Supply Chain Management

• A supply chain strategy refers to how the supply chain should operate in order to compete in the market. The
strategy evaluates the benefits and costs relating to the operation. The supply chain strategy focuses on the actual
operations of the organisation and the supply chain that will be used to meet a specific goal.
• The supply chain integrates, coordinates and monitors the flow of materials, information, and funds.

Raw Material
Manufacturing Retailers End Customers
Suppliers

Information Flow

Material Flow

Fund Flow

Fig. 1.4 Flows in a supply chain

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Management/Introduction%20to%20Supply%20Chain%20Management.asp)

1.3 Supply Chain Management

• Supply chain management (SCM) is the oversight of materials, information, and finances distributed from
supplier to consumer. The supply chain also includes all the necessary stops between the supplier and the
consumer. Supply chain management involves coordinating this flow of materials within a company and to the
end consumer.
• The Council of Supply Chain Management Professionals defines supply chain management as follows: “Supply
chain management encompasses the planning and management of all activities involved in sourcing and
procurement, conversion, and all logistics management activities”. Importantly, it also includes coordination
and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers,
and customers. In essence, supply chain management integrates supply and demand management within and
across companies.
• Supply chain management is an integrating function with primary responsibility for linking major business
functions and business processes within and across companies into a cohesive and high-performing business
model. It includes all of the logistics management activities noted above, as well as manufacturing operations,
and it drives coordination of processes and activities with and across marketing, sales, product design, and
finance and information technology.
• SCM is also called the art of management of providing the right product, at the right time, right place and at
the right cost to the customer.
• Supply chain management can be divided into three main flows:
‚‚ The Product flow includes moving goods from supplier to consumer, as well as dealing with customer
service needs.
‚‚ The Information flow includes order information and delivery status.
‚‚ The Financial flow includes payment schedules, credit terms, and additional arrangements.
• Supply chain management is a set of approaches utilised to efficiently integrate suppliers, manufacturers,
warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations,
and at the right time, in order to minimise system-wide costs while satisfying service level requirements.

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1.4 Objective of Supply Chain Management
• A supply chain is a global network of organisations that cooperate to improve the flows of material and information
between suppliers and customers at the lowest cost and the highest speed. The final objective of a supply chain
is customer satisfaction.
• The supply chain management takes into consideration every facility that has an impact on cost and plays a
role in making the product match to customer requirements: from supplier and manufacturing facilities through
warehouses and distribution centres to retailers and stores.
• The main purpose of the supply chain is to maximise overall value generated. Value is the difference between
what the cost supply chain incurs and the worth end product has to the customer. Value of the commercial supply
chain is correlated with its profitability generally known as supply chain surplus.
• For example, A customer purchase a personal computer from IBM at $2,000, which indicates the revenue supply
chain achieved. All the stages incur costs to make sure the efficient transfer of funds, information, storage of
the product, transportation to the final consumer etc. The difference between the supply chain cost and revenue
generated from personal computer represent the supply chain surplus or profitability.
• Supply chain surplus can be defined as the total profit shared by all the stages and intermediaries of a supply
chain. The greater the supply chain surplus the more successful is supply chain. But, Supply chain success is
measured by its overall surplus not by the profit at each stage.
• The supply chain management has to be efficient and cost-effective across the entire system; from transportation
and distribution to inventories of raw materials, work in process, and finished goods, are to be minimized. The
emphasis is not on simply to minimise transportation cost or reducing inventories but, rather, on taking a systems
approach to supply chain management.
• The objectives of supply chain management can be listed below:
‚‚ enhancing customer service
‚‚ expanding sales revenue
‚‚ reducing inventory cost
‚‚ improving on-time delivery
‚‚ reducing order to delivery cycle time
‚‚ reducing lead time
‚‚ reducing transportation cost
‚‚ reducing warehouse cost
‚‚ reducing supplier base
‚‚ expanding depth of distribution

1.5 Importance of Supply Chain Management

• The importance of supply chain management comes into picture if there is sharp focus on the loss due to
the absence of an effective supply chain strategy and / or the benefit due to an effective supply chain for any
firm.
• Basically, it refers that how good is the integration of supply chain that matters for any firm. The importance of
having a robust supply chain management can be depicted from the following example:
‚‚ Suppose, ABC is any company that manufactures the cycle chains for a cycle manufacturing company
XYZ. Another company PQR manufactures bits used in the cycle chain manufactured by ABC. Now, in
coming days, as per the market forecast, XYZ shall need 50,000 units of cycle chain, information that is
not available with ABC. Accordingly, PQR also does not know how many bits to produce in order to meet
ABC’s requirement. The result would be either both ABC and PQR hold high safety stock inventory or
lose business respectively with XYZ and ABC. Now, if in this example showing only three supply chain
partners, absence of a critical information among the partners, that is of production forecast at XYZ firm
results into either a higher inventory level or loss of future business.
• The importance of supply chain management is to:

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Supply Chain Management

‚‚ reduce inventories along the chain

‚‚ share better information among the partners
‚‚ plan in consultation rather than in isolation

