KYAMBOGO UNIVERSITY

SCHOOL OF MANAGEMENT & ENTREPRENEURSHIP

DEPARTMENT OF PROCUREMENT AND

SUPPLYCHAIN MANAGEMENT

MPL 2201: SUPPLY CHAIN MANAGEMENT (4 CU)

BPLM2 AND BBA-Procurement and Logistics Option

“An Investment in Knowledge pays the best Interest”

Okello Hatuba

+256 752833909 / 0705555159

Okello.hatuba1@gmail.com

hokello@kyu.ac.ug

Copyright@2022

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 SUPPLY CHAIN MANAGEMENT
Brief Course Description:

This course will enable the students acquire the knowledge and basic skills to effectively
design a supply chain for an organisation. It entails the historical perspective of supply
chain management, classification of supply chain, members of the supply chain: 1 st, 2nd
and 3rd tier suppliers in a supply chain, Traditional Verse Integrated Supply Chain, the
importance of information technology, supply chain slacks, demand management,
transportation management, inventory management, production management,
location analysis, sourcing decisions, supply chain strategy, and an overview of types of
supply chain such as green and humanitarian aid supply chains.

Course Objectives:

After this course, students will be able to:

• Understand the basic terminology used in SCM and be able to more effectively
communicate with SCM teams.
• Analyse the basic elements of SCM and how improvements in processes and
communication can lead to increased overall customer satisfaction and
profitability.
• Analyse the role of SCM within the organisation
COURSE CONTENT:
SN. Course Duration
• Introduction to SCM:
 Definition
 Definitions of operations Management and Supply Chain 6 Hours
Management
1.
 Difference between operations and Supply Chain
Management.
 Importance of supply chain management
 Major flows in Supply
 Drivers of Supply Chain Performance
• Development of the SCM:
 Historical perspective of Supply chain management
2.  Supply Chain Management Process 3 Hours
 Traditional versus Integrated supply chain management
• Classification of the SC:
 Members of supply chain: 1st, 2nd and 3rd tier suppliers in a

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3. supply chain, 3 Hours
 Synergetic relationships between the firm, customers and
suppliers
 Primary and secondary supply chains, internal and external
chains
• Supply Chain System Slacks 6 Hours
4.  Major slacks in Supply Chain
 Inputs, output and Demand uncertainty
• Supply Management
 Bull-whip Effects in Supply Chain
5.  Managing bullwhip in Supply Chains 6 Hours
 Vendor managed inventory Systems
 Collaborative planning, replenishment and global visibility in
Supply Chain
• Supply Chain Performance Measurement
 Performance measurements architecture- Types, contexts
and perspectives of metrics
 Managing performance within the supply chain functions-
6.
alignment, incentives, and strategic impact. 4 Hours
 Use of performance benchmarking for financial justifications
of supply chain initiatives
 Technology for performance measuring and management-
mobile reporting, big data analysis, available tools.

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Topic 1: Introduction to Supply Chain Management:

The supply chain encompasses all organizations and activities associated with the flow
and transformation of goods from the raw materials stage, through to the end user, as
well as the associated information flows. A supply chain involves, directly or indirectly,
everyone and everything required to extract materials, transform them into a product,
and sell the product to a user.
Supply chains include various entities, such as raw material extractors, service and
component suppliers, a material product manufacturer or a producer of services,
distributors, and end customers.

„The supply chain is made up of both internal and external business groups. These
groups, e.g. suppliers, purchasing, operations, logistics, etc, are sometimes referred to
as enterprises, while distributors and retailers may be referred to as channel members.

Together these groups form an extension of the company and are linked together for
the purpose of moving product and/or services in a cost-effective and efficient
manner.

This linkage forms an integration that allows these groups to share information while
aiming to reduce overall risks and costs in doing business together. The by-product of
this alignment results in improved profitability and increased value to the end user.

Decisions to be made in Supply Chains:

• What products to make and what their designs should be
• How much, when, where and from whom to buy product;
• How much, when and where to produce product;
• How much and when to ship from one facility to another;
• How much, when and where to store product;
• How much, when and where to charge for products; and
• How much, when and where to provide facility capacity

What is a Supply Chain?

A supply chain is the series of activities and organizations of materials – both tangible
and intangible -moving through on their journeys from initial suppliers to final customers.
„The supply-chain is a sequence of events intended to satisfy a customer. It can include

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procurement, manufacture, distribution and waste disposal, together with associated
transport, storage and information technology.‟ It is now being recognized that, for the
real benefits of the logistics concept to be realized, there is a need to extend the logic
of logistics upstream to suppliers and downstream to final customers. This is the concept
of supply chain management.

The supply chain network starts with the suppliers of raw materials to the consumers of
the goods. All these activities and players involved contribute to the success of the
supply chain.

Classification of Supply Chain:

The supply chain can be classified into three levels: internal supply chain, immediate
(direct) supply chain, and total supply chain (Slack, 1992):
1) Internal Supply Chain: The internal supply chain consists of departments, cells or
operation sectors that are internal to a firm or a business unit. This means a single
organization.
2) Immediate Supply Chain: The immediate supply chain consists of suppliers and
customers who are in direct contact with the operation of a single organization.

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3) Total Supply Chain: The total supply chain consists of all the organizations that are
involved with the production and distribution of a specific product, including the
upstream suppliers and the downstream customers of the immediate supply chains.

Key Requirements of a Supply Chain:

• Connectivity: The capability to exchange information with external supply chain

partners in a suitable format for facilitating inter-organisational collaboration

• Integration: The process of combining or coordinating separate functions to enable

them to interact in a seamless fashion

• Visibility: The ability to access relevant data in terms of its relevance and
importance to the supply chain

• Responsiveness: The ability to react quickly and effectively to customer needs by

delivering the right product at the right time and at the right cost.

Operations Management & Supply Chain Management:

Today companies are competing in a very different environment than they were only a
few years ago. To survive, they must focus on customer relationships, innovation, quality,
time-based competition, efficiency, diverse and international perspectives, and cost.
Global competition, e-business, the Internet, and advances in technology require
flexibility and responsiveness. Increased financial pressures require lean and agile
organizations that are free of waste. This new focus has placed operations
management in the business limelight because it is the function through which
companies can achieve this type of competitiveness.
What is Operations Management?
Operations Management (OM) is the business function that plans, organizes,
coordinates, and controls the resources needed to produce a company‟s goods and
services. Operations management is a management function. It involves managing
people, equipment, technology, information, and many other resources. Operations

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management is the central core function of every company. This is true whether the
company is large or small, provides a physical good or a service, is for-profit or not-for-
profit.
The role of Operations Management is to transform a company‟s inputs into the finished
goods or services. Inputs include human resources (such as workers and managers),
facilities and processes (such as buildings and equipment), as well as materials,
technology, and information. Outputs are the goods and services a company
produces.
Organizations can be divided into two broad categories: Manufacturing Organizations
and Service Organizations, each posing unique challenges for the operations function.
There are two primary distinctions between these categories. First, manufacturing
organizations produce physical, tangible goods that can be stored in inventory before
they are needed. By contrast, service organizations produce intangible products that
cannot be produced ahead of time. Second, in manufacturing organizations most
customers have no direct contact with the operation. Customer contact occurs
through distributors and retailers.
For example, a customer buying a car at a car dealership never comes into contact
with the automobile factory. However, in service organizations the customers are
typically present during the creation of the service. Hospitals, colleges, theaters, and
barber shops are examples of service organizations in which the customer is present
during the creation of the service.

Recent Trends in Operations Management:

Recent trends in production/operations management relate to global competition and
the impact it has on manufacturing firms. Some of the recent trends are:

1) Global Market Place: Globalisation of business has compelled many manufacturing

firms to have operations in many countries where they have certain economic
advantage. This has resulted in a steep increase in the level of competition among
manufacturing firms throughout the world.

2) Production/Operations Strategy: More and more firms are recognizing the

importance of production/ operations strategy for the overall success of their
business and the necessity for relating it to their overall business strategy.

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3) Total Quality Management (TQM): TQM approach has been adopted by many firms
to achieve customer satisfaction by a never-ending quest for improving the quality
of goods and services.
4) Flexibility: The ability to adapt quickly to changes in volume of demand, in the
product mix demanded, and in product design or in delivery schedules, has
become a major competitive strategy and a competitive advantage to the firms.
This is sometimes called as agile manufacturing.
5) Time Reduction: Reduction of manufacturing cycle time and speed to market for a
new product provides competitive edge to a firm over other firms. When companies
can provide products at the same price and quality, quicker delivery (short lead
times) provide one firm competitive edge over the other.
6) Technology: Advances in technology have led to a vast array of new products, new
processes and new materials and components. Automation, computerization,
information and communication technologies have revolutionized the way
companies operate. Technological changes in products and processes can have
great impact on competitiveness and quality, if the advanced technology is
carefully integrated into the existing system.
7) Worker Involvement: The recent trend is to assign responsibility for decision making
and problem solving to the lower levels in the organisation. This is known as
employee involvement and empowerment. Examples of worker involvement are
quality circles and use of work teams or quality improvement teams.
8) Re-engineering: This involves drastic measures or break-through improvements to
improve the performance of a firm. It involves the concept of clean-slate approach
or starting from scratch in redesigning the business processes.
9) Environmental Issues: Today‟s production managers are concerned more and more
with pollution control and waste disposal which are key issues in protection of
environment and social responsibility. There is increasing emphasis on reducing
waste, recycling waste, using less-toxic chemicals and using biodegradable
materials for packaging.
10) Corporate Downsizing (or Right Sizing): Downsizing or right sizing has been forced on
firms to shed their obesity. This has become necessary due to competition, lowering
productivity, need for improved profit and for higher dividend payment to
shareholders.

