Supply Chain Management

UNIT - I
Supply Chains:
A supply chain is the connected network of individuals, organizations, resources, activities, and technologies
involved in the manufacture and sale of a product or service. A supply chain starts with the delivery of raw
materials from a supplier to a manufacturer and ends with the delivery of the finished product or service to
the end consumer.

What Is Supply Chain Management (SCM)?

Supply chain management is the management of the flow of goods and services and includes all processes
that transform raw materials into final products. It involves the active streamlining of a business's supply-
side activities to maximize customer value and gain a competitive advantage in the marketplace.

Fundamentals of Supply Chain Management:

 Material flow

 Information flow

 Finance flow

 Commercial flow

Importance of Supply Chain Management:

i) Reduce Operating Costs
 Decreases Purchasing Cost – Organizations generally prefer quick distributions of costly products and
raw materials to avoid expensive inventory
 Decrease Production Cost –  A reliable supply chain delivers materials to assembly plants and avoid
any costs that may occur due to delays.
ii)Improve Customer Services
 Right quantity and quality – Customer expects delivery of right quantity and quality of products.
 On-time delivery –  Customers expect to receive the correct product mix and quantity to be
delivered on time. A reliable supply chain can help in avoiding any bottlenecks and ensure customers
get their products in the promised time frame
 Services – After sales services is one of the important aspects in any business. If any kind of
problem occur in the product, customer expects it to be fixed quickly. A right supply chain ensures
that customers get the service they want.

Decision phases of supply chain Management:

 Decision phasescan be defined as the different stages involved in supply chain management for taking an
action or decision related to some product or services. Successful supply chain management requires
decisions on the flow of information, product, and funds that fall into three decision phases.

 Supply Chain Strategy

In this phase, decision is taken by the management mostly. The decision to be made considers the
sections like long term prediction and involves price of goods that are very expensive if it goes
wrong.  These decisions include deciding manufacturing the material, factory location, which should
be easy for transporters to load material and to dispatch at their mentioned location, location of
warehouses for storage of completed product or goods and many more.

 Supply Chain Planning

Supply chain planning should be done according to the demand and supply view. In order to
understand customers’ demands, a market research should be done. The second thing to consider is
awareness and updated information about the competitors and strategies used by them to satisfy their
customer demands and requirements. 

 Supply Chain Operations

The third and last decision phase consists of the various functional decisions that are to be made
instantly within minutes, hours or days. The objective behind this decisional phase is minimizing
uncertainty and performance optimization. Starting from handling the customer order to supplying
the customer with that product

Supply chain performance measure:

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 into 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.

Here, we will be considering the quantitative performance measures only. The performance of a supply
chain can be improvised by using a multi-dimensional strategy, which addresses how the company needs to
provide services to diverse customer demands.

Quantitative Measures

Quantitative measures is the assessments used to measure the performance, and compare or track the
performance or products. We can further divide the quantitative measures of supply chain performance into
two types. They are −
  Non-financial measures

 Financial measures

Non - Financials Measures

The metrics of non-financial measures comprise cycle time, customer service level, inventory levels,
resource utilization ability to perform, flexibility, and quality. In this section, we will discuss the first four
dimensions of the metrics −

Cycle Time:

Cycle time is often called the lead time. It can be simply defined as the end-to-end delay in a business
process. For supply chains, cycle time can be defined as the business processes of interest, supply chain
process and the order-to-delivery process. In the cycle time, we should learn about two types of lead times.
They are as follows −

 Supply chain lead time

 Order-to-delivery lead time

Customer Service Level

The customer service level in a supply chain is marked as an operation of multiple unique performance
indices. Here we have three measures to gauge performance. They are as follows −

 Order fill rate − The order fill rate is the portion of customer demands that can be easily satisfied
from the stock available. For this portion of customer demands, there is no need to consider the
supplier lead time and the manufacturing lead time. The order fill rate could be with respect to a
central warehouse or a field warehouse or stock at any level in the system.
 Stockout rate − It is the reverse of order fill rate and marks the portion of orders lost because of a
stockout.
 Backorder level − This is yet another measure, which is the gauge of total number of orders waiting
to be filled.
 Probability of on-time delivery − It is the portion of customer orders that are completed on-time,
i.e., within the agreed-upon due date.

Inventory Levels

As the inventory-carrying costs increase the total costs significantly, it is essential to carry sufficient
inventory to meet the customer demands. In a supply chain system, inventories can be further divided into
four categories.

 Raw materials
  Work-in-process, i.e., unfinished and semi-finished sections

 Finished goods inventory

 Spare parts

Resource Utilization

In a supply chain network, huge variety of resources is used. These different types of resources available
for different applications are mentioned below.

