Chapter 3: Supply Chain Management and Financial Performance Objectives

Definition of Supply Chain Management:

A number of definitions have been proposed for supply chain management. Perhaps the best is simply,
"an integrative approach to managing supply and distribution networks." The key word is "integrative,"
making the chain work better and at lower cost than would be possible by managing each segment of
the chain independently. Another way of defining supply chain management is to state that it is the
management of physical materials, services, information, money, and time across and between
organizations in a business relationship in a manner that achieves the objectives of all the organizations
at the least total cost.
Objectives of Supply Chain Management:
Some common goals of supply chain management include:
Reduce waste and non-value-added activities (i.e. cost reduction) including excess inventory,
Increase customer service/responsiveness, improve supply chain communication
(speed/timeliness, accuracy of information, information sharing),
Reduce cycle time (e.g. new product development, supply leadtime),
Improve coordination of efforts (continuous improvement, understanding of goals) (Ellram
1994).
Results of Applying Supply Chain Management:
The most-sought and most common result of applying supply chain management is reduced costs in the
supply chain. A cost that exists throughout most supply chains and therefore is often the target of
supply chain management is the cost of inventory, managing it and carrying it. Many supply chain
management efforts are aimed at reducing inventory costs. Other results of supply chain management
include improved quality, more dependable quality, more reliable supplier performance, e.g. in order
fulfillment and delivery, improved transportation service, reduced packaging costs, elimination or
combination of steps in the supply chain, faster cycle times and more satisfied customers. It is by nature
an integrative approach, as much entrepreneurial as logistical, and results come from the following:

Having knowledge of a variety of methods, processes, techniques, and systems that can
be used to manage supply chains
Studying particular supply chains to identify areas of potential improvement
Applying and implementing methods, processes, techniques, and systems as
appropriate to improve supply chain performance
Evaluating changes, revising as needed, and practicing of continuous improvement
through periodic performance reviews and value analysis.

Example:
Retail companies become involved in supply chain management in order to control product quality,
inventory levels, timing, and expenses. In a global economy, supply chain management often includes
dealings with companies and individual contributors in other countries, which requires involvement in
politics, trade and tariff laws, quality control, and international relationships.

Supply Chain Design and Implementation

Supply chains should not "just happen," they should be deliberately designed and developed the same
as individual supplier members of supply chains are selected and developed.
Importance of Design.
Supply chains determine the ability of the firms included in them to compete in the marketplace. How
supply chains are designed will affect their ability to compete. A firm that is attempting to compete in a
market where low cost determines who gets the business will have difficulty if it includes high cost
suppliers in its supply chain. The characteristics of the end-market in which a firm is competing must be
considered when designing supply chains.
Design Process.
Select a chain.
Criteria for selection may include: What are the largest products or purchased items in terms of sales
dollars or spend, products/materials/services that need improvement in cycle or response time,
problem products (any type problem that affects customer satisfaction and cost effectiveness),
products/items critical to company mission or goals.
Form a design team.
Include all affected parties inside and outside your company, especially other members of the supply
chain such as suppliers, customers, third party service providers.

Map the chain as a team.

Get a common understanding of what you are working to improve. The entire chain does not need to be
mapped in detail if you are focusing only on particular parts of it but the entire chain should be mapped
generally to assure that all members who could be affected by changes are identified.

Determine supply chain performance criteria:

Where or in what activities or results must the supply chain develop and maintain a competitive
advantage. At what level must criteria be set, e.g. what level of quality or service is necessary to
compete in the final consumer market for the product in question. Performance criteria will drive the
metrics, or performance measures that will be used to determine if the supply chain and its individual
members are performing well enough to compete. Some areas of performance criteria and metrics
include:
Total cost Quality
Cycle time
Reliability

Specific product performance characteristics:

Analyze each step of the selected supply chain
Select best way of performing that step. Use benchmarking and best practice studies as references and
sources of improved business methods. Identify specific measurement criteria and levels to be used in
determining metrics and levels of performance that the supply chain must achieve to compete.
Evaluate the impact of changes from existing practice needed to perform each step in the supply chain
as a whole. Identify and evaluate tradeoffs of changes at each step to determine the overall best way to
perform that step to meet the performance required of the overall chain.

Reiterate the preceding process until the combination of practices that best meets the supply chain
performance criteria is determined.

Critical Areas of Supply Chain Design

Supplier Selection
Suppliers must be carefully selected based on the particular combination of attributes they must provide
to the supply chain. There may be one criterion of primary importance but others must not be
overlooked. For example, a low-cost supplier that has low delivery reliability, or poor financial condition
may not be a good choice even if low cost is the principle attribute that is needed.

Supplier Development
To get the exact "fit" or combination of attributes desired, it may be necessary to work with suppliers to
help them develop exactly the right capabilities to enhance the supply chain.

Value Added
A supply chain should (must) enhance the customers' ability to compete when the customer is not the
final consumer. For example, the supply chain may be required to provide services such as quick
replenishment or training, or results such as overall cycle time reduction. Each chain member must add
some value to the ultimate final product. Each chain member must provide flexibility to innovate and
help to bring unique value to the chain.

Supply Chain Tier Integration, Reduction, Expansion, Cooperation, Communication. This is determining
how the chain members fit together. Get the best combination of members, functions, and
responsibilities to meet customer requirements. Determine in detail with affected chain members how
they will work together initially and ongoing. Use written understandings and procedures to minimize
misunderstandings and problems.

