Introduction to supply chain Management
1) The network created amongst different companies producing, handling and/or distributing a specific product is called supply chain. Specifically, the supply chain encompasses the steps it takes to get a good or service from the supplier to the customer. Supply chain management is a crucial process for many companies, and many companies strive to have the most optimized supply chain because it usually translates to lower costs for the company. Quite often, many people confuse the term logistics with supply chain. In general, logistics refers to the distribution process within the company whereas the supply chain includes multiple companies such as suppliers, manufacturers, and the retailers.
2) Supply chain management (SCM) is the management of the flow of goods. It includes the movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption. Interconnected or interlinked networks, channels and node businesses are involved in the provision of products and services required by end customers in a supply chain.
3) Supply chain management has been defined as the "design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally.
Stages/ Key components in supply chain management
Supply chain management (SCM) is a process used by companies to ensure that their supply chain is efficient and cost-effective. A supply chain is the collection of steps that a company takes to transform raw components into the final product.
The following are five basic components of SCM.
· Plan
· Develop (Source)
· Make
· Deliver
· Return.
1) Plan : The first stage in supply chain management is known as plan. A plan or strategy must be developed to address how a given good or service will meet the needs of the customers. A significant portion of the strategy should focus on planning a profitable supply chain. This is the strategic portion of SCM. Companies need a strategy for managing all the resources that go toward meeting customer demand for their product or service. A big piece of SCM planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers.
2) Develop (Sourcing/ suppliers)
Develop is the next stage in supply chain management .It involves building a strong relationship with suppliers of the raw materials needed in making the product the company delivers. This phase involves not only identifying reliable suppliers but also planning methods for shipping, delivery, and payment. Companies must choose suppliers to deliver the goods and services they need to create their product. Therefore, supply chain managers must develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. And then, SCM managers can put together processes for managing their goods and services inventory, including receiving and verifying shipments, transferring them to the manufacturing facilities and authorizing supplier payments.
3) Make (production and operations) at the third stage, make, the product is manufactured, tested, packaged, and scheduled for delivery. This is the manufacturing step. Supply chain managers schedule the activities necessary for production, testing, packaging and preparation for delivery. This is the most metric-intensive portion of the supply chain - one where companies are able to measure quality levels, production output and worker productivity.
4) Delivery (distribution/ logistics) Then, at the logistics phase, customer orders are received and delivery of the goods is planned. This fourth stage of supply chain management stage is aptly named deliver. This is the part that many SCM insiders refer to as logistics, where companies coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments.
5) Return ( customer service) The final stage of supply chain management is called return. As the name suggests, during this stage, customers may return defective products. The company will also address customer questions in this stage. This can be a problematic part of the supply chain for many companies. Supply chain planners have to create a responsive and flexible network for receiving defective and excess products back from their customers and supporting customers who have problems with delivered products.
Importance of supply chain management
To remain competitive, small firms have to offer superior quality goods at the lowest prices possible. The need to minimize product costs makes effective supply chain management vital. There are costs involved in every process of the product life cycle, and it is the responsibility of management to ensure that these costs are kept low, so the company can continue to pass along these savings to the consumer.
1. Reduced Costs : Supply chain management involves identifying those processes that increase cost without increasing the value of the final product. These processes are wasteful and do not add value, and should be eliminated whenever possible.
2. Increased Efficiency : Resource wastage is a common source of increase production costs. Often this is due to improper planning. A company that employs supply chain management is able to achieve efficiency of its operations since only those value adding activities are encouraged. This ensures that the organization’s processes flow smoothly and output keeps inline with the company's needs
. 3. Increased Output : A company that employs supply chain management can foster close-knit relationships with its suppliers and customers, ensuring the timely fulfillment of orders. A company known for its timeliness and responsiveness will attract more customers, and will grow as a result of increased output and sales.
