UNIT -1

INTRODUCTION
Role of Logistics and Supply chain Management: Scope and Importance
Chain Decision Phases in Supply Chain Competitive and
Evolution of Supply
Obstacles.
Supply chain Strategies - Drivers of Surply Chain Performance and

1.1. INTRODUCTION TO SUPPLY CHAIN

A supply chain consists of all parties involved, directly or indirectly, in fulfillinga

customer request. The supply chain includes not only the manufacturer and suppliers,
even customers themselves. Within
but also transporters, warehouses, retailers, and
supply chain includes al! functions
cach organization, such as a manufacturer, the
These functions include, but are
receiving and filling a customer request.
involved in
distribution.
marketing. operations.
O imited to, new product development,
finance, and customer service.

1.1.1. SUPPLY CHAIN MANAGEMENT

business process from
Supply Chain Management is the integration ofthe
services and
the end user supplier who provides products,
through oripina.
customers."
informata that adds value for the
is the management ofthe flow of goods
Supply Chain Management (SCM)
movement and storage of raw materials, work-
and services, involves the
finished goods as well as end to end order
in-process inventory, and of
of origin to point ol consumption.
Tulillment from point
concerned with the efficient
Supply Chain Management primarily
lactories, warehouses and stores so that products
ntegration of supplicrs,
Is produced and distributed in the right quantities, to minimize tolal systc

Cost subject to satislying customer service requirements

1.2 pply Chain anagemen

Fig. 1.1.
Introduction 1.3
Supply ChainManagement is the "design, planning, execution, control,
of creating net
and monitoring of supply-chain activities with the objective
worldwide
value, building a competitive infrastructure, leveraging
performance
logistics, synchronizing supply with demand and measuring
globally.
Chain management can also be defined as asystematic flow of
Supply
materials, goods, and related information among suppliers, companies,
retailers, and consumers.
as
There are three different types of flow in supply chain management
shownin Fig: 1.1.

(a) Material flow

(b) Information/Data flow

(c) Money flow

1.1.2. MATERIAL FLOw

Material flow includes a smooth flow of an item from the producer to the
warehouses
consumer. This is possible through various among

distributors, dealers and retailers.

that the material flows as
The challenge we face is in ensuring
main
different points in the
inventory quickly without any stoppage through
it is for the company, as it
chain. The quicker it moves, the better
minimizes the cash cycle.

T h e item can also flow from the consumerto the producer for any kind of
life material.
repairs, or exchange for an end of
1.1.3. INFORMATION FLOW
order,
Information/data flow comprises the request for quotation, purchase
complaints and
monthly schedules, engineering change requests, quality
to the supplier.
reports on supplier performance from customer side
From the producer's side to the consumer's side, the information o
invoIces,
inventory,
consists of purchase order, dispatch details, report on

etc.
 Supply Chain Management

14
1.1.4. MONEY FLOW
producer for thhe
flows from the customer side to the respective
Money
retailer, distributor and wholesaler,
product which they buy through
to achieve an efficient and effective supply chain, it is essentialto
I n short,
flows properly with minimal efforts. It is a difficult tast
manage all three
chain manager to identify which information is critical for
for a supply
decision- making.

1.2. SCOPE OF SUPPLY CHAIN MANAGEMENT

() Minimizes Operating Cost

(i) Boosts Customer Service
(ii) Manages Distribution
(v) Ensures Coordination
(v)BetterInventory Management
(vi) Better Supplier Management

) Minimizes Operating Cost

Supply chain management focuses on reducing the overall operating c
of the organization. It aims at the
bringing efficiency and raisImg
profitability of organizations.
By developing a proper chain it cost
brings dowm the purchasing
production cost and delivery cost.
*It enables smooth flow of
raw materials from the supplier
organization which reduces the h t

supplier and avoids any losses holding period of materials

w
due to delay in
Similarly, companies are not production. s for
a
longertime and distribute required to hold on expensive inventor
i) Boosts quickly through the supply chain.
Customer Service
Supply chain management
All helps in providing better
better service to cust
production strategies are
customers to manufacture framed in
n
accordance with
accordance
right product.
requirer
requ
Introduction
1.5
I t properly anticipates the demands of customers before initiating the
production. Right product available to right cost provide better satisfaction
to customers.

(i) Distribution

Distribution of products at the right time and the right location is a

complex taskfor every organization.
Supply chain management accelerated the overall distribution system of
an organization.
I t coordinates with various transportation channels and warehouses for
attainingfaster movement of goods.

