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What is Supply Chain


Integration of Activities/PROCESS Starts from Suppliers.Supplier To
Customers..Customer
Always focus on Customer
Its Management of network of interconnected businesses involved in supply of
Product or Service.
It starts from Procurement of Raw Material, Work in Progress Inventory and
Transportation of Finished Goods from point of origin to point of consumption.
APICS Definition of Supply Chain
Design, planning, execution, control, and monitoring of supply chain activities
with the objective of creating net value, building a competitive infrastructure,
leveraging worldwide logistics, synchronizing supply with demand and measuring
performance globally."

Tech Terms

Business Plan: Org goals of sale, reasons to attain and plan E.g. Unilever

Sales & Operations Plan: Individual goals/targets for individual products/SBU.


E.g. Milk, yog, butter etc.
Master Production Schedule: What we have & what we want to do based on
order/demand.
Material Requirement Plan (MRP): What ingredients /components we require for
production.
Production Activity Control (PAC): Individual production priority/order

Supply Chain Management:

Introduction

Supply chain management now part of the business vocabularies of CEOs, CFOs,
COOs, and CIOs during the 1990s. Impact of global marketplace drastically changed
the landscape of business.
Change was rapid and continuous in the 1990s. Basic role of internet create rapid
change.
Doing business in the comfort zone was no longer synonymous with success.

The Changing Business Landscape: Five Driving Forces


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1. The Empowered Consumer


2. Power Shift in the Supply Chain
3. Deregulation
4. Globalization
5. Technology
The Empowered ConsumerToday, the impact of the consumer is much more direct for supply chains
because the consumer has placed increased demands at the retail level for
an expanded variety of products and services. For example, year-round
availability of fresh fruits and vegetables that are frequently imported, a
selection of many different variations of the same basic product, stores being
open 24/7.
They have the opportunity to compare prices, quality, and service.
Consequently, they demand competitive prices, high quality, tailored or
customized products, convenience, flexibility, and responsiveness. They tend
to have a low tolerance level for poor quality in products and services.
Consumers also have increased buying power due to higher income levels.
They demand the best quality at the best price and with the best service.
These demands place increased challenges and pressure on the various
supply chains for consumer products.
The demographics of our society with the increase in two-career families and
single-parent households have made time a critical factor for many
households. Consumers want and demand quicker response times and more
convenient offerings according to their schedules. The expectation for
service is frequently 24/7 availability with a minimum of wait time.
Increased customer service increases the importance of logistics and supply
chains.
Power Shift in the Supply Chain

Large retailers more demanding and commanding.

Focus upon distribution costs and their impact on everyday low


prices.

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The large retailers are accorded special consideration from consumer product
companies. For example, customized distribution services are provided such
as scheduled deliveries, advance shipment notices so forth. These services
allow retailers to operate more efficiently and often more effectively. The
scale of the retailers can also provide scale economies (read cost savings) to
the producers of the products. It can be a win-win arrangement for both
sides, with savings passed on to the ultimate customerthe consumer.
In addition to customization, the retailer may be provided value-added
services such as vendor-managed inventory (VMI).
Finally, more collaboration is being practiced between organizations in the
supply chains to gain mutual cost savings and improved customer service.
For example, sharing point-of-sale data is a powerful collaborative tool for
mitigating the so-called bullwhip effect in the supply chain, which has
multiple benefits to supply chain collaborators.

Deregulation
The various levels of government (federal, state, and local) that establish
and administer policies, regulations, and taxes that impact individual
businesses and their supply chains. The usually regulate sectors include 4
Pillars, transportation, communications, financial institutions, and utilities,
which are cornerstones of the infrastructure for most organizations.
Deregulation is the removal of constraints. And results in
Completion increase
Prices decrease
Open market
Consumer empowered
Changes in transportation -fewer or no economic controls over rates and
services.
Change in financial institutions blurred traditional differences and
increased competition.
Change in the communications industry also resulted in more competition
Changes in the utility industry allows more competition

Globalization
Globalization has led to a more competitively intense economic and
geopolitical environment. This environment manifests itself in
opportunities and threats both
economic and political. Some individuals have implied that there is
nogeographyin
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the current global environment So, for example, companies seeking to


rationalize
their global networks frequently ask such questions as the following:
Where in the world should we source our materials or services?
Where in the world should we manufacture or produce our products
or services?
Where in the world should we market and sell our products or
services?
Where in the world should we warehouse and distribute our
products?
What global transportation alternatives should we consider?
Some important issues or challenges for supply chains in the global
economy are
(1) more economic and political risk;
(2) shorter product life cycles, and (3) the blurring of traditional
organizational boundaries.

