Introduction to Operations and Supply Chain Management (Unit 1) 7 UNIT 1 Introduction to Operations and Supply Chain Management i Rela RE Essie 1.1.1. Concept of Operations Management In the present era, the competition has grown up in the market. The companies are working on the quality, time based competition, efficiency, international perspective and customer relationship. ‘The various companies like Wal-mart, Southwest Airlines, General Electric, Starbucks, Toyata, Fedex and Procter and Gamble are famous for their focus on operations management. ‘The operations management basic objective is to produce the product and service which provides efficient value (o the customers, - Input ‘Transforming Outputs 1) Materials process 2 Tange goods 2) Intangible needs 1) Manufacturing _y 2) Fulfilled needs 3) Information peraions > 3) Salted 2) Service customers operations rt Figure 1.1: Viewing Operations as a Transformation Process The operation is thought to be a transformation process which takes the inputs and changes them into outputs that can be goods or services which will drive some value to the customers. The operations management efficiently use the available resources of the company by giving the goods and services according to the demand of the customers on time and at lower cost. The operations management works according to the objective of the company. The operations management works on all the resources of the organisation that is people, equipment, materials, money and time, The operations management is used in every department of the organisation as the entire department produce some goods and services from the Tesources. ‘The products and services so produced are known as ‘internal’ products/service. The operations system consists of the step of converting the resources or inputs into the finished outputs. The knowledge about the concepts and techniques of operations management is required to perform the effective and efficient use of resources ‘The operations management is important both for manufacturing and service organisation. It not only produces product and service effectively and efficiently but also all the other forms of outputs. The operations management works more properly in the operations or production function. 1.1.2, Meaning & Definition of Operations Management ‘Operations Management” is an inclusive term which comprises both manufacturing and services organisations. Operations management sheds light on the significance of the service industry in the prevailing business environment. It can be explained as process of designing, operating and improving the conversion Process, which aids the transfiguration of different inputs into various products and services. In present situations, there is an urgent need for the application of operations management principles to the service industry. Scanned with CamScanner‘& Supply Chain Managemen) SPpy i MBA Second Semester (Operations “Operatis is the field say atl agement, “Operations management is be 1 to APICS, The Association for Operations Management, “Oper nT nufacturing OF Service study that focuses on the effective planning, scheduling, use, and : ; , use, and control of MT ae organisation through the study of concepts from design engineering, industrial So information systems, quality management, production management, inventory managemen’ © and other functions as they affect the organisation”. In simple words, the main aim of Operations Management value to a given procedure. This value adding events sl conditions. umber of processes which adq s to augment the mi proces nea? Keeping in mind the marker ould be designed, 1.1.3. Evolution from Manufacturing to Operations Management ee The beginning of the manufacturing management may be traced back to the 18” century. WIPE 1 famous Scottish seoramist ‘Adem Smith for the frst time underscored the economic benefits accniing We to specialisation of labour. The theories postulated by Adam Smith were taken forward and selemenie in the carly 20” century by IW. Taylor (a mechanical engineer by profession but not an economist), who developed ific Management’ in 1911. effective techniques and wrote a book “The Principles of Scientis snsuspup unseen ssanenenl Thereafter, a series of techniques were developed till the year 1930, which Industrial Revolution supported the traditional view. The progressive development from the = manufacturing management to the operations management has been Pou Givit War Period summarised in the following points: 1) Industrial Revolution: Industrial revolution has played an important role RO aida at aeeiasiaat in shaping the manner, in which the goods are produced now. During the Scientifie Management pre-industrial revolution era, products were mostly hand-made by the ¥ persons having necessary expertise in their shops or homes. Each product [” jiuman Relations Movement avas only one of its kind (unique) made in a meticulous manner by one F yerson. However, in the year 1700, a revolutionary development took a ‘place in England, which changed the entire scenario in a holistic manner. Operations Research ¥ ‘This development is referred to as the Industrial Development. Industrial revolution had two basic components, viz.: i) Large-scale replacement of human power with the machine power and = ‘Computer Revolution Service Revolution ‘water power, and ii) The establishment of the factory system. “y ‘The workers were brought together into factories on a large-scale, asa | Supply Chain Management result of the growing need to organise them logically and scientifically 7 with the objective of improving the productivity. The significance and as ee economic benefits arising out of the division of labour (also referred to as the specialisation of labour) was highlighted in Adam Smith's famous ¥ Globalisation book ‘The Wealth of Nations’ published in 1776. It envisaged the breaking-up of the process of production into small but Figure 1.2; Evolution of specialsed tasks, which were entrusted to the workers along the production Production and Operations lines. The factories set-up during late 1700s had the elements of planning, . monitoring and controlling the work done by the factory workers alongwith the provisions of production machinery, The Industrial revolution had its origin in the United Kingdom, where majority of the technological innovations took place. The industrial revolution thereafter spread to other parts of Europes countries and the United States of America, Prior to the industrial revolution, each part used in the production process was exclusive or ‘one of its kn’ Brion oe ind ach nant atk was ined us However a ieee coe i einterchangeable parts was introduced by Eli Whitney, which envisaged standardisation of pars s0 th! of inter every item in a batch fits equally. It was a landmark development and its implication was that ca ne possible to move from one-al-a-time production to volume production, Manufacturing of watches clocks, and similar items are good examples of interchangeable parts. Evolution of industrial revolution v5 ken forward in the year 1800 with the advent of the gasoline engine and electricity, ‘This was followed bY eet jergonce of new industies, simultaneously withthe setting up of new factories’ pera Scanned with CamScannerIntroduction to Operations and Supply Chain Management (Unit 1) 1s 2) Post-Civil War Period: In the middle of the 19" century, a new industrial period emerged in the United States. The post-civil war period (1865-1877) also known as the reconstruction period, provided necessary thst to the large-scale growth potential of production capacity of various induetee Beginning of the modem type of organisations started in the form of joint stock companies which also coincided with the end of the Civil War. This was a remarkable development, which led to the distinction between the capitalist and the employer; the managers became salaried employees of the financiers, who happened to be the owner of the capital. Towards the end of 1990, the developments like enhanced capital and production capacity, burgeoning manpower in urban centres, upcoming westem markets, efficient transport system at the national level, etc., created an environment most suitable for the great production outburst of the period. 