What is a Supply Chain?

In its broadest sense, supply chain refers to the way that the material flows through different organizations, starting with raw materials and ending with finished products delivered to the ultimate consumer. A supply chain is a sequence of suppliers, transporters, warehouses, manufacturers, wholesalers/ distributors, retail outlets and final customers. Different companies may have different supply chains due to the nature of their operations and whether they are primarily a manufacturing operation or service operation. Exhibit 1.1a illustrates a typical supply chain for a manufacturing organization and exhibit 1.1b illustrates a typical supply chain for a service organization.

Exhibit 1.1a: Supply Chain for a Manufacturing Organization

Supplier A

Supplier B

Storage

Mfg

Storage

Distrib utor

Retailer

Customer

Supplier C

Exhibit 1.1b: Supply Chain for a Service Organization

Supplier A

Storage

Service

Customer

Supplier B

A large company will have several supply chains. In a multi-divisional company with many product groups, there could be many different supply chains. For example, large companies such as Procter and Gamble or General Electric may use 50 to 100 different supply chains to bring their products to the market. There has been a great deal of interest recently in industry and academic in the subject of supply chain management.

The function of SCM is to plan, organize, coordinate and control all supply chain activities.

Broad classification of a supply chain:

Parts of an SC Upstream supply chain Description This part of supply chain is mainly concerned with the procurement of raw materials. It includes suppliers that could be manufacturers themselves. This part starts from the time the raw material comes in the organization and continues till it gets transformed into finished goods and sends for distribution. This part is mainly concerned with the processes involved in delivering the finished products from the internal supply chain to the final customers Major activities Purchasing and shipping

Internal supply chain

Material handling, inventory management, manufacturing and quality control.

Downstream supply chain

Packaging, warehousing and shipping. For these activities, many wholesalers and distributors are involved.

Types of supply chains:

The type of supply chain depends upon the nature of the company in question. The complexity of the supply chain is also attributed to the processes of the company in question. Following are the types of supply chain s that are generally found in businesses. 1. Integrated made-to-stock supply chain: the integrated made-to-stock model meets customer demand in real time. In this model, finished goods are stocked in the inventory and once a demand occurs, production restocks the goods. Demand is tracked in real time and an information system is used to modify the production schedules. Information system used here are fully integrated enterprise systems. 2. Continuous replenishment supply chain: In the continuous replenishment supply chain model, inventory is constantly replenished by continuously interacting with suppliers. Real time information is required regarding demand changes so that the desired replenishment schedules can me maintained. Again, at a larger level, the use of a real time IT system is a must in this type of model. 3. Build-to-order supply chain: as per the build-to-order supply chain model, processing customer orders begins as soon as they are received from the customers. Efficient management of spare parts, inventory and other suppliers is a must here. IT can be of high importance here in implementing for e.g. The just in time (JIT) approach or electronic data interchange (EDI) 4. Channel assembly supply chain: The channel assembly supply chain model is an improvement to build-to-order model. The parts of the product are assembled as the product moves through the distribution channel. A 3PL (third party logistics) firm accomplishes a part of an order. In the channel assembly model, almost no inventory is maintained. Customer orders come to terms when all items are placed together for delivery.

What is Supply Chain Management?

The Council of Logistics Management, USA has defined SCM as follows: Supply chain management encompasses the planning and management of all the activities involved in sourcing and procurement, conversion and all the logistic management activities. It also includes coordination and collaboration with the channel partners, intermediaries, third party service providers and customers. In essence SCM integrates supply and demand management with and across companies. Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. It is said that the ultimate goal of any effective supply chain management system is to reduce inventory (with the assumption that products are available when needed). As a solution for successful supply chain management, sophisticated software systems with Web interfaces are competing with Web-based application service providers (ASP) who promise to provide part or all of the SCM service for companies who rent their service.

