SUPPLY CHAIN

MANAGEMENT
Introduction to SCM
Class-1
Running a profitable business aint easy!
How to make money on bottled water?
And on selling Fried chicken/beef burger!
If that is easy, how about fighting a war.
Wars are won/ lost by disrupting enemy
supply lines
Deliver 4 shells with 6 guns and youll
surrender.
Video Reference: https://www.youtube.com/watch?v=Mi1QBxVjZAw
The video film (https://www.youtube.com/watch?v=Mi1QBxVjZAw) we have just seen portrayed an
example of what is involved in running a simple bottled water business. Through that simple example
of a super-simple product we begin to see that the companies face challenges when they buy
things, make things, move things, sell things and service things. The businesses need to give their
customers, the product they want, when they want, as often as they want for a reasonable price while
still managing to make a profit. Whose job it is make sure that all of these things happen flawlessly,
with minimal effort and of course at minimum cost. Of Supply Chain Manager! The Supply Chain
Manager needs to be able to do all of these things. We can extend this example to a service supply
chain like the hotel example we saw in the video film.
When you buy a burger from McDonald or a Zinger from KFC, have you thought where all of the
ingredients came from that produced your sandwich? Depending on the restaurants location,
McDonalds and KFC source their ingredients from both local and global suppliers. The challenge is
to ensure that all restaurants in their network have enough ingredients to meet customer demand.
This requires planning, implementing, and controlling the efficient, effective flow and storage of goods
and services to deliver the burger to you.
If this still seems easy, think of the effort that goes into running an organization such as an army. An
American General was asked to define the logistics function. The definition given was The science
of planning and carrying out the movement and maintenance of forces.... those aspects of military
operations that deal with the design and development, acquisition, storage, movement, distribution,
maintenance, evacuation and disposition of material; movement, evacuation, and hospitalization of
personnel; acquisition of construction, maintenance, operation and disposition of facilities; and
acquisition of furnishing of services.
Logistics
The word logistics was first associated
with the military in 1905 as a branch of war
that pertains to the movement and the
supply for armies.
Now, business and service managers use
logistics to fine tune their processes
The organization of resources to fight a war is not new. Armies do not walk on
empty stomach (Napoleon). In 4
th
century BC, Alexander the Great's campaign are
recognized as model for logistics. He is known to use the following techniques.
He maximized swiftness of action and flexibility of the army by eliminating the usual
traveling team of servants, wagons, and spouses from the marching army.
He developed alliances with conquered and friendly locals, which enabled his army
to be constantly provided magazines of provisions. (Inspired by Thebes, many cities
surrendered to Alexanders army before fighting, and subsequently pledged their
support and supplies to the Macedonian army.)
He marched along rivers to provide easy access to sea transport, which could
deliver tons of supplies compared to 200 pounds per beast of burden.
He set up bases to provide shelter and supplies prior to the armys arrival. (These
bases were supplied by surrendered cities, ships, or allies.)
While the organizing resources for war is not new, the term used to describe the
operations; logistics was coined in 1905 as a branch of war that pertains to the
movement and the supply for armies.
Now, business and service managers use logistics to fine tune their processes.
Logistics concept was introduced due to the need for planning and coordinating the
material flow from source to user as an integrated system, rather than managing the
flow of goods as a series of independent activities.
We can define logistics management as a means to satisfy the customer needs
through coordination of material and information flows that extend from the market
through the firms operations and beyond that to the suppliers.
Definition of Logistics
Logistics - ...the process of planning, implementing, and
controlling the efficient, effective flow and storage of goods,
services, and related information from point of origin to
point of consumption for the purpose of conforming to
customer requirements." (Reference: Council of Logistics
Management)
(Note that this definition includes inbound, outbound,
internal, and external movements, and return of materials)
Best logistics strategy is not just to get the product from the
supplier to the customer the fastest and always be in stock
for all organizations. If this were true, most organizations
would not be profitable today.
The definition of logistics given here is by the Council of Logistics Management.
