Module-2 Supply Chain

Concept, significance and key challenges. Scope of SCM- historical perspective, essential
features, decision phases – process view, supply chain framework, key issues in SCM and
benefits. Definition and scope of Logistics. Elements of Logistics, types, incremental value
delivery through Logistics management. Innovations in Supply Chain. Estimating customer
demand, forecasting in Supply Chain.

Supply Chain Concept,

What Is a Supply Chain?
A supply chain is a network between a company and its suppliers to produce and distribute a
specific product to the final buyer. This network includes different activities, people, entities,
information, and resources. The supply chain also represents the steps it takes to get the
product or service from its original state to the customer.
(A supply chain is a network between a company and its suppliers to produce and distribute a
specific product or service)
or
A supply chain is an entire system of producing and delivering a product or service, from the
very beginning stage of sourcing the raw materials to the final delivery of the product or
service to end-users. The supply chain lays out all aspects of the production process,
including the activities involved at each stage, information that is being communicated,
natural resources that are transformed into useful materials, human resources, and other
components that go into the finished product or service.
Supply Chain Management can be defined as the management of flow of products and
services, which begins from the origin of products and ends at the product’s consumption. It
also comprises movement and storage of raw materials that are involved in work in progress,
inventory and fully furnished goods.
Example: For a simple product like soap, the HUL supply chain involves ingredient
suppliers, transporters, the company’s manufacturing plants, carrying & forwarding agents,
wholesalers, distributors and retailers.
According to Handfield and Nichols “SCM is the integration of all activities associated
with the flow and transformation of goods from raw materials through to end user, as well as
information flows, through improved supply chain relationships, to achieve a sustainable
competitive advantage”.
HISTORY
The Early Years of Supply Chain Management
Pallet and pallet lifts mechanization was the research focus of logistics circa 1940 and 1950
to obtain better warehousing space, racking and layout. The “unit load” concept and pallet
use became popular, extending to transportation management in 1950 by utilizing intermodal
containers together with ships, trains, and trucks to transport them. This set the stage for
supply chain globalization. This function fits more as fundamental applications of industrial
engineering rather than its own discipline of ‘warehousing’.
Logistics’ Coming of Age
During the 1980s, personal computing began a logistics transformation with marked
improvements in supply chain management. With access to computers, planning surged
ahead with unprecedented graphical interfaces. An emergence of new technology like flexible
spreadsheets and map-based interfaces significantly improved logistics planning and
execution technology.
The Technological Revolution in Supply Chain Management
In the 1990s, Enterprise Resource Planning (ERP) systems were created during the logistics
boom and after the successes of the 1970s and 1980s Material Requirements Planning
systems.
Globalization and Supply Chains
Globalized manufacturing such as the growth of manufacturing in China in the mid-1990s
popularized the term “supply chain”.

SIGNIFICANCE / IMPORTANCE OF SUPPLY CHAIN MANAGEMENT

Supply chain management plays a vital role in the success of any business. If businesses want
their products to reach consumers quickly and efficiently, they need to embrace supply chain
management. Some benefits of supply chain management are –
 Develops better customer relationship and service
 Speed service
 System efficiency (using available resources)eg finance human technology
 Cost efficiency
 Improves financial position
 Creates better delivery mechanisms for products and services in demand with
minimum delay.
 Improvises productivity and business functions.
 Minimizes warehouse and transportation costs.
 Minimizes direct and indirect costs.
 Assists in achieving shipping of right products to the right place at the right time.
 Enhances inventory management, supporting the successful execution of just-intime
stock models.
 Assists companies in adapting to the challenges of globalization, economic upheaval,
expanding consumer expectations, and related differences.
 Assists companies in minimizing waste, driving out costs, and achieving efficiencies
throughout the supply chain process.

1. (The supply chain management process is important because it can help businesses be
more efficient. Having goods arrive when they’re needed, and not before, means they
 can cut down on warehousing costs and reduce the incidence of waste that results
from damage. If they arrive late, manufacture and supply down the line are held up.
2. When organizations manage their supply chains effectively, not only does it reduce
delivery times, but it also improves the experience of buyers who will now receive
items faster than expected, which increases customer satisfaction.
3. Another one of the benefits of supply chain management is that businesses can shop
around for the lowest cost, highest quality products for their use. Taking the time to
plan also means they might be able to integrate recyclable materials like paper,
cardboard, plastics. It’s good for the bottom line and the environment.
4. Supply chain management helps avoid delays that can occur during the transfer of
products. When delays start in one place in the chain, it tends to have a knock-on
effect. If businesses fail to meet delivery dates, they’ll ultimately lose buyers and take
a hit to their profits.
5. The supply chain management process allows for efficiencies in shipping and
transportation, which are major business costs. It can also allow for more secure
shipments.
6. Supply chain management helps organizations reduce error and damage rates. This
makes for greater efficiency and more profit.)
KEY CHALLENGES / ISSUES OF SUPPLY CHAIN MANAGEMENT

1.Quality Customer Service

The supply chain management is centralized on the needs of the customers. It is about giving
the right quantity and the right quality of the product for the right amount of money. All this,
in perfect timing and setting. (https://yourstory.com/mystory/7-main-challenges-in-supply-
chain-management-and-h-rdq2oy6mh9/amp) click for solution
2.Costing
the costs of raw materials, energy and labour have increased due to economical constraints. In
order for operations to continue production and provide customers with good quality items at
affordable rates, adjustments have to be made to keep operations running.
3.Risk Management
Due to the constant change in the market, coming from a variety of sources such as consumer
demands, political agendas and global sourcing, would cause major issues to the operations.

