CHAPTER 1 INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

Supply chain management

● is a set of approaches utilized to efficiency integrate suppliers, manufacturers,
warehouses, and stores, so that merchandise is produced and distributed at the right
quantities, to the right locations, and at the right time, in order to minimize system wide
costs while satisfying service level requirements.
supply chain
● is a network of facilities and distribution options that performs the functions of
procurement of materials, transformation of these materials into intermediate and
finished products, and the distribution of these finished products to customers.

Issues in Supply Chain Management

● The classic objective of logistics is to be able to have the right products in the right
products in the right quantities (at the right place) at the right moment at minimal cost.
Strategic Level - Long Term Decisions
Tactical Level - Medium Term Decisions
Operational Level - Day to Day Operations

At the strategic level, long term decisions are made. These are related to location,
production, inventory, and transportation. Decisions made on the strategic level are of
course interrelated.

On the tactical level medium term decisions are made, such as weekly demand forecasts,
distribution and transportation planning, production planning, and materials requirement
planning.

The operational level of supply chain management is concerned with the very short-term
decisions made from day to day. The border between the tactical and operational levels
is vague.

Metrics and Data Collection

Management
● can be defined as the planning, execution, and control of goal-oriented activities.

metric
● is a standard of measurement of performance.

Flexibility, Inventories, and Customer Service

Customer Satisfaction
● Typical measures of customer-service are a company’s ability to fill orders within due
date (fill rate), or its ability to deliver products to customers within the time quoted
(on-time deliveries
Inventories
● Manufacturing entities have inventories for raw products (RPI), products in the
production process (WIP), and finished products (FGI).

Flexibility
● The ability to respond to the changes in the environment.

Inventory is a ``Flexibility Buffer''

● The manufacturer needs to plan ahead, and therefore also to estimate future demand by
making demand forecasts.
● A manufacturer will account for the uncertainties and unforeseen events by keeping
safety stocks.
safety stocks
● assure the necessary flexibility, or rather they act as buffers for the lack of flexibility in
the supply chain.

Globalization
● Through the past decades we have seen an increasing rate of globalization of the
economy and thereby also of supply chains. A longer supply chain will often involve
longer order to delivery lead times. The consequences of longer lead times will often be:
• less dependable forecasts as these have to be made earlier,
• reduced production flexibility, i.e. greater difficulties to adjust to order changes,
• higher levels of inventory.

Improving Supply Chain Management

● A key to improved supply chain management lies in integration and coordination.

Integrate
● to make into a whole by bringing all parts together; unify.
● each unit of the organization will have access to information relevant to its task and will
understand how its actions will impact other parts of the organization thereby enabling it
to choose alternatives that optimize the organization's goals.
Coordinate
● to manage dependencies among activities so as to achieve coherent operation of the
entire system in question.
General coordination
● the integration of different functions, e.g. inventory and production planning,
sales, and distribution.

multi-plant coordination.

which production decisions are coordinated among the plants of an

internal supply chain.

Modeling and simulation

● is most often used to test the impact strategic level decisions have on supply chain
performance.
Simulation
● is used to evaluate the impact of information sharing and coordination. All physical
entities will remain unchanged, while the ways the entities share information and
coordinate problem solving is varied.
Supply chain management
● makes sure that the processes are done in an efficient manner, and that the quality of
the finished product offered to the consumer is kept in line with that company’s
standards.

three different categorical levels of supply chain activities:

Strategic activities
● involve optimizing networks, which might include addressing the size, location, and
amount of distribution centers, facilities, and warehouses where goods are
manufactured. It also involves addressing partnership issues among suppliers,
customers, and distributors.
tactical duties
● These might include contract sourcing and other pertinent decisions related to
purchasing; making decisions related to production, which might include scheduling,
contracting, planning, and more;
operational concerns
● These range from looking over the daily production schedules to planning distribution
routes for all aspects of the supply chain.

