FOOD & BEVERAGE

PepsiCo Inc. (www.pepsico.com) Collaboration is an essential ingredient in the PepsiCo Inc. supply chain. For instance, the company has been a pioneer in the development of a direct store delivery (DSD) model. The concept of DSD centers on eliminating the warehousing step in the process of getting high-turnover, high-volume perishable goods such as soft drinks and snacks to market; instead, the suppliers take their products directly to the store. DSD suppliers free up warehouse space for retailers, and are able to get a better handle on their product sales and inventories. Working with grocery store chain Wegmans, Pepsi and its Frito-Lay snack food division leased retail floor and shelf space from the grocer. In effect, Pepsi took over inventory management of its products within the Wegmans stores. By managing its own products within a retail environment, Pepsi was able to better leverage sales of its high-margin Frito-Lay products while maintaining sales of its fast-moving but low-margin beverage products. Meanwhile, PepsiAmericas Inc., a bottler of Pepsi products, has adopted a pre-sell strategy, a form of DSD in which a brand owner places an order before the delivery date. By incorporating wireless technology, PepsiAmericas account sales managers can take orders on-site, which are then remotely uploaded to a central order and routing system at headquarters via wireless connectivity. The result is that delivery trucks can be stocked more efficiently and accurately for the days routes. Drivers now have the capability to track inventory, record deliveries and wirelessly print invoices to portable printers. Technology Providers: i2 Technologies Inc., Insight, PeopleSoft Inc., Symbol Technologies, UCCnet Logistics Providers: CH Robinson, Penske, Schneider National, Transplace top (http://mhlnews.com/distribution/outlog_story_6287/)

In India, there are very few large food manufacturers. Amul, Ruchi Soya, Nestle, MTR, ITC, Dabur, Britannia, HLLs food and beverages section, beverage companies such as Coke and Pepsi are some of the big names. In poultry Godrej Agrovet, Suguna, Pioneer

and Venkateswara hatcheries are some of the companies integrating operation s end to end from breeding to ready to eat chicken foods. High taxes on processed food, high import duties, nascent contract forming, make the profitability a big issue in India. There are several regulatory changes that need to be made all along the supply chain so that they are consistent and mutually reinforcing The Cold Chain Cold chain is a logistic system that provides a series of facilities for maintaining ideal storage conditions for perishables from the point of origin to the point of consumption in the food supply chain. The chain needs to start at the farm level (e.g. harvest methods, pre-cooling) and cover up to the consumer level or at least to the retail level. A wellorganized cold chain reduces spoilage, retains the quality of the harvested products and guarantees a cost efficient delivery to the consumer given adequate attention for customer service. The main feature of the chain is that if any of the links is missing or is weak, the whole system fails. The Cold chain logistics infrastructure generally consists of Pre-cooling facilities Cold Storages Refrigerated Carriers Packaging Warehouse and Information Management systems Traceability Financial and Insurance Institutions The temperature controlled supply chains or cold chains are a significant proportion of the retail food market. Fast foods, ready meals and frozen products have increased market share in recent years. There are several food temperature levels to suit different types of products. Frozen, cold chill, medium chill, and exotic chill are some of the frequently nomenclatures with identified temperature ranges. The range of temperatures is dependent on the products whether it is meat or ice cream or potatoes or bananas. Failure to maintain appropriate temperature regimes through out the product life cycle may shorten the product life or adversely affect its fitness for consumption. Cold chain management involves maintaining appropriate temperature regime when the product travels from the farm in Himachal Pradesh to the consumer in London or New York City. That is why the logistics challenge is formidable in food chains, which is cost conscious industry. There are several governmental regulations in all countries and the responsibility to maintain hygiene and standards falls on the food retailer or manufacturer. The recent developments in electronic tagging could be useful for monitoring the temperatures and also the shelf life of the product. Supply chain expertise There is a need to embrace the concept of Efficient Consumer Response (ECR) which was introduced in the United States in the 1990s and is now followed world wide in grocery supply chains. ECR refers to a set of strategies that aims to get companies across a supply chain to work closely to serve their customers better and at lower cost. Consumers benefit from improved product availability and choice, while distributors and suppliers derive better efficiency and cost savings. Also collaborative planning forecasting and replenishment is another area that has yielded substantial savings for

