INTRODUCTION TO SUPPLY

CHAIN MANAGEMENT

BY-
Asst. Prof. Rachana Pulgam
TOPICS COVERED IN THIS
UNIT:
 Concepts of Supply Chain and Supply Chain Management
 Objectives and Functions of Supply Chain Management
 Supply Chain Strategy
 Global Supply Chain Management
 Value Chain and Value Delivery Systems for SCM
 Bull-Whip Effect
 Green Supply Chain Management.
 Concept, Importance and Objectives of Green Supply Chain Management
DEFINITION OF SUPPLY
CHAIN
 “A supply chain is a network of facilities and distribution options that performs the
functions of procurement of materials transformation of these materials in intermediate
and finished products, and the distribution of these finished products to the customers.”
-Ganeshan and Harrison

As the above definition explains, a supply chain encompasses all activities associated with
the flow and transformation of goods from the raw materials stage(extraction), through to the
end user, as well as the associated information flows.
WHAT IS A SUPPLY CHAIN?
EXHIBIT 1: GARMENTS SUPPLY CHAIN
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.
EXHIBIT 2: THE AMUL MODEL
WHAT DO YOU MEAN BY SUPPLY
CHAIN MANAGEMENT?
 Supply Chain Management represents an effort by suppliers to develop and implement supply
chains that are as efficient and economical as possible
 SCM encompasses the integrated planning and execution of processes required to optimize the
flow of materials, information and capital in functions that broadly include demand planning,
sourcing, production, inventory management and logistics -- or storage and transportation.
Companies use both business strategy and specialized software in these endeavors to create a
competitive advantage.
 THE CONCEPT OF SUPPLY CHAIN
MANAGEMENT (SCM)
 The concept of Supply Chain Management (SCM) is based on two core ideas:

1. The first is that practically every product that reaches an end user represents the cumulative
effort of multiple organizations. These organizations are referred to collectively as the supply
chain.
2. The second idea is that while supply chains have existed for a long time, most organizations
have only paid attention to what was happening within their “four walls.” Few businesses
understood, much less managed, the entire chain of activities that ultimately delivered
products to the final customer. The result was disjointed and often ineffective supply chains.
 THE CONCEPT OF SUPPLY CHAIN MANAGEMENT (SCM)
 The organizations that make up the supply chain (suppliers-manufacturers- wholesalers-retailers-
customers) are “linked” together through physical flows and information flows.

 Physical Flows
 Physical flows involve the transformation, movement, and storage of goods and materials. They are the most visible
piece of the supply chain. But just as important are information flows.

 Information Flows

 Information flows allow the various supply chain partners to coordinate their long-term plans, and to control the day-
to-day flow of goods and materials up and down the supply chain.

supplier Information flow Information flow

MANUFACTURER
DISTRIBUTOR
SUPPLIER (flexible system)
Material flow Material flow
EVOLUTION OF SCM
Three major developments that have brought SCM to the forefront of management’s
attention:
 The infotech revolution
 Increased competition and globalization in today’s markets
 Relationship management

 The Infotech Revolution:

Organizations are moving towards a concept known as electronic commerce, where

information transactions are automatically completed via Electronic Data Interchange (EDI),
Electronic Funds Transfer (EFT), Point of Sale (POS) devices, and a variety of other
approaches. 
The proliferation of new telecommunications and computer technology has made instantaneous
communications a reality.
EVOLUTION OF SCM
 Increased Competition and Globalization

The rate of change in markets, products, and technology is increasing, leading to situations
where managers must make decisions on shorter notice, with less information, and with higher
penalty costs.
The firms that have embraced the changes faced by today’s markets, have put a renewed
emphasis on improving their operations and, in particular, supply chain performance.
To survive, many firms today find that they must increase market share on a global basis and be
on the “ground floor” of rapid global economic expansion. Simultaneously, these firms must
vigorously defend their domestic market share from a host of “world class” international
competitors.
EVOLUTION OF SCM
 Relationship Management