3) Scientific Management: ‘The theory of ‘Scientific Management’ was put-forward by the renowned American mechanical engineer Frederick Winslow Taylor (1856-1915). The focal point of his theory was ‘machines and the system of their use. His theory was based on certain postulations, known as the Taylor's postulations, which stipulates the following: i) Any kind of work is governed by the scientific laws; the scientifie methods may be put to use for the proper analysis of the work, ii) Each worker performs with different ability; their potential needs to be identified and matched with their jobs. This may be followed by imparting appropriate training to them, so that their full potential can be utilised, ii) Self-interest of an employee is the strongest motivational force; this may be used to encourage the employees for better performance, and iv) There should be segregation of responsi ities of workers and managers. ‘Time and Motion Study ‘The time and motion study may be defined as a business efficiency technique, which analyses the combination of the Time Study work (Frederick Winslow Taylor) and the Motion Study work (Frank and Lillian Gilbreth). It is a systematic and sophisticated method, which takes into account the limits of ‘human physical and mental capacity, and the importance of a good physical environment, Time and motion study invoives the analysis of various operations carried in connection with the ‘manufacturing process of a product in a factory. Its objective is to enhance the overall efficiency. Each step of the operation is studied thoroughly and carefully before the analysis, in order to remove undesired ‘motions and ensuring reduction in the production time and improvement in the output. During the early period of 20" century, many industrialists and other eminent personalities came forward with the innovative ideas, which brought about major changes in the area of operations management. The important amongst them are: i) Alfred P. Sloan (General Motors) who introduced the concept of ‘organisational management’, ii) Henry Ford who introduced the concept of ‘assembly-line manufacturing’, and iii) Elton Mayo (an Australian psychologist), who came out with the ‘Hawthorne Experiments’ in 1927, which ultimately resulted in the Human Relations Movement. 4) Human Relations Movement: The manner in which managers of an organisation interact with their employees is termed as “Human Relations’. If the management is able to motivate its employees properly, the outcome is good and of better quality. Such an organisation is said to have effective human relations. On the contrary, if the management fails to motivate its employees, and as a result their efficiency and morale decline, the organisation is said to have ineffective human relations. The history of human relations started with the contribution of Elton Mayo, FJ Roethlisberger, TN White-head, and WJ Dickson at the Hawthorne, Mlinois. Their contribution is referred to ae the Hawthorne studies, which were initially started by industrial engineers with the objective of determining the ‘most suitable level of lighting in order to have the optimum production from workers. The outcome of these studies was confusing with regard to the relationship hetween physical environment and workers efficiency, which made the’feSearchers realise the significance of the human factors. This was the first time that the researchers and fhahgers were on the same scale regarding the fact that psychological and sociological factors affected not rily human motivation and attitude but also the production. Scanned with CamScanner16 MBA Second Semester (Operations & Supoly Csin Managemen) SPpy 5) Operations Research: Operations research is a branch of management which uses modem ang sophisticated analytical methods to: i) Facilitate better decision-making, and Solving complex problems. ii This approach was developed in the year 1940 which has a quantitative perspective of — allocation, monitoring, and controlling of various scarce resources such as material, skilled workers, "MAX OnE®, Money and time, Operations research is also viewed as a branch of mathematics, as it makes. Wee DF various techniques from other mathematical sciences, such asmathematical modelling, statistical” analysis and mathematical optimisation, et. ‘The technique of Operations Research may be applied in areas such as supply chain management, marketing and revenue management systems, manufacturing plants, financial enginecring, telecommunication networks, healthcare management, transportation networks, enerBy ‘and the environment, service systems, web commerce, military defence, etc. Models on linear programming, network flow problems, inventory theory, dynamic programming, machine maintenance, queving and game theory, etc., may be developed to identify the ways to improve the operations. ©) Service Revolution: Service sector started taking shape at the global level before the beginning of the World War-II, and gathered momentum after the War came to an end. The momentum, which continued to gain speed thereafter, is still growing at a fast pace. This is true especially in the context of an Emerging Market Economy (EME) like India, where the share of service sector (tertiary sector) in the GDP has shown an increasing trend year after year, in comparison with that of the agriculture sector (primary sector) or industrial sector (secondary sector). The phenomenal growth of service sector has influenced the production management in a major way. It has posed such a challenge before the production managers that they are compelled to chalk-out strategies and actions so that the services areas are managed properly for the improvement of productivity, quality and competitive edge. Services sector is expected to gain more significance in the future or coming time. 7) Computer Revolution: Application of computers in business started way back in the year 1970, which ‘grew at an enormous speed subsequently. Computers proved to be a great help in the widespread use of various quantitative models, which were developed by the management science. Data processing became much smoother and hassle-free in the areas like forecasting, scheduling and inventory management. Management of the organisations’ operations were greatly influenced by the computer hardware and software. Organisations’ dependence upon the computers continued to grow unabatedly. Due to the availability of a wealth of information in abundance and easy access to more information, operations decisions became easy to make in a prompt manner. Advancement in computer technologies and software applications has ensured fast and better decision-making. Evolution and expansion in the field of communication technologies have empowered companies (0 manage their operations efficiently at the global level; they are also able to work in a smooth way on the intemational projects by having uninterrupted communication with their globally placed team members. E- mail has enabled employees, other colleagues, vendors, and customers to communicate with cach other in prompt and hassle-free manner on a 24x7 basis. All these developments have made the decision-making process fast and operational activities have improved. ‘The Production and Operation Management (POM) of various organisati 7 ! - manner during the period 1980-1990 because of the following ee ‘was influenced in a posit i) Robotics and numerical control, }) Computer-assisted design, iii) Statistical process control for quality (Total Quality Management), iv) Lean (just-in-time) manufacturing, y) Benchmarking, and vi) ISO standards. : The erux of the supply chain man: i ; 8) Supply Chain Management: 1 ‘agement lies in the application of the TO! Syern approach, which entails the management ofthe flow of information, materers any vesicesf the suppliers thereof through’ factories and warehouses to the end-users, ie, customers. Latest tlevelopments in this regard like outsourcing and mass customisation are indicative of major dit in — Scanned with CamScannerIntroduction to Operations and Supply Chain Management (Unit 1) a trend which have compelled the companies to seek easy ways to fulfil customers’ expectations. They are concentrating on prompt and quick action (optimising their core activities) on their part in response to the fast-changing customers’ preferences, 9) Blectronic Commerce: The advent of the internet and the World Wide Web (WWW) during the late 1990s is considered as the most notable development of the tise with far-reaching impact. E~ commerce denotes the use of internet as the backbone of the business activity. Genesis of the internet may be traced back to the U.S, Government network called Advanced Research Projects Agency Network (ARPANET), which was created in 1969 by the defence department of U.S. Government. The manner in which people access information, shop and communicate undergoes changes accordingly with the use of web pages, forms, and interactive search engines. The internet has also brought about drastic changes in the way operations managers coordinate and execute production and distribution processes. 