Module – 1

Introduction to Supply Chain Management

Overview of Supply Chain
Management

 Concept of Supply Chain Management

 The Supply Chain Revolution
 Generalized Supply chain Model
 Supply chain and Networks
 Extended organization
 Integrative Management
What Is Supply Chain Management (SCM)?

Plan Source Make Deliver Buy

 A set of approaches used to efficiently integrate

◦ Suppliers
◦ Manufacturers
◦ Warehouses
◦ Distribution centers
 So that the product is produced and distributed
◦ In the right quantities
◦ To the right locations
◦ And at the right time
 System-wide costs are minimized and
 Service level requirements are satisfied

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Supply Chain Management
 A supply chain is a set of organizations directly linked by one
or more of the upstream and downstream flows of products,
services, finances, and information from a source to a
customer. Managing a supply chain is 'supply chain
management'
 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. 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).

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Supply Chain Management

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The Supply Chain – Another View

Plan Source Make Deliver Buy

Suppliers Manufacturers Warehouses & Customers

Distribution Centers

Transportation Transportation
Material Costs Costs Costs Transportation
Manufacturing Costs Inventory Costs Costs

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 WHAT IS SUPPLY CHAIN MANAGEMENT

" Is the strategic management of activities involved in

the acquisition and conversion of materials to finished
products delivered to the customer"

Supplier Material Flow Customer

Management Management
Information Flow

Schedule / Stock
Conversion Delivery
Resources Deployment

Leads to Business Process Integration

 Supply chain is the system by which
organizations source, make and deliver their
products or services according to market
demand.
 Supply chain management operations and

decisions are ultimately triggered by demand

signals at the ultimate consumer level.
 Supply chain as defined by experienced

practitioners extends from suppliers’

suppliers to customers’ customers.
DEFINITION: SUPPLY CHAIN MANAGEMENT

“The planning and management of all activities involved in sourcing and

procurement, conversion, and all logistics management activities” (CSCMP)
An integrated supply chain management is the coordination and efficient
management of information, material and financial flow through improved
relationships at all stages of supply chain to obtain a sustainable competitive
advantage. (City University, London)
Goals of Supply Chain Management
SUPPLY CHAIN COMPONENTS
SUPPLIERS
Source of raw materials, component parts, semi-manufactured
products and unfinished or non-consumable products that occurs
early in the supply chain.

MANUFACTURERS
Makers of final products. Manufacturers perform the task of final
assembly or product integration.

DISTRIBUTORS
Responsible for managing, storing and handling of products for
organizations that don’t want to carry entire variety of products in
their own facilities.

LOGISTICS SERVICE PROVIDERS

Commercial provider of individual or multiple integrated service for
other entities in the supply chain e.g. transportation management,
value-added warehousing and distribution and information
technology based services
Key Benefits of Supply Chain Management

 Develop better customer relationship and service

 Creates better delivery mechanism for products with minimum
delay
 Improve productivity and business functions
 Minimize warehouse and transportation costs
 Minimize direct and indirect costs
 Enhances inventory management
 Assist companies in adapting to the challenges of Globalization,
expanding customer expectation
 Minimizing waste, achieving efficiencies through the supply
chain process
Evolution of Supply Chain Management Studies:

Five major movements can be observed in the evolution of supply

chain management studies:

1. Creation era

Supply chain management was first coined by a U.S. industry

consultant in the early 1980s.

Supply chain management include the need for large-scale

changes, re-engineering, downsizing driven by cost reduction
programs.
 SUPPLY CHAIN MANAGEMENT

2. Integration era

Development of Electronic Data Interchange (EDI) systems

in the 1960s and developed through the 1990s by the
introduction of Enterprise Resource Planning (ERP) systems.
3. Globalization era
The third movement of supply chain management
development, the globalization era, can be characterized by
the attention given to global systems of supplier relationships
and the expansion of supply chains over national boundaries
and into other continents.
 SUPPLY CHAIN MANAGEMENT

4. Specialization era

Phase I: Outsourced Manufacturing and Distribution

In the 1990s, industries began to focus on “core

competencies” and adopted a specialization model.

Companies abandoned vertical integration, sold off non-core

operations, and outsourced those functions to other
companies.
 SUPPLY CHAIN MANAGEMENT

5. Specialization Era
Phase II - Supply Chain Management as a service
Specialization within the supply chain began in the 1980s with
the inception of transportation brokerages, warehouse
management, and non-asset-based carriers and has matured
beyond transportation and logistics into aspects of supply
planning, collaboration, execution and performance
management
Origins of supply chain management
 1950s & 1960s
- Mass production techniques used as principle cost reduction and productivity
improvement strategies
 1960s & 1970s
- Development of Materials Requirements Planning (MRP) and Manufacturing Resource
Planning (MRPII) to coordinate inventory management and improve internal
communication
1980s & 1990s
- Intense global competition lead manufacturers to adopt:
· Supply Chain Management (SCM)
· Just-In-Time (JIT)
· Total Quality Management (TQM)
· Business Process Reengineering (BPR)
 2000s and beyond
- Companies will focus on relationships, sustainability, and social responsibility
- Companies will focus on improving supply chain capabilities with initiatives such as:
· Third-party service providers (3PLs)
· Integrating logistics
· Using transportation to facilitate rapid response
Supply Chain Integration
Internal Links internally performed work
Operations into a seamless process that
Integration stretches across departmental
and/or functional boundaries, with
the goal of satisfying customer
requirements

A competency that enables firms to

Customer offer long-lasting, distinctive, value-
Integration added offerings to those customers
who represent the greatest value to
the firm or supply chain
SCM
 The Integrated, synchronized flow of
materials, information and funds from
suppliers thru manufacturers to consumer
point of sale», i.e. from end-to-end
 In a very broad sense: «all organizations

involved in fulfilling the customer request».

