Name: Sankalp Kukal

Course: BBA

Supervisor: Mr. Amal Kumar Ray

Title: Supply Chain Management

Date: 17th November 2008

1
DECLARATION

I declare the following that:

• Plagiarism Declaration:
The material contained in this paper is the end result of my
own work and that due acknowledgement has been given in
the Bibliography and References to all sources be they
printed, electronic or personal.

• The word count of this paper is 5900 words.

Sankal
p Kukal

2
ACKNOWLEDGEMENT

“Amateurs talk strategy and professionals talk logistics.” People can

discuss all sorts of grand strategies and dashing maneuvers but none
of that will be possible without first figuring out how to meet the day-
to-day demands of providing an army with fuel, spare parts, food,
shelter, and ammunition. It is the seemingly mundane activities of the
quartermaster and the supply sergeants that often determine an
army’s success.

First I would like to extend my deepest gratitude to my Director,

Professor (Dr.) Suman K. Mukerjee for his constant encouragement that
motivated me to perform to the best of my ability.

Secondly, I express my sincere thanks to my teacher in charge of this

paper, Mr. Amal Kumar Ray for his guidance and advice. Moreover, he
was always ready to provide me with a feedback that helped me to a
great extent in the betterment of my work.

Also, I would like to convey my gratitude to the Learning Resource

Center of our college. It proved to be an excellent source of all relevant
material and information I required.

Sankalp Kukal

3
CONTENTS
Topic
Page no.

1. Abstract
1
2. Introduction
2
3. Literature Review
4
4. Methodology
6
4.1 Introduction to research methodology
6
4.2 Data gathering
7
4.3 Data analysis
8
4.3.1 What is Supply Chain Management
8
4.3.2 Logistics
8
4.3.3 Components of Supply Chain 9
4.3.3.1 Customers
9
4.3.3.2 Retailers/Distributors
10
4.3.3.3 Manufactures
10

4
 4.3.3.4 Suppliers
10
4.3.4 Objectives of Supply Chain Management
11
4.3.5 Benefits of Supply Chain Management
12
4.3.6 Strategic Fit
13
4.3.6.1 What is Strategic Fit
13
4.3.6.2 How is it achieved
14
4.3.7 Supply Chain Drivers
15
4.3.7.1 Production
16
4.3.7.2 Inventory
19
4.3.7.3 Location
21
4.3.7.4 Transportation
22
4.3.7.5 Information
24
5. Hypothesis
26
6. Case study – WAL-MART
27
7. Conclusion
37

5
8. Executive summary
39
9. Annexure
41
10. Bibliography
45

6
1. ABSTRACT

A Supply Chain consists of all parties involved, directly or indirectly, in

fulfilling a customer request. The supply chain not only includes the
manufacturer ad suppliers but also transporters, warehouses, retailers
and customers themselves. Within each organization, such as a
manufacturer, the supply chain includes all functions involved in
receiving and filling customer request. These functions include new
product development, marketing, operations, distribution, finance and
customer service.

2. INTRODUCTION

7
Area of Management: International Business is all commercial
transactions – private and governmental – between two or more
countries. Private Companies undertake such practices for profit and
the Government may or may not do the same in their transactions.
International Business comprises a large and growing portion of
world’s total business. Today, global events and competition affect
almost all large and small companies because most sell output to and
secure supplies from foreign countries.
A company operating internationally will engage in modes of
business, such as exporting and importing, which differ from those it is
accustomed to domestically. To operate effectively, managers must
understand these different aspects of international business. Thus, is
the importance of International Business Management in the present
scenario.1

Project topic: A major study in International Business is that of The

Supply Chain Management. It is the area of study and business
improvement that came into prominence in the early 1980’s and has
received immense attention from corporate and management experts.
Supply Chain Management can be seen as the process of strategically
managing the procurement, movement and storage of materials, parts
and finished inventory (and related information flows) through the
organization and its marketing channels in such a way that current and
future profitability are maximized through cost effective fulfillment of
orders.2

Objective of present research: The objective of this term paper is to

study the need for Supply Chain Management in the Global Market
today. Businesses the world over are struggling to sustain
competitiveness in a global zing economy.

8
 3. LITERATURE REVIEW

-The book International Business: An overview explains the major

reasons for business becoming global, these being-
• Transportation is quicker

9
 • Communications enable control from afar.
• Transportation and communications costs are more
conductive for international operations.

-The book Supply Chain Management elucidates that the major

objectives of supply chain management is to provide the required
level of customer service to a particular customer group.

