Definition of Supply Chain Management

A supply chain is a network of manufacturers, suppliers, distributors, transporters, storage facilities & retailers that perform functions like procurement & acquisition of material, processing &transformation of the material into intermediate & finished tangible goods, & finally, the physical distribution of the finished goods to intermediate or final customers. A firms supply chain includes both its upstream supplier networks & the downstream distribution networks, apart from its internal functional departments.

Origin of Supply Chain Management

Supply Chain Management existed for some time before it started to be used as a description of any computer system. The Japanese work out the concept of JIT in electronics & automobile industries which has brought up revolution in the field of production & inventory control due to pull system

Introduction

Supply Chain Management is the network consisting of Customers, Retailers, Distributors, Manufacturer and Supplier.

It is a network of organizations that are having linkage both upstream & downstream in different process & activities. Every interface in the supply chain represents movement of goods, information flow, transfer of documents and purchase & sale.

Flows in Supply Chain Management

Material flows: Involve physical product flows from suppliers to customers through the chain, as well as the reverse flows via product returns, servicing recycling & disposal. Information flows: Involve demand forecast, order transmission & delivery status reports. Financial flows: Involve credit card information, credit terms, payment schedules & consignment & title ownership arrangements.

Types of Supply Chain Management

Pull-based SCM: Pull-based SCM is also known as modern approach to SCM. It is known as demand supply network. In this approach, the actual consumption pulls distribution, which in turn pulls production, in term pulling material supply. Push-based SCM: Push-based system is also known as traditional approach to SCM. In this approach, materials & products are flowing from supplier to consumer, via production & distributor unit.

Upstream & Downstream in SCM

Upstream: Order sent by customer through payment received by suppliers. Downstream: Order received by supplier through payment sent by customer. SUPPLIER
PUSH BASED SCM CUSTOMER

MATERIAL SUPPLY
PUSH

PRODUCTION
PUSH

DISTRIBUTION
PUSH

CONSUMPTION

Components of Supply Chain Management

A Supply chain may consist of a variety of components depending on the business model selected by a firm. A typical supply chain consists of the following components: Customers Distributors/Retailers Manufacturers Suppliers CUSTOMERS The customer forms the focus of any supply chain. A customer activates the Processes in a supply chain by placing an order with the retailer. The customer order is filled by the retailer, either from the existing inventories, or by placing a fresh order with the wholesaler/manufacturer. In some cases a customer by passes all these supply chain components by getting in touch with the manufacturers directly. For example: In the case of an online purchase of a computer from dell computers, the customers place an order directly with the manufacturers. RETAILERS/ DISTRIBUTORS The retailer acts as a link between the customers and the distributors/ manufacturers. He caters to the needs of the customer by making the products available at his store. As part of this process, retailer places order with the manufacturers to replenish the stock. MANUFACTURERS The manufacturer plays a key role in deciding the structure of a supply chain. Depending on the market situation, the manufacturer either uses the pull or the push strategy to generate demand required for the movement of products in the supply chain. The manufacturer then plans for a production schedule depending on the resultant demand.

SUPPLIERS Suppliers facilitate the manufacturers Production process by ensuring continuous supply of raw materials. Manufacturers place orders with suppliers on the basis of forecasted customers demand. Since it is very difficult to forecast demand accurately, manufacturers try to integrate their processes with those of the suppliers to be in a better position to respond to fluctuation in customer demands. Suppliers help manufacturers to decrease their inventory levels by arranging for justintime supplies.

SCM includes the following functions

Supplier management: The goal is to reduce number of suppliers & get them to become partners in business relationship. The benefits are reduced Purchase order (PO) processing cost, increased numbers of purchase orders processed by fewer employees & reduced order processing cycle times. Inventory management: The goal is to shorten the order-ship-bill cycle. The inventory management solution enables the reduction of inventory levels, improves inventory turns & eliminates out-of-stock occurrences.

ORDER SENT BY CUSTOMER

PAYMENT RECEIVED BY SUPPLIER

ORDER RECEIVED
PAYMENT SENT BY CUSTOMER

BY SUPPLIER

Distribution management: The goal is to move documents related to shipping (purchase order, advanced ship notices etc.). Paperwork that typically took days to cycle in the past can now be sent in moments & contain more accurate data, thus allowing improved resource planning. Channel management: The goal is to quickly disseminate information about changing operational conditions to trading partners. Electronically linking production with their international distributor & eliminates thousands of labour in the process. reseller networks

 Payment management: The goal is to link the company & the suppliers & distributors so that payments can be sent & received electronically. Financial management: The goal is to enable global companies to manage their money in various exchange accounts. Companies must work with financial institutions to boost their ability to deal on a global basis. Sales force productivity: The goal is to improve the communication & flow of information among the sales, customers & production functions.