10) Globalisation: Globalisation may be defined as the process of international integration, which is associated with the exchange of world views, products, ideas and various facets of culture. It has resulted in phenomenal increase in the international trade, The inclination towards healthy competitiveness between the busines tions as well as the nations has become a regular feature through better communications and trade agreements. Table 1.1: Historical Summary of Operations Management [Date Contribution Contributor 176 sation of labour in manufacturing. [Adam Smith 1799]interchangeable parts, cost accounting Eli Whitney and other 1832[Division of labour by skill. assignment of jobs by skill, basies of time [Charles Babbage Istady 1900|Scientific management time study and work study developed; dividing _ Frederick W. Taylor [planning and doing of work 1900] Motion of study of jobs [Frank Gilbreth 1901)Scheduling techniques for employees, machines jobs in manufacturing [Henry L. Gann 1915] Economic lot sizes for inventory control IF.W. Harris 1927|Human relations; the hawthome studies [Eton Mayo 1931|Statistical inference applied to product quality: quality control charts __|W.A. Shewan 1935|Statistical sampling applied to quality control: inspection sampling plans |FL.F. Dodge & H.G, Roming 1940|Operations research application in World War I P.M. Blacker and others 1946) Digital computer [Yon Mauchily and J.P. Fckert 1947 |Linear programming [G.B. Dantzig, Williams & others 1950|Mathematical programming, on-linear and stochastic processes [A. Chames, W.W. Cooper & others 1951|Commercial digital computer: large-scale computations available, ISpeny Univae 1960|Organisational behaviour; continued study of people at work [LCummings, L-Porter 1970]Integrating operations into overall strategy and policy, computer |W. Skinner J, Orlicky and G. Wright lapplications to manufacturing, scheduling and control, material requirement planning (MRP) 1980|Quality and productivity applications from Japan; robotics, CAD-CAM _|W.E, Deming and J. Juran 1990|Supply chain management, TQM. [National Institute of Standard & Technology |SAP (Germany) Oracle United State [2000|E-commerce [Amazon, E-bay Source: Adapted from Shah, A Textbook Of Pharmaceutical Industrial Management, Elsevier India. 1.1.4, Features of Operations Management Following are the nature of production and operations management: 1) Transformational Process: The transformation of raw material management. is the main task of production 2) Offers Value Addition: Every succeeding level adds some value to the preceding one. As an instance, construction process leads to value addition to inputs such as sand, Scanned with CamScanner18 MBA Second Semester (Operations & Supply Chain Management) SPPU 3) System Itself: It entails a comprehensive logical process which requires following a definitive sequence of activities. 4) Exists for Certain Objectives: The first step is to set an objective and for meeting that specific objective, the whole procedure needs to be tracked, 5) Carried Out in Part of Organisation: It shows that production is not the sole function executed by the organisation. It performs other functions such as research and development, finance, etc. 6) Interrelationship among the System: A system cannot work in seclusion and its success depends on its interaction with other systems. Various systems co-exist. 7) Stratum Formulation: A production system exists through various levels of hierarchy in an organisation, Each level of the organisation benefits from it. 8) Specialisation of Function: Various functions may be executed separately and the individuals may attain specialisation in them as they perform them repeatedly. 9) Increase in Entropy: This entails dilapidation of the matter and energy existing in the universe until it reaches the final stage. For slowing down the momentum of the degradation, new methods need to be introduced. 10) Increase in Productivity: With specialisation, the time required to complete the work decreases. 1.1.5. Scope of Operations Management Production management deals with factory management and is concerned with the management of difficulties encountered during the process of production. The evolution of industrial age led the production process to have big problems which required constant attention. These problems dealt with layout planning, schedule maintenance and quality control. This led to the increase in scope of production management. Earlier, these issues did not pose any problem as manufacturing activities were assigned to a very limited number of people. Increase in level of production has led to the increase in complexity of production management, increasing its scope at the same time. It not only concems itself with making the best use of production amenities but also of human resources, latest technology and quality control techniques. Following are the main activities which form the crux of production function: 1) Activities Connected to the Design of Production System: The main function of production system is to take decisions related to the production system design. This movement deals with production engineering. It includes designing of jigs and tools, decisions regarding designing, developing and installing various equipment. Decision concerning the scope of the firm is also an important one. For these decisions, production manager and his staff need to have high level of expertise. Production system design also deals with the selection of techniques to be used for work. It undertakes motion study, process analysis, time study and decides optimal layout for the plant, Following are the two main problems which the production system designers deal with: i) Human factor which defines the way the system affects the workers using it. ii) Research and development activities. Production system is designed keeping these two factors in mind. 2) Activities Related to Analysis and Control of Activities: Once the production system is designed, there is need to analyse and control it. This relates to decisions conceming production management and consequently all other functions of management. The concemed activities include: i) Production Planning: The production planning furction deals with preparing short term production schedule, planning for the maintenance of records of raw materials, and finished and semi-finished stocks. It also specifies how various production resources should be used to meet forecasted demand for goods and services. * Scanned with CamScannerIntroduction to Operations and Supply Chin Management (Unit 1) 19 ii) Production Control: Apart from planning, production function deals with the control of production plans, For ensuring the best utilisation of resources, the production manager regulates work assignment, reviews work progress and eliminates inconsistencies between planned and actual performance. The production manager st ipervises the production control undertakings at the following three levels: a) Itdeals with controlling the static inventory including raw materials, supplies, purchased parts and finished goods by employing various inventory control methods. 'b) It controls movement of materials into the plant using proper purchase techniques. c)_ Itcontrols work in progress using production control. iii) Quality Control: Production manager also deals with quality control issues. Product quality is the function of manufacturing and engineering which establishes the extent of the product meeting the anticipations of the clients. Quality is controlled through the use of various statistical quality control techniques and inspection techniques. 1.1.6. Objectives of Operations Management Following are the main objectives of production and operations management: 1) Ultimate Objectives: ‘The main function of the manufacturing activities is to produce goods and services with following qualities: i) Right Quality: The appropriate quality standard for a product is determined keeping in view the requirements of the customer, It may ot may not be the best quality as the production management needs to keep costs and other technical features in mind as well. ii) Right Quant ‘The production should be done in right quantity to ensure that there is no significant under or over production. In case of over production, the capital is unnecessarily tied up in inventories ‘while in case of under production, the supply will not be enough to meet the demand. iii) Right Time: Another factor to determine the efficacy of production division is related to its ability to deliver the goods and services on timely basis. For this purpose, it is important to make optimal utilisation of resources, iv) Pre-Established Cost: The determination of manufacturing costs is done before the actual manufacturing is done. The firm should endeavour to stick to the predetermined costs and not have much variation, 2) Intermediate Objectives: Following are the main intermediate objectives: i) Machinery and Equipment: The main objectives in this regard are a) Procurement of machinery and apparatus and b) Utilisation of machinery and equipment, There should be proper availability of machines. The efficiency of machines can be maintained or enhanced through proper maintenance, ‘occupancy and repair. ii) Materials: This objective should be presented with regard to units, monetary units or space units. Costs should be enumerated on per unit basis. It should be endeavoured to increase the inventory tumover rate for all kinds of inventory. iii) Manpower: Human resources are a vital input. For this purpose, proper attention must be paid to the process of selecting, placing, training, compensating and utilising manpower. The efficieney of these processes can be measured using safety measurements, employee tumover rate, absenteeism and industrial relations. iv) Manufacturing Services: Utilisation of various inputs including materials, machines and manpower resources is determined by the provision of adequate and proper services. The appropriate aims should be fixed for maximum efficiency. 