UNIT 8 SUPPLY CHATN MANAGEMENT

Objectives
After studying this unit, you should be able to:
8 understand the Concept of Supply Chain Management
8 describe the approach to SCM in e-commerce environment
@ explain the measures of success of SCM solutions.

Structure
8.1 Introduction
8.2 Just-in-Time Manufacturing
8.3 Quick Response Retailing
8.4 Supply Cltain Management
8.5 Principles of SCM
8.6 Benefits of SCM
8.7 Approach to SCM Solution
8.8 Potential Pitfalls
8.9 Web-Centric Supply Chain Manufacturing
8.10 The Customization Continuum
8.1 1 Measuring the SCM Solution
8.12 Summary
8.13 Self-Assessment Questions
8.14 Further Readings

8.1 INTRODUCTION
The traditional concept of business is obsolete. Companies, both manufacturing and
service, are creators of value, not simply makers of products. Supply Chain Management
(SCM) focuses on globalization and information management tools which integrate
procurement, operations, and logistics from raw materials to customer satisfaction. Future
managers are prepared to add product value, increase quality, reduce costs, and increase
profits by addressing the needs and performance of: supplier relations, supplier selection,
purchasing negotiations, operations, transportation, inventory, warehousing, benchmarking, 1
third-party vendors, electronic commerce, recycling, supply chain electronic software, and i
customer relations.
1
1
With borders opening up and companie;~facing global competition for the first time in
decades, managers know they need to catch on quickly to better ways of doing
international business. Adaptation would include moving towards computerized,
'paperless' operations, to reduce trading costs and facilitate the adoption of new business
processes. One often-targeted business processes in inventory management. Solutions for
these processes go by different names. In the manufacturing industry, these are known as I
just-in-time inventory systems, in the retail industry as quick response programs and in ;
the transportation industry as consignment tracking systems. Inventory reduction is often a ~

target as it averages 2 per cent of sales; and when the cost of inbound warehousing of i
i
raw materials or the cost of warehousing work-in-process inventory is included, the total
often reaches 6 per cent to 30 per cent of sales. SCM projects seek to reduce this cost I
by as much as 90 per cent i
 Supply Chain Management
8.2 .JUST-IN-TIMEMANUFACTURING
Just-in-time (JIT) is viewed as an integrated management system consisting of a number
of different management practices dependent on the characteristics of specific plants. The
JIT management system, an evolution of the Japanese approach to manufacturing and
initially introduced for the Toyota production system, is based on two principles :
elimination of waste and empowering workers. The first principle refers to the elimination
of all waste (time, materials, labour and equipment) i n the production cycle, The
following management practices are typically associated with JIT syste~ns:focused
factory, reduced set-up times, group technology, total productive maintenance,
lnultifunction employees, uniform workloads, JIT purchasing, total quality control and
quality circles.
JIT purchasing, considered as an integral part of JIT, has received considerable attention
in electronic commerce. It allows a manufacturer to incorporate its suppliers' efforts
towards eliminating waste in the upstream portion of the manufacturing cycle. JIT
purchasing focuses on the reduction of inventories throughout the logistical systems of the
manufacturing firms involved and provides a careful audit of the production process.
Basically, it optimizes supplier and customer relations. In a production plant the needed
materials are to be supplied just in time, no earlier or later than is demanded for
processing. Production costs will decrease as the required level of stock is reduced.
Materials from the supplier will be ordered only if the production plant can sell its
product. Market risks are therefore passcd on through the supplier chain. Furthennore,
quality control of production is considerably enhanced. All stages of production are
closely monitored, enabling an adequate assessment of imperfections. Such close
collaboration between suppliers and customers has introduced the concept of co-
makership.
To achieve JIT savings, many large corporations have installed privatc com~nunications
networks. The Internet way makes this practice more affordable and easily available to a
number of small firms.
reducing the inventory costs to one-fourth of previous levels. Also by e~npoweringits
individual stores to order directly from suppliers, even overseas, individual Wal-Mart
stores reduced inventory restocking time from an industry average of six weeks to thirty-
six hours. Moreover, by tracking every salc through the point-of-sales devices to see what
product was selling in large quantities, Wal-Mart stores were better able to keep their
stores well stocked while maintaining tight inventorics and low prices.

