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SUPPLY CHAIN

MANAGEMENT
(BMT 2013)
For : BBA :: Fall Sem 2017
Slot : F 1 + TF1
(by : J P Majumdar, Professor)
Material Handling
Procurement Inventory (W/H) Manufacturing
/ Processing
Transportation RM Stores
SUPPLIERS MANUFACTURER

Suppliers FP Stores
Suppliers

Transportation

Transportation
DISTRIBUTION
CUSTOMERS
CHANNEL
DISTRIBUTION
Warehouses

Functional Units on Supply Chain


What is Supply Chain Management (SCM)?
1. The Customers/Consumers should get the required products (Goods and
Services) from the Producer (1) promptly, (2) in time, (3) smoothly,
(4) uninterruptedly and (5) economically, (6) at any place where they
are Located, as well as
Producers should also get the supply of required materials (raw materials,
components, sub-assemblies, MRO, equipment and instrument, etc) from
suppliers in time, promptly, uninterruptedly and economically.
Supply Chain Management is an Integrated Logistic System, designed
to ensure that.
2. It is an approach to designing and controlling the PHYSICAL FLOW of (1) input
materials, (2) information, (3) output products (goods and services) as well as (4)
money, between (i) suppliers & producers [INBOUND] and (ii) producers & end
users / customers [OUTBOUND].
Value Chain is another name for a Supply Chain.
[Value chain is the chain of functions within the organization that adds value to the
products or services , which the organization sells to customers and for which it
receives revenue. :- American Production and Inventory Control Society (APICS) Dictionary, 8th
edition, 1995 ]
SUPPLY CHAIN is very much dependant on and related to the LOGISTICS NETWORK.
3. Supply Chain is a set of approaches which is used to integrate
Units Functional Areas (Activities)
1. Suppliers 1. Sourcing / Procurement
2. Manufacturers 2. Processing
3. Warehouses/ Stores 3. Inventory
4. Distribution network 4. Distributing / Delivery
5. Material Handling & Transporters 5. Logistics
6. Customers 6. Customer Service
With the objective that the right product is produced and delivered /
distributed
1) in the right quantities
2) with the right quality
3) to the right locations
4) at the right time
5) at the right (competitive) Prices
6) so that the required Service level is achieved.

4. Supply Chain Management is basically an Information Based process that integrates


various business process activities and
facilities, (1) from raw materials procurement to production process and (2) supply /
distribution of finished Products and / or Services from production process to up to
the end users / customers.
5. Supply Chain management comprises of all facilities,
functions and activities like
(1) Procurement & inventory of all Materials, Inbound
(2) Production & Inventory of finished products In-process
(3) Supplying (Distribution / Delivery) of the finished products
(goods / services) upto the final end-users to meet the consumer
requirement. Outbound

6. SCM is the strategic management of activities involved in the


acquisition & conversion of materials into finished Products and
in delivery of the Products to the customer / consumer.
SUPPLY CHAIN integrates 3 flows :
1.MATERIAL FLOWS
2.INFORMATION FLOWS
3.FINANCIAL FLOWS
Supplier Customer
Management Information Flow
Management

Materials Flow

Conversion / Stock
Resource Production Deployment Delivery
Deployment

Business Process Activities Integration


Supply Chain Structure

SUPPLIER FACTORY CDC RDC RETAILER

Raw Materials
Finished Goods

Information Flow

Marketing Design &


Technology Office
CDC : Centralized Distribution Centers RDC : Regional Distribution Centers
OBJECTIVES OF SUPPLY CHAIN MANAGEMENT

1. SUPPLYING the Right Products of Right Quality and Right


Quantity at the Right time at the Right Place / location at the
Right cost.
2. PRODUCTION and DELIVERY of products and / or services,
economically, efficiently and effectively.
3. RENDERING efficient CUSTOMER SERVICES to elevate Customer
Satisfaction.
4. REDUCING the Cycle Time.
5. MAXIMIZING the overall VALUE generated in the supply chain
ie Maximize the Supply chain SURPLUS
(profitability).
Material Handling Cost
Procurement cost
Inventory Cost-1 Manufacturing /
Material Cost Processing Cost
Transportation
Cost-1

