SUPPLY CHAIN MANAGEMENT

A firms supply chain is a network of organisations and business processes

for procuring raw materials, transforming these materials into intermediate
and finished products, and distributing the finished products to customers. It
links suppliers, manufacturing plants, distribution centres, retail outlets, and
customers to supply goods and services from source through consumption.
Materials, information and payments flow through the supply chain in both
the directions.
Supply Chain Management (SCM) is done to smooth the flow of products
and services from the manufacturer to the consumer to optimize cost.
Consider the example of Nike sneakers. Nike designs, markets, and sells
sneakers, socks, athletic clothing, and accessories throughout the world. Its
primary suppliers are contract manufacturers with factories in China,
Thailand, Indonesia, Brazil and other countries. These companies fashion
Nikes finished products.
Nikes contract suppliers do not manufacture sneakers from scratch, they
obtain components for the sneakers- the laces, eyelets, uppers and soles-
from other suppliers and then assemble them into finished products. These
suppliers in turn have their own suppliers. For example the suppliers of
soles have suppliers for synthetic rubber, suppliers for chemicals used to
melt the rubber for moulding and, suppliers for the mould in which to pour
the molten rubber.
A SCM system consists of an upstream portion and a downstream portion.
The upstream portion of the supply chain includes the company suppliers,
the suppliers suppliers, and the processes for managing relationship with
them. The downstream portion consists of the organisations and processes
for distributing and delivering products to the final customers.
Slide 6
SCM system consists of an upstream portion and a downstream portion.
The upstream portion of the supply chain includes the company suppliers,
the suppliers suppliers, and the processes for managing relationship with
them. The downstream portion consists of the organisations and processes
for distributing and delivering products to the final customers.

These supply chain inefficiencies waste as much as 25% of a companys

operating profits. If a manufacturer had perfect information about exactly
how many units of product customers wanted, when they wanted them, and
when they could be produced it would be possible to implement a highly
efficient just in time strategy. In a supply chain however, uncertainties may
arise because of many events
Slide 8
Bullwhip Effect
A slight rise in the demand for an item might cause different
members in the supply chain distributors, manufacturers, suppliers,
secondary suppliers, tertiary suppliers to stockpile inventory so
each has enough just in case.
These changes ripple throughout the supply chain, magnifying what
started out as a small change from planned orders, creating excess
inventory, production, warehousing and shipping costs.

The bullwhip effect is tamed by reducing uncertainties about demand

and supply when all the members of the supply chain have accurate
and up-to-date information

If all supply chain members share dynamic information about

inventory levels, schedules, forecasts, and shipments, theyve more
 precise knowledge about how to adjust their sourcing, manufacturing
and distribution plans
SCM systems provide the kind of information that helps members of
the supply chain make better purchasing and scheduling decisions.

Slide 10
Supply Chain Planning Systems
Such systems help companies make better decisions such as
determining how much of a specific product to manufacture in a
given time period; establishing inventory levels for raw materials,
intermediate products and finished goods; determining where to store
finished goods; and identifying the transportation mode to use for
product delivery.
One of the most important and complex Supply chaining planning
functions is demand planning which determines how much product
a business needs to make to satisfy all of its customers demand.

Example : Whirlpool Corporation uses SCPS to make sure what it

produces matches customer demand. The company uses SCP software
from i2 Technologies, that includes modules for master scheduling,
Deployment Planning, and Inventory Planning.
Whirlpool also installed i2s web based tool for Collaborative
Planning Forecasting and Replenishment (CPFR) for sharing and
combining its sales forecasts with those of its major sale partner.
Improvement in SCP system helped Whirlpool increase the availability of
products in stock when customer needed them to 97%, while reducing the
number of excess finished goods in inventory by 20% and forecasting
errors by 50%.