1.1.7. — Significance/Importance of Operations Management Following are the main significance/importance of the efficient production and operations management: 1) Benefits of Operations Management to Organisation: Operations management helps an organisation by making effective utilisation of scarce resources such as machines and labour. It also lowers levels of work in process inventory for better utilisation of capital. Organisations with better operations management are also more responsive to customer needs. It helps in finding of hidden capacity. Scanned with CamScanner20 MBA Second Semester (Operations & Supply Chain Management) SPPU 2) Consismer: Production management helps consumers by offering them better products and by lowering the price level. It also helps in ensuring timely availability of the products at the right place. 3) Investors: Operations and Production management helps investors by offering them better returns, more security and higher credibility. 4) Employees: Workers get better job security, wages, higher job sat conditions. 5) Suppliers: They are assured of timely payment which builds faith in the organisation. 6) Community: Better production and operations management hélps community by providing economic and social stability. 7) Nation: The nation is benefited through robust industrial scene and higher prosperity. tion and improved working 1.1.8. Functions of Operations Management ‘The operations management comprises of the following functions: 2) Production Planning: Production programmes — both short-term as well as long-term- like routing, scheduling, preparation of orders, and preparation of demand schedules are handled by the production planning. They are discussed in the following points: i) Routing: It chalks out the requisite work operations and orders thereof, i) Scheduling: It stipulates the beginning and completion time of different activities concerned with the production work, iii) Preparation of Work Orders: It is nothing but the authorisation to go ahead with the production programme simultaneously at various locations, and iv) Preparation of Demand Schedules: Demand schedules in respect of various requisite materials, manpower and necessary amenities, which may be required at various locations from time-to-time. 3) Production Control: To have an adequate control over various production processes is another significant function of the Production and Operations Management, responsibility of which lies with the Production ‘Manager. In this regard, necessary steps are required to be taken with a view to ensure that resources and other factors are used in an optimal and efficient manner with the following objectives: i) Cost of production is kept at the bare minimum, ii) The production of finished goods is in accordance with the specifications stipulated by the customer, ‘The requisite quantity of the product is delivered to the customer before or on the scheduled date, and iv) Satisfaction level of the customer should be the priority. ‘Scheduling of the work is of paramount importance as far as this function is concerned. 4) Quality Control: The production manager has been entrusted with the responsibility of maintaining the quality of the final products according to the specifications stipulated by the customer. It is, therefore, necessary that a system be put in place to ensure that no deficient products are shipped to the customer. Such defective goods, if produced, need to be segregated and disposed off separately. 5) Industrial Engineering: Industrial engineering may be defined as a branch of engineering which provides solutions as to how to optimise various complex processes or systems. It ensures elimination of different forms of wastage of resources (e.g. time, money, materials, man-hours, machine-hours, energy and other resources not generating any value). In order to achieve its objective, it also covers designing of tools, zigs, fixtures, gauges, and other requisite accessories. Further, through the time and motion studies, it ascertains the standards of performance, which may act as the basis of various incentive schemes. 6) Purchasing: Purchasing of materials and equipment forms the part of the production function, The decision regarding specifications in the matter of their quality aspects are saken either by the Production department or the staff department. However, the decision regarding their quantity and frequency of their purchase are generally taken by the material department, with due consultation with the production manager. a Purchase department is empowered to take decisions with regard to the supplier, price, delivery date, etc. Scanned with CamScannerIntroduction to Operations and Supply Chain Management (Unit 1) a 7) Plant Engineering: Function of the plant engineering relates to planning, designing, specifying, installing, modifying and maintaining plant amenities/services like light, heat and power. 8) Manufacturing: Manufacturing is the core process, through which the raw materials are converted into finished goods and services. Industrial engineering, plant engineering, production planning and purchasing together play an important role in performing the staff functions of providing services and advising manufacturing wing. They facilitate the actual manufacturing processes by: Mg Providing production programmes, schedules, routes and work orders, Spelling out the methods, processes and standards of operations, i) Ensuring the maintenance of plants and equipment, and jv) Ensuring the uninterrupted supplies, including that of the raw materials tothe plant. 9) Method Analysis: A number of alternative methods are available for manufacturing any product. Each method has some merits and demerits especially with reference to the economic viability, cost effectiveness, etc. There is a need to undertake a thorough analysis of each method and their comparative study, on the basis of which the decision to select the best method may be taken. This exercise is known as Method Analysis; its objective is to ensure: i) An improvement in the productivity, and ii) Reduction in the cost of production, 10) Inventory Control: Controlling the cost of production is the responsibility of the production manager. He does it by managing various resources (men and materials) in a prudent manner, including bringing down the wastage level thereof. As part of this exercise, it is necessary to establish the economic-lot size, economic-order quantity, re-order levels (minimum, maximum, and danger level of the stock) of various materials, which would ensure that the cases of over-stocking or under-stocking do not take place. Physical and financial control of materials should be exercised by the production manager. 11) Plant Layout and Materials Handling: Machines and equipment should be arranged in the plant in such a manner that the production cycle keeps on going without any hindrance. In an efficient plant layout, through a proper material handling mechanism, the cost of production may be curtailed drastically, as they (efficient plant layout and proper material handling) ensure the minimum wastage of men and material. 12) Work Measurement: There are different methods of work measurement (the level of a worker's performance). One of such methods is “Labour Cost per Unit’, which differs accordingly with the different levels of production. It is the responsibility of the production manager to monitor, control and maintain the same (Labour Cost per Unit) at the minimum possible level. 13) Other Functions: Other functions performed by a production manager includes engineering economics, cost control, maximisation of the labour efficiency, standardisation and storage, price analysis, wage incentives to workers, etc. 1.1.9. _ Problems/Challenges of Operations Management Following are the main problems related to operations management: 1) Problem of Location of the Plant: Operations management chiefly endeavours to decide about the Jocation of plant. Various factors such as proximity to markets, raw material, transportation costs, banking facilities and motive power availability are used for making choice out of available altematives. Other factors such as service and cost should also be thoroughly checked. 