Supply chain management flows can be divided into three main flows:

Product/ Service flow Information flow Finance flow

RM- Supplier

Manufacturer

Distributors

Retailers

Customers

The product flow includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs. The information flow involves transmitting orders and updating the status of delivery. The financial flow consists of credit terms, payment schedules, and consignment and title ownership arrangements. There are two main types of SCM software: planning applications and execution applications. Planning applications use advanced algorithms to determine the best way to fill an order. Execution applications track the physical status of goods, the management of materials, and financial information involving all parties.

Some SCM applications are based on open data models that support the sharing of data both inside and outside the enterprise (this is called the extended enterprise, and includes key suppliers, manufacturers, and end customers of a specific company). This shared data may reside in diverse database systems, or data warehouses, at several different sites and companies. By sharing this data "upstream" (with a company's suppliers) and "downstream" (with a company's clients), SCM applications have the potential to improve the time-to-market of products, reduce costs, and allow all parties in the supply chain to better manage current resources and plan for future needs. Increasing numbers of companies are turning to Web sites and Web-based applications as part of the SCM solution. A number of major Web sites offer e-procurement marketplaces where manufacturers can trade and even make auction bids with suppliers. There are essentially three goals of SCM: To reduce inventory, To increase the speed of transactions with real-time data exchange, To increase revenue by satisfying customer demands more efficiently. Supply chain management is the integration of various activities encompassed by the supply chain through improved supply chain relationships to achieve a sustainable competitive advantage. The supply chain encompasses all activities associated with the flow and transformation of goods from the raw materials stage through to the end users, as well as the associated information flows. Materials and the information flow both up and down the supply chain. The supply chain includes systems management, operations and assembly, purchasing, production scheduling, order processing, inventory management, transportation, warehousing and customer service. Supply chains are essentially a series of linked suppliers and customers; every customer is in turn a supplier to the next downstream organizations until a finished product reaches the ultimate end user.

Decision variables in managing supply chain:

1. Location: Its important to know where production facilities, stocking points and sourcing points are located; these determine the paths along which goods will flow. The organization should keep the stocking points close to production locations. This will help to reduce the wastage in the production and also inventory is available in least time. The organization should also select the sourcing points which are near to the organization this helps to reduce the carrying cost. A basic trade-off here is whether to centralized to gain economies of scale or decentralized to become more responsive by being closer to the customer. Companies must also consider the local area in which facility may be situated. 2. Production: an organization must decide which products to create at which plants, which suppliers will service those plant, which plants will serve as specific distribution center and how goods will reach the final customers. These decisions have a big impact on revenue, cost and customer service. Keep the production facilities near to the supplier this will help to reduce the carrying cost from the supplier. This will also help in reducing the inventory, also helps in reducing lead time and the product reaches faster to the market. 3. Inventory: Each link in the supply chain has to keep certain inventory of raw material, parts, subassemblies and other goods on hand as a buffer against uncertainties and unpredictabilitys. Shutting down an assembly plant because an expected part shipment dint arrives is expensive. But inventory costs money too, so its important to manage deployment strategies, determine efficient order quantities and reorder points, and set safety stock levels. Inventory has a direct cost impact on a supply chain and it has a huge on responsiveness. In order to maintain the efficient inventory the organization should accurately determine following element: Accurate demand forecasting. Set safety stick levels. Set reorder points Determine the lead time. Determine the level of product availability

Determine the seasonal inventory.

Inventory also has a significant impact on the material flow time in a supply chain. Material flow time is the time that elapses between the point at which the material enters the supply chain to the point at which it exits. Another important area where inventory has a significant impact is throughput, the rate at which sales to the end customer occur. If the inventory is represented by I, flow time by T and throughput by R, the three can be related using Littles Law as follow:

I = RT
For example, if the flow time of an auto assembly is 10 hours and throughput is 60 units an hour, Littles Law tells us that inventory is 60*10= 600 units. If we are able to reduce inventory to 300 units while holding throughput constant we would reduce our flow time by 5 hours (300/60). In this relation inventory and through must be in same relation. The logical conclusion here is that inventory and flow time are synonymous in a supply chain, 4. Transportation: how do materials, parts and products get from one link in the supply chain to the next? Choosing the best way to transport goods often involves training of the shipping cost against the indirect cost of inventory. For example, shipping by air is generally fast and reliable. Shipping by sea or rail will likely be cheaper especially for bulky goods and large quantity, but slower and less reliable. So if you ship by sea or rail you have to plan further in advance and keep larger inventory than you do if u ship by air. Transportation has an impact on both the responsiveness and efficiency. Faster transportation allows supply chain to be more responsive but reduces its efficiency. The type of transportation company uses also affects the inventory and facility location in the supply chain. Dell, for example uses air transportation from Asia because doing so allows company to lower the level of inventory it holds. Clearly such a practice increases responsiveness but decreases transportation efficiency because it is more costly than transporting parts by ship. 5. Information: Information could be overlooked as a major driver in supply chain as it doesnt have physical structure. Information flow is the heart of supply chain. Information serves as the connection between various stages of supply chain allow them to coordinate their action and increase the supply chain profitability. It is also useful for the daily operations in the company. For example, warehouse management system uses information to give the warehouses inventory visibility. The company can then use this information to determine whether new orders to be filled. Helps reduce variability in the supply chain. Helps improve forecast Helps coordination Better customer service Reduces lead time Reduces inventory.

Decision Phases in a Supply Chain

The three decision phases in a supply chain are: 1. Supply chain strategy or design 2. Supply chain planning and 3. Supply chain operation. These three phases are briefly described in the following section. 1. Supply Chain Strategy or Design: The Company decides how to structure the supply chain during this phase. The chain's configuration and the processes each stage will perform are decided. Strategic or long-range decisions made by companies include (i) The location and capacities of production and warehousing facilities, (ii) Products to be manufactured or stored at various locations, (iii) Modes of transportation to be made available along different shipping legs and (iv) Type of information system to be utilized. The company's strategic objectives must be supported by its supply chain configuration. For instance, a company's decisions regarding the location and capacity of its manufacturing facilities, warehouses and supply sources are all supply chain desi g n or strategic decisions. Since these decisions are made for the long term, they are very expensive to be changed in the short term. Hence companies need to take into account uncertainty in anticipated market conditions over the next few years before they make supply chain design decisions. 2. Supply Chain Planning: In this phase, companies define a set of operating policies that govern short-term operations. The configuration of supply chain determined in the previous phase establishes constraints within which planning must be carried out. The planning phase starts with a forecast for the coming year of demand in different markets. Supply chain planning includes decisions regarding the following. Which market to be served from which locations? The planned build up of inventories The subcontracting of manufacturing. The replenishment and inventory policies to be followed. Policies regarding back up locations in case of a stock out and The timing and size of marketing promotions. Planning establishes parameters within which a supply chain will function over a specified period of time. However it must be ensured that planning decisions consider the uncertainty in demand, exchange rates and competition over the planning horizon. 3. Supply Chain Operations: Durin g this phase, companies make decisions for the time horizon (weekly or daily) re g ardin g individual customer orders. At this stage, the supply chain configuration is fixed and the planning policies already defined. The supply chain operation aims at implementing the operatin g policies in the best possible manner. Various activities involved in this phase are : (i) Allocatin g individual orders to inventory or production, (ii) Setting dates for fulfilling orders, (iii) Generating pick lists at a ware house, (iv) Allocating an order to a particular shipping mode or shipment, (v) Getting delivery schedules of trucks and (vi) Placing replenishment orders. Because operational decisions are made in the short term, there is often less uncertainty about demand information. The design, planning and operation of a supply chain strongly affect the overall profitability and success of a firm.