SUPPLIERS MANUFACTURE
R
Inventory Cost-2

Transportation
Transportation Cost-2
Cost-3
DISTRIBUTION
CUSTOMERS WAREHOUSES

Inventory Cost-3

Costs involved in Supply Chain


FUNCTIONAL AREAS OF SUPPLY CHAIN
1. PROCUREMENT :
Procurement cost -influenced by
i) Decision on Procurement (make or buy)
ii) Procurement procedure (open/close tendering)
iii) Relationship with Vendors
iv) Credibility (Reliability) of the Vendor
v) Procurement Scheduling (frequent or infrequent)
Activities involved in Procurement :
i) Materials Requirement Planning (MRP-1)
ii) Procurement Scheduling (order size and time)
iii) Procurement Method (open/close tendering)
iv) Developing Vendor Relationship (Vendor Development)
2. Product Design & Development
FUNCTIONAL AREAS OF SUPPLY CHAIN

3. Inventory : Involving (1) Planning, (2) controlling and (3) managing


the inventory of all materials including raw materials, MRO, WIP and finished
products.
4. Processing (Production) : Involving activities
i) Product design & Production Process Design
ii) Capacity Planning
iii) Production Scheduling (Aggregate Planning, Master Planning, Job
Scheduling, etc)
5. Distribution : Involving
i) Demand Forecasting & Demand Planning
ii) Decision on Responsiveness & Distribution Channel
iii) Distribution Networking
6. LOGISTICS : Involving all material movements including
i) Material Handling (inside production Plant & warehouses)
ii) Transportation (inbound and outbound)
7. Customer Services
DRIVERS of Supply Chain
DRIVERS are the factors i.e. functional areas,
which determine the performance of the supply-
chain.
For each driver, managers must make trade-offs between :
(1) efficiency (2) cost and (3) responsiveness
The major drivers for the Supply Chain performance consist of
3 logistical drivers & 3 cross-functional drivers.
Logistical drivers :
Facilities
Inventory
Transportation
Cross-functional drivers :
Information
Sourcing
Pricing
Companys supply chain achieves the balance between responsiveness &
efficiency that best meets the needs of the company competitive strategy.
DRIVERS of Supply Chain

INBOUND
PRODUCER OUTBOUND

Supply chain structure


Suppliers
Consumers
Suppliers

Inventory Transportation Facilities Information Sourcing Pricing

Logistical Drivers Cross-functional Drivers

DRIVERS
[Drivers determine the supply chain performance (Efficiency & Responsiveness)
Typical NETWORK DIAGRAM OF SUPPLY CHAIN
Demand
CUSTOMERS Execution
Purchase MARKETING Order ORDER
RETAILER Order DEPARTMENT PROCESSING