4.Supplier Relationship

By creating a mutually sound and harmonious relationship with your partners or suppliers,
you will be able to provide your customers with products of high standards in a timely
manner. This also allows you to create opportunities for improvement in terms of
performance.
5.Qualified Personnel
it has become a challenge to find talent interested and passionate about this line of work.
Personnel hired in this field must have an understanding about the duties and responsibilities
needed.
6.Unforeseen Delays
Procurement of materials and products may be easy, but the delivery may not always be
100% on time, especially with time differences and a variety of shipping time frames. When
items are sourced from different countries, delays like this are very common.
7.Fast-Changing Markets
With technological advancements changing our markets every day, it is quite difficult to stay
in pace and adapt to the variety of innovations in the market. But because the goal is to stay
efficient in these changing times, companies would have to be more flexible.

SCOPE / OPPORTUNITIES OF SUPPLY CHAIN MANAGEMENT (SCM)

Minimises Operating Cost
Supply chain management focuses on reducing the overall operating cost of the organisation.
It aims at bringing efficiency and raising the profitability of organisations. By developing a
proper chain, it brings down the purchasing cost, production cost and delivery cost. It enables
smooth flow of raw materials from the supplier to an organisation which reduces the holding
period of materials with the supplier and avoids any losses due to delay in production.
Similarly, companies are not required to hold on expensive inventories for a longer time and
distribute quickly through the supply chain.
Boosts Customer Service
Supply chain management helps in providing better service to customers. All production
strategies are framed in accordance with requirements of customers to manufacture right
product. It properly anticipates the demands of customers before initiating the production.
Supply managers monitor all operations of business and ensure that quality products are
produced using best combination of resources. Right product available to right cost provide
better satisfaction to customers. This will boost their confidence level in company’s products.
Enhance Financial Position
Management of supply chain has an effective role on the financial position of business. It
improves the efficiency of the organisation, cut down the excessive cost and avoids any
shortage. Supply chain manager bring down the cost by reducing the use of fixed assets like
plants, transportation vehicles, warehouses etc. Proper supply chain results in speedy flow of
products which minimises the blockage of funds in inventories. It ensures that optimum funds
are always available which helps in improving financial position.
Manages Distribution
Distribution of products at the right time and the right location is a complex task for every
organisation. Supply chain management accelerated the overall distribution system of an
organisation. It coordinates with various transportation channels and warehouses for attaining
faster movement of goods. Supply chain managers ensure that all products get delivered at
the right location within the time limit. By developing a proper network for movement of
goods it has to ease the whole distribution system.
Bring Coordination Among Partners
Proper coordination among all partners of business increase productivity and profitability. It
develops a proper channel through which employees, supplier and customers can easily
interact with business. Managers can easily control the activities of their subordinates by
communicating them all the required information.
Inventory Management
Maintaining an optimum inventory is a must for uninterrupted operation of every business. It
keeps record of all inventories that is raw materials, spare parts and finished goods. Supply
chain managers ensure that the proper amount of inventory is always maintained within the
organisation. They work towards avoiding situations like understocking or overstocking.
Supply chain managers frame proper strategies for procuring, producing and maintaining all
inventories as per requirements.
Supplier Management
Supply chain management works on strengthening the relationships between business and
suppliers. It tracks and records every interaction or transaction with the suppliers.
Proper supply chain enables timely procurement of all required raw materials from suppliers.
It develops a proper network through which suppliers and business can easily interact. Supply
chain management solutions provide a self-service portal through which suppliers can contact
the company in case of any issues or problems.

ESSENTIAL FEATURES OF SCM

 Ability to integrate throughout the supply chain. ...
  Real-time and collaboration capabilities. ...
 Process optimization abilities. ...
 Analytics and forecasting. ...
 Customization. ...
 Cloud-based access and mobility. ...
 Security. ...
 Scalability.
https://www.zoho.com/blog/creator/8-essential-features-of-an-effective-supply-chain-
management-solution-by-david-rogers.html

ESSENTIAL FEATURES OF SCM

Trade is flourishing, and supply chains that were once linear are now a web of interconnected
partners. Supply chain management software is a solution that oversees the movement of
goods and data from the point of origin to its point of consumption. However, it also
optimizes supply chain management processes, automates repetitive tasks, and provides a
more efficient flow of information. This leads to more trusted relationships between partners
within the value chain, more revenue-generating opportunities, and happier end consumers.

We’ve identified eight features essential to supply chain management software—ones that
can help organizations create a solid digital supply chain and look at it from a more strategic
perspective, instead of just the functional requirements.

