UNIT 1 – SUPPLY CHAIN MANAGEMNT

Meaning
Supply Chain Management 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.
In the above figure, we can see the flow of goods, services and
information from the producer to the consumer. The picture depicts
the movement of a product from the producer to the manufacturer,
who forwards it to the distributor for shipment. The distributor in turn
ships it to the wholesaler or retailer, who further distributes the
products to various shops from where the customers can easily get the
product.
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. This process can also minimize the rates by eradicating the
unnecessary expenses, movements and handling.
The Evolution and of Supply Chain Management
Supply Chain Management is the process in which a company
manages the flow of its goods and services from the point of origin to
the point of consumption. This process involves movement & storage
of raw materials, work-in-process inventory, finished goods, end to
end order fulfillment, movement of finished goods from manufacturer
to warehouse, and then to the destination of final consumption. While
this process sounds easy, it takes a ton of workforce to complete this
process, especially for companies with a large number of
products/services, multiple vendors, different warehouse locations,
different retail stores, etc.
With the rise in the number of every business associate, the
management of the supply chain becomes even more difficult. With
more discrepancy in supply chain management, companies began
looking for solutions. These solutions are now the basis of each stage
of the evolution of supply chain management.
The Stages of evolution in Supply Chain Management
There are a total number of 5 stages in the evolution of the supply
chain industry. These 5 stages include:
• Stage 1 – The early 1980s
• Stage 2 – Late 1980s
• Stage 3 – The early 1990s
• Stage 4 – Late 1990s
• Stage 5 – The twenty-first century
Stage 1 – Consolidation
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. For the purpose of achieving
inventory turns, small companies began merging into larger
organizations. This also led to organized planning of the production
cost which further resulted in becoming a good solution for most
businesses.
Stage 2 – Integration
In the late 1980s, 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. Companies that started
making profits in the earlier stage now analyzed that just production
cost will not help them in making more profits. And for this reason,
the rate of production and the volume of production became
important. By the end of this stage, companies found their solutions.
Stage 3 – Market Value
Then came the third stage of the supply chain evolution which began
in the early 1990s. Organizations in this stage started to focus more on
market-driven results. The key factor of this stage of evolution was
product availability and the performance metrics were clearly –
market share and order fill rate. Now the problem was not about
making more products but about delivering them to the markets. So,
by the end of this stage, businesses had the solution again and were
onto their next stages of growth for even better results.
Stage 4 – Brand Value
During the late 1990s, firms analyzed that 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.
With this, the key performance metrics changed from market share
and order fill rate to customer satisfaction, value-added, and response
time. Companies now had the time to analyze that products that were
made with a prime focus on customers were what sold out more.
That’s how companies started focusing on products that added value
to their companies.
Stage 5 – Automation
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
supply chain management. The key performance metrics for the 5th
stage of supply chain management is real-time communication and
business intelligence. Over the years, with a growth in each segment
of the supply chain, employment has also increased. With more
people in the circle, communicating every little detail to each person
has become a task. The process of storing information also began to
get hectic and for all these reasons, automation started out to be the
focus for companies to grow.
Today, all the companies using automation throughout their supply
chain are the companies that have a bigger scope to grow. With each
stage of the evolution, companies found their solutions, and likely,
this stage will also be smooth in transition for those who live up to the
changing strategies for their business growth – focus on automation.
Keeping automation as a solution for real-time communication and
business intelligence, your organization will get the chance to rise
above and move on to the next big solution of the next stage of the
evolution.
Example : Supplymint for Automation – The solution for the 5th
stage of Evolution
Difference between Logistics and Supply chain management
Importance of Supply Chain Management
Reduced Operating Cost
Retailers and manufacturers rely directly on Supply Chain
Management to have a reduced operating cost. Retailers bank on a
company’s SCM to sell their products and services. The business