Delivery Check Stock & Manufactu-


Delivery order ring Order
After sales
Service FINISED Products PROCESSING /
PROD. MANUFACTURE
Order Feed
Customer FeedWAREHOUSE
Back
Back
Customer Raw
Spares & Maint
Feed Back Materials &
Feed back
Components
Spares & Technical
CUSTOMER Support RM & Components
SERVICE Warehouse
Material Flow : RM &
Information Flow : Compo
Suppliers
SUPPLIERS
(for Standard Products) Suppliers
Typical NETWORK DIAGRAM OF SUPPLY CHAIN
CUSTOMERS Demand Purchase Execution
feedback Order Order
Whole- MARKET- ORDER
Retailer Distributor Seller ING DEPT
PROCESSING
Delivery
Manufacturing
After sales Check Stock & Order
Service Delivery order
Order Feed FINISED Products PROCESSING /
Back PRODUCTS MANUFACTURE
WAREHOUSE
Customer
Feed Back Spares & Maint Raw
Customer Feed
Feed back Materials &
Back
Components
Spares & Technical Support
CUSTOMER RM & Components
SERVICE Warehouse
Material Flow : RM &
Information Flow : Components
Suppliers
SUPPLIERS
(for Standard Products) Suppliers
Typical NETWORK DIAGRAM OF SUPPLY CHAIN
Purchase Execution
Order MARKETING Order
CUSTOMERS ORDER
DEPARTMEN PROCESSING
T
Delivery
Manufacturing
After sales Order
Service
Pre-shipment PROCESSING /
Order Feed
Inspection MANUFACTURE
Back
Customer Feed Spares & Maint Feed Raw Materials
Customer Back
Feed Back back &
Components
Spares & Technical Support
CUSTOMER R M & components
SERVICE Warehouse
Material Flow :
RM &
Information Flow :
Compo
(for Customized Products) Suppliers
SUPPLIERS
Suppliers
Important Aspects to be taken care of,
for the SUCESS of Supply Chain
1. Quality MANAGEMENT & Quality IMPROVEMENT
2. Speed, Reliability & Consistency of MATERIAL MOVEMENT
3. Good & collaborative RELATION (along with Close Coordination)
with the SUPPLIERS
4. Reduction of INVENTORY LEVEL as far as possible and
reasonable (inventory cost is a waste)
5. Prompt REPLENISHMENT of Inventory Materials (Raw materials,
Products, etc) to avoid interruption due to stock-out
6. Reduction of CYCLE TIME of Production & Operation
7. Greater FLEXIBILITY in Production & Operation CYCLE
8. Improvement of PRODUCTIVITY
9. Continuous Improvement of CUSTOMER SERVICE
Supply Chain STRATEGIES
Supply Chain Strategies include : (i) Outsourcing Strategies,
(ii) Distribution Channel strategies, (iii) Logistics Strategies (iv) Logistics Cobbling,
(v) Vertical Integration Strategy, (vi) Customer Service Strategies,
in addition, S C strategies include the following main four strategies,
STRATEGY WHEN TO CHOOSE BENEFITS

1)Make to Only Standardized products Low manufacturing costs;


Stock (PUSH (at early stage), , relatively increased inventory level;
SYSTEM) predictable demand, less product meet customer demands
variation quickly;
2)Make to Customized as well as Standard Customization;
Order (PULL products (at later stage), reduced inventory Level;
SYSTEM) demand not predictable or improved service levels
irregular, high product variations
3) Configure Simpler customized products, Lower inventory levels;
to Order unique customer specifications need of wide range of product
with design from customer offerings;

4) Engineer COMPLEX customized Very Low inventory levels;