This definition describes logistics management as a means to satisfy the customer needs
through coordination of material and information flows that extend from the market through the firms
operations and beyond that to the suppliers.
One of the important aspect of conforming to customer requirement (returns) is not covered in this
definition. Returns is an essential part of supply chain management. Products require return for
a variety of reasons such as overstock, safety or quality defects, damaged, expired
or near the end of their shelf life. This handling of returns is a routine part of the
supply chain operations and must be considered so.
The definition given above basically covers the forward logistics. Another term;
reverse logistics, has been coined to include the returns. The reverse logistics is
defined as:
Process of planning, implementing and controlling the efficient, cost-effective flow
of raw materials, in-process inventory, finished goods and related information from
the point of consumption to the point of origin for the purpose of recapturing value or
proper disposal.
The objective of meeting the customer requirement has to be balanced with the
costs. The logistics strategy is not just to get the product from the supplier to the
customer the fastest and always be in stock for all organizations. If this were true,
most organizations would not be profitable today.
THE PURPOSE OF A
LOGISTICS SYSTEM
RIGHT QUANTITIES of the
RIGHT GOODS to the
RIGHT PLACES at the
RIGHT TIME in the
RIGHT CONDITION at the
RIGHT COST.
Creating a logistics strategy is a balancing act Creating a logistics strategy is a balancing act
which takes many variables into account. which takes many variables into account.
The specific objective of an ideal logistics system is to ensure the flow of supply to
the buyer, the:
right product
right quantities and assortments
right places
right time
right cost / price and,
right condition
This implies that a firm will aim at having a logistics system which maximizes the
customer service and minimizes the distribution cost. However, one can
approximate the reality by defining the objective of logistics system as achieving a
desired level of customer service i.e., the degree of delivery support given by the
seller to the buyer. Thus, logistics management starts with ascertaining customer
need till its fulfillment through product supplies and, during this process of supplies,
it considers all aspects of performance which include arranging the inputs,
manufacturing the goods and the physical distribution of the products
/SC /SC
SCM Evolution
Battaglia developed a model which indicates the way in which SCM has evolved
from its main constituent functions from the 1960s to date. It indicates that the
evolution has involved a shift from highly fragmented to much more integrated
approaches with the 1990s characterized as the decade of Total Integration.
During the Evolving Integration decade (the 1980s) various functional areas
became integrated into materials management and physical distribution these
then became further integrated under the logistics umbrella. SCM extends this
integration further by linking logistics with manufacturing, information technology
(IT), marketing, sales and strategic planning. The model provides a useful visual
representation of the way in which companies have attempted to move away
from the functional stovepipe or silo approach to more integrated approaches,
facilitated by IT. It is interesting to note that this model is analogous to two other
three phase approaches to logistics evolution.
The evolution of logistics management and the role of logistics managers is often
described in the following three phases:
1. Functional management (19601970): Functions such as purchasing, shipping
and distribution are each managed separately.
2. Internal integration (1980s): The management of the supply chain functions of a
single facility is unified and it becomes the responsibility of a single individual.
3. External integration (1990s): The management of supply chain functions
throughout the chain is unified.
SCM Evolution
Internal
SC evolution from fragmentation to evolving integration. Developments in
information technology supported the integration process. Availability of Internal
server based IT allowed internal integration while the availability of web based
information technology allowed the suppliers and customers integration with the
internal supply chain resulting in fully integrated logistics/SC.
Supply Chain- Definition
Supply Chain is a sequence of firms that perform
activities required to create and deliver a good
or service to consumers or industrial users.
The network of organizations that fulfill customer
needs
Can either be product or service oriented
Product: cars, computers, etc.
Service: MBA students, Hospitals
By definition, incorporates multiple firms or
organizations not under central control
Despite the popularity of the term Supply Chain Management, both in academia and
practice, there remains considerable confusion as to its meaning. Some authors
describe SCM in operations terms involving flow of products and materials, some
view it as a management philosophy, and some view it as a management process
The US-based Council of Supply Chain Management Professionals (CSCMP)
defines SCM as follows:
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, SCM integrates supply and demand
management within and across companies.