IT there is shortage, send order for

restocking to distributor or vendor

I
orders the closcst l~lformationcollated
and restocks the sehlf
the reqc~esledrnirterinl

Fig. 8.1: The quick rcspollsc chain

Activity 1
1. Define Supply Chain Management.

2. What is rl?e principle behind JIT technology?

...........................................................................................................................................
...........................................................................................................................................
..........................................................................................................................................

3. Distinguish between QR and JIT philosophy.

8.4 SUPPLY CHAIN MANAGEMENT

Inventory management solutions (QR and JIT) address only part of the overall picture.
Using QR 1 JIT may not be feasible if a company tlepends on an unresponsive supplier
for key components. For example, a manufacturing company may develop the capability
to assemble products quickly in response to customers' orders but tnny find that this
ability is constrained by suppliers' long lead times. Hence, what is required is a
leclinique for managing unanticipaled problenls in the supply chain.
supply Chain Management is the management of resources to design, procure, fabricate,
produce, assemble, store, distribute, use, maintain, recycle, and dispose of goods and
scrviccs. A "supply chain" consists of interconnected components required to transform Supply Chain Management
ideas into delivered products and services. Supply Chain Managemen1 is a business
fipproach lhat focuses on integration, and partnerships, in order to meet customers' needs
on a timely basis, with relevant and high quality products, produced ilnd delivered in a
cost effeclive manner. Current interest in supply chain management stems l'rom the need
of world-class organizations.to purchase, produce, move, and market goods and services
on a global basis.
Supply chain ~nanagementis also callcd 'extending', which means integrating thc internal
and external partners on the supply and process chains to get IXW matcriols to the
mallul'acturer and finished prcducts to the consumer. M o s ~companies fail to inlcgratc
their supply chain stratcgics for a number of reasons; among thcm, lack of system
integration due to fragmented supply chain responsibilities is most cornmon thing. But in
neglecting integration and the broader corlccpt of supply chain management, fir~nsmight
be missing an opportunity to cut costs and boost customer service. SCM rests on thc
premise that product excellence alone fails to guarantee corporate succcss. In Rct,
customers cxpect many services, including the prompt delivery ol' products to precise
locations with near-perfect administrative and physical quality.
Supply chain management includes the following fu~~ctions
Slip/,lic.r r~~anagcriicrlt - The goal is to reduce the numbcr of suppliers ant1 get them
lo become partners in busincss in a win win rclationship. The bencfits are seen in
reduced purchase order (PO) processing costs, increased numbers of POs proccssed by
fewer e ~ ~ ~ p l o y and
e e s rcduced order proces'si~~g
cycle times.
e -
Irlvrrrtory rlicznagctnettt The goal is to shorlen the order-ship-bill cycle. Whcn a
majority of partners are electronically linked, infornlation faxed or mailed in the past
can now be sent instantly, Docu~nentscan be tracked to ensure they were received,
thus improving auditing capabilities. The inve~torymanagement solution should
enable the reduction of inventory levels, improve inventory turns and eliminate out-of-
stock occurrences.
rllntlagertletzt - The goal is Lo mpve documents relalcd to shipping (bills
e Distrih~~tion
of lading, purchasc orders, advanced ship notices and ~nanil'estclaims). Paperwork
that typically took days to complete in the past can now be sent in moments and
contain Inore accurate data, Lhus allowing improved resources planning.
0 Cl~nrrriclmartajienzcnt - Thc goal is to quickly disseminatc information about
changing operational conditions to trading partners. In other works, tecl~nical,product
and pricing information thal once required repea'ted telephone cnlls and coi~~~tless
labour hours to provide can now he posted to electronic bulletin boards, lhus allowing
instant access. Thus electronically linking production with their distributor and reseller
networks cli~ninatesthousands of labor hours per week in the process.
@ Pr~y~iient - Thc goal is to link the company and the suppliers and
rnut~age~nerzt
distributors so that payments can be sent and ;eceivcd electronically. This process
increases the speed at which companies call compute invoices, reducing clerical errors
and lowering Lra~~saction fees and costs while increasing the number of invoices
processed (productivity).
Firlar~ciolmhnngemeti,t- The goal is to enable global companies to manage their
money in various forcign exchange accounts. Companies must work with financial
instilutions to boost their ability to deal on a global basis. They need to assess their'
risk and exposure in global financial markets and deal with global information as
opposed to local market information.
@ -
Sales force prod~ictivity The goal is to improve the communication and flow of
information among the sales, customer and production functions. Linking the sales
force with regional and corporate offices establishes greater access to market
intelligence and competitor information that can be channeled into better customer
service and service quality. Companies need to collect market intelligence quickly and
analyse it more thoroughly. They also need to help their customers (relationship
management) introduce their products to market faster, giving them a competitive
edge.
Ennbllog Technologies of In sum, the supply chain management process increasingly depends on electronic markets
h4odern.Banking
because of global sourcing of products and services to reduce costs, short product life
cycles and increqsingly flexible manufacturing systems resulting in a variety of
custornizable products.