-The book Logistics by Donald waters describes that the overall aim
of Logistics is to achieve high customer satisfaction.

-Supply Chain Management: Concepts and Cases primarily aim at

providing a more concrete understanding of Supply Chain
Management concepts. It explains why many Indian Companies
are experiencing serious problems in managing their supply chain
practice.

-The drivers of Supply Chain Management- (Facilities, Inventory,

Transportation and information) are introduced to us through the
book Supply Chain Management by Sunil Chopra and Peter Meindl.

-Fundamentals of Supply Chain Management by John T.Mentzer

brings to our knowledge the importance of inventory and
information in the supply chain process.

-ICFAI, Supply Chain Management, Case Studies, the books provides

us with a case study on WAL-MART, showing us the evolution of its
supply chain practices.

-http://lcm.csa.iisc.ernet.in,The website provides us with an

10
 overview of the supply chain management concept.

-Designing of a supply chain network is shown very extensively in

the book Supply Chain Management – An Introduction by Chaturvedi,
Braj Mohan, published by the ICFAI press.

-http://www.microsoft.com/industry briefly elucidates the trends of

the components in Supply Chain Management Network.

-The ICFAI Dictionary of Supply Chain Management Terms by Kumar

Pradeep, defines value chain as a sequence of activities that, when
combined, define a business process.

4. METHODOLOGY

4.1 INTRODUCTION TO RESEARCH

METHODOLOGY

11
A research methodology defines what the activity of research is, how
to proceed, how to measure progress, and what constitutes success.
It also states the type of data used in the research.

4.2DATA GATHERING

The material of this study comes from an on-line and print

literature review, books on marketing available from the British

12
 Council Library, the Learning Resource Center in our college and
The National Library. The content has been gathered from
extensive reading and analysis of the various marketing books
written by various authors in this field of management as well as
extensive searches of various websites and articles available.

4.3DATA ANALYSIS

4.3.1 What is Supply chain Management?

All over the world, organizations are under pressure to reduce
product development times, improved product quality and
reduce product lead times and costs. Organizations have

13
 recognized the need for better coordination with upstream
firms that supply units and the network of downstream firms
responsible for the distribution of their products to consumers
and after sales service. This has resulted in the emergence of
the concept of ‘Supply Chain Management’ (As shown in
figure 1 of the annexure), -advocating the integration of
business processes across the supply chain to reduce costs
and improve the responsiveness of producers to consumers’
demands.3

4.3.2 Logistics
All organizations move materials. Manufacturers build
factories that collect raw materials from suppliers and deliver
finished goods to customers; retail shops have regular
deliveries from wholesalers.
Logistics is the function that is responsible for this movement.
It is responsible for the transport and storage of materials on
the journey between suppliers and customers. Ordinarily we
only see a small part of logistics. We might see lorries driving
down a motorway, visit a shopping mall and drive through a
trading estate. However, these are the visible signs of a huge
industry.

People use different names for supply chains of activities and

organizations. When hey emphasize on operations they refer
to the process; when they emphasize marketing, they call it
logistics channel; when they look at the value added, they
call it a value chain; when they see how customer needs are
satisfied, they call it a demand chain. The movement of
materials in generally called supply chain.4

14
4.3.3 Components of supply chain
A typical supply chain consists of the following components:

• Customers
• Distributors
• Manufacturers
• Suppliers

Together they form a supply chain network (as shown in

Figure 2 in the Annexure).

4.3.3.1 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 or
manufacturer.

4.3.3.2 Retailers/distributors
The retailer acts as a link between the customer and the
distributor/manufacturer. He caters to the needs of the
customers by making the products available at a store as
part of this process; the retailer places orders with the
manufacturers to replenish the stocks.

15
 4.3.3.3 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.

4.3.3.4 Suppliers
Suppliers facilitate the manufacturers’ production process
by ensuring continuous supply of raw materials.
Manufacturers place orders with suppliers on the basis of
forecasted customer 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 fluctuations in customer demands.
Suppliers help manufacturers to decrease their inventory
levels by arranging for just in time supplies.

