OME 752 SUPPLY CHAIN MANAGEMENT

UNIT I : Introduction

Presented By

Dr. M. Bhavani
AP/EEE,
Anna University Regional Campus Madurai
 THE TERM SCM , COINED BY
 Keith Oliver coined the term ‘supply chain management,
using the term in an interview with Arnold Kransdorff of
the Financial Times, on 4 June 1982. Oliver is a British
logistician.

Oliver’s Definition:
 Supply chain management is the process of planning,
implementing, and controlling the operations of the
supply chain with the purpose to satisfy customer
requirements as efficiently as possible.
 It spans all movement and storage of raw materials, work-
in-process inventory, and finished goods from point-of-origin
to point-of-consumption.
 WHAT IS SUPPLY CHAIN?

 A supply chain is a network that creates products and

services and delivers those products and services to
customer.

Supply chains include

 marketing,
 sales,
 financing,
 procurement,

 processing operations,

 maintenance,
 service,
 and logistics
 DEFINTION OF SCM
 Supply chain management (SCM) is the
comprehensive process of coordination and
management of the entire production flow of
goods and services from the beginning of the
production process through delivery to the
consumer
GENERIC SUPPLY CHAIN TYPES

Manufacturers Wholesalers Retailer Customer

Manufacturers Retailers Customer

Manufacturers Customers
STAGES IN A DETERGENT SUPPLY
CHAIN
SUPPLY CHAIN NETWORK
 THE OBJECTIVE OF SUPPLY CHAIN
 The objective of every supply chain should be to
maximize the overall value generated.
 The value (also known as supply chain surplus) a
supply chain generates is the difference between what
the value of the final product is to the customer and the
costs the supply chain incurs in filling the customer’s
request.
EVOLUTION OF SUPPLY CHAIN MANAGEMENT

The First Revolution (Beginning of 20th Century)

The Second Revolution (around 1960s)
The Third Revolution (around 1995)
 FIRST REVOLUTION OF SCM

Ford Supply Chain

 Early type of motor car having only two speeds forward
and a hand gasoline feed that was manufactured by the
Ford Motor Company
 Henry Ford conceived a series of cars between the
founding of the company in 1903 and the introduction
of the Model T. Ford named his first car the Model A
and proceeded through the alphabet up through the
Model T, twenty models in all.
 Not all the models went into production between 1909
and 1927.
 The Model T was introduced to the world in 1908.
 Henry Ford wanted the Model T to be affordable,
simple to operate, and durable.

It is generally regarded as the first mass-affordable automobile, which

made car travel available to middle-class Americans.
 SECOND REVOLUTION OF SCM
The Toyota Supply Chain
 Toyota developed a pool of vendors

 Vendors will supply products like components,

assembly and sub assembly units
 Toyota will deliver finished cars to the customers

 Started to develop the capability of vendors.

 Flexible
THE THIRD REVOLUTION OF SCM
The DELL supply chain
 FIVE KEY ELEMENTS OF SCM
 Planning
 Sourcing raw materials

 Manufacturing

 Delivery

 Returns

 The planning phase refers to developing an

overall strategy for the supply chain,
 while the other four elements specialize in the
key requirements for executing that plan.
 7 C’S OF SCM
 Connect
 Create

 Customize

 Coordinate

 Consolidate

 Collaborate and

 Contribute.
 SCM comprises activities related to business
processes such as procurement, manufacturing,
storing, maintenance, distribution, and so on.
 The ultimate aim at sustainable competitive
advantage by using new-age technologies and
optimizing these processes goal is to achieve.
 LOGISTICS
 Logistics is the process of planning and executing
the efficient transportation and storage of goods
from the point of origin to the point of
consumption.
 The goal of logistics is to meet customer
requirements in a timely, cost-effective manner.
7 R’S OF LOGISTICS
 Logistics is an integral part of SCM that refers
to the planning of the movement and storage of
the goods from the producer to the end consumer.
 It plays an essential role in determining
how resources are acquired, stored, and
transported in the most cost-effective
manner to the final destination for fulfilling
customer demands.
 ROLE OF LOGISTICS
 Order Processing
 Warehouse Management