Supply chain ensures that all products get delivered at the right location
within the time limit.

By developing a proper network for movement of goods it has to ease the

whole distribution system.

Ensures Coordination
Proper coordination among all partners of business increase productivity
and profitability.
It develops a proper channel through which employees, supplier and
customers can easily interact with business.
Customers can also access their brands for any information through self-
portals which are developed as a part of the customer support system. This
enables a better exchange of information and brings coordination among

partners.
) Better Inventory
Management
Maintaining an optimum inventory is a must for uninterrupted operation of
every business.
I t keeps record of all inventories that is raw materials, spare parts and
finished goods. Supply chain ensures that the proper amount of inventory
Is always maintained within the organization.
 Supply Chain magemem
1.6
work towards avoiding situations like under stock
under stockingo
They
overstocking.
for procuring,
Supply chain managers frame proper strategies producing
produ

and maintaining all

inventories as per requirements.

(vi) Better Supplier Management

Supply chain m anagement works on strengthening the relationshi

between business nd suppliers.

I t tracks and records every transaction with the suppliers.
Proper supply chain enables timely procurement of all required raw
materialsfrom suppliers.
It develops proper network through which and
a
suppliers business can
easily interact. Supply chain management solutions provide a self-service
portal through which suppliers can contact the company in case of any
issues or problems.

1.3. IMPORTANCE OF SUPPLY CHAIN

MANAGEMENT (SCM)
SCM plays a vital role in
to
organization activities and an essential elemen
operational efficiency which can be applied to
company's success.
customer satisfaction and
I t is just like the backbone
of an organization which manages the cnu ca
issues of the business
organization such as rapid growth of multination
corporations, global expansion and
indirectly or dramatically affects the environmental concems
concens which
&SCM offers various corporate strategy.
tools and
techniques
diagnose the problems and also providethatsolutions of these disruation
help business
around the business organdisruptions
I t plays environment.
an
important role in
moving goods
destinations more
quickly
ther

The most
important thing in today's
among partners and in order to win thisbusiness
competition
is sCM helps bupetitor
managing comp
organization in a
very efficient manner.
s i n e s s
ntroduction
1.7
All the benefits and importance of
SCM makes its future so bright and
because emerging trends in
or
organization SCM becomes the most critical
business discipline in the world today.
Other benefits and importance of supply chain management are:
Reduces inventory costs
Provides better medium for information sharing between
partners
Improves customer satisfaction as well as service
Maintains better trust between partners
Provides efficient manufacturing strategy
Improve process integration
of fixed
Improves bottom line (by decreasing the use
assets in thesupply chain)
Increase cash flow
margin
Improves quality and gives higherprofit

SUPPLY CHAIN
1.4. ROLE OF LOGISTICS IN

1.4.1. LOGISTICS DEFINITIONS

management of
procurement,
defined as a
can be
logistics
logistics
distribution ofgoods and materials.
transportation,storage and

Definition according to customer: in

the right customer, in the right quantity,
to
Getting the right product, time, and at the right
cost

theright condition, at
the right place, at the right

1.4.2. IMPORTANCE OF LOGISTICS from one location

distributed efficiently
Required goods to be stored and
to another integration of information,
involves the
chain, which and
It is a part of supply warehousing,
warenousing,
material-handling
material-handiing
inventory.
transportation,
transportation. and

packaging
 Supply Chain Management
1.8

While supply chain covers the entire range of activities involving the
procurement of raw materials, transportation of the raw as well as the
finished product, as well as the storage and distribution of goods and
materials

1.4.3. LOGISTICS ACTIVITIES

Transportation
Warehousing and storage
Industrial packaging
Materials handling
Inventory control
Order fulfillment

Demand forecasting
Production planning/scheduling
Procurement
Customer service
Facility location
Return goods handling
Parts and service support
Scrap disposal
Concept of Seven R's in Logistics
Right Product
Right Quantity
Right Condition
Right Place
Right Time
Right Customer
Right Price
Introduction
1.9
1.5. EVOLUTION OF SUPPLY CHAIN MANAGEMENT
1960 s 1980 s 1990 s 2000 2010 s

Fragmentation Consolidaton Integration ValueCapture| Automation

Demand Forecasting

Souraing/ Purchasing
Material
Requirement Planning Management
Production Planing

Manufacturing InventorU
Warehousing Warehousing Supply Chain
Logistics Management
Matenal Handling Material Handling

Packaging Packagin9
Goods Inventory Information Technology
Distribution Planning Marketing/ Sales
Material
Order Processing Management Strategic Planning

Transportation Finance

Customer Service

Fig. 1.2.

supply chain management has been characterized by

T h e evolution of
of separate tasks, a trend that was
an increasing degree of integration
area for future productivity improvements
underlined in the 1960s as a key
since the system was highly fragmented.
have remained relatively similar.
Although the tasks composing logistics
related to materials
initially consolidated into two distinct lunctions
they
distribution during the 1970s and 1980s
management and physical
in the 1990s globalization incited a
moved further as
This process
log1stics true sense, all the
and the emergence of in a
functional integration
 1.10 Supply Chain Managemen

elements of the supply chain became part of a single manageme

anagement
perspective.