world has become highly competitive and retailers can’t afford to lose
a customer. Right SCM boosts sales.
The same is applicable for manufacturers too. Dell computers were
known to take orders from customers or retailers worldwide, build
their specifications and send directly to them. This, an initiative of
Supply Chain Management saved more million dollars. Dell didn’t
have computers lying without use and retailers had no computers
lying in warehouses without being sold. With a SCM, both sides of
market do more.
Effective Customer Service
A business or organization’s sole purpose is to meet customers’
needs. Supply Chain Management manages customer service to
ensure demands are met. When a call is placed to your organization
about a product, customer service reaches out to SCM to ask or
investigate what customers want. Customer service 24/7 accessibility
is partly dependent on Supply Chain Management. SCM ensures right
delivery, on time delivery and right delivery
Quality Products
Supply Chain Management on the request of customers and high
competitive market increase the quality of products. They believe
services and products must be durable and reliable.
Functions of Supply Chain Management
1. Purchasing
The first function of supply chain management is purchasing. In the
manufacturing process, raw materials are required to produce goods
and products. It is important that these materials are procured and
delivered on time so that production can begin. For this to occur,
coordination with suppliers and delivery companies will be required
to avoid any potential delays.
2. Operations
Demand planning and forecasting are usually required before
materials can be procured, as the demand market will dictate how
many units to be produced and how much material is required for
production. This function is important in supply chain management as
organizations must accurately forecast demand to avoid having too
much or too little inventory that will lead to losses in revenue.
Therefore, demand planning and forecasting must be tied in with
inventory management, production, and shipping to avoid such
mistakes.
3. Logistics
Logistics is the part of supply chain management that coordinates all
aspects of planning, purchasing, production, warehousing, and
transportation so that the products will reach the end-consumer
without any hindrances. It is helpful to have adequate communication
between multiple departments so that products can be shipped to
customers quickly and at the lowest cost.
4. Resource Management
Production consumes raw materials, technology, time, and labor.
Resource management ensures that the right resources are allocated to
the right activities in an optimized manner. This will ensure that an
optimized production schedule is created to maximize the efficiency
of the operations. When calculating the available capacity, you should
consider the capabilities of each resource and determine whether they
can perform the work that is scheduled on it. This will ensure that you
are not over-promising orders and that your production schedule is
feasible and accurate.
5. Information Workflow
Information sharing and distribution is what keeps all of the other
functions of supply chain management on track. If the information
workflow and communication are poor, it could break apart the entire
chain. Many disruptions that arise in supply chains can be prevented
by increased visibility and communication. Having a consistent
system that is used by all departments will ensure that everyone is
working with the same set of data and will prevent
miscommunications and time spent updating everyone on new
developments.
Importance of Supply Chain Management
It is well known that supply chain management is an integral part of
most businesses and is essential to company success and customer
satisfaction. The main importance of Supply Chain Management are:
Reduce Operating Costs
 Decreases Purchasing Cost – Organizations generally
prefer quick distributions of costly products and raw
materials to avoid expensive inventory
 Decrease Production Cost –  A reliable supply chain
delivers materials to assembly plants and avoid any costs
that may occur due to delays.
Improve Customer Services
 Right quantity and quality – Customer expects delivery
of right quantity and quality of products.
  On-time delivery –  Customers expect to receive the
correct product mix and quantity to be delivered on time.
A reliable supply chain can help in avoiding any
bottlenecks and ensure customers get their products in the
promised time frame
 Services – After sales services is one of the important
aspects in any business. If any kind of problem occur in
the product, customer expects it to be fixed quickly. A
right supply chain ensures that customers get the service
they want.
Forward Momentum
Supply chain management streamlines everything from product flow
to unexpected natural disasters. With an effective SCM, organizations
can diagnose problems and disruptions correctly. SCM plays an
important role in moving items quickly and efficiently to destination.
With the emergence of competition in current market scenario, an
efficient supply chain can give a business the edge that it needs.

