1 Supply-Chain Management-An Introduction Readonly

Supply-chain Management
An introduction
Dr. Harleen Sahni, NIFT Gandhinagar

Supply-chain illustrated
Suppliers’ The Customers’

Suppliers Customers
suppliers company customers
Flow of information,
finances & material
Up-stream Down-stream

What is supply chain?
• A supply chain is defined as the network of
organizations (a set of three or more
companies) directly linked by one or more of
the upstream (i.e. supply) and downstream
(i.e. distribution) flows of products, services,
finances and information from a source to a
customer.

Supply chain contd..
• Supply chain - Group of components (suppliers, distribution points,
transportation providers) necessary to bring the product from its
raw material state to the end user.
• Supply chain management - Controlling and regulating the supply

chain.
• Supply chain model consists of four components:

» Supplier: supplies the raw materials
» Manufacturer: produces the product
» Warehouse or Distribution Center: stores and ships the product
» End User: receives the product

Components of a supply chain
• End Customers – the final customer at the end
of the supply chain who buys the products /
services offered.
• Internal customers – Internal delivery partner

who is involved in processing parts for next
operation / manufacturing activities.
• Supply partners- the external supply base

Elements and decision variables of supply-chain
• Customer: The customer starts the chain of events when they decide to purchase a
product that has been offered for sale by a company. The customer contacts the sales
department of the company, which enters the sales order for a specific quantity to be
delivered on a specific date. If the product has to be manufactured, the sales order will
include a requirement that needs to be fulfilled by the production facility.
• Location - of facilities and sourcing points
• Planning: The requirement triggered by the customer’s sales order will be combined
with other orders. The planning department will create a production plan to produce
the products to fulfill the customer’s orders. To manufacture the products the
company will then have to purchase the raw materials needed.
• Purchasing: The purchasing department receives a list of raw materials and services
required by the production department to complete the customer’s orders. The
purchasing department sends purchase orders to selected suppliers to deliver the
necessary raw materials to the manufacturing site on the required date.

Elements and decision variables contd.
• Inventory: The raw materials are received from the suppliers, checked for quality
and accuracy and moved into the warehouse. The supplier sends an invoice to the
company for the items they delivered. The raw materials are stored until they are
required by the production department.
• Production: Based on a production plan, the raw materials are moved to the
production area. The finished products ordered by the customer are manufactured
using the raw materials purchased from suppliers. After the items have been
completed and tested, they are stored back in the warehouse prior to delivery to
the customer.
• Transportation: When the finished product arrives in the warehouse, the shipping
department determines the most efficient method to ship the products so that
they are delivered on or before the date specified by the customer. When the
goods are received by the customer, the company will send an invoice for the
delivered products.
Importance of supply chain
• Supply chain is a competitive necessity in this era of global
competition and empowered customers where it becomes
essential to provide a total value package of products, services,
correct & timely information to all the channel partners.
• The supply chain in viewed as a logistics channel for providing

goods, services and information to the customer in the most
efficient and innovative way.
• Attention needs to be given to the whole chain from raw material

supply, manufacture, assembly and distribution to the end
customer.

Supply Chain Management – Some
definitions
• Supply chain management (SCM) is the
management of a network of
interconnected businesses involved in the ultimate
provision of product and service packages required
by end customers (Harland, 1996).
– Supply Chain Management spans all movement and
storage of raw materials, work-in-process inventory,
and finished goods from point of origin to point of
consumption. The entire flow is known as the supply
chain.

SCM contd.
• SCM is the optimization of inventory, capacity and

information
• The APICS Dictionary defines SCM as the "design,

planning, execution, control, and monitoring of
supply chain activities with the objective of creating
net value, building a competitive infrastructure,
leveraging worldwide logistics, synchronizing supply
with demand, and measuring performance globally.“
• APICS – Association of operations management (advancing productivity, innovation & competitive success)

