Recent Development in the field of Supply Chain Management

Nimisha.M.N Roll No : 23, MBA FT, Sem III, School of Management Studies CUSAT, Kochi - 22

Abstract: This report discusses the recent developments which have taken place in the supply chain management. Supply chain management is the practice of coordinating the design, procurement, and flow of goods, services, information and finances, from raw materials to parts supplier to manufacturer to distributor to retailer to consumer. Recent advances in supply chain technological support, process design, and management strategies have created an increasingly complex set of administrative, technological, and organizational issues that must be resolved if they are to lead to competitive advantage. Key Words: SCM, Benchmarking, ERP, EDI, JIT, QR

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INTRODUCTION General Information

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Supply Chain Management includes product design, order generation, order taking, information feedback and the efficient and timely delivery of goods and services, and typically involves many or more of the business functions in firms that are linked to specific supply chains. The rise of concepts like JIT, quick response, and supply chain integration has resulted in optimization through seamless connectivity of suppliers, intermediaries and customers. Efficient and effective supply chain management assists an organization in getting the right goods and services to the place needed at the right time, in proper quantity and at acceptable cost. Managing this process involves developing and overseeing relationships with suppliers and customers, controlling inventory, and forecasting demand. Recent developments and advances in supply chain technological support, process design, and management strategies have created an increasingly complex set of administrative, technological and organizational issues that must be resolved if they are to lead to competitive advantage.

1.1 Creation Era The term supply chain management was first coined by a U.S. industry consultant in the early 1980s. However, the concept of a supply chain in management was of great importance long before, in the early 20th century, especially with the creation of the assembly line. The characteristics of this era of supply chain management include the need for large-scale changes, re-engineering, downsizing driven by cost reduction programs, and widespread attention to the Japanese practice of management. 1.2 Integration Era

This era of supply chain management studies was highlighted with the development of Electronic Data Interchange (EDI) systems in the 1960s and developed through the 1990s by the introduction of Enterprise Resource Planning (ERP) systems. This era has continued to develop into the 21st century with the expansion of internet-based collaborative systems. This era of supply chain evolution is characterized by both increasing value-adding and cost reductions through integration. 1.3 Globalization Era The third movement of supply chain management development, the globalization era, can be characterized by the attention given to global systems of supplier relationships and the expansion of supply chains over national boundaries and into other continents. Although the use of global sources in the supply chain of organizations can be traced back several decades (e.g., in the oil industry), it was not until the late 1980s that a considerable number of This transition also re-focused the fundamental perspectives of each respective organization. OEMs became brand owners that needed deep visibility into their supply base. They had to control the entire supply chain from above instead of from within. Contract manufacturers had to manage bills of material with different part numbering schemes from multiple OEMs and support customer requests for work -in-process visibility and vendor-managed inventory (VMI).

The specialization model creates manufacturing and distribution networks composed of multiple, individual supply chains specific to products, suppliers, and customers who work together to design, manufacture, distribute, market, sell, and service a product. The set of partners may change according to a given market, region, or channel, resulting in a proliferation of trading partner environments, each with its own unique characteristics and demands organizations started to integrate global sources into their core business. This era is characterized by the globalization of supply chain management in organizations with the goal of increasing their competitive advantage, value-adding, and reducing costs through global sourcing.

1.4 Specialization EraPhase One: Outsourced Manufacturing and Distribution In the 1990s industries began to focus on core competencies and adopted a specialization model. Companies abandoned vertical integration, sold off non-core operations, and outsourced those functions to other companies. This changed management requirements by extending the supply chain well beyond company walls and distributing management across specialized supply chain partnerships.

. 1.5 Specialization EraPhase Two: Supply Chain Management as a Service Specialization within the supply chain began in the 1980s with the inception of transportation brokerages, warehouse management, and non-asset-based carriers and has matured beyond transportation and logistics into aspects of supply planning, collaboration, execution and performance management. At any given moment, market forces could demand changes from suppliers, logistics providers, locations and customers, and from any number of these specialized participants as components of supply chain networks. This variability has significant effects on the supply chain infrastructure, from the foundation layers of establishing and managing the electronic communication between the trading partners to more complex requirements including the configuration of the processes and work flows that are essential to the management of the network itself. Supply chain specialization enables companies to improve their overall competencies in the same way that outsourced manufacturing and distribution has done; it allows them to focus on their core competencies and assemble networks of specific, best-in-class partners to contribute to the overall value chain itself, thereby increasing overall performance and efficiency. The ability to quickly obtain and deploy this domain-specific supply chain expertise without

developing and maintaining an entirely unique and complex competency in house is the leading reason why supply chain specialization is gaining popularity. Outsourced technology hosting for supply chain solutions debuted in the late 1990s and has taken root primarily in transportation and collaboration categories. This has progressed from the Application Service Provider (ASP) model from approximately 1998 through 2003 to the On-Demand model from approximately 2003-2006 to the Software as a Service (SaaS) model currently in focus today.

