Monograph # 2

Topic:
Fundaments of Value Chain and Supply Chain Management

Definitions:
Value Chain

The value chain describes the full range of activities which are required to bring a

product or service from conception, through the different phases of production

(involving a combination of physical transformation and the input of various

producer services), delivery to final consumers, and final disposal after use.

Supply Chain

Supply chain management builds upon the logistics management framework and seeks to

achieve linkage and co-ordination between the processes of other entities in the pipeline, i.e.

suppliers, and customers, and the organization itself.

 Difference between Value Chain & Supply Chain

The following are the major differences between supply chain and value chain:

1. The integration of all the activities, persons, and business through which a product is

transferred from one place to another is known as supply chain. Value Chain refers to a chain of

activities that is indulged in adding value to the product in every single step till it reaches the

final consumer.

2. The concept of Supply Chain is originated from operational management, whereas value

chain is derived from business management.

3. Supply Chain activities include the transfer of material from one place to another. On the

other hand, Value Chain is primarily concerned with providing value for price product or service.

4. The order of supply chain begins with product request and ends when it reaches the

customer. Unlike value chain, which begins with the customers request and ends with the

product.

5. The major objective of the supply chain is to gain complete customer satisfaction which

is not with the case of the Value Chain.

Concept of Supply Chain Management:

Managing supply and demand, sourcing raw materials and parts, manufacturing and assembly,

warehousing and inventory tracking, order entry and order management, distribution across all

channels, and delivery to the customer

The Supply Chain Council

The planning and management of all activities involved in sourcing and procurement,

conversion, and all logistics management activities also includes coordination with channel

partners, which can be suppliers, intermediaries, third party service providers, and customers.

Council of Supply Chain Management Professionals

Why we need Supply Chain Management?

We have an increased reliance on suppliers. Procurement happens in each and every aspect of an

organization, from business needs to IT needs. Everything needed in a corporation is tied to

suppliers and there will be a long list of suppliers in no time. The need to manage supplier
relations, information, contracts and more grows rapidly while the need to follow regulations

persists.

An effective SCM system helps accomplish the following:

Managing contractual obligations to assure a continuous supply and avoid a service companys

delivery disruptions.

Strengthening supplier relations for systematic synergy with suppliers and different lines of

business.

Enterprise spending management to assure procurement happens through the right suppliers

and reduces costs.

Managing risk and compliance to abide by organizational as well as industry specific

regulations and compliances.

Establishing a single comprehensive supplier view and deriving insightful procurement

analytics.

Process of Supply Chain:

Four primary cycles involve in supply chain process:

Customer Order Cycle

Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Objectives of Supply Chain Management

Following are the main objectives of supply chain management:

1: To maximize overall value generated

The higher the supply chain profitability or surplus, the more successful the supply chain is.

The supply chain profitability is the difference between the amount paid by consumer to

purchase the product and cost incurred by organization to produce and the supply the products to

customer at right time.

2: To look for sources of revenue and Cost:

There is only one source of revenue i.e. customer.

Appropriate management of the flow of information, product or funds is a key to supply chain

success.

3: Replenishment of the material or product whenever required.

4: Cost quality improvement

5: Shortening time to order

 6: Faster speed to Market

7: To meet consumer demand for granted delivery of high quality and low cost
with minimal lead time.

8: To achieve world class performance

9: More awareness of supply chain dynamic and efficiency

10: To fulfill customer demand by efficient resources

11: Good understanding of business understanding

12: Helps in better decision

Conflicts within Supply Chain

High inventories higher customer service levels

[ but supply chains operate inefficiently]

Low inventories Efficient supply chain operations

[ but customer service levels are at stake]

Supplier objective Manufacturer Retailer Customer

 objective objective objective

Large stable Desire low Reduce Low price &

demand for less product variety / inventory and high product
variety of high production transportation quality and
materials volumes costs variety

Flexible delivery Flexible delivery Rapid JIT receiving

schedules schedules replenishment of products,
short lead
times

Bullwhip effect:
Through the numerous stages of a supply chain; key factors such as time and supply of order
decisions, demand for the supply, lack of communication and disorganization can result
in one of the most common problems in supply chain management. This common
problem is known as the bullwhip effect; also sometimes the whiplash effect. In this blog
post we will explain this concept and outline some of the contributing factors to this
issue.

The bullwhip effect can be explained as an occurrence detected by the supply chain where orders

sent to the manufacturer and supplier create larger variance then the sales to the end

customer. These irregular orders in the lower part of the supply chain develop to be

more distinct higher up in the supply chain. This variance can interrupt the smoothness
of the supply chain process as each link in the supply chain will over or underestimate the

product demand resulting in exaggerated fluctuations.