SCM objectives are:

1. Rapid fulfilment of customer requirements

2. System is designed to minimize manpower requirement
3. Lowest network inventory investment
4. Enhancing customer service
5. Rapidly transmit latest inventory and forecast information throughout the
supplier
network, keeping replenishment pipelines filled with products for which there
are
requirements and avoiding those for which there are none.
6. Surpass the competition in every one of these criteria

EVOLUTION OF SUPPLY CHAIN MANAGEMENT

 The First Revolution (1910–1920): Vertical Integrated Firms Offering Low
Variety of Products:
The first major revolution was staged by the Ford Motor Company where
they had managed to build a tightly integrated chain. The Ford Motor
Company owned every part of the chain - right from the timber to the
rails. Ford innovated and managed to build a highly efficient, but inflexible
supply chain that could not handle a wide product variety and was not
sustainable in the long run.
General Motors, on the other hand, understood the demands of the
market place and offered a wider variety in terms of automobile models
and colours. Ford’s supply chain required a long time for set-up changes
and, consequently, it had to work with a very high inventory in the chain.

Even traditional firms in India, like Hindustan Motors, were highly

integrated firms where the bulk of the manufacturing was done in house

 The Second Revolution (1960–1970): Tightly Integrated Supply Chains

Offering Wide Variety of Products
 Towards the end of the first revolution, the manufacturing industry saw
many changes, including a trend towards a wide product variety. To deal with
these changes, firms had to restructure their supply chains to be flexible and
efficient. The supply chains were required to deal with a wider product
variety without holding too much inventory. The Toyota Motor Company
successfully addressed all these concerns, thereby ushering in the second
revolution

 The Toyota Motor Company came up with ideas that allowed the final
assembly and manufacturing of key components to be done in-house. The
bulk of the components was sourced from a large number of suppliers.
These suppliers were located very close to the Toyota assembly plants.
Consequently, set-up times, which traditionally used to take a couple of
hours, were reduced to a couple of minutes. This combination of low set-
up times and long-term relationships with suppliers was the key feature
that propelled the second revolution—and it was a long journey from the
rigidly integrated Ford supply chain. The principles followed by Toyota are
more popularly known as Lean Production Systems.

 Third Revolution (1995–2020): Virtually Integrated Global Supply

Networks Offering Customized Products and Services:
Technology, especially Information Technology (IT), which is evolving faster than
enterprises can find applications for some of the innovations, is the fuel for the
third revolution in supply chain. The key characteristics of the third revolution
can be explained using the example of Dell computers (Product Company) ,
Apple Inc. (Product + Service Company) , and Bharti Airtel (Service Company).
Dell computers allows customers to configure their own laptops (in terms
of processors, video cards, screen sizes, memory, etc.) and track the same in
their production and distribution systems. Apple offers personal digital devices
to its customers and iPod is a classic example. However, it is not just about the
product. Apple allows the consumer to have a personalized user experience
through the features and services. Users can personalize the music and other
media content on their device through the various features available on iPod.
Similarly, Bharti Airtel allows services like My Airtel through which customer can
have unique personalized experience.
 6 DECISION PHASES IN A SUPPLY CHAIN
i. Supply Chain Strategy or Design
ii. Supply Chain Planning
iii. Supply Chain Operation

1.9 DRIVERS OF SUPPLY CHAIN PERFORMANCE

A supply chain’s performance in terms of responsiveness and efficiency is based
on the interaction between the following logistical and cross-functional drivers
of supply chain performance: facilities, inventory, transportation, information,
sourcing, and pricing

Facilities
i. Facilities are the actual physical locations in the supply chain network
where product is stored, assembled, or fabricated.
ii. The two major types of facilities are production sites and storage sites.
iii. Decisions regarding the role, location, capacity, and flexibility of
facilities have a significant impact on the supply chain’s performance.
iv. For example, in 2013, Amazon increased the number of warehousing
facilities located close to customers to improve its responsiveness.

Inventory
i. Inventory encompasses all raw materials, work in process, and finished
goods within a supply chain
ii. A strategy using high inventory levels can be dangerous in the fashion
apparel business, though, in which inventory loses value relatively quickly
with changing seasons and trends. Rather than hold high levels of
inventory.
Transportation
 i. moving inventory from point to point in the supply chain.
ii. Transportation can take the form of many combinations of modes and
routes, each with its own performance characteristics.
iii. 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.
Information
i. Information consists of data and analysis concerning facilities, inventory,
transportation, costs, prices, and customers throughout the supply chain.
ii. Information is potentially the biggest driver of performance in the supply
chain because it directly affects each of the other drivers.
iii. Information presents management with the opportunity to make supply
chains more responsive and more efficient.
Sourcing
i. Sourcing is the choice of who will perform a particular supply chain
activity, such as production, storage, transportation, or the management
of information.
ii. At the strategic level, these decisions determine what functions a firm
performs and what functions the firm outsources.
iii. Sourcing decisions affect both the responsiveness and efficiency of a
supply chain.
Pricing
i. Pricing determines how much a firm will charge for the goods and services
that it makes available in the supply chain.
ii. Pricing affects the behavior of the buyer of the good or service, thus
affecting demand and supply chain performance
iii. . For example, if a transportation company varies its charges based on the
lead time provided by the customers, it is 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.
The key benefits of supply chain management are as follows –
i. Develops better customer relationship and service.
ii. Minimizes warehouse and transportation costs.
iii. Minimizes direct and indirect costs.
iv. Improved risk mitigation.
v. Stronger cash flow.
vi. A more agile business.
vii. Better visibility and data analytics.

