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1 INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

A supply chain is a system of organizations, people, technology, activities, information and resources involved in moving a product or service from supplier to customer. All stages involved, directly or indirectly, in fulfilling a customer request. Includes manufacturers, suppliers, transporters, warehouses, retailers, customers. The goal of supply chain should be to maximize overall supply chain profitability. Customer is an integral part of the supply chain. Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers. Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of consumption. Supply chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management. It also includes the crucial components of coordination and collaboration with channel partners, which can be suppliers, intermediaries, thirdparty service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies. Supply chain management can also refer to supply chain management software which includes tools or modules used to execute supply chain transactions, manage supplier relationships and control associated business processes. Supply chain event management is a consideration of all possible events and factors that can disrupt a supply chain. With SCEM possible scenarios can be created and solutions devised. Supply chains encompass the companies and the business activities needed to design, make, deliver, and use a product or service.

4.2 SUPPLY CHAIN DECISIONS

Production Decisions- Production refers to the capacity of a supply chain to make and store products. The facilities of production are factories and warehouses. The fundamental decision that managers face when making production decisions is how to resolve the trade-off between responsiveness and efficiency. The strategic decisions include what products to produce, and which plants to produce them in, allocation of suppliers to plants, plants to

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DC's, and DC's to customer markets. As before, these decisions have a big impact on the revenues, costs and customer service levels of the firm. Factories can be built to accommodate one of two approaches to manufacturing:
1. Product focusA factory that takes a product focus performs the range

of different operations required to make a given product line from fabrication of different product parts to assembly of these parts.
2. Functional focusA functional approach concentrates on performing

just a few operations such as only making a select group of parts or only doing assembly.

Inventory Decisions- Inventory is spread throughout the supply chain and includes everything from raw material to work in process to finished goods that are held by the manufacturers, distributors, and retailers in a supply chain. Again, managers must decide where they want to position themselves in the trade-off between responsiveness and efficiency. Holding large amounts of inventory allows a company or an entire supply chain to be very responsive to fluctuations in customer demand. However, the creation and storage of inventory is a cost and to achieve high levels of efficiency, the cost of inventory should be kept as low as possible. There are three basic decisions to make regarding the creation and holding of inventory:
1. Cycle Inventory-This is the amount of inventory needed to satisfy

demand for the product in the period between purchases of the product.
2. Safety Inventory-Inventory that is held as a buffer against uncertainty.

If demand forecasting could be done with perfect accuracy, then the only inventory that would be needed would be cycle inventory.
3.

Seasonal InventoryThis is inventory that is built up in anticipation of predictable increases in demand that occur at certain times of the year. For example, it is predictable that demand for anti-freeze will increase in the winter. If a company that makes anti-freeze has a fixed production rate that is expensive to change, then it will try to manufacture product at a steady rate all year long and build up inventory during periods of low demand to cover for periods of high demand that will exceed its production rate.
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Location Decisions- Location refers to the geographical setting of

supply chain facilities. It also includes the decisions related to which activities should be performed in each facility. The responsiveness versus efficiency trade-off here is the decision whether to centralize activities in fewer locations to gain economies of scale and efficiency, or to decentralize activities in many locations close to customers and suppliers in order for operations to be more responsive. When making location decisions, managers need to consider a range of factors that relate to a given location including the cost of facilities, the cost of labor, skills available in the workforce, infrastructure conditions, taxes and tariffs, and proximity to suppliers and customers. Location decisions tend to be very strategic decisions because they commit large amounts of money to long-term plans. Location decisions have strong impacts on the cost and performance characteristics of a supply chain. Once the size, number, and location of facilities is determined, that also defines the number of possible paths through which products can flow on the way to the final customer. Location decisions reflect a companys basic strategy for building and delivering its products to market.

Transportation Decisions- This refers to the movement of everything

from raw material to finished goods between different facilities in a supply chain. In transportation the trade-off between responsiveness and efficiency is manifested in the choice of transport mode. Fast modes of transport such as airplanes are very responsive but also more costly. Slower modes such as ship and rail are very cost efficient but not as responsive. Since transportation costs can be as much as a third of the operating cost of a supply chain, decisions made here are very important. Since transportation is more than 30 percent of the logistics costs, operating efficiently makes good economic sense. Shipment sizes, routing and scheduling of equipment are key in effective management of the firm's transport strategy.

