Supply Chain Management

Supply Chain Management
MKRakesh
Ph.D scholar
Mahatma Gandhi Kashi Vidyapeeth
Varanasi


Through the past decades we have seen an increasing rate of globalization of the
economy and thereby also of supply chains. Products are no longer produced and
consumed within the same geographical area. Even the different parts of a product may,
and often do, come from all over the world. This creates longer and more complex supply
chains, and therefore it also changes the requirements within supply chain management.
This again affects the effectiveness of computer systems employed in the supply chain.
A longer supply chain will often involve longer order to delivery lead times. Flaherty
[10] states, in accordance with the discussion in Section, that the consequences of longer
lead times will often be less dependable forecasts as these have to be made earlier,
reduced production flexibility, i.e. greater difficulties to adjust to order changes, higher
levels of inventory. Therese M. Flaherty. Global Operations Management. McGraw-Hill,
New-York, 1996.
The evident answer to the problem of longer lead times is to speed up the supply chain.
But a limit is often reached beyond which further effort to shorten lead times are futile,
especially in international supply chains. Another approach is to restructure the supply
chain. This simply means to reconsider the strategic level decisions priorly made. A third
approach identified by Flaherty [10] is changing coordination: The order, forecasting,
procurement, and information sharing procedures among the members of the supply
chain. We will dwell on the issue of coordination in the next section.
Globalization also brings foreign competition into markets that traditionally were local.
Local companies are thereby forced to respond by improving their manufacturing
practices and supply chain management. Bhatnagar et al. [5] states that attempts have
focused, among others, on reduction of inventory levels, and increased flexibility through
reduced lead times. Yet again we see how industry focuses on the issues of inventory

management and flexibility to maintain high levels of customer satisfaction.
Definitions
Supply chain management (SCM) is the process of planning, implementing and
controlling the operations of the supply chain 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


Traditionally, marketing, distribution, planning, manufacturing, and the purchasing
organizations along the supply chain operated independently. These organizations have
their own objectives and these are often conflicting. Marketing's objective of high
customer service and maximum sales dollars conflict with manufacturing and distribution
goals. Many manufacturing operations are designed to maximize throughput and lower
costs with little consideration for the impact on inventory levels and distribution
capabilities. Purchasing contracts are often negotiated with very little information beyond
historical buying patterns. The result of these factors is that there is not a single,
integrated plan for the organization---there were as many plans as businesses. Clearly,
there is a need for a mechanism through which these different functions can be integrated
together. Supply chain management is a strategy through which such integration can be
achieved.
There seems to be a universal agreement on what a supply chain is. Jayashankar et al.
[25] defines a supply chain to be
A network of autonomous or semi-autonomous business entities collectively responsible
for procurement, manufacturing, and distribution activities associated with one or more
families of related products.
Lee and Billington [17] have a similar definition:
A supply chain is a network of facilities that procure raw materials, transform them into
intermediate goods and then final products, and deliver the products to customers through
a distribution system.
And Ganeshan and Harrison [12] has yet another analogous definition:

A supply chain is a network of facilities and distribution options that performs the
functions of procurement of materials, transformation of these materials into intermediate
and finished products, and the distribution of these finished products to customers.
According to Wikipedia.org
Supply Chain Management (SCM): Supply chain management (SCM) is the process of
planning, implementing, and controlling the operations of the supply chain with the
purpose of satisfying 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
( />The definition one American professional association put forward is that Supply Chain
Management encompasses the planning and management of all activities involved in
sourcing, procurement, conversion, and logistics management activities. Importantly, it
also includes coordination and collaboration with channel partners, which can be
suppliers, intermediaries, third-party service providers, and customers. In essence, Supply
Chain Management integrates supply and demand management within and across
companies. More recently, the loosely coupled, self-organizing network of businesses
that cooperates to provide product and service offerings has been called the Extended
Enterprise.