38.5 PRINCIPLES OF SCM

Supply chain management can transform the tug of war between customer service and
profitable growth into a balancing act. Seven principles of supply :hain management are:
I. Segment customers based on the service needs of distinct groups and adapt the
supply chain to serve these segments profitably.
2. Customize the logistics network to the service requirements and profitability of
customer segments.
3. Listen to market signals and align demand planning accordingly across the supply
chain, ensuring consistent forecasts and optimal resource allocation.
4. Differentiate product closer to 'the customer and speed conversion across the supply
chain.
5. Manage sources of supply strategically to rcduce the total cost of owning materials
and services.
6. Develop a supply chain-wide technology strategy that supports multiple levels of
decision-making and gives a clear view of the flow of products, services and
information.
7, Adopt channel-spanning performance measures to gauge collective success in reaching
the end-user effectively and efficiently.
In electronic commerce, supply chain management has the following characteristics :
An ability to source raw material or finished goods from anywhere in the world
A centralised, global business and management strategy with flawless local execution.
On-line, real-time distributed information processing to the desktop, providing total
supply chain information visibility ,
@ The ability to manage information not only within a co~npanybut across industries
and enterprises
The seamless integration of all supply chain processes and measurements, including
third-party suppliers, information systems, cost accounting standa ds and measurement
systems
The development and implementation of accounting models such as activity-based
costing that link cost to performance are used as tools for cost reduction
r A reconfiguration of the supply chain organisation into high-performance teams going
from the shop floor to senior management.
Figure 8.2 sh0ws the two primary models of supply chain management : push versus pull.
These models contain three primary elements :
1. Logistics and distribution (inte>rated logistics) - Logistics is a discipline that deals
with the integration of materials management and physical distribution. Over the
years areas such as materials managemenl and distribution have evolved into logistics,
which in turn has become one integral component of SCM,
2. Itltegrated marketing and distributian -Traditionally, the customer ordor*process is
initiated by sales personnel, who have an in-depth understanding of the customers'
product aid service requirements. In electronic commerce, the order process could be
initiated by marketing information systems such as point-of-sale systems. Today, with
the aid of technology, it is feasible to integrate the customer directly and react to
changes in demand by modifying the supply chain.
3. Agile ~nanufucturing - The quick moving vision of production goes by the name of
I

r
 agile ~nanufacturing.To day, consume6 nnd manufacturers are stressing quality and Sr~pplyChain Management
specd.
Consi~mersPurchase Merchandise

Manufacturer I Retail store

I
o Financiallmarketing-driven forecast c POS data collection
Master scheduling c Perpetual inventory tracking
Replenishment based on distribution Automatic replenishment using
ccntre inventory (present safety stock ED1 services
level
e Manual purchase order 6r invoicing

Retail distribution centre Retail distributor centre

Order point based on warehouse Automatic replenishment
'
inventory (safely stock level) and e Shipping container marking
historical forecasts Cross-dock receiving
Deals, promotions & forward buying 8 ED1 scrvices
Manoal purcl~aseorders, infon~iation
entry and oiltput

Retail store
Order point based on shelf inventory
I 0 Demand driven forecnst based on POS dntn
(safety stock level) nnd forecnsts and product movement
0 Promotions e Micromnrket-driven
e Manual entry of items to be recorded Short cycle ~nnnufacturing
0 Advanced fil~ippingnotice and ED1 services

