
and the chain of communication for a process to ensure it aligns with Once the performance of the supply chain operations has been measured
business goals. This includes developing best practices for supply chain and performance gaps identified, it becomes important to identify what
efficiency while considering compliance, transportation, assets, activities should be performed to close those gaps.
inventory, and other required elements of SCM.
◦ Source: Source processes involve obtaining goods and services to meet Over 430 executable practices derived from the experience of Supply-Chain
planned or actual market demand. This includes purchasing, receipt, Council members are available.
assay, and the supply of incoming material and supplier agreements.
◦ Make: This includes processes that take finished products and make The SCOR model defines a best practice as a current, structured, proven and
them market-ready to meet planned or actual demand. It defines when repeatable method for making a positive impact on desired operational
orders need to be made to order, made to stock, or engineered to order results.
and includes production management and bill of materials, as well as
all necessary equipment and facilities. ◦ Current – Must not be emerging (bleeding edge) and must not be antiquated
◦ Deliver: Any processes involved in delivering finished products and ◦ Structured – Has clearly stated Goal, Scope, Process, and Procedure
services to meet either planned or actual demand fall under this ◦ Proven – Success has been demonstrated in a working environment.
heading, including order, transportation, and distribution management.
◦ Repeatable – The practice has been proven in multiple environments.
◦ Return: Return processes are involved with returning or receiving
returned products, either from customers or suppliers. This includes ◦ Method – Used in a very broad sense to indicate: business process, practice,
organizational strategy, enabling technology, business relationship, business
post-delivery customer support processes model, as well as information or knowledge management.
Applying SCOR Model to Supply Chain
SCOR model metrics and performance
measurements
There are three levels used to measure supply chain performance. These
levels help standardize supply chain performance metrics so that companies
can be evaluated against other businesses, even if they‘re operating
differently. A smaller organization can be compared to a bigger organization,
or businesses can judge supply chain performance against companies in
other industries.
There are over 250 SCOR metrics in the framework, categorized against five
performance attributes: reliability, responsiveness, agility, costs, and asset
management efficiency.
Businesses use these to establish requirements for the supply chain by

figuring out which performance attributes to prioritize and which areas the
business can perform at an average pace.
The three levels include:

◦ Level 1: Defining scope, including geographies, segments, and context. At this
level, the focus is on the six main process configurations: plan, source, make,
deliver, return, and enable.
◦ Level 2: Configuration of the supply chain, including geographies, segments,
and products. At Level 2, metrics are high level and evaluated across multiple
SCOR processes. This level includes subtype categories that fall under the
―parent‖ categories found in Level 1.
◦ Level 3: Process element details, identifying key business activities within the
chain. At this level, you can associate any Level 2 process or subcategory with a
Level 3 process.
The Balance Score Card
Balanced Scorecard approach, it was invented by Robert S. Kaplan
and David P Norton of the Harvard Business School.
The balanced scorecard approach contains four different metrics or