4.3.4 Objectives of Supply Chain

Management

One of the major objectives of supply chain management is

to reduce the total amount of resources necessary to
provide the required level of customer service to a
particular customer group. Some of the objectives of
supply chain management are to:

16
 • Reduce inventory levels
• Improve customer service
• Make more efficient use of human resources
• Ensure better delivery through reduced cycle times
• Increase the sharing of information and technology
among the participants in the supply chain
• Decrease the time required to market new products
• Enable firms to focus on core competencies
• Enhance the public image of companies
• Induce greater trust and interdependence between
supply chain partners
• Increase shareholder value
• Gain competitive advantage over others.5

4.3.5 Benefits of Supply Chain Management

The following list suggests some benefits of a well-

designed Supply Chain:

17
 • Producers locate operations in the best
locations, regardless of the locations of their
customers.
• By concentrating operations in large facilities,
producers can get economies of scale.
• Producers do not keep large stocks of finished goods,
as these are held further down the supply chain
nearer to customers.
• Wholesalers place large orders, and producers pass
on lower unit costs in price discounts.
• Wholesalers keep stocks from many suppliers, giving
retailers a choice of goods.
• Wholesalers are nearer to retailers and have short
lead times.
• Retailers carry less stock as wholesales provide
reliable deliveries.
• Retailers can have small operations, giving a
responsive service near to customers.
• Transport is simpler, with fewer, larger deliveries
reducing costs.
• Organizations can develop expertise in specific types
of operations.6

4.3.6 Strategic Fit

4.3.6.1 What is strategic fit?

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Strategic fit means that both the competitive and supply chain
strategies have the same goal. It refers to consistency between
the customer priorities that the competitive strategy hopes to
satisfy and the supply chain capabilities that the supply chain
strategies aim to build. All functions that a part of a company’s
value chain contributes to its success or failure. These functions
do not operate in isolation; no one function can ensure the
chain’s success. Failure at any one function, however, may lead
to the failure of the overall chain. A company’s success or failure
is thus closely linked to the following keys:
• The competitive strategy and all functional strategies must
fit together to form a coordinated overall strategy. Each
functional strategy must support other functional
strategies and help a firm reach its competitive strategy
goal.
• The different functions in a company must appropriately
structure their processes and resources to be able to
execute these strategies successfully.

A company may fail either because of lack of strategic fit or

because its processes and resources do not provide the
capabilities to support the desired strategic fit. In thinking of
major tasks of a CEO, there are few greater than the job of
aligning all of the core functional strategies with the overall
competitive strategy to achieving strategic fit. If this

19
 alignment is not achieved, conflicts between different
functional goals arise. Such conflicts result in different
functions targeting different customer priorities. As processes
and resources are structured to support functional goals, a
conflict in functional goals leads to conflicts during execution.

4.3.6.2 How is strategic fit achieved?

A competitive strategy will specify, either explicitly or
implicitly, one or more customer segments that a company
hopes to satisfy. To achieve strategic fit (as shown in figure 3
in the annexure), a company must ensure that its supply
chain capabilities supports its ability to satisfy the targeted
customer segments.7
There are three basic steps to achieving strategic fit:
• Understanding the customer and supply chain
uncertainty where first a company must understand
the customer needs for each targeted segment and
the uncertainty the supply chain faces in satisfying
these needs. These needs help the company define
the desired cost and service requirements. The
supply chain uncertainty helps the company identify
the extent of disruption and delay the supply chain
must be prepared for. Understanding capabilities of
the different supply chains, each of which is designed
to perform different tasks well. A company must
understand what its supply chain is designed to do
well.

• To achieve a strategic fit by restructuring the supply

chain to support the competitive strategy or alter its

20
 strategy in case a mismatch exists between what the
supply c chain does particularly well and the desired
customer needs.8

4.3.7 Supply Chain Drivers

How does the Supply Chain work?

The goal or mission of supply chain management can be

defined using Mr. Goldratt’s words as “Increase throughput
while simultaneously reducing both inventory and operating
expense.” In this definition throughput refers to the rate at
which sales to the end customer occur. Depending on the
market being served, sales or throughput occurs for
different reasons. In some markets customers value and will
pay for high levels of service. In other markets customers
seek simply the lowest price for an item.
There are five areas where companies can make decisions
that will define their supply chain capabilities:
• Production
• Inventory
• Information
• Transportation

Chopra and Meindl define these areas as performance

drivers that can be managed to produce the capabilities
needed for a given supply chain. Effective supply chain
management calls first for an understanding of each driver
and how it operates. Each driver has the ability to directly
affect the supply chain and enable certain capabilities. The
next step is to develop an appreciation for the results that

21
 can be obtained by mixing different combinations of these
drivers (as shown in figure 4 of the annexure).