8 Bar code scaliners & ticketing

f
, Consumer Purchnse Mercliandise

Fig. 8.2: Pusli-based supply clinin vs. Pull-based supply chnln

8.6 BENEFITS OF SCM

Every industry from grocery to automobile, from chemical processing to electronic
components faces SCM challenges in a business world that is becoming increasingly
global, time-oriented, price-sensitive and Internet-driven. Supply cllai:. management offers
L. 'faty of short and long-term benefits. According to the Supply Chain Council,
benefits include:
e Delivery performslllce improvement
@ Inventory reductions
Improved fulfillment cycle time
Increased forecast accuracy
Increased overall productivity
Lower supply chain costs
Ilnproved capacity realization.
SCM benefits also include, redpctions in total acquisition costs, improve internal process,
time to lna~lufilctureand time to market for customers. An integrated approach to supply
chain inanagement :~lsoimproves customer access to new products and technologies, and
s~lpplieraccess to growth markets and new customers.
 -
8.7 APPROACH-TO SCM SOLUTION
SCM works with customers 6inlptement supply chain management strategies, an
integrated approach to SCM requires three things:
a) LZ ncw way of thinking;
b) New busincss processes and relationships, and
C) An lgvestnlent in technology.
n) A new way of thinking: Many people believe that supply chain management -is
mostly about technology - advanced cnierprise resource planning software, e-business
capabilities, bar coding and automated info~mationprocessing. The reality is that
technology is an "enabler," a tool that automates processes and connects members of the
supply chain. In gcneral, the new w:l*, of thinking and new business processes and
relationships must come first. Changes in the outlook are the best hope for continuous
improve~nentof the supply chain. For rnany people, SCM represents a new way of
thinking and is a leap of faith. Wherever possible, elinlinate organizational barriers so that
the supply chain functions like a single, well-run company with departments for
components design and ~nanufacturing,transportation, distribution, product assembly and
distribution to end customers - what the Supply Chain Council calls the extended
cnterprise. The manufacturers and their supply chains are so efficient and cost-effective
tljat, in many cases, the seller makes the sale cven before paying for the components and
assenlbly "a sell, procure and deliver" model instead of the more traditional "buy, build,
store, sell" model.
b) New Business Processes and Relationships: As discussed, the supply chain should be
viewed as an extcnded enterprise, like dcpartmcnts in a single, well-run company. As a
step beyond cross-functional teams, representatives of each organization have to share
information and knowledge, and coordinatc decision-making. This could include suppliers,
customers and distributors not only sharing their sales forecasts and strategic plans. but
also working together on those documents.
New business relationships can take a variety of forms partnerships, joint ventures,
strategic alliances, consortiums, problem-solving councils depending on the situation and
the parties involved. They me especially important when addressing supply chain,
nlanagement on a global scale. Suppliers are demanding access to growth markets and ,
new cdstorners around the world, while customers insist on global sourcing of leading-
edgc components that is just as efficient as if the supplier or distlrlbutor were located in
the next county. The global econo~nyis both an opportunity and a challenge fpr
businesses trying to implement supply chain managctnent. On the onc hand, the whole
world is open to businesses looking for the best supply chain management solution. On
the other hand, delivering excellence across such geographical, cultural an4 language
barriers may be the toughesl supply chain management challenge of all.
c) An investment in technology: Technology is the 'enabler' of SCM. Technqlogy
enables the supply chain to be opliniizcd to everyone's benefit. Typical solution$ ~nclude
cmail services, bar coding, intranets and extrancts, data warehousing, Material Resource
Planning (MRP), .Electronic Data Interchange (EDI), Internet, electronic catalogpes and
electronic cominerce. A

For such tools to be broadly applicable and efficient, they must hc ablc to accdmmodate
three types of transactions: I
e Day-to-day transactions (including ordering and changes in inventory);
Planning and decision-making (including sales forecasts); and
0 Strategic analysis (including what-ij' scenarios). 4

With online ordering through electronic catalogues, online billing and accoun)
management, online order tracking, and inventory management, the Internct is becotnibg
the ultimate SCM tool. Its greatest impact.isin streamlining the purchasing pr,ocqss and
reducing acquisitibn costs, not necessarily i? generating additional sales. Internqf, cnn be.
used to provide'lla single secure point of interfnce" for suppliers, distributors add
custome~-sto share information about market conditions, sales forecasting, shipping and
otlier pre and post-sale activities.
Internet services are designed as "interactive customer service tools," customers need Supply Cl~ainMnnagc~nen
registration-free browsing, real-time order tracking, inventoly managemetit, shipping
information and account administration. The online se~viceand an automated einail
program help customers track even those orders placed through other sales channels,
the Intcrnet a bridge to other sales, marketing and supply chain management
programmes.
EDI connections with a number of significant suppliers and customers to facilitate the
two-way sharing and transfer of information, and the movement of products through the
supply chain. ED1 programs can be interf'aced with materials requirement planning (MRP)
software and bar coding technology to minimize duplication of effort and to set up an
open, automated flow for replenishment of componellts on an as-needed, just-in-time
basis. MRP uses bills of material, inventory data and the master production~scheduleto
calculate requirements for materials. "People don't have to fill out purchase orders
anymore; they build them with Lhe information that is in the system," Activity-Based
Costing (ABC) methodology, customers can account for all of the costs associated with
identifying, specifying, procuring, shipping, storing and using electro~~ic
components, and
the value that can be derived by working with a value-added distributor.

