Subject: Supply chain management

Module-1

Introduction:

The global market faces a fierce competition today. The introduction of products with shorter life
cycles and the sharp expectations of customers have forced business enterprises to invest in, and
focus attention on, their supply chains. This, together with continuing advances in
communications and transportation technologies (e.g., mobile communication, internet, and
overnight delivery), has motivated the continuous evolution of the supply chain and of the
techniques to manage it effectively. Recently, the pressure of the competitive market and new
information technologies has affected the structures of the production systems, calling for:
 reduction of time to market
 higher flexibility of the systems
 drastic reduction of costs
 extended quality concept

The Council of Supply Chain Management Professionals defines supply chain management as
follows: “Supply chain management encompasses the planning and management of all activities
involved in sourcing and procurement, conversion, and all logistics management activities”.
Importantly, it also includes coordination and collaboration with channel partners, which can be
suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain
management integrates supply and demand management within and across companies.

Supply Chain
 A supply chain is a system of organizations, people, technology, activities, information
and resources involved in moving a product or service from supplier to customer.
 A supply chain is a network of retailers, distributors, transporters, storage facilities, and
suppliers that participate in the production, delivery and sale of a product to the
consumer.
 These activities are associated with the flow and transformation of goods from the raw
materials stage to the end user, as well as the associated information and funds flows.
 Supply chain activities transform natural resources, raw materials and components into a
finished product that is delivered to the end customer.
 In simple terms, a supply chain is the link between a firm or business and its suppliers
and customers.
  The supply chain, which is also referred to as the logistics network, consists of suppliers,
manufacturing centers, warehouses, distribution centers, and retail outlets, as well as raw
materials, work-in-process inventory, and finished products that flow between the
facilities.

A supply chain has three key parts:

Supply which focuses on the raw materials supplied to manufacturing, including how, when, and
from what location.

Manufacturing which focuses on converting these raw materials into finished products.

Distribution which focuses on ensuring that the products reach the consumers through an organized
network of distributors, warehouses, and retailers.

 A supply chain encompasses all activities in fulfilling customer demands and requests.
 In sophisticated supply chain systems, used products may re-enter the supply chain at any
point where residual value is recyclable.
 A supply chain strategy refers to how the supply chain should operate in order to compete
in the market. The strategy evaluates the benefits and costs relating to the operation. The
supply chain strategy focuses on the actual operations of the organization and the supply
chain that will be used to meet a specific goal.
 The supply chain integrates, coordinates and monitors the flow of materials, information,
and funds.
  Supply chain management involves coordinating this flow of materials within a company
and to the end consumer.
 SCM is also called the art of management of providing the right product, at the right time,
right place and at the right cost to the customer.

Supply chain management can be divided into three main flows:

• The Product flow includes moving goods from supplier to consumer, as well as
dealing with customer service needs.
• The Information flow includes order information and delivery status.
• The Financial flow includes payment schedules, credit terms, and additional
arrangements.
Supply chain management is a set of approaches utilized to efficiently integrate suppliers,
manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right
quantities, to the right locations, and at the right time, in order to minimize system-wide costs
while satisfying service level requirements.
.
The objectives of supply chain management can be listed below:
• enhancing customer service
• expanding sales revenue
• reducing inventory cost
• improving on-time delivery
• reducing order to delivery cycle time
• reducing lead time
• reducing transportation cost
• reducing warehouse cost
• reducing supplier base
• expanding depth of distribution
1.5 Importance of Supply Chain Management

The importance of supply chain management comes into picture if there is sharp focus on the
loss due to the absence of an effective supply chain strategy and / or the benefit due to an
effective supply chain for any firm. Basically, it refers that how good is the integration of supply
chain that matters for any firm. The importance of having a robust supply chain management can
be depicted from the following example:
Suppose, ABC is any company that manufactures the cycle chains for a cycle
manufacturing company XYZ. Another company PQR manufactures bits used in the cycle
chain manufactured by ABC. Now, in coming days, as per the market forecast, XYZ shall need
50,000 units of cycle chain, information that is not available with ABC. Accordingly, PQR also
does not know how many bits to produce in order to meet ABC’s requirement. The result would
be either both ABC and PQR hold high safety stock inventory or lose business respectively with
XYZ and ABC. Now, if in this example showing only three supply chain partners, absence of a
critical information among the partners, that is of production forecast at XYZ firm results into
either a higher inventory level or loss of future business

The importance of supply chain management is to:

• reduce inventories along the chain
• share better information among the partners
• plan in consultation rather than in isolation

Barriers of supply chain management:

The obstacles of supply chain management include:
• lack of top management support
• non-aligned strategic and operating philosophies
• inability or unwillingness to share information
• lack of trust among supply chain members
• unwillingness to share risks and rewards
• inflexible organisational systems and processes
• cross-functional conflicts
• inconsistent or inadequate performance measures
• resistance to change
• lack of training for new mindsets and skills
The scope of supply chain management:
The scope of supply chain activities includes:
• sourcing and procurement
• production scheduling and manufacturing
• order processing
 • inventory management
• warehousing
• customer service
• distribution
• Reverse logistics (Reverse logistics is a type of supply chain management that moves
goods from customers back to the sellers or manufacturers. Once a customer receives a
product, processes such as returns or recycling require reverse logistics)

What Is Supply Chain Management?

Supply chain management refers to the activities that create finished goods from raw materials
and deliver them to the customer. SCM also focuses on improving supply chain processes, which
can benefit both customers and business partners. A company can only optimize and
continuously refine SCM when it has visibility across its supply chain. This visibility enables
companies to track goods and services as they move through each stage of the supply chain,
which makes it much easier to see if everything is running as planned

What Are Logistics?

Most popular concept of logistic management is the concept of 7 R’s i.e. getting the Right product, in
the Right quantity, in the Right condition, at the Right place, at the Right time, to the Right customer,
at the Right price. Logistics includes planning and executing the storage and movement of goods
between different points in the supply chain. Logistics coordinates facilities, people, equipment and
other resources to ensure products move when they’re supposed to and there is space for them at the
next stop. Transportation (including fleet management), inventory management, material handling and
order fulfillment are all processes that fall under logistics.

Supply Chain Management vs. Logistics

SCM includes the high-level processes involved in sourcing and buying raw materials and
eventually creating finished goods. SCM uses logistics to deliver goods to the consumer, but it
ultimately strives to boost the bottom line and increase a business’s competitive edge. In other
words, SCM sets the strategy and directs daily logistical activities that happen in factories,
warehouses, local shipping centers and other facilities. Logistics is an aspect of the supply chain
that stores or delivers finished goods or services to the customer. The goal of logistics is to get
goods and services to the customer on time and at a competitive price.

Some common aspects of SCM and logistics are:

 Both focus on goods, services or information.
 Both have the ultimate aim of supporting the company’s success and distinguishing it from
competitors.
 Both seek to increase customer satisfaction.
 Both revolve around the same flow of goods and services, from the supplier, to the manufacturer,
to the wholesaler and finally to the retailer or consumer.
 Key differences between SCM and logistics include:

 Transforming a raw material into finished products and getting it to customers is the prime function
of the SCM and movement of materials in whole supply chain is the function of logistics.

 Logistics are activities in supply chain management. SCM covers a variety of activities,
including production and inventory planning, labor planning, materials and facilities
management, manufacturing and delivering goods and services.
 SCM works toward improving processes to create competitive advantages, while logistics
emphasizes meeting customer needs and expectations.
 Logistics focus on the efficient and cost-effective delivery of goods to the customer.
 Supply chain management controls the development of raw materials into finished goods that
move from the supplier to producer to warehouse to retailers and/or consumers.

Why is logistics management important in the supply chain?

Logistics is an aspect of the supply chain that has multiple roles and functions which enhance the
overall growth of operations. Creating an effective logistics strategy by implementing
technological advancements can lead your business to the next level. As the logistics process
monitors the storing and transporting of the goods or services to the final destination. Therefore,
we can conclude that logistics and supply chain go hand in hand. Business of all sizes
streamlines the logistics processes to minimize the cost and increase the efficiencies of overall
operations. It will help the organizations to determine and identify the potential problems which
are beneficial to optimizing end-to-end supply chain operations.
Roles of Logistics in Supply Chain Management:
Logistics management is that part of supply chain management that plans, implements, and
controls the efficient, effective forward and reverses flow and storage of goods, services and
related information between the point of origin and the point of consumption in order to meet
customers' requirements. The success of an organization depends largely on the efficient role of
logistics in supply chain management. Supply chain management (SCM) is the comprehensive process of
coordination and management of the entire production flow of goods and services from the beginning
of the production process through delivery to the consumer. It comprises activities related to business
processes such as procurement, manufacturing, storing, maintenance, distribution, and so on. The
ultimate goal is to achieve a sustainable competitive advantage by using new-age technologies and
optimizing these processes. Logistics is an integral part of SCM that refers to the planning of the
movement and storage of the goods from the producer to the end consumer. It plays an essential role in
determining how resources are acquired, stored, and transported in the most cost-effective manner to
the final destination for fulfilling customer demands.
 Logistics is considered to be an essential component of supply chain management. It
comprises several modes of transportation that begins from delivering the right products or
goods at the best time. Here are some of the major roles of logistics in the supply chain:
1. Order Processing
The major role of logistics in the supply chain begins with order processing as the company
accepts the order from the customer. Effective logistics tends to manage the entire workflow that
starts from order placement to delivery. Nowadays, the order processing activity is technical-
centric which is crucially dependent on the size of the business as it focuses on fulfilling the
customer orders. A well-managed logistics ecosystem ensures that the orders are properly
prepared, packaged, and delivered to the destination. These are the major functions of order
processing-Picking inventory Order placement Sorting Packing Shipping.

