Supply Chain Management –MGMT614 VU

LECTURE 2
WHAT IS SUPPLY CHAIN MANAGEMENT?
Rationale and Logic:
In a hypercompetitive environment consumers have access to different suppliers of products and services.
Also these consumers have access to product service review which can ideally influence them about the
product or service in a positive or negative way. The highly aware consumer is also not that loyal to the
product or service offering from an enterprise in fact low switching costs allow the consumer to switch to a
new product or service being offered by the competitor of the first enterprise. Ideally the supply chain
discussion should entail both manufacturing and services side. Consumers have occupied a centric position
in the business models being pursued by businesses of today. These consumers would be interested in having
access to the best product at a minimum cost and with least or no waiting time. In other words, the message
from the consumer to the enterprise delivering product or service is to have an effective and efficient supply
chain. If an enterprise fails to do so the customer is free to accept the more reliable, economical and readily
available product or service of the competitor. This is an important rationale as businesses in Pakistan have
learnt it the hard way in the last 15 years or so and have lost out to businesses in other parts of the world.
Pakistani businesses could not come up with an effective and efficient supply chain and could not accomplish
the customer requirements which these businesses had originally committed to fulfill. The customers cannot
be loyal to businesses that are unable to fulfill their business preposition. This phenomenon is visible in even
countries like USA. Virtual University Students should take it upon themselves to improve their business or
workplace to develop product or services in line of the customer requirements and ensure an effective and
efficient supply chain for earliest delivery to the customer, in order to win customers loyalty. This loyalty
translates into repeat business and long term supply chain surplus (profits).
LEARNING OBJECTIVES: The Virtual University student should be able to learn the characteristics,
inputs, outputs, boundaries and framework of a Generic Supply Chain. After the completion of this lecture,
the VU student should ideally be able to
1. Describe a supply chain and define supply chain management.
2. Describe the objectives and elements of supply chain management.
3. Describe local, regional, and global supply chain management activities among services and
manufacturing companies.
4. Describe a brief history and some of the trends of supply chain management.
5. Understand how the bullwhip effect impacts supply chain members.

