PEMP-EMM2506

Scope of Supply Chain Management

(SCM)

Session Speaker
Prof. P.S.satish
M.S Ramaiah School of Advanced Studies - Bangalore 1
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Session Objectives

To understand the scope of Supply Chain Management

To compare different activities of Supply Chain

Management

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Session Outline

Functions of Supply Chain Management

Strategic activities
Tactical activities
Operational activities
Session Summary

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Scope of SCM

Monitoring and controlling the activities right

from supplier's supplier to customer's customer

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Functions of SCM

Inventory Distribution
Management Management

Supplier
Management

Sales force
Productivity
SCM

Financial Channel
Management Management

Payment
Management

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A case for SCM
1 Sale 100
2 Cost of sale
2.1 Material 60
2.2 power 6
2.3 Variable wages 6
2.4 Variable interest 4
2.5 Total cost of Sale 76
Contribution 24
3 Over heads
Marketing 2
admin 2
Salary 10
Total Overhead 14
4 Profit before Interset and depreciation 10
Interest, Fixed 6
Profit before Depreciation 4
5 Depreciation 4
6 Profit before Tax 0
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A case for SCM contd
10% increase in Sales
1 Sale 100 110
2 Cost of sale
2.1 Material 60 66
2.2 power 6 6.6
2.3 Variable wages 6 6.6
2.4 Variable interest 4 4.4
2.5 Total cost of Sale 76 83.6
Contribution 24 26.4
3 Over heads
Marketing 2 2.2
admin 2 2
Salary 10 10
Total Overhead 14 14.2

4 Profit before Interset and depreciation 10 12.2

Interest, Fixed 6 6
Profit before Depreciation 4 6.2
5 Depreciation 4 4
6 Profit before Tax 0 2.2

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A case for SCM contd
10% increase in 10% Decrease in
Sales Cost of material
1 Sale 100 110 100
2 Cost of sale
2.1 Material 60 66 54
2.2 power 6 6.6 6
2.3 Variable wages 6 6.6 6
2.4 Variable interest 4 4.4 3.6
2.5 Total cost of Sale 76 83.6 69.6
Contribution 24 26.4 30.4
3 Over heads
Marketing 2 2.2 2
admin 2 2 2
Salary 10 10 10
Total Overhead 14 14.2 14
Profit before Interset and
4 depreciation 10 12.2 16.4
Interest, Fixed 6 6 6
Profit before Depreciation 4 6.2 10.4
5 Depreciation 4 4 4
6 Profit before Tax 0 2.2 6.4
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Management of supply chain is equivalent to

management of various functions

Activities carried out in a continuous supply chain

environment
demand forecasting,
production planning,
procuring raw materials for production, manufacturing
managing inventory,
processing input to convert into output and
finally arranging smooth distribution of the finished
product to the retailers.

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SCM in Development chain

Product architecture
Plan &
Make/Buy
Design
Early supplier Involvement

Strategic partnership
Source Supplier selection
Supplier contracts

Supply Produce Distribute Sell

SCM Source : David Simchi-Levi

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Activities/Functions
Cross-functional approach-Transformation.

Focus on core and non-core competencies & become more

flexible.

By Outsourcing, reduce the ownership of raw material

sources and distribution channels.

The purpose of supply chain management is to improve trust

and collaboration among supply chain partners, thus
improving inventory visibility and improving inventory
velocity.

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Activities/Functions

Supply chain management is a cross-functional

approach to manage the movement of raw materials
into an organization and the movement of finished
goods out of the organization toward the end-
consumer. As corporations strive to focus on core
competencies and become more flexible, they have
reduced their ownership of raw materials sources and
distribution channels. These functions are
increasingly being outsourced to other corporations
that can perform the activities better or more cost
effectively.
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Activities/Functions contd

Several models have been proposed for understanding the

activities required to manage material movements across
organizational and functional boundaries. SCOR is a supply
chain management model promoted by the Supply-Chain
Management Council. Another model is the SCM Model
proposed by the Global Supply Chain Forum (GSCF). Supply
chain activities can be grouped into strategic, tactical, and
operational levels of activities

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SCOR Framework

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Inbound Supply Management

It is a process by which companies acquire raw
material, parts, components, products and services
from various suppliers in order to carry out their
operations.
It involves procurement and inbound logistics(
transportation,receipt, taking into stock,storing,
issue from store, internal transport)
Scope includes supplier selection, supplier
contracts, product design collaborations ,
procurement & performance evaluation of suppliers
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Inward Supply Management