 Manufacturing resources − Include the machines, material handlers, tools, etc.

 Storage resources − Comprise warehouses, automated storage and retrieval systems.
 Logistics resources − Engage trucks, rail transport, air-cargo carriers, etc.
 Human resources − Consist of labor, scientific and technical personnel.
 Financial resources − Include working capital, stocks, etc.

In the resource utilization paradigm, the main motto is to utilize all the assets or resources efficiently in
order to maximize customer service levels, reduce lead times and optimize inventory levels.

Financial Measures:

The measures taken for gauging different fixed and operational costs related to a supply chain are
considered the financial measures. Finally, the key objective to be achieved is to maximize the revenue by
maintaining low supply chain costs.

There is a hike in prices because of the inventories, transportation, facilities, operations, technology,
materials, and labor. Generally, the financial performance of a supply chain is assessed by considering the
following items −

 Cost of raw materials.

 Revenue from goods sold.
 Activity-based costs like the material handling, manufacturing, assembling rates etc.
 Inventory holding costs.
 Transportation costs.
 Cost of expired perishable goods.
 Penalties for incorrectly filled or late orders delivered to customers.
 Credits for incorrectly filled or late deliveries from suppliers.
 Cost of goods returned by customers.
 Credits for goods returned to suppliers.

Process view of Supply chain management:

Drivers of supply chain performance:
Structuring Supply chain drivers:

Overview of supply chain models:

Supply chain modeling represents a conscious attempt to bring order into a supply chain to achieve certain
business objectives, such as lowest supply cost, on-time delivery and an ability to cope with disruption.

 What to produce
  Market identification
 Siting of production plants
 Finding the best suppliers
 Supplier and plant locations
 Transportation and inventory
 Distributing finished products
 Warehousing strategies
Importance of supply chain models:

 A perfect product
 On time delivery
 Friendly service
 Effective problem resolutionControl inventory
 Reduce costs
 Meet customer demand
 Increase efficiency
 Respond to demand

Modeling system of supply chain management:

 Integrated Make-To-Stock Model

The integrated make-to-stock supply chain model focuses on tracking customer demand in real time,
so that the production process can restock the finishedgoods inventory efficiently. This integration is
often achieved through use of an information system that is fully integrated (an enterprise system).
Through application of such a system, the organization can receive real-time demand information
that can be used to develop and modify production plans and schedules. This information is also
integrated further down the supply chain to the procurement function, so that the modified
production plans and schedules can be supported by input materials.
 Build-To-Order Model
Dell Computer is best known for its application of the build-to-order model. In this model the
company begins assembly of the customer’s order almost immediately upon receipt of the order.
This model requires careful management of the component inventories and delivery of needed
supplies along the supply chain. A solution to this potential inventory problem is to utilize many
common components across several production lines and in several locations. One of the primary
benefits of this type of supply chain model is the perception that each customer is receiving a
personalized product. In addition, the customer is receiving it rapidly. This type of supply chain
model supports the concept of mass customization.
 

 Continuous Replenishment Model

The idea of the continuous replenishment supply chain model is to constantly replenish the inventory
by working closely with suppliers and/or intermediaries. However, if the replenishment process
involves many shipments, the cost may be too high, causing the supply chain to collapse. Therefore
very tight integration is needed between the order-fulfillment process and the production process.
Real-time information about demand changes is required in order for the production process to
maintain the desired replenishment schedules and levels.
 Channel Assembly Model
A slight modification to the build-to-order model is the channel assembly supply chain model. In this
model, the parts of the product are gathered and assembled as the product moves through the
distribution channel. This is accomplished through strategic alliances with third-party logistics
(3PL) firms. These services sometimes involve either physical assembly of a product at a 3PL
facility or the collection of finished components for delivery to the customer.
 Customary Theory of Supply Chain Modeling

Supply chains tend to fall into one of two broad categories: those that focus on efficiency and those that are
responsive. These are broken down further into six categories:

1. Continuous-flow models for mature and stable industries

2. Fast chain models producing fashion and trendy products with a short lifecycle
3. Efficient supply chain models delivering highly competitive products based on price
4. Custom-configured models for products with multiple configurations
5. Agile supply chain models for made-to-order products with unpredictable demand
6. Flexible models to handle seasonal demand peaks
Each model has certain requirements, and the primary role of the supply chain manager is to design a supply
chain model that best meets the above requirements. Naturally, there's often a degree of overlap that must be
allowed for and incorporated into the model Customary modeling focuses on setting up a supply chain that
meets specific requirements and, as the organization matures, adapting the supply chain to meet changing
circumstances.