Difference between Supply Chain Management and Logistics:

Logistics management- Boundaries and Relationships: Logistics management activities typically includes inbound and outbound transportation management, fleet management, warehousing, material handling, order fulfillment, logistic network design, inventory management, supply/demand planning, and management of third party service logistics services providers. To varying degrees, the logistic functions also include sourcing and procurement, production planning and scheduling, packaging and assembly, and customer service. It is involved in all levels of planning and execution- strategic, operational and tactical. Logistics management is an integration function, which coordinates and optimizes all logistic activities, as well as integrates logistic activities with other functions including marketing, sales manufacturing, finance, and information technology. Supply Chain Management- Boundaries and Relationships: Supply chain management is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive and high- performing business model. It includes all the logistic management activities noted above, as well as manufacturing operations and it drives coordination of processes and activities with and across marketing, sales, product design, finance, and information technology. LOGISTICS Narrower concept It is concerned with getting goods and services where they are required and when they are desired. There are 2 flows in logistics: Value flow (i.e. flow of goods and services) Information flow Logistics is mainly concerned with optimizing flows within the organization, i.e. emphasize on Internal Integration. The focus of logistic management is upon the management of resources within the organization. Logistic is essentially a planning orientation and framework that seeks to create a single plan for the flow of product and information through a business. SCM Broader concept SCM encompasses all the activities associated with the movement of goods from the raw material stage to the end users. There are 3 flows in SCM: Value flow (i.e. flow of goods and services) Information flow Cash flow SCM recognizes that internal integration by itself is not sufficient. So it emphasis on internal integration as well as on external integration (Integration with upstream suppliers and downstream suppliers) The focus of SCM is upon the management of relationship in order to achieve more profitable outcome for all parties in the chain. SCM builds upon this framework and seeks to achieve linkage and coordination between process of the other entities in the pipeline, eg suppliers and customers and organization itself.

Logistics add value when inventory is correctly positioned to facilitate sales

The best SCM practices when it excels in reducing in operating cost, improve assets productivity and compressing order cycle time.

Digital Business Transformation

The 21st century is witnessing a growing adoption of a new and extensive form of change management referred to as Digital Business Transformation (DBT). The basic premise of DBT involves a complete assessment and reinvention of a firm's overall operation to assure that the benefits of modern information technology are being fully deployed. DBT is about reinventing and positioning business operations, processes, and relationships to fully exploit information technology and to facilitate supply chain collaboration to achieve unprecedented levels of operational excellence. Focusing on information technology, DBT seeks to simultaneously meet the challenges and exploit the inherent opportunities of integrative management, responsiveness, financial sophistication, and globalization. Expanding Internet capabilities provide an information framework that can replace traditional one-to- one, one-to-many, or many-to-one communication with Web-based, simultaneous many-to-many connectivity. The potential exists for all firms participating in a supply chain to simultaneously have access to the same strategic and operational information. The potential of DBT is the synchronized distribution of information and knowledge across the supply chain. In essence, DBT is the forward-looking model for a business that is transitioning from the Industrial Age to the Information Age. Figure 1.4 provides a summary of DBT in the form of key paradigms. The six paradigms speak to the mindset leaders must adopt as they navigate the DBT journey. It should be clear that DBT is not a consulting project or a one-time improvement initiative. It is the process of reinventing a business to digitize operations and formulate extended supply chain collaboration.

The following discussion is based on Donald J. Bowersox, David J. Gloss, and Ralph Drayer, "The Digital Transformation: Technology and Beyond," Supply Chain Management Review(January 2005), pp. 22-29.

Six paradigms seem to frame the challenge of digitally transforming business. We call these paradigms the six Fs of going digital they speak to the mind set that