-
8.8 POTENTIAL PITFALLS
Despite the benefits and possibilitjes, supply chain management has the following 'pitfalls:
Slow implementation: A truly integrated approach has been slow due to two reasons: i)
Many companies have spent the bulk of their information technology resources' to
implement Enterprise Resource Planning (ERP) systems and, ii) tools and mindsets need
time to evolve and grow.
Incompatible systems: Many information systems use different, incompatible soFtware;
are built on different platfonns; and do not allow seamless transmission and sharing of
data. The best hope for improvement is the use of standardizing supply chain interfaces.
Information overload: The technology is ahead of people's capacity to use and
understand it. If thcre is an overabundnncc of data and an under abundance of
inl'oimation. The solution here appears to be inakiiig sure that all data collected are useful
and used - a value-added rnodcl instead of a data-driven model. Some experts are
recommending a "lean manufacturing" approach, in which manufacturing is tied to actual
customer demand, not extensive data analysis and sales forecasting. When such a flow-
type process is implemented, there is little data to track because parts and finished
products move quickly and continuously.
Demanding customers: It is a marketplace reality: the more customers you have, the
more they want, and often they arc unwilling to pay extra for it. In the electronics
industry, large OEMs and contract manufacturers generally have high demands of the
supply chain and have the market influence to force the issue. Unfortunately, their size,
complexity and bureaucracy can make an intcgrated approach to supply chain
manage~nentdifficult. Many small companics don't have a lot of data hut know they need
to look at every cost if they are going to survive. The Internet and global market
visibility are part of the SCM solution, but they also drive customer expectations for
product availability and worldwide logistics to ncw heights.
Illflexible systems: Many systelns and software function like an auto-pilot for the supply
chain. Some people forget, however, that an auto-pilot is only as good as the sssumplions
and'data it relies on. Sometimes the real pilot needs to be able to grah the controls. The
fact that sales forecasting is difficult to do well should not keep companies from
implementing effective SCM strategies.
Organizational barriers: Many businesses are having a tough time convincing
themselves that sharing data such as sales forecasts and key performance indicators is
muti~allybeneficial. For example, the KPMG Consulting~orthwesternUniversity study
found that more than 40 per cent of' companies surveyecl had little or no involvement in
their supplier and customer partners' forecasting, inventory management and product
development process.
Enabllpg Technologies of SCM vs. ERP
Modern Banking
The most distinguishing characteristic of ERP systems is their comprehensiveness. They
broadly cover Sales and Distribution, Business Planning, Production Planning, Shop Floor
Control, and Logistics. While ERP systems provide a great deal of planning capabilities,
the various material, capacity, and demand constraints are all considered separately, in
relative isolation of each other. ERP systems have a harder time adding this more
dynamic functionality because they are chiefly concerned with transaction processing, and
also have many more jobs to do than just SCM. But, getting answers from an overloaded
ERP systems may take hours, whereas getting them from a separate SCM system may
take minutes or seconds.
The SCM products generally employ visible maps of the entire supply chain, showing
where problems are. An other key development that should be noted is the rapid
convergence that is happening between ERP and SCM software. The ERP vendors are
adding more sophisticated SCM functionality to their products. The SCM vendors are
also expanding their functionality, further encroaching on the area inhabited by the ERP
vendors.

Activity 2
1. What is an "extended enterprise"?

2. What is the role of payment management function in SCM system?

...........................................................................................................................................
3. List the characteristics of SCM in e-commerce scenario?

