Introduction

Supply Chain Management

 What is a Supply Chain?
Supply chain management is moving the right items to the right
customers at right time by the most efficient means

Transportation Transportation Customers

Warehousing

Information
flows
Factory

Transportation

Vendors/plants/ports
Warehousing Transportation
What is Supply Chain Management?

Managing supply and demand, sourcing raw materials and

parts, manufacturing and assembly, warehousing and
inventory tracking, order entry and order management,
distribution across all channels, and delivery to the customer.
-APICS SCC

4-3
What is Supply Chain Management?
 Supply chain management encompasses the planning and
management of all activities involved in sourcing and
procurement, conversion, and all logistics management
activities.

 In essence, supply chain management integrates supply and

demand management within and across companies.
-Council of Supply Chain Management Professionals (CSCMP)

4-4
What is Supply Chain Management?

 Supply Chain Management is a set of approaches utilized

to efficiently integrate suppliers, manufacturers,
warehouses, and stores, so that merchandize 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.
- Levi et. al.
 Supply Chain Management

“People think we got big by putting big stores in small

towns. Really, we got big by replacing inventory with
information”

– Sam Walton, Founder of Wal-Mart”

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 What is a Supply Chain?

• All stages involved, directly or indirectly, in fulfilling a

customer request.

• Includes manufacturers, suppliers, transporters, warehouses,

wholesalers, distributors, retailers, and customers.

• All facilities, functions, and activities involved in producing

and delivering a product or service from suppliers (and their
suppliers) to customers (and their customers).

Contd…
 What is a Supply Chain?

• Within each company, the supply chain includes all functions

involved in fulfilling a customer request (product development,
marketing, operations, distribution, finance, customer service).

• Customer is an integral part of the supply chain

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The Business Ecosystem

Regulating
Competitors Agencies

1st Tier,
Distribution
2nd Tier, …, Enterprise Customers
Channels
Suppliers

The Supply Chain

Complementors Stakeholders
 Dell’s Business Ecosystem

Other industries such as airline, automobile, energy, ..........

Competitors: Compaq, IBM, Regulating agencies: US Government, state governments,

HP, Gateway, Toshiba, .......... Malaysian government, Chinese government, local governments.......

Telephone service companies, financial institutes, third-party technical supporters, AD companies, ..........

Suppliers: DELL: Customers:

o Phillips, Nokia, o Enterprise o Home & Home Office
Samsung, Sony, systems o Small Business (up to 400
Acer Close (servers) employees)
o SCI, Celestica proximity to o Notebook Direct sale o Medium & Large Business
o Seagate, suppliers computers (over 400 employees)
Maxtor, o Desktop o State & Local Government
Western computers o Federal Government
Digital, IBM o ............ o Education
o Barcelona, HP o Healthcare
o Hon Hai/Foxteq o ...........
o Quanta,
Compal, Acer Dell
o ...........
Third-party logistics providers such as UPS, Caliber, transportation companies, ..........

Stakeholders: NASDAQ, Complementors: Microsoft, digital device makers, Internet service

Investors providers, computer skills trainers, PC game developers ..........

Technology Status of the Culture ............

development Economy
Supply Chain Illustration 10-12
 Supply
Chain for
Denim
Jeans
Supply
Chain for
Denim
Jeans
 Monthly Fax
Central Production 30 Days
of Weekly
Supplies Planning Firm
Schedules
Schedule Customer
Supplier Weekly Calls Inventory
with Daily Management CAPS
Schedules System System

Bi-Weekly
Schedule
Record
Receipt

Press-
Curing
DFM
Sales
Warehouse
Pre- Pre- Press- Finish-
Blend Compound FIFO Pack
Form Cure Curing slab ing

900 5700 18 4500 18810 45 0.07

seconds seconds seconds seconds seconds seconds seconds
1.33 0 0.26 0.09 0.09 0.68 0.54 12
Days Days Days Days Days Days Days Days

Value Added Time: 0.35 days; Production Lead Time 3.34 days; Value Added Ratio: 10.5%
Customer Demand: 4,560 units/day

Supply Chain Map: “As-Is”

 Monthly Fax
Central Production 30 Days
of Weekly
Supplies Planning Firm
Schedules
Schedule Customer
Supplier Weekly Calls Inventory
with Daily Management CAPS
Schedules System System Daily
Orders
Bi-Weekly
Schedule
Record Mixed-Model
Receipt Build Schedule
Press-
Curing
DFM

Sales
Pre- Pre- Press- Finish- Warehouse
Blend Compound FIFO
Form Cure Curing slab ing

900 1800 18 4500 18810 45

seconds seconds seconds seconds seconds seconds
0.03 0 0.11 0 0.03 0.13 6
Days Days Days Days Days Days Days

Value Added Time: 0.30 days; Production Lead Time 0.60 days; Value Added Ratio: 50%
Customer Demand: 6,200 units/day

Supply Chain Map: “To-Be”

 What is a Supply Chain?