MODULE 1: GENERIC SUPPLY CHAIN

First of all, the VU student is required to know what a Generic Supply Chain is. Supply Chain Management
(SCM) has now become an important concept not only in Manufacturing but also in Service Industry. In
today’s dynamic market environment, the consumer demand is changing fast, consumerism is on the rise, and
the consumer is more knowledgeable, informed and demanding. This demand side has a direct, visible and
strong impact on supply side.
This calls for critical processes like enhanced product quality, customer-centric service, speedy and prompt
delivery overcoming the barriers of time and place and above all new performance metrics to achieve
consumer satisfaction. Also no longer the enterprises can apply the “arm twist or adversary strategy” to force
the supplier to offer the raw material at a lower cost or purchase the final product from the manufacturer as
“reciprocity tactic”. It is possible that your competitor can engage your own supplier in an ethical and
professional manner to develop a strategic alliance. And thus your competitor can succeed in winning
customer loyalty, brand recognition by ensuring a competitive product reaches your customer at a lowest cost
and in the earliest of times. This would off course result in the customer staying away from your product or
service.
Today, traditional business strategies do not hold good. Competition is no longer between products (or
services) but between supply chains. Hence Supply Chain has added a new dimension to business strategies
for sustainable competitive advantage, the supply chain process needs seamless integration of its subsystems.
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In other words, you can identify the supply chain to consist of various sub systems like one sub system
between supplier and enterprise, one subsystem between enterprise and retailer and off course one sub system
being the enterprise itself then you can identify the performance and operations of these subsystems by
identifying the boundaries, aligning the subsystem objectives and functioning and connecting these mutual
linkages. Ideally these linkages over the period of time become seamlessly integrated. This seamless integration
would ensure ease of decision making and smooth operation at various critical points along the supply chain.
We see some of the Pakistani enterprises focused on fulfilling customer needs and yet there are few
organizations that pay no heed to customer needs only to go out of the business. About 15 years back there
was a trend to exceed the customer need but it was soon realized that by exceeding the customer needs the
enterprises were entering the gold platting zone and actually disturbing their cost structure which ultimately
translated into financial distress. In contrast to these Pakistani enterprises, firms in our neighboring countries
avoided the gold platting trap and are thus enjoying a more stable and robust businesses. You as a supply
chain manager should aim for the customer need, do not try to exceed that and all the processes that make
up the supply chain should continue to fulfill the customer need in order obtain sustainable long term supply
chain surplus and profits. Pakistani environment is full of examples where manufactures sent initial
consignments exceeding customers’ requirements while the repeat orders were treated with no respect to
customer requirements with a result that customers rejected the consignment. The manufacturers not only
incurred cost of reverse supply chain but most of these manufactures were not allowed to carry out further
business in those countries.
Business enterprises have recognized that the critical processes where by the business enterprises satisfy
customer demand. But the process of delivering these products to the customers is of the same critical
importance for any organization. So we can now define supply chain management
Using business critical processes products are developed, manufactured, and delivered to customer,
meeting their continuing service needs. The process that links the various elements of business operations
is called the SUPPLY CHAIN PROCESS
You have to cover the end to end relationship from the customer to the supplier or vice versa. Ideally the
supply chain manager should visualize the Supply Chain as a network of facilities and distribution options.
This network performs the functions of material procurement, conversion of these materials into finish
goods, and finally distribution of the finished goods.
Supply Chain exists in both services and manufacturing organizations; however, the complexity of the chain
depends on its product –market configuration. So it will include the supplier’s facility, the manufacturing
facility as well as the retailer’s facility.
Also the enterprise can either directly dispatch the product to the customer or make use of a retailer or
wholesaler or even employ e commerce with pull or push strategy based webpage.
All these would be potentially sources that can be made good use of to optimize the performance of the
supply chain.
Supply chain is a network through which material is purchased
SCM controls the physical flow (capacity and speed) of goods from source to point of use by aligning the
capabilities of Supply Chain Partners (Suppliers, Manufacturers, Channel Partners and Customers). SCM
supports both differentiation and cost based strategies.
The SCM approach contributes towards World Class Performance which is beyond functional integration.
SCM integrates the activities of all members of the Value Chain. Integration results in a higher level of
performance than what can be achieved individually.
SCM practices create Supply Chain Integration that leads to superior business performance. In an Enterprise
with a functional approach (Marketing, distribution, Planning, Manufacturing and Purchasing) to its supply
chain operation, the functional areas have their own objectives that are often conflicting resulting in loss in
productivity and profitability.
VU Students should remember the concept of supply chain integration as it will help an enterprise and its supply chain partners
to avoid the silo effect and have a consistent and mutually agreed goals and objectives.

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A common example being when one functional area goes for functional optimization leading to sub-
optimization for the enterprise like manufacturing department deciding that it needs to cut down on storage
costs ends up increasing the transportation costs of the supply chain. So optimization should be aimed at the
strategic level and not at the functional level.
WHY DO WE NEED A SUPPLY CHAIN?
The question “why do we need a supply chain” is heard both internal to the enterprise as well as external to
the enterprise. The logical answer is why not? Because the supply chain concept is pervasive and encompasses
or deals with nearly all the organizations. It includes organizations from for profit, not for profit and
government departments. All these enterprises look for a complete end to end presence from the raw
materials to the finished goods. And the concept is extended to services as well.
Supply chain extends to both production and services or more appropriately covers the productive systems.
Supply Chain Management Concept, Virtual University students are encouraged to identify the Inputs,
transformation and outputs of all the business entities, shown in the figure below, along with the respective
supply chains, in their journal books.

Supply Chain Management (SCM) in daily lives

Construction
School Restaurants
s Banks
Hospitality

Military

Agriculture Transportation
Sport Teams
Health Municipalities
Care

Gov’t
Manufacturers Service Entertainment
Retail s Not-for-Profit
Organizations

It is obvious that the student can identify the global network of organizations and activities involved in
1. Designing a set of goods and services and their related processes.
2. Transforming inputs into goods and services
3. Consuming goods and services
4. Disposing of these goods and services
Now we are in a position to define supply chain management, which is “the design and execution of
relationship and product (service), information and cash flows that connect the parties and processes across
supply chain”.
Virtual University students are already aware of the supply chain in services and are well aware of the process
they employ to obtain the course DVD and write up of their registered class. The process involves online
data input, printing of bank challan, submission or fee deposit at designated bank branches and then receiving
their DVDs and write up in mail from the 3rd to the 5th day.