Following are the drivers:

4.3.7.1 Production
Production refers to the capacity of a supply chain to make
and store products. The facilities of production are
factories and warehouses. The fundamental decision that
managers face when making production decisions is how
to resolve the trade-off between responsiveness and
efficiency. If factories and warehouses are built with a lot
of excess capacity, they can be very flexible and respond
quickly to wide swings in product demand. Facilities where
all or almost all capacity is being used are not capable of
responding easily to fluctuations in demand. On the other
hand, capacity costs money and excess capacity is idle
capacity not in use and not generating revenue. So the
more excess capacity that exists, the less efficient the
operation becomes.

Factories can be built to accommodate one of the two

approaches to management:

• Product focus—A factory that takes a product focus

performs the range of different operations required to

22
 make a given product line from fabrication of different
product parts to assembly of these parts.

• Functional focus—A functional approach concentrates

on performing just a few operations such as only
making a select group of parts or only doing assembly.
These functions can be applied to making many
different kinds of products. A product approach tends to
result in developing expertise about a given set of
products at the expense of expertise about any
particular function. A functional approach results in
expertise about particular functions instead of expertise
in a given product. Companies need to decide which
approach or what mix of these two approaches will give
them the capability and expertise they need to best
respond to customer demands. As with factories,
warehouses too can be built to accommodate different
approaches. There are three main approaches to use in
warehousing:

• Stock keeping unit (SKU) storage—In this traditional

approach, all of a given type of product is stored
together. This is an efficient and easy to understand
way to store products.

23
 • Job lot storage—In this approach, all the different
products related to the needs of a certain type of
customer or related to the needs of a particular job are
stored together. This allows for an efficient picking and
packing operation but usually requires more storage
space than the traditional SKU storage approach.

• Cross docking—An approach that was pioneered by

Wal-Mart in its drive to increase efficiencies in its supply
chain. In this approach, product is not actually
warehoused in the facility. Instead the facility is used to
house a process where trucks from suppliers arrive and
unload large quantities of different products. These
large lots are then broken down into smaller lots.
Smaller lots of different products are recombined
according to the needs of the day and quickly loaded
onto outbound trucks that deliver the products to their
final destination.9

4.3.7.2 Inventory

Inventory is spread throughout the supply chain and

includes everything from raw material to work in process to
finished goods that are held by the manufacturers,
distributors, and retailers in a supply chain. Again,
managers must decide where they want to position

24
themselves in the trade-off between responsiveness and
efficiency. Holding large amounts of inventory allows a
company or an entire supply chain to be very responsive to
fluctuations in customer demand. However, the creation
and storage of inventory is a cost and to achieve high
levels of efficiency, the cost of inventory should be kept as
low as possible.
There are three basic decisions to make regarding the
creation and holding of inventory:

• Cycle Inventory—This is the amount of inventory

needed to satisfy demand for the product in the period
between purchases of the product. Companies tend to
produce and to purchase in large lots in order to gain
the advantages that economies of scale can bring.
However, with large lots also comes an increase in
carrying costs. Carrying costs come from the cost to
store, handle, and insure the inventory. Managers face
the trade-off between the reduced cost of ordering and
better prices offered by purchasing product in large lots
and the increased carrying cost of the cycle inventory
that comes with purchasing in large lots.
• Safety Inventory—Inventory that is held as a buffer
against uncertainty. If demand forecasting could be
done with perfect accuracy, then the only inventory that
would be needed would be cycle inventory. But since
every forecast has some degree of uncertainty in it, we
cover that uncertainty to a greater or lesser degree by
holding additional inventory in case demand is suddenly
greater than anticipated. The trade-off here is to weigh

25
 the costs of carrying extra inventory against the costs of
losing sales due to insufficient inventory.

• Seasonal Inventory—This is inventory that is built up

in anticipation of predictable increases in demand that
occur at certain times of the year. For example, it is
predictable that demand for anti-freeze will increase in
the winter. If a company that makes anti-freeze has a
fixed production rate that is expensive to change, then
it will try to manufacture product at a steady rate all
year long and build up inventory during periods of low
demand to cover for periods of high demand that will
exceed its production rate. The alternative to building
up seasonal inventory is to invest in flexible
manufacturing facilities that can quickly change their
rate of production of different products to respond to
increases in demand. In this case, the trade-off is
between the cost of carrying seasonal inventory and the
cost of having more flexible production capabilities.10

4.3.7.3 Location

Location refers to the geographical sitting of supply chain

facilities. It also includes the decisions related to which
activities should be performed in each facility. The
responsiveness versus efficiency trade-off here is the
decision whether to centralize activities in fewer locations to
gain economies of scale and efficiency, or to decentralize
activities in many locations close to customers and suppliers

26
 in order for operations to be more responsive. When making
location decisions, managers need to consider a range of
factors that relate to a given location including the cost of
facilities, the cost of labor, skills available in the workforce,
infrastructure conditions, taxes and tariffs, and proximity to
suppliers and customers. Location decisions tend to be very
strategic decisions because they commit large amounts of
money to long-term plans. Location decisions have strong
impacts on the cost and performance characteristics of a
supply chain. Once the size, number, and location of
facilities is determined, that also defines the number of
possible paths
Through which products can flow on the way to the final
customer. Location decisions reflect a company’s basic
strategy for building and delivering its products to market.