leaders must adopt as they begin to reconfigure every aspect of their organization to contribute economic value 1. Fact-based management:- Fact-based management is a commitment to- even an obsession with- developing precise information on every facet of what the organization does and needs to do. Fact-based management provides answers to questions such as, why do we provide this service? What value does it add to customers? What are our precise performance expectations? How exactly do we meet and measure this expectation? Facts are not averages. Facts deal with specific performance, results in terms of specific customers. Managers must learn to understand and rapidly act on these results at the specific product level and customer purchase location. 2. Flexible: Driven by facts, successful firms demonstrate an inherent ability to rapidly adapt operations to pursue a new course of action. Confronted with a break through opportunity, they are agile enough to make adjustments quickly and commit the resources necessary to capitalize on the opportunity. 3. Focus on cash: A business exists to generate cash. Quarterly or annual earning are not the fuel of long term success. The only meaningful measure at the end of any day, week, month, or a year is the cash balance. As they make the digital transformation, companies must remember that cash pays bills, cash pays salary and wages, and cash pays shareholders dividends. The focus must be cash first, cash second and cash always 4. Fast return on investment (ROI): A business needs to make continuous investment in new products, services, technology, people and facilities. All investments are made with an expectation of financial return. The new mandate, however, is not just high rates of return but of high rate of returns fast. Payback periods need to be short and needs to yield positive returns- which translate to cash. 5. Fungible: Fungible means that business process is modular in design with maximum interchangeability. Modularity allows flexibility in process design and maximum incorporation of the principles of postponement and acceleration. The operational characteristic of agility, flexibility, sustainability, scale, scope, and responsiveness are attributes of fungible organizations. 6. Frugal: Capital investment, cash velocity, and the flat organizational structure with focused human resources are the characteristics of a frugal enterprise. Frugal enterprises are lean in every conceivable way. Overhead is minimal. Operations are focused on cash generations. Lean is an enterprise wide attribute that must permeate every facet of every process. In frugal enterprises, the real benefits are cash and dividends, no fringe benefits or luxurious environments. At the end of the day, employees work for income and owners invest for the dividends with the business success, both constituents will benefit from the enterprises success.

Problems along the supply chain and their IT solutions:

There are a lot of uncertainties and encompassing supply chain. Also, a supply chain continuously pursues to coordinates its activities, units and alliances. These 2 factors are the main problems in an SC. Let us discuss these problems. Some of the uncertainties in supply chain are demand forecast, delivery times and problems with material quality. Some of the coordination problems are lack of connectedness between departments, misinformation or late information. Following are the problems along the supply chain. Poor customer service: the customer does not get what they require at the appropriate time or he receives poor quality of products. High inventory cost: If a company has a high inventory costs and no synchronization between stocks and demand, its product are bound to give higher costs and thus put that business in the bad position. Loss of revenue: A company has too many non-value-added activities. Extra cost of expediting shipments: If customers orders are not shipped on time or are shipped using costly means, customers would be unhappy and may not remain faithful. Bullwhip effect: If a company has erratic shifts in orders (bullwhip effects) along the supply chain, it is bound to face production and inventory problems. Phantom stock outs: Customers are told that a product is out of stock while in rality it is available. Finding effective solutions to these problems is a must for a company to survive. IT is capable of providing such solutions. Turban et al. (2004) gave some examples of how IT solves recurrent supply chains problems: IT Tools Artificial Neural Network (ANN) Electronic Data Interchange (EDI) Electronic document management systems Supply Chain Problems There is a need to derive meaning from complicated or imprecise data. Anns replace the need to manually build complex formulas. They can also be used to complete complex logistical challenges such as truck routing. Slow delivery of paper documents. Repeated process activities due to wrong shipments, poor quality, etc. and accumulated work orders between supply chain processes

Genetic Algorithms Groupware

Need for inventory optimization, scheduling problems etc.

Waiting times between chains segments is excessive; Poor coordination, and communication; decline in the value of parts and components that stay too long in storage. Intelligent systems Learn about the delays after they occur or learn about them too late. The Internet and Internet Lack of communication or flow that is too slow; Redundancies 2 in the supply chain, too many purchasing orders, too much packaging and handling. Intranets and extranets Waiting times between supply segments is excessive; lack of information or slow flow; decline in the value parts and components that stay too long in storage. JIT systems High inventory cost and poor workflow due to improper scheduling of materials. Robotics Delays in shipments from warehouses.

Limitations of Existing IT systems:

The design of the existing IT systems may impose restrictions on the ability to meet the demands of the supply chain mangers. Extra investment will be required to remove such limitations. These restrictions plainly arise from the departmental design of the IT systems. This is explained below.
Departmental Nature of Application Design.