Information Decisions- Information is the basis upon which to make decisions regarding the other four supply chain drivers. It is the connection between all of the activities and operations in a supply chain. To the extent that this connection is a strong one, (i.e., the data is accurate, timely, and complete), the companies in a supply chain will each be able to make good decisions for their own operations. This will
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also tend to maximize the profitability of the supply chain as a whole. That is the way that stock markets or other free markets work and supply chains has many of the same dynamics as markets.

4.3 ACTIVITIES AND FUNCTIONS OF SUPPLY CHAIN MANAGEMENT

Supply chain management is a cross-function approach including managing the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and the movement of finished goods out of the organization and toward the end-consumer. As organizations strive to focus on core competencies and becoming more flexible, they reduce their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and the velocity of inventory movement. Several models have been proposed for understanding the activities required to manage material movements across organizational and functional boundaries. SCOR is a supply chain management model promoted by the Supply Chain Council. Another model is the SCM Model proposed by the Global Supply Chain Forum (GSCF). Supply chain activities can be grouped into strategic, tactical, and operational levels. Strategic Level Strategic network optimisation, including the number, location, and size of warehousing, distribution centers, and facilities. Strategic partnerships with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics.

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 Product life cycle management, so that new and existing products can be optimally integrated into the supply chain and capacity management activities. Information technology infrastructure to support supply chain operations. Where-to-make and what-to-make-or-buy decisions. Aligning overall organizational strategy with supply strategy. Tactical Level Sourcing contracts and other purchasing decisions. Production decisions, including contracting, scheduling, and planning process definition. Inventory decisions, including quantity, location, and quality of inventory. Transportation strategy, including frequency, routes, and contracting. Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise. Milestone payments. Focus on customer demand. Operational Level Daily production and distribution planning, including all nodes in the supply chain. Production scheduling for each manufacturing facility in the supply chain (minute by minute). Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers. Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers. Inbound operations, including transportation from suppliers and receiving inventory. Production operations, including the consumption of materials and flow of finished goods. Outbound operations, including all fulfillment activities, warehousing and transportation to customers.

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 Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers.

4.4 COMPONENTS OF SUPPLY CHAIN MANAGEMENT

The SCM components are the third element of the four-square circulation framework. The level of integration and management of a business process link is a function of the number and level, ranging from low to high, of components added to the link (Ellram and Cooper, 1990; Houlihan, 1985). Consequently, adding more management components or increasing the level of each component can increase the level of integration of the business process link. The literature on business process re-engineering, buyer-supplier relationships, and SCM suggests various possible components that must receive managerial attention when managing supply relationships. Lambert and Cooper (2000) identified the following components: Planning and control Work structure Organization structure Product flow facility structure Information flow facility structure Management methods Power and leadership structure Risk and reward structure Culture and attitude However, a more careful examination of the existing literature leads to a more comprehensive understanding of what should be the key critical supply chain components, the "branches" of the previous identified supply chain business processes, that is, what kind of relationship the components may have that are related to suppliers and customers. Bowersox and Closs states that the emphasis on cooperation represents the synergism leading to the highest level of joint achievement. A primary level channel participant is a business that is willing to participate in the inventory ownership responsibility or assume other aspects of financial risk, thus including primary level components. A secondary level participant (specialized) is a business that participates in channel relationships by performing essential services for
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primary participants, including secondary level components, which support primary participants. Third level channel participants and components that support the primary level channel participants and are the fundamental branches of the secondary level components may also be included. Consequently, Lambert and Cooper's framework of supply chain components does not lead to any conclusion about what are the primary or secondary level supply chain components. That is, what supply chain components should be viewed as primary or secondary, how should these components be structured in order to have a more comprehensive supply chain structure, and how to examine the supply chain as an integrative one. Reverse Supply Chain Reverse logistics is the process of planning, implementing and controlling the efficient, effective inbound flow and storage of secondary goods and related information opposite to the traditional supply chain direction for the purpose of recovering value or proper disposal. Reverse logistics is also referred to as "Aftermarket Customer Services". In other words, any time money is taken from a company's warranty reserve or service logistics budget one can speak of a reverse logistics operation.

