SUPPLY CHAIN MANAGEMENT

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Question Bank with answers

1. State the objectives and benefits of Supply chain Management

The objectives of supply chain management include optimizing efficiency, minimizing
costs, increasing customer satisfaction, and providing a competitive advantage to firms. To
that end, companies need to ensure that their supply chain processes are as streamlined and
automated as possible.
Benefits:
Better collaboration. Information flow is a prominent challenge for
companies. ...
Improved quality control. ...
Higher efficiency rate. ...
Keeping up with demand. ...
Shipping optimization. ...
Reduced overhead costs. ...
Improved risk mitigation. ...
Improved cash flow.

2. Explain how Supply Chain has evolved (History of Supply chain development)
There have been three major revolutions along this journey, and we examine each of them
in the context of the broader evolution in the economic environment.
The First Revolution (1910–1920): Vertical Integrated Firms Offering Low Variety of
Products. The first major revolution was staged by the Ford Motor Company where they
had managed to build a tightly integrated chain. The Ford Motor Company owned every
part of the chain - right from the timber to the rails. Through its tightly integrated chain, it
could manage the journey from the iron ore mine to the finished automobile in 81 hours.
 However, as the famous saying goes, the Ford supply chain would offer any color, as long
as it was black; and any model, as long as it was Model T. Ford innovated and managed to
build a highly efficient, but inflexible supply chain that could not handle a wide product
variety and was not sustainable in the long run. General Motors, on the other hand,
understood the demands of the market place and offered a wider variety in terms of
automobile models and colors. Ford’s supply chain required a long time for set-up changes
and, consequently, it had to work with a very high inventory in the chain. Till the second
supply chain revolution, all the automobile firms in Detroit were integrated firms. Even
traditional firms in India, like Hindustan Motors, were highly integrated firms where the
bulk of the manufacturing was done in house.

The Second Revolution (1960–1970): Tightly Integrated Supply Chains Offering Wide
Variety of Products. Towards the end of the first revolution, the manufacturing industry
saw many changes, including a trend towards a wide product variety. To deal with these
changes, firms had to restructure their supply chains to be flexible and efficient. The supply
chains were required to deal with a wider product variety without holding too much
inventory. The Toyota Motor Company successfully addressed all these concerns, thereby
ushering in the second revolution.The Toyota Motor Company came up with ideas that
allowed the final assembly and manufacturing of key components to be done in-house. The
bulk of the components was sourced from a large number of suppliers who were part of the
keiretsu system. Keiretsu refers to a set of companies with interlocking business
relationships and shareholdings.The Toyota Motor Company had long-term relationships
with all the suppliers. \These suppliers were located very close to the Toyota assembly
plants. Consequently, set-up times, which traditionally used to take a couple of hours, were
reduced to a couple of minutes. This combination of low set-up times and long-term
relationships with suppliers was the key feature that propelled the second revolution - and
it was a long journey from the rigidly integrated Ford supply chain. The principles followed
by Toyota are more popularly known as lean production systems.

3. The Third Revolution (1995–2020): Virtually Integrated Global Supply

 Networks Offering Customized Products and Services. Technology, especially information
technology, which is evolving faster than enterprises can find applications for some of the
innovations, is the fuel for the third revolution in supply chain. It will probably take at least
couple of years before we can fully understand the IT-enabled model that has emerged and
begin to apply it to all industries. However, we have enough information to get a reasonably
good understanding of the contours of the third revolution. We can understand the key
characteristics of the third revolution using the example of Dell computers (Customized
product), Apple Inc.(Revolutionized used experience) and Bharti Airtel(strategic
outsourcing and partnerships with global partners for these core activities). The first is a
product company, the second combines product and service, and third is a pure service
organization. In each of these organizations, we can see different aspects of the third
revolution.