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Let us take up the example of how VTV develops a program for the Virtual University Students

Points to remember about Value-Added & Product Packages

1. Value-added is the difference between the cost of inputs and the value or price of outputs.
2. Product packages are a combination of goods and services.
3. Product packages can make a company more competitive.
4. Current effective strategies can improve product packages
5. Poorly executed strategies can harm the product packages in short term and the entire supply chain
in the long term. Often companies record and experience higher costs associated with reverse supply
chain in case of poorly designed and implement strategy.
Can you identify the value added and product
packages in the above Virtual University
example? Record it in your Log/ Journal book.
Students are also encouraged to look for the
meaningful relationship between value chain and
supply chain with examples as provided in the
supplement to this lecture.

MODULE 2: WHAT IS A SUPPLY

CHAIN?
This module answers the most
commonly asked question what is a
Supply Chain? Remember not only a
supply chain manger has to answer the
flow of products (services), information
and cash flow, but also any functional
manager is also responsible for

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completely identifying the linkages from suppliers to manufacturers, to storage and from warehouse storage
to distributors and customers.
A supply chain consists of the flow of products and services from
1. Raw materials or manufacturers
2. Component and intermediate manufacturers
3. Final product manufacturers
4. Wholesalers and distributors and
5. Retailers
Connected by transportation and storage activities, and Integrated through information, planning and
integration activities. Many large Enterprises are moving away from in-house, vertically integrated structures,
to Supply Chain Management.
There are many important international governing bodies which have identified the need felt by enterprises
to have a clear understanding of Supply Chain Concepts and in this regard have provided definition of role
and activities associated with in the supply chain network. These definitions would help your enterprise enjoy
the same status as your competitors outside Pakistan.
A product or service offered by a SCM enabled enterprise would ensure that right product reaches the right
customer. Customers normally look for the SCM awareness according to the Institute for Supply Management
standards or other globally recognized standards like Logistics and Supply Chain Management Society and
Council of Supply Chain Management Professionals.
Customers often ask for pre-audit of SCM facilities before entering into a long term contract for purchasing
the finished good or product.
Some of the more common and popular definitions are given below. Please note that the second definition
presents a packaged good approach and the third one is the most comprehensive and usually referred to by
most of the enterprises.
The design and management of seamless, value-added processes across organizational boundaries to meet
the real needs of the end customer
Institute for Supply Management

The coordinated set of techniques to plan and execute all steps in the global network used to acquire raw
materials from vendors, transform them into finished goods, and deliver both goods and services to
customers
Logistics and Supply Chain Management Society

The planning and management of all activities involved in sourcing and procurement, conversion, and all
logistics management activities … also includes coordination with channel partners, which can be suppliers,
intermediaries, third party service providers, and customers.
Council of Supply Chain Management Professionals