Supply chain management flows

• The product flow
● includes the movement of goods from a supplier to a customer, as well as any
customer returns or service needs.
• The information flow
● involves transmitting orders and updating the status of delivery.
• The finances flow
● consists of credit terms, payment schedules, and consignment and title ownership
arrangements.

Key Issues in Supply Chain Management

• Sourcing and Procurement issues
• Production issues
• Delivery issues
• Customer, government and market change
Logistics
● One of the key areas of international marketing as the delivery of the goods to the
customers is as important to any other activity of the business and marketing.
Logistics management
● refers to the process of planning, implementing and controlling the efficient, effective flow
and storage of goods, services and related information from point of origin to the point of
consumption for conforming to customer requirements.

Supply Chain
● Transforming a raw materials into products and getting it to the customers
Logistics
● Movement of materials in whole supply chain
Cost
● what customers receive for what they paid.
Convenience
● the effort expended to achieve the purchase.
Confidence
● in the support services not included and promised.

Parts of logistic
Logistic Operation
● can be basically clubbed into physical distribution management, materials
management and internal inventory transfer.
Logistic Coordination
● pertains to forecasting, order processing, operational planning and product
procurement or MRP. It is effected through effective information flows.
Excellent logistic management
● needed to fully leverage global opportunities. Information technology input has given
a next boom to logistic management. It helps in monitoring transaction intensive
activities such as ordering movement and storage of goods and materials better.

Logistics Cost
• Transportation cost
• Inventory cost
• Warehouse cost
• Administration cost

Facility Location
● Determining location, number and size of facilities needed.
● Allocation demand to facilities.
Transportation
 ● Mode and service selection Carrier routing
● Vehicle scheduling
Inventories
● Finished goods stocking policies
● Record keeping
● Supply scheduling
● Short time sales forecasting
Customer Service
● Cooperate with marketing in:
● determining customer needs and wants for service
● determining customer response to service
Order Processing and Information Flows
● Sales order procedure.
● Information collection, storage and manipulation.
● Data analysis.
Warehousing and Material Handling
● Space determination
● Stock Layout
● Material handling equipment selection
Protection Packaging
● Design for handling, storage, protection
Product Scheduling
● Co-operate with production in:
● Specifying aggregate production quantities
● Sequencing and timing of production

Trade-off analysis
● is a family of methods by which respondents' utilities for various product features are
measured.

There are four main types of trade-off:

Conjoint analysis
● is the original trade-off approach and uses linear models.
➢ Metric conjoint
● where respondents monadically rate various product configurations.
➢ Non-metric conjoint
● where respondents rank a set of product configurations.
➢ Full-profile conjoint
● uses all product features in every product configuration.
➢ Partial profile conjoint
● uses a smaller subset of available product features in the product configurations.
➢ Pairwise conjoint
● requires the respondent to rate their preference for one product over another in a
paired comparison.
Discrete choice
● differs from conjoint in that respondents are shown a set of products from which
they pick the one they most want to buy or none if they are not interested in any of
the choices shown. The discrete choice procedure has the advantage of being more like
the actual purchase decision process than do any of the data collection methods used in
most conjoint studies.
➢ Classic discrete choice
● involves showing a respondent a series of sets of products.
➢ Exploding data discrete choice
● respondents are asked to rank order a set of products based on purchase interest.

Self-explicated scales
● respondents are asked directly how important all levels of all attributes are to their
purchase interest.
● In Self-explicated, standard questionnaire methods can be used to collect the
information.
Hybrid models
● are models that use a combination of the above techniques.
ACA, Adaptive Conjoint Analysis
● The most famous hybrid model
● is an approach that is appropriate for building preference models of cognitive
behavior with large numbers of attributes.

Inbound Logistics
● receiving, storing and disseminating incoming goods and material for use.
Outbound Logistics
● movements of material associated with storing, transporting, and distribution
bullwhip effect
● refers to a logistics supply chain inefficiency when there is either too much or too little
inventory.