4. Increased Profits : Businesses exist to make profits. One of the most efficient ways of increasing a company’s profits is by ensuring that costs are kept as low as possible. The application of supply chain management by a small company leads to cost reductions due to elimination of wasteful processes. Since these are operating costs for the company, the savings on these costs reflect increased profits by the company.
Objectives of Supply chain management
A well designed SC is expected to support the strategic objectives of:-
1. Solving supplier’s problems and beyond his level.
2. Customer service performance improvement.
3. Reduction of pre & post production inventory.
4. Minimizing variance by means of activities like standardization, variety reduction, etc.
5. Minimum total cost of operation & procurement.
6. Product Quantity control.
7. Achieving maximum efficiency in using labour, capital & plant through the company.
8. Flexible planning and control procedures.
Decision Phase on supply chain management
Decision phases can be defined as the different stages involved in supply chain management for taking an action or decision related to some product or services. Successful supply chain management requires decisions on the flow of information, product, and funds that fall into three decision phases.
Here we will be discussing the three main decision phases involved in the entire process of supply chain. The three phases are described below −
Supply Chain Strategy
In this phase, decision is taken by the management mostly. The decision to be made considers the sections like long term prediction and involves price of goods that are very expensive if it goes wrong. It is very important to study the market conditions at this stage.
These decisions consider the prevailing and future conditions of the market. They comprise the structural layout of supply chain. After the layout is prepared, the tasks and duties of each is laid out.
All the strategic decisions are taken by the higher authority or the senior management. These decisions include deciding manufacturing the material, factory location, which should be easy for transporters to load material and to dispatch at their mentioned location, location of warehouses for storage of completed product or goods and many more.
Supply Chain Planning
Supply chain planning should be done according to the demand and supply view. In order to understand customers’ demands, a market research should be done. The second thing to consider is awareness and updated information about the competitors and strategies used by them to satisfy their customer demands and requirements. As we know, different markets have different demands and should be dealt with a different approach.
This phase includes it all, starting from predicting the market demand to which market will be provided the finished goods to which plant is planned in this stage. All the participants or employees involved with the company should make efforts to make the entire process as flexible as they can. A supply chain design phase is considered successful if it performs well in short-term planning.
Supply Chain Operations
The third and last decision phase consists of the various functional decisions that are to be made instantly within minutes, hours or days. The objective behind this decisional phase is minimizing uncertainty and performance optimization. Starting from handling the customer order to supplying the customer with that product, everything is included in this phase.
For example, imagine a customer demanding an item manufactured by your company. Initially, the marketing department is responsible for taking the order and forwarding it to production department and inventory department. The production department then responds to the customer demand by sending the demanded item to the warehouse through a proper medium and the distributor sends it to the customer within a time frame. All the departments engaged in this process need to work with an aim of improving the performance and minimizing uncertainty.
Process views of a supply chain
A Supply chain goes through a process. It is the process views of a supply chain. The supply chain process is a combination of two processes views.
- Cycle view:
The supply chain process has a series of cycle view. It has performed at the interface between two successive stages of the supply chain. - Push /Pull view:
The supply chain process has two categories. It is depending on the response to customer orders or forecasting customer orders. Pull process is known as a customer order. Whereas the push process is the anticipating of the customer order.
Cycle view of supply chain processes
The cycle view of the supply chain has five stages. Let’s see-
- Customer
- Retailer
- Distributor
- Manufacturer
- Supplier
These five stages have another four cycles. Each cycle happens at the interface of two successive stages of the supply chain. These four cycles are not the same in all supply chain. They all have different entities. For example, a grocery store. The grocery seller collects goods from its retailer. The wholesaler collects goods from distributors. And the distributor collects goods from producers. So, the grocery seller manages his supply chain by keeping finished goods. The seller maintains a good relationship with the wholesaler. So, before finishing foods, the grocery seller informs the wholesaler. Then he collects his goods from a wholesaler. See the four cycles of cycle view.
