Supply Chain Management

(MS-409)
Lecture – 2

Introduction to Supply Chain

Management

Course Instructor: Dr. Ammar ul Hassan

Email Id: [email protected]

Department of Mechanical Engineering,

University of Engineering & Technology,
SCM Process

• Supply chain management is a

process used by companies to
ensure that their supply chain
is efficient and cost-effective.
• A supply chain is the collection
of steps that a company takes
to transform raw materials into
a final product.
• The five basic components of
supply chain management are
discussed below −
SCM Process

Planning
• This stage includes demand and supply planning to achieve end-to-end
coordination of goods and services from origin to end user.

• Supply chain planning prepares the organization to deal with risks and
disruptions (geopolitics, inflation, economical instability,
environmental changes and natural risks).

• Supply chain planning is a part of supply management that coordinates

assets to optimize the delivery of goods, services, and all information
flowing from a supplier to a customer while balancing supply and
demand
SCM Process
SCM Process
Developing/ Sourcing of raw materials

• It's the process of strategically choosing the right services and goods that a
company needs to run their business.

• Sourcing includes the activities involved in assessing suppliers, securing

supplies and conducting cost analysis to determine the right price.

• Sourcing is also the act of buying goods, including seller selection, contract
negotiation and measuring the long-term performance of your suppliers.

• In this stage, we mainly concentrate on building a strong relationship with

suppliers of the raw materials required for production.
SCM Process
SCM Process

Make/ Manufacturing

• The third step in the supply chain management process is the

manufacturing or making of products that were demanded by the
customer. In this stage, the products are designed, produced, tested,
packaged, and synchronized for delivery.

• This stage includes the actual production of goods, which may involve
working with partners such as contract manufacturers, or different
facilities to optimize the production process.
SCM Process
SCM Process
SCM Process

Delivery/ Logistics

• In this phase, finished products are transported and stored, often with
third-party logistics providers, for delivery to customers.
SCM Process
SCM Process

Return

• In this stage, defective or damaged goods are returned to the supplier

by the customer. Here, the companies need to deal with customer
queries and respond to their complaints etc.

• In the event of quality defects, businesses must be prepared to handle

returns and correct the problem.

• NOTE: Managing these stages efficiently enables an organization to

improve productivity and build a solid supply chain strategy.
SCM Process Flow

• Supply chain management can be defined as a systematic flow of

materials, goods, and related information among suppliers, companies,
retailers, and consumers.

• There are three different types of flow in supply chain management −

• Material Flow
• Information/ Data flow
• Money flow
SCM Process Flow

Material Flow

• Material flow includes a smooth flow of an item from the producer to the
consumer. This is possible through various warehouses among distributors,
dealers and retailers.
• The main challenge we face is in ensuring that the material flows as inventory
quickly without any stoppage through different points in the chain. The quicker it
moves, the better it is for the enterprise, as it minimizes the cash cycle.
• The item can also flow from the consumer to the producer for any kind of
repairs, or exchange for an end of life material.
• Finally, completed goods flow from customers to their consumers through
different agencies.
SCM Process Flow

Information Flow
• Information/data flow comprises the request for quotation, purchase order,
monthly schedules, engineering change requests, quality complaints and reports
on supplier performance from customer side to the supplier.
• From the producer’s side to the consumer’s side, the information flow consists of
the presentation of the company, offer, confirmation of purchase order, reports on
action taken on deviation, dispatch details, report on inventory, invoices, etc.
• For a successful supply chain, regular interaction is necessary between the
producer and the consumer. In many instances, we can see that other partners like
distributors, dealers, retailers, logistic service providers participate in the
information network.
• In addition to this, several departments at the producer and consumer side are
also a part of the information loop.
SCM Process Flow

Money Flow
• On the basis of the invoice raised by the producer, the clients examine the
order for correctness. If the claims are correct, money flows from the
clients to the respective producer. Flow of money is also observed from the
producer side to the clients in the form of debit notes.