A poor relationship within any link of the supply chain can have disastrous consequences for all
other supply chain members. For example, an unreliable supplier can virtually cripple a plant,
leading to inflated lead times and resulting in problems across the chain, all the way to the final
customer.
To avoid such problems, firms must manage the relationships with their upstream suppliers as
well as their downstream customers.
Of all the activities operations and supply chain managers perform, relationship management is
perhaps the most difficult, and is therefore the most susceptible to break down.
OBJECTIVES OF SUPPLY CHAIN MANAGEMENT
 Supply chain management is concerned with the efficient integration of suppliers, factories, warehouses
and stores so that merchandise is produced and distributed:
– In the right quantities
– To the right locations
– At the right time

 In order to

– Minimize total system cost

– Satisfy customer service requirements
– face global competition
– Improve standardization
FUNCTIONS OF SUPPLY CHAIN MANAGEMENT

FUNCTION
S OF SCM

Information
Workflow

Resource
Purchasing
Management

Logistics Operations
FUNCTIONS OF SUPPLY CHAIN MANAGEMENT

The Role of global supply chain management primarily comprises five functions mentioned below:

1.Purchasing
This is the first function of supply chain management. It pertains to procuring raw materials and other
resources that are required to manufacture the goods. It requires coordination with suppliers to deliver the
materials without any delays.
 
2.Operations
The operation team engages in demand planning and forecasting. Before giving raw material purchase
order, the organization has to anticipate the possible market demand and number of units it needs to
produce. Accordingly, it further sets the ball rolling for inventory management, production and shipping. If
the demand is over anticipated, then it could result in excess inventory cost. If the demand is under
anticipated, the organization wouldn’t be able to meet customer demand, thereby leading to revenue loss.
So, operations function plays a critical role in supply chain management.
 FUNCTIONS OF SUPPLY CHAIN MANAGEMENT
3.Logistics
 This function of supply chain management requires immense coordination. The manufacturing of
products has commenced. It needs space for storage until it is shipped for delivery. This calls for making
local warehouse arrangements. Let’s say; the products are to be delivered outside the city, state or country
limits. This brings transportation in the loop. There will also be a need for outstation warehouses.
Logistics ensures that products reach the end-point delivery without any glitches.
 
4.Resource Management
 Any production consumes raw materials, technology, time and labour. However, all the processes need to
be efficient and effective. This phase is taken care of by the resource management function team. It
decides the allocation of resources in the right activity at the right time to optimize the production at
reduced costs.

5.Information Workflow
Information sharing and distribution is what really keeps all other functions of supply chain management
on track. If the information workflow and communication are poor, it could break apart the entire chain and
lead to mismanagement.
ELEMENTS OF SUPPLY CHAIN MANAGEMENT

Purchasing Operations

Distribution Integration
ELEMENTS OF SUPPLY CHAIN MANAGEMENT
1.    INTEGRATION

 Integration starts at your strategic planning phase and is critical throughout your communications and information
sharing and data analysis and storage.

A single-view, accurate, and reliable source of information on your supply chain activities and details reduces human
error, delays, shortages, and over/under-stocking, and allows you to plan for and mitigate supply issues or interruptions.

2.    OPERATIONS

Your operations require an accurate, real-time representation of your inventory and production schedules in order to
monitor your output and forecast production and distribution patterns.

 
 With the right software, you are able to align your operations with the rest of your business, provide accurate and
reliable information on the production and current inventories for more efficient fulfillment processes.
ELEMENTS OF SUPPLY CHAIN MANAGEMENT
3.    PURCHASING

 The right supply chain software does a great deal in terms of sourcing products in your supply chain and
ensuring you are taking advantage of the most competitive pricing and most reliable products.
 Demand forecasting gives you a solid and practical method of ensuring you have right product, in the right
quantity, at the right time.
 
 Keep track of suppliers, competing producers, and demand cycles, so that you can reduce your operating
costs across the sourcing and purchasing process.
4.    DISTRIBUTION

 The transport, delivery, and return of goods is a component of your supply chain that can always be
simplified, optimised, and corrected for better client service and reduced operating costs.
 