There is a growing recognition that firms cannot achieve their true competitive
potential by operating in isolation. The philosophy of SCM is based firmly on a
recognition that it is only by working in a more integrated manner that competitive
advantage can be maximized. These aspects are covered in this definition.
Supply Chain Management
Supply Chain Management encompasses
all Logistics Management activities
Importantly it also includes coordination
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.
The US-based Council of Supply Chain Management Professionals (CSCMP)
defines SCM as follows:
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, SCM integrates supply and demand
management within and across companies.
Types of Industrial Supply Chains
The industrial supply chain consists of three
key sectors:
1. Primary (or extractive) sector
2. Secondary (or manufacturing) sector
3. Tertiary sector industries
The industrial supply chain consists of three key sectors:
1. Primary (or extractive) sector - providing raw materials such as oil and coal or
food stocks like wheat and corn. Some raw materials are sold immediately for
consumption, such as coal to power stations. Others are used further up the supply
chain to be made into finished goods.
2. Secondary (or manufacturing) sector industries make, build and assemble
products. Examples include car manufacturers or bakers who use primary products.
For example, Textile Mills purchase cotton from the primary sector.
3. Tertiary sector industries do not produce goods. They provide services such as
in banking, retailing, leisure industries or transport.
Primary (or extractive) sector
Provide raw materials such as oil and coal
or food stocks like wheat and corn.
Some raw materials are sold immediately
for consumption, such as coal to power
stations.
Others are used further up the supply
chain to be made into finished goods.
Primary or extractive chains
Provide raw materials such as oil and coal or food stocks like wheat and corn.
Some raw materials are sold immediately for consumption, such as coal to power
stations.
Others are used further up the supply chain to be made into finished goods.
Secondary & Tertiary Sectors
Secondary (or manufacturing) sector industries
make, build and assemble products. Examples
include car manufacturers or bakers who use
primary products.
Tertiary sector industries do not produce
goods. They provide services such as in
banking, retailing, leisure industries or transport.
Secondary sector businesses obtain their raw materials from primary suppliers such
as cotton or oil producers. In some cases, they add further value to products
already processed by a secondary sector business e.g. using tyres produced by
another company as an input to their product (car)
.
Large-scale manufacturers need to consider many different aspects of their
operations:
Where to locate the business this could be near to materials suppliers. For
example, power stations are often sited near to coal sources to reduce delivery
costs. Frozen peas factories may be near farms to ensure the product is fresh.
Kelloggs ingredients are grown in many countries. It is more important for its
manufacturing sites to be near to distribution channels and customers so products
can reach shelves quickly.
Size and scale they need large factories with adequate space for equipment and
production processes. They also need to accommodate the frequent delivery of
incoming materials and outgoing finished goods.
The final stage in the industrial supply chain is the tertiary sector. The tertiary sector
provides services. It does not manufacture goods. This sector involves:
Retailers like supermarkets that purchase manufactured goods from secondary
sector businesses and sell them to the consumers
Service companies who may deal in, for example, finance, computer systems,
warehousing or transportation.
Storing stock and transporting it are key activities that link all three parts of the
supply chain.
Simplistic Supply Chain
Supplier Manufacturer
Wholesaler/
Distributer
Retailer Customer
Information
Product
Funds
Supply chain management is far more than just order fulfillment. It encompasses all
the processes from product generation through end of-life recycling and disposal.
The traditional linear functional view of the supply chain shows material, information
and finances flowing towards the customers with the focus on order fulfillment
between each player in the supply chain. A process view focuses on the product life
cycle with each of the players involved with many different process and material,
information and finances flowing both ways.
