DPS5013 CHAPTER 1: Supply Chain Management

SUPPLY CHAIN MANAGEMENT (SCM)

1.1.1 Define SCM

1. A supply chain is the system of organizations, people, activities, information and
resources involved in moving product or service from suppler to customer
2. Supply chain activities transform raw materials/components into a finished product that is
delivered to the end customer. It includes supply planning, product planning, demand
planning, sales and operations planning, and supply management.

1.1.2 Identify the importance of SCM

A) IMPROVE CUSTOMER SERVICES

Customers expect to receive the correct product mix and quantity to be delivered on time.
For example, if you buy five books from amazon and only two of the actual titles arrive, one is an
entirely different book and two are missing, the customer will lose faith in Amazon, prompting
them to leave a bad review and hinder them from returning to the platform.
Products need to be on hand in the right location.
Customer satisfaction is tarnished if your car’s brake pads fail and the auto repair shop is delayed
in making the repairs because parts are not available in-house.
Follow up support after a sale must be done quickly.
When an appliance store sells a furnace with a warranty and it breaks down when temperatures
are below freezing, it is a great possibility the customer will be irate if the heating unit cannot be
fixed immediately

B) REDUCE OPERATING COSTS

Decreases Purchasing Cost
Retailors depend on supply chains to quickly distribute costly products to avoid sitting on
expensive inventories.

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Decrease Production Cost

Any delay in production can cost a company tens of thousands of dollars. This factor makes supply
chain management ever more important. Reliable delivery of materials to assembly plants avoids
any costly delays in manufacturing.
Decrease Total Supply Chain Cost
Wholesale manufacturers and retailer suppliers depend on proficient supply chain management to
design a network that meets customer service goals. This gives businesses a competitive edge in
the marketplace

C) IMPROVE FINANCIAL POSITION

Insert Profit Leverage
Businesses value supply chain managers because
they help control and decrease supply chain
expenditures.
Decrease Fixed Assets
Supply chain managers decrease the use of large
fixed assets such as plants, warehouses and
transportation vehicles, essentially diminishing
cost.
Increases Cash Flow
Firms appreciate the added value supply chain
management contributes to the speed of product
flows to customers.

1.2 Define Supply Chain Management Process

Supply Chain Management process is defined as the design, planning, execution, control and
monitoring of supply chain activities with the objective of creating net value, building a competitive
infrastructure, leveraging worldwide logistic, synchronizing supply with demand and measuring
performance globally.

1.2.1 Explain five Supply Chain Management building blocks

a. Strategic Planning
Strategic planning is an organization's process of defining its strategy, or direction, and making
decisions on allocating its resources to pursue this strategy. It is here that priorities are set. It may
also extend to control mechanisms for guiding the implementation of the strategy.

Benefits of Strategic Planning

The strategic planning process can take some time, but it’s beneficial for everyone involved to have
a better idea of the goals and objectives that want to accomplish and a path to do that. It can foster
an increase in productivity—contributing to the success of the business.

b. Demand Planning
Demand planning is the supply chain management process of forecasting demand so that products
can be reliably delivered and customers are always satisfied. Effective demand planning can

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improve the accuracy of revenue forecasts, align inventory levels with peaks and troughs in
demand, and enhance profitability for a particular channel or product.
Demand planners keep an eye on internal and
external factors that could impact demand, such as
labour force issues, natural disasters, weather
patterns, and news events or other influences.
Gathering information from all possible sources is
the best way to generate an accurate forecast and
ensure integration with the supply forecast to
efficiently meet customer demand.

c. Supply Planning
Supply planning is the component of supply chain
management involved with determining how to best
fulfil the requirements created from the demand
plan. The objective is to balance supply and demand
in a manner that achieves the financial and service
objectives of the enterprise
The supply planning process commences with an
approved demand plan. The demand plan is a sum of
all the sales reviewed and approved channel,
regional and/or customer forecasts.

d. Procurement
Procurement is the process of finding and acquiring
the goods and services your company needs to fulfill
its business model.
In order for a company to make a profit, the cost of
procuring goods must be less than the amount it can
sell the goods for, minus whatever costs are
associated with processing and selling them.

e. Manufacturing
Manufacturing process, are the steps through which
raw materials are transformed into a final product.
The manufacturing process begins with the product design, and materials specification from which
the product is made.

1.2.3 Discuss Logistic Management System

Logistics management is a subset of the larger supply chain management. Supply

chain management plans, implements and controls the efficient flow of storage, goods, services
and related information from the point of origin to the point of consumption. Logistics
management in business works across all industries.

