Importance of SCM

SCM INTEGRATES THE SUPPLIER, DISTRIBUTOR AND CUSTOMER

LOGISTICS REQUIREMENTS INTO ONE COHESIVE PROCESS TO INCLUDE
DEMAND PLANNING, FORECASTING, MATERIAL REQUISITION, ORDER
PROCESSING, INVENTORY ALLOCATION, ORDER FULFILMENT, INVOICING
AND BILLS PAYMENT.
 REDUCED TIME OF SUPPLY CHAIN CYCLE
 RELATIONS WITH OUTSIDE PARTIES
 REDUCE UNCERTAINTY AND RISKS
 DESIGN OF SUPPLY CHAIN AFFECTS OVERALL PROFITABILITY
Nature and Scope of SCM
Three important activities in SCM are;

a) Purchasing:- functions associated with buying the goods and services

the organization needs
Value Analysis
Examination of the function of the purchased parts and materials in an effort to reduce the costs and/or improve performance of those items
Outsourcing
JIT purchasing – for JIT manufacturing
Suppliers - Suppliers are chosen mainly by

- Quality of products
-- On – Time Delivery, also lead time, flexibility, location, price, change notifications etc..
 Vendor Analysis
- On price, quality, services , location, inventory policy, flexibility etc.
Supplier Audits

Supplier Certifications

Supplier partnerships
b. Logistics
 MOVEMENT OF MATERIALS WITH IN A PRODUCTION FACILITY , THE
SHIPMENT OF INCOMING MATERIALS FROM SUPPLIERS AND
OUTGOING PRODUCTS TO CUSTOMERS.

 MOVEMENT WITH IN FACILITY – INBOUND AND OUTBOUND

 TRAFFIC MANAGEMENT
 SCHEDULE & DECISIONS, DELAYS, GPS ETC.
 EVALUATING SHIPPING ALTERNATIVES BASED ON
SITUATIONS(URGENCY)
 INNOVATIONS IN LOGISTICS
 ;PIGGY BACK, TRUCK TRAILERS ON SHIPS, CONSOLIDATED
SHIPMENTS, I.T ADVANCEMENTS
c. Warehousing and Expediting
Warehousing is the management of materials while in storage

 Developments in warehousing
 Barcode, EDI etc
Logistics Management
 The process of planning , implementing and controlling the efficient, effective
flow and storage of goods ,services and related info. From point of origin to
point of consumption for the purpose of conforming to customer requirements.

 Gaining competitive advantage through logistics

 Effective Logistics management can provide a major source of competitive
advantage. The bases for success in the market places are;
 i) The customer ii)The competition and iii) the company
 - Differentiate in Customers’ eyes
 - Quality products , lower costs
 - Cost advantage or Value advantage (differentiated value) or both.
. Logistics also provides form, time , place and possession utilities

Customer service is an inevitable part of the success of logistics

The Concept of Value Chain

 It refers to the sequence of activities that, when combined, define a business

process.
 Value is added as the goods and services progress through the chain.
 Value Chain, is a set of activities that focuses on creating or adding value to the
product.
 Supply component and demand component
 The value chain concept was developed as a tool for competitive analysis and
strategy by Michael Porter
Definition of Value Chain

 Value Chain refers to the range of activities that adds value at every single step in
designing, producing, and delivering a quality product to the customer. Value
Chain Analysis is used to evaluate the activities within and around the
organization and relating to its ability to provide value for money, goods, and
services.
 The concept of Value Chain Analysis was first evolved by Michael Porter in 1985
in his renowned book “Competitive Advantage”.
Integrated Supply Chain
 In an integrated supply chain, it is important to link together as many areas as
possible to enable strong collaboration with the end goal of reducing costs, waste,
production time and response time. Rather than allow different enterprise
functions to operate separately, an integrated supply
chain promotes centralization to ensure enterprise-wide visibility.