Definitions
• The Supply chain encompasses all organizations and activities associated with the
flow and transformation of goods from the raw material stage, through to the end
user, as well as the associated information flows. Material and information flows
both up and down the supply chain.
• Supply Chain Management is the integration and management of supply chain

organizations and activities through cooperative organizational relationships,
effective business processes and high levels of information sharing to create high-
performing value systems that provide member organizations a sustainable
competitive advantage. (Handfield and Nichols, 2002)
• The management of upstream and downstream relationships with suppliers and

customers to deliver superior customer value at less cost to the supply chain as a
whole. (Christopher, 2005)
• Christopher suggests the term Demand Network Management in place of Supply

Chain Management.
Logistics & Supply-chain management
• SCM has emerged from the logistics concept only but has taken
a distinct identity.
• Logistics is the management of the flow

of goods, information and other resources between the point of
origin and the point of consumption in order to meet the
requirements of consumers (originally military organizations).
• Logistics involves the integration of information, transportation,

inventory, warehousing, material-handling, packaging, and
occasionally security.
• Complexity of production logistics can be modeled, analyzed,

visualized and optimized by plant simulation software.
Need of SCM as an important management tool
and competitive parameter
• Dynamic business environments
• Turbulent market with rapidly changing and highly unpredictable
customer requirements.
• Diverse & vast customer base
• Strongly segmented markets, where customers have varying
requirements for products & services.
• Multiple product varieties and customization for both products and
services.
• Increasing customer demand for “experiences” not just the physical
product.
• Global competition forcing companies to be faster, better and
cheaper.

Supply Chain Management contd.
• Supply chain management has developed as a
specialized management concept since the
last three decades.
• Many international companies like Nike, Zara,
Cisco, Dell Computers, Nokia, Kodak,
Motorola, Sony, Wal-Mart and many others
are known for their efficiently managed
supply-chain.

Types of Channel Relationships
Supplier Company Customer
Basic supply chain
Supplier’s Customer’s
Supplier Company Customer
Supplier customer
Extended supply chain

Types of Channel Relationships
Third Party
Logistics Supplier
Initial
Supplier Company Customer Customer
supplier
Financial Market
provider Research firm
Ultimate supply chain
Seller Buyer
Partnerships or alliances

Channel relationships contd.

Objectives of Supply Chain Management
• Integrated behavior & processes

• Mutual sharing of information
• Mutual sharing channel risks and rewards
• Cooperation of channel partners
• Common goal & focus of serving customers
• Partnership to build & maintain long-term
relationships

A model of Supply Chain Management
The Global Environment

Inter-corporate Coordination
Third party providers, Relationship Management, Channel Structure
Marketing, Sales
Research & Supply Chain Customer
Inter-
Development Flows Satisfaction /
Forecasting Value /
functional Products, Services
Production, Purchasing Profitability /
Information
coordination Logistics, Finance Differential
Financial Resources
Information Systems
Demand, Forecasts Advantage
Customer Service
Supplier’s Suppliers Supplier Company Customer Customer’s Customer

Supply chain Operating processes
1 2 3 4 5
Develop vision & Design & develop Market & sell Deliver products Manage customer
strategy products & services products & services & services service
Management & support processes
6 Develop & Manage Human Capital
7 Manage Information Technology
8 Manage Financial Resources
9 Acquire, Construct and Manage Property
10 Manage Environmental Health & Safety
11 Manage External Relationship
12 Manage Knowledge, Improvement and Change

Levels of SCM activities
Strategic
Tactical
Operational
• Strategic SCM: High level strategic decisions

concerning the whole organization –
– size and location of manufacturing sites,
– partnerships with suppliers,
– products to be manufactured
– sales markets

• Tactical: Decisions focusing on adopting measures

that will produce cost benefits such as -
– using industry best practices,
– developing a purchasing strategy with favored suppliers,
– working with logistics companies to develop cost effect transportation
– developing warehouse strategies to reduce the cost of storing inventory

• Operational: Everyday decisions effect how the

products move along the supply chain.
– making schedule changes to production,
– purchasing agreements with suppliers,
– taking orders from customers
– moving products in the warehouse

Supply chain business process integration
• A successful SCM requires integration of various operational
areas with the key supply chain processes. The marketing
department, purchase department, distributers, retailers
must have well coordinated schedules & integrated processes
to ensure supply-chain efficiency.
• The collaboration between buyers and suppliers, product

development team, business systems and shared information
leads to Supply chain business process integration. An
integrated supply chain requires a continuous information
flow.