retailers. Relationship between the stake holders in the supply chain is of paramount importance for ECR, CPFR and other relationship paradigms to work. Food Packaging Dairy products, edible oils, farm products, sugar, fruit juices, concentrates, preserves, hot and cold beverages, breakfast foods, biscuits and confectionery, atta, are some major foods of daily necessities where packaging will have excellent potential and growth areas. Package has become the competitive tool to reach the consumer and the task assumes increasing responsibility with more and more of competitive and substitute products being introduced. This has opened the sector for introduction of modern technology for processing and packaging and entry of host of new organizations from all sectors of the economy both domestic and overseas. Cost of packaging ranges anywhere from 10 to 64% of production costs and efforts should be made to reduce these costs through use of manufacturing automation and economies of scale.

(http://www.isb.edu/faculty/Working_Papers_pdfs/Can_India_be_the_Food_Basket_for_the_World.pdf)

(http://www.pepsiusa.com/faqs.php?section=how_pepsi_is_made)

Get answers to your most Frequently Asked Questions Quick Find: How Pepsi Is Made Pop! Fizz. Ah-h! It happens millions of times a day, every day. That feeling of thirst hits, someone opens a Pepsi and the magic begins. Cold. Effervescent. Delicious. Each time, every time.

Of course, that's what you expect from a great product like Pepsi-Cola. Or from Diet Pepsi, Mountain Dew or any of our other popular soft drinks and other beverages. But how do we do it? How can the people at Pepsi be sure that every single bottle and can of Pepsi-Cola is always great-tasting, sparkling and fresh? Actually, there's no secret to how to make Pepsi (except for the recipe). But there is a system. And that system, plus a lot of hard work, is what enables Pepsi-Cola and the independent PepsiCola bottlers all around the world to bring you that high-quality, consistently refreshing Pepsi taste each time you open one of our products. Want to learn more? The system starts with the finest ingredients available kola nuts, vanilla beans, flavor oils, citrus, sweeteners and the purest waters we can distill. Then we add the best technology and all the care we can muster to blend our ingredients. And during the 100-plus years we've been making soft drinks, we've also created our own exacting production and quality standards, monitored with constant testing to guarantee quality and consistency in our products. Finally, we have our own local distribution system. It's designed to make sure that the Pepsi you open at home is as fresh and delicious as it was when we sealed it at our plant. And it serves every city and town in the United States. Complicated? For sure. And expensive, too. But there's no other way we can be certain that Pepsi-Cola products you buy are the highest quality, best value products we can make. Now, here's what all of those steps look like: Flavor concentrates are shipped from special Pepsi-Cola manufacturing plants in heavy-duty, airtight containers. Liquid sweeteners are transported in special tanker trucks. All ingredients and food products are stored in clean, sanitary areas, and items requiring refrigeration are kept in temperature-controlled areas. The bottles and cans that will eventually be filled with Pepsi are manufactured elsewhere, and shipped to Pepsi plants wrapped and sealed for protection. Labels, cartons, caps, the carbon dioxide used to carbonate soft drinks and other supplies are also produced for Pepsi by other companies. On arrival, everything is subject to careful inspection to make certain all of the ingredients and materials meet high Pepsi standards. Special equipment is used to uncase and depalletize incoming shipments of bottles and cans. Cans are by far the most popular package with consumers because they're lightweight and easy to store. Though bulky, the cartons and pallets on which the empty packages arrive are also relatively light in weight, so it's easy for the machines to automatically remove the cans from

