SUPPLY CHAIN MANAGEMENT

Lecture 1

UNIT 1

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What is SCM
 Supply chain?
 Supply chain management?

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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 from its original
state to the customer.

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 The steps include moving and
transforming raw materials into finished
products, transporting those products,
and distributing them to the end-user.
 The entities involved in the supply chain
include producers, vendors,
warehouses, transportation companies,
distribution centers, and retailers.

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 The elements of a supply chain include
all the functions that start with receiving
an order to meeting the customer's
request.
 These functions include product
development, marketing, operations, 
finance, and customer service.

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Steps in the supply chain

1. Sourcing raw materials.

2. Refining those materials into basic
parts.
3. Combining those basic parts to create a
product.
4. Order fulfillment/Sales.
5. Product delivery.
6. Customer support and return services.

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SUPPLY CHAIN
MANAGEMENT
 Supply chain management (SCM) is the
oversight of materials, information as they
move in a process from supplier to
manufacturer to wholesaler to retailer and then
to the consumer.
 The three main flows of the supply chain are
the product flow, the information flow and
the finances flow.
 SCM involves coordinating and integrating
 these flows both within and among companies.

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 It also includes coordination and
collaboration with channel partners,
which can be suppliers, intermediaries,
third party service providers, and
customers. 

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KHAN HAMIA
 A supply chain is a network between a
company and its suppliers to produce
and distribute a specific product to the
final buyer.
 The steps include moving and
transforming raw materials into finished
products, transporting those products,
and distributing them to the end-user

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 The three main flows of the supply chain
are the product flow, the information
flow and the finances flow.
 SCM involves coordinating and
integrating  these flows both within and
among companies.

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 A supply chain is referred to as an integrated system that
synchronizes a series of interrelated business processes in order
to:
 (1) create demand for products;
 (2) acquire raw materials and parts;
 (3) transform these raw materials and parts into finished
products;
 (4) add value to these products;
 (5) distribute and promote these products to either retailers or
customers;
 (6) facilitate information exchange among various business
partners (e.g.,suppliers, manufacturers, distributors, third-party
logistics providers, and retailers).

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Generalised supply chain model

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Supply chain network

 Combining the activities of material management

and physical distribution, a supply chain does not
merely represent a linear chain of one-on-one
business relationships, but a web of multiple
business networks and relationships.
 Along a supply chain, there may be multiple
stakeholders, composed of various suppliers,
manufacturers, distributors, third-party
logistics providers, retailers, and customers.

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Successful integration of the supply chain
process
 Improved customer service and value

 Utilized assets

 Increased sales and profitability

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Evolution of SCM

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SCM REVOLUTION
The revolution brought by the dawn of the digital
aged changed the system from plainly stocking
inventory to a more responsive type of
procurement.
Hence management strategies and fields have
surfaced to answer the call of this revolution.

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Supply Chain Management is a field that is brought forth by
this revolution. It is the relationship of firms talking deeply
with each other to meet each other’s demand and improving
output and efficiency.
Also it is the acknowledgement that each element
in the supply chain is interdependent on each other, this
acknowledgement brought
fourth the study of distribution or marketing channels.
While Supply Chain Strategy is how the firm deals with what it
has taken from its supply chain management. And lastly
Logistics is a field in Supply Chain Management that deals
with getting one product from point A to point B.

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Supply Chain Models

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 There are six main supply chain models
that almost all businesses adopt. These
can be grouped into main categories:
 Supply chain models that are oriented to
efficiency
 Supply chain models that are oriented to
responsiveness

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Efficiency
 In industries where the value proposition
is oriented to metrics such as high
relevance of asset utilization, low cost,
and total cost, is given high priority.
 Examples of such industries include
steel, cement, paper, fast fashion, and
commodity manufacturing in general.

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 THE ''EFFICIENT'' SUPPLY CHAIN MODEL

 This model is best suited to industries that exist in highly

competitive markets with several producers, and
customers who may not readily appreciate their different
value propositions.
 These are usually commoditized businesses where
production is scheduled based on expected sales for the
length of the production cycle and competition is almost
solely based on price.
 The steel and cement industries fall under this category.