More Realistic Supply Chain
The Firm
Wholesaler Wholesaler
Retailer Retailer Retailer Retailer
1st Tier Supplier 1st Tier Supplier
3rd Tier Supplier
2nd Tier Supplier
3rd Tier Supplier
2nd Tier Supplier
Consumer/ Customer Base
Resources Base Information
Flow
Product
Flow
Sell Side
Buy Side
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From the perspective of the manufacturer shown in the middle of the figure, connections are
shown with the supplier (commonly referred to as a Tier 1 supplier) and then to the
suppliers supplier (commonly referred to as a Tier 2 supplier). We can trace upstream until
we reach the resource base. On the downstream side, we can trace the customer (Tier 1
customer) and then to the customers customer (Tier 2 customer) until we reach the final
customer (the consumer).
An important characteristic of supply chains is the involvement of multiple tiers of suppliers
and customers - both internal and external. Every organization has suppliers and customers;
therefore, any firm that an organization does business with will also have links to suppliers
and customers.
It is not logical to focus on each tier extensively. In some cases, a fourth-tier supplier might
not even be known. However, understanding that the supply chain has multiple tiers -
beyond just a supplier and a customer - will help supply professionals know what to focus
their efforts and time on while making good decisions that do not negatively affect other
tiers.
Traditional View of Suppliers &
Businesses
Porters Power Model
Very similar to Fords
If a supplier makes a penny, that is a penny that Ford could
have made
i.e., classic adversarial relationship
Multiple suppliers to spread risk
Maintain internal manufacturing capability, just-in-case
Vertical Integration
Optimization of a relatively static chain
Long life products
The traditional view of supplier management, advocates minimizing dependence on
suppliers and maximizing bargaining power. Michael Porter describes this view of
supplier management as follows:
In purchasing then the goal is to find mechanisms to offset or surmount these
sources of suppliers power. . . Purchases of an item can be spread among
alternate suppliers in such a way as to improve the firms bargaining power.
This traditional view shared by Ford as shown above meant dilution of supplier
power and vertical integration (purchasing the supplier) even if it meant working in
an area which was not the firms core competency.
Another aspect of traditional businesses was the product life. The same product
could be produced year after year and the businesses only had to improve/optimize
a relatively static chain.
More Advanced View of SCM
Minimize number of suppliers
Work on Just-in-time supplies
Virtual Integration
Control not ownership
Adaptive & Responsive supply chains
Risk management & mitigation
The new businesses focus on total cost of ownership and by minimizing number of
suppliers they become large buyer of the suppliers output. They can use this
buyers power to negotiate a good price, insist on zero defect supplies. In case a
zero defect supply can be assure the supplies could be delivered just before they
are required eliminating the need for large inventories. Instead of vertical integration
the buying power and mutual interest gives the firm a virtual control over the
supplier.
Another current priority is getting the tools we need to create an adaptive and
responsive supply chain strategy. A responsive supply chain is distinguished by
short production lead-times, low set-up costs, and small batch sizes that allow the
responsive firm to adapt quickly to market demand, but often at a higher unit cost.
Supply chain risk is about any threat of interruption to the workings of the supply
chain. Risk may be generated as a result of risks that are either internal or external
to the company, Mitigation is a hedge against risk built into the operations
themselves and, therefore, the lack of mitigating tactics is a risk in itself.
Discuss the key differences between the supply
chain for a service and a manufacturing
organization.
The commonalities between manufacturing supply chain and service supply chain
have not been discussed much in extant literature. This is natural given that
servicing and manufacturing share so much similar processes and the ultimate
goals are both operational and/or financial success. Many operations management
educators who are manufacturing operations researchers are unwilling to accept the
idea that service should be studied in different ways, using different theories, skills,
competencies, and language One reason for the denial to have service studies
as a new field is that manufacturing and servicing businesses really have a lot in
common. The set of commonalities are very likely much larger than the set of
differences as shown above
Discuss the key differences between the supply
chain for a service and a manufacturing
organization.
The inherent particularities of service industries can be generally summarized as follows: labor
intensive, customer involvement and service heterogeneity, intangibility, simultaneity of production
and consumption, and customer-supplier duality:
Labor intensive: delivery of service products often involves many manual processes that require the
interaction of human beings. Hence, solutions that use standardization and automation to improve
operational efficiency are less applicable in the service industry
Customer involvement and service heterogeneity: customer often plays a critical role in service
delivery process or sometimes even the service initiation process itself, for example, electronics
repair service.