Supply Chain Execution Systems

 They track the physical status of goods, the management of
materials, warehouse and transportation operations, and financial
information involving all the parties.
It automates the different steps and stages of the supply chain while
SCP software uses advanced mathematical algorithms to improve the
flow and efficiency of supply chain while reducing inventory.
Haworth Incorporateds Transportation Management System and
Warehouse Management System are examples of such systems

SLIDE 11: PnG Case Study

Procter and Gamble(PnG) is one of the worlds largest consumer
goods companies with annual revenue surpassing $76 billion and
1,38,000 employees in 80 countries
The company sells more than 300 brands worldwide, including
Cover Girl cosmetics, Olay skin care, Crest, Charmin, Tide, Pringles,
and Pampers.
Demand variability for PnG products from its beauty division is very
high
It recently implemented a multi-echelon inventory optimization
system to manage its supply chain more efficiently. (John Kerr,2008)
Multi-echelon networks are networks in which products are located
in a variety of locations along their path to distribution, some of
which are in different echelons , or tiers, of the enterprises
distribution network.
The presence of multiple echelons in a distribution network makes
inventory management more difficult because echelon is isolated
from other echelons, so change in inventory made by one echelon
may have unpredictable consequences on the others.
 Multi-echelon inventory optimization seeks to minimize the total
inventory in all of the echelons of a companys supply chain

Slide 12
PnG prefers to develop its own analytical tools, but in this case turned to
Optiant for its PowerChain Suite multi-echelon inventory optimization
solution. Gillette which PnG was preparing to acquire at that time, had
already begun using Optiant software with strong results.
PowerChain Suite determines appropriate inventory configurations that
can adapt smoothly to quickly changing demand.
Results have been impressive. PnGs beauty division trimmed its
total inventory by 3-7% and maintained service levels above 99%.
In the first fiscal year, after the implementation of new software the
divisions earnings rose 13% and sales rose 7%.
Inventory days on hand were down by eight days compared to the
previous fiscal year.

Slide 16
A Framework of Supply Chain Management literature by Keah
Choon Tan
This research paper is from European Journal of Purchasing and
Supply Management (2001) 39-48.
Abstract: Over the past decade, the traditional purchasing and logistics
functions have evolved into a broader strategic approach to materials and
distribution management known as Supply Chain Management. This
research reviews the literature base and development of supply chain
management from two separate paths that eventually merged into the
modern era of a holistic and strategic approach to operations, materials and
logistics management.
 This research paper depicts that the development and evolution of
supply chain management owes much to the purchasing and supply
management, and transportation and logistics literature. As such, the term
supply chain management is used in many ways, but three distinct
descriptions dominate prior literature. Firstly, supply chain management
may be used as a handy synonym to describe the purchasing and supplying
activities of manufacturers. Secondly, it may be used to describe the
transportation and logistics functions of the merchants and retailers.
Finally it may be used to describe all the value-adding activities from the
raw materials extractor to the end users, and including recycling.

Determinants Of Inventory Trends In The Indian Automotive

Industry: An Empirical Study by Prof. Haritha Saranga, Arnab
Mukherji and Janat Shah, 2009
Abstract: Inventory Management has emerged as one of the
important tools to improve operational efficiency over the last 30-40
years across the globe. Japanese companies such as Toyota pioneered
lean manufacturing, which emphasizes on the need to maintain low
inventory levels across the supply chain through practices like JIT,
Kanban and vendor managed inventory etc. Anecdotal evidence
suggests that, inventory levels in general have been falling in the
Indian manufacturing industries too in the recent past. The Japanese
influence on the Indian manufacturing industry began with the entry
of Suzuki into the Indian automobile industry in mid eighties. Since
then, the principles of lean manufacturing have permeated across
many industries, especially the automotive sector in India. However,
there is scant empirical research in the literature that documents the
inventory trends and the determining factors in India. This study
aims at filling this gap through a comprehensive inventory trend
analysis in the Indian automotive industry during the 14 year period
1992-2005 with an objective to determine the inventory trends and
identify the influencing factors. We use advanced econometric
models to study the impact of various factors, such as the firm's
cluster, tier, export and import intensity on inventory levels. The
study finds that average inventory has been steadily declining, with
all three inventory components, viz., raw material, work-in-process
and finished goods inventory contributing to this decline. The results
suggest that the efficient working capital management and the quality
improvement efforts of Tier 1 firms have been one of the major
contributions to the decline in average inventory levels in the Indian
auto industry.