IMPORTANCE OF SUPPLY CHAIN

Proliferation in Product Lines: Companies have realized that more and

more product variety is needed to satisfy the growing range of
customer tastes and requirements. This is evident from the fact that
every time a customer walks into a neighbourhood store, he or she is
bound to discover a couple of items on the shelf that he or she had not
seen during his or her last visit and that he or she has more varieties
to choose from now. Every time you walk into a neighbourhood store,
do not be surprised to find that even a simple product like toilet soap
has 50-odd varieties.
ii. Shorter Product Life Cycle: With increased competition, product life
cycles across all industries are becoming shorter. For example,
technology leaders like Apple works with a life cycle as short as 6
months. So a firm like Apple, which has, on an average, just 5 days of
inventory, as compared to the industry average of 35 days, does not
have to worry about product and component obsolescence. Its
competitors with higher inventories end up writing off huge amounts
of stocks every year as obsolete.
iii. Higher Level of Outsourcing: The firms increasingly focus on their
core activities and outsource non-core activities to other competent
players. Michael Dell, the CEO of Dell Computers, had mentioned that
if his company was vertically integrated, it would need five times as
many employees and would suffer from a drag effect.
 iv. Shift in Power Structure in the Chain: In every industry, the entities
closer to customers are becoming more powerful. With increasing
competition, a steadily rising number of products are chasing the same
retail shelf space. Retail shelf space has not increased at the pace at
which product variety has increased. So there have been cases of
retailers asking for slotting allowance when manufacturers introduce
new products in the market place.
iv. Globalization of Manufacturing: Over the past decade, tariff levels have
come down significantly. Many companies are restructuring their
production facilities to be at par with global standards

Mod2
Identifying Core Processes

• The identification of core processes is a crucial decision.

• Identify selected processes as core processes and focus on improving those
can
have a significant impact on the performance of a firm.
• If this is driven by short-term benefits such as re-engineering of balance
sheets
and improved return on investments, then the long-term business
sustainability is
endangered.
• In these CORE areas they can invest in people, equipments and R&D. Such a
focus
will also help the firm in attracting the best talent from that field.
• Many corporations have realized that they can never hope to attract the best
talent in IT; hence, they have decided to depend on their outside partners for
the
IT support required for business application.
Outsourcing Examples
1. Nike holding only designing and branding
2. Dell holding only branding and strategy decisions
3. Toyota, Maruti-Suzuki, Honda holding only assembling
4. Voltas – only branding
5. LIC and National insurance – only sales of policies
Benefits and costs/ Role of outsourcing
 Lower costs (due to economies of scale or lower labor rates)
 Increased efficiency
 Variable capacity
 Increased focus on strategy/core competencies
 Access to skills or resources
 Increased flexibility to meet changing business and commercial conditions
 Accelerated time to market
 Lower ongoing investment in internal infrastructure

Factors Influencing Make or Buy Decisions:

1. Volume of Production If the volume of production is high, it favors the make
decision and low volume favors buy decisions.
2. Cost Analysis: Break Even Analysis
3. Utilization of Production Capacity: The organization, which has created large
production capacity, favors the decision to make
4. Integration of Production System: The vertical integration favors the make
decision
where as horizontal integration favors buy decision
5. Availability of Manpower: Availability of skilled and competent manpower
favors
makes decision where as scarce manpower prefers buy decisions.
6. Secrecy or Protection of Patent Right: This condition favors the make decision
7. Fixed Cost :A lower fixed cost favors the decision to make and higher fixed
cost the
make decision
8. Availability of competent suppliers or vendors
9. Quality and reliability of vendors.

. The two ways through which one can identify a firm’s core processes are the business process route
and the product architecture route.

A. The Business Process Route

• For any firm, three core and high-level business processes include customer
relationship, product innovation and supply chain management.
• Customer relationship focuses on acquiring new customers and building
relationships
with existing customers. Product innovation focuses on developing new
products and
services, while supply chain management focuses on fulfilment of customer
orders.
• Firms like HP and high-end pharmaceutical firms focus on product innovations.
Firms
like Nike and Benetton focus on brand building and customer relationships.
Firms like
Wal-Mart and Dell Computers focus on supply chain management capabilities.
• Of course, within the identified core business process, firms can examine each
of the
activity and probably outsource those activities that are of the commodity type.
• For example, within supply chain management, firms might outsource the
warehousing
or transportation functions.

A. The Business Process Route...

• In the case of Microsoft, it decided that customer relationship management

and
software design are its core processes, while design and manufacturing is not
core to
its business. Bharti decided that customer relationship was core and network
management was not.
• Core processes retained within the company must be strategic from the
business point of view. Firms must realize that value within the chain gets
distributed to the chain partners on the basis of the unique capabilities that
they bring to the table.
• A firm has to ensure that it has a relatively higher bargaining power within
the chain. A firm has to make sure that in-house business processes give it
enough strategic power in the chain and do not allow other chain partners
to dictate the terms of value exchange in the chain.

B. The Product Architecture Route

• In the product architecture approach, the focus is on sub-systems
and components and
the make or buy decisions are made at that level.
• A product like a car can be divided into sub-systems such as engine,
chassis and
transmission. The engine sub-system can be divided into components
such as power
cylinder, fuel system and engine electronics.
• In a product, first the sub-systems are classified as strategic and non-
strategic.
• A sub-system is strategic if it involves technologies that change
rapidly, if it requires
specialized skills and technologies and if it can significantly impact the
performance of
the product on attributes that are considered important by the
customer.