4.3.7.4 Transportation

This refers to the movement of everything from raw

material to finished goods between different facilities in a
supply chain. In transportation the trade-off between
responsiveness and efficiency is manifested in the choice of
transport mode. Fast modes of transport such as airplanes
are very responsive but also more costly. Slower modes
such as ship and rail are very cost efficient but not as

27
responsive. Since transportation be as much as a third of the
operating cost of a supply chain, decisions made here are
very important.
There are six basic modes of transport that a company can
choose from:

• Ship: It is very cost efficient but also the slowest mode

of transport. It is limited to use between locations that
are situated next to navigable waterways and facilities
such as harbors and canals.

• Rail: it is also very cost efficient but can be slow. This

mode is also restricted to use between locations that
are served by rail lines.

• Pipelines: It can be very efficient but are restricted to

commodities that are liquids or gases such as water, oil,
and natural gas.

• Trucks: These are a relatively quick and very flexible

mode of transport. Trucks can go almost anywhere. The
cost of this mode is prone to fluctuations though, as the
cost of fuel fluctuates and the condition of roads varies.

• Airplanes: These are a very fast mode of transport and

are very responsive. This is also the most expensive
mode and it is somewhat limited by the availability of
appropriate airport facilities.

28
 • Electronic Transport: It is the fastest mode of
transport and it is very flexible and cost efficient.
However, it can only be used for movement of certain
types of products such as electric energy, data and
products composed of data such as music, pictures, and
text.

Someday technology that allows us to convert matter to

energy
and back to matter again may completely rewrite the theory
and practice of supply chain management. Given these
different modes of transportation and the location of the
facilities in a supply chain, managers need to design routes
and networks for moving products. A route is the path through
which products move and networks are composed of the
collection of the paths and facilities connected by those paths.
As a general rule, the higher the value of a product (such as
electronic components or pharmaceuticals), the more its
transport network should emphasize responsiveness and the
lower the value of a product (such as bulk commodities like
grain or lumber), the more its network should emphasize
efficiency.

4.3.7.5 Information

Information is used for two purposes in any supply chain:

• Coordinating daily activities related to the

functioning of the other four supply chain drivers:

29
 production; inventory; location; and transportation. The
companies in a supply chain use available data on
product supply and demand to decide on weekly
production schedules, inventory levels, transportation
routes, and stocking locations.

• Forecasting and planning to anticipate and meet

future demands. Available information is used to make
tactical forecasts to guide the setting of monthly and
quarterly production schedules and timetables.
Information is also used for strategic forecasts to guide
decisions about whether to build new facilities, enter a
new market, or exit an existing market. Within an
individual company the trade-off between
responsiveness and efficiency involves weighing the
benefits that good information can provide against the
cost of acquiring that information. Abundant, accurate
information can enable very efficient operating
decisions and better forecasts but the cost of building
and installing systems to deliver this information can be
very high. Within the supply chain as a whole, the
responsiveness versus efficiency trade-off that
companies make is one of deciding how much
information to share with the other companies and how
much information to keep private. The more
information about product supply, customer demand,
market forecasts, and production schedules that
companies share with each other, the more responsive
everyone can be. Balancing this openness however, are
the concerns that each company has about revealing
information that could be used against it by a

30
 competitor. The potential costs associated with
increased competition can hurt the profitability of a
company.11

5. HYPOTHESIS

Supply chain is the link between the manufacturer

and the end consumer.