 Inventory Management

 Transportation

 Packaging

 Demand Forecasting

 Quick Response

 Material Handling

 Fleet Management

 Information and control

ROLE OF LOGISTICS: ORDER PROCESSING
 A well-managed logistics ecosystem ensures that
the orders are properly prepared, packaged, and
delivered to the destination.
 Major functions of order processing are :
 Picking inventory
 Order placement
 Sorting
 Packing
 Shipping
 ROLE OF LOGISTICS :WAREHOUSE MANAGEMENT
 Managing and storing the inventory is a major
process of warehouse management system
because it safeguard the goods which are to be
distributed to the customers.
 It plays a huge role in the supply chain as it is
the centralized location that stores all the
inventory, whether it is raw materials or finished
goods.
 Therefore, it is always advisable that
warehouses should be near to the dealer or the
distributors’ place for the efficient delivery of the
goods.
 ROLE OF LOGISTICS :WAREHOUSE
MANAGEMENT – CONTD…

 Therefore, a warehouse management system

effectively audits and tracks the materials and
goods.
 Also, it is responsible for determining the special
requirements like docking facilities, cold storage,
etc.
ROLE OF LOGISTICS : INVENTORY MANAGEMENT
 It is among the logistics functions that determine and
identify how much stock is needed to order at what
time.
 As it is important to maintain sufficient level
inventories for fulfilling the customer demands.
 It helps organizations to monitor inventory records for
restocking and predicting the demand for goods,
ensuring safety, and so on.
 Effective inventory management tends to determine
and analyze if there is too much or too little stock in
the warehouses.
ROLE OF LOGISTICS : TRANSPORTATION
 The act of transporting the goods throughout a
company’s supply chain efficiently is the most
important role of logistics management.
 It involves automated routing and route
optimization that tremendously saves cost and
determines the success of supply chain
management.
ROLE OF LOGISTICS : PACKAGING
 During transport and handling, the products or goods
can be subjected to breakage or spillage so good
packaging is necessary to prevent any kind of mishap.
 The role of logistics management is to ensure that the
products are safely transferred in large volumes from
point A to point B.
 The necessary measures should be taken to avoid
regulatory issues and make transportation cost-
effective in the logistics industry.
 Having the right logistics packaging is majorly
important for a well-packaged product that can
prevent your product from any kind of damage,
deterioration, and tampering.
ROLE OF LOGISTICS : DEMAND
FORECASTING
 Logistics demand forecasting is an effective way
to anticipate the requirement for products or
goods in the supply chain management process.
 The scheduling and planning of processes are
important to manage the uncontrollable
conditions or circumstances of the market.
 Therefore, forecasting models help businesses to
make informed decisions by predicting customer
demands and fulfilling the orders in the shortest
time span.
 Therefore, the use of modern technology with
advanced analytics and powerful databases can
take your organization to the next leap.
ROLE OF LOGISTICS : QUICK RESPONSE
 One of the most important roles of logistics is to
resolve the customer query in the shortest time
span.
 Therefore, it helps the organizations to operate
reactively to each order without bottlenecks,
delays, and errors
 A quick response strategy can lead to accuracy
and fulfillment of customer orders.
 Responding to the customers in real-time is the
most constructive business practice. In the
contemporary world, deploying new-age
technology can save a lot of time by meeting the
customer’s needs.
ROLE OF LOGISTICS : MATERIAL HANDLING
 It is necessary that logistics companies should
store and protect the materials throughout the
process of manufacturing, warehousing, and
distribution.
 Handling the materials efficiently can ensure
that the products or goods are reaching safely to
the customers with ever-rising shipping costs.
ROLE OF LOGISTICS : FLEET MANAGEMENT
 Tracking and monitoring commercial vehicles with
the best GPS company in Jaipur is an important
function of logistics as it manages cost and improves
the maintenance of fleets.
 It enhances the safety of the drivers and fleets by
providing real-time visibility to businesses. It is the
best way to enhance operational efficiency and
ensure compliance within the supply chain.
 In order to effectively manage fleets, businesses are
using new-age technologies like Artificial Intelligence,
the Internet of Things, Big Data and so on to improve
vehicle performance and utilization.
 Therefore, it is known to be the major role of logistics
management as it is the most effective way to
establish customer retention by delivering the goods
to the right customers at the right time.
ROLE OF LOGISTICS : INFORMATION AND CONTROL
 Information and control are most valuable for
achieving strategic goals and strengthening the
future of the logistics industry. Analyzing and
understanding the logistics operations tends to
simplify the overall management processes.
 As it helps the organizations keep track of day-to-
day activities. Therefore, monitoring the flow of
information can help businesses in creating
holistic supply chain management.
 IMPORTANCE OF SUPPLY CHAIN
DECISION
 There is a close connection between the design
and management of supply chain flows (product,
information, and funds) and the success of a
supply chain.
 Successful
Failed SCM
SCM
•Wal Mart •Webvan
•Amazon •Kozmo
•DELL •Borders
•Seven
Eleven
Japan
WEBVAN – ONLINE GROCERY STORE
 REASONS FOR FAILURE OF WEBVAN
 Aggressive expansion to many cities without
proving its business model in its first market
 A business model targeting price-sensitive mass-
market consumers rather than upmarket
consumers who would be more profitable.
 Building its own warehouses and fulfillment
infrastructure from scratch (Unlike Peapod)
KOZMO - ONLINE COMPANY THAT PROMISED
FREE ONE-HOUR DELIVERY OF "VIDEOS, GAMES,
DVDS, MUSIC, MAGS, BOOKS, FOOD, BASICS &
MORE
 REASONS FOR FAILURE OF KOZMO
 As dot.com bubble burst in 2000, Kozmo
struggled to find investors who would fund
the venture.
 This forced Kozmo to include a delivery fee,
increase margins, and close down services for
certain locations.
 Kozmo also started focusing on a more well-
settled older audience who could afford the
additional price.
BORDERS - AMERICAN MULTINATIONAL BOOK AND
MUSIC RETAILER

