Supply Chain Management

A supply chain consists of all parties involved directly, or indirectly in fulfilling a customer request.

E.g. Manufacturers, Suppliers, Transporters, Warehouses, Retailers and even customers

Customer is an integral part of supply chain. Primary purpose  To satisfy customer needs.

Suppliers  Manufacturers  Distributors  Retailers  Consumers

Information, Funds and Product flows

Most supply chains are actually networks

A typical supply chain may involve a variety of stages

1. Customers

2. Retailers

3. Wholesalers/Distributors

4. Manufacturers

5. Component/ Raw Material Suppliers

Each stage is connected through the flow of products, information and funds in both directions
(Mostly) and may be managed by one of the stages or an intermediary

The principal streams are

1. Sourcing, Procurement, supply management

Set of activities, functions and processes concerned with economic procurement and inflow of
inputs into the enterprise and an efficient control over flow of funds out of the company

2. Materials Management

Materials constitute of 60% of the cost of most manufactured products  Efficient management of
materials route to cost reduction and profitability

Focus on reducing cost of inventories to the lowest possible levels without compromising on service
levels

Management of flow of material into, through and out of an enterprise, adding in the process, vale
for customers both internal and external to the organization

3. Logistics and Distribution

Part of SCM that plans, implements and controls efficient, effective, forward and reverse flow and
storage of goods, services and related information between the point of origin and point of
consumption in order to meet the customer needs

Transportation  50% of logistics cost

Inbound logistics and Outbound logistics

Objective of supply chain  To maximise overall value generated

Supply chain surplus = Customer value – Supply Chain Cost

Consumer Surplus = Value of the product – Price

The higher supply chain profitability the more successful the supply chain

Only one source of revenue = customer

Walmart  Clusters of stores around distribution centres (For Frequent Replenishment at its retail
stores in a cost effective manner

Allowed to match supply and demand more effectively at a low cost

Sharing information and collaborating with suppliers to bring down costs and improve product
availability

Seven Eleven Japan  Responsive Replenishment system partnered with outstanding information
system to ensure products are available when and where customers need them

Decision Phases in Supply Chain

Supply Chain Strategy or Design –

How to structure a supply chain over the next several years. Configuration, Allocation of resources
and what processes each stage will perform

Strategic  Outsource or perform a supply chain function in house, location, capacities of

production and warehousing facilities, the products to be manufactured or stored at various
locations, modes of transportation to be made available along different shipping legs, type of
information system to be used

Supply Chain Planning –

Time frame  Quarter to a year

Forecast for the coming year of demand and other factors such as costs and prices in different
markets.

Which markets will be supplied from which locations, the subcontracting of manufacturing, the
inventory policies to be followed, timing and size of marketing and price promotions

Supply Chain Operation –

Time Horizon  Weekly or Daily

Decisions regarding individual customer orders

Firms allocate inventory or production to individual orders

Handling of incoming customer orders in best possible manner

Goal is to reduce uncertainties and optimize performance

Process View of a Supply Chain :

1. Cycle View – The processes in a supply chain are divided into a series of cycles, each performed at
the interface between two successive stages of the supply chain

2. Push/Pull View – The processes in a supply chain are divided into two categories depending on
whether they are executed in response to a customer order or in anticipation of customer orders.
Pull orders are initiated by a customer order, whereas push orders are initiated and performed in
anticipation of customer orders

A cycle view of supply chain clearly defines the processes involved and the owners of each
processes. The view is useful when considering operational decisions because it specifies the roles
and responsibilities of each member of the supply chain and the desired outcome for each process.

Pull Processes  Reactive processes  React to customer demand (Uncertainty)

Push Processes  execution is initiated in anticipation of customer orders based on forecast

(Certainty)

A push/pull view of the supply chain categorizes processes based on whether they are initiated in
response to a customer order or in anticipation of a customer order. This view is useful when
considering strategic decisions relating to supply chain design

Within a firm, all supply chain activities belong to one of the three macro processes : CRM, ISCM
and SRM. Integration among the three macro processes is crucial for successful supply chain
management

CRM – Customer Relationship Management

SRM – Supplier relationship management

ISCM – Internal Supply Chain Management

All three manage flow of information, product and funds to generate customer demand and
facilitate the placement and tracking of orders