Running a profitable business aint easy!

SUPPLY CHAIN
MANAGEMENT

How to make money on bottled water?

And on selling Fried chicken/beef burger!

If that is easy, how about fighting a war.

 Wars

Introduction to SCM
Class-1

are won/ lost by disrupting enemy

supply lines
 Deliver 4 shells with 6 guns and youll
surrender.
Video Reference: https://www.youtube.com/watch?v=Mi1QBxVjZAw

Logistics

Definition of Logistics

The word logistics was first associated

with the military in 1905 as a branch of war
that pertains to the movement and the
supply for armies.

Logistics - ...the process of planning, implementing, and

controlling the efficient, effective flow and storage of goods,
services, and related information from point of origin to
point of consumption for the purpose of conforming to
customer requirements." (Reference: Council of Logistics
Management)

Now, business and service managers use

logistics to fine tune their processes

(Note that this definition includes inbound, outbound,

internal, and external movements, and return of materials)
Best logistics strategy is not just to get the product from the
supplier to the customer the fastest and always be in stock
for all organizations. If this were true, most organizations
would not be profitable today.

THE PURPOSE OF A
LOGISTICS SYSTEM

SCM Evolution

RIGHT QUANTITIES of the

RIGHT GOODS to the
RIGHT PLACES at the
RIGHT TIME in the
RIGHT CONDITION at the
RIGHT COST.

/SC

Creating a logistics strategy is a balancing act

which takes many variables into account.

SCM Evolution

Supply Chain- Definition

Internal

Supply Chain is a sequence of firms that perform

activities required to create and deliver a good
or service to consumers or industrial users.
The network of organizations that fulfill customer
needs


Can either be product or service oriented

Product: cars, computers, etc.

Service: MBA students, Hospitals

By definition, incorporates multiple firms or

organizations not under central control

Supply Chain Management

Supply Chain Management encompasses
all Logistics Management activities

Importantly it also includes coordination
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.

Types of Industrial Supply Chains

1.
2.
3.

The industrial supply chain consists of three

key sectors:
Primary (or extractive) sector
Secondary (or manufacturing) sector
Tertiary sector industries

Primary (or extractive) sector

Secondary & Tertiary Sectors

Provide raw materials such as oil and coal

or food stocks like wheat and corn.

Some raw materials are sold immediately
for consumption, such as coal to power
stations.

Others are used further up the supply
chain to be made into finished goods.

Secondary (or manufacturing) sector industries

make, build and assemble products. Examples
include car manufacturers or bakers who use
primary products.
Tertiary sector industries do not produce
goods. They provide services such as in
banking, retailing, leisure industries or transport.

More Realistic Supply Chain

Supplier

Wholesaler/
Distributer

Manufacturer

Retailer

Downstream of the firm

Simplistic Supply Chain

Customer

Consumer/ Customer Base

Retailer

Retailer

Retailer

Wholesaler

Retailer

Product
Flow

Wholesaler

Sell Side
The Firm

Information
Upstream of the firm

Product
Funds

1st Tier Supplier 1st Tier Supplier

Buy Side

Information
Flow

Traditional View of Suppliers &

Businesses

Porters Power Model



Very similar to Fords

If a supplier makes a penny, that is a penny that Ford could

have made


Maintain internal manufacturing capability, just-in-case

Vertical Integration
Optimization of a relatively static chain


Long life products

2nd Tier Supplier

3rd Tier Supplier

3rd Tier Supplier

Resources Base

More Advanced View of SCM

Minimize number of suppliers

Work on Just-in-time supplies

Virtual Integration

 Control

Multiple suppliers to spread risk

i.e., classic adversarial relationship

2nd Tier Supplier

not ownership

Adaptive & Responsive supply chains

Risk management & mitigation

Discuss the key differences between the supply

chain for a service and a manufacturing
organization.

Discuss the key differences between the supply

chain for a service and a manufacturing
organization.