2.0 SUPPLY CHAIN MANAGEMENT 2.0 (SCM 2.0) Building on globalization and specialization, the term SCM 2.0 has been coined to describe both the changes within the supply chain itself as well as the evolution of the processes, methods and tools that manage it in this new "era". Web 2.0 is defined as a trend in the use of the World Wide Web that is meant to increase creativity, information sharing, and collaboration among users. At its core, the common attribute that Web 2.0 brings is to help navigate the vast amount of information available on the Web in order to find what is being sought. It is the notion of a usable pathway. SCM 2.0 follows this notion into supply chain operations. It is the pathway to SCM results, a combination of the processes, methodologies, tools and delivery options to guide companies to their results quickly as the complexity and speed of the supply chain increase due to the effects of global competition, rapid price fluctuations, surging oil prices, short product life cycles, expanded specialization, near-/far- and off-shoring, and talent scarcity. SCM 2.0 leverages proven solutions designed to rapidly deliver results with the agility to quickly manage future change for continuous flexibility, value and success. This is delivered through competency networks composed of best-of-breed supply chain domain expertise to understand which elements, both operationally and organizationally, are the critical few that deliver the results as well as through intimate understanding of how to manage these elements to achieve desired results. Finally, the solutions are delivered in a variety of options, such as no-touch via business process outsourcing, mid-touch via managed services and software as a service (SaaS), or high touch in the traditional software deployment model.

3.0 SUPPLY CHAIN BUSINESS PROCESS INTEGRATION Successful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. An example scenario: the purchasing department places orders as requirements become known. The marketing department, responding to customer demand, communicates with several distributors and retailers as it attempts to determine ways to satisfy this demand. Information shared between supply chain partners can only be fully leveraged through process integration. Supply chain business process integration involves collaborative work between buyers and suppliers, joint product development, common systems and shared information. According to Lambert and Cooper (2000), operating an integrated supply chain requires a continuous information flow. However, in many companies, management has reached the conclusion that optimizing the product flows cannot be accomplished without implementing a process approach to the business. The key supply chain processes stated by Lambert (2004) are:

Customer relationship management Customer service management Demand management Order fulfilment Manufacturing flow management Supplier relationship management Product development and commercialization Returns management

Much has been written about demand management. Best-in-Class companies have similar characteristics, which include the following: a) Internal and external collaboration b) Lead time reduction initiatives c) Tighter feedback from customer and market demand d) Customer level forecasting One could suggest other key critical supply business processes which combine these processes stated by Lambert such as: a. Customer service management

b. Procurement c. Product development and commercialization d. Manufacturing flow management/support e. Physical distribution f. Outsourcing/partnerships g. Performance measurement Customer service management process Customer Relationship Management concerns the relationship between the organization and its customers. Customer service is the source of customer information. It also provides the customer with realtime information on scheduling and product availability through interfaces with the company's production and distribution operations. Successful organizations use the following steps to build customer relationships: determine mutually satisfying goals for organization and customers establish and maintain customer rapport produce positive feelings in the organization and the customers 3.1 Procurement process Strategic plans are drawn up with suppliers to support the manufacturing flow management process and the development of new products. In firms where operations extend globally, sourcing should be managed on a global basis. The desired outcome is a win-win relationship where both parties benefit, and a reduction in time required for the design cycle and product development. Also, the purchasing function develops rapid communication systems, such as electronic data interchange (EDI) and Internet linkage to convey possible requirements more rapidly. Activities related to obtaining products and materials from outside suppliers involve resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling and quality assurance, many of which include the responsibility to coordinate with suppliers on matters of scheduling, supply continuity, hedging, and research into new sources or programs. 3.2 Product development and commercialization