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THE ''FAST'' SUPPLY CHAIN MODEL
 This supply chain model is best suited for
companies that manufacture trendy products
with short lifecycles.
 Consumers are mostly concerned with how fast
the manufacturer updates their product portfolios
to keep up with fashion trends.
 Companies that adopt the fast supply chain
model focus on shortening the time from idea to
market and maximizing the levels of forecast
accuracy so as to reduce market mediation cost.

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 THE ''CONTINUOUS FLOW'' MODEL
 This model is ideal for industries with high demand
stability.
 The manufacturing processes in a continuous flow
model are designed to generate a regular cadence of
product and information flow.
 This supply chain model is suited for mature industries
with little variation in the customer demand profile.
 Competitive positioning for this model involves offering
a continuous replenishment system that ensures high
service levels and low inventory levels at customers'
facilities.

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 Supply chains oriented to
responsiveness
In industries that are characterized by high
demand uncertainty, supply chain
models that are oriented to
responsiveness are usually employed.

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 THE "AGILE" SUPPLY CHAIN MODEL
 The agile supply chain model is ideal for companies that
manufacture products under unique specifications by their
customers.
 This model is mostly used in industries characterized by
unpredictable demand.
 The model uses a make-to-order decoupling point that
involves manufacturing an item after receiving customers’
purchase orders.
 To ensure agility in the supply chain, managers focus on
having the ability for excess capacity and designing
manufacturing processes that are capable of the smallest
possible batches.

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 In order to reduce lead time, materials and components
should be designed for a common platform (a group of
products that share some key components) and they should
always be available in inventory.
 Collaborative relationships with key customers are important.
They will help suppliers anticipate changes in capacity
requirements, both in the short term for scheduling purposes
and in the long term for asset-investment decisions.
 If extra capacity gradually decreases to low levels, the
company should invest in additional assets so it can maintain
its ability to be agile. If it cannot do so, then it should migrate
to an efficient or a continuous-flow supply chain and adjust its
value proposal from agility to efficiency.

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 THE "CUSTOM-CONfiGURED" MODEL
 This model is ideal where products with multiple
and potentially unlimited product configurations are
required.
 Usually, product configuration is accomplished
during an assembly process, where some of the
parts are mounted or assembled according to an
individual customer's requirements. 

 Because of those factors, this type of supply chain

employs a "configurable to order" decoupling point

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 One example of where this supply chain
strategy makes sense is the assembly of
personalized products, such as computers and
vehicles.
 Another example is in the paper manufacturing
industry, where the decoupling point occurs
after the manufacture of the big paper rolls, and
the products are customized in the cutting and
packaging process.
 In the service sector, some fast food restaurants
apply this supply chain model.

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 THE “flEXIBLE" SUPPLY CHAIN MODEL
 The sixth supply chain type, the flexible model, is suited for
companies that must meet unexpected demand and therefore are
faced with high demand peaks and long periods of low workload.
 This supply chain model is characterized by adaptability, which is
the capability to reconfigure internal processes in order to meet a
customer's specific need or solve a customer's problem.
 This model typically is used by service companies that focus on
handling unexpected situations, perhaps even including
emergencies.
 Due to the nature of such events, customers appreciate not only
the speed of a supplier's response, but also its ability to tailor
solutions to their needs.
 Consequently, the price becomes largely irrelevant to the customer.

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Achieving Strategic Fit
 The goal is to target high responsiveness for a supply chain
facing high implied uncertainty and efficiency for a supply chain
facing low implied uncertainty. For eg. The competitive strategy
of Dell targets customers who value having customized PCs
delivered within days. Given the vast variety of PCs, the high
level of innovation and rapid delivery, demand from Dell
customers is having high demand uncertainty. Some supply
uncertainty also exists, especially for newly introduced
components. Building a responsive supply chain, will allow Dell
to meet its customer’s needs..
 On the other hand, salt is a product with relatively stable
customer demand, giving it a low implied demand uncertainty.
Supply is also quite predictable. It will be in a much better
position if it designs a more efficient supply chain with a focus on
cost reduction.

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Financial sophistication
 The measure of how well the Supply Chain is doing is by the
finances, how fast can the product be turned into money.
 competitive prices

 Cash-to-cash conversion

 Dwell time minimization

 Cash spin

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Globalisation
 The most advanced phase of international engagement
is globalization.
 Opportunities for firms going global:
 Demand exceeds local supply, Strategic sourcing and
offshoring.