Intangibility: service provided is often intangible, such as education. Intangibility leads to three issues,
namely, difficulty to store, difficulty to account for, and difficulty to identify suppliers. An intangible
good can be stored probably only in scientific novels. This characteristic significantly shifts the focus
of management from buffering by inventory to managing capacity and ensuring capacity flexibility
Customer-supplier duality: The best example for the duality is the electronics repair service. In that
case, a customer supplies the malfunctioning electronics and receives the service to fix it. Four
implications of the duality are:
- Service can not start until the supply of inputs from customers.
- Service tends to be heterogeneous.
- Service has to be labor intensive.
- Service location is closer to customers.
Reference: Ming Zhou, Taeho Park, (2009), Commonalities and Differences between Service and
Manufacturing Supply Chains: Combining Operations Management Studies with Supply Chain
Management, California Journal of Operations Management Volume 7, Number 1, pp 136-143
Creating a Strategic Advantage
Creating a Strategic Advantage
What are the strategic objectives of the
organization?
- Strategic Analysis of the Competition
- Evaluate Channel Structure
The answers to the above question will give an organization a
road map to set its customer service policy. This policy is
then translated to the channel structure to best meet the
organizations goals in the most efficient and effective
manner for a competitive advantage
Strategic objectives focuses on winning market share, overtaking key competitors
on product quality or customer service or product innovation, achieving lower overall
costs than rivals, boosting the companys reputation with customers, winning a
stronger foothold in international markets, exercising technological leadership,
gaining a sustainable competitive advantage, and capturing attractive growth
opportunities.
Strategic objectives need to be competitor-focused and strengthen the companys
long-term competitive position. A company exhibits strategic intent when it pursues
ambitious strategic objectives and concentrates its competitive actions and energies
on achieving that objective. The strategic intent of a small company may be to
dominate a market niche. The strategic intent of an up-and-coming company may
be to overtake the market leaders. The strategic intent of a technologically
innovative company may be to create a new product. Small companies determined
to achieve ambitious strategic objectives exceeding their present reach and
resources, often prove to be more formidable competitor than larger, cash-rich
companies with modest strategic intents.
The strategic analysis of the competitor allows a company to decide its strategy to
gain an edge over the competitor. The answers to the above question will give an
organization a road map to set its customer service policy.
This policy is then translated to the channel structure to best meet the
organizations goals in the most efficient and effective manner for a competitive
advantage
Creating a Competitive Advantage
Customer:
Seeking benefit at an acceptable cost
Company
Asset utilization
Competitor
Asset utilization
Value
Value
Cost differential
Competitive Advantage Commercial Success
The success in the marketplace is based around the triangular linkage of the
company, customers and its competitor. Competitive advantage can be explained
as the ability of an organization to differentiate itself in the eyes of customer, from its
competition and to operate at a lower cost and hence greater profit. Competitive
advantage helps organizations to achieve commercial successes which mainly
depends upon two factors- cost advantage and value advantage.
Competitive Advantage Commercial Success
Commercial Success
Cost Advantage
Value Advantage
Cost Advantage helps in productivity advantage and
successful companies have:
PRODUCTIVITY ADVANTAGE: lower cost profile
VALUE ADVANTAGE: product offering
IDEALLY, A COMBINATION OF BOTH
Since cost advantage helps in achieving productivity advantage, we can conclude
that successful companies either have:
Productivity advantage
Value advantage, or
Ideally, a combination of both.
Productivity Advantage
Asset Utilization
Inventory
Reduction
Integration with
suppliers
Real
cost
per
unit
Cumulative volume
Comes from experience in efficient
production, greater sales volume, economy
of scale and declining of all costs with
increase in volume.
Productivity advantage is in terms of a lower cost profile, while value advantage is in
terms of a product offering a differential plus over competitive offerings.
Productivity advantage is characterized by low cost of production due to greater
sales volume, economics of scale enabling fixed costs to be spread over a greater
volume and the impact of the experience curve.