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11) Supply-Chain Management: Management of supply-chain, from suppliers to final
customers reduces the cost of transportation, warehousing and distribution
throughout the supply chain.
12) Lean Production: Production systems have become lean production systems which
use minimal amounts of resources to produce a high volume of high quality goods
with some variety. These systems use flexible manufacturing systems and multi-skilled
workforce to have advantages of both mass production and job production (or
craft production).

What is Supply Chain Management?

Supply Chain Management (SCM) is the integration and management of supply chain
organizations and activities through cooperative organizational relationships, effective
business processes, and high levels of information sharing to create high-performing
value systems that provide member organizations a sustainable competitive
advantage.

Supply Chain Management (SCM) can also be defined as an integrated process of

management of acquisition and management of flow of supply by balancing supply
and demand with optimal management of resources with the objective of establishing
relationships for maximizing value for mutual benefits of stake holders on economically,
socially and environmentally sustainable basis.
Supply Chain Management (SCM) involves managing the flow of materials and
information from suppliers and buyers of raw materials all the way to the final customer.

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The network of entities that is involved in producing and delivering a finished product to
the final customer is called a Supply Chain. The objective is to have everyone in the
chain work together to reduce overall cost and improve quality and service delivery.
Supply chain management requires a team approach, with functions such as
marketing, purchasing, operations, and engineering all working together. This approach
has been shown to result in more satisfied customers, meaning that everyone in the
chain profits.
In supply chain Management has both its upstream supplier network and its
downstream distribution channel. The upstream supply chain includes all activities
related to the organization‟s suppliers: those parties that source raw material inputs to
send to the manufacturer. The downstream supply chain refers to activities post-
manufacturing, namely distributing the product to the final customer.

Supply chain includes managing information systems, sourcing and procurement,

production scheduling, order processing, inventory management, warehousing,
customer service, and after-market disposition of packaging and materials. The supplier
network consists of all organizations that provide inputs, either directly or indirectly, to
the focal firm.

A firm's external downstream supply chain encompasses all of the downstream

organizations, processes, and functions that the product passes through on its way to
the end customer. In the case of an automotive company's distribution network, for
example, this includes its finished goods and pipeline inventory, warehouses, dealer
network, and sales operation

Importance of Supply Chain Concepts:

1) It improves customer service by delivering them with the right product at the right
time and at the right location which in turn increases the organisations sales.
2) It enables the company to bring the products to the market at a quicker rate. Thus
the company gets its payment sooner than those who lack an efficient supply
chain.
3) It lowers the total supply chain cost, including procuring material cost, transportation
cost, inventory and carrying cost. This will later increase the firm‟s profitability.

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4) Improved customer service and value added: Customer service can be improved
through increased inventory availability, better on-time delivery performances,
higher order fill rates, and lower post-sales costs.
5) Enhanced fixed capital: Fixed capacity is maximized through a strategic partnership
and joint planning that can increase overall capacity and throughput.
6) Utilized Asset: Asset utilization can be maximized by increasing inventory turns and
closely aligning supply with demand.
7) Increased sales and profitability: The ability to assess outcomes due to price
changes, promotional events, and new product development can be enhanced
through increased visibility resultant from information sharing among supply chain
partners.
Supply Chain Network Structure (Lambert 2008)

The Supply Chain Network for Automobile Seats

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Major flows in Supply Chain:

There are five major flows in any supply chain: Product Flow, Financial Flow, Information
Flow, Value Flow & Risk Flow.
Material (Product) Flow: This is the flow of the physical product from supplier all the
way down to the customer. This flow is usually uni-directional, that is, it only flows
one direction from supplier to customer; however, in certain instances, when the
customer returns the product, the flow occasionally goes in the other direction. A
typical flow of materials usually begins with the raw materials suppliers to
manufacturers to warehouses and distribution to the final customer.

Information Flow: Information flow is the flow of information from supplier to

customer and from customer back to supplier. This flow is bi-directional, that is, it
goes both directions in the supply chain. The type of information that flows
between customers and suppliers include quotations, purchase orders, delivery
status, invoices, customer complaints and so on. For supply chain to be successful
there has to be constant interaction between supplier and Customer. In many
cases, other partners like distributors, dealers, retailers, logistic service providers are
involved in the information network.

Financial Flow: Lastly, financial flow involves the movement of money from the
customer to the supplier. Usually, when the customer receives the product and
verifies it, the customer pays and the money travels back to the supplier.
Sometimes the finances flow the other direction (from supplier to customer) in form
of debit.

Value Flow: A supply chain has a series of value creating processes spanning over
entire chain in order to provide added value to the end consumer. At each stage there
are physical flows relating to production, distribution; while at each stage, there is some
addition of value to the products or services. Even at retailer stage though the product
does not get transformed or altered, he is providing value added services like making
the product available at convenient place in small lots.

These can be referred to as value chains because as the product moves from one
point to another, it gains value. A value chain is a series of interconnected activities
which are required to bring a product or service from conception, through the different

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phases of production (involving a combination of physical transformation and the input
of various product services), delivery to final customers, and final disposal after use.

Flow of Risk: Risks in supply chain are due to various uncertain elements. Supply chain
risk is a potential occurrence of an incident or failure to seize opportunities of supplying
the customer in which its outcomes result in financial loss for the whole supply chain.
Risks therefore can appear as any kind of disruptions, price volatility, and poor
perceived quality of the product or service, process / internal quality failures, deficiency
of physical infrastructure, natural disaster or any event damaging the reputation of the
firm.
Risks can be external or internal and move either way with product or financial or
information or value flow.

a) Demand Risks: These are related to unpredictable or misunderstood customer or

end-customer demand.
b) Supply Risks: These are related to any disturbances to the flow of product within
your supply chain.
c) Environment Risks: These originate from shocks outside the supply chain.
d) Business Risks: These are related to factors such as suppliers‟ financial or
management stability.
e) Physical Risks: These are related to the condition of a supplier‟s physical facilities.

The Internal risks are driven by events within company control:

a) Manufacturing Risks: These are caused by disruptions of internal operations or
processes.
b) Business risks: These are caused by changes in key personnel, management,
reporting structures, or business processes.
c) Planning and Control Risks: These are caused by inadequate assessment and
planning, and ineffective management.
d) Mitigation and Contingency Risks: These are caused by not putting in place
contingencies.

Drivers in Supply Chain Performance:

It is important that a company's supply chain aims towards achieving the balance
between responsiveness and efficiency that best meets the needs of the company's

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competitive strategy. To understand how a company can improve supply chain
performance in terms of responsiveness and efficiency, we must examine the logistical
and cross-functional drivers of supply chain performance as discussed below:
1. Facilities: These are the actual physical locations in the supply chain network where
the product is stored, assembled, or fabricated. The two major types of facilities are
production sites and storage sites. Decisions regarding the role, location, capacity
and flexibility of facilities have a significant impact on the supply chain's
performance. For instance, an auto-parts distributor striving for responsiveness could
have many warehousing facilities located close to customers even though this
practice reduces efficiency. Alternatively, a high-efficiency distributor would have
fewer warehouses to increase efficiency despite the fact that this practice will
reduce responsiveness.
2. Inventory: This encompasses all raw materials, work in process, and finished goods
within a supply chain. Changing inventory policies can dramatically alter the supply
chain's efficiency and responsiveness. For example, a clothing retailer can make
itself more responsive by stocking large amounts of inventory and satisfying
customer demand from stock. A large inventory, however, increases the retailer's
cost, thereby making it less efficient. Reducing inventory makes the retailer more
efficient but hurts its responsiveness.
3. Transportation: This entails moving inventory from point to point in the supply chain.
Transportation can take the form of many combinations of modes and routes, each
with its own performance characteristics. Transportation choices have a large
impact on supply chain responsiveness and efficiency. For example, a mail-order
catalog company can use a faster mode of transportation such as FedEx to ship
products, thus making its supply chain more responsive, but also less efficient given
the high costs associated with using FedEx. Or the company can use slower but
cheaper ground transportation to ship the product, making the supply chain
efficient but limiting its responsiveness.
4. Information: This consists of data and analysis concerning facilities, inventory,
transportation, costs, prices, and customers throughout the supply chain.
Information is potentially the biggest driver of performance in the supply chain
because it directly affects each of the other drivers. Information presents
management with the opportunity to make supply chains more responsive and

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 more efficient. For example, with information on customer demand patterns, a
pharmaceutical company can produce and stock drugs in anticipation of customer
demand, which makes the supply chain very responsive because customers will find
the drugs they need when they need them. This demand information can also make
the supply chain more efficient because the pharmaceutical firm is better able to
forecast demand and produce only the required amount.
5. Sourcing: This involves the choice of who will perform a particular supply chain
activity such as production, storage, transportation, or the management of
information. At the strategic level, these decisions determine what functions a firm
performs and what functions the firm outsources. Sourcing decisions affect both the
responsiveness and efficiency of a supply chain. After Motorola outsourced much of
its production to contract manufacturers in China, it saw its efficiency improve but its
responsiveness suffer because of the long distances. To make up for the drop in
responsiveness, Motorola started flying in some of its cell phones from China even
though this choice increased transportation cost.
6. Pricing: This determines how much a firm will charge for goods and services that it
makes available in the supply chain. Pricing affects the behavior of the buyer of the
good or service, thus affecting supply chain performance. For example, if a
transportation company varies its charges based on the lead time provided by the
customers, it is very likely that customers who value efficiency will order early and
customers who value responsiveness will be willing to wait and order just before they
need a product transported. Early orders are less likely if prices do not vary with lead
time.
Component Parts of SCM:

It has been suggested that SCM comprises five key elements: strategy; process;
organisation; information; and performance.