Key supply chain processes stated by
Lambert (2004)
Customer service management Manufacturing flow management

or Customer Relationship process
Management
Physical distribution
Procurement process Outsourcing/partnerships
Product development Performance measurement

Key supply chain processes
stated by Lambert (2004)
a) Customer service management or Customer Relationship Management

concerns the relationship between the organization and its customers.
b) Procurement process - Suppliers support & coordination, efficient

procurement process, rapid communication systems, resource planning,
supply sourcing, negotiation, order placement, inbound transportation,
storage, handling and quality assurance is necessary for manufacturing
flow management process.
c) Product development – Suppliers and customers must be involved into the

product development process in order to reduce time to market and
ensure a customer-centric approach.
d) Manufacturing flow management process – Coordinated and flexible

manufacturing processes, shorter cycle times, improved responsiveness,
efficient planning, scheduling and supporting manufacturing operations
are necessary for efficient supply-chain processes.
Key supply chain processes
stated by Lambert (2004)
e) Physical distribution - This concerns movement of a finished

product/service to customers and is an important part of each channel
participant's marketing effort.
f) Outsourcing/partnerships - Strategic decisions regarding outsourcing the

procurement of materials, components or services need to be taken
centrally, with the monitoring and control of supplier performance and
day-to-day liaison with logistics partners being best managed at a local
level.
g) Performance measurement - Internal performance measurement factors

include Cost, Logistics competency , Customer Service, Productivity
measures, Asset measurement and Quality. External performance
measurement factors are customer perception measures and best practice
benchmarking.

Problem areas related to SCM
• Distribution Network Configuration: number, location,

production facilities, distribution centers, warehouses, cross-
docks, customers
• Distribution Strategy:
– operating control (centralized, decentralized or shared);
– delivery scheme (direct shipment, cross docking, DSD (direct store
delivery);
– mode of transportation, e.g., motor carrier, including
truckload, LTL, parcel;
– replenishment strategy (e.g., pull, push or hybrid);
– transportation control (e.g., owner-operated, private carrier, common
carrier, contract carrier, or 3PL).

Problem areas related to SCM contd.
• Trade-Offs in Logistical Activities: Lower total logistics cost and be
achieved through well-coordinated supply-chain activities.
– Full truckload (FTL) rates vs. Less than truckload (LTL) shipments to reduce
transportation cost but increase in inventory holding costs may increase total
logistics costs.
• Information: Integration of processes through the supply chain to share

valuable information, including demand signals, forecasts, inventory,
transportation, potential collaboration, etc.
• Inventory Management: Quantity and location of inventory (raw

materials, work-in-progress (WIP) and finished goods).
• Cash-Flow: Arranging the payment terms and methodologies for

exchanging funds across entities within the supply chain.

Associated terms
• Reverse Supply Chain or Reverse logistics is the process of
managing the return of goods, also referred to as
"Aftermarket Customer Services".
• Cross-docking in logistics of unloading materials from an
incoming truck or rail car and loading these materials directly
into outbound trucks, trailers, or rail cars, with little or no
storage in between.
• Push-pull strategy – strategy regarding movement of a

product or information between two subjects. Consumers
usually "pulls" the goods or information they demand for their
needs, while the suppliers "pushes" them toward the
consumers. In logistic chains or supply chains the stages are
operating normally both inSahni,
Dr. Harleen push- and pull-manner.
NIFT Gandhinagar
Supply Chain Management Technology
• Technology is the backbone of efficient supply chain

management.
• The technology includes Enterprise Resource
Planning (ERP) suites, such as SAP and Oracle, Web-
based software and Internet communications.
• Instant communication between vendors and
customers allows for timely updates of information,
which is key in management of the supply chain.

