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BNCE Pusad

SUPPLY CHAIN
MANAGEMENT
Ritesh Bhusari

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ABSTRACT:
The idea of supply chain as a network of inter-related entities which are
involved in procurement, conversion and distribution of goods is intuitively clear or in
the simple words it is a cycle of “Buy-make-move-store-sell”.
The activities of supply chain can be divided as in bound logistics (or
strategically speaking, sourcing and operationally speaking, procurement plans).
Second is operations (strategically speaking conversion and operationally speaking
production planning). The third is outbound logistics (strategically speaking distribution
or operationally speaking dispatch planning).
This is era of pace technologies and the supply chain management is advancing
with more pace. In the fast moving and ever improving competitive market automation
of supply chain is prerequisite to success as well as to retain the leading position in
global market.
So the paper highlights the importance of supply chain management along
with the case studies. It also describes the various links of SCM such as the supply,
manufacturing, logistics, planning, assembly and testing, engineering, program
management, customer and the user and the recent techniques used for supply chain
management. Paper also takes review of the future of supply chain management and the
challenges involved in it. It also takes into account the value additions required for
supply chain management.

INTRODUCTION:

The “SUPPLY CHAIN” – a term now commonly used internationally

encompasses every effort involved in producing & delivering a final product or service,
from the supplier’s supplier to the customer’s customer.
It includes
Ø Managing supply according to demand
Ø Sourcing raw materials & parts
Ø Manufacturing & other process operations such as assembly
Ø Warehousing & inventory tracking

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Ø Order entry & order management

Ø Distribution across all channels
Ø Delivery to the customer

This chain is the upstream portion of the organizations value chain and is responsible
for ensuring that the right materials, services, and technology are purchased from the
right source, at the right time, in the right quantity.
In today’s market the customer is attracted by value addition to the product, and by
cost reduction. Both these results can be achieved effectively using supply chain
management (SCM)

A TYPICAL SUPPLY CHAIN

FLOW OF VALUE (goods and services)

FLOW OF INFORMATION
PROCUREMENT OUTSOURCING & DISTRIBUTION STOCK & CELL USAGE &
CONVERSION CONSUMPTION

TRANSPORTER TRANSPORTER
TRANSPORTER BRANCH RETAILER
CUSTOMER
SUPPLIER
MANUFACTURER

INBOUND ORDER PROCESSING, OUTBOUND CUSTOMER

LOGISTICS PRODUCTION, PLANNING LOGISTICS SERVICE
SCHEDULING, DESPATCHING

FLOW OF FINANCE

FLOW OF INFORMATION

Those companies who had moved themselves to the forefront of supply chain
management have reaped clear rewards in terms of performance and shareholder returns.
Benetton (quick response), wal-mart (very low supply chain coast), Microsoft (virtual
manufacturing and logistics), whirlpool (direct consumer delivery), Motorola (mass
customization) and peapod (home shopping) are examples of high performing companies
drawing on-and creating-the worlds beast supply chain management practices.

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DEFINITION:
A supply chain is a network of facilities that procure raw materials, transform
them into intermediate goods and then final products, and deliver the products to
customers through a distribution system.

SIGNIFICANCE:

SUPPLY
STRATEGY
MARKETING
FINANCE STRATEGY
STRATEGY
CONVERSION
STRATEGY

FIGURE SHOWING A TYPICAL BUISNESS PLAN

As the figure shows a business plan basically consists of four important aspects
these are
Ø Marketing strategy
Ø Finance strategy
Ø Conversion strategy
Ø Supply management strategy
Supply chain management is significant because it performs the important task of
linking all the components from the raw material to the final product delivery. Smart
service firms will seize the prize that awaits them trough creative supply chain
management.
It makes visible to the managers all the opportunities to improve performance
along the length and breadth of the network, ensuring that all parties improve their
decision making and their capacity to contribute to, and benefit from, the optimum supply
chain.
Today confined to product manufacturing & retail firms. The next wave of change
will embrace the service industries such as banking, insurance, healthcare and

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entertainment which will be forced to follow the lead of product companies in providing
supply chain excellence to a more demanding generation of customers.

LINKS OF A SUPPLY CHAIN: The supply chain refers to the chain which does
the function of extracting materials from mother earth, performing a series of value of
value adding activities, and fabricates the finished good or services which is purchased by
the customer. The important links of a supply chain can be divided into 3 basic parts
namely
Ø INBOUND LOGISTICS
Ø OPERATIONS
Ø OUTBOUND LOGISTICS
LOGISTICS PROVIDER
CUSTOMER

RAW SERVICES
MATERIAL
SUPPLIER

LOGISTICS
MANUFACTURER

USER
PROGRAM
MANAGEMENT
ENGINEERING

ASSEMBLY AND
TEST

COMPONENT CUSTOMER
SUPPLIER
BUISNESS DEVELOPMENT

LINKS AND INTERACTIONS IN A SUPPLY CHAIN

FLOWS AND DECISIONS IN A SUPPLY CHAIN:

Value is delivered through the defined business activity of the organization, in the
form of goods and services. Apart from VALUE FLOW, there are two associated flows
in supply chain; INFORMATION FLOW and CASH FLOW.