Strategy: This drives a supply chain design based on business goals and objectives and
on market needs and expectations. It includes the development and management of
business processes, performance targets, organisation structures, and information
systems.
Process: This describes the activities required to operate and manage the supply chain,
including links between processes and relevant best practices.

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Model: An appropriate model defines management structures, department missions,
and roles and responsibilities.
Information: IT systems are tools that support supply chain planning, execution,
infrastructure maintenance, and the decision-making process.
Performance: A balanced set of process-level performance indicators that can be used
to evaluate and manage supply chain performance against targets. Most supply
chains are actually networks

Supply Chain Vulnerability:

Supply Chain Vulnerability can be defined as 'an exposure to serious disturbance,
arising from risks within the supply chain as well as risks external to the supply chain'.
Supply Chain Networks can comprise hundreds if not thousands of companies which
may stretch globally and which can be subject to numerous risks. These risks can be
largely classified into two types:
Weaknesses and potential risks within the SCN that impact on the ability to meet
customer needs. Instability arises when demand and supply are not in balance. Not
only can price be affected, but also the total cost, time and performance.

In complex networks there may be multiple points of vulnerability occurring at any one
time in different parts of the SCN, and potentially a compounding effect may begin to
happen

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Causes of Supply Chain Vulnerability:
 Susceptibility arising out of modern techniques leading to lean supply networks
 External corruption of the SC, e.g. fraud via counterfeit products.
 Quality failure
 Lack of visibility along the full length of the SC
 The global economic and political situation
 “Silos” in both the customer and supplier organisations, i.e. disjointedness in the SC
 Market régulation (quotas, taxes e.t.c)
 Disconnection between an organization‟s strategy and the practical application of
SCM
 The difficulties in planning and forecasting demand
 Designing the SC system to be more flexible and reactive and responsive (e.g. to
seasonality, fashion etc)
 The dependency of organisation on IT systems to manage complex SCN’s, can
lead to increased vulnerability.
 The volumes of demand in the supply chain/network,
 The capacities in the supply chain/network, and
 Outsourcing

Supply Chain Management Effectiveness:

The goals of corporate supply chains are to provide customers with the products they
want in a timely way and as efficiently and profitably as possible.

Fueled in part by the information revolution and the rise of e-commerce, the
development of models of supply chains and their optimization has emerged as an
important way of coping with this complexity

This reflects the realization that the success of a company generally depends on the
efficiency with which it can design, manufacture and distribute its products in an
increasingly competitive global economy. Elimination of waste or unnecessary costs
across the supply chain such us invoices, expediting and inspection.

After appraisal, many organisations tend to undertake outsourcing of activities originally

produced internally. However, this usually comes with increase in the number of
suppliers a firm deals with. To manage this issue, the organisations undertake tiering

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Waste in Supply Chains:

• Transport between processes or organisations

• Defects: These are called ‘scrap and rework’ in assembly industries and ‘waste
and write-offs’ in continuous process industries
• Over-Processing: Doing work that does not provide value to the customer
• Waiting (or inactivity): people or parts that are waiting for other activities to
complete
• Motion of people or parts within a process without adding value
• Inventory: raw material, work-in-progress or finished goods that are not being
worked upon
• Overproducing: Making product sooner or in greater quantities than customers
require in order to reduce unit costs of production
• Excess production and distribution capacities
• Under-utilization of the skills of the workforce

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Topic 2: Development of Supply Chain Management:
Over the years, most firms have focused their attention on the effectiveness and
efficiency of separate business functions such as purchasing, production, marketing,
financing, and logistics. The lack of connectivity among these functions, however, can
lead to sub-optimal organizational goals and create inefficiency by duplicating
organizational efforts and resources.

To capture the synergy of inter-functional and inter-organizational integration and

coordination across the supply chain and to subsequently make better strategic
decisions, a growing number of firms have begun to realize the strategic importance of
planning, controlling, and designing a supply chain as a whole.

In today‟s global marketplace, individual firms no longer compete as independent

entities with unique brand names, but rather as integral parts of supply chain links. As
such, the ultimate success of a firm will depend on its managerial ability to integrate
and coordinate the intricate network of business relationships among supply chain
partners.

The evolution of supply chain management has been characterized by an increasing

degree of integration of separate tasks, a trend that was underlined in the 1960s but not
until today with the implementation of modern information and communication
technologies did a more complete integration became possible
The Evolution of Supply Chain Management:

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From Traditional towards Integrated SCM:
Tomorrow‟s competition and competitive advantage will be determined by value
chains rather than single business units.

The current, traditional way of synchronizing activities between distinct businesses

entities in a value chain is realized through the creation of inter-/intra-entity buffers of
any kind, like inventory, capacity and lead-time.

This way of operating (fragmentation) leaves a lot of room for performance

improvement and companies will need to work hard to get rid of any non-added value
activities and associated costs.
Traditional Supply Chain Management:

Traditional supply chain is defined as an integrated manufacturing process, wherein the

Supplier supplies raw materials or semi finished goods to the manufacturer and are
manufactured or assembled into final products, and then the finished goods are sent to
the wholesaler, to retailer and finally delivered to the final customer.

A traditional supply chain suffers from a number of problems, which SCM can prevent.
As a consequence of the structure, the traditional supply chain suffers from long lead-

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times, multiple decision points, unclear information and minimal synchronization
(Childerhouse and Towill, 2000).

The Integrated Supply Chain:

Integrated Supply Chain is a process wherein every phase from procurement of raw
materials to production, quality control to packaging, distribution or supply to eventual
delivery is streamlined and inseparable. It is a holistic collective of the various processes,
which may be under complete control of one company or multiple partners will come
together to have collective control over the integrated process. Integrated supply
chain or supply chain integration has several advantages which is why most companies
have switched to integrated supply chain management. However, there are some
disadvantages as well.

Therefore, to arrive at world-class performance, value chain entities will have to

establish an integrated and fully coordinated framework of cross-entity processes,
encompassing both value creation and value delivery processes.
A supply chain should not merely represent a linear chain of one-on-one business
relationships, but a web of multiple business networks and relationships. Along a supply
chain, there may be multiple stakeholders, composed of various suppliers,
manufacturers, distributors, third-party logistics providers, retailers, and customers.

Integrated Supply Chain Management:

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Benefits / Advantages of Integrated Supply Chain:
1) Increase in Revenue: Integrated supply chain allows a company to focus on assets
that would allow the organization to reap more rewards. There are always facets of
a business that will have a more pronounced impact on the revenues and hence
must be optimized as much as possible. Integrated supply chain management
allows companies to prioritize and focus on the specialized assets that would
improve their products, increase market share or enhance operating profits.
2) Reduced / Controlled Costs: Integrated supply chain will always reduce costs,
especially transactional costs which are unavoidable among subsidiaries, partners
or vendors. Having a centralized or integrated supply chain management, a
company is essentially doing away with frills that would have otherwise delayed the
process and would have also incurred needless costs.
3) Quality Control: Supply chain integration helps in ensuring quality. When there is a
concerted attempt to keep a stringent compliance check, it is immensely difficult to
approve or pass along faulty products. There is only one authority overseeing
compliance throughout the process.
4) Competitive Edge: With financial advantages, stricter compliance and better
products, a company will be able to fight its competition and emerge as the winner
with integrated supply chain management.
5) Increase customer service/responsiveness
6) Improve supply-chain communication: There is increase in speed-timeliness of
information, increased accuracy of information flow and increased information
sharing.
7) Reduce cycle time in new product development and order lead-time
8) Improve co-ordination of efforts leading to continuous channel improvement and
understanding of goals

Disadvantages of Integrated Supply Chain:

1) Excessive Regulation: Integrating all suppliers will pose challenges to a business
trying to manage every internal and external supply. Not every supplier needs to
comply with every regulation or norm. A company trying to have a generic
approach which will be the case with integration supply chain management will
needlessly compel all its suppliers to adhere to the same standards.