1. Ability to integrate throughout the supply chain

Technology is an enabler, and a digital solution should introduce functionalities that span the
entire supply chain, integrating multiple entities like suppliers, OEMs, shippers, warehouse
centers, and customers. It should connect with all your other applications, including
enterprise software, legacy systems, third-party applications, help desk, and email—
regardless of the information source, operating system, or platform. This can eliminate
connectivity issues and enable efficient information flow across a chain.

By bringing together disparate systems, people, and processes, integration creates a single
source of truth for all stakeholders, eliminating miscommunication.
 This also cuts down the costs of maintaining separate applications, and avoids overlaps
in the features of each. This results in better production planning, efficient use of logistics,
and avoiding stock-outs or excess inventory. The use of APIs, data connectors, and SDKs
make integration with core systems possible, thus leveraging already existing infrastructure.

For instance, the ability to create orders and bill customers from a single, central location
simplifies the work of operations managers. It eliminates redundancies and the chance for
miscommunication or wrong orders. Flexible features within the order management and
billing function can be used to customize the system to suit different customer segments or
product categories, and cater to unique requirements.

2. Real-time and collaboration capabilities

Real-time information is essential to avoiding things like bottlenecks, missing goods—
and unhappy customers. With real-time capabilities, organizations are empowered to respond
to changes in the supply chain immediately, as they arise.

Effective supply chain management software should allow multiple stakeholders to work
together on a project so that they’re on the same page, without the need for frequent back and
forth communication or manual updates.

For example, a fleet manager, a truck driver, and a customer located in physically different
places can stay connected and have the same visibility on an order, thus increasing
collaboration and maintaining end-to-end transparency.
This can be done through:

 Personalized dashboards: A personalized dashboard gives stakeholders the insights relevant

to them, at their fingertips. It allows up-to-date status monitoring of all processes, and
simplifies governance.
 Real-time notifications: Real-time notifications provide timely information on all
supply chain activities. They keep stakeholders informed so that they can react to changes as
they occur.
 Self-service portals: In a supply chain network, there are many parties involved, and
they need each other to succeed. However, they’re not all connected to each other, which can
cause miscommunication. A portal is a password-protected site that eliminates
communication challenges by enabling members to share information and plan operations
based on each other’s activities.
 Role-based authorization: Your application should be accessible to everyone, but not all the
data in it. That’s why you pick supply chain management software that has roles and
permissions which let you authorize vendors, customers, and other stakeholders to access
only the information they need.
One option that has all these capabilities is Zoho Creator. It’s a workflow automation
platform that fundamentally changes the way teams, leaders, and businesses get work done.
Over 10,000 brands trust Zoho Creator as the best way to plan, track, automate, and report on
work.
3. Process optimization abilities
If routine, repetitive tasks are automated, it enables staff to work on more revenue-
generating ones.
 Automating the order-to-cash cycle as much as possible shortens the product
life cycle, reduces the need for paper-based documentation, and creates tighter links between
manufacturing, warehousing, and delivery.
Apart from automating operational tasks with custom rules, businesses can leverage AI
and machine learning to optimize other tedious tasks, as well.

For example, software can be trained to approve a product only if it’s in its best-finished
state, eliminating the need for manual intervention. This approach enables organizations to
explore more agile ways of working, better manage high levels of complexity, and call in
human intervention only in the case of exceptions.

Optimization tools in logistics and transportation help companies move goods in an efficient
manner, at the lowest cost possible. This is important in the face of rising fuel costs, as well
as constantly evolving national and regional regulations that can introduce uncertainties or
slow down the movement of shipments.

4. Analytics and forecasting

Along with automating day-to-day tasks, good supply chain management software should
help you evaluate your business, with built-in analytics and forecasting capabilities to help
you:

 Understand the health and performance of your business

 Identify bottlenecks
 Capitalize on your current strengths
 Anticipate customer demand and plan future production
 Spot inefficiencies in your system
 Predict events which are likely to occur

Some advanced software has predictive analytics that help balance disparities between
supply and demand by providing data on both internal (demand) and external (weather,
industry, regulation) trends.
With AI and machine learning, the software learns to identify risks and volatility on its
own, and notifies stakeholders accordingly. This enables stakeholders to plan procurement
and production processes efficiently, without having to buy unnecessary raw materials or
store excess finished goods on warehouse shelves, hence reducing costs.
Managers can introduce innovative processes like predictive dispatch—anticipating future
demand—while leaders are empowered to plan future needs better with accurate data and
insights, as well as run what-if simulations to mitigate risks. In other words, analytics help
organizations leverage existing data to make their future processes and systems better.

5. Customization
Prebuilt components in the application and customized configuration of business rules
introduce flexibility that helps businesses adapt to changes quickly and go to market faster,
with customized solutions for consumers. Some supply chain solutions let developers extend
their features with programming languages like Java and Python. Open architecture also
encourages organizations to build their own applications to suit their unique requirements like
developing multiple variations of a product to cater to different customer segments, thus
maximizing profitability.
 6. Cloud-based access and mobility
With cloud-based supply chain software, businesses can be accessed by authorized users
from anywhere, at any time, so they can continue to manage, track and monitor the progress
of transactions on the move. An additional benefit is that businesses can set up a cloud-based
solution at a lower cost, in less time, and with less risk than investing in an on-premise
system.