As per the experience curve shown above, the rate of output of workers improves
as they become more skilled in processes and tasks, on which they work and all
costs, not just the production costs, decline at a given rate as volume increases.
Thus the experience curve provides a relationship between the real unit costs and
cumulative volume. It also implies that cost declines apply only to value additions
i.e. costs other than bought out supplies.
Value Advantage
Strategy based upon differentiated value
Product image & reputation
Service: Delivery service, after sales
service, technical support, financial
package
Customer/company relationship
CUSTOMERS DONT BUY PRODUCT,
THEY BUY BENEFITS
Adding value through differentiation is extremely powerful means of achieving
competitive advantage. Brand image and reputation are powerful value advantages.
Company reputation for quality and reliability gives a new product a head start.
Another method of adding value is service. Service relates to the process of
developing relationship with the customers through provision of an augmented offer
in forms such as delivery services, after sles services, financial packages, technical
support.
Productivity & Value Advantage Matrix
Commodity Market
Little or no product
or value advantage
Cost Leader
Mainly Productivity
advantage
Service Leader
Mainly value
advantage
Cost & Service Leader
Excel in value chain
activities and also have
productivity advantage
Productivity Advantage
V
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A
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v
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t
a
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e
Capacity Utilization
Asset Utilization
Inventory Reduction
Integration with suppliers
Customized
services
Reliability
Responsiveness
1 2
3
4
Successful companies seek to achieve a position based upon both productivity
advantage as well as value advantage.
For companies in quadrant-1, the market is an uncomfortable place as their
products cannot be differentiated from their competitors offerings and they do not
have any cost advantage. These are commodity markets.
Companies in quadrant-2 adopt cost leadership strategies. Traditionally, these are
based on economies of scale. Also, a significant route to achieving cost advantage
is through logistics/SC management. In many industries, logistics constitutes a
major proportion of total costs, hence by reengineering logistics processes
substantial cost reduction can be achieved.
Companies in quadrant-3, seek differentiation through service excellence since
markets are becoming more and more service sensitive, Customers expect greater
responsiveness and reliability from suppliers, reduced lead times, just-in-time
delivery, and value added services.
Companies in quadrant-4, are distinctive in the value they deliver and are also cost
competitive. Thus competitors find it extremely hard to attack these companies.
Right Place at the right time
Due to increased competition and product
improvements power of brand value is
declining.
Technological difference between
company product is also declining
Availability at the point of sales is
important to retain even an old satisfied
customer, otherwise the sale will be lost to
competitor
Customer service is a major value
advantage.
As businesses recognize the importance of brand image, quality and reliability many
competing industries/businesses have acquired very similar brand image (e.g. not
much difference between Pepsi and Coke). Technical difference are also eroding
and many competing products have similar technical specifications too.
This means that if product A is not available where the customer is, the sale could
be lost to the competitor. Hence, marketing of product is crucially important to win
the customer. Customer service is a major value advantage
Impact of Logistics & Customer Service
on Marketing
For the consumer the customer service, brand value,
corporate image and availability are important
considerations.
Marketing is improved with strong ties with intermediary
such as large retail outlets creating customer franchises
as well as what the consumer is looking for.
The consumer and customer franchises need an
effective supply chain to result in market effectiveness.
Consumer
Franchise
X X =
Customer
Franchise
Supply Chain
Efficiency
Market
Effectiveness
Brand Value
Corporate Image
Availability
Customer Service
Partnership
Quick Response
Flexibility
Reduced Inventory
Low Cost Suppliers
Market Share
Customer Retention
Superior ROI
Marketing Effectiveness
Barriers to SC Integration
Barriers to Logistics/SC Integration arise
from inappropriate
Organization Structure
Measurement Systems
Inventory Ownership
Information Technology
Knowledge Transfer Capability
Organization Structure
Traditional organization structure prevents any cross-functional process from being
implemented. Each functional area concerns itself with achieving its own functional
excellence
Reason: Most managers are rewarded for achieving functional excellence
Significant modification of how an organization deals with cross-functional matters is
essential for successful process integration
Measurement Systems
Traditional measurement systems have also made cross-functional coordination difficult.