• Most supply chains are actually networks.

• Multiple players involved at each stage
• More accurate to use the term “supply network” or
“supply web”.
Supply or logistics network
Supply or logistics network

McDonald in India

 Opened 1st restaurant in New Delhi, India in 1996

 Started its operations in India with two Partners
 Since 2011, it is a master franchisee operation-HardCastle
Restaurants Pvt. Ltd.
 Currently has more than 300 restaurant across India.
 Philosophy of QSCV (Quality, Service, Cleanliness and Value)

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McDonald in India

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 McDonald in India

• Sources raw material / ingredients from all part of India

McDonald in India

 Storage at 4 distribution centers

 Two primary (company owned) in Noida and Mumbai
 Two leased at Bengaluru and Kolkata
 There are two types of food ingredients suppliers Tier1 and
Tier2 suppliers
 Radha Krishna Foodland Pvt. Ltd. is the sole distributor
partner of the fast food chain.
 RKFL handles thousand tonnes per month; around 250 items
from about 54 suppliers at varying temperatures.

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McDonald in India

Copyright 2009 John Wiley & Sons, Inc. 4-23

Three Flows in a Supply Chain

 Supply Chain encompasses flow of products, funds and

information.
 Each stage in supply chain is connected through these three
flows.

 Includes movement of products from suppliers to

manufacturers to distributors, and information, funds, and
products in both directions.

• The flows can be managed by one of the stages or by an

intermediary

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Supply Chain Flows

Source: Principles of Supply Chain Management: A Balanced

Approach by Wisner, Leong, and Tan
© 2005 Thomson Business and Professional Publishing
Supply Chain
Supply Chain
• All stages may not be present in all supply chains.

• Design of supply chain depends on the customer needs and

requirements it aims to satisfy.

• E.g. Two supply chain structures of Dell- Build to order;

through retailer

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 The Objective of a Supply Chain

 Objective of supply chain management is to

maximize Supply chain surplus ( value generated by the supply
chain)

 Supply chain surplus = Customer value – Supply

chain cost

 The value of a product is estimated by the maximum

amount the customer is willing to pay for it.

 The difference between the value of product and its

price is consumer surplus.
 The Objective of a Supply Chain

• Supply chain Profitability: Difference between the

revenue generated from customer and overall costs across
supply chain.

 Sources of supply chain revenue: the customer

 Sources of supply chain cost: production , distribution,

flows of information, transportation etc.

• Supply chain surplus = Consumer Surplus + Supply

chain Profitability
 The Objective of a Supply Chain

 Supply chain surplus is strongly correlated with supply chain

profitability

 Supply chain profitability is total profit to be shared across all

stages of the supply chain.

 Supply chain success should be measured by total supply

chain profitability, not profits at an individual stage.

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The Objective of a Supply Chain
Thus, Effective Supply chain management is:

The management of flows between and among supply chain

stages to maximize total supply chain surplus i.e. consumer
surplus and supply chain profitability.

 As objective of SCM is to be efficient and cost-effectiveness

across entire system i.e. reduce total system wide costs, It is a
System level approach.

 Why distributors have a important role in Indian retail sector

and not in US?
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Why SCM is difficult?

Three Major Reasons are:

1. Difficult to minimize system wide costs and maximize system

service levels i.e. The process of finding best system-wide
strategy is “Global Optimisation”.

2. Inherent presence of “Uncertainty and Risk” in every supply

chain.

3. Supply chain strategy cannot be determined in isolation.

Invariably linked to “Development Chain”.
Why SCM is difficult?
1 Global Optimization
Global Optimisation is difficult to achieve:

1.1 Supply chain today is geographically dispersed complex

network of facilities.
Why SCM is difficult?
1 Global Optimization
 National Semiconductors (Acquired by Texas Instruments in
2011): world’s largest manufacturers of analog devices and subsystems
that are used in fax, machines, cellular phones, computers, and cars
• Production:
– Produces chips in six different locations: four in the US, one in
Britain and one in Israel
– Chips are shipped to seven assembly locations in Southeast Asia
(Malaysia, China, and Singapore).
• Distribution
The final product is shipped to hundreds of facilities all over the
world including those of Apple, Canon, Delphi, Ford, IBM,
Hewlett-Packard, and Siemens.
– 20,000 different routes; 12 different airlines are involved
– 95% of the products are delivered within 45 days; 5% are
delivered within 90 days.
Why SCM is difficult?
1 Global Optimization
1.2 Conflicting objectives of different facilities:

• Suppliers typically want manufacturers themselves to commit

to large quantities in stable volumes with flexible delivery
dates, however, manufacturers need to be flexible to customer
needs and changing demands.