Global Supply Chain:

Global supply chains are networks that can span across multiple
continents and countries for the purpose of sourcing and supplying
goods and services. Global supply chains involve the flow of
information, processes and resources across the globe.
Difference Between Global Supply Chain vs Local Supply Chain
A global supply chain utilises low-cost country sourcing and refers to
the procurement of products and services from countries with lower
labour rates and reduced production costs than that of the home
country.
A global supply chain will usually flow from your own organisation
in your home country as a buyer across your supplier tiers; it is these
suppliers who will be located in other areas of the globe.
A local supply chain will look to optimise suppliers who are regional
to your own organisation, in some instances organisations will look to
leverage “home grown” supply routes, so all suppliers feeding into
your supply chain will be located within the country in which your
organisation is based, or the supply chain can be even closer in to
your organisation and may even be within the same state/city/district,
which often gives a clearer visibility of the whole supply chain from
raw material through to consumer.
However there are both positives and negatives with global supply
chains and the total landed cost or total cost of ownership should
always be factored into the true costs.
Advantages of Globally Sourced Goods
• Reduced cost price - due to lower labour and operating costs
linked to the manufacturer of the products.
• Supplier development - it is often possible to support
specialist product offerings leading to:
Opportunity to increase innovation
Sharing expertise and upskilling a new market/workforce
• Increasing competition – Developing new suppliers will open
up your access to suitably skilled supply routes.
Disadvantages of Globally Sourced Goods
Longer lead times – Whilst the production time can be quite quick
the lead time can often be much longer as the goods will require
shipping which can add to the lad time, this means that forward
planning can be a challenge.
Reputational risks – Risk exposure to modern slavery, brand and
financial risk exposure can all be increased.
Fluctuations in Exchange rates – Global markets are more
susceptible to regional influences that can impact trading markets.
Challenges in communication – There needs to be careful
consideration of terminology and the type of communication methods
used to interface with a global supplier to ensure information is
interpreted correctly.
Increased risk exposure based on STEEPLED factors - As the supply
chain spans over multiple countries there are increased risks of unrest
in other countries having a direct impact on your supply chain
activities.
Loss of control – Due to the distance in the working relationship it
can be difficult to manage communications and oversee technical
aspects of the production process. Quality issues can also be complex
to manage.
Benefits and Issues/Challenges of Supply Chain Management
Benefits of Supply Chain Management (SCM): The major benefits
that are possible with effective SCM are as follows –
• Faster or more accurate order processing;
• Reduction in inventory level;
• Weaker time to market;
• Lower transaction and material cost;
• Strategic, relationship with the supplier.
• Achieving agility and responsiveness in meeting the demands
of customers and business partners.
Challenges of Supply Chain Management (SCM):
 • Developing effective SCM is complex and difficult;
• Challenges of achieving business value goals. It includes the
challenges of rapid demand fulfillment, collaborative supply
chain planning, and execution.
• The challenges of achieving customer value goals: It includes’
the challenge of giving customers what they want?, When and
how they want it, at the lower cost.
• If accurate or over-optimistic demand forecast: Lack of
adequate collaboration among the different department of the
company.
• SCM is hard to implement and installed.
Types of Supply Chains
There are many different types of supply chain models available to
companies interested in implementing a strategy to improve efficiency
and workflow. The type of supply chain model a company selects will
often depend on how the company is structured and what its specific
needs are. Here are a few examples:
Continuous Flow Model: This is one of the most traditional supply
chain models and is best suited for mature industries that operate with
a certain degree of stability. It offers stability in high demand
situations. Manufacturers producing the same goods repeatedly, and
having a customer demand profile with little variation can benefit
from this model.
This model relies on the stability of supply and demand. Its processes
are scheduled in such a way that a continuous flow of information and
products is ensured.
Agile Model: This model of supply chain is best suited for industries
that deal with unpredictable demand and products that are made to
order. This model focuses on the supply chain’s ability to amp up
production on a moment’s notice but can remain static when the
demand is low. It demands excess production capacity, and the
processes are designed for the smallest possible batches of products.0