4. Explain the decision phases in Supply Chain Management and their influence
Supply chain strategy or design: During this phase, a company decides how to structure
the supply chain over the next several years. It decides what the chain’s configuration will
be, how resources will be allocated, and what processes each stage will perform. Strategic
decisions made by companies include whether to outsource or perform a supply chain
function in-house, the location and capacities of production and warehousing facilities, the
products to be manufactured or stored at various locations, the modes of transportation to
be made available along different shipping legs, and the type of information system to be
used. Pepsi Co Inc.’s decision in 2009 to purchase two of its
largest bottlers is a supply chain design or strategic decision.

Supply chain planning: For decisions made during this phase, the time frame considered
is from a quarter to a year. Therefore, the supply chain’s configuration determined in the
strategic phase is fixed. This configuration establishes constraints within which planning
must be done. The goal of planning is to maximize the supply chain surplus that can be
generated over the planning horizon given the constraints established during the strategic
or design phase. Companies start the planning phase with a forecast for the coming year
(or a comparable time frame) of demand and other factors, such as costs and prices in
 different markets. Planning includes making decisions regarding which markets will be
supplied from which locations, the subcontracting of manufacturing, the inventory policies
to be followed, and the timing and size of marketing and price promotions. For example,
steel giant Arcelor-Mittal’s decisions regarding markets supplied by a production facility
and target production quantities at each location are classified as planning decisions. In the
planning phase, companies must include uncertainty in demand, exchange rates, and
competition over this time horizon in their decisions. Given a shorter time frame and better
forecasts than in the design phase, companies in the planning phase try to incorporate any
flexibility built into the supply chain in the design phase and exploit it to optimize
performance. As a result of the planning phase, companies define a set of operating policies
that govern short-term operations.
Supply chain operation: The time horizon here is weekly or daily. During this phase,
companies make decisions regarding individual customer orders. At the operational level,
supply chain configuration is considered fixed and planning policies are already defined.
The goal of supply chain operations is to handle incoming customer orders in the best
possible manner. During this phase, firms allocate inventory or production to individual
orders, set a date by which an order is to be filled, generate pick lists at a warehouse,
allocate an order to a particular shipping mode and shipment, set delivery Schedules of
trucks, and place replenishment orders. Because operational decisions are being made in
the short term (minutes, hours, or days), there is less uncertainty about demand information.
Given the constraints established by the configuration and planning policies, the goal
during the operation phase is to exploit the reduction of uncertainty and optimize
performance. The design, planning, and operation of a supply chain have a strong impact
on overall profitability and success. It is fair to state that a large part of the success of firms
such as Walmart and Seven-Eleven Japan can be attributed to their effective supply chain
design, planning, and operation.

5. State how do you measure the performance of Supply Chain? Explain

Supply Chain Performance Measures.

 An exhaustive list of supply chain performance measures is observed here along with its’
significant impact of supply chain performance on business performance using
benchmarking data and also the methodology for linking the two. Among various sets of
supply chain performance measures discussed in the literature, we focus on a set of
performance measures that have been most widely accepted in the industry. The Supply-
Chain Council is an independent, non-profit, global corporation interested in getting the
industry to standardize supply chain terms so that meaningful supply chain benchmarking
can be carried out. It has developed the Supply Chain Operations Reference (SCOR) model
as the industry standard for supply chain management. Several supply chain software
vendors have adopted the SCOR performance measures in their performance management
module. SCOR recognizes six major processes: Plan, Source, Make, Delivery, Return, and
Enable.
As per the SCOR model, supply chain performance measures fall under the
following five broad categories:
i. Cost
ii. Assets (Asset Management Efficiency)
iii. Reliability
iv. Responsiveness
v. Agility

6. State the need and benefits of outsourcing in modern industries

The need for outsourcing is - to focus on core competencies, to manage risk, to have
flexibility in scaling, to have access to a global talent pool, and lastly, to save cost.
Benefits :
Reduce your labor costs. The single most significant cost for most businesses is labor. ...
Improve team efficiency through outside expertise. ...Grow on a budget. ...Focus on
what's important. ... Access to global talent. ... International expansion. ... 24-hour
production. ... Increase productivity.