2) Problem of Plant Layout: Plant layout is another challenge faced by production and operations ‘management. Machines should be placed in the manner to ensure that the material handling costs and time are minimised. Other factors which affect plant layout are lighting, heating and allied utility issues, Design of the building and storing space should also be considered. 3) Problem of Product Designing: Product design should be considered in advance as it affects plant layout and design. Any change may prove to be costly for the firm. It should also be ensured that proposed layout is not very complex or expensive. ———— ct Scanned with CamScanner2 MBA Second Semester (Operations & Supply Chain Managé nent) SPPU 4) Problem of Inventory and Production Control: Proper production flow requires finished stock and invemory control in place. Inventory control may be exercised through various techniques such as Economic Order Quantity, ABC reorder and technique level. It should be ensured that excessive capital is not tied up in inventory and also that production process is not interrupted. 5) Problem of Quality Control: Production and operations management should ensure that goods are Produced according to the quality metrics required by consumers. It should adhere to quality management Policy of the organisation and no deviation should be allowed. Various techniques used for ensuring proper quality are statistical quality, product inspection and control techniques. 6) Problem of Labour Control: Labour cost control is one of the most important constituent of total cost, Hence, it is very important to manage labour, There should be proper labor appraisal and production planning. Proper attention should be paid to the drafting of labour policies such as work study, work measurement, wage policy, etc. 7) Problems of Cost Control and Improvement: The main objective of production and operations management is to increase production and minimise costs, For achieving this objective, the management should endeavour to control the wastage of resources such as overhead, material and labour by balancing costs incurred on them. 1.1.10. Current Priorities for Operations Management Following are the few priorities of operations management: 1) Matching Operations Systems with Customer Needs: The manufacturing decisions are not taken on the basis of internal factors, but are designed keeping in view the requirements of the markets and consumers. It is important thot all the decisions are taken, keeping in mind the requirements of the customers. The design ‘can be of various kinds such as pesformance measure, manufacturing, and service delivery system design, Supplier management or product development. If the product or service is not fully utilized by the consumers, then various reasons behind it should be identified. The management should then take steps to rectify such issues. This entails implementation of better quality management practices. 2) Developing Capability for Absorbing Increasing Product Demand: As the business grows, the ‘customers are likely to demand more variety of the goods and services, It is important for a business to be flexible enough to accommodate such changes and expansions. The organisation should be able to fully understand the requirements and then modify the production process accordingly. Such expansion of demand generally leads to the organisations offering a wide spectrum of products or services which range from low volume and high price range to high volume and low price range, The managers should be able to understand the implications of such changes and design the processes accordingly. 3) Developing Systems and Procedures to Promote Learning: It is important for every organisation to Constantly improve factors such as the cost of the product, quality, delivery and responsiveness to feedback. Such improvements can be brought about in a planned manner. The employees in an organisation should take up constant leaming to enhance their knowledge. The organisation should endeavour to set up the practices which will enhance constant learning. 1.1.11. Physical Goods and Service Perspectives of Operations Management Business organisations can broadly be categorised in two groups; those engaged in manufacturing of goods, and those engaged in the business of providing some kind of services. Manufactured goods ate physical and tangible items, which can be stored after their production before their actual delivery to the retailers/customers, whereas it is not possible in the case of services, which are intangible in nature, and as such eannot be stockpiled. Of late, the share of service sector in the overall industrial growth (including the manufacturing sector) in India has been showing an increasing trend — a striking feature exhibited by all the developed und industrialised countries. To deseribe various activites, responsibilities, and related decision-making processes shouldered by the operations ‘managers working in service organisations, the term ‘service operations management’ is widely used. There are some basic differences (and consequences thereof) between the operations management of manufacturing sector and services sector, which would be discussed in details in the following points. Due to the fact that the services cannot be stocked, their production and consumption necessarily takes place simultaneously, and there is a face-to- ‘ face meeting between the service-provider and the customer (service recipient), Sp Scanned with CamScannerIntroduction to Operations and Supply Chain Management (Unit 1) 2 Volatility in demand is a common phenomenon in both ~ manufacturing as well as services — sectors. In case of manufacturing sector, such fluctuations can be managed through stockpiling the inventory of finished goods, manufactured during the lean period (off-season). However, the fluctuations in demand pose a major challenge in the case of services sector, where the stockpiling of the produce is not possible due to their intangible nature. This challenge is overcome by the service-providers through manipulating the demand pattern in order to meet capacity through designing various strategies, e.g. offering special discounts on services during the slack period. in services sector, the performance or productivity of employees is difficult to measure due to intangibility factor, e.g. an administrative service. In manufacturing sector, on the other hand, the employees’ performance may be measured in terms of output of the product range. Difference in Goods and Services The terms ‘goods’ and ‘services’, though generally used in one breath, are poles apart, as far as their characteristics are concerned. The basic difference between the above two is that one (goods, e.g. food items, clothes, books, furniture, etc.) is tangible in nature and as such can be touched, moved, or stored, while the other (Services, e.g. hotel business, personal care, legal/medical consultancy, banking, intangible in nature, and as such cannot be touched, moved, ot stored. insurance, etc.) is The salient points of difference between the “goods” and ‘services’ are summarised in the following table: Basis of Difference ‘Goods Services 1) Perishability ‘Goods are comparatively not easily perishable, and they| can be stored for longer period, [Services exist only for a short period at the time of| their production, and need to be consumediavailed| promptly. They cannot be stored. 2) (Goods are separable, as they are first manufactured, supplied to the wholesalen/tetailer, sold to the consumer, and finally consumed. ‘The service provider and the consumerheceiver of the service are inseparable. Services are heterogencous, inasmuch as they vary in terms of quality, output, and delivery everytime they are offered, 3) Variability [A manufacturer of goods is expected 10 manufacture goods as per the standards or samples either specified by| the customers or self-prescribed standards. He is Jaccountable for any departure from —those| standards/specifications. ‘Services are characterised by their extremely flexible land deviant nature, Their quality is dependent upon @ number of factors, e.g. the service provider, the| [customer, the place and time of delivering services etc. 4) Tangibiity Products are physical objects and tangible in narure. Al buyer, when he purchases a product, can cary the same,| fown it, and resell it, if so desited by him. Some| jexamples are an air-conditioner, a washing machine, a computer, etc. Services are not in physical form; they are intangible ‘in nature, and as such, they cannot be moved, ‘owned, or resold. Some examples are services provided by hotels to their guests, insurance policies, ‘medicallegal consultancies, ee 5) Trust (Quality of a product is more important rather than the| [focus on abstract ideas like “trust” and ‘confidence’, Performance of the service is what actually matters Thus, there is focus on ideas like ‘trust’ and ‘confidence’. 