the four perspectives . These are used to measure performance at all
the levels in the supply chain. These four metrics combines the
strategy and vision for every aspect of the supply chain.
The four metrics are given below, and firms always question
themselves the following before proceeding ahead:
◦ Financial: To succeed financially, how should firms appear to their
shareholders.
◦ Customer: To achieve our vision, how should firms appear to their
customers.
◦ Internal Business Processes: To satisfy their shareholders and
customers, what business processes firms must excel at.
◦ Learning and Growing: To achieve their vision, how will firms sustain
their ability to change and improve.
Balance SCOR Card Modeling (ROA)
7 Benefits of a Balanced Scorecard
Research has shown that organisations that use a Balanced Scorecard approach 4. Better Management Information
tend to outperform organisations without a formal approach to strategic ◦ The Balanced Scorecard approach helps organisations design key performance
performance management. indicators for their various strategic objectives. This ensures that companies
The key benefits of using a BSC include: are measuring what actually matters. Research shows that companies with a
BSC approach tend to report higher quality management information and
1. Better Strategic Planning
better decision-making
◦ The Balanced Scorecard provides a powerful framework for building and
communicating strategy. The business model is visualised in a Strategy 5. Improved Performance Reporting
Map which helps managers to think about cause-and-effect relationships
◦ The Balanced Scorecard can be used to guide the design of performance
between the different strategic objectives. The process of creating a
reports and dashboards. This ensures that the management reporting focuses
Strategy Map ensures that consensus is reached over a set of interrelated
on the most important strategic issues and helps companies monitor the
strategic objectives. execution of their plan.
2. Improved Strategy Communication & Execution
◦ Having a one-page picture of the strategy allows companies to easily 6. Better Organisational Alignment
communicate strategy internally and externally. It is known for a long time ◦ The Balanced Scorecard enables companies to better align their organisational
that a picture is worth a thousand words. This ‗plan on a page‘ facilitates structure with the strategic objectives. In order to execute a plan well,
the understanding of the strategy and helps to engage staff and external organisations need to ensure that all business units and support functions are
stakeholders in the delivery and review of the strategy. We must remember working towards the same goals. Cascading the Balanced Scorecard into those
that it is difficult for people to help execute a strategy which they don‘t fully units will help to achieve that and link strategy to operations.
understand.
7. Better Process Alignment
3. Better Alignment of Projects and Initiatives
◦ Well implemented Balanced Scorecards also help to align organisational
◦ The Balanced Scorecard help organisations map their projects and processes such as budgeting, risk management and analytics with the strategic
initiatives to the different strategic objectives, which in turn ensures that priorities. This will help to create a truly strategy focused organisation.
the projects and initiatives are tightly focused on delivering the most
strategic objectives.
The Relationship Between Customers and
the Supply Chain
◦ Customers are one of the most critical parts of any supply ◦ This is how investing in CRM becomes an advantage.
chain. Without customers, even an enterprise with a well-
established supply system will lose profit. A supply chain
decision-making process is influenced by the values and ◦ Customer relationship management centers on paying close
opinions held by consumers to have a satisfying relationship attention to your market and learning who your consumers
with your business. are. Aside from managing sales and marketing automation,
CRM systems are built to gather customer information: who
◦ Supply chain buyers need to procure resources from the most they are, what they need, and how to reach out to them.
cost effective suppliers so they can offer the best value to
clients. They‘re always on the hunt for new partners who ◦ For example, you want to know when your customers are likely
provide high quality products and services that suit customer to purchase your goods so you can adjust your next shipment
tastes. A disaster-resilient supply chain is also a major goal for of raw materials. Through a CRM platform, you can send an
its managers to protect what customers value the most about email survey to your customers and keep all the data you
your business. receive in one database.
◦ The problem with incorporating customer demands into your ◦ You can also utilize CRM technology to forecast future
supply chain is that customer expectations vary. A one-size- customer purchases or alert you if a client is planning to move
fits-all approach doesn‘t work and enterprise may end up to a rival company.
permanently damaging customer satisfaction. A competitive ◦ The predictive analytics component of modern CRM
company has to provide plenty of choices among its offerings platforms can even recommend actions that respond to
for its end-consumers. upcoming trends.
◦ In order to build and maintain profitable, long-term ◦ By extending your knowledge of the customer, CRM can help
relationships with clients, you have to keep track of all you bridge the supply chain directly with the market.
relevant information.
CRM
What is CRM? Features of CRM
◦ CRM stands for Customer Relationship Management. ◦ CRM fulfills customer needs effectively and maintains a long-term
deal.
◦ CRM is combination of a variety of strategies used for managing
the companies relationships and interactions with potential ◦ CRM is customized by an organization to manage and
customers. administrate its customers and vendors in an efficient manner to
achieve excellence.
◦ It helps improve profitability.
◦ It considers customer satisfaction.