These definitions may be changed and modified by the same council and society of experts periodically to
address the latest trends and business requirements. We have now covered some examples of Supply chain
and have focused on some definitions of supply chain.
OLD VS NEW PARADIGM DEBATE
Sometimes there is criticism that Supply Chain is an old paradigm. Now what is a paradigm? Virtual University
students are encouraged to revisit the basic definition or concepts associated with the term “paradigm”. The
word paradigm means example or exemplar, model, Pattern, Standard, Prototype and archetype.
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Old paradigm -Enterprise XYZ gained synergy as a vertically integrated Enterprise encompassing the
ownership and coordination of several supply chain activities. Organizational cultures emphasized short-term,
company focused performance. But this old paradigm can be made a part and parcel of the new paradigm as
well by shifting from enterprise focus to supply chain focus.
New paradigm- Enterprise XYZ, say for example is in the field of electronics and looks for a better raw
material or a fast processor. Now, XYZ is in supply chain focus activities in its area of specialization and
enters into voluntary and trust-based relationships with supplier and customer Enterprises.
1. All participants in the supply chain must benefit from the supply chain.
2. Boundaries are dynamic and extend from “the Enterprise’s suppliers’ suppliers to its customers’
customers (i.e., second tier suppliers and customers).”
3. Supply chains now focus on reverse logistics to handle returned products, warranty repairs, and
recycling with additional advantage of increase in cost saving, possible generation of revenue, increase
in customer service, customer satisfaction and customer loyalty. This would mean the enterprise is in
a position to handle both forward and reverse supply chains and thus ensuring an improved packaged
product for the customer.
So if the integration was only present in the enterprise in the old paradigm it is not extended beyond the
enterprise boundaries to suppliers and distributors. If the enterprise XYZ does not fulfill the three above
mentioned conditions, then the enterprise may fall back and end up below the old paradigm level of
competence.
IMPORTANCE OF SUPPLY CHAIN MANAGEMENT
Enterprises have discovered value-enhancing and long term benefits. It has been observed that Enterprises
with large inventories, large number of suppliers, Complex products and Customers with large purchasing
budgets all benefit with the supply chain. A never ending debate amongst the devil’s advocate is who benefits
most? The intellectually correct answer is all entities sooner or later enjoy the benefits of Supply Chain.
A logical question that follows is how do these Enterprises benefit? The logical answer being that by lowering
purchasing and inventory costs, improved quality, higher levels of customer service more or less any big or
small enterprise can benefit from Supply Chain.
Enterprises using Supply Chain Management more or less follow the same sequence of steps. If the Virtual
University student is interested in initiating the supply chain management process at his or her work place,
the following steps are recommended.
1. Start with key suppliers or pool of suppliers so you can conduct sourcing with them.
2. Move on or switch on to other suppliers, customers, and shippers. This requires pre-qualification of
suppliers.
3. Integrate second tier suppliers and customers (second tier refers to the customer’s customers and the
supplier’s suppliers)
a. Cost savings and better coordination of resources are reasons to employ Supply Chain
Management.
b. Reduced Bullwhip Effect - the magnified reduction of safety stock costs based on coordinated
planning and sharing of information
Bullwhip Effect corresponds to the increase in inventory as you move up the supply chain. Avoid padding
and convenient cushion and ensure proper information with corresponding planning effort to reduce
bullwhip effect.
Cost savings and better coordination of resources are reasons to employ Supply Chain Management
a. Collaborative planning, forecasting, and replenishment activities reduce the Bullwhip Effect
and
b. Lead to better customer service, lower inventory costs, improved quality, reduced cycle time,
better production methods, and other benefits.

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ORIGINS OF SUPPLY CHAIN MANAGEMENT
You can rightly point out that Supply Chain Management is another way of looking at how businesses have
been conducted over the
entire history of human
civilization, and Supply Chain
Management in reality is
nothing but trade and
commerce.
The only thing that has
changed is the availability of
real life time information
courtesy of IT.
The time line shows how
Traditional mass
manufacturing after the
Second World War has
evolved into the currently
recognized form of Supply
Chain Management.
1. 1950s & 1960s: Manufacturers focused on mass production techniques as their principal cost
reduction and productivity improvement strategies.
2. 1960s-1970s: Introduction of new computer technology leads to development of Materials
Requirements Planning (MRP) and Manufacturing Resource Planning (MRPII) to coordinate
inventory management and improve internal communication.
3. 1980s & 1990s: Intense global competition led U.S. manufacturers to adopt:
a. Supply Chain Management (SCM)
b. Just-In-Time (JIT)
c. Total Quality Management (TQM)
d. Business Process Reengineering (BPR)
4. 2000s and Beyond: Companies will focus on relationships, sustainability, and social responsibility.
5. In the years to come. Enterprises will focus on improving supply chain capabilities with initiatives
such as:
a. Third-party service providers (3PLs)
b. Integrating logistics
c. Using transportation to facilitate rapid response
You can map your enterprise in the phases described above.
THE FOUNDATIONS OF SUPPLY CHAIN MANAGEMENT
Supply Chain Experts have actually identified the very foundations of supply chain management, Virtual
University students are requested to identify how these foundations can help create and sustain a supply
chain.
THE TRUE FOUNDATAIONS OF SUPPLY CHAIN MANGEMENT
Supply Supply Base Rationalization, Supplier Alliances, SRM, Global Sourcing, Ethics
and Sustainability
Operations Demand Management, CPFR, MRP, ERP, Inventory Visibility, Lean Systems, Six
Sigma Quality Systems