Supply chain management thus is a cross-
functional approach.
BENEFITS OF AN INTEGRATED SUPPLY CHAIN

IMPROVED CUSTOMER SERVICE & VALUE ADDED

Increased inventory availability, better on-time delivery
performances, higher order fill rates and lower post sales costs.

Better USE OF FIXED CAPITAL

Fixed capital use is maximized through partnerships and joint
planning that can decrease stock levels whilst maintaining
service.

UTILIZED ASSET
Asset utilization can be maximized by increasing inventory turns
and closely aligning supply with demand

INCREASED SALES & PROFITABILITY

The ability to assess outcomes due to price changes,
promotional events and new product development can be
enhanced through increased visibility resultant from information
sharing among supply chain partners
SUPPLY CHAIN MANAGEMENT
ACTIVITIES
PURCHASING
Activities relating to the
procurement of all necessary
goods and services required to
operate. Involves all
components of SC.
ORDER PROCESSING
The function needed to fill
customers’ orders, such as
order receipt, order picking
and order shipment. Involves
manufacturers, distributors
and retailers
FORECASTING
The process of predicting
customer demand based on
expected future sales and
actual past sales.
INVENTORY MGMT.
The process entails
monitoring of stock levels,
proper positioning of stock
and active tracking of product
age and availability.
WAREHOUSING
The holding of goods with
focus on moving product into,
through and out of
warehouses in a timely
manner.
TRANSPORTATION
The movement of products
from one destination to
another using single (motor,
rail, water, air, pipeline) or
combined modes of transport
(intermodal).
 What Is the Goal 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
Why is Supply Chain Mgmt. so important?
It influences availability, sales, manufacturing costs, working capital and
quality of product!

stoc
ks

Manufacturing
Forcasting
Sales &
Purchasing distribution Availability
L og to customer
istic
s

Investments

Tax and
customs
Why is supply chain management so
important?
◦ To gain efficiencies from procurement, distribution and
logistics
◦ To make outsourcing more efficient
◦ To reduce transportation costs of inventories
◦ To meet competitive pressures from shorter development
times, more new products, and demand for more
customization
◦ To meet the challenge of globalization and longer supply
chains
◦ To meet the new challenges from e-commerce
◦ To manage the complexities of supply chains
◦ To manage the inventories needed across the supply chain
Why is supply chain management difficult?

◦ Different organizations in the supply chain may

have different, conflicting objectives
 Manufacturers: long run production, high quality, high
productivity, low production cost
 Distributors: low inventory, reduced transportation costs, quick
replenishment capability
 Customers: shorter order lead time, high in-stock inventory,
large variety of products, low prices
◦ Supply chains are dynamic - they evolve and
change over time
 Important Elements of SCM
Purchasing- Supplier alliances, supplier management,
strategic sourcing

Operations- Demand management, MRP, ERP, JIT, TQM

Distribution- Transportation management, customer

relationship management, network
design, service response logistics

Integration- Coordination/Integration activities, global

integration problems, performance
measurement
 Important Elements of SCM-Cont.
Purchasing:
Long term relationships
Supplier management- improved performance
through-
-- Supplier evaluation (determining supplier
capabilities and performance)
-- Supplier certification (third party or internal
certification to assure product quality and service
compliance)
Strategic partnerships- successful and trusting, long-
term relationships with top-performing suppliers
 Important Elements of Supply Chain
Management-Cont.
Operations:
-- Demand management- match demand to
available capacity
-- Linking buyers & suppliers via MRP and ERP
systems
-- Use JIT to improve the “pull” of materials to
reduce inventory levels
-- Employ TQM to improve quality compliance
among buyers and suppliers
 Important Elements of Supply Chain
Management-Cont.

Distribution:
-- Transportation management- tradeoff decisions
between cost & timing of delivery/customer service
via trucks, rail, water & air
-- Customer relationship management- strategies
to ensure deliveries, resolve complaints, improve
communications, & determine service requirements
-- Network design- creating distribution networks
based on tradeoff decisions between cost &
sophistication of distribution system
 Important Elements of Supply Chain
Management-Cont.
Integration:

-- Supply Chain Integration- when supply chain

participants work for common goals. Requires
intrafirm functional integration. Based on efforts to
change attitudes & adversarial relationships
-- Global Supply Chains- advantages that accrue
from sourcing from larger global market e.g., lower
cost & higher quality suppliers. May involve operating
exposure, which is risk found in foreign settings
-- Supply Chain Performance Measurement- Crucial
for firms to know if procedures are working
Future Trends in Supply Chain
Management- Cont.
Increasing Supply Chain Responsiveness

◦ Firms will increasingly need to be more flexible and

responsive to customer needs
◦ Supply chains will need to benchmark industry
performance and meet and improve on a
continuous basis
◦ Responsiveness improvement will come from more
effective and faster product & service delivery
systems

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Future Trends in Supply Chain
Management- Cont.
The Greening of Supply Chains

◦ Supply chains will work harder to

reduce environmental degradation
◦ Large majority (75%) of U.S.
consumers influenced by a firm’s
environmental friendliness
reputation
◦ Recycling and conservation are a
growing alternative in response to
high cost of natural resources

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Future Trends in Supply Chain
Management- Cont.
Reducing Supply Chain Costs

◦ Cost reduction achieved through:

 Reduced purchasing costs
 Reducing waste
 Reducing excess inventory
 And reducing non-value added activities
◦ Continuous Improvement through
 Benchmarking- improve over competitors’ performance
 Trial & error
 Increased knowledge of supply chain processes