London College of Accountancy and Management

EXTENDED DIPLOMA LEVEL 7

Unit 14: Strategic Supply Chain Management & Logistics

Submitted TO: Sabir Hussain Jafri

Submitted BY : Malik K.S Awan ( PB10439)
Programme: BTEC Extended Diploma in Strategic Management & Leadership

1.

Understand the relationship between supply chain management and

organisational business objective Supply Chain Management Definition Supply chain management is the systemic, strategic coordination of the traditional business functions and the tactics across these business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual companies and the supply chain as a whole. According to the HINES Supply chain strategies require a total systems view of the linkages in the chain that work together efficiently to create customer satisfaction at the end point of delivery to the consumer. As a consequence costs must be lowered throughout the chain by driving out unnecessary costs and focusing attention on adding value. Throughput efficiency must be increased, bottlenecks removed and performance measurement must focus on total systems efficiency and equitable reward distribution to those in the supply chain adding value. The supply chain system must be responsive to customer requirements. Information and Technology: Application of SCM: In the development and maintenance of Supply chain's information systems both software and hardware must be addressed. Hardware includes computer's input/output devices and storage media. Software includes the entire system and application programme used for processing transactions management control, decision-making and strategic planning. Recent development in Supply chain management software is:

1. Base Rate, Carrier select & match pay (version 2.0) developed by Distribution Sciences Inc. which is useful for computing freight costs, compares transportation mode rates, analyze cost and service effectiveness of carrier.

2. A new software programme developed by Ross systems Inc. called Supply Chain
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planning which is used for demand forecasting, replenishment & manufacturing tools for accurate planning and scheduling of activities.

3. P&G distributing company and Saber decision Technologies resulted in a software system called Transportation Network optimization for streamlining the bidding and award process.

4. Logitility planning solution was recently introduced to provide a programme capable managing the entire supply chain. Electronic Commerce: It is the term used to describe the wide range of tools and techniques utilized to conduct business in a paperless environment. Electronic commerce therefore includes electronic data interchange, e-mail, electronic fund transfers, electronic publishing, image processing, electronic bulletin boards, shared databases and magnetic/optical data capture. Companies are able to automate the process of moving documents electronically between suppliers and customers. Electronic Data Interchange: Electronic Data Interchange (EDI) refers to computer-to-computer exchange of business documents in a standard format. EDI describe both the capability and practice of communicating information between two organizations electronically instead of traditional form of mail, courier, & fax. The benefits of EDI are: 1.Quick process to information. 2.Better customer service. 3.Reduced paper work. 4.Increased productivity. 5.Improved tracing and expediting. 6.Cost efficiency. 7.Competitive advantage. 8. Improved billing

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Understand the role of information technology in supply chain management This paper focuses the role of Information technology (IT) in supply chain management. It also highlights the contribution of IT in helping to restructure the entire distribution set up to achieve higher service levels and lower inventory and lower supply chain costs. The broad strategic directions which need to be supported by the IT strategy are increasing of frequency of receipts/dispatch, holding materials further up the supply chain and crashing the various lead times. Critical IT contributions and implementations are discussed. Fundamental changes have occurred in today's economy. These changes alter the relationship we have with our customers, our suppliers, our business partners and our colleagues. It also describes how IT developments have presented companies with unprecedented opportunities to gain competitive advantage. So IT investment is the pre-requisite thing for each firm in order to sustain in the market. INTRODUCTION: Supply chain management (SCM) is concerned with the flow of products and information between supply chain members' organizations. Recent development in technologies enables the organization to avail information easily in their premises. These technologies are helpful to coordinates the activities to manage the supply chain. The cost of information is decreased due to the increasing rate of technologies. In the integrated supply chain model (Fig.1) bi-directional arrow reflect the accommodation of reverse materials and information feedback flows. Manager needs to understand that information technology is more than just computers. Except computer data recognition equipment, communication technologies, factory

automation and other hardware and services are included.