 With varying options of stock origin, your delivery and returns process should be centralised for a real-time
view of inventory, order status and stock location regardless of whether an order originated in-store or online.
 SUPPLY CHAIN STRATEGY
“A supply chain strategy defines how the supply chain should operate in
order to compete. It is an iterative process that evaluates the cost-benefit trade-
offs of operational components.”

 Strategies and designing of the supply chain include:

 Deciding on the supply chain structure and the activities each stage of the supply chain will perform

 Selecting a location and capacities of facility

 Deciding on the products that are to be made and the location where they need to be stored

 Choosing the modes of transportation and the source from where the information is to be collected

 Supply chain design decisions are long term projects and are expensive to reverse; so the manager must take
into account the market uncertainty.
“A well executed supply chain strategy results in value creation for the
organization.”
DEVELOPING A SUPPLY
CHAIN STRATEGY Cost
differentiation??
Product
differentiation??
Growth
strategy??

Understand the??
Costs Business Strategy
Benefits??
Execution??
Roles &
Assess the Extended
Activities & Supply Chain
responsibilities!
Tasks!
Performance
metrices!
Develop an Implementation Plan

Development Considerations-
• Cooperate and Collaborate
with Your Partners
• Outsource Where Appropriate
GLOBAL SUPPLY CHAIN
MANAGEMENT
 A global supply chain is a dynamic worldwide network when a company purchases or uses
goods or services from overseas. It involves people, information, processes and resources
involved in the production, handling and distribution of materials and finished products or
providing a service to the customer.

 Going global through GSCM, enables the companies to-

 Enter new markets
 Access to new technologies
 Enabling growth by partnering with foreign firms
 Optimize customer services
 Flexibility in customer transactions
GLOBAL SUPPLY CHAIN
EXHIBIT 2: FORD MOTORS
 GLOBAL SUPPLY CHAIN
EXHIBIT 3: BOEING 787 FIGHTER PLANE
 GLOBAL SUPPLY CHAIN
EXHIBIT 4: DR. REDDY’S LAB DISTRIBUTION
FORCES DRIVING
GLOBALIZATION
 Global Market Forces
 Technological Forces
 Global Cost Forces
 Political and Economic Forces
GLOBAL MARKET FORCES
 Foreign competition in local markets
 Growth in foreign demand
– Domestic consumption from 40% to <30% of world consumption since 1970
– Foreign sales fuel growth
 Global presence as a defensive tool
– Nestle’s and Kellogg’s
 Presence in state-of-the-art markets

– Japan -- consumer electronics

– Germany -- machine tools
– US: Sport Utility Vehicle’s
TECHNOLOGICAL FORCES
 Diffusion of knowledge
– Many high tech components developed overseas
– Need close relationships with foreign suppliers
– For example, Canon has 80% of laser engines
 Technology sharing/collaborations
– Access to technology/markets
 Global location of R&D facilities
– Close to production (as cycles get shorter)
– Close to expertise (Indian programmers?)
GLOBAL COST FORCES
 Low labor cost

– Diminishing importance (Costs underestimated, benefits overestimated)

 Other cost priorities
– Integrated supplier infrastructure (as suppliers become more involved in design)
– Skilled labor
 Capital intensive facilities

– tax breaks
– joint ventures
– price breaks
– cost sharing
POLITICAL AND ECONOMIC
FORCES
 Exchange rate fluctuations and operating flexibility
 Regional trade agreements (South Asia Free Trade Agreement (SAFTA), India-ASEAN Comprehensive Economic
Cooperation Agreement (CECA), India-Korea Comprehensive Economic Partnership Agreement (CEPA) and India-Japan CEPA.)

– Value of being in a country in one of these regions

– Implications for supply network design
– Reevaluation of foreign facilities (Production processes designed to avoid tariffs)
 Trade protection mechanisms

– Tariffs
– Quotas
– Voluntary export restrictions
POLITICAL AND ECONOMIC
FORCES
 Japanese automakers in US

– Local content requirements

 TI/Intel factories in Europe
 Japanese automakers in the EU

– Health/environmental regulations
 Japanese refused to import US skis for many years (different snow)
– Government procurement policies
 Up to 50% advantage for American companies on US Defense contracts
GLOBAL SUPPLY CHAIN SYSTEM
COMPONENTS
 International distribution systems :