31
6. CASE STUDY
Wal-Mart

32
Wal-Mart Background
Wal-Mart is a global retail organization, in the business of
serving customers. In the United States, their operations are
centered operating retail stores and membership warehouse
clubs. International, they are centered on retail stores,
warehouse clubs and restaurants. Their business is to offer
customers quality merchandise at low prices. Wal-Mart
mission is to be the place where prices are low and value and
customer service are high everyday.
Wal-Mart has established critical strategies in multiple
functional areas to hit its goals for supply chain management
excellence:
• Financial
• Operations
• Logistics Processes
• People

Facts and Figures

33
Annual Sales
$285 billion

Total Employees worldwide 2.1

million

No. Of Stores worldwide

7250

Total number of Suppliers

65,000

No. of pallets shipped by Wal-Mart trucks every week 50

million

Total floor area

18.3sq.miles

Yearly Advertising expenditure $570

million

Highest one-day sales $1.52

billion

No. of Customers at stores worldwide 138

million

Estimated Market capitalization $11.1

trillion

34
 Wal-Mart Achievements

• 1970,first retailer-CENTRALIZE DISTRIBUTION SYSTEM

(Hub & Spoke system).

• 1977, CTN (Computer Terminal Network)-real time

information sharing between Stores & Headquarter and also
between Wal-Mart & suppliers.

• 1978, Set up of first FULLY AUTOMATED DISTRIBUTION

CENTRE
–Employed Advanced Conveyor Belts System for goods
movements.
–Made use of logistics technique – Cross docking for efficient
goods transportation.

• 1983, POINT OF SALE (POS) scanning system- at all Wal-

Mart stores.

–Suppliers placed Bar Codes on each and every item and case
shipped to Wal-Mart
–Installed UPC (Universal product Scanners) to read the bar
codes of products being sold to customers.

35
 • 1987, SATELLITE COMMUNICATION SYSTEM (SCS)- virtual
communication link b/w all stores & distribution centers & HQ
via 2-way voice, data & 1-way video.

• Managed to achieve JIT inventory replenishment in all the

stores in US.
• Sales increased from $1.2b (1980) to $26b (1990).

• No of Stores increased from 276 to 1528.

• 1990, Surpassed K – Mart and 1991, Sears Roebuck & Co.

to become the largest Retailing Company in U.S.

• Distribution Cost of total sales - 3 % against 4.5 -5% of its

rivals.

• Mid 1990’s - Full-fledged use of Internet enabled technologies

to manage its Supply Chain.

Wal-Mart’s Procurement

• Wal-Mart emphasized the need to reduce purchasing costs

and offer the best price to the customer.

• The company directly procured from manufacturers, by

passing all intermediaries.

36
 • Wal-Mart finalizes a purchase deal only when it is fully
confident that the products being bought is not available
else where at a lower price.

• Wal-Mart spends a significant amount of time meeting

vendors and understanding their cost structure.

• By making the process transparent, the retailer can be certain

that the manufacturers are doing their best to cut down costs.

Using EDI for Procurement

The computer systems of Wal-Mart were connected to those of

its suppliers.
EDI enabled the suppliers to download purchase orders along with
store-to-store sales information relating to their products sold.
On receiving information about the sales of various products, the
suppliers shipped the required goods to Wal-Mart’s distribution
centers.

Logistics Management
An important feature of Wal-Mart’s logistics infrastructure was its
fast and responsive transportation system. More than 3500
companies owned trucks serviced the distribution centers. Wal-
Mart believed that it needed drivers who were committed and
dedicated to customer service. The company hired only
experienced drivers who had driven more than 300,000 accident-
free miles, with no major traffic violation.

Cross-docking

37
 • To make its distribution process more efficient, Wal-Mart also
made use of a logistics technique called “cross-docking.”
• In this system, the finished goods were directly picked up
from the manufacturing plant, sorted out and then directly
supplied to the customers.
• The system reduced the handling and storage of finished
goods, virtually eliminating the role of the distribution centers
and stores.

Inventory Management

• Wal-Mart invested heavily in IT and communication systems

to effectively track sales and merchandise inventories in
stores across the country.

• With the rapid expansion, it was essential to have a good

communication system. Thus, Wal-Mart set up its own satellite
communication system in 1983.
Wal-Mart was able to reduce unproductive inventory by allowing
stores to manage their own stocks, reducing pack sizes across
many product categories, and timely price markdowns.
Instead of cutting the inventory across the board, Wal-Mart
made full use of its IT capabilities to make more inventories
available in the case of items that customers wanted most,
while reducing the overall inventory levels.

38
 • Employees at the stores had the “Magic Wand,” a hand-held
computer which was linked to in-store terminals through a
radio frequency network.

• These helped them to keep track of the inventory in stores,

deliveries, and backup merchandise in stock at the
distribution centers.

• The order management and store replenishment of goods

were entirely executed with the help of computers through
the Point-of-Sales (POS) system.