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Integrated supply chain model Bi-directional arrow reflects the accommodation of reverse materials and information feedback flows. Managers need to understand that information technology is more than just computers. Except computer, data recognition equipment, communication

technologies, factory automation and other hardware and services are included. The importance of information in an integrated supply chain management environment: Prior to 1980s the information flow between functional areas within an organization and between supply chain member organizations were paper based. The paper based transaction and communication is slow. During this period, information was often over looked as a critical competitive resource because its value to supply chain members was not clearly understood. IT infrastructure capabilities provides a competitive positioning of business initiatives like cycle time reduction,

implementation, implementing redesigned cross-functional processes. Several well know firms involved in supply chain relationship through information technology. Three factors have strongly impacted this change in the importance of information. First, satisfying in fact pleasing customer has become something of a corporate
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obsession. Serving the customer in the best, most efficient and effective manner has become critical. Second information is a crucial factor in the managers' abilities to reduce inventory and human resource requirement to a competitive level. Information flows plays a crucial role in strategic planning. Supply chain organizational dynamics: All enterprises participating in supply chain management initiatives accept a specific role to perform. They also share the joint belief that they and all other supply chain participants will be better off because of this collaborative effort. Power within the supply chain is a central issue. There has been a general shift of power from manufacturers to retailers over the last two decade. Retailers sit in a very important position in term of information access for the supply chain. Retailers have risen to the position of prominence through technologies. The Wal-Mart & P&G experiences demonstrate how information sharing can be utilized for mutual advantage. Through sound information technologies Wal-Mart shares point of sale information from its many retail outlet directly with P&G and other major suppliers. The development of Inter organizational information system for the supply chain has three distinct advantages like cost reduction, productivity, improvement and product/market strategies. Barrett and Konsynsik have identified five basic levels of participation of individual firms with in the inter-organizational system.

1. Remote Input /Output mode: In this case the member participates from a remote location within the application system supported by one or more higher-level participants.

2. Application processing node: In this case a member develops and shares a single application such as an inventory query or order processing system.

3. Multi participant exchange node : In this case the member develops and shares
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a network interlinking itself and any number of lower level participants with whom it has an established business relationship.

4. Network control node: In this case the member develops and shares a network with diverse application that may be used by many different types of lower level participants.

5. Integrating network node: In this case the member literally becomes a data communications/data processing utility that integrates any number of lower level participants and applications in real times.

Four fundamental mistakes made when determining information requirements are as follows: 1. 2. 3. Viewing system as functional instead of cross-functional. of design jointly. process.

Interviewing Not allowing

managers for trial and

individually error in

instead detail

4. Asking the wrong question during the interview Information and Technology: Application of SCM: In the development and maintenance of Supply chain's information systems both software and hardware must be addressed. Hardware includes computer's input/output devices and storage media. Software includes the entire system and application programme used for processing transactions management control, decision-making and strategic planning. Recent development in Supply chain management software is: 1. Base Rate, Carrier select & match pay (version 2.0) developed by Distribution Sciences Inc. which is useful for computing freight costs, compares transportation mode rates, analyze cost and service effectiveness of carrier.

2. A new software programme developed by Ross systems Inc. called Supply Chain planning which is used for demand forecasting, replenishment & manufacturing tools for accurate planning and scheduling of activities.
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3. P&G distributing company and Saber decision Technologies resulted in a software system called Transportation Network optimization for streamlining the bidding and award process.

4. Logitility planning solution was recently introduced to provide a programme capable managing the entire supply chain. Electronic Commerce: It is the term used to describe the wide range of tools and techniques utilized to conduct business in a paperless environment. Electronic commerce therefore includes electronic data interchange, e-mail, electronic fund transfers, electronic publishing, image processing, electronic bulletin boards, shared databases and magnetic/optical data capture. Companies are able to automate the process of moving documents electronically between suppliers and customers. Electronic Data Interchange: Electronic Data Interchange (EDI) refers to computer-to-computer exchange of business documents in a standard format. EDI describe both the capability and practice of communicating information between two organizations electronically instead of traditional form of mail, courier, & fax. The benefits of EDI are: 1. Quick process to information. 2. Better customer service. 3. Reduced paper work. 4. Increased productivity. 5. Improved tracing and expediting. 6. Cost efficiency. 7. Competitive advantage. 8. Improved billing.

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Though the use of EDI supply chain partners can overcome the distortions and exaggeration in supply and demand information by improving technologies to facilitate real time sharing of actual demand and supply information. Bar coding and Scanner: Bar code scanners are most visible in the checkout counter of super market. This code specifies name of product and its manufacturer. Other applications are tracking the moving items such as components in PC assembly operations, automobiles in assembly plants. Data warehouse: Data warehouse is a consolidated database maintained separately from an organization's production system database. Many organizations have multiple databases. A data warehouse is organized around informational subjects rather than specific business processes. Data held in data warehouses are time dependent, historical data may also be aggregated. Enterprise Resource planning (ERP) tools: Many companies now view ERP system (eg. Baan, SAP, People soft, etc.) as the core of their IT infrastructure. ERP system have become enterprise wide transaction processing tools which capture the data and reduce the manual activities and task associated with processing financial, inventory and customer order information. ERP system achieve a high level of integration by utilizing a single data model, developing a common understanding of what the shared data represents and establishing a set of rules for accessing data. Understand the role of logistics and procurement in supply chain management Logistics As well as strategic decisions on manufacturing locations, the logistics function is key to the success of the supply chain. Order fulfillment is an important part of the