Factors influencing global supply chain
Corporate Supply chain
Types of Global strategy
firms Supply chain business
•Multiple domestic supply
chains processes
•Multinational firm
•International firm •Multiple international
•Strategy
•Global firm supply chains
•Risk management
•Transnational firm •Global network of supply
•Knowledge management
& demand
•Relationship management
• Balance of locally
•Financial management
responsive and globally
•Development of
efficient supply chains
Global Diversity organizational capability
•Technology management
•Political •Channel management /
Global Environmental
•Cultural outsourcing decisions
factors •Information management
•Economic
•Uncertainty
•Complexity
•Asymmetry
Types of global companies
• International companies are importers and exporters, they have no investment outside of their home
country. (GE)
• Multinational companies have investment in other countries, but do not have coordinated product offerings
in each country. More focused on adapting their products and service to each individual local market.
(McDonald, Coke, Tesco, Wal-mart, Nike
• Global companies have invested and are present in many countries. They market their products through the
use of the same coordinated image/brand in all markets. Generally one corporate office that is responsible
for global strategy. Emphasis on volume, cost management and efficiency. (Nokia, IBM, P&G
• Transnational companies are much more complex organizations. They have invested in foreign operations,
have a central corporate facility but give decision-making, R&D and marketing powers to each individual
foreign market. Transnational companies are complex organizations that attempt to extract the benefits of
“international”, “global”, or “multinational” firms, but at the same time, they try to mitigate the drawbacks
from each. A transnational firm is a very sophisticated and complex one that requires a very subtle
management as it is attempting to eliminate the inherent drawbacks of each of the traditional structures and
strategies. TNC is a company that sells its products internationally and globally. It normally makes its products
in LEDCs whereas its branches are in MEDCs. Examples of TNCs are: Nestle, Topshop, Sony, Nike (they are
basically huge brands!)
(RIL, Nokia, Shell, McDonalds, Ford, Apple, KFC, Ikea, BP, United Parcel Service, H&M, Pepsi, Louis Vuitton,
Converse, Costa Coffee, Exxon, Nokia, FedEx and Starbucks

• Additional material

Defining Supply Chain Management (SCM)
• Supply chain management (SCM) is the

management of a network of
interconnected businesses involved in the ultimate
provision of product and service packages required
by end customers (Harland, 1996).
• Supply Chain Management spans all movement
and storage of raw materials, work-in-process
inventory, and finished goods from point of origin
to point of consumption (supply chain).

Defining SCM contd.
• Another definition is provided by the APICS
Dictionary when it defines SCM as the "design,
planning, execution, control, and monitoring
of supply chain activities with the objective of
creating net value, building a competitive
infrastructure, leveraging worldwide logistics,
synchronizing supply with demand, and
measuring performance globally."

SCM components

• “A company is its chain of continually evolving
capabilities – that is, its own capabilities plus the
capabilities of everyone it does business with.”
(Charles Fine, 1998)
• To ensure that the supply chain is operating as

efficient as possible and generating the highest level
of customer satisfaction at the lowest cost,
companies have adopted Supply Chain Management
processes and associated technology.
Important reasons for prominence of SCM
in the present times-
• Companies have turned increasingly to global sources for
their supplies.
• Companies and distribution channels compete more today
on basis of time and quality.
• Global orientation and increased performance-based
competition combined with rapidly changing technology
and economic conditions all contribute to marketplace
uncertainty. This uncertainty requires greater flexibility on
the part of individual companies and distribution
channels, which in turn demand more flexibility in channel
relationships.
Supply chain management model contd.

Levels of Supply chain activities
Supply chain execution means managing and coordinating the movement of materials, information and
funds across the supply chain. The flow is bi-directional.
1. Strategic
• Long-term focus on resource management
• Network optimization - the number, location, and size of warehousing, distribution centers, and
facilities.
• Strategic partnerships with suppliers, distributors, and customers, creating communication channels
for critical information and operational improvements such as cross docking, direct shipping,
and third-party logistics.
• Product life cycle management, so that new and existing products can be optimally integrated into
the supply chain and capacity management activities.
• Information technology chain operations.
• Decisions regarding what to make (or buy) and where to make (or buy from)
• Alignment of supply-chain strategy with the overall organizational strategy.
• Cross-docking in logistics of unloading materials from an incoming truck or rail car and loading these

materials directly into outbound trucks, trailers, or rail cars, with little or no storage in between.