their shipping containers at high speed. The machines then transfer the individual packages to a conveyor belt. Once on the belt, cans are part of an enclosed, controlled environment that keeps them sanitary and helps ensure quality throughout the filling process. They travel rapidly through a printer that applies a production code to each can. Then they're automatically turned upside down, and rinsed thoroughly with filtered water before proceeding directly to the filler. Water is a key ingredient in all soft drinks. Pepsi-Cola takes special care to purify the water it uses a procedure that involves careful treatment, filtration and purification. Pepsi standards are precise and closely monitored at every step of the process. The result of this kind of painstaking attention to detail is that the water used in Pepsi-Cola and all of our beverages is among the purest available anywhere. Pepsi-Cola flavor concentrate is carefully combined with sweeteners and other ingredients in large stainless steel mixing tanks. Quality control audits performed by specially trained technicians are a critical part of the manufacturing sequence for each batch, and are typical of the attention to detail that's necessary if the highest possible quality standards are to be maintained. Cleanliness is also vital, so all internal and external surfaces of the production system, including syrup lines, proportioning, cooling and carbonating equipment, are meticulously sanitized. In the last step of the manufacturing process, as the now-rinsed cans reach the filler, they're reinverted, immediately filled and the lid is applied at an average speed of 1,200 cans per minute. The filler is where the syrups from the mixing tanks are combined with the purified water from the filtration process. The liquid is then carbonated. This carbonation process gives soft drinks the special sparkle fizzy bubbles that adds to their quality of refreshment. All Pepsi cans and bottles are imprinted with a freshness date, which is a date code that tells you your soft drink is fresh. A final quality check ensures that the package is properly filled, sealed and labeled. As products leave the manufacturing line, they're combined into a variety of packages six- or 12-packs, 24- or 30-can cases or cases of individual two-liter bottles. The finished packages are stacked on shipping pallets and moved to temporary holding areas or to a central warehouse for shipping. The storage is purely temporary, since freshness is an important part of delivering the best possible product to our consumers. Some of our products will be quickly transported by large trucks to outlying districts and towns. Most, however, are loaded into Pepsi-Cola delivery trucks you see calling on food stores in your own neighborhood. Other trucks deliver Pepsi-Cola syrup to restaurants and fountains. To make sure there's always enough Pepsi for everyone who wants one, our trucks are on the road every single day. Many individual stores actually receive deliveries several times per week a big reason why the Pepsi products you buy and use are always fresh and great tasting.

Last Updated: May 2008

Quick Find:

http://www.pepsiusa.com/faqs.php?section=packaging

Packaging Q: I've seen reports in the news about beverage bottles that contain a material called BisphenolA (BPA). Do Pepsi's bottles contain BPA? A: The vast majority of Pepsi's plastic bottles are made from PET (polyethylene terephthalate). A few of our products are packaged in a plastic called High Density Polyethylene (HDPE), which is a multi-layered material. Please be assured that all of these plastics do not contain BPA and are perfectly safe for consumption. Providing our consumers with easy-to-use, convenient and innovative containers is one of our top priorities. Package introductions we've made over the years include the industry's first twoliter bottle; the first company to respond to consumer preference with lightweight, recyclable, plastic bottles; The Cube, an easy-to-store 24-pack; Big Slam, the wide-mouth one-liter bottle; as well as our three-liter bottle, designed to provide consumers with extra value (not all products and packaging is available in all markets). Our local bottlers, many of which are privately owned, franchise operations, make all packaging decisions. Most of our bottlers are following the industry-wide trend to use plastic packaging due to environmental considerations. The industry is now making greater use of fully recyclable aluminum cans and PET plastic bottles.

More information on the Pepsi-Cola environmental commitment, including its packaging initiatives, can be found in our Community Information section under Environmental Support and Recycling. The "CUBE" is a new innovative 24-can Pepsi multipack. It was dubbed the "CUBE" by consumer focus groups, which are a small test market population that's invited by Pepsi-Cola to give the company feedback before the introduction of a new package or product. The consumer focus groups Pepsi used for this product coined the name the "CUBE" and it stuck! Polyethylene terephthalate, or "PET plastic," is a form of polyester used to make strong, lightweight, shatter-resistant bottles for soft drinks, water, juice and other non-food products. Bottles made from PET plastic, which are marked with the number one code on the or near the bottom of the bottle, are recyclable into products including new containers, fiberfill for sleeping bags and coats, fabric, carpet, auto parts, film and more.

