Introduction to Supply Chain

Management
• A supply chain refers to the way that materials flow
through different organizations, starting with raw
materials and ending with finished products
delivered to the ultimate consumer.
• A supply chain is a sequence of suppliers,
transporters, warehouses, manufacturers,
wholesalers, distributors, retailers & final
customers.
• Different organizations have different supply chains
based on the nature of their operations and also
whether they are primarily a manufacturing
organization or a service organization.
Example – Detergent Supply Chain
 Definitions of Supply Chain
Management
• Supply chain management is defined as
the systematic, strategic co-ordination of
the traditional business functions and the
tactics across these business functions
within an organization & across business
within the supply chain, for the purposes of
improving the long-term performance of
the individual companies and the supply
chain as a whole.
 Definitions of Supply Chain
Management
• Supply chain management is a collection
of actions required to co-ordinate and
manage all activities necessary to bring a
product to a market, including procuring &
processing the raw materials, producing
goods, transporting and distributing these
goods to reach the end customers.
 Definitions of 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. It also includes co-ordination and
collaboration with suppliers, channel partners,
intermediaries , third party service providers &
customers. In short, SCM integrates supply and
demand management within and across
companies.
 Integrated Supply Chain
Management
• Integrated Supply Chain Management is a
proven business strategy that has gained
wide acceptance in recent years due to
increasing customer demands for quality,
delivery and speed. New and radical ways
of communicating, coupled with cost
reduction and more independent supplier,
provider and customer relationships.
 Importance of Supply Chain
Management
• As materials travel through the supply chain and
also wait in inventory at various stages, there is
a great opportunity to reduce the total supply
chain cycle time which will lead to reduction in
inventory, reduction in costs and better
deliveries.
• Supply chain management has become an
important competitive advantage factor as
companies struggle to get the right stuff to the
right place at the right time.
 Importance of Supply Chain
Management
• TQM, JIT, Reengineering, Teamwork &
Customer Delight all depend on the
relationships with suppliers and
distributors who are part of the supply
chain.
• Supply chain management builds a chain
of suppliers who focus on waste reduction
and value maximization to the customer.
Supply Chain Management
 Supply Chain Management
• Boosts customer service: Customers expect products
to be delivered quickly and on time. The importance
of supply chain strategy is that this process increases
customer satisfaction.
• Reduces operating costs: Supply chain management
allows a business to decrease the cost of purchasing
and production.
• Improves financial position: "Firms value supply chain
managers because they help control and reduce
supply chain costs,“ says the council, adding that this
can result in dramatic increases in a firm's profits.
 Supply Chain Divers
1.Facilities
2.Inventory
3.Transportation
4.Information
5.Sourcing
6.Pricing
 Supply Chain Divers

• 1.Facilities –places where inventory is stored,

assembled, or fabricated–production sites and storage
sites–Decisions regarding location, capacity and
flexibilities of facility have a significant impact on SC
performance
• 2.Inventory–raw materials, WIP, finished goods with in a
supply chain–Changes in inventory policies can
dramatically alter the efficiency and responsiveness of a
SC
 Supply Chain Divers

3. Transportation – moving inventory from point to point in a supply

chain–combinations of transportation modes and routes can affect
the performance of SC
4.Information–data and analysis regarding inventory, transportation,
facilities throughout the supply chain–potentially the biggest driver of
supply chain performance–This driver allow the management with
the better opportunity to make the SC more responsive and efficient
5.Sourcing–Distinguish the functions a firm performs and functions
that are out sourced
6.Pricing–Price associated with goods and services provided by a
firm to the supply chain
 Supply Chain Strategy

• Supply chain management (SCM) should enable companies to develop

and execute strategies that efficiently integrate the management of all
the players in a supply chain—suppliers, manufacturers, distributors, and
customers—so that production and distribution are accomplished at the
lowest possible total cost while meeting customer needs.
• Business strategy involves leveraging the core competencies of the
organization to achieve a defined high-level goal or objective. It also
includes the analytic and decision-making process surrounding what to
offer (e.g., products and services), when to offer (timing, business
cycles, etc), and where to offer (e.g., markets and segments) as a
competitive plan.
• While the business strategy constitutes the over all direction that an
organization wishes to go, the supply chain strategy constitutes the
actual operations of that organization and the extended supply chain to
meet a specific supply chain objective.
 Reasons for Outsourcing
1. Improve company focus
2. Access to world class capabilities
3. Accelerate re-engineering benefits
4. Share risks
5. Free resources for other purposes
6. Make capital funds available
7. Cash infusion
8. Reduce and control operating costs
9. Resource not available internally
10. Function difficult to manage or out of control
 Factors to decide Whether to
Outsource
1. Cost to do it in-house versus cost to buy, including
start-up costs versus cost to outsource.
2. Stability of demand and possible seasonality
3. Quality available from suppliers compared with a firm’s
own quality capabilities
4. The desire to maintain close control over operations
5. Idle capacity available within the organization
6. Lead times for each alternative
7. Who has patents, expertise and so on
8. Stability of technology and
9. The degree to which the necessary operations are
consistent with or in conflict with current operations
Choosing a supplier – Factors to be
considered
1. Lead times and on-time delivery
2. Quality and quality assurance
3. Flexibility
4. Location
5. Price
6. Product or service changes
 Evaluating Sources of Supply
1. Price
2. Quality
3. Services
4. Location
5. Inventory policy of supplier
6. Flexibility
 Measuring Supply Chain Performance

