Supply Chain Management

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 Marketing Channel

A marketing channel is a set of

interdependent organizations involved in
the process of making a product or service
available for use or consumption.

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 Participants of Marketing
Channel

1. Manufacturers or Producers

2. Marketing intermediaries

3. Customer or consumer

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 Types of Marketing Channels

 Consumer Marketing Channels

 Industrial Marketing Channels

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Industrial Marketing Channels

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 Functions of Marketing
Intermediaries
1. Information
2. Communication
3. Transfer of ownership
4. Place orders
5. Acquire funds
6. Risk bearing
7. Storage
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Flows in Marketing Channels
 Product
 Title
 Payment
 Information
 Promotion
 Risk
 Negotiation
 Order
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 Distribution Intensity

 Exclusive Distribution

 Selective Distribution

 Intensive Distribution

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Distribution Intensity at the Various Levels

Relationship between the intensity of distribution

dimension & number of intermediaries used in a
given market area

Intensity Dimension

Intensive Selective Exclusive

Numbers of Intermediaries

Many Few One

 What is Supply Chain
Management?
Supply chain management is a global network
used to deliver goods and services from raw
material to the customer through an engineered
flow of information, physical distribution and cash.
Supply chain management involves planning,
designing & control of flow of material,
information & finance along the supply chain to
deliver superior value to the end customer in an
effective and efficient manner.
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 Generalized Supply Chain Management

Manufacturing
Organization Customers

Supplier-1 - Sales
Procurement Dealers
Supplier-2 Retailers - Marketing
Warehousing
Supplier-3 Wholesalers - Customer
Logistics
Supplier-4 Manufacturing Sales Agents
Relations
Customer-
- After Sales
Relation Distribution
Materials Service
Chain

Information, Products, Services, Financial and Knowledge

 TYPICAL SUPPLY CHAINS
Supplier

Manufact
Supplier Storage Storage Distributor Retailer Customer
uring

Supplier
Supplier

Supplier Storage Service Customer

Supplier

• Every business organization is having a part of at least one

supply chain and many are part of multiple supply chains.
 Supply Chain Management
1. Demand planning: Product/service
forecasting
2. Sourcing: Vendor/supplier selection
3. Purchase: Creation of purchase order
4. Production/manufacturing
5. Delivery/distribution/transportation:
Retailer or customer
6. Reverse logistics: Return, reuse or repair

 Sourcing + Purchase = Procurement Process

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Evolution of SCM

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Evolution of SCM Cont…

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Evolution of SCM Cont…

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 Functions of Supply Chains

1.Strategic Functions

2.Managerial Functions

3.Operational Functions

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Strategic Functions of Supply Chains
1.Strategic network optimization
2.Product design coordination
3.Strategic partnership
4.Information technology infrastructure
5.Make or buy decisions
6.Aligning overall organizational strategy with
supply strategy

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Managerial Functions of Supply
Chains
1. Sourcing contracts and other purchasing
decisions
2. Production decisions
3. Inventory decisions
4. Transportation strategy
5. Milestone payments
6. Focus on customer demand
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Operational Functions of Supply Chains
1. Receiving
2. Scheduling
3. Transforming
4. Order Fulfilling
5. Managing Inventory
6. Shipping
7. Information Sharing
8. Controlling
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 Factors Affecting SCM
 Customer Expectations and Competition:
Power has shifted to the customer.

 Globalization: Taking advantage of emerging

markets.

 Information Technology: e-commerce, Internet,

EDI, scanning data, intranets etc.

 Government Regulations: Like trade barriers

 Environment Issues: e.g. Waste minimization

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 Integrated SCM
 Implementing integrated SCM requires:

 Analyzing the whole supply chain.

 Starting by integrating internal functions first.

 Integrating external suppliers through

partnerships.

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 Objectives of SCM
 To minimize the costs
 To improve the quality
 To minimize the lead time
 To reduce time to market
 To minimize the inventory
 To increase sales
 To improve the demand

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 Strategic Importance of Supply
Chain
Supply chain management is the integration of the
activities that procure materials and services, transform
them into intermediate goods and final products and
deliver them through a distribution system.

Competition is no longer
between companies; it is
between their supply chains.
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 Important Activities of SCM
1. Sharing information regarding customers,
forecasting and production activities
2. Order processing
3. Credit and cash transfers
4. Transportation vendors
5. Suppliers
6. Distributors
7. Warehousing and inventory
8. Order fulfillment

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 Example of Dell’s SCM
 Reduces the level of Inventory with the
manufacturer: Dell centralizes manufacturing
inventories in a few locations and postpones final
assembly until orders arrive. Thus, Dell is able to
provide a large variety of PC configurations while
keeping very low levels of inventory.
 Improved match between supply and demand: To
improve the match between supply and demand, Dell
makes an active effort to guide customers in real
time, on the phone or via the internet, toward PC
configurations that can be built if the components are
made available.
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A Supply Chain for Beer

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 Risks Associated With
Supply Chains
 More dependence on supply chains means
more risk
 Fewer suppliers increase dependence
 Compounded by globalization and logistical
complexity
 Vendor reliability and quality risks
 Political and currency risks
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 Ethics and Sustainability
Personal Ethics:

 Introduce supply chain principles and

standards

 Ethics within the supply chain

 Ethical behavior regarding the environment

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Principles and Standards for Ethical
Supply Chain Management

 Loyalty to your organization

 Fair dealing with whom you deal

 Faith in your profession

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 Make-or-Buy Decisions

 Choice between internal production and

external sources.

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 Outsourcing
 Transfers traditional internal activities and
resources of a firm to outside vendors.

 Utilizes the efficiency that comes with

specialization.