Technology
Technology has had a major impact on supply chains as a facilitator of
change as
Companies have transformed their processes. Technology includes Internet,
Software etc.
Individuals and organizations are connected 24/7and have access to
information on the same basis via the Internet. Search engines such as
Google have made it possible to gather timely information quickly. It has
been argued that technology has allowed individuals and smaller
organizations to connect to the worlds knowledge pools to create an
unbelievable set of opportunities for collaboration in supply chains.

The Supply Chain Concept


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While references to supply chain management can be traced to the 1980s, it


was not
until the 1990s that SCM captured the attention of senior-level executives in
major companies. They began to recognize the power and potential impact
of SCM in making organizations more globally competitive and enabling their
companies to increase their
market share with consequent improvement in shareholder value.
Development of the Concept
It can be argued that supply chain management was not a brand-new
concept. Rather,
supply chain management represents the third phase of an evolution that
started in
the 1960s with the development of the physical distribution concept that
focused on
the outbound side of a firms logistics system. (See Figure 1.1.) The system
relationships

among transportation, inventory requirements, warehousing, exterior


packaging, materials handling, and some other activities or cost centers
were recognized. For example, the selection and use of a mode of
transportation, such as rail, affects inventory, warehousing, packaging,
customer service, and materials-handling costs, whereas motor carrier
service would probably have a different impact on the same cost centers.
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The type of product, volume of movement, ship distances, and other factors
influence which mode would have the lower total system cost. (This concept
will be discussed more in Chapter 2.)The initial focus on physical distribution
or outbound logistics was logical since finished goods were usually higher in
value, which meant that their inventory, warehousing, materials-handling,
and packaging costs were relatively higher than their raw materials inputs.
The impact of transportation selection was, therefore, usually more
significant.
Managers in certain industries such as consumer packaged and grocery
products, high-tech companies, and other consumer product companiesas
well as some academiciansbecame very interested in physical distribution
management. A national organization, the National Council of Physical
Distribution Management (NCPDM), was organized to foster leadership,
education, research, and interest in this area. The 1980s, as noted earlier,
was a decade of change with the deregulation of transportation and financial
institutions. The technology revolution was also well under way.
During the 1980s, the logistics orintegrated logistics management concept
developed
in a growing number of organizations. Logistics, in its basic form, added
inbound logistics to the outbound logistics of physical distribution (see
Figures 1.1 and 1.2). This was
a very logical addition since deregulation of transportation provided an
opportunity to
coordinate inbound and outbound transportation movements of large
shippers, which
Figure 1-2
Integrated Logistics Management

Figure 1-3
Generic Value Chain
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could positively impact a carriers operating cost by minimizing empty


backhauls, leading to lower rates for the shipper. Also, international or global
sourcing of materials and
supplies for inbound systems was growing in importance. Global
transportation presented some special challenges for production scheduling.
Therefore, it became increasingly apparent that coordination between the
outbound and inbound logistics systems
provided opportunities for increased efficiency and improved customer
service.
The underlying logic of the systems or total cost concept was also the
rationale for
logistics management. In addition, the value chain concept was also
developed as a tool
for competitive analysis and strategy. As can be seen in the value chain
illustration in
Figure 1.3, inbound and outbound logistics are important, primary
components of the
value chain; that is, they can contribute value to the firms customers and
make the company financially viable to increase sales and improve cash flow.
The more integrated
nature of marketing, sales, and manufacturing with logistics is also an
important dimension of the value chain. Logistics authors would usually
include procurements an element of logistics, as indicated in Chapter 2, but
the value chain depicts it as a support
activity for all the primary activities since they all may do some purchasing
of services
and materials. The rationale for the former is the opportunity for tradeoff
analysis
between procurement quantities, transportation volumes, inventory levels,
and other
related costs across the value chain, as explained in the MOM example.
As already stated, supply chain management came into vogue during the
1990s and
continues to be a focal point for making organizations more competitive in
the global
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marketplace. Supply chain management can be viewed as a pipeline or


conduit for the
efficient and effective flow of products, materials, services, information, and
financials
from the suppliers suppliers through the various intermediate organizations
or compa-nies out to the customers customers (see Figure 1.4), or a system
of connected networks
between the original vendors and the ultimate final consumer. The extended
enterprise
perspective of supply chain management represents a logical extension of
the logistics
concept, providing an opportunity to view the total system of interrelated
companies
for increased efficiency and effectiveness.