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2) Needless Complications: Integrated supply chain management can easily lead to a
complicated scenario where resources are shared and unnecessarily wasted. Not
every supplier needs every system. Every supplier and department needs to operate
according to its own strengths while overcoming its witnesses.
3) Dearth of Compliant Suppliers/Vendors: There can be a shortage of suppliers or
vendors that would choose not to renew contracts if the terms of supply chain
integration don‟t suit their business priorities. This can have an impact on the
procurement and supply costs as those willing to comply with the new norms may
have a steeper rate.
4) Vulnerable to System Collapse: There can be a collapse in the checks and
balances if there is any lapse in the inspections or compliance checks. An
integrated supply chain means one error somewhere can bring the whole system
down.
Supply Chain Management Process:
Supply chain management is the process of delivering a product from raw material to
the consumer. It includes supply planning, product planning, demand planning, sales
and operations planning, and supply management. Supply chain management is a
process used by companies to ensure that their supply chain is efficient and cost-
effective. A supply chain is the collection of steps that a company takes to transform
raw materials into a final product. The five basic components of supply chain
management process are discussed below:
1) Customer Relationship Management: Many companies spend loads of money on
attracting new customers. But it is equally important to value and nurture existing
relationships. This process involves identifying the key customers of a product and
meeting their requirements. Various types of customers are identified, their needs
are assessed, and the product is customized accordingly. The customers can also
be classified into large and small customers and accordingly serviced.

2) Supplier Relationship Management: Just like the customer, the supplier is a very
important part of the supply chain. The company identifies its key suppliers,
negotiates, and enters into an agreement with them. It tries to forge good relations
with its main suppliers resulting in a win-win situation. In today‟s business
environment, organizations have to develop a relationship with their suppliers by

23
 actively listening to their problems and trying to solve them, thus making them
partners in the supply chain process.

3) Customer Service Management: This process provides interaction with customers.

This is the face of the company, as far as the customer is concerned. This may also
involve helping the customer to locate where his goods are in transit or installing the
product at the customers‟ place.

Note: Customer Service Management, which interfaces with customers, is different

from Customer Relationship Management, which defines the processes of acquiring
and maintaining customers.
4) Demand Management: How much to produce? This question has to be effectively
answered to satisfy the customer‟s demands. Demand Management does just that.
If you produce too little when there is demand, you have lost the opportunity to sell
more, thus increasing your bottom line. If you produce too much when there is no
demand, the cost of holding stock increases, leading to wastage. This fine line has
to be managed. What should be produced? The correct product mix should be
decided based on consumer demand so that the resources may be diverted to
more profitable units.
5) Order fulfillment: The process from the supplier level to the customer level has to be
streamlined so that the product is delivered as per customer expectations at
minimum cost. It not only involves logistics but the entire gamut of operations.
6) Manufacturing Flow Management: The same manufacturing facility is sometimes
used to produce products of various specifications. How much of each type is to be
produced? How flexible is the manufacturing facility? These questions have to be
answered while maintaining the optimum production of required goods with the
lowest possible cost.

7) Product Development and Commercialization: This involves developing a structure

that would facilitate developing a new product with the help of suppliers and
consumers. For example, market research may bring about the idea of creating a
new product to satisfy customer demands. This process enables the flow of new
products from the supplier to the market seamlessly. This team would need to work
with the CRM (Customer Relationship Management) team as well as SRM (Supplier
Relationship Management) and Manufacturing flow team.

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8) Returns Management: Returns management refers to the management of the
reverse flow of products. For example, there may be sales returns when the sold
product is defective, broken or not according to customer specifications. The
efficient use of this process will reduce unwanted returns and streamline reusable
materials such as gunny bags.

Traditional Versus Integrated Supply Chain Management:

Traditional supply chain is defined as an integrated manufacturing process, wherein the
Supplier supplies raw materials or semi finished goods to the manufacturer and are
manufactured or assembled into final products, and then the finished goods are sent to
the wholesaler, to retailer and finally delivered to consumer.
A supply chain is a global network that ensures the delivery of products and services
domestically as well as internationally. A supply chain ensures product delivery from raw
materials to the final customers, by using a definite structure involving an efficient
network and productive information channel. The basic supply chain of any product
involves raw materials, producer, distributor, retailer and the customer. The traditional
form of SCM involves several but simple steps as discussed below:

1) Collection of raw materials: The first step involves the collection of raw materials
required to make the final product. The raw materials concerned could be of a
single type, or may include several other products to be collected from various
sources.
2) Collection of material from the suppliers: The manufacturers must acquire all the
required raw materials to produce the ultimate finished product.
3) Manufacturing: The manufacturer then initiates and completes all the processes
required for producing the finished product. Various procedures may be involved
like making paper, binding of papers, covering the book, etc. and different
equipment may be used for each process. The company then packs the books
together in boxes and prepares it for shipping and delivery.
4) Distribution to the customers: A process where the finished product is distributed to
the retailers.
5) Consumption by the end customers: The last step is the purchase of the finished
products by the customer. In this example, the book may be used for the various
purposes by different people.

25
This is how the traditional SCM system works or worked. Today, as technology has been
evolving greatly, traditional methods are being replaced by modern ideas and
strategies. With the advancement in technology, SCM has become entirely digital and
lead to a system called Modern SCM.
What makes Traditional SCM different from Modern SCM?
1) Traditional SCM focuses only on production and provision, whereas Modern SCM
focuses on the needs of the customers in general. For example, most of the freight
companies also aim to improve the value of the product delivered to the customer,
rather than just focusing on the aspect of distribution.
2) Modern SCM allows any business organization to experience the value in creating a
partnership, whereas the traditional SCM allows listed companies to follow a single
pathway.
3) The organizations operating under Modern SCM create and provide value to the
product which is consumed by the final customer. Whereas, traditional SCM has no
such strategies to improve the value of the finished product.
4) Modern technologies and strategies are incorporated into Modern SCM. Whereas
the traditional SCM follows the old methods. To explain further, we can consider the
example of a book that is yet to be published. The traditional system involves the
collection of raw materials, supplying them to the manufacturer, manufacture of the
book, printing of content, packing, shipping, and delivery. The Modern Supply Chain
Management cuts down all these processes by simply publishing an e-book.
5) Modern SCM allows faster progression than Traditional SCM. Modern SCM enables
the companies to use highly advanced and integrated technology systems to
ensure the expansion of the portfolio of the customers which does not happen with
the traditional SCM.
6) Modern SCM also utilizes logistics management which is a system that plans,
implements, and controls the forward and reverse flow of goods. It ensures the
process is effective and efficient, and also ensures the safe delivery of the goods.
Unlike Modern SCM, Traditional SCM does not use any tool like logistics
management which is used by most of the shipping across the world today. Freight
shipping Canada uses the best resources to fulfill the needs of the customers.
7) Modern SCM focuses more on building partnerships, alliances, and collaborations.
With improved relationships with the suppliers, companies can build trust leading to

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 long-term relationships. This has enhanced the export and import of goods to distant
place.

Component Parts of SCM:

It has been suggested that SCM comprises five key elements: strategy; process;
organisation; information; and performance.

Strategy: This drives a supply chain design based on business goals and objectives and
on market needs and expectations. It includes the development and management of
business processes, performance targets, organisation structures, and information
systems.
Process: This describes the activities required to operate and manage the supply chain,
including links between processes and relevant best practices.
Model: An appropriate model defines management structures, department missions,
and roles and responsibilities.
Information: IT systems are tools that support supply chain planning, execution,
infrastructure maintenance, and the decision-making process.
Performance: A balanced set of process-level performance indicators that can be used
to evaluate and manage supply chain performance against targets. Most supply
chains are actually networks

Supply Chain Vulnerability:

Supply Chain Vulnerability can be defined as 'an exposure to serious disturbance,

arising from risks within the supply chain as well as risks external to the supply chain'.
Supply Chain Networks can comprise hundreds if not thousands of companies which
may stretch globally and which can be subject to numerous risks. These risks can be
largely classified into two types:
Weaknesses and potential risks within the SCN that impact on the ability to meet
customer needs. Instability arises when demand and supply are not in balance. Not
only can price be affected, but also the total cost, time and performance.

27
In complex networks there may be multiple points of vulnerability occurring at any one
time in different parts of the SCN, and potentially a compounding effect may begin to
happen.

Causes of Supply Chain Vulnerability:

 Susceptibility arising out of modern techniques leading to lean supply networks
 External corruption of the SC, e.g. fraud via counterfeit products.
 Quality failure
 Lack of visibility along the full length of the SC
 The global economic and political situation
 “Silos” in both the customer and supplier organisations, i.e. disjointedness in the SC
 Market régulation (quotas, taxes e.t.c)
 Disconnection between an organization‟s strategy and the practical application of
SCM
 The difficulties in planning and forecasting demand
 Designing the SC system to be more flexible and reactive and responsive (e.g. to
seasonality, fashion etc)
 The dependency of organisation on IT systems to manage complex SCN’s, can
lead to increased vulnerability.
 The volumes of demand in the supply chain/network,
 The capacities in the supply chain/network, and
 Outsourcing

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Supply Chain Management Effectiveness:

The goals of corporate supply chains are to provide customers with the products they
want in a timely way and as efficiently and profitably as possible.

Fueled in part by the information revolution and the rise of e-commerce, the
development of models of supply chains and their optimization has emerged as an
important way of coping with this complexity

This reflects the realization that the success of a company generally depends on the
efficiency with which it can design, manufacture and distribute its products in an
increasingly competitive global economy. Elimination of waste or unnecessary costs
across the supply chain such us invoices, expediting and inspection.