8.9 WEB-CENTRIC SUPPLY CHAIN MANUFACTURING

Spurred by the growth of the e-commerce, a new model of manufacturing has emerged
responding to needs of customers for build-to-order products. The impact on shop floor
systems is compounded by the increasing need to outsource components or entire
assemblies to external suppliers. Shop operations managers still need visibility and control
of delivery, quality, and configuration records of outsourced components to service their
customers. Web-centric supply chain manufacturing uses the power of the Internet and the
simplicity of a web browser to meet the critical needs of today's manufacturer-visibility,
speed, flexibility, collaboration, and product lifecycle management throughout the
extended supply chain.
Visibility : Through web-centrit: supply chain manufacturing, all aspects of the
manufacturing process are visible and accessible online. This visibility extends from
incoming materials to final products, from component supplier to outsourced
manufqcturer, and everything on one's own shop floor. All data is stored and accessible
electronically. Convenient data analysis down to the unit-level provides instant feedback
of in-process work and historical trends. Work in process can be viewed instantaneously
r gardless of plant location, whether the shop is internal or outsourced, with all data
available and controlled by the OEM. By utilizing the Internet and a simple web browser Supply Chaln Mnnagement
interface, the virtual supply chain is enabled with visibility into the complete
manufacturing process and with the tools to manage it.
Speed : To fill the need of build-to-order products, manufacturers have been forced to
switch from asynchrooous production, (build to stock, wait for the order, then ship) to
synchronous production, (build to ordel; then make and ship it now). Speed becomes
paramount in this environment. OEMs must manage and-execute changes very quickly,
and often, outside of their own organization. By utilizing web-centric supply chain
manufacturing, OEMs can respond to custolner needs, drive quick changes to process and
design, and shorten lead times in their manufacturing cycle across the extended supply
chain.
Flexibility : Not only do manufacturers need speed in delivery, they need both speed and
flexibility to roll out new products. They must quickly modify new products, changing
processes and designs on the fly. Paper-based shop floors hinder this flexibility and the
ability to track "as-built" information. Electronic travelers can be viewed from networked
PCs and be easily modified via a web browser. This gives process and manufacturing
engineers the tools and flexibility to quickly revise new products, updating and storing
the as-built information for future use. These changes can be made easily aqd
immediately by a process engineer via a browser interface, rather than by an IT expert.
Collaboration : Collaboration and the sharing of information with external customers,
suppliers, and outsourced manufacturers are critical in this new era of build-to-order
manufacturing. By using web-centric applications, remote customers and suppliers can
see real-time infor~nationfrom a web browser, without having to change or upgrade
costly ERP systems. Using web-centric supply chain management, collaboration becomes
a multi-way, real-time exchange of information between manufacturer, suppliers,
outsourced manufacturers, and end customers. Supply chain partners use current data to
ensure products are built to thc colrect design, built on time, and all product and process
data is collected and immediately available. Using web-based supply chain
manufacturing, inter-company and intra-company collaboratidn becomes easy, cost
effective, and efficient.
Product Lifecycle Management : Throughout a product's lifecycle, many changes and
revisions are employed to constantly improve perfonnancs quality, and yields. By
replacing paper travelers with electronic ones, an OEM can quickly make changes to
product design and production processes, especially critical in the early stages of the
product lifecycle. Another powerful benefit is deep unit-level traceability, capable of
tracking compone~ltlevel quality and serial number infok~nation.Many industries, (c.g.,
semiconductor equipment, telecommunications, and medical) require deep unit-level
traceability. On-line data is captured throughout the product lifecycle. This unit-level data
tracks product quality and manufacturing information througl~outthe supply chain. The
historical data can be used for complex analysis providing valuable information to
manage the product line lifecycle. By utilizing web-centric supply chain manufacturing,
complex analysis tools are readily available to make informed decisions on both product
lifecycle and product line lifecycle management.
Business Operations Management : Web-centric supply chain manufacturing systems
provide detailed information from the OEM's shop floor and the floors of supply chain
partners. Managers running the daily operations-shop floor, quality, procurenlent, service,
sales-benefit greatly from these new tools. These web-centric tools also provide equally
powerful benefits to the business operations management. The COO and other executive
level staff must inake critical decisions regarding the use of outsourced inanufacturers
and multiple manufacturing sites, Data on cycle time, cost, and quality from sach and
every supply chain partner is immediately available for cost-benefit comparisons. If one
supplier has a quality or cycle time issue, then another one can be employed for the next
build. By having visibility and control over the extended supply chain, the executive
level staff can make informed decisions regarding the critical business issues that they
face.
E n l L p Tcrbnalogi
Madern Bonking

