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NIKHILS TUTORIALS SUPPLY CHAIN MANAGEMENT Traditional Perspective: Traditionally most organisations have viewed themselves

as entities that exist independently from others & indeed need to compete with each other in order to survive. However such a philosophy can be self-defeating if it leads to unwillingness to cooperate in order to compete. Behind this seemingly paradoxical concept is the idea of supply chain integration.

Definition: Supply chain management is the management of upstream &


downstream relationships with suppliers & customers to deliver superior customer value at less cost to the supply chain as a whole.

Explanation: The supply chain is the network of organisations that are involved
through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate consumer. Thus for example a shirt manufacturer is a part of the supply chain that extends upstream through the weavers of fabric to the manufacturer of fibers and downstream through distributors and retails to the final consumer. Each of these organisations in the chain dependent on each other by definition and yet paradoxically by tradition do not cooperate with each other. Clearly this trend has many implications for logistics management, not the least being the challenge of integrating and coordinating the flow of materials from a multitude of suppliers and similarly managing the distribution of the finished product by way of a multiple intermediaries.

DOWNSTREAM

UPSTREAM

Origin: In the past it was often the case that relationships with suppliers and
downstream customers were adversarial rather than co-operative. It is still the case today that some companies seek to achieve cost reductions or profit improvements at the expense of their supply chain partners. Companies such as these do not realize that simply transferring costs upstream or downstream does not make them any more competitive. The reason for this is that ultimately all costs find their way to the final market place to be reflected in the price paid by the end user. The leading edge companies recognize the fallacy of this conventional approach and instead seek to make the supply chain as a whole more competitive through the value it adds and the cost that

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it reduces overall. They have not realized that the real competition is not company against company but rather supply chain against supply chain. Fig 1: Isolated Functions --- STAGE 1

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The above figure suggests that there is in effect an evolution of integration from the stage 1 position of complete isolation from the other business functions. An example would be where production or purchasing does their own work in complete isolation from other business functions. Another example would be where production seeks to optimize its unit costs of manufacture by long production runs without regard for the build up of the finished inventory and heedless of the impact it will have on the need for warehousing space and the impact on working capital. Fig 2: Functional Integration --- STAGE 2

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Stage 2 companies have recognized the need for at least a limited degree of integration between adjacent function. This brings in a level of functional integration where in all functions related to each other are integrated. For example: Materials Management, Manufacturing Management, Distribution etc. Fig 3: Internal Integration --- STAGE 3

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Stage 3 is a natural extension of Stage 2. Basically stage 3 companies internally integrate their functions leading to establishment and implementation of end to end integration. A concept of linkages and coordination is achieved in this stage. In this stage an internal supply chain is created within the organisation where in all departments work in coordination with each other.

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Fig 4: External Integration --- STAGE 4

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Stage 4 represents a true supply chain. In this supply chain integration the concept of linkages and coordination achieved in stage 3 is now extended upstream to suppliers and downstream to customers. This is the final integration where internal as well as external integration takes place so as to complete the true supply chain.

Relationship Building: It is apparent that supply chain management involves a


significant change from the traditional arm length, even adversarial, relationships that so often typified buyer/supplier relationships in the past. The focus of supply chain management is on co-operation and trust and the recognition that if properly managed the whole can be greater than sum of its parts. Thus the focus of supply chain management is upon the management of relationships in order to achieve a more profitable outcome for all parties in the chain. This brings with it some significant challenges since there may be occasions when the narrow self interest of one of the parties has to be subsumed for the benefit of the chain as a whole. Whilst the phrase supply chain management is now widely used, it could be argued that it should be really termed as demand network management to reflect the fact that the chain should be driven by the market and not by the suppliers. Equally the word chain should be replaced by network since there will normally be multiple suppliers and indeed as well multiple customers to be included in the total system. Extending this idea it has been suggested that a supply chain could more accurately be defined as: A network of connected and interdependent organisations mutually and co-operatively working together to control, manage and improve the flow of materials and information from suppliers to end users.

Difference between Logistic Management & Supply Chain Management


1. Logistics Management is defined as the process of planning, implementing and controlling the efficient, effective flow and storage of goods, services and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirements and Supply Chain Management is defined as the management of upstream & downstream relationships with suppliers & customers to deliver superior customer value at less cost to the supply chain as a whole 3

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2. Logistics management is a narrower concept whereas Supply chain management is a broader concept 3. The concept of Logistics management is relatively old whereas the concept of Supply chain management is relatively new 4. Main objective of Logistics management is cost reduction by integrating activities within the organisation where as the objective of Supply Chain Management is improvement of profit through value creation internally and externally. 5. Supply chain management is an extension of Logistics management. 6. Logistics management is primarily concerned with optimizing flows within the organization whilst supply chain management recognizes that internal integration by itself is not sufficient. 7. Logistics is essentially a planning and orientation of a framework that seeks to create a single plan for the flow of product and information through a business. Supply chain management builds upon this framework and seeks to achieve linkage and co-ordination between processes of the other entities in the pipeline, i.e. suppliers and customers, and the organization itself. 8. The focus of Supply chain management is upon the management of relationships in order to achieve a more profitable outcome for all parties in the chain where as the focus of Logistics management is upon the management of resources within the organization.

Supply Network Management Or Demand Network Management


The Phrase Supply Chain Management is widely used. It is a management of upstream and downstream of relationships with suppliers and customers to deliver superior customer value at less cost to the supply chain as a whole. So supply chain management focuses on the management of relationships in order to achieve a more profitable outcome for all parties in the chain. It is argued that it should really be Demand Chain Management as a chain should be driven by the market, and not by suppliers. So also the word chain should be replaced by network. Since there will normally be multiple suppliers and, indeed, suppliers to suppliers as well as multiple customers and customers customers to be included in the total system.