- Customer order cycle
- Replenishment cycle
- Manufacturing cycle
- Procurement cycle
Each cycle consists of six sub-processes. Have a look-
- Supplier stage markets products
- Buyer stage places order
- Supplier stage receives an order
- Supplier stage suppliers order
- Buyer stage receives stage receives the supply
- Buyer returns reverse flows to suppliers or third party.
Push /Pull view of supply chain processes
The supply chain process has two categories. It is depending on the response to customer orders or forecasting customer orders. Pull process is a customer order. Besides, the push process is the anticipating of the customer order.
Pull process is also a reactive process. However, they may respond or react to customer demand. On the other hand, the push process may also refer as speculative processes. Moreover, they respond to anticipate actual demand.
There is a boundary between pull and push a view. This boundary differentiated pull process from the push process. Push process is operated in an uncertain environment. Here, customer demand is unknown to all. Besides, the pull process is operated in a certain environment. Here, customer demand is known to all.
These two processes are often faced a constrained. That is capacity and inventory decisions.
Supply chain macro processes in a firm
This is another process of view of the supply chain. But this is not included in the main two views of the supply chain. It has three classifications. Let’s see-
- Customer relationship management (CRM): This is the combinations of all processes at the interface between the firm and its customers.
- Market
- Price
- Sell
- Call center
- Order management
2. Internal supply chain management(ISCM): This is the combinations of all processes that are internal to the firm.
- Strategic planning
- Demand planning
- Supply planning
- Fulfillment
- Field service
3. Supplier relationship management(SRM)
This is the combinations of all processes at the interface between the firm and its suppliers.
- Source
- Negotiate
- Buy
- Design collaboration
- Supply collaboration
These three macro processes manage the flow of information, product, and funds. This flows generate, receive and fulfill a customer request.
What Is a Value Chain?
A value chain is a business model that describes the full range of activities needed to create a product or service. For companies that produce goods, a value chain comprises the steps that involve bringing a product from conception to distribution, and everything in between—such as procuring raw materials, manufacturing functions, and marketing activities.
A company conducts a value-chain analysis by evaluating the detailed procedures involved in each step of its business. The purpose of a value-chain analysis is to increase production efficiency so that a company can deliver maximum value for the least possible cost.
What Is Supply Chain Management (SCM)?
Supply chain management is the management of the flow of goods and services and includes all processes that transform raw materials into final products. It involves the active streamlining of a business's supply-side activities to maximize customer value and gain a competitive advantage in the marketplace.
SCM represents an effort by suppliers to develop and implement supply chains that are as efficient and economical as possible. Supply chains cover everything from production to product development to the information systems needed to direct these undertakings.
Supply Chains
A supply chain is the connected network of individuals, organizations, resources, activities, and technologies involved in the manufacture and sale of a product or service. A supply chain starts with the delivery of raw materials from a supplier to a manufacturer and ends with the delivery of the finished product or service to the end consumer.
Unit 2
Pull v/s Push supply chain
Under pull supply chain, products are manufactured or procured based on specific customer requests. We also know it as “Built to Order” or “Configured to Order” model. We often see this model operating in IT/High Tech Industries, where customization is the competitive advantage. Briefly, we have seen this model in automotive eindustry and it is being used in high end luxury market segment. The objective of this model is to minimize the Inventory carrying and optimize supply. Pull model are is as a response to growing uncertainty in demand and short product cycle. Some of the characteristics of this model include:
1. Volatile demand situation
2. High rate of Customization
3. Minimal Inventory Carrying
4. Not a off the shelf product
5. Highly dynamic and effective distribution network.
Under Push model, products are manufactured or procured based on anticipated customer orders
(speculative). This model is also known as Built to Inventory or Built to Stock. The name itself reveals its
functionality. Products are manufactured in anticipation of customer needs. There are no prizes for identifying industries that use push model, it is obvious that retail heavily uses push model. Even though direct to store or cross docks are implemented, overall retail supply chain is based on push model. Some of the big names in the retail industry are trying to adopt the hybrid model which is a combination of pull and push. Some of the key challenges and characteristics could include:
1. High inventory costs,
2. Challenging working capital requirements due to low inventory turns;
3. Huge warehousing and distribution costs;
4. Inability to meet dynamic market conditions and
5. Seasonal demand and off the shelf product.
Unit 3
Supply chain performance drivers
The five drivers provide a useful framework for thinking about supply chain capabilities. Decisions made about how each driver operates will determine the blend of responsiveness and efficiency a supply chain is capable of achieving.