7. Explain Make vs. Buy approach

A make-or-buy decision is an act of choosing between manufacturing a product in-house
or purchasing it from an external supplier. Make-or-buy decisions, like outsourcing
decisions
The supply chain involves a number of firms and encompasses all activities
associated with the transformation of goods from the raw material stage to the final stage,
wherein the goods and services reach the end customer. While studying make versus buy
decisions, we analyze from the point of view of the focal firm or the nodal firm, which is
at the strategic center of the supply chain. The make versus buy decision evaluates the
contribution of each activity. Using the value chain framework developed by Michael
Porter, we classify all supply chain activities as primary activities and support activities.
Primary activities consist of inbound logistics, operations, outbound logistics, sales and
service. Secondary activities involve procurement, technology development, human
resource management and firm infrastructure management. The make versus buy decisions
look at each of these activities critically and ask the question: Should this activity be done
internally or can it be outsourced to an external party? Once the decision to outsource has
been taken, the firm has to choose among competing suppliers and also decide on the nature
of the relationship it would like to establish with the supplier firm. Traditionally, firms
believed that everything should be done internally unless there is a compelling logic in
favor of outsourcing. Thus, all outsourcing-related decisions had to be justified. We have
come a long way from the days of the Ford Motor Company, where vertical integration
was the norm. Now, perhaps, we are on the other extreme with our discussion of virtual
corporations, where a firm starts with the assumption that all activities must be outsourced
unless there is a compelling logic to justify keeping activities in-house. Michael Dell, the
CEO of Dell Computers, has stated that if his company was vertically integrated, it would
need five times as many employees and would suffer from a drag effect. Apart from
primary activities in the value chain, even support activities that were usually done in-
house are outsourced in big way now. Rather than taking extreme positions, we need to
build up managerial logic to understand these issues. Hence, we first look at a few cases
where firms have made these decisions in recent years and then bring out a conceptual
framework that can help firms in their make versus buy decisions.
In India, Bharti AIRTEL has decided to focus on customer delight and brand building and
leave network management and a host of other services to its outsourcing partners.
 When Reliance put up its refinery in Jamnagar, it realized that the volume of logistics had
increased significantly and therefore decided to build internal competence. Thus, Reliance
Logistics came into being, and today, not only does it manage its own logistics activities
but also provides services to the food division of ITC.

8. How do you identify the Core processes in an organization

The Business Process Route:

For any firm, three core and high-level business processes include customer relationship,
product innovation and supply chain management. Customer relationship focuses on
acquiring new customers and building relationships with existing customers. Product
innovation focuses on developing new products and services, while supply chain
management focuses on fulfillment of customer orders. It is possible to un-bundle the three
business processes and a firm can afford to outsource two of these business processes.
Some researchers have argued that a firm must identify and ensure that it builds core
capabilities in-house in at least one of these areas. Firms like HP and high-end
pharmaceutical firms focus on product innovations. Firms like Nike and Benetton focus on
brand building and customer relationships. Firms like Wal-Mart and Dell Computers focus
on supply chain management capabilities. Of course, within the identified core business
process, firms can examine each of the activity and probably outsource those activities that
are of the commodity type. For example, within supply chain management, firms might
outsource the warehousing or transportation functions.
In the case of Microsoft, it decided that customer relationship management and software
design are its core processes, while design and manufacturing is not core to its business.
Bharti decided that customer relationship was core and network management was not.

