UNDERSTANDI

NG SUPPLY
CHAIN
MANAGEMENT
MODULE - 1
DEFINITION AND CONCEPT

▸ “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.” –
Council of Supply Chain Management Professionals
DEFINITION AND CONCEPT

▸ Supply Chain Management is the integration of business

process from the end user through original supplier who
provide products, services and information that adds value for
the customers. – Douglas M. Lambert
▸ Supply Chain Management can be defined as the management
of flow of products and services, which begins from the origin
of products and ends at the product’s consumption. It also
comprises movement and storage of raw materials that are
involved in work in progress, inventory and fully furnished
goods.
SUPPLY CHAIN STRUCTURE
 SUPPLY CHAIN STRUCTURE

▸ In a basic supply chain, the lead company forms a series of relationships

with companies that buy and sell supplies from each other. Each company
issues and processes purchase orders on demand.
Collaboration
▸ To improve supply chain efficiency, members can agree to increase
collaboration.
▸ This does not change the organization structure of companies buying and
selling to each other, but it creates more formal relationships.
▸ Members agree to share production and demand data over a secure
network so that each company can plan its operations more efficiently and
minimize the risk of supply fluctuations.
▸ Members may also decide to harmonize their quality standards to ensure
consistency and minimize waste throughout the supply chain.
SUPPLY CHAIN STRUCTURE

Partnership
▸ As collaboration increases, supply chain members
may form an organization structure based on long-
term partnerships to stabilize supply arrangements.
▸ They replace ad hoc purchase orders with long-term
supply contracts and may collaborate on cost-
reduction programs.
▸ Long-term contracts ensure continuity of supply for
the lead company and provide greater stability for
other members of the supply chain.
SUPPLY CHAIN STRUCTURE

Tiers
▸ Companies that depend on certain members of the
supply chain for essential supplies, such as critical
components or scarce raw materials, set up a tiered
structure.
▸ Tier 1 suppliers, for example, supply the most
important products or services.
▸ Companies in lower tiers operate as sub-contractors to
tier 1 companies. The relationship between tier 1
suppliers and the lead company are close, with
stringent quality and contractual arrangements in
place.
SUPPLY CHAIN STRUCTURE

Integration
▸ In an integrated supply chain, the lead company takes
formal control of its most important suppliers through
mergers or acquisitions.
▸ Integration can create a barrier to entry for
competitors and reduce costs if suppliers operate
efficiently.
▸ However, it can also reduce the lead company’s
flexibility to switch suppliers if problems occur.
SUPPLY CHAIN STRUCTURE

Material Flow
▸ Material flow includes a smooth flow of an item from the
producer to the consumer. This is possible through various
warehouses among distributors, dealers and retailers.
▸ The main challenge we face is in ensuring that the material
flows as inventory quickly without any stoppage through
different points in the chain. The quicker it moves, the better it
is for the enterprise, as it minimizes the cash cycle.
▸ The item can also flow from the consumer to the producer for
any kind of repairs, or exchange for an end of life material.
Finally, completed goods flow from customers to their
consumers through different agencies.
 SUPPLY CHAIN STRUCTURE

Information Flow
▸ Information/data flow comprises the request for quotation, purchase
order, monthly schedules, engineering change requests, quality
complaints and reports on supplier performance from customer side
to the supplier.
▸ From the producer’s side to the consumer’s side, the information flow
consists of the presentation of the company, offer, confirmation of
purchase order, reports on action taken on deviation, dispatch details,
report on inventory, invoices, etc.
▸ For a successful supply chain, regular interaction is necessary
between the producer and the consumer. In many instances, we can
see that other partners like distributors, dealers, retailers, logistic
service providers participate in the information network.
SUPPLY CHAIN STRUCTURE

Money Flow

▸ On the basis of the invoice raised by the producer, the

clients examine the order for correctness. If the claims are

correct, money flows from the clients to the respective

producer.
OBJECTIVE OF SUPPLY CHAIN
MANAGEMENT

▸ Supply chain management is concerned with the efficient

integration of suppliers, factories, warehouses and stores
so that merchandise is produced and distributed in the
right quantities, to the right locations and at the right
time, in order to minimize total system cost, satisfy
customer service requirements, face global competition
and improve standardization.
IMPORTANCE OF SUPPLY CHAIN

▸ BOOST CUSTOMER SERVICE:

 Customers expect the correct product assortment

and quantity to be delivered.

 Customers expect products to be available at the

right location

 Right delivery time

 Right after-sale support

IMPORTANCE OF SUPPLY CHAIN

▸ REDUCED OPERATING COSTS:

 Decreases production cost

 Decreases total supply chain cost

 INCREASED FINANCIAL POSITION:

 Increased profit leverage

 Decreases fixed assets

 Increases cash flow

IMPORTANCE OF SUPPLY CHAIN

IMPROVE QUALITY OF LIFE:

▸ Foundation for Economic Growth – Societies with a highly
developed supply chain infrastructure (modern interstate highway
system, vast railroad network, numerous modern ports and airports)
are able to exchange many goods between businesses and consumers
quickly and at low cost. As a result, the economy grows which leads
to an improved standard of living. In fact, the one thing that most
poor nations have in common is no or a very poorly developed supply
chain infrastructure.
IMPORTANCE OF SUPPLY CHAIN

IMPROVE QUALITY OF LIFE:

 Job Creation – Supply chain professionals design and operate all

of the supply chains in a society and manage transportation,

warehousing, inventory management, packaging and logistics

information. As a result, there are many jobs in the supply chain

field.
IMPORTANCE OF SUPPLY CHAIN

IMPROVE QUALITY OF LIFE:

 Opportunity to Decrease Pollution – Supply chain activities
require packaging and product transportation. As a by-product of
these activities, some unwanted environmental pollutants such as
cardboard waste and carbon dioxide fuel emissions are generated.
As designers of the network, supply chain professionals are in a
key position to develop more sustainable processes and methods.
SUPPLY CHAIN PROCESS
SCM PROCESS - PLAN

 We need to develop a plan or strategy in order to address how the

products and services will satisfy the demands and necessities of the
customers.
 In this stage, the planning should mainly focus on designing a strategy
that yields maximum profit.
 For managing all the resources required for designing products and
providing services, a strategy has to be designed by the companies.
 Supply chain management mainly focuses on planning and developing
a set of metrics.
SCM PROCESS – DEVELOP (SOURCE)

 In this stage, we mainly concentrate on building a strong

relationship with suppliers of the raw materials required for
production.
 This involves not only identifying dependable suppliers but also
determining different planning methods for shipping, delivery,
and payment of the product.
 Companies need to select suppliers to deliver the items and
services they require to develop their product.
SCM PROCESS – DEVELOP (SOURCE)

 So, in this stage, the supply chain managers need to construct a

set of pricing, delivery and payment processes with suppliers
and also create the metrics for controlling and improving the
relationships.
 Finally, the supply chain managers can combine all these
processes for handling their goods and services inventory.
 This handling comprises receiving and examining shipments,
transferring them to the manufacturing facilities and authorizing
supplier payments.
 SCM PROCESS – MAKE
 The third step in the supply chain management process is the manufacturing
or making of products that were demanded by the customer.
 In this stage, the products are designed, produced, tested, packaged, and
synchronized for delivery.
 Here, the task of the supply chain manager is to schedule all the activities
required for manufacturing, testing, packaging and preparation for delivery.
 This stage is considered as the most metric-intensive unit of the supply
chain, where firms can gauge the quality levels, production output and
worker productivity.
SCM PROCESS – DELIVER

 Here the products are delivered to the customer at the destined

location by the supplier.
 This stage is basically the logistics phase, where customer
orders are accepted and delivery of the goods is planned.
 The delivery stage is often referred as logistics, where firms
collaborate for the receipt of orders from customers, establish a
network of warehouses, pick carriers to deliver products to
customers and set up an invoicing system to receive payments.
SUPPLY CHAIN DECISION PHASES
Three Supply chain decision phases

The supply chain is changing gradually. As there are ever growing demand
of customers. Customers taste and preferences are changing day by day. 
To keep with customers, marketers need to change their marketing
activities. Moreover, The higher satisfaction of customers can give only
through effective supply chain decision.

That’s why the present marketers are investing their time more on 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.
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’s 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
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 supply chain planning phase.
The company starts its decision on 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:
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
There is less uncertainty about demand information.  The design, planning
and operation phases work in one frame. However,  There is a strong
influence on profitability and success. It is fair that successful companies
have a strong supply chain decision phases.
SUPPLY CHAIN STRATEGY (or DESIGN)
▸ Decides how to structure the supply chain over the next several
years
 chain configuration,
 resource allocated and
 process at each stage should perform
▸ Decisions include
 location and capacities of production and warehousing
facilities,
 the products to be manufactured or stored at various
locations,
 the method of transportation to be made available along
different shipping legs, and
 the type of information system to be utilized
SUPPLY CHAIN PLANNING
▸ Under the given configuration decisions are made which has
impact on a time frame of quarter to a year
▸ Starts with a forecast of the coming year or a comparable time
frame
▸ Planning decisions include
 which market will be supplied from which locations,
 the subcontracting for manufacturing,
 the inventory policies to be followed, and
 the timing and size of marketing promotions
▸ 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
▸ Companies define a set of operating policies that govern short-
term operations
SUPPLY CHAIN OPERATIONS
▸ Decisions are taken regarding individual customer order and the
time frame is week or days
▸ Configuration is fixed and policies are defined
▸ Objective is to handle incoming customer orders in the best
possible manner
▸ Decisions related with
 allocation of inventory or production to individual orders,
 set a date that 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 order
▸ Exploit the reduction in uncertainty and optimize performance
PROCESS VIEW OF SUPPLY CHAIN
MANAGEMENT

 A supply chain is a sequence of processes and flows that take place

within and between different stages and combine to fill a customer
need for a product
 Two ways to view the processes performed in a supply chain

o Cycle view and

o Push/pull view
CYCLE VIEW OF SCM

 Defines the processes involved and the owners of each process

 Process in a supply chain are divided into a series of cycles
 Supply chain process can be broken down into four process cycles such as

o Customer order cycle

o Replenishment cycle

o Manufacturing cycle

o Procurement cycle
CYCLE VIEW OF SCM

 Each cycle occurs at the interface between two successive stages of the
supply chain
 A cycle view of the supply chain is very useful when considering
operational decisions
 It clearly specifies the roles and responsibilities of each member of the
supply chain
 It helps the designer to consider the infrastructure required to support
the processes
PUSH/PULL VIEW OF SCM

 Categorises processes in a supply chain based on whether they are

initiated in response to a customer order (pull) or in anticipation of a
customer order (push)
 Categorisation is based on the timing of process execution relative to
end customer demand
 At the time of execution of a pull process customer demand is known
with certainty
 In case of push process at the time of execution of a process demand is
not known and must be forecasted
PUSH/PULL VIEW OF SCM

 Pull process – reactive process

 Push process – speculative process
 Push/pull boundary in a supply chain separates push process from pull
process
 Very useful when considering strategic decisions relating to supply
chain
 Forces more global consideration of supply chain processes as they
relate to a customer order
 More the pull process better the supply chain
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YOU