 Huge inventory in each store and large lease

spaces
 Bet on CDs and DVDs (when everyone else was
going digital)
 Did not develop an eReader

 High prices
 DECISION PHASES IN A SUPPLY
CHAIN
 Successful supply chain management requires
many decisions relating to the flow of
information, product, and funds.
 Each decision should be made to raise the supply
chain surplus.
 Decision Phases occurs in :
 Supply Chain Strategy or Design
 Supply Chain Planning

 Supply Chain Operation

 DECISION IN SUPPLY CHAIN STRATEGY
(OR) DESIGN
 PepsiCo Inc.’s
 decision in 2009 to purchase two of its largest
bottlers is a supply chain design or strategic
decision.
 A firm must ensure that the supply chain
configuration supports its strategic objectives and
increases the supply chain surplus during this
phase
 bring innovative products and packages to
market faster.
 DECISION IN SUPPLY CHAIN PLANNING
 The time frame considered is a quarter to a year.
 Steel giant – Arcelor Mittal’s decisions regarding
markets supplied by a production facility and
target production quantities at each location are
classified as planning decisions.
 DECISION IN SUPPLY CHAIN OPERATION
 The time horizon here is weekly or daily.
 During this phase, companies make decisions
regarding individual customer orders.
 PROCESS VIEWS OF A SUPPLY CHAIN

 A supply chain is a sequence of processes and

flows that take place within and between
different stages and combine to fill a customer
need for a product
 Two views :
 Cycle View
 series of events
 Push/Pull View
 Pull processes are initiated by a customer
order,
 whereas push processes are initiated and
performed in anticipation of customer
orders.
CYCLE VIEW
SUB-PROCESSES IN EACH SUPPLY CHAIN
 In the customer order cycle, demand is
external to the supply chain and thus
uncertain.
 In all other cycles, order placement is
uncertain but can be projected based on
policies followed by the particular supply chain
stage.
Example : Customer ordering a cycle


 a tire supplier to an automotive manufacturer can

predict tire demand precisely once the production
schedule at the manufacturer is known.

 Thus, sharing of information and operating policies

across supply chain stages becomes more important as
we move further from the end customer.
PUSH/PULL VIEW OF SUPPLY CHAIN
PROCESSES
 Pull processes may also be referred to as
reactive processes because they react to
customer demand.
 Push processes may also be referred to as
speculative processes because they respond to
speculated (or forecasted) rather than actual
demand
 A push/pull view of the supply chain is very
useful when considering strategic decisions
relating to supply chain design.
 Example : Paint Industry
 SUPPLY CHAIN MACRO PROCESSES
1. Customer Relationship Management (CRM):
all processes that focus on the interface between the firm and its
customers
2. Internal Supply Chain Management (ISCM):
all processes that are internal to the firm
3. Supplier Relationship Management (SRM):
all processes that focus on the interface between the firm and
its suppliers
ACTIVITIES IN EACH MACRO-PROCESSES
COMPETITIVE AND SUPPLY CHAIN
STRATEGIES
VALUE CHAIN
 CUSTOMER PRIORITIES
/SEGMENTS
 Product cost
 Delivery time