Logistics is that part of the supply chain process that plans, implements, and controls the
efficient, effective flow and storage of goods, services, and related information from the
point-of-origin to the point-of-consumption in order to meet customers' requirements.
“Efficient Management of the Supply Chain (source, make and deliver) in order to
maximize the value for money to the customer”.
In other words Supply Chain Management means integration and management of Supply
Chain organization and activities through coordinated and collaborative strategic
alliances, efficient business processes and high levels of information sharing to create a
value chain that would provide member organizations a sustainable competitive
advantage and in turn provide value for money to the customer. Instead of brand versus

brand or store versus store, it is now supply chain versus supply chain. In this emerging
highly competitive and dynamic environment, the ultimate success of the Business entity
will depend on management's ability to integrate the company's complicated network of
business relationships. The graphic will explain the process of Integration in the Supply
Chain network.

The broader view of SCM is depicted in the above figure in a simplified supply chain
network structure. This would explain the basic difference between Logistics and SCM.
Supply Chain is inter-company integration of business process and relationships and
where as Logistics is intra-company integration.
A Working Definition of Supply Chain Management:
We can define the supply chain as the flow of information and material to and from
suppliers and customers. The objectives of Supply Chain Management (SCM) are to:
Maximize supply chain responsiveness and flexibility to customers,
Minimize total supply chain cycle time, costs, inventory, and;
Maximize supply chain capacity, utilization, and Return on Assets (ROA).
There are four fundamental operating principles at work in SCM :


Set up the simplest, most direct, flow of information possible to and from those who
produce it to those who use it.
Set up the simplest, most direct, flow of material possible to and from those who produce
it to those who use it.
Establish the smoothest possible drumbeat or rhythm of production and usage.
Create the ability to react to problems through short lead-times eliminating the need for
inventories.

Why Supply Chain Management?
Experience shows that the gains to be made in cost, lead-time and quality through
working in partnership with customers and suppliers are significant. In industry after

industry one observes that:
50%-70% of total costs are supplier related (material versus direct labor or overhead
costs).
Supplier lead times are longer than one's own production lead times.
It goes without saying that the quality of your product depends on the quality of material
your supplier provides. With customers awarding more and more business based on total
price, quality and delivery, the whole process from one's supplier receiving raw material
to one's customer using the product has to be the target for breakthrough improvement.
Experience shows that customers use the products we produce in much more predictable
ways than then it first appear. We assume that a customer's order pattern is related to his/
her usage pattern. Often we do not look beyond the order pattern for information about
actual usage. Worse yet we tend to create wide swings and unpredictability in buying
patterns that would otherwise be stable and predictable.
The consumer products industry learned that it often incurred more costs than benefits
through consumer promotions. They trained consumers to wait for a sale, then buy and
stock product until the next sale. Swings in demand were amplified through the supply
pipeline adding cost as the bulge worked its way through the system. Retail stores
clogged backrooms with inventory or ran out of stock. Distributors added inventory to
cover unexpected demand. Manufacturers added finished goods inventory, increased
production through over-time, and put pressure on their suppliers to deliver more in
shorter lead-times. Wal-Mart broke the cycle with Every-Day-Low prices. A master in
logistics, Wal-Mart understood that it was more profitable to always offer the lowest
competitive prices to the consumer in return for more stable, predictable demand. The
more predictable the demand, the easier it is to synchronize activities to true customer
demand throughout the supply chain. The result is better on-time delivery, fewer stockouts, and higher customer satisfaction with less inventory, reduced administrative work
and lower overall costs.
Managing multiple flows:


Organizations increasingly find that they must rely on effective supply chains, or

networks, to successfully compete in the global market and networked economy. In Peter
Drucker's (1998) management's new paradigms, this concept of business relationships
extends beyond traditional enterprise boundaries and seeks to organize entire business
processes throughout a value chain of multiple companies.
During the past decades, globalization, outsourcing and information technology have
enabled many organizations, such as Dell and Hewlett Packard, to successfully operate
solid collaborative supply networks in which each specialized business partner focuses on
only a few key strategic activities (Scott, 1993).
The concept involved in a supply chain can be well understood by the following list
of figured models.
A Generic Supply chain model
Suppliers

Manufacturers

Distributors

Customers

Issues in Supply Chain Management
The classic objective of logistics is to be able to have the right products in the right
quantities (at the right place) at the right moment at minimal cost. Figure (from


NEVEM-workgroup [19]) translates this overall objective into four main areas of concern
within supply chain management.