2. Warehouse Management
Managing and storing the inventory is a major process of warehouse management system
because it safeguards the goods which are to be distributed to the customers. It plays a huge role
in the supply chain as it is the centralized location that stores the entire inventory, whether it is
raw materials or finished goods. Therefore, it is always advisable that warehouses should be near
to the dealer or the distributors’ place for the efficient delivery of the goods.
Therefore, a warehouse management system effectively audits and tracks the materials and
goods. Also, it is responsible for determining the special requirements like docking facilities,
cold storage, etc.
3. Inventory Management
It is among the logistics functions that determine and identify how much stock is needed to order
at what time. It is important to maintain sufficient level of inventories for fulfilling the customer
demands. It helps organizations to monitor inventory records for restocking and predicting the
demand for goods, ensuring safety, and so on. Effective inventory management tends to
determine and analyze if there is too much or too little stock in the warehouses. It will help you
to meet the customer demands through production and optimizing the inventory. Therefore,
tracking inventory databases is essential to making decisions about supply chain operations.
4. Transportation
The act of transporting the goods throughout a company’s supply chain efficiently is the most
important role of logistics management. It involves automated routing and route optimization
that tremendously saves cost and determines the success of supply chain management. In the
contemporary world, implementing technological advancements in logistics activities is highly
inevitable as it manages the overall operations and strengthens customer loyalty. Therefore, it
involves the movement of goods from one point to another by following the compliance and
regulations in the logistics industry. Investing in a fleet management system can mitigate the
transportation risk.
 5. Packaging
During transport and handling, the products or goods can be subjected to breakage or spillage so
good packaging is necessary to prevent any kind of mishap. The role of logistics management is
to ensure that the products are safely transferred in large volumes from point A to point B. The
necessary measures should be taken to avoid regulatory issues and make transportation cost-
effective in the logistics industry. Having the right logistics packaging is majorly important for a
well-packaged product that can prevent your product from any kind of damage, deterioration,
and tampering.
6. Demand Forecasting
Logistics demand forecasting is an effective way to anticipate the requirement for products or
goods in the supply chain management process. The scheduling and planning of processes are
important to manage the uncontrollable conditions or circumstances of the market. Therefore,
forecasting models help businesses to make informed decisions by predicting customer demands
and fulfilling the orders in the shortest time span. Therefore, the use of modern technology with
advanced analytics and powerful databases can take your organization to the next leap.
7. Quick Response
One of the most important roles of logistics is to resolve the customer query in the shortest time
span. It enables the fleet owners to manage the supply chain for meeting consumer demands.
Therefore, it helps the organizations to operate reactively to each order without bottlenecks,
delays, and errors. A quick response strategy can lead to accuracy and fulfillment of customer
orders. Responding to the customers in real-time is the most constructive business practice. In
the contemporary world, deploying new-age technology can save a lot of time by meeting the
customer’s needs.

8. Material Handling
It is necessary that logistics companies should store and protect the materials throughout the
process of manufacturing, warehousing, and distribution. Handling the materials efficiently can
ensure that the products or goods are reaching safely to the customers with ever-rising shipping
costs. The role of logistics management is to embrace and support the diverse needs of the
customers by analyzing the product demand and implementing robust material handling systems.
Therefore, optimizing the logistics processes by improving the material handling and
streamlining the delivery times can improve the overall customer service.

Decision Phases of Supply Chain Management:

Many stages involved in supply chain management for taking an action or making a decision
connected to a product or service are known as decision phases.
The three primary decision phases of supply chain management are:
1. Supply chain design (Strategy)
2. Supply chain management decision (Planning)
3. Operational level (Operation)
Three decision phases are required for successful supply chain management: information flow,
product flow, and fund flow.