 Variety and

 Quality
 COMPETITVE STRATEGY
 It is defined relative to its competitors, the set of
customer needs that it seeks to satisfy through its
products and services.
 It targets one or more customer segments and aims
to provide products and services that satisfy customer
needs.
Example :
1. Wal Mart
– High availability of a variety of products of
reasonable quality at low prices
2.McMaster-Carr
- Providing the customer with convenience,
availability and responsiveness.
 WAL MART
 It is an American multinational retail
corporation that operates a chain of
hypermarkets (also called supercenters), discount
department stores, and grocery stores in the
United States, headquartered in Bentonville,
Arkansas.
MCMASTER-CARR
 McMaster-Carr Supply Company is a private
American supplier of hardware, tools, raw
materials, industrial materials, and maintenance
equipment.
 SUPPLY CHAIN STRATEGY
 A Supply Chain strategy determines
 the nature of procurement of raw materials,

 transportation of materials to and from the

company,
 manufacture of the product or operation to
provide the service
 and distribution of the product to the customer
along with any follow up service and
 specification of these processes will be performed
in-house or outsourced.
 SC STRATEGY INCLUDES
 Supplier strategy
 Operations strategy

 Logistics strategy
 STRATEGIC FIT
 Strategic fit requires that both the competitive
and supply chain strategies of a company
have aligned goals.
 It refers to the consistency
 between the customer priorities that the competitive
strategy hopes to satisfy and
 The supply chain capabilities that the supply chain aims to
build.
 STRATEGIC FIT – CONTD…
 The competitive strategy and all functional
strategies must fit together to form a coordinated
overall strategy.
 Each functional strategy must support other
functional strategies and help a firm reach its
competitive strategy goal.
 The different functions in a company must
appropriately structure their processes and
resources to be able to executed these strategies
successfully.
 The design of overall supply chain and the role at
each stage must be aligned to support supply
chain strategy.
 ACHIEVING STRATEGIC FIT
 Understanding the Customer and Supply Chain
uncertainty.
 Understanding the Supply Chain Capabilities.

 Achieving Strategic fit

 UNDERSTANDING THE CUSTOMER
AND SC UNCERTAINITY
Customer Demand varies due to:
 Quantity of the product needed
 Response time that customers are willing to tolerate
 Variety of products needed
 Service level required
 Price of the product
 Desired rate of Innovation of the product
STEP 1 : UNDERSTANDING THE
CUSTOMER AND SC
UNCERTAINITY – CONTD…

 Demand Uncertainty
It reflects the uncertainty of customer
demand for a product,
 Implied Demand Uncertainty

It is the uncertainty for only the

portion of the demand that the supply chain
plans to satisfy.
IMPACT OF CUSTOMER NEEDS ON IMPLIED
DEMAND UNCERTAINTY
Customer Need
Range of Quantity required
increases
Lead Time decreases
Variety of product required
increases
Number of channels through
which product may be acquired
increases
Rate of Innovations increases
Required Service level increases
Causes Implied Demand
Uncertainty to
Increase – greater variance in
demand
Increase – less time to react to
orders
Increase – demand per product
becomes more disaggregate
Increase – total customer demand
is disaggregated over mover
channels
Increase – new products tend to
have more uncertain demand
Increase – unusual surges in
demand
 SUPPLY UNCERTAINTY
Supply Source Capability Causes Supply uncertainty to

Increase
Frequent Breakdowns
Unpredictable and low yields
Poor Quality
Limited Supply capacity
Inflexible supply capacity
Evolving Production process
DEMAND AND SUPPLY SPECTRUM
STEP 2 : UNDERSTANDING THE SC
CAPABILITIES – CONTD…
 Facilities
 Inventory Management

 Logistics and Transportation

TRADE OFF BETWEEN RESPONSIVENESS AND COST
EFFICIENT
 RESPONSIVENESS SPECTRUM
 Highly efficient – Integrated Steel mill
production
 Somewhat efficient – Hanes Apparel (production lead time
of several weeks)
 Somewhat responsive – Most automotive
production
 Highly responsive – Seven Eleven Japan – changing
merchandise
STEP 3 :ACHIEVING STRATEGIC FIT
 DRIVERS OF SUPPLY CHAIN
PERFORMANCE
 Facilities
 Inventory