The core applications are generally structured in departmental terms, i.e. each application supports business processes used within a department. For example, the warehouse applications will only process all transactions for a warehouse; inventory applications will be concerned only with the movement and storage of the materials in the inventory, etc. In this architecture, any single business process that spans multiple departments will be, supported. By a sequence of transactions occurring in multiple discrete applications

responsible for the departments involved. Such a sequence cannot be coordinated or automated unless the applications are integrated. A departmental design creates three major hurdles in designing the IT systems for supply chain. I. Lack of Orchestration Ability By definition, supply chain must span multiple departments acting in concert for the various business processes. When the applications are loosely coupled, the supply chain process orchestration will be disjoint and poorly controlled. For example, a goods receipt note in a warehouse receiving application will not automatically be considered for a picklist operation, unless the receiving, the order matching, and the cargo planning functionalities are orchestrated across the various applications. Careful attention needs to be given to ensure that such applications are able to work in a coordinated manner, if they are to play a role in the supply chain management. II. Lack of a Uniform Data Model Since a supply chain spans multiple departments, it is necessary to have a standardized data nomenclature across the applications. If the data model differs across the applications, it becomes hard to manage the supply chain. A heterogeneous data model reduces the manager's ability to compare, control and validate the health of the supply chain. For example, the Engineering Bill of Materials (BOM) may differ from Production BOM in many companies. It is not a problem for the respective department to manage their workbut it becomes difficult to manage the extended supply chain. To address this problem, IT organization needs to employ methodologies and tools such as Master Data Management to harmonize the data model and ensure a uniform treatment of the data. The supply chain management requires a fair amount of third-party data, i.e. data which is neither owned nor controlled by the enterprise. Getting this data from outside trading partners is difficult because the partner will generally resist sharing this information. This problem is out of scope for IT, and requires negotiations and trustbuilding initiatives. However, even where such data is available (through Vendormanaged-inventory initiatives with retail stores; or EDT-based collaboration with suppliers), such data is not in a form or definition consistent with the enterprise data model. Before such data can be added to the enterprise databasefor further analysis by the supply chain managerit needs to be harmonized and synchronized with the enterprise data model. Portal technologies or object-oriented technologies could partially address the latter problem. However, doing this requires special technology skills not easily available to the IT organization in a manufacturing company. III. Problem of Absent Data

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Under the departmental structure of applications, the data controlled by each application is the one directly required by the specific transactions in that department. Supply chain managers are often concerned with the data relating to the overall process. Such data does not fall within any single departmental boundary. This creates an important limitation for managing supply chains. The data required to manage the supply chain does not exist in any application, and must be computed from multiple data points that may be controlled/owned by different applications. Thus, a new set of programs and data structures become necessary to address the needs of supply chain managers. Such programs generally do not exist in the Transaction Engineespecially the loosely coupled core applications. The following example will illustrate this problem:A perishable product is made in a factory, dispatched to a warehouse, and from there it is dispatched to the retail store. In this movement, the finished goods inventory application will create a dispatch note listing the item code, quantity dispatched and the date (optionally, time) of dispatch. The warehouse receiving application will record the receipt of the item, the quantity and the date (optionally, time) of receipt and will allocate the shelf location. The logistics application will match the inventory to a sales order, and generate a pick list noting the item code, quantity, date (time), carton/crate number and the truck details. On arrival the retail store will accept the shipment, sign the warehouse dispatch note and proceed to make appropriate entries into its own store applications. Suppose, because of the deteriorating road conditions, the supply chain manager of the product is now concerned with the time-to--dispatch and wants to keep it to a minimum. It will be clear that such time-to-dispatch has not been captured by any application in this sequence. It is not known when the item was actually loaded on the truck and when the truck actually reached the customer. The time of customer receipt may be captured in the retail store application, but that data is no longer available to the supply chain manager, since the store is not controlled by the organization.