Inward supply chain can contribute to profit in
following ways :
Combining orders to get economy of scale
Reduction of purchase cost by efficient transactions
Better forecasting & planning
Reduction of Inventories
Distribution of risk by better co-ordination

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Inward Supply Management

Suppliers are assessed keeping mainly
following criteria :
Replenishment lead time
Delivery performance
Supply flexibility
Supply quality
Delivery frequency
Transportation costs
Pricing
Product design capability
Supplier viability

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Inward Supply Management
Supply Contracts
Address issues that arise between a buyer and
supplier

Buyer and Supplier may agree on:

- Pricing and volume discounts
- Minimum and Maximum purchase quantities
- Delivery Lead times
- Product or material quantity
- Product return policies
- Revenue sharing
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Inward Supply Management

H Bottleneck Items Strategic Items
Ensure supply Form partnerships
Supply risk

Non-Critical Items Leverage Items

Simplify and automate Exploit purchasing power
L and minimize cost

L H
Profit impact

Procurement Strategy : Model by Kraljic

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Product Design collaboration

Product costs can be lowered if Manufacturer
collaborates with the suppliers during design
stage
Collaboration helps in developing varieties,
order size, packing, customization etc.
Design for logistics attempts to reduce
transportation, handling inventory, stock
points etc.

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Outbound supply Management

Outward supply Management includes what
products to produce, which plants should produce,
allocation of suppliers to plant, logistics from plants
to distribution centres, warehouses and to customers
All these have impact on revenue, cost and service
level to customer
Operations include production scheduling,
scheduling of machines,work load balancing etc
Capacity and facilities are presumed to be available.

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Material Handling in Supply chain

It includes movement of parts,handling and
storage during full supply chain
It includes :
Unloading goods at inward stores
Loading onto internal transport
Movement for storing
Movement from store to place of use
Movement between work stations
Movement to and from finished stores
Movement to and from dispatch department
Loading on to external transport
..
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Decision phases in supply chain

Strategic
Tactical/Planning
Operational

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Strategic
Strategic network optimisation, including the number,
location, and size of warehouses, distribution centers and
facilities.

Strategic partnership with suppliers, distributors, and

customers, creating communication channels for critical
information and operational improvements such as cross
docking, direct shipping, and third-party logistics.

Long term ( next several years) horizon

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Strategic contd

Product design coordination, so that new and existing products

can be optimally integrated into the supply chain, load
management
Information Technology infrastructure, to support supply chain
operations.
Where to make and what to make or buy decisions
Align Overall Organisational Strategy with supply strategy

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Tactical
Sourcing contracts and other purchasing decisions.
Production decisions, including contracting, locations,
scheduling, and planning process definition.
Inventory decisions, including quantity, location, size of
warehouse and quality of inventory.
Transportation strategy, including frequency, routes, and
contracting.
Benchmarking of all operations against competitors and
implementation of best practices throughout the enterprise.
Typically quarter to a year time horizon

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Operational
Daily or weekly production and distribution planning,
including all nodes in the supply chain.

Production scheduling for each manufacturing facility in the

supply chain (minute by minute).

Demand planning and forecasting, coordinating the demand

forecast of all customers and sharing the forecast with all
suppliers.

Sourcing planning, including current inventory and forecast

demand, in collaboration with all suppliers.

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Operational contd
Inbound operations, including transportation from suppliers and
receiving inventory.
Production operations, including the consumption of materials
and flow of finished goods.
Outbound operations, including all fulfillment activities and
transportation to customers.
Order promising, accounting for all constraints in the supply
chain, including all suppliers, manufacturing facilities.
distribution centers, and other customers.
Performance tracking of all activities

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Risk in supply chain

Known
Unknown

Controllable
Not controllable

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Risk in Supply chain

Natural disasters
Political risks
Epidemics
Terrorist attacks
Volatile fuel price
Currency fluctuation
Port delays
Market changes
Supplier performance-Delivery,quality
Forecasting accuracy
Execution problems

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Managing risk in supply chain

Invest in redundancy
Increase velocity in sensing and responding
Create an adaptive supply chain community
or resilient supply chain
Speculative strategies
Hedge strategies
Flexible strategies

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Session Summary

Different activities of SCM has been explained

Special cases with respect to strategic, tactical and

operational activities has been discussed

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