Creating a Strategic Advantage

What are the strategic objectives of the

organization?
- Strategic Analysis of the Competition
- Evaluate Channel Structure

Creating a Strategic Advantage

The answers to the above question will give an organization a

road map to set its customer service policy. This policy is
then translated to the channel structure to best meet the
organizations goals in the most efficient and effective
manner for a competitive advantage

Creating a Competitive Advantage

Competitive Advantage  Commercial Success

Customer:

Commercial Success

Seeking benefit at an acceptable cost

Cost Advantage

Company
Asset utilization

Value Advantage

Value

Value

Competitor
Cost differential

Asset utilization

Cost Advantage helps in productivity advantage and

successful companies have:
PRODUCTIVITY ADVANTAGE: lower cost profile
VALUE ADVANTAGE: product offering
IDEALLY, A COMBINATION OF BOTH

Competitive Advantage  Commercial Success

Productivity Advantage

Comes from experience in efficient

production, greater sales volume, economy
of scale and declining of all costs with
increase in volume.
Asset Utilization
Inventory
Real
cost
Reduction
per
Integration with
unit
suppliers
Cumulative volume

Value Advantage
CUSTOMERS DONT BUY PRODUCT,
THEY BUY BENEFITS
Strategy based upon differentiated value

Product image & reputation

Service: Delivery service, after sales
service, technical support, financial
package

Customer/company relationship

Productivity & Value Advantage Matrix

Service Leader

Reliability
Responsiveness

Value Advantage

Customized
services

Mainly value
advantage

Cost & Service Leader

Excel in value chain

activities and also have
productivity advantage

3
Commodity Market

Little or no product
or value advantage

Cost Leader

Mainly Productivity
advantage

Capacity Utilization

Asset Utilization

Inventory Reduction

Integration with suppliers

Productivity Advantage

Impact of Logistics & Customer Service

on Marketing

For the consumer the customer service, brand value,

corporate image and availability are important
considerations.
Marketing is improved with strong ties with intermediary
such as large retail outlets creating customer franchises
as well as what the consumer is looking for.
The consumer and customer franchises need an
effective supply chain to result in market effectiveness.
Consumer
Franchise

Customer
Franchise

Supply Chain
Efficiency

Market
Effectiveness

Brand Value

Customer Service

Flexibility

Market Share

Corporate Image

Partnership

Reduced Inventory

Customer Retention

Availability

Quick Response

Low Cost Suppliers

Superior ROI

Right Place at the right time

Due to increased competition and product
improvements power of brand value is
declining.

Technological difference between
company product is also declining

Availability at the point of sales is
important to retain even an old satisfied
customer, otherwise the sale will be lost to
competitor

Customer service is a major value
advantage.

Barriers to SC Integration

Barriers to Logistics/SC Integration arise

from inappropriate
 Organization

Structure
Systems
 Inventory Ownership
 Information Technology
 Knowledge Transfer Capability
 Measurement

Planning & Coordination Flows

Elements of Supply Chain

Competency

Planning & Coordination Flows

Drivers of Supply Chain Performance

OPERATIONAL FLOWS

Network Design
Information
Inventory
Sourcing
Pricing
Transportation
Warehousing, material handling, and
Packaging

Inventory Management Policy

Customer Segmentation
Product Requirement
Transportation Integration
Time Based Requirement
Competitive Performance

Inventory Management Policy

Selective Deployment

Customer
Segmentation

Product
Requirement

Transportation
Integration

Superior Network Design

Time-based
requirements

Competitive
performance

1. What is supply chain management?

2. What are the sources of competitive advantage
in supply chain?
3. What are the implications of supply chain
management in logistics?
4. Explain the concept of value advantage. How
value advantage can be achieved through
customer service and production activities?
5. How logistics and customer service affect
marketing?

Reference: Logistics Management by Satish C.

Ailwadi and R. Singh, Prentice Hall of India,
2005

SC facilities typically include manufacturing

plant, warehouses, cross-dock operations,
outsourced facilities and retail stores
All logistical facilities must be managed as a
part of companys logistical/SC network.
The design network including information and
transportation, also handles customer orders,
maintains inventory and materials.
Network design needs to be modified to
accommodate changes in demand and supply,
product mix, suppliers supplies and
manufacturing requirements.

The end