After appraisal, many organisations tend to undertake outsourcing of activities originally

produced internally. However, this usually comes with increase in the number of
suppliers a firm deals with. To manage this issue, the organisations undertake tiering.

Supplier Tiering:
Supplier Tiering is a form of supply base management in which supplies are organised
to enable only the first tier suppliers deal directly with the buying organisation. Suppose
that a manufacturer wishes to maximize its own part in the value adding process by
taking in only a minimum contribution from outside suppliers. For example, the
manufacturer buys in parts from a number of suppliers and assembles them through a
number of stages to produce a finished product. The structure of the supply chain in
such a case is illustrated below;
All manufacturing performed by top level purchaser

Top Level
Purchaser

Supplier 1 supplier 2 supplier 3 supplier 4 supplier 5

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By contrast, suppose that the manufacturer sees strategic advantage in outsourcing all
activities other than the final stages of production. In that case, its direct procurement
relationship may be with a single supplier or tier of suppliers. Each supplier in the first tier
would have an extensive role to fulfill in the manufacturing of the final product, making
use of „second tier‟ suppliers.
Top Level Purchaser Outsources Most Manufacturing

Top level
Purchaser

Supplier X Supplier Y

Supplier 1 supplier 2 Supplier 3 supplier 4

Activity

1. Define ‘supply chain’

2. Describe what is meant by ‘supplier tiering’?
3. What are the implications of supplier tiering?

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 Agile and Lean Supply Chain:
Agility
Agility is defined as a strategy that is more responsive in a volatile market place, where
this strategy is totally demand driven. As consumers buying patterns are changing on a
very rapid pace, so does the whole supply chain management changes.

Agile Supply Chain is essentially practical approach to managing supply networks and
developing flexible capabilities to satisfy the fast changing customer demand. It is
about moving and transforming a supply chain that is structured around the focal
company and its product categories to the one that is centred on end-customer and
their requirements.

The agile supply chain is a fast-moving, adaptable and robust system capable of rapid
adaptation in response to turbulent and volatile markets, uncertainty created by
economic and competitive forces, market opportunities, and customer requirements.
The fundamental drivers of agile supply chain are Speed, Cost and Efficiency.

Major Constituents of Agile Supply

1. Agile Supply Chain Virtual Integration: Agility implies that the supply chain is able to
respond to changes in the local market requirements and much of these can
perhaps be the opportunities. To achieve this, agile supply chain must be able to
leverage skills, assets and other resources across the divisional units in the local

31
 region in which they operate. This means they need to establish the shared goals
and communicate them across the supply chain and work towards them jointly in
harmony.
Virtual Integration: Information is shared among concerned departments for the real
demand from market or end consumers. Information is shared collaboratively and
each player will respond according to his capability to fulfill the demand
Virtually being integrated would result in end to end visibility, this is how this would be
easy to identify the bottlenecks in the network and any other problem that creates
hindrance in the network.

2. Process Alignment: Agile supply chain will require higher level of alignment between
internal operational processes such as sales, forecasting, production planning,
sourcing and delivery. This is because, when sales operations senses and change in
the market trends, it will trigger a chain reaction of responsive or corrective change
through many other operations in the supply chain.
In process alignment, three things are mainly of concerned: Co-managed inventory,
in present time mostly chains are managed through the VMI (vendor managed
inventory) this is one of the best solution, as a co-managed inventory, Collaborative
product design by the concerned departments, this is how the team works to shape
the consumer needs or wants and the third and the ultimate result is synchronous
supply chain.

3. Network Based: Looking at agile supply chain‟s originators, managers need to clarify
how the participating members of the agile supply chains are best connected with
each other. Every individual actor in the chain has to put their efforts to make it the
success of the chain. This will reduce the burden on individual actors and the task is
divided among the actors as per their core competencies where they are best at.
All actors in the chain are orchestrators of the chain, therefore, they equally own the
chain and their performance level matters from each end.

4. Market Sensitive: Today’s chains are market sensitive where demand is sensed
from the market. The demand forecasting is based on the daily Point of Sale (P.O.S),
sensing demand from past trends is an obsolete way to predict the demand in such
a volatile markets.

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 Therefore, daily feedback from market or sales terminal feedback is taken to meet
the future demand. In present time companies are focusing on future, therefore,
their efforts are to make it from today, by executing best practices to capture the
emerging trends.

One of the best practices would be to listen your customer. It is said that success of
supply chain is based on the end consumer’s feedback. Therefore, voice of
consumer is the actual demand that drives the supply chain.

Successful Application of Agility:

The agile supply chain model requires that:

 The stock is held at the fewest echelons (if at all) with finished goods sometimes
being delivered directly from factory to customer
 Replenishment of all echelons is driven from actual sales/usage data collected at
the customer inter-face
 Production is planned across functional boundaries from vendor to customer,
through highly integrated systems and with minimum lead times
 The majority of stock is held as 'work in progress' awaiting build/configuration
instructions Systems and process flexibility are the key components of agility

Steps to Successful Application of Agility:

• Use a wide network of suppliers that are flexible and responsive to changes in
demand and also serve as design partners.
• Install processes and systems that are adaptable, flexible and reconfigurable.
• Postpone decisions in manufacturing until final customer demand is received.
• Provide data on changes in supply and demand.
• Invest in a cross-functional and highly skilled workforce and sophisticated
information systems and technologies.
• Reduce echelons in the supply chain

Advantages of Agility:
Fulfilling Variables: Agile supply chains are capable of fulfilling variable and
unpredictable customer demand in a rapidly changing and volatile business

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environment Agile supply chains can deliver a broad variety of products in a relatively
short time
Increasing Profitability: Agile supply chains can substantially increase profit margins by
reducing costs and rationalizing inventory

Disadvantages of Agility:

Over-reliant of People and Systems: Agile supply chains are over-reliant on people and
systems. Agility is lost when information does not flow due to technical or human error.
Similarly, if users are unwilling and reluctant to accept agile practices and enabling
technologies, agile manufacturing may fail from the inability to overcome the inertia of
traditional and deeply ingrained practices
Expensive: Building an agile and resilient supply chain can be expensive
Agile supply is not recommended where the 'order winners', cost, efficiency and profit
margins are low. In such a scenario, having spare capacity or investing in inventory as
advocated by agility can lead to higher production costs

Lean Supply Chains:

Lean Supply Chain (LSC) can be defined as a "set of organisations directly linked by
upstream and downstream flows of products, services, finances and information that
collaboratively work to reduce costs and waste. Management of an LSC is a process
aimed at eliminating waste and non value-adding activities from the overall value
stream in the supply chain. To build a lean supply chain it is important to identify the
wastes associated with these flows and eliminate them.

Application of Lean Supply Chain:

1. Select critical supply chain members (by importance of products and the impact on
overall production cost and time) to gradually implement lean supply chain.
2. Assess the current state of the supply chain and develop value stream maps of
critical products.
3. Develop an overall value stream map and establish a cross-organisation assessment
team to identify improvement opportunities.
4. Develop a detailed time-line chart.

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5. Develop potential value stream maps of company level and supply chain level in
order to guide the project.
6. Implement improvement project.
7. Introduce cross-enterprise collaboration to achieve consistency: collaborative
practices and processes across departments allow a company as a whole to
maximise the value stream to the customer

Advantages of Lean Supply Chain:

 LSC facilitates permeation across the vendor base and logistics operation
 LSC can enable member companies to align themselves with each other and to
coordinate their continuous improvement efforts
 Lean logistics and IT can help achieve decrease in inventory levels, shorten lead
times, lower costs, deliver quality and customer satisfaction

Disadvantages of Lean Supply Chain:

 There is a general problem around the lack of awareness about LSC and its
implementation. Lean techniques are often limited to manufacturing operations
and the shop floor
 Cost and profit allocations between companies can be problematic due to
increased levels of integration and cooperation
 Over-utilization may turn lean supply into a 'tool' for profit-making rather than a
managerial technique

Drivers for Lean Supply Chain

This refers to what makes a supply chain lean. There are six (06) key drivers that will lead
to supply chain.
1. Waste Reduction: Elimination of waste is one of the key lean manufacturing. Waste
can be found from all aspects of business activities. It can take the form of time,
inventory, redundant process and defects. Supply which members must work
together to identify and eliminate all those possible wasteful and non-value adding
elements in order to become lean. This elimination of wastes will have a direct and
visible consequence which is the reduction of cost to supply chain.
2. Demand Management: This is by far one of the most important frontier that supply
chains compete in the market place and there is always significant room for

35
 improvement. In fact, the performance of the supply chain viewed by the end-
consumer is largely hinged on how the consumer demand is managed, fulfilled and
satisfied. The status quo of the demand management in supply chains today show
that it is not just a matter of a good will or customers minded attitude. It is now a
measure of supply chain capability which is often facilitated by sophisticated POS
(Point of Sale) data communication system.
3. Process Standardisation: This enables the continuous flow to run through the
company and the supply chain which represents another tenet of lean supply
chain. Flows mean the uninterrupted movement of a product or service through the
system to the customer. major inhibitors of flow are work in queue, batch processing
and transportation. These roadblocks slow the time from product or service initiation
to delivery and increase the material and work in progress carrying costs.
4. Engaging People: Lean manufacturing differs from production system in its people
engagement. To implement the lean process and develop a lean supply, managers
must start with engaging people. This means the lean campaign is not just a brilliant
idea of the top management but a task that everyone in the organisation must get
involved, especially the operators and engineers in the operational frontiers on the
shop floor.
5. Collaboration: Lean philosophy promotes working together and collaborating. The
collaboration can take place between the organisations within the supply chain or
across different supply chain. Collaborations often results in shared resources
leading to high level economy of scope, and significantly reducing the business risks
for the partners by sharing it and jointly averting it.
6. Continuous Improvement: Lean philosophy believes that the journey to improve will
never end. It does not need to be a quantum leap, any small steps of change
towards better operations will be encouraged.