Supply chain performance measure can be defined as

an approach to judge the performance of supply chain
system. Supply chain performance measures can
broadly be classified in to two categories−
• Qualitative measures − For example, customer
satisfaction and product quality.
• Quantitative measures − For example, order-to-delivery
lead time, supply chain response time, flexibility,
resource utilization, delivery performance. (Non-financial
measures, Financial measures)
 Understanding Supply Chains

Push Strategies
• A push-model supply chain is one where projected
demand determines what enters the process.
• For example, warm jackets get pushed to clothing retailers
as summer ends and the fall and winter seasons start.
• Under a push system, companies have predictability in
their supply chains since they know what will come when–
long before it actually arrives. This also allows them to
plan production to meet their needs and gives them time to
prepare a place to store the stock they receive
 Understanding Supply Chains

Pull Strategies

• A pull strategy is related to the just - in-time school of inventory

management that minimizes stock on hand, focusing on last-second
deliveries.
• Under these strategies, products enter the supply chain when customer
demand justifies it.
• One example of an industry that operates under this strategy is a direct
computer seller that waits until it receives an order to actually build a custom
computer for the consumer. With a pull strategy, companies avoid the cost
of carrying inventory that may not sell. The risk is that they might not have
enough inventory to meet demand if they can not ramp up production
quickly enough.
 Understanding Supply Chains

Push /Pull Strategies

• Technically, every supply chain strategy is a hybrid between the
two. A fully-push based system still stops at the retails to re where it
has to wait for a customer to "pull“ a product off of the shelves.
• However, a chain that is designed to be a hybrid flips between push
and pull somewhere in the middle of the process.
• For instance, a company may choose to stock pile finished product
at its distribution centers to wait for orders that pull them to stores.
Manufacturers might choose to build up inventories of raw materials
– especially those that go up in price –knowing that they will be able
to use them for future production.
 Bullwhip Effect
• Through the numerous stages of a supply chain; key factors such as
time and supply of order decisions, demand for the supply, lack of
communication and disorganization can result in one of the most
common problems in supply chain management. This common problem
is known as the bullwhip effect; also some times the whiplash effect. In
this blog post we will explain this concept and outline some of the
contributing factors to this issue.
• The bullwhip effect can be explained as an occurrence detected by the
supply chain where orders sent to the manufacturer and supplier create
larger variance then the sales to the end customer. These irregular
orders in the lower part of the supply chain develop to be more distinct
higher up in the supply chain. This variance can interrupt the
smoothness of the supply chain process as each link in the supply chain
will over or under estimate the product demand resulting in
exaggerated fluctuations
 Outsourcing

• Outsourcing is the act of moving some of a firm’s internal activities

and decision responsibility to out side providers. The terms of the
agreement are established in a contract.
• Outsourcing allows a firm to focus on activities that represent its core
competencies. Thus, the company can create a competitive
advantage while reducing cost.
Logistics Outsourcing
• There has been dramatic growth in outsourcing in the logistics area.
• Logistics is a term that refers to the management functions that
support the complete cycle of material flow: from the purchase and
internal control of production materials; to the planning and control of
work-in process; to the purchasing, shipping, and distribution of the
finished product. The emphasis on lean inventory means there is less
room for error in deliveries.
 3PL & 4PL

• A 3PL— short for third-party logistics (some times called aTPL)—is

used in logistics and supply-chain management to outsource part or
all of a business’ distribution and fulfilment service
• “A person who solely receives, holds, or otherwise transports a
consumer product in the ordinary course of business but who does
not take title to the product.”
• Fourth-party logistics (4PL) providers, have a broad role with in the
supply chain. They assume many of the same roles as third-party
logistics (3PL) providers, but have much broader responsibility and
accountability in helping the customer reach its strategic goals.
• When functioning as a 4PL, a logistics provider becomes a true
partner with the customer, working to create a lean, cost-effective
supply chain.
3PL & 4PL
 Global Sourcing
• Global sourcing refers to buying the raw materials or components that go into a
company’s products from around the world, not just from the headquarters’ country.
• For example, Starbucks buys its coffee from locations like Colombia and Guatemala.
The advantages of global sourcing are quality and lower cost.
• Global sourcing is possible to the extent that the world is flat—for example, buying
the highest-quality cocoa beans for making chocolate or buying aluminium from
Iceland, where it’s cheaper because it’s made using free geothermal energy.
• When making global-sourcing decisions, firms face a choice of whether to sole-
source (i.e., use one supplier exclusively) or to multisource (i.e., use multiple
suppliers).
• The advantage of sole-sourcing is that the company will often get a lower price by
giving all of its volume to one supplier. If the company gives the supplier a lot of
business, the company may have more influence over the supplier for preferential
treatment. For example, during a time of shortage or strained capacity, the supplier
may give higher quantities to that company rather than to a competitor as a way of
rewarding the company’s loyalty.
 Mass Customization

• Mass customization is the ability to produce goods and

services to meet individual customers’ needs with near
mass production efficiency.
• Imagine an assembly line in an automobile industry, but
at the front of the line is a computer screen. A consumer
selects a type of widget, style, size, colour, maybe
freehand writes some design into the product, then
presses a button.