However, only with the implementation of modern information a

communication technologies did a more complete integration becam
e
possible with the emergence of supply chain management.

I t allows for the integrated management and control of

finance and goods flows and made
informationOn,
possible new range of production and
a

distribution systems. Supply chain

management has become a complex
sequence of activities aiming at value
capture and competitiveness
This digitalization is particularly notable within distribution
have experienced a
remarkable push towards automation centers that
materials handling, and such as storage,
packaging.
1.5.1. CREATION ERA

The tem
"supply chain
management" was first coined by Keith
1982.
Oliver in
The concept
of a supply chain in
long before, in the management was of great
early 20th
century, importance
assembly line. especially with the creation of the
The
characteristics of this era of
need for
large-scale supply chain
reduction changes, re-engineering, management inciude the

practices.
programs, and
widespread downsizing driven by co ost
attention to
1.5.2. INTEGRATION ERA Japanese managen ment

This era of
supply chain
development of electronic management studies was ighted with the
and
developed through the data interchange (EDI) highlighted wi
planning (ERP) systems. 1990s by the systems in the 1960%
int:oduction of enterprise rce

This era has continued to res

develop into the 21st
ofInternet-based collaborative century with the expan sIo
systems.
 1.11
This era
of supply chain evolution is characterized
by both increasing
value added and cost
reductions through integration.
1.5.3. 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
beyond national boundaries and into other continents.
1.5.4. SCM 2.0

SCM 2.0 is a trend in the use of the WwW, that means to increase
creativity, information sharing and collaboration among users(End Users).
SCM 2.0 designed to rapidly deliver results with the quickly manage the
futurechange for continuous flexibility, value and success.

1.6. DECISION PHASES IN SUPPLY CHAIN

Decision phases can be defined

the different stages involved in supply
as

chain management for taking an action or decision related to some product

or services.

Successful supply chain management requires decisions on the flow of

information, product, and funds that fall into three decision phases.
Here we will be discussing the three main decision phases involved in the
entire process of supply chain. The three phases are described below:
A. Supply Chain Strategy
B. Supply Chain Planning

C. Supply Chain Operations

A.
Supply Chain Strategy
In this phase, decision is taken by the management mostly.
The decision to be made considers the sections like long term prediction
and involves price of goods that are very expensive if it goes wrong.
I t is very important to study the market conditions at this stage.
 Supply Chain Managemen
1.12
These decisions consider the prevailing
and future conditions of the
of supply chain
market. They comprise the structural layout
A l l the strategic decisions are taken by the higher authornty or the senior
nior
management.
These decisions include deciding manufacturing the material, factory
location, which should be casy for transporters to load material and to
dispatch at their mentioned location, location of warehouses for storage of
completed product or goods and many more.
B. Supply Chain Planning
I t is a short term
process.
Supply chain planning should be done according to the demand and
view. supply
I n order to understand
customers' demands, a market rescarch should be
done.
The second thing to consider is awareness and
the
competitors and
updated information about
strategies used by them to
satisfy their customer
demands and requirements.
This phase includes it all,
which market will be
starting from predicting the market
provided the finished goods to whichdemand to5s
planned in this stage. plant
A
supply chain design phase is
short-term planning. considered successful if
it performs well n

C.
Supply Chain
Operations
The third and
last decision
decisions that are to be phase consists of the various
The
made instantly within minutes, hours or function
objective behind this days.
decisional phase is
performance optimization. minimizing uncertainty and
supplying the Starting from
handling the customer Or der to
customer with that
phase. product, everything is included his
niroduction

L.13
For example,
imagine a customer demanding item
your company. Initially, the
an
manufactured by
marketing department is responsible for
taking the order and
forwarding it to production department and inventory
department.
The production department then responds to the customer demand by
sending the demanded item tothe warehouse through a
and the distributor sends it to the proper medium
customer within a time frame.
All the departments engaged in this process need to work with an aim of
improvingthe performance and minimizing uncertainty.
1.7. COMPETITIVE AND SUPPLY CHAIN STRATEGIESS

Designing a firm's supply chain to meet the competitive priorities of the

firm's operations strategy.
Supply chain strategy to ensure superior value to the end customer in an
efficient manner
Optimum decision making between tradeoffs and costs.