Figure: Hierarchy of Objectives.
The two middle boxes in the lower row of Fig. , delivery reliability, and delivery times, is
both aspects of customer service, which is highly dependent on the first box, flexibility,

and on the last box, inventory.
Improving Supply Chain Management
The above sections describe issues and challenges of supply chain management. It is
time to approach solutions. A key to improved supply chain management lies in
integration and coordination, look to Section
for a discussion. Section introduces
important tools of supply chain managers, modeling and simulation.
Goal and Principle of SCM
SCM goal:
Providing enhanced value to customers at the least Total cost
Value, Velocity and Visibility
SCM Principles:
Ultimate customer focus
Network of organizations working for common purpose and mutual benefits
Process orientation
Total systems thinking
Cost Dimensions
Inventory
Transportation
Warehousing
Information
Figure below shows us the relation ship between some of the components of supply
chain.


Delivery and lead-time.

Inventory Costs

Warehouse cost

SCM Framework
A framework to understand the various issues involved in SCM is provided by the
pyramid structure for the SCM paradigm (fig.) the pyramid allows issues to be analysed
on four levels:


Strategic: On the strategic, level it is important to know how SCM can contribute to the
enterprises’ basic “value proposition” to the customers. Important questions that are
addressed at this level include: What are the basic and distinctive services needs of the
customers? What can SCM do to meet these needs? Can the SCM capabilities be used to
provide unique services to the customers? Etc.
Structural: After the strategic issues are dealt with, the next level question(s) that should
be asked are: Should the organization market directly or should it use distributors or other
intermediaries to reach the customers? What should the SCM network look like? What
products should be sourced from which manufacturing locations? How many warehouses
should the company have and where should be located? What is the mission of each
facility (full stocking, fast moving items only, cross-docking etc.)?
Functional: This is the level where operational details are decided. Functional excellence
requires that the optimal operating practices for transportation management, warehouse
operations, and materials management (which includes forecasting, inventory
management, production scheduling, and purchasing) be designed. These strategies
should keep in view the trade-offs that may need to be made for the overall efficiency of
the system. Achieving functional excellence also entails development of a processoriented perspective on replenishment and order fulfillment so that all activities involved
in these functions can be well integrated.

Fig. SCM Framework Pyramid
Source: Based on work done by William C.Capacino.
Implementation: Without successful implementation, the development of SCM strategies
and plans is meaningless. Of particular importance are the organizational and information
systems issues. Organizational issues centers on the overall structure, individual roles and

responsibilities, and measurement systems needed to build an integrated operation.
Information systems are “enablers” for supply chain management operations and
therefore must be carefully designed to support the SCM strategy. Supply chain managers
must consider their information needs relative to decision support tools, application
software’s, data capture, and the system’s overall structure.


It is important to note that the decisions made within the SCM strategy pyramid are
interdependent. That is, it must be understood what capabilities and limitations affect the
functional and implementation decisions and consider those factors while developing a
supply chain management strategy and structure.
The SCM models used in practice lie in a continuum between two extreme models: on
one end of the spectrum lies the vertically integrated supply chain model in which the
organization has direct control over each and every component of the supply chain, while
on the other end of the spectrum lies the horizontally diversified supply chain model
(ideally) in which the number of participant is as large as the number of distinct parts of
the supply chain. In a vertically integrated supply chain system, the organization can
control every component of the chain and can make various changes to the system to
optimize the chain very easily. But in a horizontally diversified supply chain the tendency
will be to optimize only the functions that the organization is involved in, thus conscious
efforts must be made by the various participants in the supply chain for the integration of
their respective components in the supply chain. If an organization can be identified as
the major/dominant partner in the supply chain, then this organization has to take an
initiative in seeking the co-operation of the other participants in the supply chain.
The type and structure of the supply chain that is established depends on many factors,
some of the major factors are:
Geographical: If the supply chain is stretched across the globe then it may not be possible
to incorporate some of the principles of lean production like JIT delivery, flexible
manufacturing, and co-ordination among suppliers and customers. It can lead to uncertain
transportation schedules, unpredictable lead-time and may need larger inventory carriage.