Figure 1-4
Logistics Supply Chain

The Changing Business Landscape: The Supply Chain Concept


Business Case for Supply Chain Management: Why so much attention
on supply chain management?
ECR and Best-in-class studies (see next two slides)
Complexity of the supply chain
Extended enterprise concept
Two-way flow of:
Products
Information
Cash
Inventory visibility
Before discussing and analyzing the supply chain concept in more detail, it is
worth noting that a growing number of terms used by individuals and
organizations are presented as being more appropriate, comprehensive, or
advanced than supply chain management. Such terms include demand chain
management, demand flow management, value chain management, value
networks, and synchronization management. Supply chain managementis
viewed by some individuals to be narrowly focused upon supplies and
materials, not demand for finished products.The definition of supply chain
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management proposed in this book is broad and comprehensive; therefore,


demand and value are relevant as well as synchronization of flows
through the pipeline or supply chain. Thus, it could be argued that supply
chain, demand
chain, value network, value chains, and other terms can be used as
synonyms. Also, there
appears to be a more widespread use and acceptance of the term supply
chain management and the comprehensive viewpoint of supply chain
management espoused in this
chapter and throughout the book. A logical question to be asked is why
supply chain management attracted attention among CEOs, CFOs, COOs,
CIOs, and other senior executives. A myriad of reasons can be given, but the
business case for supply chain management was initially demonstrated by
two well-known studies. In the early 1990s, the Grocery Manufacturers
Association (GMA) commissioned a study by one of the large supply chain
consulting organizations to research and analyze the supply chains of
grocery manufacturers. Figure 1.5 illustrates one of the major findings of the
study: on average, the industry had 104 days of inventory in its outbound
supply chains. The consulting company recommended a set of initiatives that
would lead to reducing that to 61 days of inventory. There are two important
points here. First, it was estimated that at least $30 billion per year would be
saved by reducing pipe-line inventory to 61 days. Such savings had the
potential of having a significant impact
upon consumer prices, or what might be calledlanded prices.Second, this
study only
considered part of the supply chain, and therefore understated the total
potential. The
potential savings of $30 billion demonstrated the power of optimizing the
supply chain
Figure 1-5: Comparison of Average Throughput Time of Dry Grocery
Chain before and after ECR Implementation

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as opposed to just one individual company or one segment of the supply


chain. The lat-ter perspective often results in suboptimization of the whole
supply chain with subse-quent higher overall costs.
The other example of the importance of focusing upon the supply chain
came from
the Supply Chain Council, which published a comparison for 1996 and 1997
of the
best-in-classcompanies (top 10 percent) and the median companies that
were report-ing their metrics to the council. As can be seen from Figure 1.6,
in 1996, the supply
chainrelated costs of the best-in-class (BIC) companies were 7.0 percent of
total sales,
while the median company experienced 13.1 percent. In other words, the
best-in-class
companies spent 7.0 cents of every sales or revenue dollar for supply chain
related
costs, while the median company spent 13.1 cents of every sales dollar on
supply
chainrelated costs. In 1997, the respective numbers were 6.3 percent and
11.6 percent
for best-in-class companies versus median companies. If we take a simple
application of
these numbers for a hypothetical company with $100 million in sales in
1997, being best
in class would mean an additional $5.3 million of gross profit to an
organization, which
frequently would be the equivalent profit from an additional $80 to $100
million of sales.

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Revenue %

At this point, a more detailed analysis and discussion of the supply chain is
appropri-ate. Figure 1.7 presents a simplified, linear example of a
hypothetical supply chain.
Real-world supply chains are usually more complex than this example
because they
may be nonlinear or have more supply chain participants. Also, this supply
chain
does not adequately portray the importance of transportation in the supply
chain.
In addition, some companies may be part of several supply chains. For
example,
chemical companies provide the ingredients for many different products
manufactured
by different companies.

Figure 1-7: Integrated Supply Chain

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Figure 1.7, however, does provide sufficient perspective to understand the


basics of a
supply chain. The definition that is a part of the illustration indicates several
important
points. A supply chain is an extended enterprise that crosses the boundaries
of individual firms to span the related activities of all the companies involved
in the total supply
chain. This extended enterprise should attempt to execute or implement a
coordinated,
two-way flow of goods and services, information, cash, and demand. The four
flows enumerated at the bottom of the illustration are important to the
success of supply chain
management (see Figure 1.8). Integration across the boundaries of several
organizations
in essence means that the supply chain needs to function similar to a single
organization
in satisfying the ultimate customer.
The top flowproducts and related serviceshas traditionally been an
important
focus of logisticians and is still an important element in supply chain
management.
Customers expect their orders to be delivered in a timely, reliable, and
damage-free manner, and transportation is critical to this outcome. Figure
1.7 also indicates that product
flow is a two-way flow in todays environment because of the growing
importance of
reverse logistics systems for returning products that are unacceptable to the
buyer
because they are damaged, obsolete, or worn out. There are numerous
reasons for this
growth in reverse systems, which are explored in Chapter 15, but there is no
question
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that it is a growing phenomenon of supply chains. Note also that networks


for reverse
systems usually have to be designed differently than forward systems.
Characteristics of Supply Chain Management
Inventory
Visibility
Pull systems
Landed Cost
Companies must realize that their strategies may affect the
landed cost.
Coordination of supply chain activities may lower the
landed cost.
Real-time two way information flows
Customer service
levels must be tailored to each customer
not all customers require the same service
Supply chain relationships
Collaborative planning
Share risks and rewards

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