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VALUE FLOW: It is the most visible part of the supply chain, moving from the
vendor to the customer. Physically it manifests itself as goods flow and service flow.
Goods flow constitutes raw materials, work in process, finished goods, spares etc. there
could be small reverse flows of material due to returns, rework or recycling. Service
flows follow a similar sequence, but being intangible it cannot be stored. This brings the
transactions between actors more into focus.
INFORMATION FLOW: It is a significant part of the supply chain as it is the enabler
and driver of the concept of the supply chain. It consists of flows both from the vendor to
customer and vice versa.
CASH FLOWS: This is the commercially significant part of the supply chain, which is
largely in the direction against the major value flow. The major part of this flow is the
money paid for goods and services received. But there are other features to cash flow,
such as credit periods for payments from customers and to vendors. Any credit is with
respect to the transfer of the title and or service delivery in the supply chain. The cash
flow determines how a given value flow is financed by the various actors in the supply
chain.

DECISIONS IN SUPPLY CHAIN MANAGEMENT:

SCM decisions are often said to belong to one of the three levels;
THE STRATEGIC LEVEL
THE TACTICAL LEVEL
THE OPERATIONAL LEVEL
HIERARCHY OF SUPPLY CHAIN DECISIONS:

LONG TERM DECISIONS

STRATEGIC
MEDIUM TERM
TACTICAL DECISIONS

OPERATIONAL LEVEL DAY TO DAY

OPERATION

The figure shows the three levels of decisions as a pyramid shaped hierarchy. The
decisions on higher level in the pyramid will set the conditions under which lower level
decisions are made.

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On the strategic level long term decisions are made. According to Ganeshan and
Harrison these are related to location, production, inventory and transportation.
Decisions made on the strategic level are of course interrelated. For example
decisions on mode of transport are influenced by decisions on geographical placement of
plants and warehouses and inventory policies are influenced by choice of suppliers and
production locations. Modeling and simulation is frequently used for analyzing these
inter relations and the impact of making strategic level changes in the supply chain.
Decisions on the tactical level are of medium term, such as weekly demand
forecasts, distribution and transportation planning, production planning, and materials
requirement planning. The operational level of SCM is concerned with the very short
term decisions made from day to day. The border between the tactical and operational
levels is vague. Often no distinction is made between these two.

THE PRESENT PICTURE: Through the years SCM has developed into one of
the most important business strategies of the enterprunial world. One of the recent trends
in SCM to minimize the costs is BUISNESS PROCESS OUTSOURCING (BPO) which
is being used widely around the world
BUISSNESS PROCESS OUTSOURCING: BPO is the process of transferring
manufacturing operations to the low cost regions around the world. It is being considered
by many businesses due largely to the relentless pressures on margins and demands for
increasing share holder value. In considering transferring manufacturing to low cost
regions, most assessments look at benefits and business transferability which improve
their profits. The boom of outsourcing has reached with a large number of call centers
coming up in India. These perform the operations of the overseas companies due to the
low cost labor available in India.
However the decisions taken in principle do not necessarily deliver improvement
in practice. Anticipated margins are eroded and customer service suffers, leading to loss
of market share. Therefore a deep study of the supply chain of the organization is
necessary before taking any decision regarding outsourcing.
COMPUTER BASED SCM SYSTEMS & INTERNET LOGISTICS: When a system is
computerized, the basic activities of the procurement process remain essentially the same

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as when a system was operated manually. What changes is the way in which activities are
performed. In a computer based system, for the most part the same records that are
maintained in a manual system are stored in the disk or tape files that are readily
accessible to the computers CPU. They are of the type Opening/ ordering file; Order/parts
behind schedule file; Supplier record file; Material record file; Inventory record file etc.
Generally the basic materials activities which can be performed well by a
computer based system are the same in all cases. They are Maintenance of inventory
records ; Computation of all quantities; Preparation of purchase requisitions for inventory
items; Preparation of requests for quotations; Preparation of purchase orders;
Maintenance of order status records; Automatic preparation of follow-up memos; Posting
of delivery and quality records, by part and by supplier; Auditing of invoices and
preparation of checks for payment etc.
Now a day’s internet based technologies like web based advertising, web
based proliferation, site security, and business to consumer sales are used to improve the
supply chain related business processes.
Much of the internet’s success can be attributed to its open standards, rapid
adoption, relatively low cost, and standard graphical user interface. These characteristics
have enabled new classes of competitors to enter seemingly mature markets quickly and
are driving existing players to change the way to do business. Companies have realized
several supply chain related benefits though the use of internet.
JIT & KANBAN MATERIALS MANAGEMENT:
Just-in-time manufacturing can be defined as elimination of waste (anything that is not
absolutely necessary) and continuous improvement in productivity. It follows the motto
“if you can’t use it now, don’t make it now”. It basically aims at minimizing the
inventory. The success story of Hero Cycles with JIT is well known.
Kanban materials management is a visual and mathematically based system for
replenishing parts and suppliers. It enables fast response to customer orders with minimal
inventory levels. This system will reduce raw material inventory and eliminate stock outs.
Computer inventory balances are kept 100% accurate through the use of visual purchase
order verification, eliminating the need to cycle count.