6) Time [At the time of selling a physical product, the time| investment is one-time investment for the creation or| lacquisition of the product. There is no element of further ‘time-investment in re-selling of the same product. Activites associated with services are time-intensive by nature, For the continuance of service provision, itis necessary to keep on investing in time, ny Deliverability During the sale ofa product, customers may be assured 3 probable date of delivery, whether the sale is online or offline (over the counter). On the date of delivery, the product is physically delivered tothe customer. [Only on receipt of un order, the service is generated and provided with variable delivery time. Marketing lof services is comparatively a tough job, inasmuch] as it entails assuring customers about the delivery of] quality results within the stipulated timeframe, 8) Wants: Needs ‘and [Chances of buying goods on desire by clients are quite high, Some of the products are purchased by customers, fas they find them very attractive, without giving | thought whether they need them or they are of any use for them or not. If a customer moving in the market and| sees a new model of watch, he is tempted to buy it, (and| buys it) without giving any consideration to the fact that he already owns a few watches. Instances of impulsive buying in the case of services jare few and occasional. Services are always nee based. Be it insurance, banking, consultation in respect of medical/legal matters, all of them are need-based. They cannot be impulsive in any case. 9) Relationships Marketing of a product hardly depends upon developing a close bond withthe customers. [Marketing of a service depends to a great extent upon a close bond with the customers. 10) Returnability It is possible to return physical goods. Delivery of services is an imeversible process, A| service, once delivered, simply cannot be returned 1) Elements [Marketing of a physical product is fownded on the P's", viz. Product, Price, Place, and Promotion. Marketing of a service is founded, in addition to the traditional “4 P's", on three additional “P's”, viz, People, Physical evidence, and Process. Scanned with CamScannera MBA Second Semester (Operations & Supply Chain Management) SPPU a TT aU Net a Sat 1.2.1, Meaning and Definition of SCM The interactive network of suppliers, manufacturers, logistic service providers (involving assembling and tribution activitics) involved in various functions like procurement and transformation of materials into intermediate and finished goods, followed by their distribution to customers is known as supply chain, Both manufacturing as well as service organisations have supply chain networks. Supply Chain Management (SCM) is a multi-functional process which involves management of inter-linked business networks involved in the crucial purpose of delivering products and services required by the end users/eustomers. It is associated with the planning, designing, executing, monitoring and controlling the activities of supply chain with the main aim of creating value for the offered products and services. According to Cooper and Ellram, “Supply chain management is an integrative philosophy to manage the total flow of distribution channel from the supplier to the ultimate user”. According to Christopher, “SCM is the management of upstream and downstream relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole”. SCM is a systems approach which manages and controls the flow of goods, money, raw materials and information from factories and distribution centres (i¢., warehouses) to the end users. The term ‘supply management’ is different from SCM, as it mainly focuses upon buyer-supplier relationship; however, SCM has a broader scope. Today, various manufacturing and service firms consider SCM as a source of gaining higher level of competitiveness and productivity. In the last five years, there is a sudden increase in the research activities related to SCM activities which indicates the growing importance of supply chain management. Quick Response Supplier r Information flow Information| flow | | | | ‘sueruier # —{ manuracrurer }e—| DISTRIBUTOR aterat | averat Movetoa flow leaible flow System) Single Source Figure 1.3: Concept of Supply Chain Management 1.2.2. Physical Distribution to Logistics to SCM In the past old days, logistics management was considered as the fundamental activity which involves marketing, sales, manufacturing and inventory functions of an organisation. A century ago, various economists and analysts determined the exchange process because they considered distribution activity as a function through which goods fnd commodities move along different channels of supply chain, Although logistics was important, yet the development of its concept was slow. However, majority of the executives considered logistics as tactically important. According to them, logistics had vast scope and involved transaction of large quantities which was practically unmanageable as a combined function, It was only in the 1970s that organisations started considering logistics as an integrated concept, and a means of achieving competitive advantage. Supply chain management was developed, and is said to have occurred in different phases explained below: 1). Physical Distribution: Started between late 19" century to 1960s, physical distribution is the first phase in the evolution of supply chain management. During this interval, logistics played the role of a secondary important function after marketing, sales, and production. It had a little importance in the day-to-day management operations. To bring about greater efficiencies, logistics function was decentralised and the responsibility of managing the logistics infrastructure was shared between marketing, manufacturing and finance departments. Towards the end of 1960s, logistics became a trend and time-bound logistics was a Scanned with CamScannerIntroduction to Operations and Supply Chain Management (Unit 1) a shifted from rail to road transportation, This created a necessity for bringing in greater co-ordination, and consolidation in the functions of warehousing, material handling and freight movement, All these functions became an integral part of the physical distribution, During the commencement of 1970s, firms started realising their operational and cost inefficiencies associated with decentralised system. This led to the evolution of the second phase, wherein logistics functions were combined and centralised, so that organisations could achieve their objectives at a much more optimum cost levels. This transition of logistics from a decentralised function to a cost-based coordinated and centralised activity marked the beginning of current modern logistics system, 2) Logistics Management Phase: Originated in 1980s, logistics management phase visualised the transition of logistics function from a passive management approach to a modem tactic in which logistics functions became a source of competitive advantage for companies. In order to achieve this, the integrated logistics functions were expanded and ways for re-engineering were explored, go that they could serve as a source of strategic competency for organisations, 3) Supply Chain Management Phase: During the beginning of 1990s, the evolution of supply chain ‘management concept took place. It was the next phase after logistics management, This was the age of increasing competition and globalisation, where companies found that even world class logistics systems did not suffice in providing them with a competitive advantage. In order to attain and maintain market leadership, majority of executives realised that they need to change the old concepts of logistics that only created internal competitive advantage to ones which created external advantages as well. This became the core concept of supply chain management. Thus, SCM is a two-dimensional concept which aims at two ferent objectives. First, to increase the cycle times of inventory and information within the supply chain, thereby maximising the links between suppliers and internal functions. Second, to manage and control the networking of competencies related with various supply channels. These supply channels aim at creating shared marketplace and competitive visions. This dimension also involves the co-evolutionary alliance and new marketplace opportunities that enable supply systems to gain competitive advantage. 1.2.3. Features of SCM Following are the salient features of supply chain management: 1) Integrated Behaviour: SCM tries to bring about co-or. suppliers to customers. 2) Mutually Sharing Information: An effective SCM involves mutual sharing of information among its channel members. Information is shared especially for the purpose of planning and monitoring. 