Organizations that have access to a mobile app for managing their supply chain and logistics
functions have a better chance of staying up to date on various activities, like order status or
shipping. Real-time alerts can be sent directly to users’ mobile phones, collaboration between
different parties is enhanced, and immediate action can be taken in case of any issues.

7. Security
Data security is the heart of any business software. While choosing a supply chain
management solution, companies should evaluate:

 Data encryption
 Virus-scanning
 Network monitoring
 Audit trail
 Fault tolerance

They should also ensure the necessary standards for secure communications between
authorized parties, and that all technology-related compliance is maintained.

8. Scalability
Any software must grow with a business. And as organizations make inroads into new
regions, expand their product portfolio, and acquire new customers, a supply chain solution
should be able to handle the increasing volume that comes with it. It also needs to support
multiple applications and additional channels without affecting the system’s performance.

The right supply chain solution results in strategic success

Organizations need to re-evaluate the designs of their supply chains to meet the sophisticated
demands of the “always digital” customer, maintain compliance across borders, and create
economies of scale.

By matching business objectives with the right product capabilities, they can leverage
emerging business models, plan faster and smarter, and use supply chains as a source of
competitive advantage. It can also mean a strategic advantage for businesses looking for
global partners, as relationships between different parties in the network are strengthened in a
connected, integrated ecosystem. Such a supply chain is capable of maintaining a customer-
first approach, being more dynamic and freeing up cash stuck in traditional, legacy processes.

To ensure that your organization chooses a technology that yields the best results, consider
software that covers all the factors we mentioned above. It could be custom software or an
off-the-shelf solution, but it should add value to existing supply chain processes and
contribute to business growth.
INVENTORY MANAGEMENT
ORDER MANAGEMENT
PROCUREMENT
LOGISTICS

SCM – Decision Phases

Decision phases can be defined as the different stages involved in supply chain management
for taking an action or decision related to some product or services. Successful supply chain
management requires decisions on the flow of information, product, and funds that fall into
three decision phases. Here we will be discussing the three main decision phases involved in
the entire process of supply chain. The three phases are described below:
Supply Chain Strategy

 Time frame of several years = upcoming 5years where should be the company
 Decisions on resource allocation, procurement
 Locations, capacities of production and warehousing
 Mode of transportation

In this phase, decision is taken by the management mostly. The decision to be made
considers the sections like long term prediction and involves price of goods that are very
expensive if it goes wrong. It is very important to study the market conditions at this stage.
These decisions consider the prevailing and future conditions of the market. They comprise
the structural layout of supply chain. After the layout is prepared, the tasks and duties of
each is laid out.
All the strategic decisions are taken by the higher authority or the senior management. These
decisions include deciding manufacturing the material, factory location, which should be
easy for transporters to load material and to dispatch at their mentioned location, location of
warehouses for storage of completed product or goods and many more.

Supply Chain Planning

 Locations
 Promotions (when we offer discounts and offers)
 expansion

Supply chain planning should be done according to the demand and supply view. In
order to understand customers’ demands, market research should be done. The second thing
to consider is awareness and updated information about the competitors and strategies used
by them to satisfy their customer demands and requirements. As we know, different markets
have different demands and should be dealt with a different approach.
This phase includes it all, starting from predicting the market demand to which market will
be provided the finished goods to which plant is planned in this stage. All the participants or
employees involved with the company should make efforts to make the entire process as
flexible as they can. A supply chain design phase is considered successful if it performs well
in short-term planning.

Supply Chain Operations

The third and last decision phase consists of the various functional decisions that are to be
made instantly within minutes, hours or days. The objective behind this decisional phase is
minimizing uncertainty and performance optimization. Starting from handling the customer
order to supplying the customer with that product, everything is included in this phase.
For example, imagine a customer demanding an item manufactured by your company.
Initially, the marketing department is responsible for taking the order and forwarding
it to production department and inventory department. The production department then
responds to the customer demand by sending the demanded item to the warehouse through a
proper medium and the distributor sends it to the customer within a time frame. All the
departments engaged in this process need to work with an aim of improving the performance
and minimizing uncertainty.

 Inventory allocation to orders

 Pick list of warehouses
 Shipping modes

SCM - Performance Measures

Supply chain performance measure can be defined as an approach to judge the performance
of supply chain system. Supply chain performance measures can broadly be classified into
two categories −

 Qualitative measures − For example, customer satisfaction and product quality.

 Quantitative measures − For example, order-to-delivery lead time, supply chain
response time, flexibility, resource utilization, delivery performance.

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

Quantitative Measures

Mostly the measures taken for measuring the performance may be somewhat similar to each
other, but the objective behind each segment is very different from the other.