DISTINGUISH BETWEEN LOGISTICS MANAGEMENT & SCM

LOGISTICS MANAGEMENT 1) SUPPLY CAHIN MAAGEMENT

Inbound Logistics in-processing All players in supply chain from raw inventory & outbound Logistics i.e. material source to finished product scope is within the organization. consumer, vendors, warehousers, customers & their customers.

2)

It is created in business by internal It is created in business by external integration of logistics functions integration of roles of various players helded by various management in the supply chain. functions within organization. Logistics originated in the military SCM is a logical extension of logistics planning. management. It is a supply driven. It is a demand driven.

3)

4) 5)

Main objective is to reduce logistic Main objective is to achieve higher cost by integrating resources. profitability by value creation. Logistics is a part of Supply Chain Supply Chain Management is an Management. extension of logistics management. Logistics management is a narrower Supply Chain Management is a broader concept. concept.

6)

7)

Objectives of Supply Chain Management

The prime objective of SCM is to reduce or eliminate the buffers of inventory that exists between organization in a chain through the sharing of information on demand & current stock level. Solving supplier's problem and beyond his level. Customers service performance improvement. Reduction of pre and post production inventory. Minimum total cost of operations & procurement. Product quality control. Achieving maximum efficiency in using labour, capital & plant throughout the company. Flexible planning & control procedures.

Supply Chain Management & Vertical Integration

SCM is not the same as vertical integration. Vertical integration normally implies ownership of upstream suppliers & downstream customers. Earlier vertical integration used to be desirable strategy increasingly the companies are focusing on their core business i.e. activities that they do really well & where they act a differential advantage.

SCM raise the challenges of integrating & coordinating the flow of material from multitude of suppliers & similarly managing the distribution of finished products by way of multiple intermediaries. Transferring cost upstream & downstream leads to logistics MIOPIA as all cost ultimately will make way to the final market place to be reflected in the price paid by the end users.

Advantages of Supply Chain Management

Benefits to the Customers:
The customer will get benefits by dealing with a well managed vendor due to an effective supply chain organization in place are as follows: Natural benefits will come due to consideration of the problems supplier & further back supplier and their involvement in the process of developments. Improved customer service through fewer shortages. Improved product cost. Better delivery performance. Quicker response to changes in demand. Optimal purchase cost due to possibility of long-term purchase contracts.

Benefits to the Company:

Reduction in tied-up capital & administrative costs due to reduction/ elimination of inventory at all levels. Reduction in time & money lost through production line stoppage. More flexibility in planning. Sustained growth of sales & company business. Increased shareholder value.

Example of Supply Chain Management

Coca-Cola SCM
The Coca-Cola System (C.C.S):
o Sells over 1 billion servings of our beverages daily in over 200 countries. o Produces in over 860 facilities located in over 150 countries. o Employs more than 300,000 people. o Targeting assessments at over 10,000 supplier facilities globally.

The Coca-Cola systems Manual Distribution Center (MDC) model, which is currently being implemented in various forms in some 25 countries around the world, offers an interesting distribution example. The Coca-Cola Company has made the MDC model a key component of its public commitment to the Business Call to Action, an initiative launched by the British Prime Minister Gordon Brown in 2007. Coca-Cola Company (CCC) is the largest non-alcoholic beverage company in the world, manufacturing nearly 500 brands and 3,000 beverage products, and serving 1.6 billion consumers a day.

 In the 200 countries and territories in which it operates, CCC provides beverage syrup to its bottling partners, who then manufacture, package, distribute and sell products for local consumption. CCC has more than 300 bottling partners worldwide, which are local companies that are either independently owned or partially or fully owned by CCC. It has had a presence in Africa since 1928 and today is one of the continents largest private sector employers, operating about 160 bottling and canning plants through its local bottling partners and working with more than 9,00,000 retail outlets.

CCC and its bottling partners (collectively known as the Coca-Cola system) are renowned for their ability to make their products available to consumers in even the most remote locations. In the most developed, urban parts of the continent, the system uses the more traditional model of supplying large retailers such as grocery stores, hotels, universities, and other institutions using delivery trucks.

COCA-COLA Supply Chain

CCS is one of the Coca-Cola systems largest bottlers in Africa, operating 18 bottling plants and directly employing more than 7,900 people in East and Southern Africa.

Suppliers

Coca-Cola System
The cocacola company

Selling Beverages

Ingredients

Customers

Water

Warehouse & Distributors

Consumer s

Packaging

Bottling Partners

Vending machines & coolers