Fast Chain Model: This supply chain model is best suited for
industries that manufacture a trendy product and has a short life cycle,
such as fashion items. In addition to that, these businesses also need to
get them out fast before the trend ends. This model offers a certain
degree of flexibility. For the said industry, a business’ value proposals
are evaluated by how quickly and efficiently they can update their
product catalog in accordance with the latest trends.
The three main capabilities of this model are:
 From concept to market in a short time
 Highest forecast accuracy to reduce market mediation cost
 End-to-end efficiency to ensure affordable costs for customers.
Flexible Model: This model is best suited for industries with no
unexpected demands or relatively predictable demand peaks and long
periods of low workload. The flexible model provides businesses the
freedom to meet high demand peaks and manage long periods of low
volume work-load. The production can be switched on and off easily.
Four main capabilities of this model are:
 Stock-pile of critical resources
 Rapid-response capability
 Technical strengths in process and product engineering
 A process flow designed to be quickly reconfigurable.
Custom Configured Model: As the name suggests, this model’s
primary focus is on providing custom configurations, especially for
assembly and production processes. It is a hybrid combination of the
agile model and the continuous flow model.
Let us understand this with the example of an automobile
manufacturing process. Usually, the processes involving intricate sub-
assemblies such as assembling gears in a transmission box are
complicated and very time consuming because of intricate interlinking
of tiny parts. But attaching these multiple sub-assemblies into a final
product is as easy as plug-n-play. For example, attaching an
assembled transmission box to the car’s drive-train. Just like that, in
cases where final assembly is simpler compared to initial assembly
and the other downstream processes, the final assembly is managed
under an efficient, or a continuous-flow supply chain model. The
intricate sub-assembly configurations and the later downstream
processes then operate in an agile model.
Efficient Chain Model: This model is best suited for businesses
operating in highly competitive markets wherein pricing plays a large
part and businesses are fighting for the same group of customers.
Markets, where customers may not perceive major differences in the
value proposals of various competitors and end-to-end efficiency, are
the premium goal.
For achieving this, management must maximize the utilization of
machinery and other assets at their disposal to maintain high overall
equipment efficiency and a resultant reduction in cost. Inventory
management and order fulfillment are prime areas of focus for the
profitability of the business.
Efficiency Oriented Supply Chains
Efficiency oriented supply chain models include the following: 
 The Efficient model
 The Fast chain model 
 Continuous flow model. 
All three of these models are oriented towards prioritizing efficiency
and are geared toward certain industries such as paper, steel, cement,
commodity-producing industries and budget fashion industries.
This model is well suited in markets flooded with similarly
manufactured products, selling to the same type of consumers and the
value proposition is speed and cost-cutting. An efficiency-focused
model will ensure that the producer has sufficient inventory on hand to
keep things moving quickly and with a certain rhythm and allow them
to create products in bulk enabling lower costs.
Most industries that use an efficiency oriented model typically offer
low-value items that are produced in very high volumes. Such
companies generally do not deviate from their traditional production
lines.
The efficiency-oriented supply chain models have several benefits, but
they also have a few downsides, such as:
 May lead to an excess or overstocked inventory.
  This is not the most cost-effective model in all cases.

Responsive Supply Chains:

The three responsive supply chain models include the following:

 The Agile model
 The Flexible model
 Custom configured model 
Responsiveness driven models are ideal for “on-demand” situations
when there is uncertainty in product manufacturing. These models offer
flexibility for industries that require custom orders, trendy products, and
for manufacturers that have the capability of often making changes in
their products.

A good example of this model is a manufacturer that produces products

for different industries but their supply chain is flexible enough to
quickly switch raw materials and other supplies needed to meet the
custom requirements of a specific client. This week they may be making
spare parts for an automobile manufacturer; next week, they may be
making fasteners for construction projects. The responsiveness oriented
supply chain model has several benefits, but they also have a few
downsides, such as:
 These models rely heavily upon the ability of human
prediction to predict trends.
 In this model an under trained staff can make some critical
errors that can turn out to be very costly 
 These models require quite a bit of human interaction,
leaving the system prone to human error.