The Product Architecture Route

In the product architecture approach, the focus is on sub-systems and components and the
 make or buy decisions are made at that level. A product like a car can be divided into
subsystems such as engine, chassis and transmission. The engine sub-system can be
divided into components such as power cylinder, fuel system and engine electronics. In a
product, first the sub-systems are classified as strategic and non-strategic. A sub-system is
strategic if it involves technologies that change rapidly, if it requires specialized skills and
technologies and if it can significantly impact the performance of the product on attributes
that are considered important by the customer.
By keeping theses strategic sub-systems internal, a firm can ensure that it can offer
differentiated products and can avoid being commoditized. Further, within a sub-system,
the same kind of analysis has to be done for all major components. All those components
where the firm is technologically ahead of potential suppliers or can hope to achieve a
leadership position with some investments are kept internal to the firm. In case the suppliers
have a huge technological lead, which will be impossible to bridge in the foreseeable
future, or if the time and investments required for catching up may not be worth the effort,
then the component should be outsourced and the supplier should be treated as a strategic
partner (see Figure 3.1 for a diagrammatic view of the overall framework). Of course, if a
firm finds that for all the components the suppliers have a lead and it has no hope of
catching up in the near future, then the firm has become a hollow corporation and will see
a decline in its fortunes over a period of time. Tata Motors realized that in diesel engine
technology it was far behind its suppliers and will never be in a position to catch up with
them. So it decided to buy diesel engines from Fiat and treat Fiat as a strategic partner.
Cummins discovered that pistons were part of a strategic sub-system but that its suppliers
were far ahead in the relevant technologies and therefore decided to buy pistons rather than
make them internally. Honda might treat engine technology a strategic sub-system, while
Nissan might treat transmission as a strategic sub-system. Of course, once Tata Motors
decided to source the design of diesel engine sub-systems from the supplier, it ensured that
in the other systems kept in-house, it maintained the position of a leader.

9. List and explain the factors influencing Make or Buy Decision

Factors Influencing Make or Buy Decisions:
 1. Volume of Production If the volume of production is high, it favors the make decision
and low volume favors buy decisions.
2. Cost Analysis: Break Even Analysis
3. Utilization of Production Capacity: The organization, which has created large
production capacity, favors the decision to make
4. Integration of Production System: The vertical integration favors the make decision
where as horizontal integration favors buy decision
5. Availability of Manpower: Availability of skilled and competent manpower favors
makes decision where as scarce manpower prefers buy decisions.
6. Secrecy or Protection of Patent Right: This condition favors the make decision
7. Fixed Cost :A lower fixed cost favors the decision to make and higher fixed cost the
make decision
8. Availability of competent suppliers or vendors
9. Quality and reliability of vendors.

10. Differentiate between Product architecture route and Business Process Route

11. Write a note on Sourcing Strategy: Portfolio Approach

Sourcing Strategy: Portfolio Approach
Firms buy a large number of components and services and, of course, not all of them should be
handled in same way. The popular portfolio approach developed by Kraljic (see Figure 3.3)
classifies items based on the importance of the item in terms of value of purchase (high versus
low) and associated supply risk in the supply market. Supply risk captures two dimensions: number
of suppliers in the market and the demand–supply gap in the supply market. If an item has very
few suppliers who have monopoly in the market and supply is less than the demand, the buyer
faces a significant supply risk. In supply markets where there are large numbers of players and
there is surplus capacity in the market, the items bought will be classified as low-supply-risk
category items. Packaging material and transport service markets come in this category and
represent low-risk items. Diesel engines, diesel fuel systems and proprietary technology items have
few suppliers, so they represent the high-risk-supply category. For example, Bosch has a market
share of 81 per cent in the fuel-injection equipment market, so obviously it comes under the high-
risk category. Similarly, oil and steel in the early part of the 21st century represented the high-risk
category because demand outstripped supply. There was a strong demand for steel and fuel in India
and China and, as a result, demand outstripped supply. Because of the supply uncertainty created
by the disturbances in Iraq, the supply risk for oil increased significantly after the interventions by
the United States of America in Iraq. Classifying items on their purchasing value is a
straightforward issue because it just needs internal data and growth projections at the firm level.
Supply risk, on the other hand, represents a more sophisticated analysis because the focus is on the
supply markets, and in the case of many commodities, the supply markets are global in nature. So
firms should either develop adequate capability in this area or should take help from experts for
carrying out this exercise. Like everything else, purchasing expenditure per item also follows the
80–20 rule, that is,20 per cent of the items represent about 80 per cent of the value of purchase.