1.6 Activities of Supply Chain Management

• There are three levels of activities of supply chain management that different parts of the company will focus
on:
‚‚ Strategic: At this level, strategic decisions concerning the whole organisation, such as the size and location
of manufacturing sites, partnerships with suppliers, products to be manufactured and sales markets are taken.
Such decisions have a long-lasting effect on the firm. This includes decisions regarding product design,
what to make internally and what to outsource, supplier selection, and strategic partnering and the flow of
material through the logistics network.
‚‚ Tactical: Tactical decisions focus on adopting measures that will produce cost benefits such as using
industry best practices, developing a purchasing strategy with favoured suppliers, working with logistics
companies to develop cost effect transportation and developing warehouse strategies to reduce the cost of
storing inventory. Such decisions are typically updated anywhere between once every quarter and once every
year. These include purchasing and production decisions, inventory policies, and transportation strategies,
including the frequency with which customers are visited.
‚‚ Operational: Decisions at this level affect how the products move along the supply chain. Operational
decisions involve making schedule changes to production, purchasing agreements with suppliers, taking
orders from customers and moving products in the warehouse. Such decisions refer to day-to-day decisions
such as scheduling, lead time quotations, routing, and truck loading.

Business Strategic Level

IS Strategy

Shared Understanding
IS Department Business
Department
- IS executives Operational
- IS team Level
- Business
executive
Communication

IS Users
Individual
Level

Fig. 1.5 Supply chain management activities

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1.7 Decision Phases in a Supply Chain
Successful supply chain management requires many decisions relating to the flow of information, product, and
funds. These decisions fall into three categories or phases, depending on the frequency of each decision and the
time frame over which a decision phase has an impact. The design, planning, and operation of a supply chain have
a strong impact on overall profitability and success.
i. Supply chain strategy or design
• During this phase, the supply chain is structured and configured.
• It is designed that, how resources will be allocated, and what processes each stage will perform.
• Strategic decisions made by companies include:
‚‚ location and capacities of production and warehouse facilities
‚‚ products to be manufactured or stored at various locations
‚‚ modes of transportation to be made available along different shipping legs
‚‚ type of information system to be utilized
• Supply chain design decisions are typically made for the long term (in years) and can be expensive to alter on
short notice. Consequently, when a company makes these decisions, they must take into account uncertainty in
anticipated market conditions over the next few years.

ii. Supply chain planning

• During this phase, the time frame considered is a quarter to a year. It starts with a forecast of demand in the
coming year.
• As a result, the supply chain’s configuration determined in the strategic phase is fixed. The configuration
establishes constraints within which planning must be done. Planning establishes parameters within which a
supply chain will function over a specified period of time. Companies start the planning phase with a forecast
for the coming year of demand in different markets.
• Planning decisions include those regarding markets to which a given production facility will supply and target
production quantities at different locations.
• The companies must include uncertainty in demand, exchange rates, and competition over this time horizon in
their decisions.
• Given a shorter time horizon and better forecasts than the design phase, companies in the planning phase
try to incorporate any flexibility built into the supply chain in the design phase and exploit it to optimise
performance.
• As a result, companies define a set of operating policies that govern short-term operations.
• Following are the planning decisions undertaken in supply chain:
‚‚ which markets will be supplied from which locations
‚‚ planned buildup of inventories
‚‚ subcontracting, backup locations
‚‚ inventory policies
‚‚ timing and size of market promotions

iii. Supply chain operation

• The time horizon is weekly or daily, and during this phase companies make decisions regarding individual
customer orders.
• At the operational level, supply chain configuration is considered fixed and planning policies are already
defined.
• The goal of supply chain operations is to handle incoming customer orders in the best possible manner. During
this phase, the following activities are undertaken:
‚‚ firms allocate inventory or production to individual orders

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‚‚ set a date that an order is to be filled

‚‚ generate pick lists at a warehouse
‚‚ allocate an order to a particular shipping mode and shipment
‚‚ set delivery schedules of trucks
‚‚ place replenishment orders
• There is less uncertainty about demand information because operational decisions are being made in the short
term horizon (minutes, hours, or days).
• The goal during the operation phase is to exploit the reduction of uncertainty and optimise performance.
• The main aim here is to implement the operating policies as effectively as possible.

1.8 Process View of Supply Chain

The process view of supply chain can be categorised as:
• Cycle view: In this, processes in a supply chain are divided into a series of cycles, each performed at the interfaces
between two successive supply chain stages.

Customer

Customer Order Cycle

Retailer
Replenishement Cycle

Distributor

Manufacturing Cycle

Manucacturer

Procurement Cycle
Supplier

Fig. 1.6 Cycle view of supply chain

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Each cycle occurs at the interface between two successive stages:

‚‚ Customer order cycle (customer-retailer)
‚‚ Replenishment cycle (retailer-distributor)
‚‚ Manufacturing cycle (distributor-manufacturer)
‚‚ Procurement cycle (manufacturer-supplier)
Cycle view clearly defines processes involved and the owners of each process specify the roles and responsibilities
of each member and the desired outcome of each process.
• Push/pull view: In this, processes in a supply chain are divided into two categories depending on whether they
are executed in response to a customer order (pull) or in expectation of a customer order (push).

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