· PRODUCTION – This driver can be made very responsive by building factories that have a lot of excess capacity and use flexible manufacturing techniques to produce a wide range of items. To be even more responsive, a company could do their production in many smaller plants that are close to major groups of customers so delivery times would be shorter. If efficiency is desirable, then a company can build factories with very little excess capacity and have those factories optimized for producing a limited range of items. Further efficiency can also be gained by centralizing production in large central plants to get better economies of scale, even though delivery times might be longer.
· INVENTORY – Responsiveness can be had by stocking high levels of inventory for a wide range of products. Additional responsiveness can be gained by stocking products at many locations so as to have the inventory close to customers and available to them immediately. Efficiency in inventory management would call for reducing inventory levels of all items and especially of items that do not sell as frequently. Also, economies of scale and cost savings can be gotten by stocking inventory in only a few central locations such as regional distribution centers (DCs).
· LOCATION – A location decision that emphasizes responsiveness would be one where a company establishes many locations that are close to its customer base. For example, fast-food chains use location to be very responsive to their customers by opening up lots of stores in high volume markets. Efficiency can be achieved by operating from only a few locations and centralizing activities in common locations. An example of this is the way e-commerce retailers serve large geographical markets from only a few central locations that perform a wide range of activities.
· TRANSPORTATION – Responsiveness can be achieved by a transportation mode that is fast and flexible such as trucks and airplanes. Many companies that sell products through catalogs or on the Internet are able to provide high levels of responsiveness by using transportation to deliver their products often within 48 hours or less. FedEx and UPS are two companies that can provide very responsive transportation services. And now Amazon is expanding and operating its own transportation services in high volume markets to be more responsive to customer desires. Efficiency can be emphasized by transporting products in larger batches and doing it less often. The use of transportation modes such as ship, railroad, and pipelines can be very efficient. Transportation can also be made more efficient if it is originated out of a central hub facility or distribution center (DC) instead of from many separate branch locations.
· INFORMATION – The power of this driver grows stronger every year as the technology for collecting and sharing information becomes more wide spread, easier to use, and less expensive. Information, much like money, is a very useful commodity because it can be applied directly to enhance the performance of the other four supply chain drivers. High levels of responsiveness can be achieved when companies collect and share accurate and timely data generated by the operations of the other four drivers.
Facility and supply chain management
Facility in supply chain are:
1.Operating units (such as factories), storage facilities (such as warehouses), processing centers, distributions centers, and even offices since information is manipulated to trigger, move, and track products and services within and throughout the supply chain.
2.Operating units (such as factories), storage facilities (such as warehouses), processing centers, distribution centers, and even offices since information is manipulated to trigger, move, and track products and services within and throughout the supply chain
3.Operating units (such as factories), storage facilities (such as warehouses), processing centers, distributions centers, and even offices since information is manipulated to trigger, move, and track products and services within and throughout the supply chain.
In sense, facilities - any type and form, are assets. When I say assets, it could either be material, intellectual, or persons. Persons are assets if we can connect with them or already a part of our network.
Having said so, the role of any available facility to SCM would depend on the usefulness of the asset at the time its needed. Cases are, if we put a facility where it does not belong or maybe at the wrong place or time, that facility can actually be a disruption to the progress of activity in the SCM. Hence, the provision and use of facility must also be evaluated if really needed before placing it.