• In short, to achieve an efficient and effective supply chain, it is essential to

manage all three flows properly with minimal efforts. It is a difficult task
for a supply chain manager to identify which information is critical for
decision-making. Therefore, he or she would prefer to have the visibility of
all flows on the click of a button.
SCM Process Flow
SCM – Flow Components

Sourcing and Procurement

• Sourcing and procurement are a vital part of the supply chain management.
• The company decides if it wants to perform all the exercises internally or
if it desires to get it done by any other independent firm.
• This is commonly referred as the make vs buy decision, which we will be
discussing in brief in another chapter.
SCM – Flow Components
SCM – Flow Components

Transportation
• Transportation or shipment is necessary for an uninterrupted and seamless
supply.
• The factors that have an impact on shipment are economic uncertainty and
instability, varying fuel prices, customers’ expectations, globalization,
improvised technologies, changing transportation industry and labor laws.
SCM – Flow
Components
SCM – Flow Components

Warehousing
• Warehousing plays a vital role in the supply chain process. In today’s
industry, the demands and expectations of the customers are undergoing a
tremendous change.
• We want everything at our door-step – that too with efficient price. We can
say that the management of warehousing functions demands a distinct
merging of engineering, IT, human resources and supply chain skills.
• The Warehouse Management Systems (WMS) leads the products to their
storage location where they should be stored. The required functionality
for the completion and optimization of receiving, storing and shipping
functions is then supplied.
SCM – Flow
Components
SCM – Flow Components

Returns Management

• Returns management is an aspect of the supply chain and fulfilment

process associated with reverse logistics, or, in other words, the return
of goods from the customer to the retailer.
• A cost-effective reverse logistics program links the available supply of
returns with the product information and demand for repairable items
or re-captured materials.
• We have three pillars that support returns management processes.
These are as follows −
SCM – Flow Components
• Speed − It is a must to have quick and easy returns management and automate
decisions regarding whether to produce return material authorizations (RMAs)
and if so, how to process them. Basically, the tools of speed return processing
include automated workflows, labels & attachments and user profiles.
• Visibility − For improving the visibility, information needs to be captured
initially in the process, ideally prior to delivering the return to the receiving dock.
Most effective and easily implementable approaches for obtaining visibility are
web-based portals, carrier integration and bar-coded identifiers.
• Control − In case of returns management, synchronizing material movements is
a common issue that needs to be handled. The producers need to be very cautious
and pay close attention to receipts and settlement and update the stakeholders of
impending quality issues. The key control points in this process are regulatory
compliance, settlement and final disposition and quality assurance.
SCM – Flow
Components
SCM – Flow Components
SCM – Decision Phases

• Decision phases can be defined as the different stages involved in supply

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.

• The three phases are described below −

SCM – Decision
Phases
SCM – Decision Phases

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. It is very important to study the market
conditions at this stage.
• These decisions consider the prevailing and future conditions of the market. They
comprise the structural layout of supply chain. After the layout is prepared, the
tasks and duties of each is laid out.
• All the strategic decisions are taken by the higher authority or the senior
management. These decisions include deciding manufacturing the material,
factory location, which should be easy 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.
SCM – Decision Phases

Supply Chain Planning

• Supply chain planning should be done according to the demand and supply view.
In order to understand customers’ demands, a market research should be done.
• The second thing to consider is awareness and updated information about the
competitors and strategies used by them to satisfy their customer demands and
requirements. As we know, different markets have different demands and should
be dealt with a different approach.
• This phase includes it all, starting from predicting the market demand to which
market will be provided the finished goods to which plant is planned in this stage.
All the participants or employees involved with the company should make efforts
to make the entire process as flexible as they can. A supply chain design phase is
considered successful if it performs well in short-term planning.
SCM – Decision Phases

Supply Chain Operations

• The third and last decision phase consists of the various functional decisions that are to be
made instantly within minutes, hours or days. The objective behind this decisional phase
is minimizing uncertainty and performance optimization. Starting from handling the
customer order to supplying the product to the customer, everything is included in this
phase.

• For example, imagine a customer demanding an item manufactured by your company.

Initially, the 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 to the warehouse
through a proper medium and the distributor sends it to the customer within a time frame.
Principles of Good
Supply Chain Management
SCM – Performance Measures

Supply chain performance measure can be defined as an approach to judge

the performance of supply chain system. Supply chain performance
measures can broadly be classified into two categories −

Qualitative measures − For example, customer satisfaction and

product quality.
Quantitative measures − For example, order-to-delivery lead time,
supply chain response time, flexibility, resource utilization, delivery
performance.
Summary

• Supply chain management (SCM) is the art of coordinating the flow of

goods and services from raw materials to final customers.

• SCM requires collaboration, communication, integration, and innovation

among the supply chain members and stakeholders

• SCM aims to maximize customer value, minimize costs, optimize resources,

and achieve a competitive advantage in the market.

• SCM faces various challenges such as demand uncertainty, supply

disruptions, environmental and social issues, and technological changes.
The End