It is the trend in manufacturing and customer service over the last decade. The nod el
has many names - mass customization, build-to-order (BTO) manufacturing, and supply
chain automation. Regardless of the term, one of the most important modern economic
trcnds has been the shift from build-to-stock (BTS) and one-size-fits-all to build-to-order
and personalized production.
As the process of custo~nizationevolves, it places new technical demands on
manufacturers and their IT infrastructures. While some manufaclurers may continue to
build-to-stock, many companies in the computer, medical, telecommunications, and
automotive industries were early adopters to build-to-configure (BTC) or BTO strategies.
These manufacturers are now switching from paper-based tracking to online monitoring
and web-based intra-company and inter-company communication. In the process, they are
achieving new levels of efl'iciency and customer service, which is passed on to the web-
savvy customers, anxious to buy and track their orders online.
The benefits of direct-to-consurner marketing and other selling models on the Internet are
spurring intereat in mass customization. Leveraging the Internet, companies, regardlcss of
size, can extend their reach to the individual consumer at relalively low cost. The nature
of the Internet pushes the drive to personalized service and customized products.
Progress along the customization continuu~ntoward BTO production (see Figure 8.3) is
driving the demand for 1nol.e detailed, real-time visibility into factory-lloor operations.
Until now, most companies were satisfied if they could manage bulk orders, essentially
working with an information blackout between the point the order entered 10 Lhe
manufacturing plant and the point units rolled off the assembly line. Before the era of
customized production, BTS n~anufacturerscould make do with this data gap. However,
BTC and BTO are synchronous manufacturing strategies that require that the manufacturer
have a clear and detailed picture of each order and of the individual products within the
order as they move through the production cycle. Without this piclure, manufacturers are
forced to engage in costly processes to tell custolners the status of their orders, lrace the
actual content of a product with a service problem, and so on.
Outsourcing and Cross-Conlpany Collaboration: The trend to replace vertical
manufacturing with outsourced manufacturing began many years ago. Outsourcing of part
or even all production processes by brand-name companies to a variety of contract

Consumer
-.-D electronics
B

.-

Tailored to Custorner
Fig, 8.3: Customizatinn Continuum
 1 Supply Chain Munnge~nc~l?

Consumer
electronics
Medical Telecom
eql~iplnent equipmcrit

a
Commodity .
goods Specialty
Chemicals & paper
'/

Degree of Outsourcing
Pig. 8.4: Outsourcing Continuu~n

manufacturers is a vcry colninon and acceptcd manufacturing practice toclay. (See Figure
8.4.) This trend towards outsourced manufacturing has been boostcd by the advcrit of
Internet conimcrce. Within the contract manufacturing market, high-mix companies - thosc
tliht handlc large numbers of small volu~ncord6rs - and customized unit manufacturing
are growing faster than the industry averages and have twice the operating margins.
Outsourcing combined with BTC or BTO production makes unit-level data management a
rind thcir OEM customers. The ability to keep track of
priority for contract man~~fiictu~.ers
every protl~ct.each of its parts, and its stage in the production cycle is,,a prc-requisite to
production clficicncy and corporatc profilability, In addition, ongoing storing and
accessing lest history, along with (hc abilily to run complex analyses, is crucial to keep
costs low and quality high. ,
Particularly in the case ol' outsourced BTO manufacturing, where the aim is rapid
turnaround of uniqucly cpnfigurcd products, the contract manufilcturcr is likely to ship the
J'inishcd product directly to thc customel: As a result, the OEM is absolutely dependent on
the inSol.mntion provicicd by 111c conkact manul'acturer in order to cffcctively service its
custolners and operate its busincss. Thc OEM n~usthave visibility to details across the
operations of its supply chain partners. Its bottom line, reputation, and ability to leveragc
its sales and markctiny investments, depend on how wc!l it undcrstands and manages Ihe
manul'acturc of its products by other companies.