Supply chain management and inventory
Inventory management is the products or materials a company sells to its customers in order to make profit. As part of the supply chain, inventory management includes several different aspects such as controlling and overseeing purchases from suppliers and customers, maintaining the storage of stock, controlling the amount of product for sale and order fulfillment. There are three core steps of inventory management:
1. Purchasing inventory - raw materials or components are bought and delivered to the warehouse.
2. Storing inventory - inventory is stored until needed. Raw materials are moved to production facilities to be made into finished goods and returned to stock areas until ready for shipment.
3. Profiting from inventory - the amount of product for sale is controlled. Finished goods are pulled to fulfill orders. Products are shipped to customers.
the most important and difficult role that inventory plays in supply chains is that of facilitating the balancing of demand and supply. To effectively manage the flows in the supply chain, companies have to deal with upstream supplier exchanges and downstream customer demands. This puts a company in the position of trying to create an important equilibrium of fulfilling the demands of customers, which is often difficult to forecast with precision or accuracy, and maintaining adequate supply of materials and goods. This balance is often achieved using strategic information sharing for better inventory management.
Transportation and supply chain management
Transportation is a key logistics function of supply chains which runs from suppliers through to customers or stores. It involves the movement of product, service/transit time, and cost which are three of five traditional key issues of effective supply chains. It also impacts with the other two issues of movement of information and integration within and among suppliers, customers and carriers.
A transportation strategy, to be effective in supply chain management, is fitting the movement of goods to the corporate supply chain. It is not playing one carrier off against another. Rather it is a way to respond to the dynamics of the business, its customers, suppliers' and operation.
The strategy, regardless of whether you are involved with domestic or international, should recognize—
· Segment.: Each shipment does not have the same priority. Products, suppliers, customers, time of the year, and other factors can affect the importance and urgency of transport movements. The strategy cannot be one-dimensional. It should be segmented to reflect urgencies. That can mean mode changes and/or alternative carriers.
· Customer requirements: The supply chain involves continuous and efficient movement of product from vendor to manufacturer to customer. Therefore, the transportation program must reflect and meet customer needs. The time and service aspects of transportation are vital.
· Shipments must move timely: Customers demand their shipments be delivered as they require--on the date needed, by the carrier preferred, in the proper shipping packaging method and complete, both shipped complete and delivered complete and in good order. Being able to have a transportation program with can do this provides customer satisfaction and can give your company a competitive advantage.
· Mode selection : How will products move, by air versus surface? What modes will be used? What roles do transit time play in your supply chain? How will the inventory and service impacts be measured as compared to the freight charges?
· Carrier relationships: Volume creates carrier/forwarder attention. Even if there is no strategy, the number of carriers trying to get business will make firms develop one. Infrequent shipping dictates another approach.
The carrier attention with volume creates a competitive interest in your business. But there is another side to this attention as to freight cannot be divided among many carriers. This cannot be done for two reasons. First, as random, fracturing of the freight impacts negotiating or leverage position. Second, too many carriers hinder the ability to develop carrier relationships needed to meet supply chain requirements. Developing supply chain responsive programs be demands effort by both the carriers and shipper. Transportation must responsive and needs a focus with a carrier--a relationship.
· Measuring/Metrics. It is important to know how well the strategy and carriers are performing. This takes two approaches. One is measuring. Measuring means comparing performance versus agreed standards. What is the actual delivery to customer performance, on a macro basis, carrier and customer by customer basis? A macro measure can hide a problem even if the overall measure is good. And, with supply chain management, this means realizing primary customers and delivery locations. A test of measuring costs is how well the transport spend is being managed. Transport performance metrics can provide a way to view the value of the spend.
· Carrier mergers and alliances and closings. This is an important and difficult issue. Firms should understand what is happening within each mode and align the strategy with carriers who will still be viable in the future—often five years since strategic plans may extend that far. A great strategy with a carrier who is taken over or goes out of business is suddenly not a good strategy.
· Flexibility/Adaptability. Change is happening. It is not a question of whether or not it happens. The only question is how quickly it occurs. The strategy should be able to change. New customers. New products. New businesses. New suppliers. New corporate emphasis. Each of these can dramatically impact the strategy. The times they are a changing--and so will the strategy.