3) Mutually Sharing Channel Risks and Rewards: An effective SCM also involves sharing of channel risks and rewards, which evidently leads towards the achievement of competitive advantage. Such sharing should be on a long-term basis as it is significant for promoting co-operation among members involved in the supply chain. 4) Co-operation: Effective SCM requires appropriate co-operation among its supply channe? members. It implies that there should be coordination between various activities undertaken by business firms in order to gain mutual outcomes in the form of superior-end product. 5) Focus on Serving Customers: Every member involved in an effective supply chain shares a common goal and objective of catering the needs of end users. For this purpose, policy integration is essential. 6) Integration of Processes: The SCM process can be implemented successfully only if, there is integration between the various processes of SCM, namely procurement, manufacturing and distribution of end products throughout the distribution channel. Such integration can be achieved through cross-functional teams, third party service providers, and supplier personnel present at the operational plants 7) Partners to Build and Maintain Long-term Relationships: SCM focuses upon building and maintaining long-term relationships among the partners. These relationships integrate channel policy which avoids clashes and redundancy, while seeking co-operation. tion between different stakeholders, ie, from This helps in achieving high level of co-operation and co-ordination among the stakeholders which ultimately minimises the overall cost. Integration of various policies can be undertaken only when there are compatible cultures and suitable management methodologies present within the supply chain, Scanned with CamScannera6 MBA Second Semester (Operations & Supply Chain Management) SPPU 1.2.4. Objectives of SCM ‘Supply chain management has the following objectives: a8 1) Service Orientation: To provide superior services to end users is one of the main objectives of SCM. The overall superior value that a customer receives can be referred (0 as service. However, this value largely depends upon the perception of customers. 2) Systems Orientation: Systems orientation forms the core of supply chain. Due to co-operation and co- ordination among channel members, a synergy is created, which is the main advantage of supply chain. 3) Competitiveness and Efficiency: An important aspect for healthy existence of a firm’s supply chain is Competitiveness as it is essential for providing increasing value to the end users. Therefore, for attaining Competitiveness, it is essential for companies to achieve high efficiency levels, as efficiency is the main component of competitiveness. 4) To Minimise Time: The time involved in conversion of orders into cash is significantly reduced through an efficient supply chain. This helps in reducing the overall time lag, which ultimately increases the organisation's productivity. 5) To Minimise Work-in-Progress: SCM aims at minimising the overall work-in-progress involved in the supply chain, 6) To Improve Visibility of Demand: demand. help of all its partners, SCM aims to improve the visibility of 7) To Improve Quality: Improving the quality of operations undertaken at various stages of supply chain is another objective of SCM. 8) To Decrease Transportation Cost: One of the most important objectives of SCM is to minimise the transportation costs involved in the supply chain process. With this, SCM reduces the total carrying cost which evidently increases organisation’s efficiency. 9) To Decrease Warehousing Cost: An efficient supply chain aims at reducing the amount of inventories held at warehouses. This significantly decreases the warehousing costs. 10) To Improve Value: Value is the difference between the worth of final product to the consumers, and the effort made to provide the product. SCM aims to maximise and improve the overall value created by its products and services. 1.2.5. Types of Supply Chain ‘The types of supply chains are as follows: ‘Types of Supply Chain Raw Supply Chains Ripe Supply Chains Internal Supply Chains Extended Supply Chains ‘Self-monitored Supply Chains Outsourced Supply Chains Production-Oriented Supply Chains Financial-Oriented Supply Chains ‘Market-Oriented Supply Chains ‘Value Chains 1) Raw Supply Chains: Raw supply chain is one of the basic types of supply chain, It is very lightly ‘organised, and most of the systems and processes are followed from the legacy. Organisations adopting raw supply chains often suffer from various departmental silos. However, they maintain appropriate co- ordination among them which provides a better visibility to the organisation's processes and operations, Scanned with CamScannerInwodueton to Operations and Supply Chain Management (Unit 1) 7 2). Ripe Supply Chains: This type of supply chain exists in the situations where organisations are satisfied with what they have achieved and whatever needs to be achieved. Ripe supply chains have well-organised activities, and improved relationship with distributors and suppliers. However, a small portion of information flows through these types of supply chains, 3) Internal Supply Chains: They are the most common types of supply chains and can be easily found in organisations, where ERP (Enterprise Resource Planning) packages and organisational internal operations are well-coordinated and managed. 4) Extended Supply Chains: Extended supply chains are an extension of the internal supply chain concept. These are nothing, but well-established internal supply chains which extend beyond the boundaries of the organisation to include external stakeholders like distributors and suppliers. However, the focus is only on the topmost distributors and suppliers. 5) Self-Monitored Supply Chains: In this type of supply chain, the manufacturing company becomes the centre, and takes the lead in bringing all the partners and suppliers in its supply chain. Thus, self-monitored supply chains are company-centric and not customer-centric, 6) Outsourced Supply Chains: Under these supply chains, outsourced supply chains which are typically in the form of 3PL logistics partners, take care of all the aspects of the supply chain, ie., outbound logistics, inbound logistics, relationships, etc. They take all the critical decisions, and also monitor the working of the supply chain, 7) Production-Oriented Supply Chains: This type of supply chain has a single objective — to make ‘maximum utilisation of capacity and labour. These supply chains consider production as the utmost important function, and all the other activities lag behind. 8) Financial-Oriented Supply Chains: Also known as eash-to-cash eycle chains, these chains aim to provide the organisation with a negative working capital (accounts receivables and inventories les» accounts payable). This releases funds for the organisation which would otherwise be blocked in inventory and accounts receivables. These released funds can be suitably employed elsewhere. 9) Market-Oriented Supply Chains: They are typical built-to-order type supply chains which are activated when the customer places an order. They are also known as customer supply chains. 10) Value Chains: Value chains are the highest form of supply chains which avoid optimisation in parts and focus upon total optimisation. These chains also address other related issues such as waste disposal, low productivity, etc. 1.2.6. Functions of SCM The functions of supply chain can be classified into strategic, tactical, and operational functions: 1) Strategic Functions: Following are the strategic functions performed under supply chain management: i) Optimising the strategic network which includes the size, number and location of the warehouses, distribution centres and other facilities. fi) Developing and maintaining strategic partnership with important channel partners like distributors, suppliers and customers, and establishing communication channels for information and operational requirements like cross docking, direct shipping, third-party logistics. iii) Product design co-ordination which ensures that new products can be suitably integrated into the organisation's supply chain and suitable load management can be implemented, iv) Involves decisions like where products should be manufactured or whether the products should be manufactured or bought. ¥) Planning information technology infrastructure for supporting supply chain operations. vi) Synchronising organisational strategy with supply strategy. 