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

Non - Financials Measures

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

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

 Supply chain lead time

 Order-to-delivery lead time

The order-to-delivery lead time can be defined as the time of delay in the middle of the
placement of order by a customer and the delivery of products to the customer. In case the
item is in stock, it would be similar to the distribution lead time and order management time.
If the ordered item needs to be produced, it would be the summation of supplier lead time,
manufacturing lead time, distribution lead time and order management time.

The supply chain process lead time can be defined as the time taken by the supply chain to
transform the raw materials into final products along with the time required to reach the
products to the customer’s destination address.

Hence it comprises supplier lead time, manufacturing lead time, distribution lead time and the
logistics lead time for transport of raw materials from suppliers to plants and for shipment of
semi-finished/finished products in and out of intermediate storage points.

Lead time in supply chains is governed by the halts in the interface because of the interfaces
between suppliers and manufacturing plants, between plants and warehouses, between
distributors and retailers and many more.

Lead time compression is a crucial topic to discuss due to the time based competition and the
collaboration of lead time with inventory levels, costs, and customer service levels.

Customer Service Level

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

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

In order to maximize the customer service level, it is important to maximize order fill rate,
minimize stockout rate, and minimize backorder levels.

Inventory Levels

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

 Raw materials
 Work-in-process, i.e., unfinished and semi-finished sections
 Finished goods inventory
 Spare parts

Every inventory is held for a different reason. It’s a must to maintain optimal levels of each
type of inventory. Hence gauging the actual inventory levels will supply a better scenario of
system efficiency.

Resource Utilization

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

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

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

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

Finanacial Measures

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

There is a hike in prices because of the inventories, transportation, facilities, operations,

technology, materials, and labor. Generally, the financial performance of a supply chain is
assessed by considering the following items −
  Cost of raw materials.
 Revenue from goods sold.
 Activity-based costs like the material handling, manufacturing, assembling rates etc.
 Inventory holding costs.
 Transportation costs.
 Cost of expired perishable goods.
 Penalties for incorrectly filled or late orders delivered to customers.
 Credits for incorrectly filled or late deliveries from suppliers.
 Cost of goods returned by customers.
 Credits for goods returned to suppliers.

In short, we can say that the financial performance indices can be merged as one by using key
modules such as activity based costing, inventory costing, transportation costing, and inter-
company financial transactions.

SCM - Strategic Sourcing

Strategic sourcing can be defined as a collective and organized approach to supply chain
management that defines the way information is gathered and used so that an organization
can leverage its consolidated purchasing power to find the best possible values in the
marketplace.

We cannot build up the significance of operating in a collaborative manner. Several decades

have witnessed a major transformation in the profession of supply chain, from the purchasing
agent comprehension, where staying in repository was the criterion, to emerging into a supply
chain management surrounding, where working with cross functional and cross location
teams is important, to achieve success.

Strategic sourcing is organized because of the necessity of some methodology or process. It is

collective because one of the most essential necessities for any successful strategic sourcing
attempt is of receiving operational components, apart from the procurement, engaged in the
decision-making and assessment process.

The process of strategic processing is a step by step approach. There are seven distinct steps
engaged in the process of strategic processing. These steps are explained below in brief.

Understanding the Spend Category

The first three steps involved in the strategic sourcing are carried out by the sourcing team. In
this first stage, the team needs to do a complete survey on the total expenditure. The team
ensures that it acknowledges every aspect regarding the spend category itself.

The five major regions that are analyzed in the first stage are as follows −

 Complete previous expenditure records and volumes.

 Expenditures divided by items and sub items.
 Expenditures by division, department or user.
 Expenditures by the supplier.
 Future demand projections or budgets.
For example, if the classification is grooved packaging at a customer goods company, the
team has to acknowledge the description of the classification, application patterns and the
reason behind specification of particular types and grades specified.

Stakeholders at all functioning units and physical locations are to be determined. The
logistics, for instance, needs an updated report regarding the transportation specifications and
marketing requirements to acknowledge some quality or environmentally applicable features.

Supplier Market Assessment

The second step includes frequent assessment of the supplier market for pursuing substitute
suppliers to present incumbents. A thorough study of the supplier marketplace dynamics and
current trends is done. The major element of the key products design is should-cost. Along
with it, an analysis on the major suppliers’ sub-tier marketplace and examination for any risks
or new opportunities are also important.

Now, it is not recommended to analyze the should-cost for every item. There are many
instances where conservative strategic sourcing techniques tend to work better. But in the
instances where the application of strategic sourcing is not applicable, the should-cost
analysis supplies a valuable tool that drives minimizing of cost and regular progress efforts of
the supplier.

Supplier Survey

The third step is developing a supplier analysis for both incumbent and potential substitute
suppliers. This analysis assists in examining the skills and abilities of a supplier. In the
meanwhile, data collected from incumbent suppliers is used for verifying spend information
that suppliers have from their sales systems.

The survey team considers the above-mentioned areas for gathering information. The areas
are as follows −

 Feasibility
 Capability
 Maturity
 Capacity

The analysis is done to examine the potential and skills of the market to satisfy the customer
demands. This analysis helps in the examination done at the initial stage to find out if the
proposed project is feasible and can be delivered by the identified supply base.

