What is supply Chain and what is its importance?

What is the 'Supply Chain'

A supply chain is a network between a company and its suppliers to produce and distribute a specific
product, and the supply chain represents the steps it takes to get the product or service to the
customer. Supply chain management is a crucial process, because an optimized supply chain results in
lower costs and a faster production cycle.

Supply chain management (SCM) is the active streamlining of a business' supply-side activities to
maximize customer value and gain a competitive advantage in the marketplace. SCM represents an
effort by suppliers to develop and implement supply chains that are as efficient and economical as
possible. Supply chains cover everything from production, to product development, to the information
systems needed to direct these undertakings.

Supply chain management (SCM) is the oversight of materials, information, and finances as they move in
a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain
management involves coordinating and integrating these flows both within and among companies. It is
said that the ultimate goal of any effective supply chain management system is to reduce inventory
(with the assumption that products are available when needed).

A supply chain consists of the flow of products and services from:

– Intermediate products manufacturers

– End product manufacturers

– Wholesalers and distributors and

– Retailers

Connected by transportation and storage activities, and

Integrated through information, planning, and integration activities

Importance of Supply chain:

Cost savings and better coordination of resources are reasons to employ Supply Chain Management

– Reduced Bullwhip Effect- the magnified reduction of safety stock costs based on
coordinated planning and sharing of information
 – Process Integration- Interdependent activities can lead to improved quality, reduced
cycle time, better production methods, etc.

Advantages of Supply chain

Effective supply chains give businesses a competitive advantage in the marketplace and help mitigate
risks associated with acquiring raw materials and delivering products or services. By implementing
supply chain management systems, businesses are able reduce waste, overhead costs and shipping
delays in a scientific way. The benefits of this systematic approach impacts areas ranging from product
quality to order turn-around times.

Quality Assurance

Many manufacturers in the U.S. have relocated their operations to countries such as China, India and
Russia in an effort to cut production costs. This has caused experienced domestic personnel to opt for
other job assignments. As a result, product quality within the supply chain has become a pressing issue.
Defects and rework attributable to poor systems are raising the costs of doing business. One of the
advantages of supply chain management is that it incorporates quality techniques, such as quality
management systems, to improve operations.

Inventory Buffers

In almost every type of business, there is variability in customer spending. This requires companies to
manage their inventories in a way that minimizes holding costs while providing enough flexibility to
meet customer demands. If inventory levels fall too low, businesses may have to pay overtime to
produce products or lose out on revenue by making customers wait or shop somewhere else. Supply
chain management systems typically include inventory buffer levels that are pre-determined with
careful analysis of historical trends.

Shipping Options

As e-commerce continues to grow globally, buyers have more options to order products than ever
before. Shipping options need to keep pace with the demands of the marketplace, which requires
companies to readjust their supply chains to meet customers’ preferences. Whether it is small parcel
shipping or larger bulk orders, shipping in a quick and accurate fashion is key for business success.
Supply chain management systems help companies determine the optimal ways to ship while reducing
costs to the lowest possible level.

Risk Mitigation

Managing risk is a key responsibility for business leaders, and supply chain management systems allow
for the identification of critical risk factors in an organization or with their suppliers. Whether it is
product quality, compliance with applicable laws or operational safety, management must mitigate risk
in an effective manner. Supply chain methodologies assist management with organizing risks and
ascertaining the potential for internal or external failures. Without effective supply chain management
systems, many companies are exposed to legal risks and liabilities.
Important elements of Supply Chain Management?
Purchasing- Supplier alliances, supplier management, strategic sourcing

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

Distribution- Transportation management, customer relationship management, network design,

Integration- Coordination/Integration activities, global integration problems, performance

Purchasing- Trends:

• Long term relationships

• Supplier management- improve performance through-

– Supplier evaluation (determining supplier capabilities)

– Supplier certification (third party or internal certification to assure product quality and
service requirements)