Total Quality Management:

TQM is an approach aimed at improving the effectiveness and flexibility of business as a
whole through the elimination of wasted effort as well as physical waste (i.e., improving
the effectiveness of work so that results are achieved in less time and at less cost). The
buying process is very relevant to TQM. If quality is priceless, then the TQM diamond

36
Quality Management is a method for ensuring that all the activities necessary for the
design, development and implementation of a product or service are effective and
efficient with respect to the system and its performance.
Quality is the degree of excellence at an acceptable price and control of variability at
an acceptable cost “. Quality is a measure of how closely a good or service conforms
to specified standards.

Elements of TQM
Teamwork: This is central to many parts of the TQM system where workers have to feel
they are part of an organisation. In addition, teams of workers will often be brought
together into problem-solving groups, quality circles, and quality improvement teams.
Commitment: To be successful, TQM needs to be truly organisation-wide, and therefore
commitment is required at the top from the chief executive as well as from the
workforce. Middle management have an important role to play in not only grasping the
concepts themselves but also explaining them to the people for whom they are
responsible.
Communication: Poor communication can result in organisational problems,
information being lost and gaps occurring in the system. A good flow of accurate
information, instructions and feedback is vital in maintaining the cohesion needed by
the system.
Organisation: A cohesive system needs to be an organised one, with clear channels of
responsibility and clearly defined reporting procedures. Quality- related errors can be
quickly rectified if an efficient organisational structure is in place.
Control and monitoring: The TQM system will not remove the need to monitor processes
and sample outputs, neither will it simply control itself. Many organisations use after-the-
fact control, causing managers to take a reactive rather than proactive position. The
TQM system needs a more anticipative style of control.
Planning: Processes need to be planned carefully if they are to be efficient. This usually
requires recording activities, stages and decisions in a form which is communicable to
all. A clearly defined process reduces the scope for error, and provides the basis of an
analysis into possible improvements that might be made.
Inventory systems: It is in the storage of raw materials, components or the finished
product that quality can diminish. The keeping of stocks is also physically expensive and

37
can lead to cash-flow problems. An inventory control system is therefore required to
keep stocks to a minimum, whilst ensuring that supplies never dry up. One such system is
the Just-in-Time system.

Total Quality Management in the Supply Chain:

The majority of enterprises are increasingly relying on their suppliers more and more
heavily. The product quality and manufacturing process of suppliers has great effect on
the quality of final product of the core enterprise. It means that the emphasis on TQM
has transferred from enterprise focus to supply chain focus.

Quality control of the whole supply chain system ensures that each organisation within
the system becomes competitive. The essence of the competition advantage is not
pursuing product quality and process quality only, but the performance of the whole
supply chain system. Therefore, the establishment of quality management system of
supply chain will promote the involvement of all the members and facilitate the
implementation of quality control of the whole supply chain system.

TQM is an integrated approach, consisting of principles and practices, whose goal is to

improve the quality of an organizations goods and services through continuously
meeting and exceeding customers‟ needs in most competitive ways. TQM focuses on
enhancing customer satisfaction. QM is a total system approach which works
horizontally across functions and departments, involving all employees, top to bottom,
and extends backwards and forwards to include the supply chain and customer chain

• Both TQM and SCM aim to achieve customer satisfaction. There are many strategies
to accomplish this ultimate goal. Basically, customers require better product quality,
faster delivery and cheaper costs, or quality-delivery-cost (QDC). Organizations must
meet these requirements to achieve customer satisfaction.
• Quality control (QC) focuses on specification-based performance. It emphasizes
inspection to prevent delivering defect products to customers. TQM focuses more
on quality conformance by aiming to deliver error-free products and services.

Supply Chain Quality Management:

SCQM refers to the participation of all members of a supply channel network in the
continuous and synchronized improvement of all processes, products, services, and
work cultures focused on generating sources of productivity and competitive

38
differentiation through the active promotion of market winning product(s) and service
solutions that provide total customer value and satisfaction. The quality policy of
individual supply chain members should be aligned for consistency together to ensure
a common quality policy of the entire supply chain.

Why TQM?
1) Reduce Process Variance: TQM applications help reduce process variance, which
has a direct impact on supply chain performance measures, such as cycle time and
delivery dependability
2) Set-up Time Reduction: TQM practices result in set-up time reduction, allowing
improved schedule attainment and correspondingly faster response to market
demands. This helps in synchronizing, to a greater extent, the whole supply chain
3) Process follow-up and Customer Satisfaction: TQM practices ensure that processes
are followed and customers are satisfied. SCM includes a set of approaches and
practices to effectively integrate suppliers, manufacturers, distributors and
customers for improving the long-term performance of the individual organizations
and the supply chain as a whole in a cohesive and high-performing business model
4) Ensures superior quality products and services: TQM ensures production of quality
products and services which will in the end customer loyalty with contiguous
purchases.
5) Increases sales volume for the company: Helps an organisation to design and
create a product which the customer actually wants and desires to ensures
increased revenues and higher productivity for the organisation
6) Reduced Risks: TQM in the company reduces risk like replenishment of the product
to the customer, rework, replacement etc which in the end reduces also production
costs.

Thus, it is important to have a customer-focused corporate vision in place while striving

to implement TQM and SCM practices effectively both upstream and downstream and
doing so can produce a number of competitive advantages for the supply chain

Barriers to Total Quality Implementation:

 Improper planning
 Lack of management commitment

39
 Inability to change the organisational culture
 Lack of employee involvement
 Lack of continuous training and education
 Lack of team work
 Incompatible organisational structure & isolated individuals and departments
 Lack of customer oriented approach
 Lack of attention paid to customer feedback and complaints
 Inadequate control over suppliers, vendors, subcontractors
 Ineffective measurement techniques and lack of access to data and results
 Review of quality procedures

Integration (Participation and Partnership:

Both TQM and SCM offer unique frameworks to integrate participation and partnership,
since they require participation from all internal functions and continuous collaboration
with all external partners

Although TQM requires involvement from customers and suppliers, it places more
emphasis on employee participation. The focus is on both internal primary and
supportive functions in an organization’s value chain. In the TQM environment, all
employees are treated as internal customers. If the internal customers are not satisfied,
external customer satisfaction is difficult. Therefore, TQM emphasizes employee
involvement and ownership.

SCM requires internal and external business process integration across the whole supply
chain. SCM effectiveness and efficiency depend significantly on the degree of
integration. Therefore, SCM aims to improve not only the performance of the individual
organization but also that of the whole supply chain
When TQM and SCM are integrated, both business processes and the organizational
structure will become more complex.

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Topic 6: SUPPLY MANAGEMENT:

The Bullwhip Effect in the Supply Chain:

Bullwhip Effect is defined as the amplification of demand variability from a downstream

site to an upstream site.
Bullwhip Effect refers to a supply chain-wide phenomenon that modest change of
customer demand is distorted and amplified towards the upstream end of the supply
chain resulting in large variations of orders placed upstream. The bullwhip effects
describe how small fluctuations in demand from the retailers can cause progressively
large fluctuations at the wholesaler, distributor, manufacturer and raw material supplier
level.

The information transferred in the form of orders tends to be distorted and can misguide
upstream members in their inventory and production decisions. The variance of
(replenishment) orders may be larger than that of sales (to end customers), and the
distortion tends to increase as one moves upstream. Bullwhip costs money, wastes
resources, and loses customers.

This effect leads to inefficiencies in supply chains, since it increases the cost for logistics
and lowers its competitive ability. Particularly, the bullwhip effect negatively affects a
supply chain in three respects:

What Contributes To The Bullwhip Effect?

Disorganization between the Supply Chain Links: Disorganization between each supply
chain link while ordering larger or smaller amounts of a product than is needed due to
an over or under reaction to the supply chain beforehand.

41
Lack of communication in the links: Lack of communication between each link in the
supply chain makes it difficult for processes to run smoothly. Managers can perceive a
product demand quite differently within different links of the supply chain and therefore
order different quantities.
Free Return Policies: Customers may intentionally overstate demands due to shortages
and then cancel when the supply becomes adequate again, without return forfeit
retailers will continue to exaggerate their needs and cancel orders; resulting in excess
material.
Extended Lead Time: Lead time is the period of time from when an order is placed and
when it is received. If the lad time is not taken into account, excess stock may occur
resulting in supplier demand changes.
Order Batching: Companies may not immediately place an order with their supplier;
often accumulating the demand first. Companies may order weekly or even monthly.
This creates variability in the demand as there may for instance be a surge in demand
at some stage followed by no demand after.
Price Variations/Fluctuations: Special discounts and other cost changes can upset
regular buying patterns; buyers want to take advantage on discounts offered during a
short time period, this can cause uneven production and distorted demand
information.
Demand Information: Relying on past demand information to estimate current demand
information of a product does not take into account any fluctuations that may occur in
demand over a period of time.
Dimensioning of capacities: A variation in demand causes variation in the usage of
capacities. Here companies face a dilemma: If they dimension their capacities
according to the average demand, they will regularly have delivery difficulties in case
of demand peaks. Adjusting their capacities to the maximum demand leads to poorly
used resources.
Variation in inventory level: The varying demand leads to variation in inventory levels at
each tier of the supply chain. If a company delivers more than the next tier passes on,
the inventory level increases. Vice versa, the inventory is reduced in case a company
delivers less than the next tier passes on. A high level of inventory causes costs for
capital employed while a low level of inventory puts the delivery reliability at risk.