Building blocks of supply chain network:

 Strategic

This level has only one element, which is the most critical one – Customer value alignment. The key
questions here are:
(1)What would be the supply chain structure and capabilities that will be required to meet customer service
needs in an optimal way?
(2) How can you leverage your supply chain to create value for your customers, partners and your
organization
  Structural
There are two key elements in the structural layer of a supply chain strategy:

(1) Network optimization: What should be the best supply chain network configuration to meet channel
and customer service requirements?

(2) Channel design: What level of operational integration needs to be achieved among the channel
members?

 Operational

(1) Sourcing, production and inventory management: How should the company source inputs,
manufacture products and deploy inventory to match supply and demand at the right cost?

(2) Facilities and Transportation operations: What type of distribution and transportation will optimize
service, investment and cost?

(3) Integrated Planning: What is the most optimal and best in class way to plan end to end Supply Chain
operations in collaboration with all the partners?

Levels of supply chain management:

 Strategic Planning - Effective supply chain strategy begins with adequate long-term decision-making. The
strategy level will lay the groundwork for the entire supply chain process, from beginning to end, and is an
essential component of supply chain management. Strategy level supply chain decisions will usually be the
first step of developing an advantageous process. Strategic planning addresses issues such as choosing the
site and purpose of facilities, creating a network of suppliers, long-term improvements and innovations, and
more.

 Tactical Management - Manufacturing facilities make short-term decisions that involve the supply chain at
a tactical level. At a strategic level, general planning usually takes place, but processes are typically defined
at the tactical level. Tactical decisions play a substantial role in controlling costs and minimizing risks. At
this level, the focus is on customer demand and achieving the overall best end value. Some of the common
concerns include procurement contracts for materials, production schedules and guidelines to meet quality,
transportation and warehousing solutions, and inventory logistics.

 The Operation Level - The operational level of supply chain management is by far one of the most
obvious. These are day-to-day processes, decision making, and planning that takes place to keep the supply
chain running. The mistakes that companies and manufacturing facilities make is to dive directly into
operational management without focusing on the strategy and tactical levels. Some of the aspects of
operational level management include daily and weekly forecasting, monitoring logistics, and settling
damages or losses with suppliers.

Types of Supply Chain:

Business process of Supply chain:

 UNIT -II

Supply chain network design:

Designing Supply Chain Network for each industry or business involves arriving at a satisfactory design
framework taking into all elements like product, market, process, technology, costs, external environment
and factors and their impact besides evaluating alternate scenarios suiting your specific business
requirements. No two supply chain designs can be the same. The network design will vary depending upon
many factors including location and whether you are looking at national, regional or global business models.

process design of Supply Chain Network:

Procurement

 Where are your suppliers

 How will you procure raw materials and components

Manufacturing

 Where will you locate the factories for manufacturing/assembly

 Manufacturing Methodology

Finished Good

 Where will you hold inventories, Number of Warehouses, Location of warehouses etc.
 How will you distribute to markets - Transportation and Distribution logistics

Elements of Supply chain network design:

 Market Structure
 Demand Plotting or Estimation
 Market Segment
 Procurement Cost
 Product /Conversion Costs
 Logistics Costs including Inventory holding costs
 Over heads
 Cost of Sales
 Logistics:

Logistics refers to the overall process of managing how resources are acquired, stored, and transported to
their final destination. Logistics management involves identifying prospective distributors and suppliers and
determining their effectiveness and accessibility. Logistics managers are referred to as logisticians.

Logistics Management Definition

Logistics management is the process of planning ,implementing, and controlling the efficient, effective flow
and storage of goods, services, and related information from point of origin to point of consumption for the
purpose of conforming to customer requirements

Functions of logistics:

 Inbound transportation 

 Outbound transportation

 Fleet management

 Warehousing

 Materials handling

 Order fulfillment

 Inventory management

 Demand planning

Objectives of Logistics Management

(i) To make available the right quantity of right quality products at the right place and time in right
condition.
(ii) To offer best service to consumers.
(iii) To reduce the cost of operations.
(iv) To maintain transparency in operations.

TYPES OF LOGISTICS
Business Logistics- It is the part of the supply chain process that plans, implements and controls the efficient
flow and storage of goods and services from point of origin to point of use or consumption.

Military Logistics- The design and integration of all aspects of support for the operational capability of the
military forces and their equipments to ensure readiness, reliability, and efficiency

Event Logistics- The network of activities, facilities and personnel required to organize, schedule and deploy
 the resources for an event to take place.

Service Logistics-The acquisition, Scheduling, and management of the facilities personnel and material to
support and sustain a service operation or business.