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supply chain and company management need to make strategic decisions on the logistics network. The design and operation of the network has a significant influence on the performance of the supply chain. Strategic decisions are required on warehouses, distribution centers which transportation modes should be used. If the overall company objectives identify the use of more third party subcontracting, the company may strategically decide to use third party logistics companies in the supply chain. Strategic decisions determine the overall direction of companys supply chain. They should be made in conjunction with the companies overall objectives and not biased towards any particular product or regional location. These high level decisions can be refined, as required, to the specific needs of the company at the lower levels which allow for tactical and operational supply chain decisions to be made. Procurement and supply management: The term procurement and supply management refers to all activities required to ensure the continuous and reliable availability of sufficient quantities of quality assured effective products to end users procured at the lowest possible prices in accordance with national and international laws. Companies in any supply chain must make decisions individually and collectively regarding their actions in five areas:
1. Production

What products does the market want? How much of which products should be produced and by when? This activity includes the creation of master production schedules that take into account plant capacities, workload balancing, quality control, and equipment maintenance. Production refers to the capacity of a supply chain to make and store products. The facilities of production are factories and warehouses. The fundamental decision that managers face when making production decisions is how to resolve the trade-off between responsiveness and efficiency. If factories and warehouses are built with a lot of excess capacity, they can be very flexible and respond quickly to wide swings
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in product demand. Facilities where all or almost all capacity is being used are not capable of responding easily to fluctuations in demand. On the other hand, capacity costs money and excess capacity is idle capacity not in use and not generating revenue. So the more excess capacity that exists, the less efficient the operation becomes. Factories can be built to accommodate one of two approaches to manufacturing: 1. Product focus A factory that takes a product focus performs the range of different operations required to ask a given product line from fabrication of different product parts to assembly of these parts. 2. Functional focus A functional approach concentrates on performing just a few operations such as

only asking a select group of parts or only doing assembly. These functions can be applied to making many different kinds of products.
2. Inventory

What inventory should be stocked at each stage in a supply chain? How much inventory should be held as raw materials, semi finished, or finished goods? The primary purpose of inventory is to act as a buffer against uncertainty in the supply chain. However, holding inventory can be expensive, so what are the optimal inventory levels and reorder points?
3. Location

Where should facilities for production and inventory storage be located? Where are the most cost efficient locations for production and for storage of inventory? Should existing facilities be used or new ones built? Once these decisions are made they determine the possible paths available for product to flow through for delivery to the final consumer. Location refers to the geographical sitting of supply chain facilities. It also includes the decisions related to which activities should be performed in each facility. The responsiveness versus efficiency trade-off here is the decision whether to centralize activities in fewer locations to gain economies of scale and efficiency, or to
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decentralize activities in many locations close to customers and suppliers in order for operations to be more responsive When making location decisions, managers need to consider a range of factors that relate to a given location including the cost of facilities, the cost of labour, skills available in the workforce, infrastructure conditions, taxes and tariffs, and proximity to suppliers and customers. Location decisions tend to be very strategic decisions because they commit large amounts of money to long-term plans. Location

decisions have strong impacts on the cost and performance characteristics of a supply chain. Once the size, number, and location of facilities is determined, that also defines the number of possible paths through which products can flow on the way to the final customer. Location decisions reflect a companys basic strategy for building and delivering its products to market
4. Transportation

How should inventory be moved from one supply chain location to another? Air freight and truck delivery are generally fast and reliable but they are expensive. Shipping by sea or rail is much less expensive but usually involves longer transit times and more uncertainty. This uncertainty must be compensated forby stocking higher levels of inventory. When is it better to use which mode of transportation This refers to the movement of everything from raw material to finished goods between different facilities in a supply chain. In transportation the trade-off between responsiveness and efficiency is manifested in the choice of transport mode. Fast modes of transport such as airplanes are very responsive but also more costly. Slower modes such as ship and rail are very cost efficient but not as responsive. Since transportation costs can be as much as a third of the operating cost of a supply chain, decisions made here are very important. There are six basic modes of transport that a company can choose from: 1. Ship which is very cost efficient but also the slowest mode of transport. It is limited to use between locations that are situated next to navigable waterways and facilities such as harbours and canals.

