SUPPLY CHAIN MANAGEMENT

An integrating philosophy to manage the total flow of a distribution channel from supplier to ultimate customer (Cooper & Elram) A strategic concept that involves understanding and

managing the sequence of activities from supplier to

customer that add value to the product supply line. (Battagle & Tyndall) Integrating management of the sequential flow of logistical, conversion and service activities from vendors to ultimate consumers necessary to produce a product or service efficiently and effectively. (Stenger and Coyle).

Supply chain management is a set of approaches utilised to efficiently integrate suppliers, manufactures, warehouses, and stores, so that merchandise is produced and distribution at the right quantities, to the right locations, and at the right time, in order to minimise systemwide costs while satisfying service level requirements. The 4 PL is an integration that assembles the capital, technology and resources of its own organisation and other organisations to design, build and run supply chains.

DEVELOPMENT OF SCM
Fragmentation 1960 Evolving Integration 1980 Total Integration 2000

Demand forecasting Purchasing Requirements planning Production planning Manufacturing inventory Warehousing Materials handling Industrial packaging Finished goods inventory Distribution planning Order processing Transportation Customer service

Materials Management Logistic Supply Chain

Physical Distribution

COMPARISON OF TRADITIONAL SYSTEMS WITH SUPPLY CHAIN MANAGEMENT

FACTOR Inventory Flows
Cost Information

TRADITIONAL Interrupted
Firm minimised Firm controlled

SUPPLY CHAIN
Pipeline Coordination

Inventory Management Firm Focused

Seamless/visible
Landed cost Shared

Risk
Planning Interorganizational Relationship

Form focused
Firm oriented Firm focused on Low cost

Shared
Supply chain team approach Partnership focused On landed cost

GENERIC VALUE CHAIN

Firm Infrastructure
Support Activities Human Resource Management Technology Development procurement Inbound Operation Outbound Logistics Logistics Service

Marketing and Sales

Primary Activities

Most of companies are undergoing radical change due to host of interconnected factors:

Globalization
E-commerce

Enterprise Resource planning system

Business process reengineering Organisational learning and change management. Integrated supply chain management.

CAUSES FOR LONG CYCLE TIME

1. Waiting. 2. Non value added activities 3. Serial Vrs parallel activities 4. Repeating process activities 5. Batching 6. Excessive control 7. Lack of synchronization in MM. 8. Ambigous goals and objectives 9. Poorly designed procedures and forms 10. Outdated Technology 11. Lack of information 12. Poor communication 13. Limited coordination, cooperation. 14. Lack of /ineffective training

CONTRASTING COMPLAINTS OF SUPPLY CHAIN & MARKETING MANAGERS

Supply Chain Complaints Inaccurate long-term safe forecasts. Mercurial short-term forecasts Excessive inventory requirements for finished products Too broad a range of product offerings necessitating short, uneconomical production runs. Marketing Complaints Insufficient manufacturing capacity. Excessive manufacturing & distribution lead time. Insufficient inventory of finished products. Insufficient product variety Excessive field service costs

Unrealistic requirements for customer service, delivery time, performance quality.

Costly product customization and engineering changes

Excessive supply chain costs Resistance to and inefficient implementation of product

Customisation and design changes.

Traditional objective of Supply Chain is to minimize costs:

Raw material and other acquisition costs. Inbound transportation costs Facility investment costs. Direct and indirect manufacturing costs Direct and indirect distribution centre costs Inventory holding costs Interfacility transportation costs Outbound transportation costs. Supply Chain Costs Efficient frontier B1 A B2 B

Delivery time

FAILURES OF S.C.M.

1. Limited Senior Management Commitment

2. Proper Monitoring of Junior Executives is not done to ensure functioning of SCM. 3. Misconception that SCM is not invented in India and hence lack understanding & commitment of Senior Management. 4. Lack of functional expertise in function & process.

IMPORTANT DECISIONS IN FUNCTIONAL AREAS OF SUPPLY CHAIN

Production: Marketing: Finance: Scheduling, inventory control, aggregate planning Sales-force allocation, promotions, new product introduction Plant/equipment investment, budgetary planning

Personnel:

Workforce planning, hiring layoffs.

Company should be knowledgeable in

Past demand Planned advertising or marketing efforts. Display position in catalog. State of the economy. Planned price discounts. Actions competitors have taken.

Products with seasonal demand require error free forecasting as there is no/little chance to recover that supply matches demand. For product with stable demand, impact of forecasting error is less significant. Above factors influence future demand. Relationship between factors and future demand be ascertained.

AGGREGATE PLANNERS MAIN OBJECTIVES

Production Rate: I.e. number of units completed per unit time. Workforce:The number of workers/units of capacity needed for production. Overtime: The amount of overtime production planned. Machine Capacity Level: Number of units of machine capacity needed for production. Subcontracting: The subcontracted capacity required over the planning horizon. Backlog: Demand not satisfied in the period in which it arises but carried over to future periods. Inventory on hand: Planned inventory carried over the various periods in the planning horizon.

AGGREGATED PLANNER REQUIRES THE FOLLOWING INFORMATION

Demand Forecast Production Costs
Labour cost Cost of subcontracting Cost of changing capacity. Cost of hiring/firing workforce

Labour machine hours required per unit Inventory holding cost Constraints
Limits on overtime Limits on layoffs Limits on capital available Limits on stockouts & backlogs