Demand forecast updating

● Company does product forecasting for its production scheduling, capacity planning,
inventory control, and material requirements planning. It is often based on the order
history from the company’s immediate customer.
● Demand forecast updating is done individually by all members of a supply chain
Order Batching
● Demand come in, depleting inventory, but the company may not immediately place an
order with its supplier. It often batches or accumulates demands before issuing an order.

Forms of order batching:

➢ periodic ordering, weekly, Fortnightly, Monthly etc.
➢ push ordering, Orders are pushed by sales personnel

Price Fluctuation
● Estimates indicate that 80% of the transaction between manufacturers and distributors in
the industry were made un a "forward buy" arrangement in which items were bought
in advance of requirements, usually because of a manufacturer's attractive price offer.

Rationing and Shortage Gaming

● When product demand exceed supply, a manufacturer often ratio its product to
costumers. In one scheme, the manufacturer allocates the amount in proportion to the
amount of ordered.
Warehousing Management
● Another important logistics functional area, which is strongly related to physical flow, is
warehousing. In contrast to transportation, which primarily takes place on network arcs,
warehousing and product storage mainly take place at nodal points.
Warehousing
● plays a critical role in logistics systems, providing the desired costumer service levels in
combination with other logistics activities. A wide variety of operations and task are
performed in warehousing. Can be categorized in under three basic functions:

• Movement (material handling)

• Storage (inventory holding)
• Information transfer

The movement or material handling function is represented by four primary activities:

• Receiving and put away
• Order filling or Order picking
• Cross docking
• Shipping
CHAPTER 3 PURCHASING AND VENDOR MANAGEMENT

Purchase management
● is a function of materials management in a company. Their basic function is
procuring the inputs for production function.
● considered a very important function of materials management in a company. Its
importance is felt even outside the formal scope of materials management.
Purchase
● is the procurement of goods or service from some external sources.
Purchasing process
● simply involved placing an order with the supplier who offered the lowest price.

Types of Purchasing
1. Purchase made as per requirement
● purchase is done as need arises
2. Contract Purchasing
● contract of materials is given to an agency
3. Market purchase
● purchase is made from the market to take advantage of price fluctuations.
4. Schedule purchase
● a schedule of purchase is made and it is used for the commodities whose price does
not fluctuate.

Centralized Purchasing
● means buying and managing purchases from one location for all locations within an
organization.
Purchasing is centralized to:
❑ Realize economy, efficiency, and effectiveness in the procurement function.
❑ Pursue quality assurance and standardization
❑ Maintain the highest standards of ethics

Advantages:
▪ Volume Purchasing – Purchasing in mass to take advantage of discounts.
▪ Warehouse – District purchases items in bulk.
▪ Save time in researching products

Disadvantages:
▪ Delay
▪ High Initial Cost
▪ Local Purchase
▪ Emergency purchase
▪ Communication Difficulty
▪ Less Flexible

Decentralized Purchasing
● is where each plant or office buys what it needs. The more decentralized an operation
is, the less control the home office has.
Advantages:
▪ Materials can be purchased by each department locally as and when
required.
▪ Materials are purchased in right quantity of right quality for each
department easily.
▪ No heavy investment is required initially
▪ Purchase orders can be placed quickly.
▪ The replacement of defective materials takes little time
Disadvantages:
▪ Organization losses the benefit of a bulk purchases.
▪ Specialized knowledge may be lacking in purchasing staff
▪ There is a chance of over and under-purchasing of materials
▪ Fewer chances of effective control of materials
▪ Lack of proper co-operation and co-ordination among various
departments.

Supply
● It is aimed at the optimization of both the ordering process and the incoming
materials flow.

Materials Cost Policy

The objective of cost policy is two fold:
▪ First, to obtain control of materials cost and prices in such a way that suppliers
are unable to pass on unjustified price increases to the company
▪ Second, to systematically reduce the supplier’s material cost through join, well
prepared action plans.