Here, customers and suppliers must be integrated into the product development process in order to reduce time to market. As product life cycles shorten, the appropriate products must be developed and successfully launched with ever shorter time-schedules to remain competitive. According to Lambert and Cooper (2000), managers of the product development and commercialization process must: 1. coordinate with customer relationship management to identify customer-articulated needs; 2. select materials and suppliers in conjunction with procurement, and 3. develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product/market combination. 3.3 Manufacturing flow management process The manufacturing process produces and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be flexible to respond to market changes and must accommodate mass customization. Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency in meeting customer demand. Activities related to planning, scheduling and supporting manufacturing operations, such as work-in-process storage, handling, transportation, and time phasing of components, inventory at manufacturing sites and maximum flexibility in the coordination of geographic and final assemblies postponement of physical distribution operations. 3.4 Physical distribution This concerns movement of a finished product/service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product/service is a vital part of each channel participant's marketing effort. It is also through the physical distribution process that the time and space of customer service become an integral part of marketing, thus it links a marketing channel with its customers (e.g., links manufacturers, wholesalers, retailers).

3.5 Outsourcing/partnerships This is not just outsourcing the procurement of materials and components, but also outsourcing of services that traditionally have been provided in-house. The logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage, and outsource everything else. This movement has been particularly evident in logistics where the provision of transport, warehousing and inventory control is increasingly subcontracted to specialists or logistics partners. Also, managing and controlling this network of partners and suppliers requires a blend of both central and local involvement. Hence, strategic decisions need to be taken centrally, with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level.

3.6 Performance measurement Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability. Taking advantage of supplier capabilities and emphasizing a long-term supply chain perspective in customer relationships can both be correlated with firm performance. As logistics competency becomes a more critical factor in creating and maintaining competitive advantage, logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes more narrow. A.T. Kearney Consultants (1985) noted that firms engaging in comprehensive performance measurement realized improvements in overall productivity. According to experts, internal measures are generally collected and analyzed by the firm including 1. 2. 3. 4. 5. Cost Customer Service Productivity measures Asset measurement, and Quality.

External performance measurement is examined through customer perception measures and "best practice" benchmarking, and includes 1) customer perception measurement, and 2) best practice benchmarking. Components of Supply Chain Management are 1. Standardization 2. Postponement 3. Customization

4.0 THE E-SUPPLY CHAIN High speed, low cost, communication and collaboration with your customers and suppliers are critical success factors to more effectively manage your supply chain. Then, the e-Supply Chain is very likely in your future. The very essence of Supply Chain Management is effective information and material flow throughout a network of customers and suppliers. The potential for improved productivity, cost reduction and customer service are enormous. Of course, the benefits are based on effectively employing the right processes and supporting information technology. This is a higher priority than ever before. Providing the right amount of relevant information to those who need to know it, when they need to know it is, in fact, effective Supply Chain Management from an information point of view. Good supply chain practitioners know that information should be passed on only to those who need to know it, in the form they need to have it. Demand information, inventory positions, order-fulfilment, supply management and a whole host of other information exchange activities will change how we sell products, supply products and make and receive payments for goods and services. The e-Supply Chain will have customers and suppliers seamlessly linked together, throughout the world, exchanging information almost instantly. The velocity of relevant information flow will be so fast that, as a result, responding to the inevitable changes in expected vs. actual customer demand will mandate demand-driven manufacturing and supporting processes that provide for faster changes in the actual material flow to match demand. Fast access to relevant supply chain information can pay-off handsomely in lower costs, less inventory, higher quality decisionmaking, shorter cycle times and better customer service. One of the biggest cost savings is in the overhead activity associated with lots of paperwork and its inherent redundancies. The non-value added time of manual transaction processing can instead be focused on higher revenue creation activities without proportional increases in expense. The result in cycle time compression, lower inventories, decisionmaking quality, reduced overhead costs, among other benefits makes e-Supply Chain Management a highly desirable strategy. Supply chain processes can be more streamlined and efficient than could have been imagined just a few years ago. For many companies, more effective

Supply Chain Management is where the profit and competitive advantages will emerge and be sustained.