 Transportation

 Information

The performance of any supply chain can be measured on

the basis of the drivers that run it.
 EXAMPLES

 Facilities (for example, Production unit)

 Inventories (for example, Stock of goods)

 Transportation (for example. Modes and Routes)

 Information (for example, Customer demand

 DRIVER OF SC : FACILITY
1. Role of Facility :
 Facilities can be defined as the location to or from which
inventory transported.
 It is within a facility that the inventory is either transformed
into another state or manufactured.
 Also, it is the location where goods are stored (warehousing)
before being shipped to the next stage.
2. Role of Facility in Competitive strategy :
 The facilities should be flexible. It is this flexibility in terms of its
capacity to perform functions that is the key driver of supply chain
performance in terms of responsiveness and efficiency.
 For example, if a company increases its capacity of production, and
produces a greater quantity in a single location, then it can achieve
economies of scale and thereby increase its efficiency both in terms of
quantity produces and costs. However, it is known that
responsiveness comes at a cost.
3. Components of decision making in Facility:
 The components of facilities decisions are nothing but factors that
must be analysed by a company before coming up with a facility.
The following factors should be kept in mind and
analyzed
by a company before coming up with a facility,
 Location
 Capacity

 Operations methodology

 Warehousing methodology
 DRIVER OF SC : INVENTORY
Role of Inventory:
 Inventory is important because it can readily satisfy
the demand of the customers by having the product
ready.
Role played by inventories in the competitive
strategy:
 It helps a company to be responsive or efficient.

 If a company possesses a competitive strategy to be

more responsive then it can locate its inventories close
to its customers.
COMPONENTS OF INVENTORY
DECISIONS
 Cycle inventory
 Safety inventory

 Seasonal inventory

 Sourcing
 DRIVERS OF SC : TRANSPORTATION
Role of transportation in the supply chain
 Transportation moves a product between different stages in a
supply chain, and has a great impact on the efficiency and
responsiveness of a supply chain.
 Quick transportation of goods through various modes or
different quantities increases the responsiveness however
lowers the efficiency.
Role of transportation in competitive strategy
 The role played by transportation in a company’s competitive
strategy comes into effect prominently when the company
considers the targeted customer’s demands.
 If a company’s competitive strategy is to be more responsive
to its customer’s and if the customer’s are willing to pay for it,
then the company needs to be highly responsive.
 The role played by transportation in a company’s competitive
strategy comes into effect prominently when the company
considers the targeted customer’s demands.
 If a company’s competitive strategy is to be more responsive to
its customer’s and if the customer’s are willing to pay for it,
then the company needs to be highly responsive.
COMPONENTS OF TRANSPORTATION DECISIONS
 Mode of Transportation
 Selection of routes and network

 In house or outsourcing
 DRIVERS OF SC : INFORMATION
Role played by information in a supply chain:
Information has no physical presence, unlike
facilities, transportation and inventory. It has no
physical presence, and yet this driver plays an
important role in the supply chain and thus its
value to the supply chain must not be
underestimated.
 ROLE PLAYED BY INFORMATION IN A
SUPPLY CHAIN – CONTD…

 Information is collected at each and every stage

of the supply chain, this information is very vital
as it helps the supply chain to rectify itself at any
of the stages and helps the supply chain to
reconfigure itself, thereby maximising the supply
chain profitability.
 The day-to-day operation of any facility requires
proper analysis of the information available so
that production schedules can be made. The
information that is available helps the company
to produce on time, maintain a good inventory
and also provide.
 ROLE OF INFORMATION IN THE
COMPETITIVE STRATEGY
 This is because it is the information that a
company has, that helps it to decide whether or
not a company needs to be more responsive or
efficient and thereby have a profitable supply
chain.
 Information is an important driver as it helps to
reduce costs and improve responsiveness within a
supply chain.
COMPONENTS INFORMATION DECISIONS

 Push versus pull

 Forecasting & proper planning

 Information sharing & co-ordination

 Pricing & managing revenue

 Technology
 OBSTACLES IN STRATEGIC FIT
ACHIEVEMENT IN SUPPLY CHAIN
1. Increase in product variety
2. Increase in demanding customers
3. Smaller product lifecycles
4. Effect of globalization
5. Difficulty in execution of strategies