Logistics Management - Logistics management is a process of planning, executing, and controlling the
efficient, effective, flow and storage of goods and services, and related information from point of origin to
point of consumption for the purpose of conforming to customer requirement

Transportation:

Transportation refers to the movement of product from one location to another as it makes its way from the beginning
of a supply chain to the customer. This requires a new broad look at the business of transportation supply chain,
including supply chain management, logistics, and procurement.

.Modes of transport

The following methods of transport are used to move goods today.

 Road vehicles (trucks, vans, motorcycles)

 Railways

 Inland waterways (barges)

 Deep sea

 Air (Aircraft and drones)

 Pipelines

 A combination of the above called inter-modal or multi-modal

Packaging:

Packaging is a coordinated system of preparing goods for safe, secure, efficient and effective handling,
transport, distribution, storage, retailing, consumption and recovery, reuse or disposal combined with
maximizing consumer value, sales and hence profit

Role of Packaging :

1. Identification: It is crucial that important information is displayed properly on your packaging. Things
like RFID or barcodes should be easily identifiable. This makes it easier when doing inventory and cycle
 counts. As well, information about product handling should be clear. This includes hazard warnings,
instructions and even nutrition facts. Proper labeling helps immensely with tracking and organization.
2. Physical Design: For transportation and handling purposes, makes sure your packaging is properly designed
to be easily carried around. Things like handles, stacking ability and the materials used are some basic
examples of functionality. In addition to protecting your inventory, well designed packages also
benefit employee and warehouse safety. Good packaging makes transportation easy and uses space
efficiently.
3. Optimization

Packing optimization can help save you money. By incorporating elements of lean thinking, companies can
think about reducing the amount of materials they use. Using less materials can help increase cash flow. As
well, a reduction in use makes items lighter, resulting in easier transportation.

Nestle Waters is a good example of a company that implemented packaging optimization. From 2010 to
2015 they were able to reduce their plastic usage by %19. By doing so, they were also able to reduce
weight, which decreased by 9%.

What is Freight Management?

According to saloodo.com Freight Management is defined as follows: “Freight Management is the process

of overseeing and managing a cost-efficient operation and delivery of goods. Freight management combines
logistics experience, human resources and knowledge to ensure a smooth coordination between carriers and
shippers.”

Freight Management capabilities

 Aggressive cost reduction initiatives

 Increased margins
 Inbound/outbound supply chain controls
 Compliance resolution
 Supply chain initiatives tooling
 Visibility
 Resource management
 Carrier score-carding
 Carrier negotiation
 Route guide creation/management

Route planning:
Route planning is an important part of Supply Chain Management related to both procurement and
distribution. Route planning systems specify the sequences in which the selected transport vehicles should
supply the demand points by requested quantities of goods at the right time.

Choosing route planning system:

1. Schedules and routes trucks daily. If order quantities vary daily or weekly, choose a system that
automatically calculates efficient truck routes and multi-stop schedules every day. This will reduce overall
miles, fleet costs, and daily planning efforts.

2. Enhances fixed routes and schedules. To manage a transportation operation with regular order dates and
quantities, select a system that calculates optimized routes and schedules while meeting required customer
delivery windows, truck capacities, driver hours, and other transportation restrictions.

3. Optimizes deliveries continually. As new orders are added, a system that continually re-optimizes
schedules will maximize efficiency by taking into account delivery areas, available resources, and existing
deliveries already confirmed.

4. Supports clients. Advanced support services are key to the success of any route planning project. An
allocated support consultant, who helps ensure successful software implementation and quick delivery of
benefits, can be instrumental in the route optimization project. An off-hours hotline service can also help.

5. Links with live vehicle tracking. Live vehicle tracking allows managers to detect anomalies in route
times and distances so they can act immediately to control costs. Comparing planned to actual routes ensures
drivers are following the plan. If any deviation occurs, customers can be alerted to delays.

6. Considers "what-if" scenarios. Using historic data to prepare for vehicle size changes, shifting driver
hours, and alternative delivery locations for distribution networks will improve transport efficiency.

7. Uses multi-period planning. Multi-period planning decides the best delivery patterns for each customer,
ensuring multiple deliveries to the same customer are sufficiently spread out across the planning period,
while also combining deliveries geographically and balancing workload across the period. Allocating
delivery profiles in this way ensures you meet customer delivery requirements, while also minimizing
transportation costs.

8. Creates software development plans. Clear software development plans for the future are important. A
strong supplier should be evolving its product regularly, taking advantage of new technologies and creating
solutions that meet the needs of today's transportation operators.