Supplier Policy
● focused on the systematic management of the company’s supplier base. Decisions need
to be made:
▪ Suppliers who perform best should be rewarded with more business in the future.
▪ Targets and possible projects for future co-operation should be determined
carefully
▪ Relationships with supplier who consistently fail to meet the company’s
expectation should be terminated.

Communication Policy
● The company’s purchasing policies need to be communicated both internally and to
suppliers.
Purchase Systems
1. Pre Purchased System
● how purchase activity is initiated
▪ Requisitions
▪ Traveling Requisitions
▪ Inquiries
2. Ordering System
● the most important element in the ordering system.

3. Post Purchased System

▪ Follow Up Procedures
▪ Receipt
▪ Invoice Checking

Vendor Management
● It refers to the process that helps the organizations to find the vendors, evaluate them
and ensure that they are qualified.
● The discipline of establishing service, quality, cost and satisfaction goals and managing
third party companies to consistently meet these goals:
- Establishing goals
- Selecting vendors
- Managing vendors
- Consistently meet goals

Vendor Relations
● An important objective in purchase management is that of maintaining good relations
with vendors. This may entail personal or professional relationships.
Selection of Vendors
1. The production capabilities of the vendor
2. The financial soundness of the company
3. Technical Capabilities
4. Other Considerations (working conditions and industrial relations in the
vendor company)

Vendor Rating
● is the result of a formal vendor evaluation system.

1. Criteria for evaluation:

● it is usually evaluated in the areas of pricing, quality, delivery, lead time and service or
some combinations of variables.
5. Benefits of Vendor Rating System
● Provides a process for measuring factors that add value to the buying firm through
value addition or decreased cost
Management of Stores
Store management
● is part of the overall function of materials management. In order to understand the
function of the former it is desirable to have a clear understanding of what materials
management stands for.
Management
● is the specific purpose of planning, controlling and implementing
Materials Management
● is the process of planning, implementing and controlling the flow of storage of
input, facilities, service and information efficiently.
Stores organization
● is a systematic coordination and combination of efforts in manner which would
result in optimum efficiency and minimum expenditure.
Store, Storehouse, Warehouse
● refer to a building.
Organizing Stores
● This department has been attached to the production department, even considered
part of it. The finished goods store was attached to the sales department.
● Today, it has been recognized that both PRODUCTION and SALES has vested interest,
which conflict with the basic objectives of inventory control.

CHAPTER 4 INVENTORY MANAGEMENT

Inventory management
● is the process of efficiently overseeing the constant flow of units into and out of an
existing inventory.
● It is also a systematic approach to sourcing, storing and selling Inventory both raw
materials and finished goods.
● means the right stock, at the right levels, in the right place, at the right time, and at
the right cost as well as price.

What are the key benefits of an inventory management system?

● A proper inventory management solution will streamline your business by significantly
reducing cost and waste.
• ACCURACY
● Eliminate human error in inventory counting.
• SPEED
● Reduce man hours by using automated data capture.
• ACCOUNTABILITY
● Document shrinkage and loss to identity steps to reduce them.
• MOBILITY
● Make adjustment or replace damage/ unreadable labels on-the-spot using mobile
computers and printers.
Components of Inventory Management System

Inventory Tracking Software

● The software you use will determine how you track your inventory.
Mobile Computer
● Inventory tracking requires users to be on the move throughout your facility making
updates and changes.
Wireless Infrastructure
● Many businesses need inventory updates to occur in real-time and a wireless network
is a required tool to do so.
Barcode Printer
● In order to track items quickly and easily, they need to be labeled with a barcode.

Inventory are basically categorized in three headings:

Ordering cost
● is dependent and varies based on two factors – the cost of ordering excess and the
cost of ordering too less.
CARRYING COST
Inventory storage and maintenance involves various of cost namely:

a. Inventory Storage Cost

● typically include cost of building rental and facility maintenance and related cost.
b. Cost of Capital
● Includes the cost of investment, interest on working capital, taxes on inventory paid,
insurance cost and other cost associated with legal liabilities.