Conclusion. Transportation is a key logistics function and is critical to supply chain performance. To meet the vigorous requirements of the supply chain, the strategy should be dynamic. It must be responsive, both as to service and cost demands.
Information and supply chain management
Information is crucial to the performance of a supply chain because it provides the basis on which supply chain managers make decisions. Information technology consists of the tools used to gain awareness of information, analyze this information, and execute on it to improve the performance of the supply chain. Information is essential to making good supply chain decisions because it provides the broad view needed to make optimal decisions. IT provides the tools to gather this information and analyze it to make the best supply chain decisions (Chopra & Meindl, 2013).
Information is a key supply chain driver because it serves as the glue that allows the other supply chain drivers to work together to create an integrated, coordinated supply chain. Information is crucial to supply chain performance because it provides the foundation on which supply chain processes execute transactions and managers make decisions. Without information, a manager cannot know what customers want, how much inventory is in stock, and when more products should be produced or shipped. In short, information provides supply chain visibility, allowing managers to make decisions to improve the supply chain’s performance
In summary, information is crucial to making good supply chain decisions at all three levels of decision making (strategy, planning, and operations) and in each of the other supply chain drivers (facilities, inventory, transportation, sourcing, and pricing). Information Technology enables not only the gathering of these data to create supply chain visibility but also the analysis of these data so that the supply chain decisions made will maximize profitability.
Sourcing and supply chain management
It is a process of acquiring raw materials and other components, products or services of a company from its suppliers to execute its operations.
Sourcing is the entire set of business processes required to purchase goods and services.
The following are some of the benefits from effective sourcing decisions in SCM :
· Identifying the right source can result in an activity performed at higher quality and lower cost.
· Better economies of scale can be achieved if orders within a firm are aggregated.
· More efficient procurement transactions can significantly reduce the overall cost of purchasing. This is most important for items for which a large number of low-value transactions occur.
· Design collaboration can result in products that are easier to manufacture and distribute, resulting in lower overall costs. This factor is most important for components that contribute a significant amount to product cost and value.
· Good procurement processes can facilitate coordination with the supplier and improve forecasting and planning. Better coordination lowers inventories and improves the matching of supply and demand.
· Appropriate sharing of risk and benefits can result in higher profits for both the supplier and the buyer.
· Firms can achieve a lower purchase price by increasing competition through the use of auctions.
Unit 4
Role of distribution in supply chain
• What is distribution?
I. Distribution refers to the steps taken to move and store a product from the supplier stage to the customer stage in the supply chain.
II. Distribution occurs between every pair of stages in the supply chain.
III. Distribution is the key driver of the overall profitabilty of a firm because it affects both supply chain cost and the customer experience directly.
• Appropriate distribution network can be used to achieve a variety of supply chain objectives ranging from low cost to high responsiveness.
• A poor distribution network can hurt the level of service that customers receive while increasing the cost.
• An appropriate choice of distribution network results in customer needs being satisfied at the lowest possible cost.
Factors influencing distribution network design
Performance of a distribution network should is evaluated along two dimensions
1. Customer needs that are met
2. Cost of meeting customer needs
A firm must evaluate the impact on customer service and cost as it compares different distribution network options.
The needs that met influence the company’s revenues, which along with cost decide the profitability of the delivery network.
Customer services influence by structure of distribution network are as follow;
1. Response time
2. Product variety
3. Product availability
4. Customer experience
5. Time to market
6. Order visibility
7. Returnability
• Response time is the amount of time it takes for a customer to receive an order.
• Product variety is the number of different products/ configurations that are offered by the distribution network
• Product availability is the probability of having a product in stock when customer order arrives.
• Customer experience includes the ease with which customer can place and receive order as well as the extent to which this experience is customized.
• Time to market is the time it takes to bring a new product to the market.
• Order visibility is the ability of customer to track their orders from placement to delivery.
• Returnability is the ease with which a customer can return unsatisfactory merchandise and the ability of the network to handle such returns.
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