9. Combines central scheduling. Combining central scheduling of all fleet movements gives transportation
planners the ability to plan nationally or regionally. Inter-depot trucking movements, supplier collections,
and packaging disposal can be incorporated to drastically reduce costs and create significant efficiencies.
10. Pays attention to reporting. Key performance indicators and business intelligence reporting allows
companies to detect operational trends, predict cost implications, and identify possible preventive measures.

Containerization :

Containerization involves bundling an application together with all of its related configuration files, libraries
and dependencies required for it to run in an efficient and bug-free way across different computing
environments.In traditional software development, code developed in one computing environment often runs
with bugs and errors when deployed in another environment.Software developers solve this problem by
running software in ‘containers’ in the cloud.

Modal characteristics of Freight Management:

Transport modes are the means by which passengers and freight achieve mobility. They are mobile transport
assets and fall into three basic types; land (road, rail and pipelines), water (shipping), and air.
1. A Diversity of Modes
Transport modes are designed to either carry passengers or freight, but most modes can carry a combination
of both. For instance, an automobile has a capacity to carry some freight while a passenger plane has a
bellyhold that is used for luggage and cargo. Each mode is characterized by a set of technical, operational
and commercial characteristics. Technical characteristics relate to attributes such as speed, capacity, and
motive technology while operational characteristics involve the context in which modes operated, including
speed limits, safety conditions or operating hours. The demand for transport and the ownership of modes are
dominant commercial characteristics.
a. Road transportation
b. Rail transportation and pipelines
c. Maritime transportation
d. Air transportation
e. Intermodal transportation
f. Telecommunications
2. Modal Competition
Each transportation mode has key operational and commercial advantages and properties. However,
contemporary demand is influenced by integrated transportation systems that require flexibility in the
respective use of each mode. As a result, modal competition exists at various degrees and takes several
dimensions. Modes can compete or complement one another in terms of cost, speed, accessibility,
frequency, safety, comfort, etc. There are three main conditions that ensure that some modes are
complementing one another:Although intermodal transportation has opened many opportunities for
complementarity between modes, transport operators are now competing over many modes in the transport
chain. A growing paradigm thus involves supply chain competition with the modal competition component
occurring over three dimensions:
Modal usage. A competition that involves the comparative advantage of using a specific or a combination
of modes. Distance remains one of the basic determinants of modal usage for passenger transportation.
However, for a similar distance, costs, speed, and comfort can be significant factors behind the choice of a
mode.
Infrastructure usage. Competition resulting from the presence of freight and passenger traffic on the same
itineraries linking the same nodes. Each level of capacity used by a mode is therefore at the expense of the
other mode.
Market area. Competition between transport terminals for using new location (terminal relocation or
expansion) or capturing new markets (hinterland).
3. Modal Shift
A modal shift involves the growth in the demand of a transport mode at the expense of another, although a
modal shift can involve an absolute growth in both concerned modes.The comparative advantages behind a
modal shift can be in terms of costs, convenience, speed or reliability. For passengers, this involved a
transition in modal preferences as incomes went up, such as from collective (public transit) to individual
modes (motorbikes, automobiles) of transportation. For freight, this has implied a shift to faster and more
flexible modes when possible and cost-effective, namely trucking and air freight. A modal shift can further
be nuanced by time shift, for which the use of the same mode takes place at another time period, likely when
there is less congestion. In a situation of congestion, it is thus likely that time shift will be preferred to modal
shift, particularly if the time shift is relatively marginal (e.g. a few hours). An individual may delay travel at
a later time while a freight delivery can be rescheduled.
4. Passengers and Freight:
There is a complementarity between passenger and freight transport systems. With some exceptions, such as
buses and pipelines, most transport modes have developed to handle both freight and passenger traffic. In
some cases, both are carried in the same vehicle, as for instance in air transport where about 80% of the
freight is transported in the cargo holds of passenger aircraft. In others, different types of vehicle have been
developed for freight and passenger traffic, but they both share the same road infrastructure, as for example
in rail and road traffic. In shipping, passengers and freight used to share the same vessels and often the same
terminals. Since the 1950s specialization has occurred, and the two are now quite distinct, except for ferries
and some RORO services.
5. A Growing Divergence
Passengers and freight are increasingly divergent activities as they reflect different transportation markets. In
several modes and across many regions passenger and freight transport are being unbundled.
a. Shipping
b. Rail
c. Roads
d. Air transport

Transport Economics:
Transport Economics is the study of the movement of people and goods over space and time. It is a branch
of economics that deals with the allocation of resources within the transport sector. Transportation
economics, the study of the allocation of transportation resources in order to meet the needs of a society.

Historically, it has been thought of as the intersection of microeconomics and civil engineering