◦ CRM helps in understanding the customer's needs and behaviors.
◦ It focuses on customer loyalty, retention and complaints.
◦ It defines appropriate actions for retaining customers such as
special incentive programs. ◦ It delivers better information and services regarding all the
◦ It involves a process of continuously gathering data at all products and brands to the customer.
customer points and then turning that data into knowledge for Importance of CRM
building more profitable customer relationships. ◦ CRM foresees customer needs effectively and helps increases
◦ It also applies to the process of managing customers, suppliers, business.
vendors, and other stakeholders, through a buying lifecycle. ◦ CRM includes a historical view and analysis of all the acquired
◦ CRM is also the integrated approach of managing and customers.
coordinating customer interactions across multiple channels. ◦ It contains each and every bit of customer details making it easy
◦ CRM can be used to run the sales promotions under any specific to track customers and determine the most profitable ones.
customer groups using the business analytics tools. ◦ It is very cost effective.
◦ It reduces the process time and increases the productivity.
Understanding CRM
◦ The CRM system provides the ability to the organization for managing the customer orders, delivery of products, revenue,
marketing, products information along with strategies for reaching the target market in timely and efficient manner.
◦ The supply chain integrates the CRM for making the database of customer information and collecting valuable data to
show the current needs and wants of the customers.
◦ The CRM ensures good customer relationships as the right product for the right customer at the right time in right
quantity, condition, and cost.
◦ The CRM segments the each of the customer needs and supports the relationship marketing/cross selling.
◦ The CRM integration in supply chain leads to forecast the customer behavior and retains customers by analyzing the
likelihood of customer purchases.
◦ A well-executed CRM can lead to strategic partnerships between the organization and its suppliers.
◦ Example: McDonald's and The Coca-Cola Company have had a symbiotic relationship since 1955. McDonald's uses
Coke's international offices when setting up new franchises,
◦ Coke uses a particular stainless-steel delivery truck designed explicitly for McDonald's, and the two companies have
been running promotions together for over 20 years.
◦ While this partnership was forged before the advent of CRM automation, it is an enduring example of how sharing
customer data with a supplier can inform supply chain decisions and create a successful model for both organization
and supplier.
Stages of CRM
CRM is often broken down into three aspects: Strategic, Operational, and Analytical.
Strategic:
◦ The ―Strategic‖ aspect considers various methodologies to determine customer value and how to develop customer experiences.
◦ This includes defining strategically significant customers and how to create their ideal customer experiences.
◦ This is valuable information for supply chain managers as they consider inventory and logistics.
◦ For example, many strategically significant customers value 2-day shipping; a crucial role for a supply chain.
Operational:
◦ Operational Customer Relationship Management is the automation and integration of sales force, marketing, and customer
service. When companies are considering integrating a CRM software program, they benefit from including supply chain
managers in their decisions.
◦ CRMs can track an overwhelming number of metrics and supply chain managers can use this information to create a valuable
supply chain that is customer-focused and prepared to respond to demands.
Analytical:
◦ Analytical CRM refers to how an organization uses relevant data and transforms that data into action.
◦ Supply chains can use these valuable insights about customers to meet their business objectives.
Supply Chain Macro Processes
All supply chain processes can be classified into the three
macro processes:
◦ Customer Relationship Management (CRM) : all
processes at the interface between the firm and its
customers
◦ Internal Supply Chain Management (ISCM) : all
processes that are internal to the firm
◦ Supplier Relationship Management (SRM) : all
processes at the interface between the firm and its
suppliers
These three macro processes manage the flow of
information, product, and funds required to generate,
receive, and fulfill a customer request.
Notice that all three macro processes are aimed at serving
the same customer.
For a supply chain to be successful, it is crucial that the
three macro processes are well integrated.
Supply Chain Macro Processes
Supplier Relationship Management. Internal Supply Chain Management. Customer Relationship Management.
Those processes focused on the Includes all processes involved in
interaction between the enterprise planning for and fulfilling a customer
and suppliers that are upstream in order. The processes that take place between
the supply chain an enterprise and its customers
ISCM processes: downstream in the supply chain
Key processes: ◦ Strategic Planning ◦ Key processes:
◦ Design Collaboration ◦ Demand Planning ◦ Marketing
◦ Source ◦ Supply Planning ◦ Selling
◦ Negotiate ◦ Fulfillment ◦ Order management
◦ Buy ◦ Field Service ◦ Call/Service center
◦ Supply Collaboration
There must be strong integration
There is a natural fit between ISCM between the ISCM and CRM macro
and SRM processes. processes.
Supply Chain Macro Processes in a Firm
Customer Relationship Management (CRM) :
◦ The CRM macro process aims to generate customer demand and facilitate the placement and tracking of orders. It includes
processes such as marketing, pricing, sales, order management , and call center management..
◦ Example: At an industrial distributor level ( W. W. Grainger), CRM processes include the preparation of catalogs and other
marketing materials, management of the website, and management of the call center that orders and provide service.
Internal Supply Chain Management (ISCM):