• Also, manufacturers want to make large production batches

which is in conflict with objectives of both warehouses and
distribution centers to reduce inventory.

• Objective of reducing inventory levels typically implies an

increase in transportation costs.
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Why SCM is difficult?
2. Uncertainty and Risk

 Supply Chain need to be designed and operated in uncertain

environment.

 Inherent presence of uncertainty and risk in every supply

chain.

 Demand is not the only sources of uncertainty: Other potential

sources are delivery lead times, transportation times,
components availability etc.

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 Why SCM is difficult?
2. Uncertainty and Risk
 “Bullwhip Effect”: The increasing fluctuation in orders as orders
move through supply chain.

 Demand information is distorted (demand variability is

increased) within the supply chain with each stage having a different
estimate of what demand looks like.

 Fluctuations in orders increase as they move up the supply chain

from retailers to wholesalers to manufacturers to suppliers.

 Bullwhip effect leads to increased costs and also make matching

demand and supply difficult, poor product availability

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Why SCM is difficult?
2. Uncertainty and Risk
Bullwhip Effect: Occurs when slight demand variability is
magnified as information moves back upstream

Order are relayed from retailers to wholesalers to manufacturers

with fluctuations increasing with each step of the chain.
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Demand at Different Stages
 Bullwhip Effect: Impact on Performance

Performance Measure Impact of the Lack of Coordination/ Bullwhip effect

Manufacturing cost Increases (as stream of orders more variable than customer
demand, surplus or varying capacity may have to be maintained)
Inventory cost Increases (higher inventory levels to be carried as demand
variability is more)
Replenishment lead Increases (Production scheduling at plants more difficult when
time demand variability is more)
Transportation cost Increases (Transportation requirements fluctuate because of
higher demand variability, surplus or varying transportation
capacity may have to be maintained to cover high demand periods)

Shipping and receiving Increases (surplus or varying labor capacity may have to be
cost maintained)

Level of product Decreases (Increased demand variability or fluctuations in orders

availability makes it difficult for manufacturers to fullfil all orders on time)
Relationships across Decreases (trust among stages decreases)
supply chain
Why SCM is difficult?
2. Uncertainty and Risk
Bull whip effect: Occurs due to lack of Supply Chain
Coordination
 Different stages of supply chain have objectives that are
in conflict

 Local Optimisation : Each stage tries to optimize its

local objective without considering its impact on entire
chain, hurting performance of other stages
e.g. when different stages have different owners

 Incentives (sales incentives, promotion, quantity

discounts etc)

 Information flow between stages is distorted or delayed

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Why SCM is difficult?
3. The Development Chain
 It is set of activities and processes associated with new
product introduction.
 It includes:
 product design phase
 associated capabilities and knowledge that need to be
developed internally
 sourcing decisions
 production plans

 Includes decisions such as product design, make-buy,

outsourcing, supplier selection, strategic partnership, early
supplier involvement
Why SCM is difficult?
3. The Development Chain
Why SCM is difficult?
3. The Development Chain

 Supply Chain and development chain intersect at production

point.

 Characteristics and decisions made in development chain shall

impact supply chain and vice versa.

 Different managers are responsible for different parts of these

chains.

 Others chains also intersect these chains i.e. reverse logistics

chain (returns of products / components), spare parts chain
Decision Phases of a Supply Chain

Supply Chain decisions falls into three major categories or

phases:

 Supply chain strategy or design decisions

 Supply chain planning decisions

 Supply chain operation decisions

Supply Chain Strategy or Design Decisions
 Decisions about the structure of the supply chain and what
processes each stage will perform
 Time horizon of the next several years
 Strategic supply chain decisions
 Locations and capacities of facilities
 Products to be made or stored at various locations
 Modes of transportation
 Information systems
 Make vs Buy

 Supply chain design must support strategic objectives

 Supply chain design decisions are long-term and expensive to
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reverse – must take into account market uncertainty
Supply Chain Planning / Tactical Decisions
 Fixed by the supply configuration from previous phase
 Time horizon is quarter to a year

 Starts with a forecast of demand in the coming year or

comparable time frame
 Planning decisions:
 Which markets will be supplied from which locations
 Target production quantities
 Inventory policies
 Subcontracting
 Timing and size of market promotions