Last Updated: May 2008

Get answers to your most Frequently Asked Questions Quick Find: Pricing Providing quality products at the lowest possible price has always been one of the main concerns of Pepsi. For example, in some parts of the country a two-liter bottle of Pepsi cost 99 cents a decade ago and still does today. One of the ways we've been able to assist this effort is by expanding our use of inexpensive and recyclable plastic bottles. The soft drink industry today is confronted with a bewildering array of price increases. Our expenditures for labor, ingredients, transportation and more all continue to rise. The cost of aluminum alone has increased dramatically since last year. Across our entire system however,

we have been cutting overhead and re-engineering our manufacturing process in order to keep our prices competitive. It is our policy to limit any price increases to the retail trade to the lowest possible extent.

Last Updated: May 2008

Get answers to your most Frequently Asked Questions Quick Find: Product Availability Pepsi-Cola local bottlers determine which products to package and sell in their territory based on local consumer demand and other market factors. If you'd like to see a specific product or packaging option added in your area, please contact your local Pepsi-Cola bottler.

Last Updated: May 2008

Get answers to your most Frequently Asked Questions Quick Find: Quality

At every level of Pepsi-Cola Company, we take great care to ensure that the highest standards are met in everything we do. In our products, packaging, marketing and advertising, we strive for excellence because our consumers expect and deserve nothing less. We promise to work toward continuous improvement in all areas of our organization. At every step of our manufacturing and bottling process, strict quality controls are followed to ensure that Pepsi-Cola products meet the same high standards of quality that consumers have come to expect and value from us. We also follow strict quality control procedures during the manufacturing and filling of our packages. Each bottle and can undergoes a thorough inspection and testing process. Containers are then rinsed and quickly filled through a high-speed, state-ofthe-art process that helps prevent any foreign material from entering the product. Additional quality control measures help to ensure the integrity of Pepsi-Cola products throughout the distribution process, from warehouse to store shelf.

Last Updated: May 2008

Get answers to your most Frequently Asked Questions Quick Find: Recycling Our packages are a small part of the nation's waste stream but we want them to be an even smaller part. So, we're making our packages lighter, using more recycled material, and actively promoting comprehensive recycling.

Last Updated: May 2008

Objective

Enhancing Customer Service Expanding Sales Revenue Reducing Inventory Cost Improving On-Time Delivery Reducing Order to Delivery Cycle Time Reducing Lead Time Reducing Transportation Cost Reducing Warehouse Cost Reducing / Rationalize Supplier Base Expanding Width / Depth of Distribution
(20-9-2011)

(http://wiki.answers.com/ Q/What_are_objectives_of_supply_chain_management)

Continuing Education Programme

On

Supply Chain Management: Strategic and Tactical

Planning

September 01 - 03, 2005

Organized By

S J M S O M

Shailesh J Mehta School of Management

Indian Institute of Technology Bombay

Powai, Mumbai 400 076.

OBJECTIVE

Effective supply-chain management is a powerful tool for business transformation it can dramatically increase a companys profitability while simultaneously improving customer service. While todays competitive environments are forcing businesses in this direction, the steps to take are often not evident. Problems of supply-chain management can be complex, and their solution requires special knowledge and experience.

This is the first of our supply-chain programmes, and will cover the areas of demand planning and supply-chain optimisation for strategic and tactical planning. These programmes are not mere classroom lectures: they are a fine blend of theory and practice. By making you work hands-on with supply-chain models on PCs, they teach you how to produce real-life results from techniques you will find in textbooks.