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High level of safety stock: The safety stock that is required to assure sufficient service
level increases with the variation of demand. Thus the stronger the bullwhip effect is in a
supply chain, the higher is the safety stock required.

An important issue for supply chains is to cope with the bullwhip effect. For that
purpose, the reasons for the amplification of the demand variation need to be
identified.

Methods for Coping with Bullwhip effect (Mitigation of Bullwhip Effect)

The ability to quantify the Bullwhip effect leads to a number of suggestions for reducing
the Bullwhip effect.
Reduce uncertainty on demand and lead time: Point-of-Sale (POS), Sharing information,
Sharing forecasts and policies
Reduce variability of demand: Eliminate promotions, instead use Every-Day Low Pricing
(EDLP) strategy
Reduce lead times: EDI (Effective Data Interchange) recuding information lead time,
Cross docking reducing order lead time
Strategic partnerships: Vendor managed inventory (VMI), Data sharing
• Reduced lead times

• Revision of reordering procedures

• limitations of price fluctuations

• Integration of planning and performance measurement

• Improve communication between teams and managers

• Manage orders and return and adjust supplier and inventory policies.

• Bring onboard new suppliers as quickly as possible.

Steps to Successful Application

• Improve communication and information flow along the supply chain.

• Improve data forecasting (e.g. determining product demand from actual data
entered into point of sale (POS) computer systems and electronic data interchange
(EDI) systems will improve sales forecast accuracy).
• Work with firms upstream and downstream in the supply chain.

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• Order products up and down the supply chain in smaller increments, thus reducing
the time between orders and allowing for timely information to be available

Disadvantages of Bullwhip Effect

• Excessive Inventory Management: The bullwhip effect can lead to excessive

inventory investments throughout the supply chain when the parties involved
attempt to protect themselves against demand variations.
• It is Costly: The bullwhip effect can be very costly in terms of "capacity on costs and
stock-out costs on the upswing and stockholding and obsolescence costs on the
downswing"
• Inventory Accumulation: The bullwhip effect can lead to accumulation of inventory
at the manufacturer's end. This further increases supply chain costs to the company

VENDOR MANAGED INVENTORY:

Vendor managed inventory (VMI) is a supply chain agreement where an upstream
agent (e.g. supplier or manufacturer) takes control of the inventory management
decisions for one or more downstream agents (e.g. retailers). This type of agreement is
also known as supplier managed inventory, continuous replenishment programme, or
supplier-assisted inventory replenishment.

In VMI arrangements the supplier decides the timing and quantity of materials delivered
to the retailer using advanced online messaging and data-retrieval systems
Vendor Managed Inventory (VMI) involves another party, other than customer, taking
responsibility for elements of inventory management, including setting and managing
inventory levels, re-ordering, and replenishing.

Advantages / Benefits of VMI:

The benefits of VMI are mainly found in two areas. The first lies in the ability of VMI
systems to mitigate the ‘bullwhip effect’. VMI systems can minimize demand
information distortion transferred from the downstream supply-chain entity to the
upstream entities resulting in less stock outs, reduced inventory carrying costs and more
accurate demand forecasts.
Ensures optimal stock availability at all times: The vendor takes full responsibility for your
inventory levels and keeps all products stocked up on a timely basis. Without VMI,

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retailers will always have to be aware of reorder points to place a purchase order and
miss on their deliveries.
Improves time and work management: In retailing, along with daily business work also
includes managing inventory, noting down the reorder points, creating purchase orders
for replenishment, and so on. Using VMI, these tasks can be excluded, allowing you to
focus on other productive business needs like online channel management, introducing
new products, or coming up with new marketing tricks.
Eliminates stock out losses: VMI opens up the path for suppliers into customers‟ product
demand and diminishes the uncertainty involved with the inventory status. This, in turn,
eliminates last-minute orders since the supplier has the ability to restock the customer‟s
inventory without any interruptions.
Inventory Transparency: Access to retailers‟ inventory helps suppliers easily analyze the
demand for their products. With a frequent visit to the store or real-time access to the
retailer‟s inventory levels, you get to know which products are selling fast and which are
not. This, as a result, helps you avoid a sudden surge in the sale as per the demand
scenarios.
Better space utilization in the supplier’s warehouse: With knowing the demand for a
particular product, suppliers can produce or fill in space with fast-selling products,
which in turn, helps avoid dead stocks, reduce production charges, and control
inventory with more flexibility.
Cost-cutting with space management: Suppliers can push inventory to the customer‟s
location which they can store for months at zero cost. Since customers always have a
steady flow of supplies, they would rarely be in any stock-out situation.
Improved productivity: VMI alone will not increase productivity but it influences positive
workflow output. Your supplier will assess your current workflow from receipt of delivery,
distribution of goods and storage to find ways to minimize steps, saving you time and
money.
Valued partnership: Your supplier will value and uphold the trust within the partnership,
focusing on efficiency and profitability for you and your plant. Technical experts are at
hand to offer support, assure delivery and continually enhance operations.
Efficiency: Having a VMI means having a logically and well maintained warehouse.
Parts are easily found by your mechanics, saving them time and further reducing

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downtime. Optimisation through data alignment and part standardization, also allows
for any change in process for technical alternatives.
VMI promotes ‘demand soothing: VMI information enhances customer requirement
fore-casting which facilitates production planning to meet demand.
A VMI supplier has the flexibility to control downstream resupply decisions and offers a
means to synchronize inventory and transportation decisions

Disadvantages of VMI:
Sharing data: Correct and current data is essential for VMI implementation.
Relinquishing control of company data can feel uncomfortable, yet it‟s necessary to
manage inventory levels appropriately. Your supplier will handle data efficiently and
transparently, remaining accessible to you at all times.
Space needed: Sufficient warehouse space is needed to implement VMI. Total space
required is affected by the number of products you want to include in the VMI
Value and criticality: Usually, a VMI consist of low value commodity items. However, it
is possible to also include high value critical parts. A certain maximum value can be
agreed upon to which articles can be added to your VMI.
Reduction in working capital: The enhanced inventory and administrative costs
associated with VMI for suppliers can lead to reduced working capital
Dependence on the manufacturer: Retailers can become dependent upon the
manufacturer or distributor. This can increase risks if supplier performance degrades

VMI Application:
The VMI process requires the customer to send information on items sold to the
distributor. This information is usually captured by bar coding and scanning
technologies and is passed to the distributor via EDI or the Internet on a daily bases.

The distributor then processes it and provides acknowledgement to the customer with
details of the quantities and product descriptions, delivery dates and destinations and
the release of goods. After the manufacturer replenishes the distributor’s stock, the
distributor invoices the customer.
For very large customers, requirements may be transmitted directly to the manufacturer
from whom they receive direct deliveries.

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Steps to Successful Application of VMI
Hold customer-supplier negotiations: Establish project teams and roles and
collaborative planning, forecasting and replenishment (CPFR) during the preparation
stage.
Focus on quantity forecasting: Safety stocks, lead time, service level and ownership
issues as pre-implementation activities.
Implement the VMI system.
Refine the VMI system: This is by identifying any improvements as a result of experience
with the technique (including technical problems).

Supplier Relationship Management

Supply Chain Management (SCM) has had to move away from a purely process role
towards a much more strategic network co-ordination process approach. This trend has
been a movement towards supply base rationalisation resulting in fewer, but more
strategically powerful suppliers. These suppliers need to be managed strategically.
This means developing a clear understanding of how to manage inter (between) and
intra (within) firm relationships
A closer collaborative approach is required with long term goals, often with mutual
benefits for buyer and supplier

What is Supplier Relation Management (SRM)?

SRM is the overarching strategic approach to determine and implement different
supplier based “interventions”;
• Applied as appropriate across the supply base to maximise value to the
organisation
• Reduce supply chain risk
• Prioritized against available resources
• Enhance value to the end customer
• Enabling the organisation to achieve its goals

SRM Justification
Many firms have directed significant attention toward working more closely with supply
chain partners, including not only customers and suppliers but also various types of
logistics suppliers.

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Considering that one of the fundamental objectives of effective supply chain
management is to achieve coordination and integration among participating
organizations, the development of more meaningful “relationships” through the
supply chain has become a high priority.