• Strategic partnerships- successful and trusting relationships with top-performing suppliers

Operations- Trends:

– 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 suppliers

Distribution- Trends:

– Transportation management- tradeoff decisions between cost & timing of

– Customer relationship management- strategies to ensure deliveries, resolve complaints,

– Network design- creating distribution networks based on tradeoff decisions between

Integration Trends:

– Supply Chain Integration- when supply chain participants work for common goals.
Requires intrafirm functional integration. Based on efforts to change attitudes &
adversarial relationships
Define/Explain purchasing process and advantages for the e-procurement
system?
Purchasing-

Obtaining merchandise, capital equipment; raw materials, services, or maintenance, repair, and
operating (MRO) supplies in exchange for money or its equivalent.

Merchant Buyers- wholesalers and retailers who purchase for resale.

Industrial Buyers- purchase raw materials for conversion, services, capital equipment, & MRO supplies.

The primary goals of purchasing are:

1. Ensure uninterrupted flows of raw materials at the lowest total cost,

2. Improve quality of the finished goods produced, and

3. Optimize customer satisfaction.

Purchasing contributes to these objectives by:

– Actively seeking better materials and reliable suppliers,

– Work closely with strategic suppliers to improve quality materials, and

– Involving suppliers and purchasing personnel in new product design and development
efforts

Electronic Procurement (e-Procurement)

– Step 1- Material user inputs a materials requisition- relevant information such as quantity and
date needed.

– Step 2- Materials requisition submitted to buyer- at purchasing department (hardcopy or

– Step 3- Buyer assigns qualified suppliers to offer - Product description, closing date, &
conditions are given.

– Step 4- Buyer reviews closed bids & selects a supplier

Advantages for the e-Procurement System

– Time savings , Cost savings, Accuracy, Real time, Mobility, Trackability, Management
Benefits to the suppliers
Supplier Evaluation & Certification?

Supplier evaluation is a term used in business and refers to the process of evaluating and approving
potential suppliers by quantitative assessment. The purpose of supplier evaluation is to ensure a
portfolio of best in class suppliers is available for use. Supplier evaluation is also a process applied to
current suppliers in order to measure and monitor their performance for the purposes of reducing costs,
mitigating risk and driving continuous improvement.

• A process to identify best and most reliable suppliers.

• Sourcing decisions are made based on facts and not merely on perception.

• Providing frequent feedback on supplier performance can help avoid surprises and maintain
good relationships.

• Suppliers should be allowed to provide constructive feedback to the customer

• Supplier Certification refers to “an organization’s process for evaluating the quality systems of
key suppliers in an effort to eliminate incoming inspections.” -Institute for Supply Management.

Criteria Used in Certification Programs

• No incoming product lot rejections (e.g., less than 0.5 percent defective) for a specified time
period.

• No incoming non-product rejections (e.g., late delivery) for a specified time period

• No significant supplier production-related negative incidents for a specified time period

• ISO 9000/Q9000 certified or successfully passing a recent, on-site quality system evaluation

• Mutually agreed-upon set of clearly specified quality performance measures

• Fully documented process and quality system with cost controls and continuous improvement
capabilities

• Supplier’s processes stable and in control

The Weighted-Criteria Evaluation System

1. Select the key dimensions of performance mutually acceptable to both customer and supplier.

2. Monitor and collect performance data.

3. Assign weights to each of the dimensions.

4. Evaluate performance measures between 0 and 100.

5. Multiply dimension rating by weight and sum overall score.

6. Classify vendors based on their overall score: Unacceptable, Conditional, Certified, & Preferred
 7. Audit and perform ongoing certification review.

ISO 9000

• Developed by International Organization for Standardization (ISO)- series of management &

• U.S. companies wanting to sell in the global market seek ISO 9000 certification.

ISO 14000

• A family of standards for environmental management.

• The benefits include reduced energy consumption, environmental liability, waste and pollution,
and improved community goodwill.