BENEFITS FROM THIS PROGRAMME

From leading theoreticians and practitioners of this fields, you will understand the first principles of the areas covered and how they are applied in industry with real examples from Indian companies. The specific skills you will acquire will enable you to: a) Identify supply-chain problems at your workplace. b) Build models of these problems. c) Solve moderate versions of these problems on spreadsheets. d) Do what-if analysis.

e) Select software for more advanced applications.

TARGET AUDIENCE

This programme can benefit any senior and middle-level manager involved in planning the movement and transformation of goods from the supplier all the way to the customer. This includes just functions as supply-chain management, logistics, planning, and sales and marketing. Since information is the core of all planning operations, the programme can also help managers of information technology, who may want to learn how their function can play a central role in supply-chain management.

Consultants in information technology, ERP, and management of supply chains and related areas are likely to find this course particularly useful. Besides teaching them techniques, it will provide them with a way to position their products and services as large additions of value for their clients.

Supply Chain Management Version: 1.0 Subject index: 581: production/scheduling, 331: inventory/production, 831: transportation One liner: An overview of various methods in supply chain management, including supply chain design, production scheduling, and distribution considerations Body:

AN INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

Ram Ganeshan Terry P. Harrison Department of Management Science and Information Systems 303 Beam Business Building

Penn State University University Park, PA 16802 U.S.A. Email: Ganeshan (rxg112@silmaril.smeal.psu.edu), Harrison (hbx@psu.edu)

A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply chains exist in both service and manufacturing organizations, although the complexity of the chain may vary greatly from industry to industry and firm to firm.

Below is an example of a very simple supply chain for a single product, where raw material is procured from vendors, transformed into finished goods in a single step, and then transported to distribution centers, and ultimately, customers. Realistic supply chains have multiple end products with shared components, facilities and capacities. The flow of materials is not always along an arborescent network, various modes of transportation may be considered, and the bill of materials for the end items may be both deep and large.

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations along the supply chain operated independently. These organizations have their own objectives and these are often conflicting. Marketing's objective of high customer service and maximum sales dollars conflict with manufacturing and distribution goals. Many manufacturing operations are designed to maximize throughput and lower costs with little consideration for the impact on inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very little information beyond historical buying patterns. The result of these factors is that there is not a single, integrated plan for the organization---there were as many plans as businesses. Clearly, there is a need for a mechanism through which these different functions can be integrated together. Supply chain management is a strategy through which such an integration can be achieved. Supply chain management is typically viewed to lie between fully vertically integrated firms, where the entire material flow is owned by a single firm, and those where each channel member operates independently. Therefore coordination between the various players in the chain is key in its effective management. Cooper and Ellram [1993] compare supply chain management to a well-balanced and well-practiced relay team. Such a team is more competitive when each player knows how to be positioned for the hand-off. The relationships are the strongest between players who directly pass the baton, but the entire team needs to make a coordinated effort to win the race.

Supply Chain Decisions

We classify the decisions for supply chain management into two broad categories -- strategic and operational. As the term implies, strategic decisions are made typically over a longer time horizon. These are closely linked to the corporate strategy (they sometimes {\it are} the corporate strategy), and guide supply chain policies from a design perspective. On the other hand, operational decisions are short term, and focus on activities over a day-to-day basis. The effort in these type of decisions is to effectively and efficiently manage the product flow in the "strategically" planned supply chain.

There are four major decision areas in supply chain management: 1) location, 2) production, 3) inventory, and 4) transportation (distribution), and there are both strategic and operational elements in each of these decision areas.

Location Decisions
The geographic placement of production facilities, stocking points, and sourcing points is the natural first step in creating a supply chain. The location of facilities involves a commitment of resources to a long-term plan. Once the size, number, and location of these are determined, so are the possible paths by which the product flows through to the final customer. These decisions are of great significance to a firm since they represent the basic strategy for accessing customer markets, and will have a considerable impact on revenue, cost, and level of service. These decisions should be determined by an optimization routine that considers production costs, taxes, duties and duty drawback, tariffs, local content, distribution costs, production limitations, etc. (See Arntzen, Brown, Harrison and Trafton [1995] for a thorough discussion of these aspects.) Although location decisions are primarily strategic, they also have implications on an operational level.

