UNIT – 1

SUPPLY CHAIN MANAGEMENT

(Introduction, Defination of SCM, Evolution of concept of SCM, Key Drivers of

SCM, Key Drivers of SCM, Typologyof Supply Chains, Cycle View of Supply
Chain,Problems in SCM and suggested solutions)

Supply Chain Management Defination & Introduction:-

 SCM can be defined as the management of flow of products and services,

which begins from the origin of products and ends at the product’s
consumption.
 It also comprises movement and storage of raw materials that are involved in
work in progress, inventory and fully furnished goods.
 The main objective of supply chain management is to monitor and relate
production, distribution and shipment of products and services.
 This can be done by companies with a very good and tight hold over internal
inventories, production, distribution, internal productions and sales.
 Supply chain management basically merges the supply and demand
management. It uses different strategies and approaches to view the entire
chain and work efficiently at each and every step involved in the chain.
 Every unit that participates in the process must aim to minimize the costs
and help the companies to improve their long term performance, while also
creating value for its stakeholders and customers.
 The process can also minimize the rates by eradicating the unnecessary
expenses, movements and handling.

Key Benefits of Supply Chain Management:-

 Develops better customer relationship and service.

 Creates better delivery mechanisms for products and services in demand
with minimum delay.
 Improves productivity and business functions.
 Minimizes warehouse and transportation costs as well as direct and indirect
costs.
  Assists in achieving shipping of right products to the right place at the right
time.
 Enhances inventory management, supporting the successful execution of just
in time stock models.

Supply Chain Management Goals:-

 Supply chain partners work collaboratively at different levels to maximixe

resource productivity, construct standardized processes, remove duplicate
efforts and minimize inventory levels.
 Minimization of supply chain expenses is very essential, especially when
there are economic uncertainties in companies regarding their wish to
conserve capital.
 Cost efficient and cheap products are necessary, but supply chain managers
need to concentrate on value creation for their customers.
 To meet consumer expectations, merchants need to leverage inventory as a
shared resource and utilize the distributed order management technology to
complete orders from the optimal mode in the supply chain.

Evolution of the Supply Chain Management:-

The evolution of supply chain management has been characterized by increasing

integration of separate tasks, a trend underlined in the 1960s as a key area for
future productivity improvements since the system was highly fragmented.
Although logistics tasks have remained relatively similar, they initially
consolidated into two distinct functions related to materials management and
physical distribution during the 1970s and 1980s. this process moved futher in the
1990s as globalization incited functional integration and the emergence of logistics
in a true sense. All the elements of the supply chain became part of a single
management perspective.

The stages of evolition in SCM:-

1. Stage 1 The Early 1980s Consolidation:-

a. Starting from the early 1980s, businesses focused on products. They
focused more on quality and the key performance metrics were-
inventory turns and production cost.
 b. For the purpose of achieving inventory terns, small companies began
merging into larger organizations.
c. This also led to organized planning of the production cost which
further resulted in becoming a good solution for most businesses.
2. Stage 2 Late 1980s Integration:-
a. In the late 1980, businesses shifted their focus from products to the
volume of output. Keeping a close eye on the cost, the key
performance metrics for stage 2 of the supply chain evolution turned
out to be production capacity and throughput.
b. Companies that started making profits in the earlier stage now
analyzed that just production cost will not help them in making more
profits.
c. And for this reaso, the rate of production and the volume of
production became important. By the end of this stage, companies
found their solutions.
3. Stage 3 The Early 1990s Market Value:-
a. The third stage of supply chain evolution which began in the early
1990s. organizations in this stage started to focus more on market
driven results.
b. The key factor of this stage of evolution was product availability and
the performance metrics were clearly – market share and order fill
rate.
c. Now the problem was not about making more products but about
delivering them to the markets.
d. So by the end of this stage, businesses had the solution again and were
onto their next stages of growth for even better results.
4. Stage 4 Late 1990s Brand Value:-
a. During the late 1990s, firms analyzed that the customers were the
game changers for revenue generation. This is when they shifted their
business strategies and made ‘lead time’ the key factor in their goals.
b. The key performance metrics changed from market share and order
fill rate to customer satisfaction, value added and response time.
c. Companies now had the time to analyze that products that were made
with a prime focus on customers were what sold out more.
 d. That’s how companies started focusing on products that added value
to their copanies.
5. Stage 5 twenty first century Automation:-
a. The twenty first century is more driven by knowledge and that is why
having more information is preferred to be ideal for a company’s
SCM.
b. The key performance metrics for the 5th stage of SCM is real – time
communication and business intelligence.
c. Over the years, with a growth in each segment of the supply chain,
employement has also increased.