Cultural: The difference in the “culture” of the participants in the chain (the difference
can be due to geographical factors or corporate practices) can lead to friction and distrust.
This may hamper the development of close ties.
Government Legislation: The laws of the country may prohibit the sharing of information
about some facet of the supply chain and thus, may lead to a restrictive participation by
one or more participant in the supply chain.
Decisions on Three Levels
Supply chain management decisions are often said to belong to one of three levels; the
strategic, the tactical, or the operational level. Since there is no well defined and unified
use of these terms, this Section describes the how they are used in this thesis.
Figure: shows the three level of decisions as a pyramid shaped hierarchy. The decisions
on a higher level in the pyramid will set the conditions under which lower level decisions
are made.


Figure: Hierarchy of Supply Chain Decisions.
On the strategic level long term decisions are made. According to Ganeshan and Harrison
[12], these are related to location, production, inventory, and transportation. Location
decisions are concerned with the size, number, and geographic location of the supply
chain entities, such as plants, inventories, or distribution centers. The production
decisions are meant to determine which products to produce, where to produce them,
which suppliers to use, from which plants to supply distribution centers, and so on.
Inventory decisions are concerned with the way of managing inventories throughout the
supply chain. Transport decisions are made on the modes of transport to use.
Decisions made on the strategic level are of course interrelated. For example decisions on
mode of transport are influenced by decisions on geographical placement of plants and
warehouses, and inventory policies are influenced by choice of suppliers and production
locations. Modeling and simulation is frequently used for analyzing these interrelations,
and the impact of making strategic level changes in the supply chain.
On the tactical level medium term decisions are made, such as weekly demand forecasts,

distribution and transportation planning, production planning, and materials requirement
planning. The operational level of supply chain management is concerned with the very
short term decisions made from day to day. The border between the tactical and
operational levels is vague. Often no distinction is made.
Major Network Design Decisions
Number & locations of facilities (plants, warehouses & stores)
Capacities (size) of facilities
Product mix at plants
Allocation of plants to warehouses
Allocation of warehouses to stores


SUPPLY CHAIN - NETWORK & MEMBERS
Supply Chain Network Structure:
All participate in a supply chain from the raw materials suppliers to the ultimate
consumer. How much of this supply chain needs to be managed will depend on several
factors, such as the complexity of the product, the number of acceptable suppliers, and
the availability of raw materials. Dimensions to consider include the complexity of
supply chain network, length of the supply chain and the number of suppliers and
customers at each level. It is obvious that one firm will be participating in several supply
chains. For most manufacturers, the supply chain looks like a chain of relationships and
processes. One wonders how many such relations and processes needs hand holding. The
closeness of the relationship at different points in the supply chain will differ.
Management will need to choose the level of partnership appropriate for particular supply
chain links. Not all links throughout the supply chain should be closely coordinated and
integrated. The most appropriate relationship is the one that best fits the specific set of
circumstances.
Determining which parts of the supply chain deserve management
attention must be weighed against firm capabilities and the importance to the firm.
In order to understand these relationships well and to focus on the appropriate ones, one

should have explicit knowledge about the following:
Members of the Chain; Network Structure; and Flows (Information, Product and Cash).
Supply Chain Members:
While determining the network structure, it is necessary to identify the members of the
supply chain who will operate within the network structure. Including all types of
members may cause the total network to become highly complex, since it may explode in
the number of members added from tier level to tier level. To integrate and manage all
process links with all members across the supply chain would, in most cases, be counterproductive, if not impossible. The key is to sort out some basis for determining which
members are critical to the success of the company and the supply chain, and thus should
be allocated managerial attention and resources. The members of a supply chain include
all companies/organizations with whom the focal company interacts directly or indirectly
through its suppliers or customers, from point of origin to point of consumption.
However, to make a very complex network more manageable it would be appropriate to
classify members into two categories. One which deals with primary members who carryout value adding activities in an independent environment are considered as Front enders
and the group of companies which support these front enders can be considered as
Support group or back-room boys.
In contrast, support group members are companies that simply provide resources,
knowledge, utilities or assets for the primary members of the supply chain. For example,
supporting companies include 3PL Companies, Integrators, Freight Forwarders, Banks
and IT networking companies and all others who participate in the chain to support the
Front enders or Focal companies. The same company can perform both primary and
supportive activities. Likewise, the same company can be performing primary activities
related to one process and supportive activities related to another process. An example