Production Decisions
The strategic decisions include what products to produce, and which plants to produce them in, allocation of suppliers to plants, plants to DC's, and DC's to customer markets. As before, these decisions have a big impact on the revenues, costs and customer service levels of the firm. These decisions assume the existence of the facilities, but determine the exact path(s) through which a product flows to and from these facilities. Another critical issue is the capacity of the manufacturing facilities--and this largely depends the degree of vertical integration within the firm. Operational decisions focus on detailed production scheduling. These decisions include the construction of the master production schedules, scheduling production on machines, and equipment maintenance. Other considerations include workload balancing, and quality control measures at a production facility.

Inventory Decisions
These refer to means by which inventories are managed. Inventories exist at every stage of the supply chain as either raw materials, semi-finished or finished goods. They can also be in-process between locations. Their primary purpose to buffer against any uncertainty that might exist in the supply chain. Since holding of inventories can cost anywhere between 20 to 40 percent of their value, their efficient management is critical in supply chain operations. It is strategic in the sense that top management sets goals. However, most researchers have approached the management of inventory from an operational perspective. These include deployment strategies (push versus pull), control policies --- the determination of the optimal levels of order quantities and reorder points, and setting safety stock levels, at each stocking location. These levels are critical, since they are primary determinants of customer service levels.

Transportation Decisions
The mode choice aspect of these decisions are the more strategic ones. These are closely linked to the inventory decisions, since the best choice of mode is often found by trading-off the cost of using the particular mode of transport with the indirect cost of inventory associated with that mode. While air shipments may be fast, reliable, and warrant lesser safety stocks, they are expensive. Meanwhile shipping by sea or rail may be much cheaper, but they necessitate holding relatively large amounts of inventory to buffer against the inherent uncertainty associated with them. Therefore customer service levels, and geographic location play vital roles in such decisions. Since transportation is more than 30 percent of the logistics costs, operating efficiently makes good economic sense. Shipment sizes (consolidated bulk shipments versus Lot-for-Lot), routing and scheduling of equipment are key in effective management of the firm's transport strategy.

Supply Chain Modeling Approaches

Clearly, each of the above two levels of decisions require a different perspective. The strategic decisions are, for the most part, global or "all encompassing" in that they try to integrate various aspects of the supply chain. Consequently, the models that describe these decisions are huge, and require a considerable amount of data. Often due to the enormity of data requirements, and the broad scope of decisions, these models provide approximate solutions to the decisions they describe. The operational decisions, meanwhile, address the day to day operation of the supply chain. Therefore the models that describe them are often very specific in nature. Due to their narrow perspective, these models often consider great detail and provide very good, if not optimal, solutions to the operational decisions.

To facilitate a concise review of the literature, and at the same time attempting to accommodate the above polarity in modeling, we divide the modeling approaches into three areas --- Network

Design, ``Rough Cut" methods, and simulation based methods. The network design methods, for the most part, provide normative models for the more strategic decisions. These models typically cover the four major decision areas described earlier, and focus more on the design aspect of the supply chain; the establishment of the network and the associated flows on them. "Rough cut" methods, on the other hand, give guiding policies for the operational decisions. These models typically assume a "single site" (i.e., ignore the network) and add supply chain characteristics to it, such as explicitly considering the site's relation to the others in the network. Simulation methods is a method by which a comprehensive supply chain model can be analyzed, considering both strategic and operational elements. However, as with all simulation models, one can only evaluate the effectiveness of a pre-specified policy rather than develop new ones. It is the traditional question of "What If?" versus "What's Best?".