Change Management.
Decide how to implement changes necessary to initially launch the supply chain relationship and how to
agree on and implement subsequent changes that may be necessary.

Relationship Between Information and Process or Activity Cycles.

Determine how information will trigger processing or activity. Determine how activity will be recorded
and reported to affect future processing or activity. Determine how information systems will be adapted
to the needs of the supply chain.

Communication Within the Supply Chain what, when, where, how, who, must be planned in detail.

Goals of Particular Supply Chain. Specifically what must the supply chain achieve? Quality, performance,
cost? Other goals?

Goals vs. Vision for Supply Chain. The initial development of a supply chain should come from a vision of
what it must accomplish. This vision must be translated into specific goals that can be operationalized.

Match (Congruence) Between Supply Chain Goals and the Goals/Objectives/Mission/Vision of the
Members of the Chain. Any significant mismatch will result in an ineffective and (probably)
noncompetitive supply chain.

Coordination of Supply Chain Strategies, Planning, Operations. Use the team approach, involve all
affected parties and entities, use written procedures and guides.

Performance Measures (Metrics). Absolutely vital to know if the supply chain is performing as needed
and to determine where improvements or changes may be needed. Must be agreed upon as valid and
necessary by all affected supply chain members.

Identify and Use Best Practices to determine supply chain processes and procedures.

Financial objectives - overview

From the first day of trading, a business should set itself financial objectives.
For a start-up, the relevant financial objective is likely to be focused initially on survival i.e. not running out of cash.

After a while (hopefully sooner rather than later) the business aims to breakeven and then
start generating a profit.
Even better would be to generate positive cash flows out of those profits. Medium-term
financial objectives for the start-up might then also include making a return for the
investors and growing the capital value of the business.
Importantly, those early financial objectives of the start-up never really disappear
completely. The many well-established businesses that became insolvent in 2008-09
during the recession would certainly have given their all to have achieved survival and
emerged intact from the economic downturn. The profit objective continues to be a vitally
important aim for private sector businesses of all sizes.
However, as a business becomes well-established and its products and operations become
more complex, the nature of its financial objectives changes.
Why set financial objectives? It is quite simply because the performance of a business is
traditionally measured in financial terms.
Internal and external influences on financial objectives
The main internal and external influences which are likely to affect the financial objectives
include:

Internal Influences

External Influences

Business ownership The nature of

Economic conditions As demonstrated by the

business ownership has a significant

Credit Crunch. The economic downturn

impact on financial objectives. A venture

forced many businesses to reappraise their

capital investor would have quite a

financial objectives in favour of cost

different approach to a long-standing

minimisation and maximising cash inflows and

family ownership.

balances.
Significant changes in interest rates and
exchange rates also have the potential to
threaten the achievement of financial targets
like ROCE.

Size and status of the business E.g. start-

Competitors Competitive environment directly

ups and smaller businesses tend to focus

affects the achievability of financial

on survival, breakeven and cash flow

objectives. E.g. cost minimisation may

objectives. Quoted multinational

become essential if a competitor is able to

businesses are much more focused on

grow market share because it is more efficient

growing shareholder value

Other functional objectives Almost every

Social and political change Often an indirect

other functional objective in a business

impact. E.g. legislation on environmental

has a financial dimension which often

emissions or waste disposal may force an

brings the finance department into

business to increase investment in some

conflict with other functions.

areas, and cut costs in others

Chapter 4:
Business Profile:
T.S. Computer is an importer and wholesaler of computer accessories. They import all of their products
from China and sales them to their retail customers in different districts. Their main products are
Computer monitor, keyboard, wireless mouse, ink, power cable, speakers & toner. B4tech, CN JET, LINK
color & Sonic are their product brands.
Website : www.tscomputerbd.com
Supply Chain Design of T.S. Computer:
Supply Chain Design:

Supply Chain Management flows:

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

The product flow

The information flow

The financial flow

Supply Chain Management techniques:

Demand Planning:
TS Computer have a numbers of retail customers all over the country. They directly contact with TS
Computer & place their order. Then TS Computer arranging all demand, set the demand plan and plan
for extra amount of products to import.
Supply planning:
TS computer supply their product from store house. Some customer directly collect their product from
TS Computers own Office store.
Inventory System:
TS Computer store their products in Store House paying monthly charge. The charge vary as the
products vary.
Transportation Management:
For import products they use international transport system from china to Chittagong port.
Then they use national transport from port to their Store House.

Financial Objectives of T.S. Computer:

Bargaining for a best price of Products
Selecting cost effective Transportation
Lowering marketing costs
Reducing Inventory cost
Maximize profit
Relationship between SCM & Financial Objectives:
The relationship is very poor since the business makes profit regularly. They do not use any method for
inventory control. Marketing operations are not well planned, so it costs much. Sometimes it is not
possible to select best Price or transportation.
Problem identification & Results:
Problems:

TS Computer do not use any software for demand forecasting. They faces extra cost for marketing new
products and creating new customers. Inventory cost is very much important for their profitability. As
they use no inventory management system sometimes it costs extra money for them.
Results:
As a result they lose profit, customer and market. At this situation inventory cost increases, profit
decreases. So again they have to spend extra money for marketing.
Recommendation:
T.S. computer should use an integrated supply and demand forecasting. They also have to pay attention
to reduce inventory cost. They can use inventory management systems. Proper planning for marketing
products at critical situation should be introduced.