from one of the case studies is IT Company, which manufactures Hard Disk Drives
(IBM), is a member of Support group when their finished product is HDD. IBM is
considered as a Front ender when they are supplying their Computers. If we review the
case of Intel, it plays both the roles. They work with PC manufacturing companies
closely when designing the processors and also play the role of support function while

supplying the processors as a supplier. At the time of design development of the
processor Intel is adding value to the process and when they turn into supplier, they
become support group of the Supply Chain network of a PC manufacturing company. It
should be noted that the distinction between primary and supporting supply chain
members is not obvious in all cases. Nevertheless, this distinction provides a reasonable
managerial simplification and yet captures the essential aspects of who should be
considered as key members of the supply chain and make the job all the more easier.
The definitions of primary and supporting members make it possible to define the pointof-origin and the point-of-consumption of the supply chain. The point-of-origin of the
supply chain occurs where no previous primary suppliers exist. All suppliers to the pointof-origin members are solely supporting members. The point-of-consumption is where no
further value is added, and the product and/or service is consumed.
Network Structure:
Two structural dimensions of the network are essential when describing, understanding,
analyzing, and managing the supply chain. These dimensions are the horizontal structure,
the vertical structure. The horizontal structure refers to the number of tiers across the
supply chain. The supply chain may be long, with numerous tiers, or short, with few tiers.
As an example, the network structure for bulk cement is relatively short. Raw materials
are taken from the ground, combined with other materials, moved a short distance, and
used to construct buildings. Where as the Supply Chain of a detergent product is
different and lengthy. Consider a customer walking into any one of our departmental
stores looking for a detergent. The Supply Chain begins with the customer and his or her
need for detergent. The next stage of this supply chain is the Departmental store retail
store that the customer visits to purchase the detergent. These departmental stores must
be storing their products in their replenishment warehouses or warehouse managed by the
third parties or VMI warehouses provided by the supplier. This is the last stage of phase1 of the detergent supply chain. In the next stage we have the detergent manufacturer
(say, Proctor & Gamble (P&G)). P&G supply chain includes the raw material supply,
packing material suppliers, and service support suppliers.
The vertical structure refers to the number of suppliers/customers represented within each
tier. A company can have a narrow vertical structure, with few companies at each tier
level, or a wide vertical structure with many suppliers and/or customers at each tier level.
In the companies studied different combinations of these structural variables were found.

In one example, a narrow and long network structure on the supplier side was combined
with a wide and short structure on the customer side. Increasing or reducing the number
of suppliers and/or customers will influence the structure of the supply chain. For
example, as some companies move from multiple to single source suppliers, the supply


chain may become narrower. Outsourcing logistics, manufacturing, marketing or product
development activities is another example of decision making that likely will change the
supply chain structure. It may increase the length and width of the supply chain, and
likewise influence the horizontal position of the focal company in the supply chain
network. In the companies studied, the supply chains looked different from each
company's perspective. The reason for this is that the integration and management of
business processes across company boundaries will be successful only if it makes sense
from each company’s perspective.
Process and Flows
A Supply chain is dynamic and involves the constant flow of information, product and
funds between different stages as explained in the graphic given above. Each stage of the
supply chain performs different processes and interacts with other stages of the supply
chain. Successful supply chain management requires a change in the mindset from
managing individual functions within an organization to integrating activities among
supply chain partners into key supply chain processes as explained in the below given
graphic. Traditionally, both upstream and downstream portions of the supply chain have
interacted as disconnected entitles receiving sporadic flows of information over time. The
sourcing department placed orders as projected by the PSI (Production, Sales and
Inventory Planning) team and marketing, responding to customer demand, interfaced
with various distributors and retailers and attempted to satisfy this demand. Orders were
periodically given to suppliers and their suppliers had no visibility at the point of sale or
use. Satisfying the customer often translated into demands for expedited operations
throughout the supply chain as member firms reacted to unexpected changes in demand.
Operating a supply chain requires continuous information flows among the supply chain