 Firms outsource information technology,

accounting, legal, logistics and production.

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 Supply Chain Strategies
 Negotiating with many suppliers

 Long term partnering with few suppliers

 Vertical integration

 Joint ventures

 Virtual companies that use suppliers on the

basis of need
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 Many Suppliers
 Commonly used for commodity products

 Purchasing is typically based on price

 Suppliers compete with one another

 Supplier is responsible for technology,

expertise, forecasting, cost, quality and
delivery
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 Few Suppliers
 Buyer forms longer term relationships with
fewer suppliers

 Create value through economies of scale

 Suppliers are more willing to participate in

JIT programs and contribute design and
technological expertise

 Cost of changing suppliers is huge

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 Vertical Integration
 Vertical integration refers to an arrangement in which
the supply chain of a company is integrated and
owned by that company.
 Usually each member of the supply chain produces a
different product or service and the products combine
to satisfy a common need.
 It is contrasted with horizontal integration, wherein a
company produces several items that are related to one
another.
 Vertical integration has also described management
styles that bring large portions of the supply chain not
only under a common ownership but also into
one corporation 
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 Vertical Integration
Vertical Integration Examples of Vertical Integration
Raw material
Iron ore Silicon Farming
(suppliers)

Backward
Steel
integration

Current Integrated
Automobiles Flour milling
transformation circuits

Distribution
Forward integration Circuit boards
systems

Finished goods Computers

(customers) Dealers Watches Baked goods
Calculators

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 Vertical Integration
 Developing the ability to produce goods or
service previously purchased
 Integration may be forward, towards the
customer, or backward, towards suppliers
 It improves cost, quality and inventory but
requires capital, managerial skills and
demand
 Risky in industries with rapid technological
change
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 Joint Venture

 A joint venture is a business entity created

by two or more parties, generally
characterized by shared ownership, shared
returns and risks, and shared governance.

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 Joint Ventures
 Formal collaboration

 Enhance skills

 Secure supply

 Reduce costs

 Cooperation without diluting brand or

compromising with competitive advantage

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 Virtual Companies
 Rely on a variety of supplier relationships to
provide services on demand

 Allow the creation of unique enterprises to meet

changing market demands

 Exceptionally lean performance, low capital

investment, flexibility and speed

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 Managing the Supply Chain
There are significant management issues in
controlling a supply chain involving many
independent organizations

 Mutual agreement on goals

 Trust

 Compatible organizational cultures

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Issues in an Integrated Supply Chain
 Local optimization: Focusing on local profit or
cost minimization based on limited knowledge

 Incentives (sales incentives, quantity discounts,

quotas and promotions): Push merchandise prior
to sale

 Large lots: Low unit cost but do not reflect sales

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Opportunities in an Integrated
Supply Chain
 Collaborative Planning, Forecasting, and
Replenishment (CPFR)

 Blanket orders

 Standardization

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 E-Procurement
 Uses the internet to facilitate purchasing

 Electronic ordering and funds transfer

 Electronic data interchange (EDI)

 Advanced shipping notice

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 E-Procurement
 Online catalogs

1. Catalogs provided by vendors

2. Catalogs published by intermediaries

3. Exchanges provided by buyers

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 Internet Trading Exchanges
 Health Care Products – ghx.com

 Retail Goods – gnx.com

 Defense and Aerospace Products – exostar.com

 Food, Beverage, Consumer Products –

transora.com

 Steel and Metal Products – metalsite.com

 Hotels – avendra.com 11 - 48
 E-Procurement
 Auctions

 Maintained by buyers, sellers or

intermediaries

 Low barriers to entry

 Increase in the potential number of

buyers

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 E-Procurement
 (Requests For Quotes) RFQs

 Can make requests for quotes (RFQs)

 Less costly

 Improves supplier selection

 Real-time inventory tracking

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 Vendor Selection
 Vendor evaluation
 Critical decision
 Find potential vendors
 Determine the likelihood of them becoming
good suppliers
 Vendor Development
 Training
 Engineering and production help
 Establish policies and procedures
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 Vendor Selection
 Negotiations
 Cost-Based Price Model: Supplier opens
books to purchaser
 Market-Based Price Model: Price based
on published, auction, or indexed price
 Competitive Bidding: Used for infrequent
purchases but may make establishing long-
term relationships difficult

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 Logistics Management
 Objective is to obtain efficient operations
through the integration of all material
acquisition, movement, and storage
activities
 Is a frequent candidate for outsourcing
 Allows competitive advantage to be
gained through reduced costs and
improved customer service

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 Distribution Systems
 Trucking
 Moves the vast majority of manufactured
goods
 Chief advantage is flexibility
 Railroads
 Capable of carrying large loads
 Little flexibility though containers and
piggybacking have helped with this
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 Distribution Systems
 Airfreight
 Fast and flexible for light loads
 May be expensive

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 Distribution Systems
 Waterways
 Typically used for bulky, low-
value cargo
 Used when shipping cost is more
important
than speed

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 Distribution Systems

 Pipelines

 Used for transporting oil, gas, and

other chemical products

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 Third-Party Logistics

 Outsourcing logistics can reduce costs

and improve delivery reliability and
speed
 Coordinate supplier inventory with
delivery services
 May provide
warehousing,
assembly, testing,
shipping, customs

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 Cost of Shipping
Alternatives
 Product in transit is a form of inventory
and has a carrying cost

 Faster shipping is generally more

expensive than slower shipping

 We can evaluate the two costs to better

understand the trade-off
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Any Questions?

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Thank You…

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Prepared by: Dr. K. M. Rahman
Associate Professor
Sinhgad Institute of Management,
Vadgaon, Pune

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