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Logistics Logistics Management, Customer Relationship Management, Network Design,
RFID, Global Supply Chains, Sustainability, Service Response Logistics
Integration Risk and Security Management, Performance Management, Green Supply Chains.
A first task would be to examine their own enterprise and its supply chain, or use the internet to identify the
supply, operations, logistics and integration of different enterprises or business sectors.
IMPORTANT ELEMENTS (LINKS) OF FOUNDATION OF SUPPLY CHAIN
MANAGEMENT
Virtual University students are requested to identify the concepts of Supply Elements, Operations Trends,
Logistics Trends and Integration Trends as presented below: -
1. Supply Elements:
a. Supplier management -improve performance through
i. Supplier evaluation (determining supplier capabilities)
ii. Supplier certification (third party or internal certification to assure product quality and service
requirements)
b. Strategic partnerships - successful and trusting relationships with top-performing suppliers
c. Ethics and sustainability – recognizing suppliers’ impact on reputation and carbon footprint
2. Operations Trends:
a. Demand management - match demand to available capacity
b. Linking buyers & suppliers via MRP and ERP systems
c. Use lean systems to improve the flow of materials to reduce inventory levels
d. Employ Six Sigma to improve quality compliance among suppliers
3. Logistics Trends:
a. Transportation management - tradeoff decisions between cost & timing of delivery / customer
service via trucks, rail, water & air
b. Customer relationship management - strategies to ensure deliveries, resolve complaints,
improve communications, & determine service requirements
c. Network design - creating distribution networks based on tradeoff decisions between cost &
sophistication of distribution system
4. Integration Trends:
a. Supply Chain Process Integration -when supply chain participants work for common goals.
Requires intra-Enterprise functional integration. Based on efforts to change attitudes &
adversarial relationships
b. Supply Chain Performance Measurement - Crucial for Enterprises to know if procedures are
working

MODULE 3: CURRENT TRENDS IN SUPPLY CHAIN MANAGEMENT

The entire course would impel the student to look for current trends and hopefully at the time of
completion of the course, the student’s logbook would be containing more than what current trends are
being identified under this sub module:
1. Expanding the Supply Chain
a. MNCs/ Enterprises are expanding partnerships and building facilities in foreign markets
i. Right shoring for maximum flexibility and
ii. minimum cost
b. The expansion involves:

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i. Breadth - foreign manufacturing, office & retail sites, foreign suppliers & customers
ii. Depth - second and third tier suppliers & customers
2. Increasing Supply Chain Responsiveness
a. Enterprises will increasingly need to be more flexible and responsive to customer needs
b. Supply chains will need to benchmark industry performance and meet and improve on a
continuous basis
c. Responsiveness improvement will come from more effective and faster product & service
delivery systems
3. Reducing Supply Chain Costs (Efficiency)
a. Cost reduction achieved through:
i. Reduced purchasing costs
ii. Reducing waste
iii. Reducing excess inventory, and
iv. Reducing non-value added activities
b. Continuous Improvement through
i. Benchmarking - improve over competitors’ performance
ii. Trial & error
iii. Increased knowledge of supply chain processes
4. The GREENING of Supply Chains
Producing, packaging, moving, storing, delivering and other supply chain activities can be harmful to the environment
i. Supply chains will work harder to reduce environmental degradation
ii. Consumers globally are influenced by an Enterprise’s environmental friendliness reputation
iii. Recycling and conservation are a growing alternative in response to high cost of natural resources
Virtual University Students are requested to pay special attention to the balance between efficiency and
responsiveness.
Pakistani enterprises pay little respect to efficiency and responsiveness resulting in their poor acceptance in
the international markets and relegation to secondary source, even though they have the capability of
providing superior products as the primary source.
END OF LECTURE 2: GIST AND CRUX
1. Students should be able to identify the characteristics of a Generic Supply Chain with examples. Product market
configuration should be considered by supply chain managers and senior management in order to decide about the
levels of complexity associated with a supply chain. An outside consultant can be hired to ensure that supply chain is
not that complex that it creates difficulty in management and registering of long term supply chain surplus.
2. Students should be able to identify the product (Service) flow, information flow and cash flow for any supply chain.
3. While describing the competition among different enterprises, the supply chain comparison forms the basis. In other
words, we no longer compare the product or service of one enterprise to that of another enterprise rather we compare the
supply chain Also sooner or later the entire partners of the supply chain will enjoy the benefits of Supply Chain.
4. The foundational concepts of Supply Chain Elements include Supply Trends, Operations Trends, Logistics Trends
and Integration Trends
5. Current Supply Chain Trends are expanding supply chain, increasing efficiency (reducing costs), increasing
responsiveness (decreasing time) and greening of supply chains.

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