to Order products, unique customer Enables response to very
specifications without design, specific customer
requirements
SUPPLY CHAIN
STRATEGY-1
PUSH-PULL
STRATEGY
PUSH STRATEGY
Push & Pull STRATEGY PULL STRATEGY
PUSH-PULL STRATEGY
Push-based Supply Chain : It is a strategy where
Production & Distribution Supply Chain is based on the DEMAND-
FORECASTS [Demand Forecast driven], based on the demand
information/feedback received from retailers/warehouses.
Important criteria of Push System:
i) It is typically adopted in the initial stage of the business for the supply chain of only
standard products,
ii) It takes longer time to react towards the change occurred in market-places,
iii) It has inability to meet the CHANGING / Variable Demand Pattern with respect to time,
because of longer feed back time.
iv) It has inefficient resource /stock -utilization, because high stock is maintained.
v) Other Characteristics : (a) adopted where Demand Uncertainty / fluctuation is LOW, (b)
high inventory-level due to the need of larger safety stock, (c) more chances of
product obsolescence / spoilage, (d) adopted where ECONOMIES OF SCALE is HIGH, (e)
lower manufacturing cost due to the need of less production-changeover and high EOS, (f)
Main process is Supply Chain Planning and not order fulfillment, (g) Focus on Stock
Allocation
Pull-based Supply Chain : It is a strategy where
Production & Distribution Supply Chain is based on the ACTUAL
CUSTOMER-DEMAND (and not the Demand FORECASTS), in response
to specific customer-orders and without holding any Inventory.
Such supply Chain is Actual Demand driven and not Demand-Forecast
driven.
The important criteria of Pull-based Supply Chain :
i) It is typically adopted for Customized products as well as for Standard products in
the later stage of the business,
ii) It takes shorter time to react towards any change occurred in market-places
(customers),
iii) It efficiently meets the exact change of demand pattern with respect to time,
iv) It has efficient resource (stock)-utilization, because low stock is required only to
meet exact customer orders,
v) Other Characteristics : (a) adopted where Demand Uncertainty/ fluctuation is HIGH, (b) low
inventory-level, due to meeting the exact orders, (c) less chances of product
obsolescence , (d) adopted where ECONOMIES OF SCALE is LOW, (e) increased
manufacturing cost due to need of frequent production-changeover and low EOS,
(f) Main process is Order Fulfillment & not Supply Chain Planning, (g) Focus on
Responsiveness & not Stock Allocation
Push-Pull Supply Chain : It is a mixed strategy with
combination of Push strategy as well as Pull strategy, adopted in the later stage of
the business, with a wide Product-range.
In Push-Pull strategy, (i) Pull strategy is applied on some products in the product-range
for which sufficient specific customer-orders are available and (ii) Push strategy is
applied on the remaining products in the product-range for which demand-forecast
is considered because sufficient specific customer-orders are not available .
The interface between the time of Push strategy and the time of Push- Pull strategy of
the supply chain, where Push-Pull Supply Chain starts is called PUSH-PULL
BOUNDARY.
TIME
PUSH-PULL BOUNDARY
Push Strategy for Pull Strategy for
Standard Products Standard Products
Raw A, B, C A, B,C
Push Strategy for new Market /
Material
Standard Products Customers
Suppliers
D, E, F, G
Early Stage Late Stage
Push to Pull Time-Interface
SC STRATEGY-2
VERTICAL
INTEGRATION
STRATEGY
Vertical Integration Strategy in Supply chains
For any organization vertical integration involves either taking on more of the
supplier activities (BACKWARD) and/or taking on more of the distribution
activities (FORWARD).
An example of BACKWARD Vertical Integration would be
(i) a PEANUT BUTTER manufacturer that decides to start farming to grow
PEANUTS rather than buying peanuts from a suppliers;
(ii) a SUGAR mill that decide to have own SUGAR CANE farming rather than
buying sugar cane.
An example of FORWARD Vertical Integration would be
(i) the peanut butter manufacturer decides to start DISTRIBUTING their
product directly to grocery stores in the market;
(ii) the sugar mill that decides (1) to use their byproduct molasses
in their own ALCOHOL Production Plant, and/or
(2) to start DISTRIBUTING their product to the market.
The significance of vertical integration in the supply chain is that the activities
that are performed by the manufacturer are typically more easily managed
than those which are outsourced (performed by other organizations).
Forms of Vertical Integration
Raw Material
L S Mines Farming Wheat Farming
(from Suppliers)