• Through this system, it was possible to monitor and track the

sales and merchandise stock levels on the store shelves.

i) Voice-based Order Filling (VOF)

In 1998, Wal-Mart installed a voice-based order filling (VOF)

system in all its grocery distribution centers. Each person
responsible for order picking was provided with a
microphone/speaker headset, connected to the portable (VOF)
system that could be worn on waist belt. They were guided by
the voice to item locations in the distribution centers.
The VOF system also verified quantities picked, and could respond
to a variety of requests such as providing product detail (type,
price, barcode number, etc.)

39
 By installing the VOF system, Wal-Mart eliminated misspeaks
and product labeling costs since the system did not require
paper lists and labels to be affixed on the goods.

ii) Quick Replenishment

Since the floor area of any Wal-Mart store varied between

40,000 to 200,000 square feet, movement of goods within the
store was an important part of logistics operations.
Wal-Mart made significant investments in IT to quickly locate and
replenish goods at the stores.

iii) Darn Quick Displays

The company asked its suppliers to ship goods in store-ready
displays called pretty darn quick (PDQ) displays. Goods were
packed in PDQ displays that arrived at the stores ready to be
boarded on the racks.
Wal-Mart’s employees could directly replace the empty racks
at the stores with fully packed racks, instead of refilling each
and every item at the racks.

iv) Retail link system

In 1990, Wal-Mart invested approximately $4 billion to build a

retail link system. Retail Link connected Wal-Mart’s EDI
network with an extranet, accessible to Wal-Mart’s thousands
of suppliers. More than 10,000 Wal-Mart retail suppliers used
the retail link system to monitor the sales of their goods at

40
 stores and replenish inventories. Details of daily transactions
(~10 million per day) were processed through this system.
The suppliers could find out how their product was performing
vis-à-vis competitors’ products in a particular product
category.

CPFR

• By the mid 1990s, Retail Link emerged into an Internet-

enabled SCM system whose functions were not confined to
inventory management alone, but also covered collaborative
planning, forecasting and replenishment (CPFR).

• In CPFR, Wal-Mart worked together with its key suppliers on a

real-time basis by using the Internet to jointly determine
product-wise demand forecast.

• CPFR is defined as a business practice for business partners

to share forecasts and results data through the Internet, in
order to reduce inventory costs while at the same time,
enhancing product availability across the supply chain.

41
Though CPFR was a promising supply chain initiative aimed at a
mutually beneficial collaboration between Wal-Mart and its
suppliers, its actual implementation required huge investments
in time and money. A few suppliers with whom Wal-Mart tried to
implement CPFR complained that a significant amount of time
had to be spent on developing forecasts and analyzing sales
data.

RFID Technology

• To reduce costs and increase efficiency, in July 2003, Wal-Mart

asked its top 100 suppliers to be RFID compliant by January
2005.

• Wal-Mart planned to replace bar-code technology with RFID

technology.

• The company believed that this replacement would reduce its

supply chain management costs and enhances efficiency.

• Due to the implementation of RFID, employees were no longer

required to physically scan the bar codes of goods entering

42
 the stores and distribution centers, saving labor cost and
time.

Wal-Mart expected that RFID would reduce the instances of

stock-outs at the stores. Although Wal-Mart was optimistic
about the benefits of RFID, analysts felt that it would impose a
heavy burden on its suppliers. To make themselves RFID
compliant, the suppliers needed to incur an estimated $20
Million.
Of this, an estimated %50 would be spent on integrating the
system and making modifications in the supply chain
software.12

7. CONCLUSION

It can be concluded that Supply Chain Management (SCM) is

“Maximizing added value and reducing total cost across the
entire trading process through focusing on speed and
certainty of response to the market.” Due to globalization,
Supply Chain Management has become a tool for companies
to compete effectively either at a local level or at a global
scale. It has become a necessity especially for manufacturing
industry when it comes to deliver products at a competitive
cost and at a higher quality than their competitors.

43
Supply Chain Management helps give an organization
competitive edge through core competencies and a value
advantage.13

Supply chain management remains at the top of the agenda

for many enterprises today as a way to reduce operating
costs and be more responsive to customers. The limitation of
Supply Chain Management is the nature of its process, which
means that there is very little, if any, margin for recovery if
something goes wrong along the way. Retailers have to be
confident that any changes to their systems and processes
will be as seamless and risk-averse as possible. Retailers are
essentially looking at technologies that not only bring
business benefits to their supply chains but also mitigate that
risk at an early stage. They also want a very quick return on
investment.