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2. Rail which is also very cost efficient but can be slow. This mode is also restricted to use between locations that are served by rail lines. 3. Pipelines can be very efficient but are restricted to commodities that are liquids or gases such as water, oil, and natural gas. 4. Trucks are a relatively quick and very flexible mode of transport. Trucks can go almost anywhere. The cost of this mode is prone to fluctuations though, as the cost of fuel fluctuates and the condition of roads varies. 5. Airplanes are a very fast mode of transport and are very responsive. This is also the most expensive mode and it is somewhat limited by the availability of appropriate airport facilities. 6. Electronic Transport is the fastest mode of transport and it is very flexible and cost efficient. However, it can only be used for movement of certain types of products such as electric energy, data, and products composed of data such as music, pictures, and text. Someday technology that allows us to convert matter to energy and back to matter again may completely rewrite the theory and practice of supply chain management

Be able to use information technology to optimise supplier relationship in an organisation Collaborating with suppliers is nothing new. Yet, to stay competitive, organizations can no longer afford to bear the shortcomings of traditional supplier relationships. While most organizations do have some supplier initiatives in place, these initiatives (such as first generation Procurement solutions) tend to live in isolation, untied to cross-enterprise business processes. costs and increased profits. Supplier Relationship Management (SRM) has emerged from this need for enterprises to create a As a result, organizations are failing to

harness the potential of truly strategic supplier relationships that translate to lower

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collaborative environment that fosters truly strategic supplier relationships.

SRM

encompasses all business processes organizations need to collaborate efficiently with their suppliers enabling organizations to connect with all suppliers regardless of their size and technological capability, manage all spend (direct, indirect, capital goods and services), and optimize the performance of suppliers most critical to their business. Organizations that do not embrace SRM risk falling behind their competitors and seeing profit reductions. To gain the strategic advantage of SRM, organizations must adopt not only the technology but also the methodologies and solutions needed to create a truly collaborative environment for all supply chain partners. SRM promises a strategy that embraces the collaborative creation and management of products, services, and processes between organizations and their suppliers. PeopleSoft delivers the only SRM solution with end-to-end business processes spanning product lifecycle management, strategic and tactical sourcing, supplier engagement at both the technology and content levels, procurement of all spend throughout the organization, automated invoice dispute resolution and settlement, and deep embedded analytics coupled to a powerful data warehouse to help optimize supplier performance. In addition, recognizing that organizations have

already made substantial investments in their information systems, PeopleSoft technology protects those investments with an open integration architecture designed to integrate PeopleSoft applications with legacy systems and other enterprise management suites. With Pure Internet Architecture, PeopleSoft opens up the advantages of collaboration to all your suppliers, simplifying and improving all transactions and relationships Supply chain management (SCM) is concerned with the flow of products and information between supply chain members' organizations. Recent development in technologies enables the organization to avail information easily in their premises. These technologies are helpful to coordinates the activities to manage the supply chain. The cost of information is decreased due to the increasing rate of technologies. In the integrated supply chain model (Fig.1) bi-directional arrow reflect the accommodation of reverse materials and information feedback flows. Manager needs to understand that information technology is more than just computers. Except
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computer automation

data

recognition equipment, other hardware

communication and

technologies, factory are included.

and

services

Integrated supply chain model Bi-directional arrow reflects the accommodation of reverse materials and information feedback flows. Managers need to understand that information technology is more than just computers. Except computer, data recognition equipment, communication

technologies, factory automation and other hardware and services are included.

Four fundamental mistakes made when determining information requirements are as follows:

1.Viewing system as functional instead of cross-functional. 2.Interviewing managers individually instead of jointly. 3.Not allowing for trial and error in detail design process. 4. Asking the wrong question during the interview Information and Technology: Application of SCM: In the development and maintenance of Supply chain's information systems both software and hardware must be addressed. Hardware includes computer's input/output devices and storage media. Software includes the entire system and application programme used for processing transactions management control, decision-making and strategic planning. Recent development in Supply chain management software is:

1. Base Rate, Carrier select & match pay (version 2.0) developed by Distribution Sciences Inc. which is useful for computing freight costs, compares transportation mode rates, analyze cost and service effectiveness of carrier.

2. A new software programme developed by Ross systems Inc. called Supply Chain
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planning which is used for demand forecasting, replenishment & manufacturing tools for accurate planning and scheduling of activities.

3. P&G distributing company and Saber decision Technologies resulted in a software system called Transportation Network optimization for streamlining the bidding and award process.