Managers must learn to view their specific functions as part of a process rather than as
stand-alone activities and accept increased costs within their functional area for the sake of
lower costs throughout the process
Measurement system must not penalize functional managers, otherwise logistical integration
will be more theory than practice.
Inventory Ownership
The cost-benefit relationship and the risks related to incorrectly located or obsolete inventory
must be considered.
Information Technology
Performance measurement, information system applications tend to be designed along
organization lines. Many databases limited to specific functions and not easily accessed on
a cross-functional basis
Logistical/SC integration requires sharing of critical data across functional areas.
Knowledge Transfer Capability
knowledge containment tends to foster the functional orientation by developing a workforce
composed of specialists. The failure to transfer knowledge can also create a barrier to
continued integration when an experienced employee leaves
Failure of many firms to develop procedures and systems for transferring cross functional
knowledge is a barrier to logistics integration
Elements of Supply Chain
Competency
Planning & Coordination Flows
Planning Flows
Planning & Coordination Flows
OPERATIONAL FLOWS
Drivers of Supply Chain Performance
Network Design
Information
Inventory
Sourcing
Pricing
Transportation
Warehousing, material handling, and
Packaging
Information
Technology for collecting sophisticated information is available.
Deficiency in information collection or processing can cause innumerable problems.
Forecasting and order management depend on information
Order management information is required both for external and internal use.
Transportation
Geographically positions the Inventory
Private, contract or common carriage are possible modes of transportation
Factors need to be considered in Transportation:
- Cost & Speed of transportation
- Consistency of Transportation
Warehousing, material handling, and packaging
Integral part of other logistical areas
Warehousing needed for efficient distribution, stockpiling etc
Warehouse activities may include sorting, sequencing, order selection, transportation and re-packaging
Master cartons, pallets, mechanized and automated devices help in material handling
Inventory
The objective is to achieve customer service with minimum inventory commitment for lowest total cost
Excessive inventories compensate problems in network design but at the cost of increased logistics cost
The best practice of inventory management is to achieve maximum turnover while satisfying customer
requirements.
Inventory Management Policy
Customer Segmentation
Product Requirement
Transportation Integration
Time Based Requirement
Competitive Performance
Customer
Segmentation
Product
Requirement
Transportation
Integration
Time-based
requirements
Competitive
performance
Inventory Management Policy
Selective Deployment
Customer Segmentation
More weightage to highly profitable and customers with growth
potential. Inventory needs to be focused on highly profitable customers (part of
segmented logistics)
Product Requirements
In most cases, there is substantial difference in volume and
profitability across product lines. Selective inventory policy demands more
importance to be given to product line profitability. An enterprise takes more care of
its highly profitable items.
Transport Integration
Regional warehousing saves transportation costs which may offset the
cost of holding inventory
Time based requirements
Produce and supply products when required to save on inventory
costs. In cases when the raw materials and products can be delivered quickly,
safety stock can be reduced for lower inventory costs
Competitive Performance
Inventories need to be analyzed with competitors in mind.
Unnecessarily higher inventories make a company uncompetitive. Analyze!
Superior Network Design
SC facilities typically include manufacturing
plant, warehouses, cross-dock operations,
outsourced facilities and retail stores
All logistical facilities must be managed as a
part of companys logistical/SC network.
The design network including information and
transportation, also handles customer orders,
maintains inventory and materials.
Network design needs to be modified to
accommodate changes in demand and supply,
product mix, suppliers supplies and
manufacturing requirements.
1. What is supply chain management?
2. What are the sources of competitive advantage
in supply chain?
3. What are the implications of supply chain
management in logistics?
4. Explain the concept of value advantage. How
value advantage can be achieved through
customer service and production activities?
5. How logistics and customer service affect
marketing?
Reference: Logistics Management by Satish C.
Ailwadi and R. Singh, Prentice Hall of India,
2005
The end