I expect many companies to adopt more sophisticated supply

chain solutions that allow them to track products all the way
through the distribution and delivery phase, right up until they
actually hit the shelves. Perhaps more importantly, they will
aim to track by exception. There is also the danger of
functionality overload and the potential for confusion and
missed benefits. However it is recommended that a pragmatic
approach in this area will definitely suit the supply
community.14

44
8. EXECUTIVE SUMMARY

Supply Chain Management is the management of the movement of

goods and flow of information between an organization and its
suppliers and customers, to achieve strategic advantage. Supply
chain management covers the processes of materials management,
logistics, physical distribution management, purchasing, and
information management.

Supply chain is not a series of links forged together for a common

purpose. However, it minimizes the reality of the chain and how
each link in that chain must design its own logistics process to
function within the chain. As a result, there are supply chains within

45
each supply chain. With supply chains, the emphasis is on logistics
because that is the vital driver of supply chain.15

The supply chain consists of the dealer and distributor network and
extends right up to the source of the raw materials. The product
passes through different stages of its development and moves from
the source of raw materials to the market along the supply chain.
Simultaneously, information about the product travels in the reverse
direction along the supply chain. Supply chain management
involves efficiently handling the relationships between different
supply chain entities towards error free product development cycle.

Supply chains have been evolving for much of the past twenty years
through a focus on creating visibility and trade offs of cost and
services. Global supply chain automation, visibility, and risk
management helps companies lower their cycle times and reduce
lead time variability, enabling smaller inventory investments, faster
cash-to-cash cycles, and greater responsiveness to shifting end
demand.

The evolution has accelerated with the dramatic growth in both

global marketplaces and global low cost sourcing. The global
footprint has raised the visibility of the supply chain in today’s
competitive environment.16

46
9. ANNEXURE

47
(Source: www.myadjutant.com/images/supply_chain.bmp)

FIGURE 2

48
 (Source:
http://www.axtin.com/solutions/images/supply_chain_diagram.jpg)

FIGURE 3

49
(Source: www.thinkagain.cn)

FIGURE 4

50
 Source: http://images.google.co.in/imgres?
imgurl=http://www.tex-
plastics.co.uk/clientfiles/Image/headers/plant_supply)

10. BIBLIOGRAPHY

1. Daniels John D, Lee H.Radebaugh, Daniel P.Sullivan, International

Business: Environments and Operations, Low Priced Tenth Edition,
Published by Pearson Education, Chapter 1, Page 39.
(Page 2 of the present research).

51
2. Altekar Rahul V, Supply Chain Management: Concepts and Cases,
Prentice-Hall of India, Chapter1, and Page3-4.
(Page 2 of present research

3. Supply Chain Management, Published by ICFAI Center for

Management Research, Chapter1, Page 4-5.
(Page 8 of the present research)

4. Waters Donald, Logistics: An introduction to Supply Chain

Management, Published by Palgrave Macmillan, Chapter 1,
Page 4.
(Page 9 of the present research)

5. Supply Chain Management, Published by ICFAI Center for

Management Research, Chapter1, Page 4-5 and 13.
(Page 11 of the present research)

6. Waters Donald, Logistics: An introduction to Supply Chain

Management, Published by Palgrave Macmillan, Chapter 2, and
Page 12.
(Page 12 of the present research)

7. http://www.wisegeek.com/what-is-supply-ainmanagement.html.
(Page 14 of the present research)

52
 8. Chopra Sunil, Peter Meindl, Supply Chain Management: Strategy,
Planning and Operations, Low Priced Second Edition, Published by
Pearson Education, Chapter1, Page24.
(Page 15 of the present research)

9. Chopra Sunil, Peter Meindl, Supply Chain Management: Strategy,

Planning and Operations, Low Priced Second Edition, Published by
Pearson Education, Chapter1, Page69 - 72.
(Page 18 of the present research)

10. http://www.supplychainittoolbox.com
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11.Mentzer John T, Fundamentals of Supply Chain Management,

Published by Sage, Paperback 2004 Edition,
Chapter 3, Page 45-46,52,60.
(Page 25 of the present research).

12. Supply Chain Management, ICFAI Press.

(Page 36 of the present research)

13.http://ezinearticles.com.
(Page 37 of the present research)

14.http://www.microsoft.com/industry/retail/businessvalue/rssupplyc
hainarticle.mspx.
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53
15. http://lcm.csa.iisc.ernet.in
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16.http://www.supplychainbarain.com
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54