The Economic Order Quantity (EOQ)

● is the number of units that a company should add to inventory with each other to
minimize the total cost of inventory such as holding cost, order cost and shortage cost.
buffer stock
● scheme is an attempt to use commodity storage for the purposes of stabilizing prices
in an entire economy or, more commonly, an individual market.
WORKING CAPITAL (WC)
● is a financial metric which represents operating liquidity available to a business,
organization or other entity, including governmental entity.
lead time
● is the duration between placing an order until receiving the order. This term is used
in the production planning.
The Re-Order Point
● is the threshold in which you should order more product to prevent shortages while also
avoiding overstock.
RE-ORDER LEVEL FIXATION
● Fixation of various inventory levels facilitates initiating of a proper action in respect to
the movement of various materials in time so that the various materials may be
controlled in a proper way.

The various levels which can be fixed are:

MAXIMUM LEVEL
● It is the level in which the actual stock should not exceed.
MINIMUM LEVEL
● It indicates the level in which the actual stock should not reduce.
● RE-ORDER LEVEL It indicates the level of material stock at which it is necessary to take
the step for the procurement of further lots of materials.
DANGER LEVEL
● This is the level fixed below the minimum level.

ABC analysis
● is a type of analysis of material dividing the three groups called A-group items, B-group
items, and C-group items for the purpose of exercising control over materials.

SDE analysis
● is based upon the availability of items and is very useful in the context of scarcity.

“S” refers to “scares”

● items, generally imported and those which are in short supply.
“D” refers to “difficult”
● items which are available indigenously but are difficult item to procure. Items which have
to come from distant places or for which reliable suppliers are difficult to come by fall into
“D” category.
“E” refers to items which are “easy”
● to acquire and which are available in the local markets.

1. S class materials
● these materials are always in shortage and difficult in procurement. These materials
sometimes require government approvals, procurement through government agency.
2. D class materials
● these materials though not easy to procure but are available at a longer lead times and
source of supply may be very far from the consumption.
3. E class materials
● these materials are normally standard items and easily available in the market and can
be purchase anytime.

VED Analysis
● criticality analysis of all the listed items was performed by classifying the items
into vital (V), essential (E) and desirable (D) categories. The

VITAL
● items without which treatment comes to stand still: i.e. non-availability cannot be
tolerated.
ESSENTIAL
● items whose non availability can be tolerated for 2-3 days, because similar or alternative
items are available.
DESIRABLE
● items whose non availability can be tolerated for a long period.

JIT Just In Time inventory management

● is the process of ordering and receiving inventory for production and customer sales only
as it is needed and not before.

Strengths of JIT
● JIT make production operations more efficient, cost effective and customer responsive.
Weakness of JIT
● In just-in-time everything is very interdependent. Everyone relies on everybody else.
Adhering to the just-in-time concept can be expensive in times of emergency such as at
ports.

KANBAN
● is the concept which attempts to maintain minimum inventory. The KANBAN process
involves more than fine tuning production and supplier scheduling systems, where
inventories are minimized by supplying these when needed in production, and work in
progress in closely monitored.

Single Kanban System

● The work center attempts to maintain one full container of parts in the output buffer for
each KANBAN.
Dual Kanban System
● Are used when large distance between workstations dictates the need for input buffer at
workstation to stage raw materials in addition to output buffer used in the single
KANBAN system.

supply chain
● is the stream of processes of moving goods from the customer order through the raw
materials stage, supply, production, and distribution of products to the customer.
Inventory Management
● for tracking and managing the availability of raw materials, stocked goods or spare parts.
This feature can also help with asset management, barcode integration and future
inventory and price forecasting.
Order Management
 ● for automating purchase order processes. For example, generating and tracking
purchase orders, scheduling of supplier deliveries, and creating pricing and product
configurations.
Procurement
● for activities and tasks associated with sourcing, purchasing, and payables can be fully
automated and streamlined across a company’s entire supplier network with supply
chain management software.
Logistics
● for coordinating transportation channels, improving delivery performance and boosting
customer satisfaction. Warehouse management features can help with storage
optimization, labelling, labor management and more.
Forecasting
● for anticipating customer demand and planning procurement and production processes
accordingly. Efficient forecasting can help remove the need to buy unnecessary raw
materials or store excess finished goods on warehouse shelves, hence reducing costs.
Return Management
● for inspection and handling of damaged or faulty goods, and processing of refunds or
insurance claims.
business network
● defined as set of two or more connected business relationships in which exchange in
one relationship is contingent on (non-) exchange in another.

