SCLM

Q. What are the Objectives of Supply Chain Management? Describe

the decision phases in a Supply Chain management

A. A supply chain consists of all parties involved directly or indirectly in

fulfilling the customer’s needs. The SC not only includes the manufacturer,
Suppliers, Transporters, Warehouses/ Retailers etc, but also the customers
themselves.

Within each organization, such as a manufacturer, the SC includes all

functions involved in receiving and filling the customer’s requests. These
functions include – new product development, marketing operations,
distribution, finance and customer service.

For Example- A customer walks into Wal-Mart store to purchase a Detergent.

The SC begins with the customer and his need to purchase a Detergent. The
next stage of this SC is the Wal-Mart store that the customer visits. Wal-Mart
stocks its Shelves with the products that may have been supplied by the
warehouse or a retailer by the Trucks supplied by the third party. The
distributor/Retailer/Warehouse in turn is stocked by, let’s say Hindustan
Unilever (HUL)

The HUL manufacturing plant receives its raw materials from other various
suppliers who might have been supplied by other small suppliers. For Eg-
Packaging material may have come from XYZ Company, where this XYZ
company receives its raw material for packaging from other small suppliers.

This chain can be understood by the Diag-

A supply chain is a dynamic and involves the constant flow of Information,
Product and Funds between the different stages. A typical Supply Chain may
involve various stages-

• Customers

• Retailers

• Wholesalers/Distributors

• Manufacturers

• Component/Raw material Suppliers

In this Eg, the Wal-Mart store provides the Product, Pricing Information, and
availability information to the customer, and in return the customer provides
funds to the Wal-Mart. Wal-Mart then conveys POS information and
Replishment Order to the Distributor/Warehose, who then transfers the
replishment order back to the store through trucks. Wal-Mart then in return
transfers the funds to the Distributor after the replishment. The Distributor
also sends the Pricing Information and Delivery Schedule to the Wal-Mart.

Thus similar Information, Material and Funds flows takes place across
the entire Supply Chain.

Another Example is when a Customers purchases a DELL laptop through an

online Purchase through a DELL Website. The Supply Chain includes the
customer, Dell Website, Dell assembly plant and all Dell suppliers and their
suppliers.

The website provides the customer with Information regarding Price, product
variety and product availability.

Having made the product choice, the customer enters order information and
pays for the product.

These examples illustrate that customers are integral part of any supply
chain. The primary focus of any SC is to satisfy customer’s need and in the
process generate profit for itself.
Objectives of a Supply Chain
The objective of a SC should be to maximize the overall value generated.
The value that SC generates is the difference between what the final
product is worth to the customer & the costs the supply chain incurs
in filling the customer’s requests.

SC Value = Price of PC – Cost of all Phases in SC

For most commercial Supply Chains, values will be strongly co-related with
SC profitability, which is the difference between the Revenue
generated from a customer and the overall cost across the Supply
Chain.

Supply chain value = Final Product Value – Total Supply Chain Cost

Higher the SC profitability, the more successful is the Supply Chain. But the
success should be measured in overall SC profitability not in terms of the
profits made at an individual stage. A focus on profitability at an individual
stage may lead to a reduction in overall Supply Chain profits.

Decision Phases in a Supply Chain Management-

A successful SC management requires many decisions relating to the flow of

Information, Product & Funds. Each decision should be made to raise the
supply chain profits. These decisions fall into 3 phases-

• Strategy or Design

• Planning

• Operation

1. Supply Chain Strategy or Design

During this phase, given the pricing &marketing plans for the product,
company decides how to structure the Supply Chain format for the next
several years.

It decides-

• How resources will be allocated and what processes each stage will
perform. Locations & capacities of facilities.

• Wether to outsource or to perform a particular SC function in house.

• Which mode of transportation to be used.

 • Which Information System to be adopted.

A firm must ensure that the Supply Chain configuration supports its strategic
objectives and increases the SC profitability during this phase. SC decisions
are typically made for long time and are very expensive to alter at a short
time.

2. Supply Chain Planning

3. Supply Chain Operation

Ques 2 List and describe the drivers of Supply Chain

performance.

Ans Every Supply chain, to achieve success, needs to achieve the

balance between its responsiveness and efficiency in fulfilling its customers’
needs . There are various drivers through which any organization can
improve its Supply Chain performance in terms of Responsiveness &
Efficiency.

These Drivers are:- (F.I.T.I.S.P.)

• Facilities

• Inventory

• Transportation

• Information

• Sourcing

• Pricing

1. Facilities:

These are the actual places where the inventory is stored, assembled
or fabricated. There are 2 types of major facilities- Prodution Sites &
Storage Sites

Decisions regarding location, capacity and flexibility have a significant

impact on the supply chain’s performance. For Eg- An auto part
distributor can have many warehousing facilities located close to the
 markets and customers, this will increase the responsiveness but will
reduce the efficiency.

2. Inventory:

This includes all the Raw materials, Work in progress, finished goods,
etc within a Supply Chain. Changing Inventory policies may
dramatically alter the Supply Chain’s responsiveness and efficiency.

For Eg- a cloth retailer can make him more responsive by storing large
variety of clothes (inventory) and satisfying his customer’s needs from
that stock. But the large inventory increases the retailer’s cost, thus
making it less efficient. Reducing Inventory makes him more efficient
but hurts its responsiveness

3. Transport:

This involves moving inventory from one point to another in the Supply
Chain. Transportation can take the form of many combinations of
modes & Routes each with its own performance characterstics.
Transportation has large effect on efficiency & responsiveness of the
Supply Chain. For Eg- A Courier service provider company can use a
faster modes, such as FEDEX to ship its products, thus making its
Supply Chain more responsive, but less efficient due to high cost of
using FEDEX services or the Company can use a slower but cheaper
transportation modes to ship the products making the Supply Chain
efficient but less responsive.

4. Information:

Consists of data and analysis concerning facilities, inventory,

transportation, costs, prices and customers throughout the Supply
Chain. Information is the biggest driver of performance in the Supply
Chain because it directly affects each of the other drivers

5. Sourcing:

It is the choice of who will perform a particular supply chain activity

such as production, storage, transportation, or the management of
Information. At strategic level, these decisions determine what
functions a firm performs and what functions the firm outsources.
Sourcing Decisions also affects both the responsiveness and efficiency
of a Supply Chain.
6. Pricing:

Determines how much a firm will charge for goods and services that it
makes available in supply chain. Pricing affects the behavior of the
buyer of the good or service, thus effecting the SC performance