4.5 PARTICIPANTS IN THE SUPPLY CHAIN

In its simplest form, a supply chain is composed of a company and the suppliers and customers of that company. This is the basic group of participants that creates a simple supply chain. Extended supply chains contain three additional types of participants. First there is the suppliers supplier or the ultimate supplier at the beginning of an extended supply chain. Then there is the customers customer or ultimate customer at the end of an extended supply chain. Finally there is a whole Supply Chain Management. Category of companies who are service providers to other companies in the supply chain. These are companies who supply services in logistics, finance, marketing, and information technology. In any given supply chain there is some combination of companies who perform different functions. There are companies that are producers, distributors or wholesalers, retailers, and companies or individuals who are the customers, the final consumers of a product. Supporting these companies there will be other companies that are service providers that provide a range of needed services.

Producers: Producers or manufacturers are organizations that make a product.

This includes companies that are producers of raw materials and companies that are

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producers of finished goods. Producers of raw materials are organizations that mine for minerals, drill for oil and gas, and cut timber. It also includes organizations that farm the land, raise animals, or catch seafood. Producers of finished goods use the raw materials and subassemblies made by other producers to create their products. Producers can create products that are intangible items such as music, entertainment, software, or designs. A product can also be a service such as mowing a lawn, cleaning an office, performing surgery, or teaching a skill. In many instances the producers of tangible, industrial products are moving to areas of the world where labor is less costly. Producers in the developed world of North America, Europe, and parts of Asia are increasingly producers of intangible items and services.

Distributors- Distributors are companies that take inventory in bulk from producers and deliver a bundle of related product lines to customers. Distributors are also known as wholesalers. They typically sell to other businesses and they sell products in larger quantities than an individual consumer would usually buy. Distributors buffer the producers from fluctuations in product demand by stocking inventory and doing much of the sales work to find and service customers. For the customer, distributors fulfil the Time and Place functionthey deliver products when and where the customer wants them. A distributor is typically an organization that takes ownership of significant inventories of products that they buy from producers and sell to consumers. In addition to product promotion and sales, other functions the distributor performs are inventory management, warehouse operations, and product transportation as well as customer support and postsales service. A distributor can also be an organization that only brokers a product between the producer and the customer and never takes ownership of that product. This kind of distributor performs mainly the functions of product promotion and sales. In both these cases, as the needs of customers evolve and the range of available products changes, the distributor is the agent that continually tracks customer needs and matches them with products available.

Retailers- Retailers stock inventory and sell in smaller quantities to the general public. This organization also closely tracks the preferences and demands of the customers that it sells to. It advertises to its customers and

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often uses some combination of price, product selection, service, and convenience as the primary draw to attract customers for the products it sells. Discount department stores attract customers using price and wide product selection. Upscale specialty stores offer a unique line of products and high levels of service. Fast food restaurants use convenience and low prices as their draw.

Customers- Customers or consumers are any organization that purchases and uses a product. A customer organization may purchase a product in order to incorporate it into another product that they in turn sell to other customers. Or a customer may be the final end user of a product who buys the product in order to consume it.

Service Providers- These are organizations that provide services to producers, distributors, retailers, and customers. Service providers have developed special expertise and skills that focus on a particular activity needed by a supply chain. Because of this, they are able to perform these services more effectively and at a better price than producers, distributors, retailers, or consumers could do on their own. Some common service providers in any supply chain are providers of transportation services and warehousing services. These are trucking companies and public warehouse companies and they are known as logistics providers. Financial service providers deliver services such as making loans, doing credit analysis, and collecting on past due invoices. These are banks, credit rating companies, and collection agencies. Some service providers deliver market research and advertising, while others provide product design, engineering services, legal services, and management advice. Still other service providers offer information technology and data collection services. All these service providers are integrated to a greater or lesser degree into the ongoing operations of the producers, distributors, retailers, and consumers in the supply chain. Supply chains are composed of repeating sets of participants that fall into one or more of these categories. Over time the needs of the supply chain as a whole remain fairly stable.