BACKWARD
Lime Stone Sugar cane Flour Milling
Integration

Cement Sugar Mill Baked Goods Focus Business

Distribution Molasses Distribution FORWARD


System System Integration

Alcohol Plant Finished Goods


Dealers Retailers (to Customers)
SC STRATEGY-3
LOGISTIC
COBBLING
LOGISTIC-COBBLING: Supply Chain Strategy
A number of organizations may be cobbled together (united /
making a joint forum) with the objective of efficient use
of the followings with sharing mainly :
(i) Warehouses , (ii) Transportation (iii) Other 3 PL
services like Packaging, Distributing, etc.
It is one of the key Supply Chain Strategies (under supply chain) which
can be effectively adopted among the players only, who
(i) are not competitors (different products), but
(ii) cater to needs of similar group of users or customers,
&
(iii) have similar distribution channel.
eg. manufacturers of different FMCG products, like Hindustan Unilever
Ltd, Nestle, Johnson & Johnson, etc. can cobble, to get benefits in
managing supply chain.
SC STRATEGY- 4
CUSTOMER
SERVICES
CUSTOMER SERVICE is a key element of the Supply Chain Strategies. It is
based on Customer Relationship Management and it leads to the improvement
of business competitiveness.
Important Aspects (Attributes) of Customer
Service Quality
Important Aspects, influencing Customer perception of the Services Quality, are :
1. Reliability on Delivery : wrt (i) Quality & quantity of products and
reliability on (ii) place & time of delivery, as promised or expected
2. Responsiveness : (i) Prompt response to Customer Call or customer
complaints, and (ii) speedy redressal there of
3. Competence : (i) CAPABILITY of providing effective & efficient customer
services and (ii) customers awareness about the Information (through
advertisement, manuals, brochures, websites, etc) on customer services,
offered & provided by the firm to be.
4. Transaction Security : (i) Confidentiality and (ii) Security of Customers
information and Transactions
5. Trustworthiness : On (i) Return of surplus & defectives, (ii) Warranty
& Guarantee and (iii) all other Commitments
6. Access : Easy and free Access of Customers to all Information of Products
and Services with reference to firms (i) Performance Record and (ii)
Progress Status like Orders Execution, Delivery, Customer Services, Claims,
Complaints-handling, etc
STAGES of ACTIVITIES of CUSTOMER-SERVICES
1. PRE-TRANSACTION Activities :
(i) Decision on strategies of Customer Service
(ii) Organizing the Customer Services
(iii) Planning & providing Infrastructure for Customer Services
(iv) Educating the Customers on the Customer Services
(v) Designing the System network for Customer Service
2. DURING TRANSACTION Activities :
(i) RELIABILITY in executing the order
(ii) Consistency in Delivery
(iii) Ease the process of Order Placement
(iv) Ease the process for ORDER CANCELLATION or REVISION
(v) Prompt REPLACEMENT of Defectives during inspection
(vi) Free access to information about Progress of Order Execution
3. POST-TRANSACTION Activities :
(i) Prompt RETURN of surplus, (ii) REPLACEMENT of DEFECTIVES
(iii) Effective RESPONSE to Customers Complaints & Claims
(iv) ASSISTANCE in equipment FOUNDATION & INSTALLATION,
Trial-run & Commissioning, Problem- shooting & Demonstration
(v) EDUCATING & TRAINING the Customer on OPERATION and MAINTENANCE
of the product
(vi) AFTER-SALES SERVICES including Repair & Maintenance, Warranty, Annual
Maintenance contract, etc.
VALUE-ADDED CUSTOMER- SERVICES include
1. Customized Delivery (eg: Ex-Factory, Ex-Warehouse, FOB / FOR,
CIF-destination)
2. Customized Transportation (Mode of transportation)
3. Collection of Payment [on delivery or thru bank (LC)]
4. Customized Labeling & Price-Marking on the Product
5. Packaging & LABELING of Product-Mix on packages
6. CROSS-DOCKING (for transfer of the material from one
transport mode / vehicle onto the other)
7. WAREHOUSING near customers place ; or VENDOR
MANAGED INVENTORY (V M I) at customer premises
8. FREQUENT Delivery in SMALL LOTS
9. Web-based TRACKING & TRACING of Consignments, during
transportation
10. REVERSE LOGISTICS [Return of surplus & defectives from site/
consumer, packages after use (cold drink bottle), etc]