Innovation to obtain competitive advantage.

1.7.1. CUSTOMER SERVICE AND coST TRADE OFFS
Costs are directly associated with service provision.

Higher service in low cost is desirable.

A fim cannot operate beyond a certain limit in increasing its efficiency by

increasing costs for higher services.

The firm's revenue is also affected by îts service levels at certain costs.

There are 4 components of Customer Service:

1. Order Delivery Lead Time
2. Responsiveness
3. Delivery Reliability

4 Product Variety
 1.14 Supply Chain Managemen
1.Order Delvery Lead Time

T h e time taken by the supply chain from placement of order to deliveryiis

known as Order Delivery Lead Time
The time take from sourcing of material to delivery is known as Supnly
Chain Lead Time.
Different types of models followed
are to make eficient
Make to Stock (MTS), Make to Order
delivery lite
(MTO) & Configure to Order
(CTO)
2. Responsiveness

The firm's ability to handle the uncertainties

Based on of market demand.
uncertainties, products are classified into:
(a) Functional Products
6) Innovative Products
3. Delvery Rellability

The fraction
of satisfaction obtained
delivery lead tine. by the customer within
the promised
For achieving
stock outs needs
higher reliability, a quick
to be
prevented. inventory turnover is needed,
Cost
management at this stage is very
4. Product Variety
important
Variety Explosion has occurred
I t will also in large number of
I t increases
increase cost. goods.
complexity in supply chain.
Outsourcing
A
Make-or-buy decision is a
outsource a process or do it managerial choice between whetn er to
in-house.
Outsourcing: Pay1ng suppliers and
provide needed services and distributors to perform
materials. processes and
introduction

1.15
Example: Bharti Airtel Outsources its
Network Operations.
Toyota outsources its electronic parts.
12. SOME OTHER SUPPLY CHAIN STRATEGIES
off shoring is moving a business
-

process and operating it out of a

foreign location for example the
manufacturing process where labour 1s
cheaper or expertise higher.
Vendor Rationalization - is the process of shrinking the supply base by
reducing the number of active suppliers.
Forward Integration involves buying part of the process that occurs
after the company's manufacturing
process.
Backward Integration involves buying
part of the supply chain that
occurs prior to the company's manufacturing process
Efficient Supply Chains i s directly linked to customer satisfaction. It
gets your products into the hands of the people who need them quickly and
at the best price.
Responsive Supply Chains - it has to be responsive to the needs of the

customers that is order-fill accuracy in today's highly competitive market,

a guarantee of quick deliver is a real selling.

13. DRIVERS OF SUPPLY CHAIN PERFORMANCE AND OBSTACLES

Orhvers of SC
performance
Facilities
Inventory
Transportation
Information
Sourcing
Pricing
acilitles
Places where inventory is stored, assembled, or fabricated
 Supply Chain Managemem
L.16
Production sites and storage sites

Decisions regarding location, capacity and flexibilities of facilityhave a

significant impact on SC performance
Inventory
Raw materials, work in progress (WIP), finished goods within a supplv
chain

Changes in inventory policies can dramatically alter the efficiency and

responsiveness of a supply chain

Transportation
Moving inventory from point to point in a supply chain.
Combinations of transportation modes and routes can affect the
performance of supply chain.
Information
Data and analysis regarding inventory,
the supply chain transportation, facilities throughout
Potentially the biggest driver of supply chain performance
This driver allow the
management with the better
supply chain more
responsive and efficient
opportunity to make tne
Sourding
Distinguish the functions a firm performs and functions that
Pricing areoutsourc
Price associated
with goods and services
chain provided by a fim to the suppply
1.9. 0BSTACLES OF SUPPLY
CHAIN
Increasing variety of products
&Increased variety
(mass customization) tend
uncertainty frequently results in to raise uncertainiy
and