Supply Chain Key Drivers and Obstacles:-

The five drivers provide a useful frameword for thinking about supply chain
capabilities. Decisions made about how each driver operates will determine the
blend of responsiveness and efficiency a supply chain is capable of achieving. The
five drivers are illustrates below:-

1. Production :-
a. This driver can be made very responsive by building fatories that have
a lot of excess capacity and use flexible manufacturing techniques to
produce a wide range of items.
b. To be even more responsive, a company could do their production in
many smaller plants that are close to major groups of customers so
delivery times would be shorter.
c. If efficiency is desirable, then a compan can build factories with very
little excess capacity and have those factories optimized for producing
a imited range of items.
d. Further efficiency can also be gained by centralizing production in
large central plants to get better economies of scale, even though
delivery times might be longer.
2. Inventory:-
a. Responsiveness can be had by stocking high levels of inventory for a
wide range of products.
 b. Additional responsiveness can be gained by stocking product at many
locations so as to have the inventory close to customers and available
to them immediately.
c. Efficiency in inventory management would call for reducing
inventory levels of all items and especially of items that do not sell as
frequently.
3. Location:-
a. A location decision that emphasizes responsiveness would be one
where a company establishes many locations that are close to its
customers base.
b. For example fast food chains use location to be very responsive to
their customers by opening up lots of stores in high volume markets.
c. Efficiency can be achieved by operating from only a few locations
and centralizing activities in comman locations.
d. An example of this is the way e commerce retailers serve large
geographical markets from only a few central locations that perform a
wide range of activities.
4. Transport:-
a. Responsiveness can be achieved by a trasportation mode that is fast
and flexible such as trucks and airplanes.
b. Many companies that sell products through catalogs or on the internet
are able to provide high levels of responsiveness by using
transportation to deliver their products often within 48 hours or less.
c. The use of transportation modes such as ship, railroad, and pipeline
can be very efficient.
d. Transportation can also be made more efficient if it is originated out
of a central hub facility or distribution center instead of from many
separate branch locations.
5. Information:-
a. The power of this driven grows stranger every year as the technology
for collecting and sharing information becomes more wide spread,
easier to use, and less expensive.
b. Information much like money is a very useful commodity because it
can be applied directly to enhance the persormance of the other four
supply chain drivers.
 c. High levels of responsiveness can be achieved when companies
collect and share accurate and timely data generated by the operations
of the other four drivers.
d. An example of this is the supply chains that serve the electronics
market thay are some of the most responsive in the world.
e. Companies in these supply chain, the manufacturers, distributors and
the big retailers all collect and share data about customer demand,
production schedules, and inventory levels.
f. This enables companies in these supply chains to respond quickly to
situations and new market demands in the high change and
unpredictable world of electronic devices.

Obstacles to Achieving Strategic Fit:

 Increasing variety of products in the era of mass customization production

variety is increasing.
 The customers becoming increasingly demanding. Todays customers are
demanding faster fulfillment better quality and better performing products
for the same price that they are paying today.
 The supply chain is getting fragmented. At one time vertical was the order of
the day. But present trend is to concentrate on core competence and
outsource more activities. Thus the supply chain is more fragmented now.
 Globalization is creating global supply chains and hence supply chains and
hence physical distance is increasing between a company and its customers.
 While creating a strategy is difficult executing it is much more difficult.
Many companies understand Toyota Production System now, but still find it
difficult to implement and operate.

Cycle View of Supply Chain Management:-

 Supply chain is a sequence of processes and flows that take place within and
between different stages and combine to fill a customer need for a product.
 The processes in a supply chain are divided into series of cycles, each
performed at the interface between two successive stages of a supply chain.
 Cycle view of supply chain is useful in making operational decisions as role
of each member of supply chain is clearly defined.
Stages of Supply Chain Management:-

 It encompasses such a wide range of functions that it can seem daunting,

even to the most experienced international businessperson.
 The process can be effectively modelled by breaking it down into several
main strategic areas.
 One common and very effective model is the Supply Chain Operations
Reference (SCOR) model, developed by the Supply Chain Council to enable
managers to address, improve and communicate supply chain management
practices effcectively.
 The SCOR model runs through five supply chain stages: Plan, Source, Make
Deliver and Return.