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Logistics is the process of planning and executing the efficient transportation and storage of goods
from the point of origin to the point of consumption. The goal of logistics is to meet customer
requirements in a timely, cost-effective manner. It is known the back bone of supply chain.

a. Order Management
Order management is the order-to-cash sales process that sits at the heart of any goods-
based B2C and B2B company. Put simply, it’s the end-to-end cycle of receiving and processing a
customer order through to fulfilment. Order management is not conducted in isolation; it relies
upon almost every department in a company: from a customer service team to the warehouse
staff, the accounting department through to delivery partners. When mastered effectively, order
management ensures a business’s workflow runs smoothly by establishing efficient processes to
keep it moving forward; maintaining customer satisfaction and protecting a company’s reputation.

A complex system
Order management involves a series of interconnected touchpoints and stakeholders who work
collaboratively together to enable customers to order the right products, for the right price and
receive them at the right time. The order fulfilment system (as it is also known) not only secures
that order-to-cash (O2C) processes run smoothly, but also gives businesses the opportunity to
build customer profiles and keep track of inventory volume and sales records.

The order management process: step by step.

The key to order management involves a series of
synced steps, fluid processes and constant
communication to create a fluid order-to-cash flow.
The smoother and faster the flow, the more orders
the company is able to process, and the quicker the
business is able to grow.
Here’s a breakdown of how end-to-end order fulfilment
works:
Step one:
The process begins when a customer places an order; either online, in-store or over the phone with
a customer services representative. The customer’s details are then stored, including order history,
volume of orders and payment preferences. Lastly, the customer order is sent to the warehouse.
Step two:
The inventory is then checked by a warehouse manager and continuous supply from vendors is
recorded. If inventory runs low, or runs out completely due to a large order, then an order will be
placed to the purchasing department.
Step three:
The order is then sent to the accounts department, where it is recorded as either cash sales or
accounts receivable. The sale is logged in the ledger, an invoice is generated and sent to the client,
and the payment is recorded.
Step four:
A third-party shipping service (or a company’s own LTL) will then deliver the goods to the
consumer and the order is fulfilled.

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The challenges of order management

The more touchpoints and stakeholders involved in the order management process, the more
obstacles there are to its success. Some of the key challenges for businesses include human
error and process backlogs, inventory visibility, transportation errors, and poor communication,
which can all seriously negate customer satisfaction and ultimately negatively impact loyalty.
The solution: an order management system
In order to establish a fast-moving, cost-effective, and accurate order management cycle,
both B2C and B2B companies are choosing to use an integrated and responsive order
management system (OMS). The OMS integrates directly with a business’s ERP and is set up to
work alongside the human workforce in order to obtain the most productive and profitable order
management cycle possible.

Why is an order management system important?

High volume, high velocity, high expectation; the three key consequences of the rise of e-
commerce and customer expectation in today’s ‘always on’ society. The popularity of digital and
e-commerce means that customers expect to order whatever they like, whenever they like and
from a platform that suits them. In our 2018-19 Digital Transformation Report, we found that ‘the
number of businesses using e-commerce to support their digital transformation has risen from 73%
to 87%’ so the demand for e-commerce fulfilment has never been more prevalent. Customers
expect a one-click process, and in order to encourage loyalty and repeat business, companies need
to do as they demand.

b. Inventory Management
Inventory management is a systematic approach to sourcing, storing, and selling inventory—both
raw materials (components) and finished goods (products).
In business terms, inventory management means the right stock, at the right levels, in the right
place, at the right time, and at the right cost as well as price.
Entrepreneurs, founders, and independent brands now live in a native
commerce world where small-to-medium businesses compete against
global conglomerates.
We’ve put together this definitive guide to inventory management
to level the playing field and help you grow your brand with speed,
scalability, and smart insights. You’ll find everything you need
from inventory control basics to best practices and formulas
to advanced automation processes.

Inventory management definition

As a part of your supply chain, inventory management includes aspects such as controlling and
overseeing purchases — from suppliers as well as customers — maintaining the storage of stock,
controlling the amount of product for sale, and order fulfilment.
Naturally, your company’s precise inventory management meaning will vary based on the types of
products you sell and the channels you sell them through. But as long as those basic ingredients
are present, you’ll have a solid foundation to build upon.