responsiveness increased cost and

and
decreased

dc
nurvdluction

Decreasing product life cycles 1.17

This makes the job of
must constantly achieving strategic fit more difficult as
to coping with
adapt to
manufacture and deliver new supply chain
these product's
demand uncertainty product in addition
increasingly demanding customers
Today's customers are
demanding faster
better performing products for the same fulfillment, better quality and
that the supply chain must provide more priceto they paid years agomeans
just maintain its business
Fragmentation of supply chain
ownership
Now-a-days most firms have become less
vertically integrated
More members in
supply chain for providing goods
Many owners with its own policies and interests, the chain
complicated to coordinate
(network) more
Globalization
Supply chains are more global.
Global supply chains create many benefits such as ability to source from a
global base of suppliers who may offer better or cheaper goods than were
available in a company's home nation.
*Suppliers are apart making coordination much more difficult.
Removal of trade barrier results in increased competition from global

companies.
Difficulty executing new strategies
Creating successful strategy is not easy.
Skillful execution of strategy is as important as creating successful

strategies.
 AND ANSWERS
TWO MARK QUESTIONS

1. What is a supply chain?

company and its suppliers to Drod.
A supply chain is a network between a
duce
and distribute a specific product in fulfilling a customer request. This netun
work
includes different activities, people, entities, information, and resources.

The supply chain includes:

Manufacturers

Suppliers
Transporters
Warehouses
Retailers
Customers
2 What Is Supphy Chain Management (SCM)?
Supply chain management is the
services and includes all management of the flow of goods and
processes that transform raw
products. involves the active
It materials into final
maximize customer valuestreamlining
to of a business's supply-side activities
and gain
marketplace. a
competitive advantage in th
3 What is the
objective of suppby chain?
To
maximize the overall value
To maximize the generated
overall profit
What is supply chain
surplus?
Supply chain surplus is the
organization. It is calculated by thevalue addition by supply chain function
function
ofan

Supply chain surplus following formula:

Revenue generated from
=

incurred to produce and deliver a mer

customer Total
cost

the
5. Wride any three product.
inportance of SCM
Improves customer satisfaction as well as
service.
Introduction
1.19
Reduces inventory costs.
Increases cash flow.
Provides better medium for information
sharing hetween partners.
6 Factors to be used to measure supply chain
management
Responsiveness
Efficiency
. List dowm the Supply Chain Drivers
A. Logical Drivers
Facility
Inventory
Transportation
B. Cross Functional Drivers

Information
Sourcing3
Pricingg
8. What is value?

The value a supply chain generates is the difference between what the final

product is worth to the customer and the costs the supply chain incurs in filling
the customer request.
chain management?
9What are the key elements of supply
coordination and collaboration with
Supply chain management also covers

customers, suppliers, distributors and service

channel partners, such as

providers.
Demand Management
Communication

Integration
Collaboration
 Supply Chain Managemen
1.20

10. What is the main goal of supply chain management?

Achieve Efficient Fulfillment. On
the most basic level, the purpose of supplv
available in customer facino
chain management is to make inventory readily
will help the organization reduce waste
positions to fulfill demand. Such steps
chain.
drive out costs, and achieve efticiencies in the supply
11. What arethefunctions of SCM?
Integration.
Operations.
Purchasing.
Distribution.
12. Bring out the role of supply chain manager.
Supply chain management (SCM), the management of the flow of
services, involves the movement and goods and
storage of raw materials, of work-in
processinventory, and of finished goods from point of origin to point of
consumption. Marketing channels play an
management.
important role in supply chain
13. What is suppBy chain
performance?
Supply chain
performance measure can be defined
the approach to judge
as an
performance of supply chain system. Supply chain
can broadly be classified into two performance measures
example, customer satisfaction and categories Qualitative measures r
-

14. What is the product quality.

difference between supphy chain and
value chain?
Supply chain involves all
to customer parties in fulfilling a customer request and leadie
satisfaction, a value chain is a set of
company uses to create a interrelated activu
15. What are the competitive advantage.
three decislon
The three decision
phases of supply chain
phases that occur within a management?
Supply chain strategy (or supply chain are
design),
Supply chain planning and
Supply chain operation.
nirouu

1.21
REVIEW QUESTIONS
1Discuss the goal of
supply chain and explain the
decisions on the success of a impact of supply chain
fim.
. How would you describe the
various drivers in
3. State the importance of
supply chain?
Supply Chain Management.
4. Elucidate the Evolution of Supply Chain
Management in detail.
5. State the various decision phases involved in
Supply Chain.
6. What do you mean by the
concept competitive
and supply chain strategies?
7 What are the obstacles in supply chain?
8. How would you show your understanding on the objectives of supply chain?
9. How would you describe the goal of a supply chain and explain the impact of

supply chain decisions on the success of a firm?

10. Define Supply Chain Management and explain its objective and scope.