This analysis also supplies an initial caution of the customer demands to the market and
enables suppliers to think about how they would react to and fulfill the demand. Here the
motto is to motivate the appropriate suppliers with the right structural layout to respond to the
demands.
Building the Strategy

The fourth step comprises constructing the sourcing strategy. The merger of the first three
steps supports the necessary elements for the sourcing strategy. For every region or category,
the strategy depends on answering the questions given below.

 How willing is the marketplace to oppose the supplier?

 How supportive are the clients of a firm for testing incumbent supplier relationships?
 What are the substitutes to the competitive assessment?

Generally, these substitutes are opted when a purchasing firm has little leverage over its
supply base. They will depend on the belief that the suppliers will share the profits of a new
strategy. Thus, we say that the sourcing strategy is an accumulation of all the drivers thus far
mentioned.

RFx Request

Mostly, the competitive approach is applied in general cases. In this approach, a request for
proposal or bid needs to be prepared (e.g., RFP, RFQ, eRFQ, ITT) for most spend
classifications or groups.

This defines and clarifies all the needs for all prequalified suppliers. The request should
comprise product or service specifications, delivery and service requirements, assessment
criteria, pricing structure and financial terms and conditions.

In the fifth stage, an interaction plan needs to be executed to allure maximum supplier
interest. It must be ensured that each and every supplier is aware that they are competing on a
level playing field. After sending the RFP to all suppliers, it is to be confirmed that they are
given enough time to respond. In order to motivate greater response, follow-up messages
should also be sent.

Selection

This step is all about selecting and negotiating with suppliers. The sourcing team is advised to
apply its assessment constraints to the responses generated by the suppliers.

If information across the limitation of RFP response is required, it can be simply asked for. If
done correctly, the settlement process is conducted first with a larger set of suppliers and then
shortlisted to a few finalists. If the sourcing team utilizes an electronic negotiation tool, large
number of suppliers can sustain in the process for longer duration, giving more wide
suppliers a better opportunity at winning the enterprise.

Communicaction With New Suppliers

After informing the winning supplier(s), they should be invited to take part in executing
recommendations. The execution plans vary according to the scale of switches the supplier
makes.
For obligatory purposes, a communication plan will be set up, including any modification in
specifications and improvements in delivery, service or pricing models. These tend to be
communicated to users as well.

As we know, the company gains immensely from this entire process of creating a
communication plan, making some modifications according to the customer demand and
further forwarding this to the customer. It’s essential that this process should be
acknowledged by both the company and the supplier.

For new suppliers, we need to construct a communication plan that copes with the alteration
from old to new at every point in the process engaged by the spend category. The sections
that have an impact of this change are the department, finance and customer service.

In addition, the risk antennae will be particularly sensitive during this period. It is essential to
gauge closely the new supplier’s performance during the first weeks of performance.

Another essential task is to grasp the intellectual capital of the sourcing team, which has been
developed within the seven-step process, so that it can be used the next time that category is
sourced.

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

Here we will be discussing the three main decision phases involved in the entire process of
supply chain. The three phases are described below −

Supply Chain Strategy

In this phase, decision is taken by the management mostly. The decision to be made considers
the sections like long term prediction and involves price of goods that are very expensive if it
goes wrong. It is very important to study the market conditions at this stage.

These decisions consider the prevailing and future conditions of the market. They comprise
the structural layout of supply chain. After the layout is prepared, the tasks and duties of each
is laid out.

All the strategic decisions are taken by the higher authority or the senior management. These
decisions include deciding manufacturing the material, factory location, which should be easy
for transporters to load material and to dispatch at their mentioned location, location of
warehouses for storage of completed product or goods and many more.

Supply Chain Planning

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

This phase includes it all, starting from predicting the market demand to which market will be
provided the finished goods to which plant is planned in this stage. All the participants or
employees involved with the company should make efforts to make the entire process as
flexible as they can. A supply chain design phase is considered successful if it performs well
in short-term planning.

Supply Chain Operations

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

For example, imagine a customer demanding an item manufactured by your company.

Initially, the marketing department is responsible for taking the order and forwarding it to
production department and inventory department. The production department then responds
to the customer demand by sending the demanded item to the warehouse through a proper
medium and the distributor sends it to the customer within a time frame. All the departments
engaged in this process need to work with an aim of improving the performance and
minimizing uncertainty.

PROCESS VIEW OF SCM

https://www.youtube.com/watch?v=Fm2Lqhyf89o

Role of each element or member is clearly defined

SCM FRAMEWORK MODEL
KEY ISSUES IN SCM
 Managing customer expectations: One of the challenges of effective supply chain
management is managing customer expectations. Supply Chain Managers are service
providers. They provide services for indirect procurement requests, project and
manufacturing requests, and outside customer requests. Consequently, Supply Chain
Managers need to deploy efficient workflows to make sure requests are fulfilled on
time, every time.
 Managing suppliers: Along with managing customer expectations comes managing
suppliers. Good relationships with your suppliers are key to managing your supply
chain effectively. In an ideal world, you’ll proactively engage with suppliers through
Supplier Relationship Management.
 Maintaining quality and sustainability
One of the challenges of global supply chains is the concern about the quality and
sustainability of products that are made in other countries. This is particularly true
when components of a product need to meet regulatory standards.
 Access to data
In a modern-day supply chain, access to your supply chain data is one of the most
important requirements. Access to data can help you manage your supply chain more
effectively. Without this, you can’t begin to make educated improvements to your
supply chain or reduce risk.