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Small-to-medium businesses (SMBs) often use Excel, Google Sheets, or other manual tools to keep
track of inventory databases and make decisions about ordering.
Importance of inventory management
For any goods-based businesses, the value of inventory cannot be overstated, which is why
inventory management benefits your operational efficiency and longevity.
From SMBs to companies already using enterprise resource planning (ERP), without a smart
approach, you’ll face an army of challenges, including blown-out costs, loss of profits, poor
customer service, and even outright failure.
Clear visibility helps you:
 Reduce costs
 Optimize fulfilment
 Provide better customer service
 Prevent loss from theft, spoilage, and returns
In a broader context, inventory management also provides insights into your financial standing,
customer behaviours and preferences, product and business opportunities, future trends, and
more.
Inventory management program
From product perspective, the importance of inventory management lies in understanding what
stock you have on hand, where it is in your warehouse (s) and hoe it is coming in and out.

c. Warehouse Management
Definition, differences, and principles to guide you
Warehouse management is the process, control, and optimization of warehouse operations from
the entry of inventory into a warehouse — or multiple warehouses — until items are moved, sold,
or consumed.

In the most general sense, these operations revolve around receiving and shipping.
 Receiving: in taking, identifying, inspecting, and storing inventory
 Shipping: processes such as picking, packaging, marking, weighing, and delivering products
from the warehouse to the customer

Poorly-managed warehouses run into a host of problems, all of which impact profitability:
 Disjointed teams and employees
 Inaccessible inventory and equipment
 Counterintuitive and redundant processes
 Rigid and restrained lay-outs that undercut productivity
None of this is good for business. If warehouse operations aren’t in order, it becomes near-
impossible to serve customers, vendors, and your own organization. Smart warehouse
management, particularly the right warehouse management software (WMS), lets you do more
while working less.
In saving time, money, and energy, you can reinvest these resources into spurring your business to
further growth. Throughout this guide, we’ll take a close look at everything that goes into effective
warehouse management. Before we get ahead of ourselves, though, let’s spell out some of the
basics first.

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Inventory management vs. Warehouse management

What's the difference between inventory management and warehouse management? While the
two terms overlap, there are key differences between inventory management and warehouse
management.
Inventory management is focused solely on the actual items being held within a warehouse. As a
part of your supply chain, inventory management includes aspects such as controlling and
overseeing purchases — from suppliers as well as customers — maintaining the storage of stock,
controlling the amount of product for sale, and order fulfilment.
Warehouse management, in contrast, is more concerned with the “journey” of individual items as
they flow through the warehouse from receipt to shipment.
Here, we’re looking at the people, equipment, and other resources being used at different stages
— and how they all come together.
Warehouse management principles
For a warehouse to run successfully, your approach must be based on a solid foundation. Let’s
break down the key warehouse management principles to keep in mind as you develop your
approach.

d. Transport Management
Transportation is a subset of logistics management, so transportation management is a more
defined industry within these larger industries. Transportation management comprises the
processes and systems used to manage the needs and requirements specific to the physical
transportation of goods and cargo as part of supply chain or logistics management.
Transportation involves moving goods from one location to another by any mode (air, rail,
barge, maritime or road).

What are the benefits of transport management?

1. TMS Logistics & Visibility
Proper transportation management begins with
a transportation management system (TMS). A
TMS will automatically tender loads, track
shipments, and gather and analyse historical
performance data. This data, often referred to
as big data, allows a company to see what’s
happening in its shipping operations. Once visibility
is gained into transportation operations, changes
can be implemented to increase efficiency and
customer satisfaction, reduce transportation
spend, and optimize packaging or stored procedures that are harmful to overall supply chain goals.

2. Inventory Flow
Effective transportation management keeps a company’s whole supply chain running smoothly.
With successful transportation execution, inventory can be kept lean and can be moved in and out
of a warehouse quickly and efficiently. This improves warehouse efficiency, reduces overall lead
time and saves money on storage. Supply chain disruptions can be costly while hurting customer
satisfaction and loyalty. Creating effective inventory flow through transportation avoids damage
caused by the disruption.

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3. Sustainable Logistics
Consumers are more and more aware of what it is they’re buying and what ideals a company
subscribes to. Also, transportation is an emission-heavy industry. Customers want to buy from
companies who take social responsibility seriously and work hard to reduce their carbon
footprint and minimize their energy consumption. Having inefficient transportation processes
increases these environmentally-hazardous processes. Also, it can make a product unappealing to
a customer due to the harm that comes with it.