partners/participants, which in turn help to create the best product flows. The customer
remains the primary focus of the process. Achieving a good customer focused system
requires processing information both accurately and in a timely manner for quick
response systems that require frequent changes in response to fluctuations in customer
demand. Controlling uncertainty in customer demand, manufacturing processes, and
supplier performances are paramount to effective supply chain management.
The sharing of information among supply chain members with in the supply chain
network is a fundamental requirement for effective supply chain management. Decision
makers at all levels within the supply chain network are provided with timely and quality
information they need, in the desired format, regardless of where within the supply chain
this information originates. Fulfilling this requirement is a formidable challenge in front
of any organization. Most of the supply chains fail due to lack of quality information at
the right time. Differed decisions always lead to unacceptable results. Decisions are
differed due to lack of appropriate information. Recent developments in technology have
brought information to the forefront of resources from which forward-thinking firms can
cultivate genuine competitive advantage to meet the challenges at the market place.
These technologies provide the means for multiple organizations to coordinate their
activities in an effort to truly manage a supply chain. As the rate of these technological
advances increases, the cost associated with this information has decreased.


Simultaneously the speed with which this vital information can be made useful and
applicable in a variety of business situations continues to increase.
Supply Chain Enablers:
The below mentioned four Supply Chain enablers need to be in place if Supply Chain
optimization initiatives are to succeed.
Organizational Infrastructure
Technology
Strategic Alliances
Human Resources Partnership

Organizational Infrastructure: It is all about organizing the functional areas and
coordinating the Change Management to achieve the corporate objective of retaining the
customer and making profits to sustain in the business.
Technology: All forms of technology to improve the efficiency of the Supply Chain.
Strategic Alliances: One cannot be good at every thing and physically be everywhere –
One has to relay on your partners and focus only on your core competencies to achieve
the corporate goal.
Human Resources Partnership: It is about respecting the contributions made by the
employees in achieving the corporate goals and encouraging them by compensating
adequately to continue their good work.
The above-mentioned enablers have to be successfully deployed in the organization to
improve performance of the Supply Chain Drivers. The following are the four Supply
Chain Drivers:
Inventory
Transportation
Facilities and
Information.
Having identified the Supply Chain Drivers, we have to identify the Obstacles also and
they are:
Product Proliferation;
Decreasing Product Life Cycles;
Demand variability;
Supply Chain fragmentation;
Globalization and;
Difficulty in executing new strategies.


Many obstacles, such as growing product variety and shorter life cycles, use and through
concepts and ever demanding customers have made it increasingly difficult for Supply
Chains to achieve strategic fit. Overcoming these obstacles offers a tremendous

opportunity for firms to use SCM to gain competitive advantage.
SCM encompasses a wide variety of interdisciplinary topics, such as supplier selection,
quality management across the supply chain, scheduling, logistics, information flows,
distribution channels, and customer satisfaction. It is vital to note that the SCM activities
should be integrated into a firm’s operations and corporate strategies so that firms can
gain competitive advantage and improve their performance in their respective industries.
Strategic importance of SCM:
Several reasons are contributing to the increased attention to supply chain management
by the industry and the academia.
First, globalization has created more alternatives for companies regarding the
supplier and distributor decisions. Global supply chain management can be a source of
competitive advantage for organizations.
Second, there has been an increase in the partnership relationships between suppliermanufacturer and manufacturer-distributor pairs in several industries. Furthermore, a
move from power-based relationships between suppliers and buyers towards more of a
network model necessitates a higher level of integration and coordination.
Third, the perception of effective purchasing and distribution as a strategic issue has
added to the concern for effective supply chain management. Firms are trying to create
competitive advantages by coordinating the flow of materials and information with their
suppliers and distributors.
Finally, trends such as outsourcing of non-core operations and reduction of the supplier
base not only forces firms to cooperate with other companies down or up their supply
chains but also requires a high level of integration of these complex form of operations
for mutual benefits.
As a result of globalization, the choices that are available to a company regarding the
suppliers, processes, transportation modes, and distributors are becoming numerous
which, in turn, creates a complex environment and uncertainty in supply chains. Unlike
the traditional approach to materials management, SCM views the chain as a single entity
and emphasizes full integration of its elements, most specifically of the customers into
the chain. Developments in information, communication, and transportation technologies
facilitate this integration.