Stage 1 Plan:-

 Planning involves a wide range of activities. Companies must first decide on

their operations strategy. Whether to manufacture a product or component or
buy it from a supplier is a major decision.
 Planning also involves mapping out the network of manufacturing facilities
and warehouses, determining the levels of production and specifying
transportation flows between sites.
 It also involves how to improve the global supply chain and its management
processes.
 When planning, companies should ensure that their supply chain
management strategies, that communication plans for the entire supply chain
are decided and that methods of measuring performance and gathering data
are established before planning begins.

Stage 2: Source

 This aspect of supply chain management involves organizing the

procurement of raw materials and components.
 When sources have been selected and vetted, companies must negotiate
contracts and schedule deliveries. Supplier performance must be assessed
and payments to the suppliers made when appropriate.
  In some cases, companies will be working with a network of suppliers. This
will involve working with this network managing inventory and company
assets and ensuring that export and import requirements are met.

Stage 3: Make

 This stage is concerned with scheduling of production activities, testing of

products, packing and release.
 Companies must also manage rules for performance, data that must be
stored, facilities and regulatory compliance.

Stage 4: Deliver

 The delivery stage encompasses all the steps from processing customer
inquiries to selecting distribution strategies and transportation options.
Companies must also manage warehousing and inventory or pay for a
service provider to manage these tasks for them.
 The delivery stage includes any trail period or warranty period, customers or
retail sites must be invoiced and payments received and companies must
manage import and export requirements for the finished products.

Stage 5: Return

 Return is associated with managing all returns of defective products,

including identifying the product condition authorizing returns, scheduling
product shipments, replacing defective products and providing refunds.
 Returns also include “end-of-life” products (those that are in the end of their
product lifetime and a vendor will no longer be marketing, selling or
promoting a particular praduct and may also be limiting or ending support
for the product).

Problems in Supply Chain Management:-

1. Globalization:-
a. It presents several critical supply chain management challenges to
enterprises and organizations.
 b. First to reduce costs across the supply chain enterprises are moving
manufacturing operations to countries which offer lower labor costs,
lower taxes, and lower costs of transport for raw materials.
c. For some companies outsourcing production involves not only a
single country, but several countries for different parts of their
products.
d. Companies will have to deal with, coordinate and collaborate with
parties across borders regarding manufacturing, storage and logistics.
e. Second, as companies expand sales into global markets, localization
of existing products require a significant change in the supply chain as
companies adapt their products to different cultures and preferences.
f. For example many manufacturers in asia still handle trading partner
communications via fax and email while suppliers in north america
and europe have utilized EDI for decades.
g. As technology matures, suppliers in emerging markets may skip EDI
altogether and move to a more modern API driven approach to
communication just as developing countries have skipped land lines in
favor of cell phones.
2. Changing Markets:-
a. Consumer behavior is affected by cultural, social,personal and
psychological factors that are quickly being changes by technology
and globalization.
b. Social media is creating sources of information to respond to changing
preferences in order to stay interesting and relevant.
c. Products have shorter life cycles due to rapidly changing market
demands. Enterprises are under pressure to keep up witht the latest
trends and innovate by introducing new products, while keeing their
total manufacturing casts low because they understand that trends will
not last for a long time.
d. Aside fro new products, companies also need to constantly update
product features. Enhancing product features requires enterprises to
redesign their supply chain accommodate product changes.
3. Quality and Compliance:-
a. Aside from influencing consumer behavior, social media highlights
the importanceof having high quality products.
 b. According to research conducted by emarketer, reading reviews,
comments and feedback is the top social media activity that influences
online shopping behavior.
c. Product quality often goes hand in hand with compliance. Enterprises
need to ensure that they meet local and international regulatory
standards in manufacturing, packaging, handling and shipping of their
products.
d. Aside from passing quality control and safety tests, enterprises are
also required to prepare compliance documents such as permits,
licenses, and certification which can overwhelm them and their supply
chain management systems.

Obstacles of Streamlined SCM:-

1. Juggling multiple systems to complete the same task.

2. Oursourcing logistics visibility to third parties.
3. Working with outdated technology.
4. Paying too much for essential services.