4. Logitility planning solution was recently introduced to provide a programme capable managing the entire supply chain. Electronic Commerce: It is the term used to describe the wide range of tools and techniques utilized to conduct business in a paperless environment. Electronic commerce therefore includes electronic data interchange, e-mail, electronic fund transfers, electronic publishing, image processing, electronic bulletin boards, shared databases and magnetic/optical data capture. Companies are able to automate the process of moving documents electronically between suppliers and customers. Electronic Data Interchange: Electronic Data Interchange (EDI) refers to computer-to-computer exchange of business documents in a standard format. EDI describe both the capability and practice of communicating information between two organizations electronically instead of traditional form of mail, courier, & fax. The benefits of EDI are:

1.Quick process to information. 2.Better customer service. 3.Reduced paper work. 4.Increased productivity. 5.Improved tracing and expediting. 6.Cost efficiency. 7.Competitive advantage. 8. Improved billing.

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Though the use of EDI supply chain partners can overcome the distortions and exaggeration in supply and demand information by improving technologies to facilitate real time sharing of actual demand and supply information.

Be able to plan a strategy to improve an organisstions supply chain Understand the Business Strategy The first step is for supply chain executives to clearly understand how the enterprise chooses to compete. his is important not only for the obvious reason of working off the same play book, but also for the reason that it forces the supply chain operation to see itself as a customer facing entity serving the competitive goals of the enterprisenot merely an operational department. Supply chain strategy is not simply a linear derivative of the business strategy. At best, supply chain strategy can be the enabler of the business strategy. If the business strategy is to be the low cost provider, the supply chain strategy should support this. And just like when developing a business strategy, look to your core competencies, focus, and means of differentiation when developing a supply chain strategy. Being able to strategically source parts at an attractive price may support both your supply chain strategy and business strategy, but only if you have the capabilities to do so effectively. Look to your supply chain competencies and leverage what you do well. You may want to focus on a particular market or segment in which to gain supply chain efficiencies. Or you may want to differentiate your organization operationally by providing lower costs to customers or providing services that other industry players are unable to do. Assess the Extended Supply Chain The next step is to conduct a detailed, realistic assessment of the capabilities that exist within the organization and even the extended supply chain. Begin by closely scrutinizing your organizations assets and evaluate how well they support the strategy. Old machinery and disparate systems may mean high operational overhead and costly process inefficiencies and redundancies clearly not supportive of a low cost provider strategy. A formal supply chain assessment by a non-biased outside party may assist you in better understanding your operational strengths and

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opportunities for improvement. Look for a firm that can provide you with operational benchmarks both inside and outside of your industry in order to gauge core competencies. Once the assessment is complete, assemble a team to review and prioritize recommendations, validate the opportunities, define the risks, and the requirements for implementation. Ultimately, if there is a disparity between the supply chain strategy and the operational assets, you may have to make capital investments. Of course, the other alternative is to change your assumptions and alter your strategy all together! Develop an Implementation Plan From this critical work emerges the go forward supply chain strategy directly tied to the business strategy, highly specific as to enablers and metrics, and with a defined set of implementation requirements and contingencies. The development of an implementation plan should include activities and tasks, roles, responsibilities, a corresponding timeline, and performance metrics. Establish a sub-team to shepherd the execution and provide project management responsibility to resolve issues and track status. Development Considerations Cooperate and Collaborate with Your Partners Throughout the development process remember to include your supply chain partners. While you dont necessary need to divulge the full details of your strategy, you can certainly communicate how you would like to do business. Ideally, seek out mutual goals that both organizations can execute on. Not only will you be one step closer to realizing your supply chain strategy, you will learn more about the companies that you do business with. For example, collaboration in product design may meet your need to stem R&D costs and also alert you to new product concepts that you wouldnt discover without working with your customer. Outsource Where Appropriate Part of developing a supply chain strategy includes evaluating opportunities to outsource areas that are not your core competency. If someone else can do it cheaper, it may be worth outsourcing not only to drive down costs, but also to focus more resources on the core competencies your organization does well.
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References: Arntzen, BC; Brown, GG; Harrison, TP; Trafton, LL (1995) GlobalSupply Chain Management at Digital Equipment ... L.; Rotstein, G.; Shah, N. (2001) Strategic supply chain op- timization for the pharmaceutical industries Morehouse, J. and Bowersox, D. (1995) Supply Chain Management: Logistics for the Future, US Food Marketing Institute Allgemeiner Deutscher Automobilclub eV (2002) newlogistics.ups.com

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