Some common metrics to improve supply chain efficiency include:

 Cycle time: Request-to-approval, approval-to-purchase order, invoicing-to-invoice
payment.
Consolidation of items/vendors: A common area for identifying cost savings and
reducing the number of suppliers to manage.
On-time delivery reporting: Knowing which orders are outstanding both from a
finance perspective and a supplier delivery management perspective.
Budgetary controls: Ensuring spending occurs within budgeted amounts.

Risk mitigation
Mitigating risk can be challenging for any supply chain manager. While risk is a broad topic,
there are some common supply chain risks that supply chain managers should keep top of
mind. These include:
 Reliance on one supplier for most of your purchases: Companies that are too
reliant on one supplier are vulnerable if that supplier can’t meet demands. Be sure to
diversify your supply chain as much as possible to ensure business continuity.
 Failure to prepare for force major events: These became very real when COVID-
19 started affecting the delivery of goods and services globally. Do you have a backup
plan?
 Tracking supply data on spreadsheets or outdated technology: Losing your
supply chain data due to corrupt servers or damaged computers is disastrous to
ongoing operations.
 Controlling escalating costs: Do you know how much you’ve spent in the past? Can
you forecast what you’ll spend in the future? Is there a critical cost commodity in
your product that can be hedged? This knowledge is critical when it comes to
negotiating costs with suppliers.
 Accommodating multiple changes in channels to market: Ensuring your supply
chain gets the right goods to the right place at the right time is critical to the success
of any organization.
 Managing inventory: Inventory is expensive to procure, expensive to sit on, and, in
the worst-case scenario, expensive to write off.

The key benefits of supply chain management are as follows:

 Develops better customer relationship and service.
 Creates better delivery mechanisms for products and services in demand with
minimum delay.
 Improvises productivity and business functions.
 Minimizes warehouse and transportation costs.
 Minimizes direct and indirect costs.
 Assists in achieving shipping of right products to the right place at the right time.
 Enhances inventory management, supporting the successful execution of just-intime
stock models.
 Assists companies in adapting to the challenges of globalization, economic
 upheaval, expanding consumer expectations, and related differences.
 Assists companies in minimizing waste, driving out costs, and achieving
 efficiencies throughout the supply chain process.
 What Is Logistics?
Logistics refers to the overall process of managing how resources are acquired, stored,
and transported to their final destination. Logistics management involves identifying
prospective distributors and suppliers and determining their effectiveness and
accessibility. Logistics managers are referred to as logisticians.

Logistics Management is simply the movement of things in between the point of

origin and point of final consumption. It is a term concerned with the formulation of
plans, management, and implementation of processes related to the movement and
storage of goods.

Nature and Scope of Logistics Management

1. Network Design: Network Design is one of the prime function performed by process of
logistic management. Logistic manager properly designs a network that denotes the
number and location of production plants, storage houses, equipment for handling of
materials etc. These factors are key determinants of efficiency of logistics and need to
be decided with due attention.
2. Procurement: Logistics management monitor the procurement of required materials
and equipment for supporting manufacturing process of organization. It identifies
supply sources, places order, manages inbound transportation, collect, inspect and store
materials. All required raw materials of right quality are provided at right time at a
minimum cost.
3. Material Handling: Logistics management involves proper handling of all materials
within organization like raw-materials, equipment’s, semi-finished and final goods.
They need to be properly handled within and outside the manufacturing plant, storage
house and transportation terminal. Managers need to ensure that there are no losses
arising out of breakage, spoilage etc.
4. Order Processing: Processing of consumer order is an important aspect of logistics
management. It ensures that all order are timely processes and performs various
operations like receiving, handling and recoding of consumer orders. Logistics
management process focuses on reducing the time gap in between the order receipt and
dispatch of consignment. It pays attention on fast processing of order and any delay in
execution of order is avoided.
5. Inventory Management: Logistics managers manages all the inventories of materials
in right way. Proper amount of inventory is maintained at every point of time to
facilitation uninterrupted production and regular supply of goods to consumers. Efforts
are made to avoid any blockage of working capital in inventory. Overstocking and
understocking of inventory is prevented and an optimum amount is always maintained.
6. Packaging: Packaging and labelling are very important in logistics management.
Packaging involves encasing products in proper packets for its safety and convenient
handling. It makes product attractive and facilitate its sales. Labelling is a process of
giving identification marks to product and defines its packaging and expiry date,
ingredients, price, weight or size of product and instruction for proper handling
 7. Warehousing: It is a logistical operation which aims at creating time utility by safe
storage of products from the time in-between production point to consumption point.
Logistic managers properly decide number and location of all warehouses to be
established by company for proper storage of its products.
8. Transportation: Transportation is a logistical activity which refers to movement of
goods within and outside the organization. It creates time utility by delivering goods at
right time and in right order. Railways, roadways, waterways, airways and pipeline are
major sources of transportation used. Logisticians choose a right source of
transportation by analysing them in terms of their cost, speed, reliability, safety and no
of its locations.

