MODULE 1 – CHAPTER 2

INTRODUCTION TO SUPPLY
CHAIN MANAGEMENT (SCM)
https://youtu.be/dAXdeqcHBp4
 WHAT IS A SUPPLY CHAIN? SUPPLY CHAIN MANAGEMENT

Supply Chain Management is the integrated management

of all linkages and value added activities from the
supplier’s supplier to the customer’s customer in such a
way that enhanced customer value is achieved at lower
costs

Supply Demand

 Supply chain is the system by which organizations source,

make and deliver their products or services according to
market demand.
 Supply chain as defined by experienced practitioners
extends from suppliers’ suppliers to customers’ customers. Mission: Matching Supply and Demand
 Flows in Supply Chain

Material Flow

Converter
Supplier Retailer
Distributor

Source
Converter Consumers
Distributor End-User
Supplier

Value-Added Goods

Funds/Demand Flow

Information Flow

Reuse/Maintenance/After Sales Service Flow

 Difference between the amount paid by the customer and
the cost incurred by the organization to produce and
MAXIMIZE
OVERALL supply the product.
Effective SCM helps to reduce PROFIT
transportation, warehousing, inventory
costs thereby reducing the Working Capital. Avoid service failure and provide
ENHANCE
REDUCE efficient services to the customers
CUSTOMER
WORKING leading to customer satisfaction.
SERVICE
CAPITAL

Efficient SCM leads to greater

All members of the Supply
REDUCE co-ordination and co-operation
Chain should work effectively ON-TIME
INVENTORY between members leading to
DELIVERY
OBJECTIVES
and efficiently. COST reduced inventory.

OF SCM

Standardization helps to reduce Reduced level of inventory leads to

REDUCE
MINIMISING reduced warehousing cost since
variance between actual and WAREHOUS
VARIANCE
perceived results. ING COST there will be less inventory held up.

REDUCE
REDUCE
TRANSPORT
Proper co-ordination and communication helps to LEAD TIME Reduce transportation cost through principles like
ATION COST
reduce the time required to convert order into cash Economies of Scale and Economies of Distance.
 FUNCTIONS OF SCM

DEFINING BUSINESS MANAGING DEMAND LOGISTICS PURCHASING SELLING manufacturing PRODUCT DESIGN
BOUNDARIES AND AND SUPPLY -It involves storing, -Procurement of -Closest link with -Reducing the -Helps to improve
RELATIONSHIPS moving, raw materials. the demand side of manufacturing lead the efficiency and
-Decide what to transporting and -Company should the supply side. times and supplying effectiveness of
manufacture and materials handling. select the right -Directly materials meeting both demand and
what to outsource. -Role of logistics vendor to make the responsible to help the customers supply.
starts from the raw materials customer know, requirements. -Quality can be
-Define the
members involved purchase of raw available at right select, buy, pay for improved through
in the chain, role of materials up to time, at right place and take away the collaboration with
each member and transportation of and in right products. the channel
relationship among finished goods to quantity. partners.
the channel end consumer.
members.
 PARTICIPANTS OF THE SUPPLY CHAIN

MANUFACTURERS DISTRIBUTORS CUSTOMERS

SUPPLIERS
Production of Middlemen who Essential part of
Organization that
goods and selling it purchase from the the Supply Chain.
provides the raw
to distributors, manufacturers and
materials to End user of the
wholesalers, sell it to others in
manufacturers product
retailers the supply chain
 CHANNEL MANAGEMENT
 Channel Management is all about Managing Relationships
with all the intermediaries in such a way that it improves the
overall efficiency of entire channel.
 Effective channel management will help superior customer
service at lowest possible cost.
 Channel Management is important so as to help the
material/product reach the right place, in right quantity and at
right time.
 All channel members should aim at developing and
maintaining long term relationships with each other in order
to strengthen the effective flow of communication and
information.
CHANNEL INTEGRATION
 Channel Integration is wherein one channel member integrates business
with other channel member within the supply chain entering into any
contract, partnership, strategic alliances etc.
 Unifies channel members within the supply chain into one.
 Forward Integration (company merges with the distributor) and Backward
Integration (merges with the manufacturer).
 Benefits of CI:
 Increase efficiency due to co-ordination and co-operation.
 Improves profitability.
 Reduction in overall cost.
 Best use of available resources.
 Reduction in Quantity Gap and Time Gap between Production and
Consumption.
THE BULLWHIP EFFECT
 Bullwhip effect is the phenomenon of aggregation of inventory at various stages of supply chain.
 Average inventroy increases from customer to supplier.
 Volatility amplification along the network of distrbution.
 Increase in demand variability as we move upstream away from the market.
 Mainly because of lack of communication and coordination.
 Delays in information and material flows.
 CAUSES OF BULLWHIP EFFECT
 Lack of communication between
members of the supply chain
 Lack of co-ordination between
members of the supply chain
 Inaccurate demand forecasting
 Free return policy
 Delay in flow of material and
information
IMPACT OF BULLWHIP EFFECT
 Increases manufacturing cost
 Increases inventory cost
 Increases warehouse cost
 Increases replenishment lead time
 Negative effect on performance at
every stage of the supply chain
SOLUTION OF BULLWHIP EFFECT
 Know your customer
 Proper forecast
 Better flow of information
 Free return policy
 Reduce Lead Time of the supply
EXTENDED ENTERPRISE

 Combine economic output to provide product and service

offerings to the market

 Operate independently or co-operatively

 Performance of an organization depends on the performance of

network of firms

 Extended Enterprise work together to make one main project of

the parent project

 Consists of outsourcing activities like warehousing, packaging

(Monginis boxes), transportation (Mehta road lines), technology
(GPS using Google Maps), public relations (cricket team, actors)
etc.

 Gains Competitive Advantage when suppliers becomes partners

 Similar to Supply Chain where all parties connect through a

contract and work as Single Corporation
 LOGISTICS V/S SUPPLY CHAIN MANAGEMENT

LOGISTICS SUPPLY CHAIN MANAGEMENT

1) Making goods available when and where required Encompasses all the activities associated with the movement of
goods
2) Narrower concept Broader concept
3) Inbound, manufacturing/in process and outbound Co-ordinates and co-operates among value chain members

4) Activities within the organization Activities outside the organization

5) Originated from Military logistics Originated from Business logistics
6) Emphasizes on Internal Integration Emphasizes on Internal as well as External Integration

7) Objective is to minimize cost Objective is to maximize profitability

8) 2 flows: Product flow and Information flow 3 flows: Product flow, Financial flow and Information flow

9) Focus upon management of resources within the organization Focus upon management of relationship in order to achieve
profitable outcomes
QUESTION BANK FOR MODULE 1 – CHAPTER 2 – INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

1. What is SCM and how is it different from Logistics (distinguish)

2. What are the broad participants of SCM in textile, automobile and food sector

3. Short Note: Bullwhip Effect

4. Short Note: Extended Enterprise

5. Significance/Importance of Supply Chain

6. Role of Logistics in SCM (refer Pg.38 – Rishabh Publication)