2) Tactical Functions: The tactical functions associated with SCM are as follows: ’) Decisions related to production such as planning, contracting and scheduling. ii) Sourcing contracts and other purchase-related decisions. i) Decisions related to inventory like deciding required quantity and quality of inventory, warehousing, location, etc, Scanned with CamScannera “MBA Second Semester (Operations & Supply Chain Management) SPPU iv) Transportation strategy which includes decisions regarding routes, frequency, loads, etc. v) Benchmarking of all operations against competitors and implementing best practices throughout the enterprise. vi) Milestone payments, vii) Attention to customer demand. 3) Operational Functions: Operational functions associated with SCM include: i) Day-to-day planning of production and distribution activities which involves all nodes of the supply chain, ii) Scheduling production for every manufacturing unit present in the supply chain, This by minute scheduling. iii) Demand forecasting, planning, coordinating and sharing of customer demands with suppliers. iv) Inbound Cogistics and operations including transportation of materials from the suppliers, and receiving of inventories. ¥) Production operations which include flow of finished goods and consumption of materials produced. vi) Outbound operations which involve execution activities, and transportation of products and services to the customers. vil) Accounting and order promising for all constraints in the supply chain including suppliers, manufacturing units, distribution centres, and customers. is involves minute 1.2.7. Factors Influencing SCM Factors influencing supply chain management are as follows: 1) Consumer Demand: It is one of the major factors influencing SCM. An organisation mainly aims to find : an appropriate balance between the quality of final products and manufacturing costs, and availability and customisation. Now-a-days, customers’ demand and expectations regarding quality, services, taste and preferences, price, etc., have increased. Hence, the organisations also focus on making cheaper and better products/services that can be made available within the time period. SCM focuses on providing customer satisfaction by offering them the right product, at right time and right price. 2) Globalisation: In today’s scenario, organisations have started giving importance to the profits gained through competitive advantages of other countries. For example, many American companies have realised the benefit of outsourcing manufacturing to ‘Asian companies because of their cost advantages. These companies easily find skilled labour in developing countries at very less prices as compared to developed countries. 3) Competition: In the last few years, the level of competition has increased for all businesses due to increasing globalisation, technological advancements, innovative business designs, and easy access to information. These factors led to the displacement of many market leaders. tn past days, profitability was measured with the help of market share, but now organisations are revising their competitive positioning. For example, having a large market share in the mobile industry did not helped Nokia as it ignored developments in its competitive arena, and very soon got displaced against faster and betier equipped competitors. Developments in the flow of information and transportation have given even small companies the necessary strength to function in the international market, Size is no longer a deterrent in the international market. 4) Information and Communication: The key forces providing support for supply chain decisions are improvements in information flow and communications systems. ‘The internet is redefining the way products and services are being distribited, purchased, and sold. Customers now have access to all the Information about a product, how it to be used, where it can be sold, ete. Buying decisions have become very easy as customers can now search and evaluate various purchase options before deciding on a suitable product. Now-a-days, many companies are directly engaged in purchasing and distributing products without fivolving any of the distributor or reseller. Information explosion is also promoting the expansion of supply chain activities around the globe. zs Scanned with CamScannerIntroduction to Operations snd Supply Chain Management (Unit 1) 9 5) Government Regulation: Government regulations and policies also play a major role in the development of supply chain, The supply chain decisions are no longer restricted to individual countries, us they take into account the policies and regulations followed in other countries. Supply chains are now globally inter- connected, and are controlled by governments of different countries, The government policies of one country affect the efficiency of entire global supply chain, This means factors such as trade barriers, tariffs, trade policies, ete., of various countries will affect the supply chain firms. Therefore, international trade organisations such as WTO, regional trade agreements, and governments across the globe are focusing on bringing consistent regulations in all member nations, © Environment: The planning and designing of supply chain is largely influenced by increasing concem for the environment. For example, European nations have major restrictions on the usage of packing materials. A majority of companies are now designing products which can be recycled when their operational life is over. The central idea is to ensure optimum utilisation of resources, and minimise the damage caused to the environment. 1.2.8, _ Significance of Supply Chain Management ‘The significance of SCM can be explained with the help of following points: 1) Fosters Collaboration: Supply chain management helps in establishing collaboration between businesses Jeading to the formation of a business chain. This group of inter-linked businesses functions together towards the achievement of one common goal, i.e, to meet the demands of customers by providing them With value produets/services. A supply chain always requires a supplier and distributor for the procurement ‘of raw products, and distribution of finished and semi-finished products. For this purpose, organisation selects different suppliers and distributors depending upon the type of customers’ demands, 2) Minimises Cycle Time: The total amount of time taken by a business to complete its entire business process is known as cycle time. SCM helps in identifying the most efficient modes of operations that can achieve the objective of minimising the cycle time of a business, 3) Precise Purchasing: Companies can use SCM techniques to plan and manage their purchasing process in an efficient way. SCM helps in bringing better synchronisation between production and their purchase. Whenever a company retains complete information about what needs to be manufactured in the future, purchase plans for raw materials can be made effective. 4) Lowers Overhead Costs: SCM helps in lowering the level of overhead costs of an organisation, With an effective SCM, production and storage of raw materials and manufactured products is done at optimum levels that certainly help in bringing down the unnecessary expenses. Firms achieve perfect synchronisation between customer orders and manufacturing process. Companies realise that the main idea is to keep as less inventory as possible for minimising costs, 5) Improved Alliances between Employees: SCM leads to collaborative spirit in the team where all the team members work with the common goal of satisfying customers. These team members can be employees, suppliers, distributors, or customers. With the help of effective SCM, suppliers, distributors and employees become cleur regarding their purchase decisions and requirements, ie., quantity of production, knowledge of target market, etc. 6) Minimised Delays: SCM aims at reducing the lead time across the entire supply chain, Since, the quantity of raw material required for further operations is known, thus an efficient budgetary plan can be formulated, With this, company can also formulate efficient methods for production, 7) Increased Efficiency: SCM aims at reducing wastage in the supply chain. Company which employs SCM brings about efficiency in the operations, and focuses only on those activities which add value to the finished product/service, This ensures smooth functioning of business operations and benefits organisational efficiency. 8) Increased Output: Effective SCM helps in establishing, a sound relationship between suppliers and customers which leads to timely completion of customer orders. Such timeliness and responsiveness attracts ‘more customers. Further, it increases the results and sales of the supply chain, 3) Increased Profits: Profit-making is the primary objective of firms. The best way of attaining this objective is to develop a strict control on the costs and keep them at minimum level. SCM eliminates all unnecessary expenditure and inventories that the company would have kept otherwise, Decrease in such operating costs increases the overall profit of the organisation. Scanned with CamScanner