Assignment – 1

Summary of Class 1 to Class 4

By Hafis Sayed, 19PGP177, SCM C

Some of the main issues in the management of Supply Chain:

• Lead Time
Consists of Procurement lead time + production Lead Time + Delivery Lead Time. We looked at lead times of
common products like cereals, bottle and pharma products in USA and India. The lead times are high (110
days for cereals, 21 days for bottle) as opposed to our intuition. Another factor to be considered is wastage.
Perishable goods like fruits and vegetables have around 35-40% wastage costing around Rs. 50,000 crores.

• Total Cost
Total cost involved in the supply chain is very high. For e.g. It’s around Rs. 1000 crores for pharma products.

• Management of inventory

• Material Handling
Increases the overall lead time.

• Performance monitoring and control

• Sensitization about the Logistics cost to all the stakeholders

According to Forrester there are 5 major flow in supply chain:

• Order/information; • materials; • money; • manpower; and, • capital equipment.

Later IT was added an important flow to the Supply Chain. In 1982, Keith Oliver defined supply chain as “Supply
chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply
chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management
spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-
origin to point-of-consumption”.

Evolution of SCM process

• The First Revolution (1910 – 1920) – Vertically integrated firm offering and low variety of products. It was
founded by Ford Motor Company. At that time, they owned every part of the chain. However, they were
offered only T model car in black colour. So, they had a highly efficient supply chain. But it was not
flexible at all.

• The Second Revolution (1960 – 1970) - Tightly integrated supply chains offerings a wide variety of
products. As W. Edwards Deming said, “A bad system will beat a good person every time.”, when Ford
was offering only one variety, Toyota offered different models of cars that too from the same assembly
line. They offered a low price of their products. They didn’t own the supplier chain but maintained an
integrated relationship with each other under the Keiretsu system. Suppliers were located near Toyota
production plants.

• The third revolution (1995- 2020): Virtually integrated global supply networks offering customized
products and services. Now, we are able to have individual customisations thanks to development of
technology. Now, the theme of every organization is to satisfy the consumer. It is the age of virtual
 integration. Here, customers have the power to get every information regarding products quality and
services.

Supply Chain Management vs. Demand Chain management

Demand-chain management is similar to supply-chain management but with special regard to the customers.

Supply Chain Management vs. Value Chain Management

Supply chain

Supplier Factory Distributor Retailer Customer

VCM

Logistics Distribution
Mgmt. Mgmt.

SCM/DCM
VCM

The difference between the two is that in supply chain management, the flow is down – from the source to the
consumer. In value chain management, the flow is up – from the consumer to the source.

Logistics includes transportation management, fleet management, warehouse management, proper handling of
materials and inventory management. Distribution includes things such as packaging, storage, order fulfilment, and
handling customer and vendor returns.

In supply chain, the bull whip effect occurs due to inaccuracies in forecasting from bottom to top. It refers to
increasing swings in inventory in response to shifts in customer demand as one moves further up the supply chain.

Supply chain transformation has huge potential to transform a company as well as industry. Some examples are:

• Walmart transformed itself by changing logistics system. Now it has highest sales per square foot, inventory
turnover and operating profit of any discount retailer. Achieved by EDLP, Cross docking, Big box format, POS
implementation, Vendor Managed Inventory and centralized warehousing.

• Laura Ashley turns its inventory 10 times in a year, 5 times faster than 3years ago by using new information
system and centralized warehouse.

Supply chain has huge complexities:

• in production and distribution. For e.g. National Semiconductors has production in 6 different locations and
distribution all over the world. This demand tremendous efficiency of the Supply chain.
• Tactical Planning: This is regarding the most effective allocation of resources to manufacturing and
distribution over several months. It involves purchasing and production decisions, inventory policies and
transportation strategies.
• Decision Classification: Regarding day to day operational decisions like scheduling, dispatching, lead time
calculation etc.
• Demand Forecast: forecasting is always wrong and the longer the forecast, the more the error.