Nature of Supplier Relationships:

The range of supply chain relationships types extends from that of a vendor to that of a
strategic alliance
A strategic alliance is one in which two or more business organizations cooperate and
willingly modify their business objectives and practices to help achieve long-term goals
and objectives.
The strategic alliance is highly relational in terms of the firms involved. This form of
supplier relationship management typically benefits the involved parties by reducing
uncertainty and improving communication, increasing loyalty and establishing a
common vision, and helping to enhance global performance.
Alternatively, the challenges with this form of relationship include the fact that it implies
heavy resource commitments by the participating organizations, significant opportunity
costs, and high switching costs.

Differences in SRM:
Supply chain relationships may differ in numerous ways. A partial list of these differences
follows:
• Duration.
• Obligations.
• Expectations.
• Interaction/Communication.
• Cooperation.
• Planning.
• Goals.
• Performance analysis.
• Benefits and burdens.

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Model for Developing and Implementing Successful Supply Chain Relationships

Step 1: Perform Strategic Assessment: The firm should assess the supply chain needs and
the overall strategies that guide its operations. Attention should be paid:
• Overall business goals and objectives, including those from a corporate, divisional,
or logistics perspective.
• Needs assessment to include requirements of customers, suppliers, and key suppliers
• Identification and analysis of strategic environmental factors and industry trends.
• Profile of current network and the firm’s positioning in respective supply chains.
• Identification of “gaps” between current and desired measures of performance
(qualitative and quantitative).

Step 2: Decision to Form Relationship: Once assessment is done then a decision is made
to undertake a strategic relationship. For a supplier relationship management to be
successful, the theory of the model is that all parties “must believe that they will
receive significant benefits in one or more areas and that these benefits would not be
possible without a partnership. The primary drivers include the following:
• Asset/Cost efficiency.
• Customer service.
• Marketing advantage.
• Profit stability/Growth.

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Decision to Form Relationship…
Supportive corporate environmental factors that enhance partnership growth and
development include:
• Corporate compatibility.
• Management philosophy and techniques.
• Mutuality of commitment to relationship formation.
• Symmetry on key factors such as relative size, financial strength

Step 3: Evaluate Alternatives: The apparent levels of drivers and facilitators may suggest
the most appropriate type of relationship to consider i.e. whether arms length of
Strategic
It is also important to conduct a thorough assessment of the supply chain members’
needs and priorities in comparison with the capabilities of each potential partners. This
task should be supported with not only the availability of critical measurements and so
on, but also the results of personal interviews and discussions with the most likely
potential partners.
Step 4: Select Partners: The selection of supply chain partner should be made only
following very close consideration of the credentials of the most likely candidates. It is
highly advisable to interact with and get to know the final candidates on a
professionally intimate basis.
It is important to achieve consensus on the final selection decision to create a
significant degree of “buy-in” and agreement among those involved. Due to the
strategic significance of the decision to form a logistics or supply chain relationship, it is
essential to ensure that everyone has a consistent understanding of the decision that
has been made and a consistent expectation of what to expect from the firm that has
been selected.

Step 5: Structure Operating Model: The structure of the relationship refers to the
activities, processes, and priorities that will be used to build and sustain the relationship.
Components of the operating model may include the following.
• Planning.
• Joint operating controls.
• Communication.
• Risk/Reward sharing.

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 • Trust and commitment.
• Contract style.
• Scope of the relationship.
• Financial investment
Step 6: Implementation and Continuous Improvement: Once the decision to form a
supplier relationship management has been made and the structural elements of the
relationship identified, it is important to recognize that the most challenging step in the
relationship process has just begun.
Depending on the complexity of the new relationship, the overall implementation
process may be relatively short, or it may be extended over a longer period of time. If
the situation involves significant change to and restructuring of the manufacturing
firm’s logistics or supply chain network, for example, full implementation may take
longer to accomplish. In a situation where the degree of change is more modest, the
time needed for successful implementation may be abbreviated.

Finally, the future success of the supplier relationship management will be a direct
function of the ability of the involved organizations to achieve both continuous and
breakthrough improvement. A number of steps should be considered in the continuous
improvement process. In addition, efforts should be directed to creating the
breakthrough, or “paradigm-shifting,” type of improvement that is essential to
enhance the functioning of the relationship and the market positioning of the
organizations involved.

SUPPLIER DEVELOPMENT:
Supplier development is the process of working with certain suppliers on a one-to-one
basis to improve their performance for the benefit of the buying organisation. Reasons
or importance for embarking on supplier development process include:
• Improving supplier performance
• Reducing costs of Production
• Resolving serious quality issues
• Developing new routes to supply
• Improving business alignment between the supplier and the buying organisation
• Developing a product or service not currently available in the marketplace

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• Generating competition for a high price product or service dominating the
marketplace

Purchasing and supply management professionals must select the most appropriate
approach to suit their relationship with the supplier that they have selected for
development
Approaches to supplier development include rewarding performance (“The Carrot”),
penalizing poor performance (“The Stick”), on-going detailed assessment and
feedback (“Measurement”), and direct involvement in suppliers‟ operations (“Hands-
On Approach”).

Nature / Forms / Types of Supplier Development (Supplier Relation Management):

Supplier development can be either Strategic or Reactive
1) Strategic Supplier Development concentrates efforts on improving the long-term
capabilities of suppliers of the most important commodities. A strategic alliance is
one in which two or more business organizations cooperate and willingly modify
their business objectives and practices to help achieve long-term goals and
objectives.
2) Reactive Supplier Development adopts ad hoc responses to eliminating supplier
deficiencies

Supplier Relation Management (SRM)?

SRM is the overarching strategic approach to determine and implement different
supplier based “interventions applied as appropriate across the supply base to
maximise value to the organisation; Reduce supply chain risk; Prioritized against
available resources ; Enhance value to the end customer; Enabling the organisation to
achieve its goals

Justification for Supplier Relation Management:

Many firms have directed significant attention toward working more closely with supply
chain partners, including not only customers and suppliers but also various types of
logistics suppliers.

Considering that one of the fundamental objectives of effective supply chain

management is to achieve coordination and integration among participating

52
organizations, the development of more meaningful “relationships” through the supply
chain has become a high priority.

Differences in Supplier Relation Management:

Supply chain relationships may differ in numerous ways. A partial list of these differences
follows:
• Duration.
• Obligations.
• Expectations.
• Interaction/Communication.
• Cooperation.
• Planning.
• Goals.
• Performance analysis.
• Benefits and burdens.

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Topic 6: PERFORMANCE MANAGEMENT IN THE SC:
A performance measure, or a set of performance measures, is used to determine the
efficiency and/or effectiveness of an existing system, or to compare competing
alternative systems. Performance measures are also used to design proposed systems,
by determining the values of the decision variables that yield the most desirable level(s)
of performance.

A number of performance measures are important in the evaluation of supply chain

effectiveness and efficiency. These measures may be categorized as either qualitative
or quantitative.
(A) Qualitative Performance Measures:
Qualitative performance measures are those measures for which there is no single
direct numerical measurement, although some aspects of them may be quantified.
These include:
Customer Satisfaction: The degree to which customers are satisfied with the product
and/or service received, and may apply to internal customers or external customers.
Customer satisfaction is comprised of three elements:
1) Pre-Transaction Satisfaction: satisfaction associated with service elements occurring
prior to product purchase.
2) Transaction Satisfaction: satisfaction associated with service elements directly
involved in the physical distribution of products.
3) Post-Transaction Satisfaction: satisfaction associated with support provided for
products while in use.
Flexibility: The degree to which the supply chain can respond to random fluctuations in
the demand pattern.
Information and Material Flow Integration: The extent to which all functions within the
supply chain communicate information and transport materials.
Effective Risk Management: All of the relationships within the supply chain contain
inherent risk. Effective risk management describes the degree to which the effect of
these risks is minimized.
Supplier Performance: With what consistency suppliers deliver raw materials to
production facilities on time and in good condition.

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(B) Quantitative Supply Chain Performance Measures:
1) Objectives that are based directly on cost or profit
2) Objectives that are based on some measure of customer responsiveness.
Measures Based on Cost
Cost Minimization: The most widely used objective. Cost is typically minimized for an
entire supply chain (total cost), or is minimized for particular business units or stages.
Sales Maximization: Maximize the amount of sales dollars or units sold.
Profit Maximization: Maximize revenues less costs.
Inventory Investment Minimization: Minimize the amount of inventory costs (including
product costs and holding costs)
Return on Investment Maximization: Maximize the ratio of net profit to capital that was
employed to produce that profit.
Measures Based on Customer Responsiveness:
Fill Rate Maximization: Maximize the fraction of customer orders filled on time.
Product Lateness Minimization: Minimize the amount of time between the promised
product delivery date and the actual product delivery date.
Customer Response Time Minimization: Minimize the amount of time required from the
time an order is placed until the time the order is received by the customer.
Lead Time Minimization: Minimize the amount of time required from the time a product
has begun its manufacture until the time it is completely processed.
Function Duplication Minimization: Minimize the number of business functions that are
provided by more than one business entity.
Performance Measures Used in Supply Chain Modeling:
Basis Performance Measure
• Minimize cost
• Minimize average inventory levels
• Maximize profit
Cost
• Minimize amount of obsolete inventory
• Achieve target service level (fill rate)
Customer Responsiveness • Minimize stock out probability
• Minimize product demand variance or demand
amplification
• Maximize buyer-supplier benefit
Cost and Customer Responsiveness • Minimize the number of activity days and total
cost

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