◦ The ISCM macro process aims to fulfill demand generated by the CRM process in a timely manner and at the lowest cost.
◦ ISCM processes include the planning of the internal production and storage, preparation of demand and supply plans, and
fulfillment of actual orders.
◦ Example: At W W Grainger, ISCM processes also include planning of the location and size of warehouses; deciding which product
to carry at each warehouse; preparing inventory management policies; and picking, packing, and shipping actual orders.
Supplier Relationship Management (SRM) :

◦ The SRM macro process aims to arrange for and manage supply sources for various goods and services.
◦ SRM processes include the evaluation and selection of suppliers, negotiation of supply terms, and communication regarding new
products and orders with suppliers.
◦ Example: At W. W. Grainger, SRM processes include the selection of suppliers, sharing of demand and supply plans with
suppliers, and the placement and receipt of replenishment orders
Components of CRM
At the most basic level, CRM software consolidates For example, as sales prospects come into the
customer information and documents it into a single system, it might automatically send email marketing
content, with the goal of turning a sales lead into a
CRM database so business users can more easily full-fledged customer.
access and manage it.
2. Sales force automation. Sales force automation
Over time, many additional functions have been tools track customer interactions and automate
certain business functions of the sales cycle that
added to CRM systems to make them more useful. are necessary to follow leads, obtain new customers
Some of these functions include recording various and build customer loyalty.
customer interactions over email, phone, social media 3. Contact center automation. Designed to reduce
or other channels; depending on system capabilities, tedious aspects of a contact center agent's job,
automating various workflow automation processes, might include prerecorded audio that assists in
such as tasks, calendars and alerts; and giving customer problem-solving and information
managers the ability to track performance and dissemination. Various
software tools that integrate with the agent's
productivity based on information logged within the desktop tools can handle customer requests to cut
system. down on the length of calls and to simplify customer
1. Marketing automation. CRM tools with marketing service processes. Automated contact center tools,
automation capabilities can automate repetitive such as chatbots, can improve customer user
tasks to enhance marketing efforts at different experiences.
points in the lifecycle for lead generation.
Components of CRM
4. Geolocation technology, or location-based services.: Some CRM systems include technology that can create
geographic marketing campaigns based on customers' physical locations, sometimes integrating with popular
location-based GPS (global positioning system) apps.
Geolocation technology can also be used as a networking or contact management tool in order to find sales
prospects based on a location.
5. Workflow automation. CRM systems help businesses optimize processes by streamlining mundane workloads,
enabling employees to focus on creative and more high-level tasks.
6. Lead management. Sales leads can be tracked through CRM, enabling sales teams to input, track and analyze
data for leads in one place.
7. Analytics. Analytics in CRM help create better customer satisfaction rates by analyzing user data and helping
create targeted marketing campaigns.
8. Artificial intelligence. AI technologies, such as Salesforce Einstein, have been built into CRM platforms to
automate repetitive tasks, identify customer-buying patterns to predict future customer behaviors and more.
9. Project management. Some CRM systems include features to help users keep track of client project details
such as objectives, strategic alignment, processes, risk management and progress.
10. Integration with other software. Many CRM systems can integrate with other software, such as call center and
enterprise resource planning (ERP) systems.
Why You Should Link CRM with SCM
A well-managed CRM platform can go beyond serving your sales force, marketing team, and customer service reps.
Linking CRM with supply chain processes can help you tap into rich insights about your market that will provide you competitive growth.
By linking your supply chain with CRM technology, you can:
1. Keep track of ever-changing customer demands

◦ When a customer makes their first purchase with your business, CRM can help you track their preferences: the franchises they visit, their buying patterns, and the
products they demand the most. This CRM capability can offer valuable data on how much of which goods you need to send to a specific location.
◦ CRM systems can also inform you which suppliers are delivering the most important goods or services and how they are performing, based on customer feedback.
Lastly, CRM can be a powerful tool which allows you to forecast customer behavior and which customers you can retain by analyzing their product sale history.
2. Refer to an updated, organized database

◦ Data management won‘t be valuable to anyone if the data is fudged or outdated. CRM software will allow companies to develop their customer experience by
leveraging clean and complete real-time information.
◦ Through CRM, enterprises can easily compile and share significant data about their customers so that the supply chain can respond accordingly. For example,
many customers don‘t mind spending more money on a higher-quality product so suppliers and companies can work to find new resources that meet customer
satisfaction.
3. Collect and store unique customer information