Figure 1.1. Supply chain in e-business environment

5.0 EMERGING TECHNOLOGIES TO SUPPORT SUPPLY CHAIN MANAGEMENT New technologies that turn raw data into information and knowledge are changing the way the firms operate. In this context, various forms of supply chain management (SCM) applications are among the enabling technologies transforming how business markets operate. IT research agencies expect SCM applications sales to triple in 2004 in part owing to developments in related technologies that support SCM applications. Prominent vendors in SCM applications market include i2 Technologies, SAP AG, Oracle, and Invensys, which produce a range of hardware and software components that span communication, optimization, and modelling systems. The hardware and software components that support SCM applications can be collectively referred to as the supply chain infrastructure The important developments in SCM and supply chain infrastructure, including technologies in optimization and modelling systems, which have had a remarkable imprint on supply chain decision-making are indicative in nature and shed light on the trajectory these developments are taking, but are not meant to be comprehensive and do not encompass all the facets of supply chain management and SCM applications. 5.1 Data Capture and Transmission In the area of communication, automatic data capture (ADC) technology is fast becoming an important tool to support business transactional information and supply chain processes. ADC systems, which are predicted to grow by almost 16% per year [9], include bar code scanning, voice recognition, and radio frequency data capture (RFDC) systems. The devices supporting ADC systems range from scanners, keyboards, PCs, laptops, servers, PDA devices, cell phones, pagers, and vehicle emounted instruments. One cannot hope to know the status of items flowing through the system without collecting data in a usable form as ADC systems do.

Bar code scanning systems are currently integral to the supply chain infrastructure of many firms, and radio frequency identification (RFID) is gaining increasing acceptance too. While RFID systems are more expensive than bar codes, they can be read at very high speeds, and can collect 40 times the data collectible through traditional bar codes, which can help minimize or eliminate information lag: the gap between an item being sold or shipped and records showing it in need of replenishment. The elimination of this gap would ultimately reduce replenishment time itself. RFDC is also extending beyond data capture as it becomes technically and commercially feasible at the transmission end, transmitting and even managing information generated by bar codes and warehouse management systems (WMS) across the supply chain. Further, recent development efforts include new standards that enable communication between radio frequency terminals of different suppliers. Emerging technologies in this area will also allow wired devices like telephones to operate on the same data network as a radio frequency handheld unit, but without the need to dial into local telephone lines. With increased frequency allocations and efficient coding of information over wireless channels, mobile and wireless networks are likely to become the networks of choice over the wired networks. Clearly, the devices and supporting technologies used for data capture and transmission have increased considerably. ADC is just a part of the infrastructure. Once data is tracked and transmitted, it must be recorded and analyzed to make intelligent decisions. At the corporate level, enterprise resource planning (ERP) acts as the central nervous system of an enterprise [8]. At the next level, supply chain planning and optimization software analyze data and transactions to give managers a range of decision choices. Recent developments in optimization software and modelling language have generated an explosion in implementation and use of SCM applications across companies and industrial sectors.

6.0 OPTIMIZATIONTHE BACKBONE OF SCM Managers have increasingly found the latest versions of optimization software capable of providing reasonably good solutions to industrial problems in a short time span, owing to advances in algorithmic techniques and heuristics in artificial intelligence (AI) and computer science. Optimization software now embeds advanced algorithmic techniques such as constraint programming, a declarative, relational styled programming tool originally developed in the 1980s and used solely in the computer science arena, and now being used complimentarily with mathematical programming to solve management and business problems. ITs constraint component addresses the issues of satisfiability, while the programming level component assembles the steps to solve the problem [6]. The remarkable aspect of this doctrine is that decision variables of a mathematical programming problem can be treated as programming language variables within a computer-programming environment. This flexibility allows the user or manager to program different solution strategiesalgorithmic techniques available for solving a particular class of problemfor mathematical programming problems. Constraint programming systems are versatile in that they facilitate the selection of an appropriate strategy based on the users understanding of the underlying problem structure. Some well-known constraint programming applications or systems are embedded into optimization software, such as PROLOG and ECLiPSe , to solve large and complex problems with impossibly long solution times.

A practical use of such systems involves exploring a hybrid approach to solve problems without writing the application again. The architecture of a constraint programming system is not suitable for finding the optimal solution, but for quickly arriving at a feasible solution of large and complex problems in a spectacularly short time. The challenge still lies in developing models to support supply chain decision making using algorithmic techniques like constraint programming. To take advantage of such techniques, the manager still needs to know how to use the system and to develop appropriate models capturing the business situation. It can be a formidable task to model a complex

situation using constraint programming, involving a working knowledge of computer programming. Companies are becoming aware of the need for supply chain managers to have expertise in using such systems, while efforts to make constraint programming systems easier to use are also in the works.