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Sourcing
 Internationalization is accomplished through a
shift in focus from domestic purchasing to
global-based material sourcing, processes, and
technologies.
 Suppliers can be perceived as anything that
offers the right materials or processes that you
need to run your business successfully.
 By sourcing from a wide variety of countries and
locations, you increase your ability to expand
and branch out to serve a global community. 

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 ​ ffshore sourcing is utilized in cases where
O
personnel costs of a company need to be
reduced.
 By utilizing the resources and services
available from a faraway country, a company
may reduce its operating costs substantially.
 However, they should focus on good
communication to make this arrangement
successful. Sometimes the language barrier
is a challenge, also.

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Advantages
 Reach new customers in new markets around the world – Globalization
simplifies communication between business owners, vendors, and customers
and therefore makes it easier to reach new markets and stay connected with
customers no matter where they are in the globe.

 Expand sourcing opportunities – Globalization makes it possible for businesses

to secure a diverse selection of workers, materials, and products from regions of
the world that were previously out of reach.

 Offera larger selection of goods and services – Globalization increases your

sourcing opportunities which means it also increases the range of products and
services that you can provide for your customer.

 Save
money and increase profits – more options to source from and to capitalize
on means more chances to save on spending and a greater chance of profit.

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Disadvantages
 Greater complexity – Global supply chains have global problems. As companies
globalize they must scale up all aspects of their business, especially their supply chain.

 Increased risk to your supply chain – When your materials, factories, and customers
are spread around theglobe that means your business is entirely at the mercy of global
events, like natural disasters, port and border closures and changes to the geo-political
landscape.

 Increased competition – You can bet that if your company broke into a new market that
there are severalcompanies just like yours with the have access to the exact same
supplies, products, labor pool, andcustomers as you. To stay in global market supply
chains, you need to be as lean and efficient as possible.

 Greater data collection challenges – When different aspects of your supply chain are
scattered around theglobe, the process data collection and oversight grows in
complexity and becomes more difficult.

 More legal issues – Operating across borders means operating in countries with
different legal systems, which can get complicated and expensive very quickly.

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Reasons for Growing Importance of
Supply Chain
 Firms that do not manage their supply chain will incur huge
inventory costs and eventually end up losing a lot of customers
because the right products are not available at the right place
and time. Five major trends that have emerged to make supply
chain management a critical success factor in most
industries.
 Proliferation in product lines – Companies have realized that
more and more product variety is needed to satisfy the growing
range of customer tastes and requirements. Companies like
HUL, in their personal care products, manage, on an average,
1200 SKU’s. Chains like Foodworld manage about 6000 SKU’s.
With increasing product variety, it becomes rather difficult to
forecast accurately. Hence, retailers and other organizations
involved in the business are forced to either maintain greater
amount of inventories or lose customers

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 Shorter product life cycles – With increased
competition, product life cycles across all
industries are becoming shorter. So a firm
like Dell, which has, on an average, just 7
days of inventory, as compared to the
industry average of 35 days, does not have
to worry about product and component
obsolescence. Its competitors with higher
inventories end up writing off huge amounts
of stocks every year as obsolete.

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 Higher level of outsourcing – Firms
increasingly focus on their core activities
and outsource non-core activities to other
competent players. This trend towards
outsourcing is irreversible but a higher
level of outsourcing makes supply chains
more vulnerable, thereby forcing firms to
develop different types of supply chain
capabilities within the organization

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 Shift in power structure in the chain – In every industry, the entities
closer to customers are becoming more powerful. With increasing
competition, a steadily rising number of products are chasing the same
retail shelf space. Retail shelf space has not increased at the pace at
which product variety has increased. So there have been case of
retailers asking for slotting allowance when manufacturers introduce
new products in the market place. Retailers have realized that they are
powerful entities in the chain and hence expect the manufacturers to
be more responsive to their demands and needs.
  Globalization of manufacturing – Over the past decade, tariff levels
have come down significantly. Many companies are restructuring their
production facilities to be at par with global standards. Unlike in the
past, when firms used to source components, produce goods and sell
them locally, now firms are integrating their supply chain for the entire
world market. This has made managing supply chains extremely
complicated.