Decision Phases of Supply Chain Management

Many stages involved in supply chain management for taking an action or making a decision
connected to a product or service are known as decision phases.
The three primary decision phases of supply chain management are:
1. Supply chain design (Strategy)
2. Supply chain management decision (Planning)
3. Operational level (Operation)
The three primary decision steps involved in the entire supply chain process will be discussed
below. The following are the three phases:

Supply Chain Strategy:

During this period, management makes the majority of the decisions. The decision to be taken
takes into account areas such as long-term forecasting and the cost of goods, which can be highly
costly if things go wrong. At this point, it’s critical to research market conditions. These
selections are based on the current and future market conditions. They make up the supply
chain’s structural layout. The tasks and responsibilities of each are put out after the layout is
completed. The higher authority or senior management is in charge of all strategic choices.
Manufacturing the material, factory site (which should be easy for transporters to load material
and dispatch at their specified destination), warehouse location (for storage of completed product
or products), and many other considerations are among them.
Supply Chain Planning:
Demand and supply should be considered when planning the supply chain. A market study
should be conducted in order to comprehend customer demands. The second factor to evaluate is
public knowledge and current information about the situation competition and the techniques
they employ to meet customer demands requirements. Distinct markets have different demands,
as we all know be approached in a different way. This phase covers everything, from forecasting
market demand to determining which market will receive final goods to determining which
factory will be built in this stage. All firm participants or workers should make every effort to
make the entire procedure as adaptable as possible. If a supply chain design phase works well in
short-term planning, it is deemed successful.

Supply Chain Operations:

The third and final decision phase entails making a variety of functional decisions in a matter of
minutes, hours, or days. The goal of this decision-making step is to reduce ambiguity and
improve performance. This phase includes everything from taking the customer’s order to
delivering the product to the consumer. Consider a consumer who requests a product that your
company produces. The marketing department is initially in charge of receiving orders and
forwarding them to the production and inventory departments. The manufacturing department
subsequently reacts to the client’s request by delivering the requested item to the warehouse via a
proper media, where it is distributed to the consumer within a reasonable time limit. All of the
departments involved in this process must work together to improve performance and reduce
uncertainty.

OR
Supply chain decision phases

Phases of decision-making in the context of supply chain management refer to the steps that
must be taken before a final call can be made on a product or service. Three distinct decision-
making processes are involved in effective supply chain management, each affecting the flow of
information, goods, and money.

The supply chain is changing gradually. As there is ever-growing demand of customers.

Customers’ tastes and preferences are changing day by day. To keep up with customers,
marketers need to change their marketing activities. Moreover, the higher satisfaction of
customers can give only through effective supply chain decisions. Explore- the importance of
supply chain management. That’s why the present marketers are investing their time more in the
supply chain decision phases. As a result, successfully supply chain management requires many
decision phases. This decision includes information, funds, and products.
Each decision is useful to bring supply chain surpluses. These decisions fall into three categories.
However, these decisions are depending on the frequency of each decision and time frame. As a
result, each category of decisions must consider uncertainty over the decision horizon.

1. Supply chain strategy or design:

In this supply chain decision phase, a company decides how to design the supply chain over the
next several years. The company decision includes – what the chain configuration will be. How
resources will be allocated? And what processes each stage will perform. Moreover, there are
some strategic decisions that a company should decide.

 In-house vs. outsource – managing order, subcontracting

 Location &capacities – production cost plus warehouse
 Transportation networking
 Strategic change – brick mortar vs. online
 Strategic change = supply chain surplus
 Supply chain planning

Supply chain planning

Time is considered in a quarter to a year. Therefore, the previous phase determined the phase is
fixed. This phase establishes constraints within the organization. Supply chain planning is used
for solving the constraints. Therefore, this decision phase has a goal. This is to maximize the
supply chain surplus. Besides, this surplus can be achieved through the supply chain planning
phase. The company starts its decision by forecasting demand for the coming year or other
factors or costs and prices in different markets. Planning includes subcontracting of
manufacturing, inventory policies, timing, and size of marketing and price promotions

 Demand forecasting
 Procurement planning and control
 Production planning and control
 Supply chain operations:

3. Supply chain operations:

After completing the previous two phases, supply chain operations are needed to do. Here, the
time horizon is weekly or daily. In this phase, companies make decisions on managing individual
customer orders. Here, the supply chain configuration is considered fixed. And planning policies
are already defined. Besides, the goal of Supply chain operations is to handle incoming customer
orders in the best possible manner. During this phase, companies do-

 Inventory management
 Transportation management
 Customer order processing
 Relationship management.