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Supply Chain Operation Decisions
 Time horizon is weekly or daily

 Decisions regarding individual customer orders

 Supply chain configuration is fixed and operating policies are

determined
 Goal is to fulfill incoming customer order in best possible manner

 Allocate orders to inventory or production, set order due dates,

allocate an order to a particular shipment, set delivery schedules,
place replenishment orders

 Much less uncertainty (short time horizon)

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Supply Chain Management:
Supply chain management (SCM) is Art &
Science of obtaining, producing and
distributing material and product
Some examples of Supply Chain
and logistics Management
Company:
Difference Between Supply
Chain and Logistics:
Supply Chain Logistics

Transforming raw materials as a  Movement of Materials

product
7 R’s of Supply Chain:
Supply Chain Functions:

 Procurement
 Production planning
 Packaging
 Transportations
 Warehousing
 Customer order planning and Distribution
What is the Opportunity:
The Logistics Performance Index (LPI) :
LPI
It is an interactive benchmarking tool created by the World Country Year
Rank
Bank to help countries identify the challenges and
opportunities they face in their performance on trade Germany 2016 1
logistics and what they can do to improve their
performance.[2]
It is the weighted average of the country scores on six key Luxembourg 2016 2
dimensions:
 efficiency of the clearance process (i.e., speed, Sweden 2016 3
simplicity and predictability of formalities) by border
control agencies, including Customs; Netherlands 2016 4
 quality of trade and transport related infrastructure
(e.g., ports, railroads, roads, information technology);
Singapore 2016 5
 ease of arranging competitively priced shipments;
 competence and quality of logistics services (e.g.,
transport operators, customs brokers); Belgium 2016 6
 ability to track and trace consignments;
 timeliness of shipments in reaching destination within Austria 2016 7
the scheduled or expected delivery time. This measure
indicates the relative ease and efficiency with which United Kingdom 2016 8
products can be moved into and inside a country.
Germany and Singapore are the most efficient and
Hong Kong, China 2016 9
highest ranked LPI countries.
 The Logistics Performance Index is reported by the
World Bank in every two years. The LPI is based on a United States 2016 10
worldwide survey of stakeholders on the ground
providing feedback on the logistics "friendliness" of Switzerland 2016 11
the countries in which they operate and those with
which they trade. They combine in-depth knowledge
of the countries in which they operate with informed Japan 2016 12
qualitative assessments of other countries where they
trade and have experience of global logistics India 2016 35
environment.
Size of Opportunity:
Logistics industry is
expected to reach
over USD 215 billion
by 2020.
News (27.03.2018) in
Economics Times
India today and in 2025
Present Conditions:
 Insufficient integration of transport networks
 There is a lack of IT standard, equipment and poor
systems integration.
 Poor warehousing & distribution facilities
 Regulations imposed by national, regional and local
authorities
 Poor Roads Infrastructure
 Trained Manpower's (lack of adequate training
institutions)
Future Prospects
 The logistics firms are moving from a traditional set-up to the integration of IT and
technology to their operations to reduce the costs incurred and to meet the service
demands. The growth of the Indian logistics sector depends much upon its soft
infrastructure like education, training and policy framework as much as the hard
infrastructure. To support India’s fast-paced economy growth logistics industry is very
essential. It is estimated that the industry will continue to grow at a robust rate of 10-15
per cent annually.

 The global economic outlook and that of India is expected to significantly improve as
India Inc begins to tackle the economic downturn. With a new government many
policies are expected to be implemented, which will give a fresh impetus to India’s growth
engine, particularly in the corporate and small and medium enterprises (SME) sector,
which in turn will expand demand for the logistics sector .
Proposed Model
It will be based on:
 More Mega Cities
 Proliferation of segments
 Improved Supply Chain Infra
 Better regulatory Climates
 Increased Globalisation
 Affordable technologies & Big Data
Copyright 2009 John Wiley & Sons, Inc. 4-64
Institute of Supply Chain
Management:
A number of management institutes in India taught courses in
supply chain management. Some of the prominent institutes are :

 Indian Institute of Materials Management (Navi Mumbai),

 Centre for Supply Chain Management (Gurgaon),
 Indian Institute of Materials Management (Hyderabad), Indian
Institute of Management (IIMs),
 Supply Chain Management Institute (Mumbai),
 CII Institute of Logistics (CIL) (Chennai),
 National Institute of Retail Management (Bangalore),
 University of Petroleum and Energy Studies (for MBA in
Logistics & Supply Chain Management), Dehradun, etc.