Customer relationship management (CRM)

● is a broad term that covers concepts used by companies to manage their relationships
with customers, including the capture, storage and analysis of customer, vendor, partner,
and internal process information.

Features of CRM
• Operational CRM
● It is the automation of horizontally integrated business processes that include direct
access to customers, cross- sales, marketing and customer support through
multi-layered communication channels.
• Analytical CRM
● It enables thorough insight into customer needs and expectations, understanding their
behavior, forecasting behavioral patterns, segmentation, profitability analysis and other
customer-related and product- related analyses.
• Collaborative CRM
● It supports collaboration and communication with customers, partners and suppliers with
the possibility of personalization.
benchmark
● is a standard performance.
Benchmarking
● helps organizations identify standards of performance in other organizations and to
import them successfully to their own.

• Internal Benchmarking
● studies the practices and performance within organization itself.
• External benchmarking
● determines the performance of others, preferably world class companies.
• Quantitative benchmarking
● allows organizations to measure progress toward goals and to set improvement
objectives in terms of specific performance measures or metrics.
• Process benchmarking
● examines how top performing companies accomplish a specific process.

Benchmarking Process
1. UNDERSTAND in detail existing business processes.
2. ANALYSE the business processes of others.
3. COMPARE own business performance with that of other analyzed.
4. IMPLEMENT the steps necessary to close the performance gap.
1. Supply Chain
● Supply chain management is the integration of business processes from end-user
through original suppliers that provide products, services and information.
2. The Demand Chain
● Demand chain is a sequence of backward-reaching process, initiated by the
end-customer, that enable companies to anticipate demand characteristics within a given
market.
● Demand chain management as a concept aims to integrate supply and demand
processes in order to ensure customer value creation and delivery.
Distribution
● refers to the step taken to move and store a product from the supplier stage to a
customer stage in the supply chain.
● It is a key driver of the overall profitability of a firm because it directly impacts both the
supply chain cost and the customer experience.
Distribution
● The steps taken to move a store a product from the supplier stage to the customer stage
in supply chain.
Distribution
● directly affects cost and the customer experience and therefore drives profitability.
● The distribution end of supply chain management must contend with such decisions as
to whether sell the product directly, or through the seller;
Channels of Distribution

There is a chain of intermediaries who pass the product down to other organizations.
The product might change hands several times before it eventually reaches the
customer. This is what the “distribution channel” means.

Number of Different Levels To Each Distribution Channel

• Zero Level Channel
● distribution with no intermediaries
• One Level Channel
● involves one intermediary –in case of consumer goods, this usually refers to the retailer.
• Two Level System
● involves a wholesaler.

Conventional channel relationship

● involves a bunch of middlemen passing the goods on from the producer to the end user.
Single transaction relationship
● a channel is set up for only one transaction.
Vertical Marketing System (VMS)
● in which disparate distribution elements are all integrated in to one cohesive system.

The decision regarding the role of the facility is important because this decision determines
the decision of supply chain flexibility in the amendment to bring together a
bid.
Facility location
● right decisions can help to better respond to supply chain for low cost.
Capacity allocation decisions
● also have a significant impact on supply chain performance.
The allocation of resources and market demand on the facility
● also has significant impact on supply chain performance because it affects the total
production, inventory, and transportation costs that occurred in the supply chain to
satisfy customer demand.
Conventional supply chain management
● targets mainly the operational aspect of businesses, whereby inventory levels need to be
analyzed on a month to month basis with corresponding customer demand and adhoc
operational issues.