4. Preferred Shipper Status

The ATA estimates the transportation industry is currently short 48,000 truck drivers. This
shortage is expected to grow to 239,000 by 2022. A truck capacity crunch is due to the significant
lack of drivers. Since there is much less trailer space to go around, shippers must compete to secure
capacity. A company that has optimized transportation processes, such as short dwell-times and
long tender lead times, will be a preferred shipper and have an easier time finding capacity because
carriers will want to work with someone who boosts their efficiency. Having access to reliable
capacity in the coming years can save logistics costs. Additionally, it can continue to provide a high
level of service for customers.

5. Customer Satisfaction
The processes in between procurement and shipping can be long and complicated, but out of all
of these processes, transportation is the one where a company has direct contact with a customer.
The point of delivery reflects the competency of the entire organization – if a company is
constantly delivering products late, the customer will have a very negative view of this company
and will likely not use their services again. Last mile logistics, the last stretch before delivery, is
complex, costly, and it is often this part of the delivery that causes disruptions and delays. Proper
management of transportation can ensure high delivery performance and consistent customer
satisfaction. Therefore, the importance of transportation management is hard to overestimate.

1.3 Implement e-Supply Chain Management

1.3.1 Define e-SCM

What is E-Supply chain management (E-SCM)?

E-Supply chain management is practiced in manufacturing

industries. E-SCM involves using internet to carry out value
added activities so that the products produced by the
manufacturer meets customers’ and result in good return on
investment.
e-SCM is the effective utilization of internet and business processes
that help in delivering goods, services and information from the supplier to the consumer in an
organized and efficient way.
Players of E-Supply Chain Management
ESCM chain consists of the following players — manufacturer, logistics companies, distributors,
suppliers, retailers and customers. E-Supply Chain Management concentrates on the coordination
between the various players in the chain. Coordination is very essential for the success of the
organization. E-SCM focuses on reducing the inventory cost.

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Supply Chain Management flow

SCM flows can be divided into three main activities
1. Product flow,
2. Information flow and
3. Financial flow.

 Product Flow: The product flow includes the movement of goods from a
supplier to a customer, and also any goods returned by customers.
 Information flow: The information flow involves transmitting
orders and updating the status of delivery.
 Financial flow: The financial flow consists of credit terms,
payment schedules, consignment and title ownership
arrangements.

1.3.2 Compare between SCM and e-SCM

Traditional SCM always used the telephone, fax and regular mail to contact their upstream
(supplier) and downstream (customers) connections, however, the use of face-to-face negotiation
is no longer needed, as it involved lots of time and costs.

e-SCM environment, which is primarily Internet-based, the costs of information exchange along
the supply chain are greatly reduced. In fact, it has been stated that operating in the e-SCM context
only requires a free Web. Like William (2002) said the changeability between traditional and e-SCM
includes the following points:
1. e-SCM places less relative value on long-term partnerships and strategic alliances, when
compared to traditional supply chain organisations because of the reduction in technological
expenditures associated with forging new relationships in the Internet based e-SCM.
2. Comparing traditional SCM and e-SCM, e-SCM can increase in partnership opportunities.
3. The cost savings opportunities are more effective in e-SCM.
4. Short-term, cost-driven benefits can be realised, and long-term partnerships can be developed
as needed. The need for partnerships may not be as forceful as in the traditional supply chain
but it allows firms to implement short-term competitive relationships that may have
opportunities for ongoing relationships.
5. Autocratic leadership will be cost effective, highly responsive but structurally ineffective when
operating in an e-SCM environment.
6. Participative leadership will be structurally effective and cost ineffective when operating in an
e-SCM environment.
7. Transformational leadership will be both cost and structurally effective when operating in an
e-SCM environment.

Traditional supply chain analysis distinguishes between primary activities that add directly to
getting the goods and services to the customer and delivery to buyers, support and servicing after
the sale, and for support activities which provide the input and infrastructure that allows the
primary activities to take place. The major distinction between the e-SCM and the traditional supply
chain is that the e-SCM, while structurally based on technology-enabled relationships, makes
decisions based upon efficiency benefits. As e-SCM was created using electronic linkages, it

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thereby provided low switching costs, which allows for the supply chain design to be very
adaptable to changing trends, consumer preferences and competitive pressures (Williams et al,
2002). It can be argued that internet technologies can reduce production times and costs by
increasing the flow of information, as a way to integrate different supply chain activities. Through
doing this, the supply chain can be made more efficient and the services delivered to customers
more readily. The supply chain involves electronic commerce that was used to traditional supply
chain activities, such as market research, procurement, logistics, manufacturing, marketing and
distributing (Chaffey, 2002). The Internet’s strengthening influence of convergence can be
depicted.

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