◦ There are many sources you can hear the ―voice‖ of your customer from. Surveys, focus group discussions, interviews, complaint logs, field reports, and
observations are among the tools you can use to understand all of your customer‘s stated and unstated needs. However, many enterprises neglect to regularly
collect feedback due to lack of time or manpower.
◦ CRM platforms can collect and store valuable customer data in one database with a lot less effort on your part. With CRM software, you would be able to listen to
your customers and improve how you operate your supply chain.
Advantages of Supply Chain CRM Integration
◦ Companies that successfully use apps as part of their CRMs. Amazon, McDonald‘s, Etsy, and Starbucks are taking
advantage of the wealth of customer data collected while using their apps for ordering.
◦ These companies are also considered to model best practices for supply chain management systems.
Companies can track data such as customer preferences, which franchises they visit, buying patterns, and which
products are in demand.
◦ This information translates into valuable insights for supply chain systems. It impacts where to send which supplies,
which suppliers are delivering the most in-demand products or services, and how well products and services are
performing.
◦ Integrating CRM systems with supply chain software can create a powerful tool.
◦ In the new book, Competing on Analytics: The New Science of Winning, authors Thomas Davenport and Jeanne Harris
write, "Many companies in a variety of industries are enhancing their CRM and SCM [supply chain management]
capabilities with predictive analytics, and they are enjoying market-leading growth and performance as a result."
◦ Example: McDonald‘s capitalizes on their app insights by sending personalized loyalty rewards directly to the customer‘s
phone through the app. Customers just have to open the app to redeem the offer at the point of service. This can lead to
more loyal customers. McDonald‘s outsources its supply chain, but also maintains regional menus and suppliers. The
insights gained from the app provide valuable information to guide supply chain decisions.
Advantages of Supply Chain CRM Integration
◦ The data and information from an effective CRM inform supply chain decisions such as supplier
choices, shipping, which supplies are in higher/lower demand, and how the customer uses
products through their lifecycle.
◦ Supply can meet customer demand in a more efficient way when it works directly with customer
information from a CRM.
◦ Davenport and Harris note there are challenges in transitioning from the usually isolated CRM
and SCM databases and software.
◦ Marketing and sales departments need to integrate with procurement and logistics, but if they
do so effectively the benefit is a business that has supply and demand chains that are more
responsive to customer demand.
◦ Another bonus of adding a CRM to supply chain management software is it can be used to
manage suppliers.
Success Stories: Using CRM for an Effective
Supply Chain
◦ Dell:
◦ Dell pioneered the concept of reaching out to customers directly through the phone or Internet to create customized computers that are specific to
what the customer wants.
◦ With the integration of CRM into their supply chain, they were able to ensure that the necessary computer parts were available when needed so
the goods are delivered on time.
◦ With direct customer interaction informing how their supplies move, Dell was able to expand their market growth through product innovations.
◦ McDonald‘s:
◦ McDonald‘s established CRM through their app, improving customer service hotlines, and touch-screen ordering technology.
◦ All of the customer information generated through these touchpoints allowed McDonald regional planners to analyze past performance and predict
future demands.
◦ Each restaurant is also equipped with an inventory management system that displays data about their resources and allows them to manage the
regional menu items for sale.
◦ Zara:
◦ Fashion brand Zara‘s in-house production allows its supply chain to be flexible and competitive.
◦ When customers let store managers know what styles they like or dislike, the feedback is recorded in their CRM platform and Zara‘s designers pay
attention to the collected data.
◦ When their CRM reflects that a particular style is suddenly popular, Zara can easily put new, similar items into stores while the style is trendy.
◦ The integration of CRM and supply chain also prevents Zara from overstocking items, which allows them to maintain their image of exclusivity
because their products rarely have to go on sale.
Top 10 CRM Tools for Business Growth in
2022
1- HubSpot CRM: 6- Less Annoying CRM
◦ Hubspot CRM is perhaps the best option for small businesses ◦ Less Annoying is not only a good option for small businesses but also
startups. It is probably one of the best lower-cost CRM tools out there.
2- BIGContacts:
◦ This one‘s a budget-friendly CRM and email marketing tool! 7- Salesforce Sales Cloud Lightning Professional:
◦ Salesforce is known for being the top-notch of the CRM software
◦ BIGContacts has become one of the top-rated CRMs for small industry.
businesses, and the reason is obvious: simplicity and ease of usage.
◦ The most important aspect is how customizable it is.
3- Salesflare:
◦ Useful for a small or medium-sized business selling to other businesses. 8- Apptivo CRM:
◦ As good as Salesforce in terms of features and customizability, and it is
cheaper.
4- Zoho CRM:
◦ Zoho is probably the best in terms of pricing.
9- Mailchimp:
◦ Normal version costs only $12 per year/ per user. If you want to sync it ◦ Mailchimp, primarily created as an email automation solution, can be a
to other Zoho tools, the total price adds up to around $30 a year. strong CRM if it aligns with your needs.
5- Pipedrive: 10- Oracle CX:

◦ Built for salespeople by salespeople. ◦ Oracle aims to bring more than your average CRM with advanced
◦ Pipedrive really does seem to understand the struggles of salespeople customer experience functionalities.
with its intuitive user interface. ◦ It helps you expand your average sales funnels into customer journey
◦ Make the salespeople work easily but also effectively. maps, and helps you ensure you‘re touching customers with relevant
content every step of the journey.

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What Is Supply Chain Management (SCM)?

This transition also refocused the fundamental perspectives of each organization.

The second component of supply chain management is sourcing. The performance of an

Key Points of Research :

Integrated & Co-operative Logistics –

Vitalized quality of life within the warehouse –

•Improved visibility for Supply Chain Operation –

4. Product portfolio management

Product portfolio management includes:

Business Roles: Societal Roles of SCM:

Right Delivery Time:

Right After Sale Support :

Decreases Production Cost :

Decreases Total Supply Chain Cost :

Decreases Fixed Assets :

•SCM Improves Human Healthcare

•SCM Protects Humans from Climate Extremes

Improves Standard of Living

Opportunity to Decrease Energy Use

Protects Delivery of Necessities

How India prepped Covid-19 Vaccination ? COVID-19 Vaccine Pfizer BioNTech

COVID-19 Vaccine AstraZeneca Vaccine COVID-19 Vaccine Moderna Vaccine

◦ The supply chain continues to evolve rapidly,

◦ The supply chain continues to evolve rapidly,

Changing Consumer Experience:

1. Artificial Intelligence and Automation

4. The Internet of Things (IoT)

7. Risk Management and Resiliency

9. Circular Supply Chain

10. Cloud-Based Solutions

11. Omnichannel Supply Chains Become the Norm

12. Agile Supply Chains

14. Artificial Intelligence (AI) and Machine Learning

16. Robotics and Automation in Logistics

1. How Toilet Paper Broke the Supply Chain - Next

RANK COUNTRY GDP ( $T ) % OF WORLD GDP

(Source: Sakhuja &

Find answers to questions to help avoid the problems of entry:

◦ Company‘s implementation plan should include the following key activities:

A death toll of 1,134. Approx. 2,500 injured people were rescued .

It is considered the deadliest non-deliberate structural failure

The building contained clothing factories, a bank, apartments and

The building's owners ignored warnings to avoid using the building

Regulatory and Compliance Risks:

It is the integration of eco-friendly methods into the conventional supply chain so as to

3. It can lead to technological innovations

4. Green design resulting in financial gains

6. Reduces risk by avoiding hazardous material that leads to environmental effect.

D. Green Manufacturing and Remanufacturing

Green distribution practices are :

Sustainable Design for a Sustainable Product Lifecycle

In the design process you need to be able to:

Extending asset life and reduce energy consumption

Calculate and track the environmental impact of asset operations

2. Sustainable Supply Chains – Suzanne Greene, MIT / Duration 33:05 min

3. Sustainable Supply Chains (with Valentina Carbone) - Ep 66

2. Supply Chain Strategy

8. Outsourcing Supply Chain Operation/Management

10. Track/Measure Performance

Responsive Supply Chain Strategy: L6 by

2. Employ Range Forecasting

4. Evaluate Company Culture

5. Invest in Technology That Enables a Responsive Supply Chain

All the necessary things in the corporation relate to the