 Integrated supply chain is a process wherein every phase from procurement of

raw materials to production, quality control to packaging, distribution or supply to
eventual delivery is streamlined and inseparable. It is a holistic collective of the
various processes, which may be under complete control of one company or
multiple partners will come together to have collective control over the integrated
process. Integrated supply chain or supply chain integration has several
advantages which is why most companies have switched to integrated supply
chain management.
Objectives

 1. Integration of Supply chain processes

 2. Improve customer order cycle time

 3.Developing information communication through effective communication

system.
Logistics Management

 The mission of logistics management is to plan and co- ordinate all those activities
necessary to achieve desired levels of delivered service and quality at the lowest minimum
cost.
 Objectives
 1.The main objective to effectively and efficiently move the inventory in the supply chain in
order to extend the desired level of customer service at the least possible cost.
 The secondary objectives are to reduce the inventory level to minimum possible, consistent
delivery performance, maximum economy in freight costs, minimum damage to products
and quick response to customer requirements.
 Logistics adds value by creating Time utility and Place utility
 Logistics plays a very important role in the success of marketing mix
 Logistics supports marketing
 Customer service is an output of the logistics system and a key to achieve competitive
advantage.
Main Logistics activities

 Transportation
 Storage
 Packaging
 Materials handling
 Order fulfillment
 Inventory Forecasting
 Production Planning
 Purchasing
 Customer service
 Site location
Logistics Costs

 Customer service level- lost sales

 Transportation
 Warehousing
 Order processing (transmittal, entry etc.)
 Lot quantity costs – set up costs, capacity lost due to down time, material
handling, scheduling, different price on different quantities ordered, order costs
and follow up etc.
 Inventory carrying costs – opportunity / capital costs, service(insurance & tax on
inventory) storage space cost and inventory risk cost – obsolescence ,damage,
pilferage etc.
The Total Cost Concept
 Total cost approach to logistics  is the key to managing the logistics function.
Management  should strive to reduce the total cost of logistics rather than the cost of
each activity.  So logistics must be viewed as an integrated system rather than the
individual  system, because reduction in one cost invariably lead to increase the cost of
other  components. Effective management and real cost savings can be accomplished
only  by viewing logistics as an integrated system and minimizing its total cost given the
 firms customer service objectives
Difference between SCM and Logistics
Management
 The quickest distinction to make is that supply chains are responsible for the overall
sourcing, processing, and delivery of goods to the end customer, while logistics specifically
focuses on moving and storing goods between different supply chain organizations.
 Supply chain management is a way to link major business processes within and across
companies into a high-performance business model that drives competitive advantage.
 Logistics refers to the movement, storage, and flow of goods, services and information
inside and outside the organization.
 The main focus of supply chain is a competitive advantage, while the main focus of
logistics is meeting customer requirements.
 Logistics is a term that has been around for a long time, emerging from its military roots,
while supply chain management is a relatively new term.
 Logistics is an activity within the supply chain
Supply Chain Drivers
 The main supply chain performance drivers are;
Supply Chain decision making Frame work
Supply Chain decision making Frame
work
 • The combined impact of these drivers determine responsiveness and efficiency
of the entire SC

 SC strategy determines how the supply chain should perform with respect to
efficiency and responsiveness

 SC then use the supply chain drivers to reach the performance level the SC
strategy dictates
Obstacles to Achieving Strategic Fit

 • A company’s ability to find a balance between responsiveness and efficiency

that best meet the needs of the targeted customer is the key to achieving strategic
fit • Companies face many obstacles in deciding where this balance is to be
located on the responsiveness spectrum Obstacles • Increasing variety of products
– Increased variety (mass customization) tend to raise uncertainty, and uncertainty
frequently results in increased cost and decreased responsiveness • Decreasing
product life cycles – This makes the job of achieving strategic fit more difficult as
supply chain must constantly adapt to manufacture and deliver new product in
addition to coping with these product’s demand uncertainty •
 Increasingly demanding customers
 – Today’s customers are demanding faster fulfillment, better quality and better performing products
for the same price they paid years ago means that the supply chain must provide more just to
maintain its business •
 Fragmentation of supply chain ownership – Now-a-days most firms have become less vertically
integrated – More members in supply chain for providing goods – Many owners with its own
policies and interests, the chain (network) more complicated to coordinate •
 Globalization – Supply chains are more global – Global supply chains creates many benefits such
as ability to source from a global base of suppliers who may offer better or cheaper goods than were
available in a company’s home nation – Suppliers are apart making coordination much more difficult
– Removal of trade barrier results in increased competition from global companies – Companies that
once protected has to find time for responding to needs of customer that arise due to competition –
Now more strain on supply chain better trade-off •
 Difficulty executing new strategies – Creating successful strategy is not easy – Skillful execution of
strategy is as important as creating successful strategies – For instance others could figure out
Toyota’s brilliant strategies; the difficulty was in executing that strategy