– Manufacturing(domestically), Distribution (overseas)

 International suppliers :

– Raw materials and Components(foreign suppliers), Final assembly/

Manufacturing(domestically)
 Offshore manufacturing :

– Product is sourced & manufactured in a single foreign location,

– Shipped back to domestic warehouses for sale and distribution.
 Fully integrated global supply chain :
– Products are supplied, manufactured and distributed from factories located throughout the world
– In a truly global supply chain, it may appear that the supply chain was designed without regard to
national boundaries.
– The true value of a global supply chain is realized by taking advantage of these national boundaries
TYPES OF INTERNATIONAL SOURCING STRATEGY
BENEFITS OF GLOBAL
SOURCING
1. Lower purchase price/cost
2. Greater access to product technology
3. Improved supplier relationships/ supplier responsiveness
4. Greater access to process technology
5. Aims to exploit global efficiencies (low cost skilled labor, low cost raw material and other
economic factors like tax breaks and low trade tariffs) in the delivery of a product
6. Benefits of Global Sourcing
7. Better management of supply chain inventory
8. Greater standardization of the sourcing process
9. Higher material, component, or service quality
10.Improved information sharing
CHALLENGES OF GLOBAL
SOURCING
 When entering the global market, businesses need to be aware that the gains may not be seen
in the short term.
 It may be many years before they start reaping the rewards of their efforts.
 Hire additional staff to help launch their companies in the global markets they expand into.
 Companies usually have to modify their products and packaging to suit the local culture,
preferences and language of the new market.
 Travel expenses are sure to increase for the administrative staff, as (travel all over the world to
oversee their business outlets)
CHALLENGES OF GLOBAL
SOURCING
 Heavy investment of time, money, and resources needed to implement and overlook the
supply chain.
 Inefficient and undersized transportation and distribution systems
 Market instability
 Integrating the supply chain and choosing the correct suppliers is much more difficult than one
can imagine.
 Not only do companies have to strongly consider price and quality, but they also have to make
sure that all the organizations are willing to cooperate to benefit the group.
 Managerial styles, objectives, and goals must have a strategic fit between all companies
involved and power must be evenly distributed throughout the supply chain.
 VALUE CHAIN CONCEPT
 The idea of a value chain was pioneered by American academic Michael Porter in his 1985
book "Competitive Advantage: Creating and Sustaining Superior Performance." He used the
idea to show how companies add value to their raw materials to produce products that are
eventually sold to the public.

 The term value chain refers to the process in which businesses receive raw materials, add
value to them through production, manufacturing, and other processes to create a finished
product, and then sell the finished product to consumers.

 Thus, a value chain is a set of interrelated activities a company uses to

create a competitive advantage.
STEPS IN THE VALUE CHAIN
PROCESS
 There are five steps in the value chain process. They give a company the ability to create value
exceeding the cost of providing its goods or service to customers.

Inbound
Logistics

Service

Operations

Marketing
and Sales Outbound
Logistics
STEPS IN THE VALUE CHAIN
PROCESS
 Inbound Logistics: Receiving, warehousing, and inventory control.
 Operations: Value-creating activities that transform inputs into products, such as assembly
and manufacturing.
 Outbound Logistics: Activities required to get a finished product to a customer. These
include warehousing, inventory management, order fulfillment, and shipping.
 Marketing and Sales: Activities associated with getting a buyer to purchase a product.
 Service: Activities that maintain and enhance a product's value, such as customer support and
warranty service.
VALUE DELIVERY SYSTEMS
 A value delivery system includes the value chains of a firm's supplier and their suppliers, the
firm itself, the firm’s distribution channels, and the firm's buyers and the buyers of their
products.

 Value delivery system (VDS) is one of the most important processes, which includes the
whole supply chain system and the marketing network of the service. The operational
objective of VDS is to maximize the value that deliver to customer and realize the profit of
member companies in system which obtained by participation in value creation.
 IMPACT OF VALUE DELIVERY
SYSTEMS
 The McDonald’s example:

 K-Mart and Walmart example:

THE BULL WHIP EFFECT