Levels of Supply chain activities contd.
2. Tactical
• Sourcing contracts and other purchasing decisions.
• Production decisions, including contracting, scheduling, and
planning process definition.
• Inventory decisions, including quantity, location, and quality of
inventory.
• Transportation strategy, including frequency, routes, and
contracting.
• Benchmarking of all operations against competitors and
implementation of best practices throughout the enterprise.
• Milestone payments.
• Focus on customer demand.

Levels of Supply chain activities contd.
3. Operational
• Daily production and distribution planning (nodes in the supply chain).
• Production scheduling for each manufacturing facility in the supply chain (minute by
minute scheduling).
• Demand planning and forecasting, coordinating the demand forecast of all customers
and sharing the forecast with all suppliers.
• Sourcing planning, including current inventory and forecast demand, in collaboration
with all suppliers.
• Inbound operations, including transportation from suppliers and receiving inventory.
• Production operations, including the consumption of materials and flow of finished
goods.
• Outbound operations, including all fulfillment activities, warehousing and
transportation to customers.
• Order promising, accounting for all constraints in the supply chain, including all
suppliers, manufacturing facilities, distribution centers, and other customers.

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Supply-chain Management

Dr. Harleen Sahni, NIFT Gandhinagar

Suppliers’ The Customers’

Dr. Harleen Sahni, NIFT Gandhinagar

Dr. Harleen Sahni, NIFT Gandhinagar

• Supply chain management - Controlling and regulating the supply

• Supply chain model consists of four components:

Dr. Harleen Sahni, NIFT Gandhinagar

• Internal customers – Internal delivery partner

• Supply partners- the external supply base

Dr. Harleen Sahni, NIFT Gandhinagar

• Location - of facilities and sourcing points

Dr. Harleen Sahni, NIFT Gandhinagar

• The supply chain in viewed as a logistics channel for providing

• Attention needs to be given to the whole chain from raw material

Dr. Harleen Sahni, NIFT Gandhinagar

Dr. Harleen Sahni, NIFT Gandhinagar

• SCM is the optimization of inventory, capacity and

• The APICS Dictionary defines SCM as the "design,

Dr. Harleen Sahni, NIFT Gandhinagar

• Supply Chain Management is the integration and management of supply chain

• The management of upstream and downstream relationships with suppliers and

• Christopher suggests the term Demand Network Management in place of Supply

• Logistics is the management of the flow

• Logistics involves the integration of information, transportation,

• Complexity of production logistics can be modeled, analyzed,

Dr. Harleen Sahni, NIFT Gandhinagar

Dr. Harleen Sahni, NIFT Gandhinagar

Supplier Company Customer

Basic supply chain

Extended supply chain

Dr. Harleen Sahni, NIFT Gandhinagar

Ultimate supply chain

Dr. Harleen Sahni, NIFT Gandhinagar

Dr. Harleen Sahni, NIFT Gandhinagar

• Integrated behavior & processes

Dr. Harleen Sahni, NIFT Gandhinagar

The Global Environment

Supplier’s Suppliers Supplier Company Customer Customer’s Customer

Dr. Harleen Sahni, NIFT Gandhinagar

Management & support processes

6 Develop & Manage Human Capital

7 Manage Information Technology

8 Manage Financial Resources

9 Acquire, Construct and Manage Property

10 Manage Environmental Health & Safety

11 Manage External Relationship

12 Manage Knowledge, Improvement and Change

Dr. Harleen Sahni, NIFT Gandhinagar

• Strategic SCM: High level strategic decisions

Dr. Harleen Sahni, NIFT Gandhinagar

• Tactical: Decisions focusing on adopting measures

Dr. Harleen Sahni, NIFT Gandhinagar

• Operational: Everyday decisions effect how the

Dr. Harleen Sahni, NIFT Gandhinagar

• The collaboration between buyers and suppliers, product

Dr. Harleen Sahni, NIFT Gandhinagar

Customer service management Manufacturing flow management