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logistics

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Generalised supply chain model

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The logistic of business
Part of supply chain management that plans,
implements, and controls the efficient, effective
forward and reverse flow and storage of goods,
services and related information between the point of
origin and the point of consumption in order to meet
customers’ requirements.”

 Getting, delivering, and distributing materials and

goods in the correct spot and in legitimate amounts.

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 According to Logistics definition, it is
delivery of Right Products in Right
Quantity and the Right Condition, to
the Right Place at the Right
Time for Right Customer at the Right
Price.

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7 Rs of logistic management
(function)

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Components of logistics

5 Major Components Of Logistics

Management:
 Planning
 Packaging and unitization
 Inventory Control
 Transportation
 Information and Control

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cont…
1. Planning (Storage, Warehousing and Materials
Handling)

2. Packaging and Unitisation

 Unitization or cubodial packing is the method of

how many individual items aregrouped together
and packed as one unit.

 Packaging and unitisation normally attempt to pack a

product in a cuboidal form as a cube is the easiest shape
to move around, transport, and store.

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3. Inventory Control
Inventory control refers to the procedure of guaranteeing that proper
measures of stock are kept up by a business, in order to have the option
to satisfy client needs immediately while keeping the costs related to
storage to a minimum.

 It consists of a key plan focusing on existing stock, maintaining

information on stock conditions, availability of warehouses,
etc.

It determines decisions like,

 How much stock to store
 Where to store
 How much quantity is to be stored.

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 Organizations can accomplish inventory
management benefits which includes
 Accurate Order Fulfillment
 Good Inventory Planning, and Organizing
 Organized Warehouse
 Save Time and Money
 Increased Productivity
 Increased Consumer Satisfaction
 Retention.

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 Transportation
 From manufacturing to the delivery of finished goods to consumers
(also the returns),transportation is required in the whole production
procedures.

 Transportation serves as the link between various logistics activities.

From the manufacturing to the delivery of finished goods to
consumers (also the returns),transportation is required in the whole
production procedures.

 Since the transportation process involves keeping direct contact with

the customer, timely management of the delivery of goods is highly
important. Constant late delivery of goods will lead to a negative
impact on the customer.

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Information and control
 The aim is also to improve business
efficiency and also eliminate and reduce
waste making it sustainable logistics. This is
why information and control become one
unavoidable key component of Logistics
management.

It is also important in forecasting demand and

supply of goods which in turn determines how much
quantity of goods are to be stored in warehouses
and influences other processes of inventory control.

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Types of logistics

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Types of logistics

Inbound logistics
 The movement, 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. 

 An excellent way to manage inbound logistics is to use automatic

ordering or order-fulfillment systems. With this, you can be sure that
it will directly impact the organization’s success. 

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Outbound logistics
 Outbound logistics is the movement of
finished products or any other items and
information moving 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.
  

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 AN EXAMPLE OF OUTBOUND LOGISTICS
 You have probably placed an online order sometime
in the last few months.  Let’s say you placed an
order online on Amazon for a book.  When Amazon
receives the order, provided they have the book in
stock, they will alert the warehouse to get the book
and box it up.  If you have Amazon Prime, the book
will most likely be at your doorstep in two days.
Behind the scenes, the book has been handled
many times, possibly been on several trucks or an
airplane, and then to the final carrier (usually the
USPS or UPS) who will deliver it to your residence.

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Reverse logistics
 As 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). 
 So, this flow encompasses all of the activities carried
out after the point of sale or the end product life cycle.
This process is most common in the automobile and
electronics industry. 

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Why Logistics is Important?

 Although many small businesses focus on the design and

production of their products and services to best meet customer
needs, if those products cannot reach customers, the business
will fail. That’s the major role that logistics plays.
 But logistics also impacts other aspects of the business, too.
 The more efficiently raw materials can be purchased,
transported, and stored until used, the more profitable the
business can be.
 Coordinating resources to allow for timely delivery and use of
materials can make or break a company.
 And on the customer side, if products cannot be produced and
shipped in a timely manner, customer satisfaction can decline,
also negatively impacting a company’s profitability and long-
term viability.

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