SCM role in operations and corporate strategies:
As a result of the importance of supply chain management, as discussed in academic and
popular press, companies should develop a supply chain strategy. More importantly, the
supply chain strategy must be integrated with the overall business strategy. A challenge
to formulating successful supply chain strategies is the fact that the supply chain
management is a collaborative effort among companies in the entire supply chain.
However, functional integration is necessary first within the organization before
integration can be extended to the entire supply chain. Following figure illustrates this
integration and its possible impacts on company and supply chain performance.


Internal

External

invironment

invironment
Opportuniti
es and
Threats

Suppliers

CorporateLevel

Strategies

Strengt
hs and Distributor

Weakne s and
sses Customer
s

BusinessLevel

Strategies
FunctionalLevel

Strategies

Operation

Marketin

s

g

Research
and

Develop
ment
Finance

Informati

on
Systems

Human

Resource
s

Supply Chain Management

SCM Philosophies:
The integration at the business level with the suppliers, distributors, and customers
requires commitment of all the organizations within the supply chain at the top
management level. In addition, as it is presented on Total quality management (TQM) is
a crucial part of SCM. In a supply chain, activities are coordinated among the
constituents based on the information gathered from the end customers regarding the
products and services. In addition, each part of the chain is dependent on the others in
the areas of customer satisfaction and quick response. Many have highlighted the


importance of a shared strategy for the development of TQM and continuous
improvement in a supply chain.
Inventory management is a crucial activity under supply chain management. Excess
inventories within the supply chain are an indication of poor inventory management and
may be a call for the implementation of SCM. The companies within the supply chain
can follow an integrated inventory management approach and coordinate their activities
based on the demand from the end customers to reduce the channel inventories. Such a
joint effort may lead to a reduction in the channel inventories.
Vertical disintegration is another common approach undertaken in supply chain
management practices. It is said that supply chain management is a move away from
fully-vertically-integrated systems. However, the channel members do not operate
completely independently but the activities are coordinated among the independent

members. SCM is not only coordination of material flows but also of information flows.
Therefore, information sharing is a key element for the success of SCM implementation.
Logistics has a very broad scope including purchasing, transportation, warehousing, and
customer service activities. It is pointed out that transportation cost is the single largest
component of logistics cost. Therefore a joint effort by the members of the supply chain
can reduce costs and increase the efficiency of the chain as a whole and its pieces. SCM
can be viewed as the strategic management of an inter-business network. Toyota is a
good example of a firm that strategically manages the supply chain and gains competitive
advantages from this type of behavior.
SCM Challenge:
The challenge of supply chain management is to constrain plans with multiple constraints
such as materials, capacity (production and distribution), time and locations,
transportation, holding capacity, line and product sequencing, lot sizing of production
quantities, production changeovers and down times, ramp up curves when switching
between schedules or machines, campaign planning, multi-staging of production and
distribution, and bills of materials. The end result of all these constraints is
"combinatorial explosion”.
Key questions to be addressed in implementing SCM is:
What are the true demand patterns? Behind those patterns, what are the forces at work
i.e., the drivers?
How can I get control over information that is there but hidden or getting to me late
and/or distorted? How can I get access to up-to-date information, as close to real time and
on-demand, as possible?
What are the new rules of engagement in a more cooperative rather than adversarial
customer supplier relationship? To whom do the benefits of SCM accrue?
The potential benefits of implementing SCM are significant. Analysis shows that
time after time, industries after industry, the breakthrough improvement possible through
SCM are as follows:

Improvements

%

Manufacturing throughput time

75-95

Supplier lead time

75-95

Cost of poor quality

50-75

Productivity

20-50

Inventory

50-90

Equipment changeover time

75-90

Space

40-80

Administrative process time

75-95

A Supply Chain Management Road Map
The full benefits of SCM come in taking an integrated approach to implementation. In
our experience the elements of a successful implementation strategy include:
Leadership - Setting clear strategic goals and a tone of cooperation.
Customers - Identifying, measuring and improving on the dimensions of
Product/service that drive loyalty in the marketplace
Culture
- Learning by getting concrete results, acquiring the skills to
Replicate and sustain improvements by involving employees.
Process
- Building new capabilities through process re- design.
Suppliers - Working with fewer suppliers as partners.
Every organization combines the elements of a successful SCM strategy in ways that are
appropriate to its business structure and organization culture.
4. SUPPLY CHAIN IMPLEMENTATION
Whether one is implementing SCM as a Fortune 200 global enterprise, or a medium
sized family company, the first steps are to:
1. Clarify strategic imperatives.
Nothing sparks the imagination like a compelling need. Create a vision of where
the business could be in three to five years. Break the vision down into stretch
goals attainable in 12 to 18 months.
2. Get input from the marketplace to identify opportunities. Validate senior
management's view of where the business needs to be with input from the
marketplace, direct high level contact with customers and non-customers. Use

that Contact to start measuring what is important to the marketplace. Look for
potential SCM partners among existing key accounts.


3. Design in the capability to replicate and sustain results. Pick a cadre of high
potential managers, appoint them full- time to developing and Implementing the
SCM strategy. They should participate in the market contact as well as first
process re-design pilots that involve customers and/or suppliers. Position this
group of managers as internal consultants whose mission is to teach others to
replicate the success of the pilots.
4. Pilot with a customer or supplier. Clear about strategic imperatives; pick a
supplier or customer with whom you can Work to develop new capabilities. A
key selection criterion is that the customer or supplier you chose shares similar
strategic objectives (e.g., wants to compete on the basis of service) and believes
that more is to be gained by cooperating than taking the traditional adversarial
instance.
FUNCTIONALITIES & BENEFITS OF SCM
Functionalities/Areas of SCM
Areas of SCM

Description

Demand
Planning

Demand planning aims to reduce forecast errors and to
suggest buffers considering demand variability. In order to
improve accuracy of forecasting, collaborative forecasting
is essential.

Master Planning

Provide multi-site planning. Master planning based on
material, capacity, transportation, and other constraints,
simultaneously.

Procurement

Constraints such as Vendor capacities, costs and lead-time
can be modelled as part of supply chain resulting in
superior plans.

Transportation

Considering dynamic transportation requirement and
generate Optimizing transportation plan.

Manufacturing

Plan considering material, capacity and other constraints
which impact on manufacturing.

EXPECTED BENEFITS OF SCM


Expected benefits from SCM can be described as follows:
Throughput improvements: Better co-ordination of material and capacity prevents loss of
utilization waiting for parts.
Cycle time reductions: By considering constraints as well as its alternatives in the supply
chain, it helps to reduce cycle time.

Inventory costs reductions: Demand and supply visibility lowers the requirements of
inventory levels against uncertainty. Ability to know when to buy materials based on the
customer demand, logistics, capacity and other materials needed to build together.
Optimized transportation: By optimizing logistics and vehicle loads.
Increase order fill rate: Real-time visibility across the supply chain (alternate routing,
alternate capacity) enables to increase order fill rate. Analysis of the supply chain
management can help to predict propagation of disturbances to downstream.
Increase customer responsiveness:Understanding the capability to deliver based on
material, capacity, and logistics.
Improving the Supply Chain
We all understand the importance of improving our supply chain, but very few people
have accurately defined the critical success drivers needed to achieve improvements.
Mary Lou Fox, senior vice president of consulting at Manugistics, suggests that success
depends on the several primary drivers, including the following:
Well-defined processes with well-defined guidelines for decision-making;
Removal of organizational and functional barriers;
Early visibility to changes in demand all along the supply chain;
A single set of plans that drives the supply chain operations and integrates information
across the supply chain.
While the first driver in this list is a given in most organizations, the importance of the
remaining drivers is very high. Organizations that promote the formations of "functional
silos" are less likely to achieve coordination within the various components of the supply
chain than organizations that work without functional barriers. This also necessitates the
integration of data across the enterprise so that, common information is shared by all
planners in the supply chain. The task of improving the supply chain can be extremely
complex and difficult. Various decisions integral to making improvements are
forecasting, purchasing, production, storage, and distribution. Forecasting initiates the
entire process of supply chain management in all environments of Assemble to Order
(ATO), Make to Stock (MTS) and Make to Order (MTO). One needs to know how much
to make and what to make before any of the other decisions can be triggered. A good