7.0 MODELING LANGUAGES Another issue of importance in the context of mathematical programming is the generation of the mathematical formulation, or prototype, in a format understandable by the optimization software. Real life business situations involve large-sized problems and rapid generation of the problem prototype is a key concern for the manager since he or she cannot afford to spend an inordinate amount of time on this activity. Therefore, scope of optimization has expanded greatly to include languages for model generation and managing data. Modeling languages like AMPL, which develop formulation formats in linear or matrix forms, interface with optimizing software like CPLEX, MINTO and XPRESS. Real-life problems often run into thousands of variables and constraints that capture the multiple dimensions of decision making. The modeling languages make the development of problems feasible within a short span of time. The growing interest in optimization of supply chain planning problems can also be attributed substantially to these incredible technological advances in the modeling language domain.

8.0 HANDLING COMPLEXITY A discussion of optimization must naturally include the time incurred in problem solving. In this context, we need to discuss issues involving the growth of the problem solution time as a function of the size of the problems. It takes different time\ amounts to solve different problem instances of the same size by using any particular algorithm (say ). The solution times may vary depending upon the algorithm we use. Since different problem instances of the same size (say size ) may require different solution times using any particular algorithm (say ), the term solution time refers to the longest time that any instance of size requires to get solved by employing algorithm . Different algorithms can solve the same problem instance of a particular size, but algorithms differ in how long they take to solve a particular problem instance of a specific size. The longest time needed to solve a specific problem instance as a function of the size is called the time complexity function (TCF) or simply the complexity of the algorithm. When we speak of the complexity of the problem, we mean the complexity of the most efficient algorithm, known or unknown, which solves it. In the context of optimization, a commonly asked question is how much computing time, as a function of constraints and variables, is required to solve a certain class of mathematical programming problems. The time required to solve problems like the traveling salesman problem, the vehicle routing problem, and the cutting stock problem increases exponentially with the size of the problem.

In fact, to arrive at an optimal solution for a fairly large-sized problem of this nature would take years. Supply chain decision-makers must tackle such issues almost on a daily basis but such situations involve almost instantaneous decision-making. The decision-mak- ers cannot afford to search for optimal solutions, but must quickly access a feasible solution. Much research has been conducted on rapid solution, an initiative that has benefited in no small measure by the developments in the processing power (millions of instructions per second or MIPS) of computing machines and modeling languages.

Currently, optimization of mathematical programming models on the PC is significantly faster than it was on mainframes of several decades ago. This evolution, complemented by the developments in constraint programming and the algorithms in artificial intelligence have greatly facilitated supply chain management decision-making. 9.0 ARTIFICIAL INTELLIGENCE AND SCM AI techniques have been put to use in multiple segments of the supply chain. Expert systems embed AI techniques for scheduling in cellular manufacturing systems (CMS) and related manufacturing environments. Many sophisticated business intelligence commercial applications also embed AI algorithms to perform neural networking, clustering, and classification techniques, enabling intelligent -making in data mining and online analytical processing. The algorithmic techniques implanted in business intelligence commercial applications offered by companies such as IBM, Cognos, SAS, Oracle, and SPSS run at the back end and give users relevant decision choices in user-friendly interfaces. Decisions involving customer profiling, new product development, retail marketing, and sales patterns are immensely refined using business intelligence tools. Also, as such decisions have an impact on the overall supply chain processes, it is important that business intelligence tools also be linked to SCM applications [8]. Moreover, such decisions are strategic or tactical in nature, and may result in reconfiguration of supply chain network itself, a change in the information exchange across the supply chain, or a modification of business processes. For instance, a change in the target customer segment for a product leads to a change in the distribution system for that particular product. Likewise, a decision to shift the production of an item to a different manufacturing center would affect the raw material supply network for that item.

Today, RFID is used in enterprise supply chain management to improve the efficiency of inventory tracking and management.

STRATEGIC LEAD TIME MANAGEMENT In a world of shortening product life-cycles, volatile demand and constant competitive pressure the ability to move quickly is critical. It is not just a question of speeding up the time it takes to get new products to market but rather the time it takes to replenish the existing demand. Marketers today are often time-sensitive as well as price-sensitive thus the search is for logistics solutions that are more responsive but low-cost.

Time compression in the pipeline has the potential both to speed up response times and to reduce supply chain costs. The key to achieving these dual goals is through focussing on the reduction of non value adding time- and particularly time spent as inventory. Where were in the past, logistics systems were very dependent upon a forecast with all the problems that entailed, now the focal point has becomes lead time reduction.

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