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Scheduling and supplier material planning are integrated to provide continuous

flow in manufacturing. Manufacturing, suppliers and customers benefit from the seamless
planning of material and customer demand. This technique is becoming popular by the
day in India. Some of the companies which are employing it are Mahindra, Toyota, and
Cummins etc.

ENHANCING THE SUPPLY CHAIN:

In today’s world of cut throat competition the basic aim is to provide quality value
goods at minimum profits. To stay in the rat race there is a need to constantly enhance
your supply chain. This enhancing or improvement of your supply chain is one of the
most important parts of the supply chain. It increases the efficiency of the supply chain.
These are also known as value addition networks. The most recent value addition
networks are as follows
IMPROVED SUPPLY CHAIN PLANNING (SCP):
SALES & OPERATION PLANNING(S&OP):
COLLABORATIONS:
COSTING THE SUPPLY CHAIN:
MARKET RESPONSIVE SUPPLY CHAINS:
STRATEGIC PROCUREMENT:
SUPPLY CHAIN VISIBILITY:
REVERSE LOGISTICS:

FUTURE AND CHALLENGES OF SUPPLY CHAIN MANAGEMENT:

THE FUTURE:
The future of supply chain management will see a trend of shifting to the software based
supply chain planning or supply chain optimization which is improving by the day.
Companies such as SAP, i2, manguistics, moovex are constantly coming up with new
software’s for the business world.

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The traditional methods will take a backseat although they too will be used to some
extent. New techniques of supply chain costing, sales and operation planning reverse
logistics, procurement planning etc. will gain immense importance.
THE CHALLENGES:
· The traditional techniques and the fast improving and changing newer
techniques contradict each other in a lot of areas. Thus it is difficult for the
companies to accept the newer policies and let go of their traditional
methods suddenly.
· The new age software “packages” coming up have a 7 figure price tag and
hence they are highly unaffordable to all the companies but for some big
players in the market. Also they come with a high risk factor making them
harder to be employed.
· In the various techniques used there is an assumption of 100% efficiency
which is practically not available, and also the changeover requires a lot of
reorganization.
CASE STUDY
1 EXAMPLE OF SUPPLY CHAIN IMPROVEMENTS
Recognition of interdependence among functions and companies in the supply chain is
emerging as a driving force in the Australian consumer products industry.

Company Supply chain features Benefits

Food company, Integrated finished goods 1 $15m cost reduction
Australia logistics across several business 2$10m estimated
units. service benefits
Beverage company, Optimized supply chain 1 $30m cost reduction
Australia performance, 2 targeted service levels to
Finished goods logistics, each customer group.
Production,
Procurement.

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Automotive company, Consistent supply chain strategy, 1 low inventories

Australia. Flexibility in sourcing. 2 high quality components.

TABLE 1

CONCLUSION
Over the past two decades business thinking has moved from distribution management to
logistics control now evolving into Supply Chain Management. But the ground reality is
far from the ideal scene. The corporate leaders are being reluctant to implement measures
ahead of their comfort zones. Because the supply chain management is by its very nature
cross functional, inter-company and borderless in terms of geography, it will always pose
conceptual, operational and system difficulties for those who would prefer to contend
with singular parameters, stable equilibrium, predictable futures and apparent simplicity.
Unfortunately the world is not like that any more.
Visionary leaders and managers recognize that a certain
level of instability can be used to improve organizational effectiveness – eliminating
executive comforts zones, producing positive tension, facilitating creativity, and ideally
generating a net improvement in financial performance and therefore shareholder value.
So the old paradigm of stability harmony, predictability, discipline and consensus is now
only relevant where operating conditions are stable and the playing field is titled
favorably – a rare condition these days.
The reality is that the supply chain will become one of
the pivotal vehicles of corporate change, with untold opportunities for value creation if
companies are prepared to embrace the opportunities.
BIBLOGRAPHY:
1. www.eil.utoronto.com
2. www.supply-chain.org
3. www.supplyanalytics.com
4. “Manufacturing Engineer”, issues-October 2002, January 2004
5. “Strategic Supply Chain Alignment”
By John Gattorna
6. Purchasing and Supply Management
By Donald Dobler & David Burt
7. Theme Paper presented at
2nd International conference on logistics management ‘99
By G.Raghuram (IIM Ahmedabad) & N.Rangaraj (IIT Bombay)

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