4.6 PRINCIPLES OF SUPPLY CHAIN MANAGEMENT

1.

Supply chains extend beyond your immediate customer and supplier.

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2.

Supply chains are not constant -- One of the easiest improvements to

make is to share demand data, Most retailers today offer to share the point of sale data and forecasts with their suppliers. How much of it is used is questionable and it is probably not passed up the supply chain to the manufacturer's suppliers.
3.

Parallel data sharing is better than serial If a company could produce

near perfect forecasts, the lead-time to acquire the forecasted product would be unimportant. If a company's lead-time to acquire products were very short, the forecast accuracy would not be as important because the company could respond to whatever the current demand was in a very short time.
4.

Forecasting and lead-time are symbiotic. The lower the manufacturing Manufacturing and logistics cost have inverse relationship. Defined exceptions to the supply chain agreement save expediting. Collaboration improves forecasting. Supply chain synchronization yields consistent results.

cost and the higher the logistics cost. 5.

6.

7. 8.

4.7 SUPPLY CHAIN BUSINESS PROCESS

Customer

service

management

process-

Customer

Relationship

Management concerns the relationship between the organization and its customers. It also provides the customer with real-time information on promising dates and product availability through interfaces with the company's production and distribution operations. The steps for successful relationships are:
Determine mutually satisfying goals between organization and

customers
Establish and maintain customer rapport Produce positive feelings in the organization and the customers.

Procurement process- Strategic plans are developed with suppliers to support the manufacturing flow management process and development of new products. In firms where operations extend globally, sourcing should be managed on a global basis. The desired outcome is a win-win relationship, where both parties benefit, and reduction times in the design cycle and product

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development are achieved. Also, the purchasing function develops rapid communication systems, such as electronic data interchange (EDI) and Internet linkages to transfer possible requirements more rapidly. Activities related to obtaining products and materials from outside suppliers requires performing resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling and quality assurance.

Product development and commercialization- Here, customers and suppliers must be united into the product development process, those to reduce time to market. As product life cycles shorten, the appropriate products must be developed and successfully launched in ever shorter time-schedules to remain competitive. According to Lambert and Cooper, managers of the product development and commercialization process must:
Coordinate with customer relationship management to identify

customer-articulated needs.
Select materials and suppliers in conjunction with procurement. Develop production technology in manufacturing flow to manufacture

and integrate into the best supply chain flow for the product/market combination.

Manufacturing flow management process- The manufacturing process is produced and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be flexible to respond to market changes, and must accommodate mass customization. Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency of demand to customers. Activities related to planning, scheduling and supporting manufacturing operations, such as workin-process storage, handling, transportation, and time phasing of components, inventory at manufacturing sites and maximum flexibility in the coordination of geographic and final assemblies postponement of physical distribution operations.

Physical distribution- This concerns movement of a finished product/service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product/service is a vital part of each channel participant's marketing effort. It is also through the physical
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distribution process that the time and space of customer service become an integral part of marketing, thus it links a marketing channel with its customers.

4.8 ADVANTAGES AND DISADVANTAGES OF SCM

Advantages Reduce overhead charges Eliminates paperwork Increase the speed of transactions Facilitate Real-time data exchange Increase revenue
Makes distribution more customer friendly Receive regular forecasts for execution of production and sales plans Analyze different supply line models and subsequently optimize them Automate warehouse inventory management

Connect elements of market analysis

Friendly interface relations with suppliers

Economies of scale and scope Concentration to core competence Lead time reduction Flexibility to customers Disadvantages
Supply chain management is tailored to specific industry and particular

company.
Systems are often tightly integrated a limited few suppliers and trading

partners.
The purpose of SCM is more of collaboration than price negotiation.

The cost of implementation is higher. Many mistakes are done at first. Has an internal resistance to change.
Its hard to gain trust from your suppliers and partners.

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