ELEMENTS OF LOGISTICS

TYPES OF LOGISTICS

Inbound logistics

As the name suggests, inbound logistics is concerned with activities related to the incoming
flow of resources needed to make a product or a service. Inbound logistics processes may
include managing suppliers, costs, inventory, and transportation to ensure the right
components or subassemblies arrive in your factory on time. Inbound logistics is generally
complex because hundreds of parts are coming in to manufacture one final product, therefore,
it tends to be more intricate than outbound flow.

Inbound logistics refers to the movement of goods from suppliers to production. This
includes storage and transportation of various products and information from the suppliers,
through the warehouse, and further through production facilities of manufacturers for
processing and production
Outbound logistics

Outbound logistics refers to activities in delivering the right product at the right time to
customers at a minimum cost. Customer satisfaction is the primary objective of outbound
logistics, that is why many organizations especially e-commerce companies are competing
for last-mile or same-day delivery to their customers. Companies bring out their value
proposition to their customers and back it up with their outbound logistics capability.

Outbound logistics is the movement of finished products from production facilities to the
next supply chain link. These goods move through warehouses, further to the point of
consumption (in the hands of end-users). This is often referred to as the order fulfillment
process.

Reverse logistics

Reverse logistics is the process of moving products from end-user back to the origin to
recover value or for proper disposal. The value is recaptured from products recovered from
customers through rework, refurbishment, reuse, scrap recycling, or government incentives
for recyclable products.

As you may have already guessed, reverse logistics refers to the movement of items or
goods from the end-users back through the supply chain to the appropriate party
concerned. This occurs in the event of returns or with products that may need servicing or
repairs, refurbishing, resale, recycling, recovering, or for proper disposal (in the fact a
product cannot be recycled due to certain elements and must be broken down safely and
appropriately).

INCREMENTAL VALUE DELIVERY THROUGH LOGISTICS MANAGEMENT

INNOVATIONS IN SCM
8 innovations that are transforming supply chains
 Last-mile delivery. ...
 Self-service/do-it-yourself logistics. ...
 On-demand warehousing. ...
 Collaborative mobile robots. ...
 Truck platooning. ...
 Blockchain. ...
 Tagging, sensors and geolocation technologies. ...
 Big data and AI.
What is Demand Forecasting in the Supply Chain
Demand forecasting in supply chain management refers to the process of planning or
predicting the demand of materials to ensure you can deliver the right products and in the
right quantities to satisfy customer demand without creating a surplus. Forecast error can
result in creating a surplus, which is both wasteful and costly.
Demand Forecasting/Estimating Techniques
Within the sphere of qualitative and quantitative forecasting, there are several different
methods you can use to predict demand:

 Collective Opinion, which leverages the knowledge and experience of a company’s

sales team to aggregate historical data on customer demand.
 Customer Survey Method, which provide key information on customer
expectations, desires, and needs. This data is useful for creating a sales forecast but is
harder to predict actual demand.
 The Barometric Method, which involves using economic indicators to predict trends
and measure current, past and future activity.
 The Expert Opinion Method, which involves soliciting expert advice from external
contractors to determine future activity.
 The Market Experiment Method, which utilizes market experiments carried out
under controlled conditions to inform retailers on consumer behaviour.
 The Statistical Method, which allows a company to identify and analyze the
relationships between different variables; establish performance history over time,
identify trends and extrapolate potential future trends.
How To Forecast / Estimating Demand
Demand forecasting is valuable to all businesses but is particularly useful to e-commerce
brands and retailers, where accurate forecasting can support inventory management efforts
and improve the customer experience.
 Collect the Right Data
For your demand forecast to be successful, you must ensure that you have the right kind of
data to make informed business decisions. It’s important to hone-in on the numbers that give
you the information you need to make decisions, like pricing trends and how many people
visited on your sales channels in a given timeframe.
 Adjust for Variables
There are many factors that go into the daily interactions that affect sales data. For your
demand forecast to be successful, you need to account for any variables that may sway your
data one way or another, such as natural disasters or unexpected store closures. Another
factor is if the product is seasonal or trendy, as intermittent demand or future demand can
make it harder to create an accurate forecast.
 Document Sales and Demand Trends
Whichever metric you choose, you’ll need a repeatable data analysis process that accurately
depicts whether the forecast is getting better or worse; points to items that need the most
improvement; measures accuracy at your procurement lead time and provides accurate
information by customer, branch, brand, product and category.

 Budget, Purchase, and Allocate Accordingly

Once your demand forecast is in place, the only thing left to do is utilize your collected data
to draw up a strategy for how, where and when to allocate your resources and purchasing
efforts.

 Flow space Makes Demand Forecasting Easy

To effectively increase profits and mitigate unnecessary costs, you need to improve demand
forecasting and optimize your supply chain.