8.11 MEASURING THE SCM SOLUTION

Crcatilig a col~csivcand integmtcd supply of business information for the conlplete supply
chain is not n simple task, Organizations use a diverse sct of corporate systclns to control
the day-to-clay business operalions ol' thc various components of lhc supply chain. Some
of these hyste~nsmay be managed by in-house clcvcloped systcrns, olhers by Entcrprisc
(ERP) systclns provicled by companies like BAAN, Oracle, PeopleSoft, and SAP. In large
organizations, different vendor products are often used in different parts of the
organization, resulti~igin "islands of information." The key issue is that no one system
sees all the data that is required, and this lnilkes measuring the performance across thc
complete supply chain a co~nplextask. The solution is to integrate the required
information from these various operatio~lalsystems into a single Supply Chain
Perl'ormnnce Measurement (SCPM) systern. The SCPM approach has the advantage that it
provides managers with a single company-widc version of the lruth for the co~nplete
I
 Eui~blingTccIinologics or supply chain - managers only need to access one system to get the information they
h.1odcrn I5nnlting
require. Such a systcln call transfo1.m and summarize operationaT data into business
performance measurements that managers can casily see, understand, and use. An SCPM
can also collect historical information that enables managers to track and analyze trends
over a period of time. SCPM should be of web-centric application that allow business
managcrs to see and collaborate across the total supply chain so they can monitor,
measurc, and optimize supply chain performance.
I

Thc SCPM system may employ the following technologies to empower business
~nnnagcrs:
A Web browser enterprise information portal that provides managers with a
secure and customizable interface to supply chain information. The information
portal enables managers to monitor and measure the supply chain by time,
location, and by product line. Product information can be viewed from the
company level all the way down to an individual.
@ An SCPM data store that contains information extracted and integrated from the
many operatio~~al sy'stems used to manage the various components of the supply
chain across the organization.
@ Corporate intranets and extranets for distributing supply chain infonnation
virwed through the information portal to managers inside and outside of the
organization.

I Evaluating SCM Success

How do you know if your approach to supply chain managelnent is working?, success
may be manifested in two main ways: cost reductions, and increased speed and efficiency.,
Evaluate success qualitatively and quantitatively, "If you have good processes in place.and
are lallcing with your suppliers and customers regularly, you should have a general feel if
the right stuff is in the right place at the right time." Qualitatively, successful supply
chains also have tliese features:
o Automated, touchless processes that eliminate duplicative or manual work such as re-
keying;
@ Supplicrs and customers developing shared perfonnnnce measures and joint goals for
cost reduction and reduced tinie to market;
I
@ Tile ability to outmaneuver olhcr supply chains to increase share of market and share I
1
of mind;
e A value-dded component to everything they do. Any activity &at does not add value
sl~ouldbe eliminated; and
@ Many satisfied, successful members, not just a demanding customer or an SCM-
oriented distributor.
According to other estimates, total acquisition costs - which include unit cost as well as
costs associrltcd with employee time, purchasing equipment, downtime, paperwork,
shipping and handling, material shortages, and production rework can be reduced by
upwards of 20 per cent through supply chain management.

8.12 SUMMARY
Solutions for new business processes go by different names viz., JIT, QR chain,
consignment tracking systems, etc. Integration approach all these come under SCM
system. There are two models of SCM, pull based and push based systems. The ultimate
benefits of SCM are to reduce total acquisition costs, improve internal process, time to
manufacture and time to ~najketfor customers. The e-colnmerce technology is the
'enabler' of SCM. Today's trend is to replace vertical manufacturing with outsourced and
cross-com11any collaboration, which is efl'ectively supported by SCM strategies. The
success of SCM solution depends on how well you integrate various operational systems
into a single supply chain performance measurement system.
42

-.-
 Supply Clllrait~Mana!:co~ent I
8.13 SELF-ASSESSMENT QUESTIONS I

1, Explain quick response chain?

2. Write the princ$es of SCM.
3. 'Technology is the 'enabler' of SCM; Explain.
4. Discuss the advantages and disadvantages of SCM.
5 . Distinguish bctween ERP and SCM.
6 . Explain the characteristics ol' wcb-centric SCM.

-
8.14 FURTHER READINGS
I) David Sirnchi-Levi, et al, 1999, Designing and Managing the Supply Chain :
Concepls, Strategies, and Cases, McGraw I-lill
2) Robert B. Handfield, Ernest L. Jr. Nichols, 1998, Introduction to Supply Chain
Management, Printice Hall.
3) Bohdan 0, Supply Chain Managcnienl for E-Business Infrastructures.

4) F~.edA. Kuglin, 1998. Customei.-Centered Supply Chain Manageme11r:ALink-By-Link

Guide
5) David A, iggs, Sharon L. Robbins., The Executi\e's Guide to Supply Management
Shatcgies : Building Supply Chain Thinking into All Business Processes.