Network Design Methods

As the very name suggests, these methods determine the location of production, stocking, and sourcing facilities, and paths the product(s) take through them. Such methods tend to be large scale, and used generally at the inception of the supply chain. The earliest work in this area, although the term "supply chain" was not in vogue, was by Geoffrion and Graves [1974]. They introduce a multicommodity logistics network design model for optimizing annualized finished product flows from plants to the DC's to the final customers. Geoffrion and Powers [1993] later give a review of the evolution of distribution strategies over the past twenty years, describing how the descendants of the above model can accommodate more echelons and cross commodity detail.

Breitman and Lucas [1987] attempt to provide a framework for a comprehensive model of a production-distribution system, "PLANETS", that is used to decide what products to produce, where and how to produce it, which markets to pursue and what resources to use. Parts of this ambitious project were successfully implemented at General Motors. Cohen and Lee [1985] develop a conceptual framework for manufacturing strategy analysis, where they describe a series of stochastic sub- models, that considers annualized product flows from raw material vendors via intermediate plants and distribution echelons to the final customers. They use heuristic methods to link and optimize these sub- models. They later give an integrated and readable exposition of their models and methods in Cohen and Lee [1988]. Cohen and Lee [1989] present a normative model for resource deployment in a global manufacturing and distribution network. Global after-tax profit (profit-local taxes) is maximized through the design of facility network and control of material flows within the network. The cost structure consists of variable and fixed costs for material procurement, production, distribution and transportation. They validate the model by applying it to analyze the global manufacturing strategies of a personal computer manufacturer. Finally, Arntzen, Brown, Harrison, and Trafton [1995] provide the most comprehensive deterministic model for supply chain management. The objective function minimizes a

combination of cost and time elements. Examples of cost elements include purchasing, manufacturing, pipeline inventory, transportation costs between various sites, duties, and taxes. Time elements include manufacturing lead times and transit times. Unique to this model was the explicit consideration of duty and their recovery as the product flowed through different countries. Implementation of this model at the Digital Equipment Corporation has produced spectacular results --- savings in the order of $100 million dollars. Clearly, these network-design based methods add value to the firm in that they lay down the manufacturing and distribution strategies far into the future. It is imperative that firms at one time or another make such integrated decisions, encompassing production, location, inventory, and transportation, and such models are therefore indispensable. Although the above review shows considerable potential for these models as strategic determinants in the future, they are not without their shortcomings. Their very nature forces these problems to be of a very large scale. They are often difficult to solve to optimality. Furthermore, most of the models in this category are largely deterministic and static in nature. Additionally, those that consider stochastic elements are very restrictive in nature. In sum, there does not seem to yet be a comprehensive model that is representative of the true nature of material flows in the supply chain.

Rough Cut Methods

These models form the bulk of the supply chain literature, and typically deal with the more operational or tactical decisions. Most of the integrative research (from a supply chain context) in the literature seem to take on an inventory management perspective. In fact, the term "Supply Chain" first appears in the literature as an inventory management approach. The thrust of the rough cut models is the development of inventory control policies, considering several levels or echelons together. These models have come to be known as "multi-level" or "multi-echelon" inventory control models. For a review the reader is directed to Vollman et al. [1992].

Multi-echelon inventory theory has been very successfully used in industry. Cohen et al. [1990] describe "OPTIMIZER", one of the most complex models to date --- to manage IBM's spare parts inventory. They develop efficient algorithms and sophisticated data structures to achieve large scale systems integration. Although current research in multi-echelon based supply chain inventory problems shows considerable promise in reducing inventories with increased customer service, the studies have several notable limitations. First, these studies largely ignore the production side of the supply chain. Their starting point in most cases is a finished goods stockpile, and policies are given to manage these effectively. Since production is a natural part of the supply chain, there seems to be a need with models that include the production component in them. Second, even on the distribution side, almost all published research assumes an arborescence structure, i. e. each site receives re-supply from only one higher level site but can distribute to several lower levels. Third, researchers have largely focused on the inventory system only. In logistics-system theory, transportation and inventory are primary components of the order fulfillment process in terms of

cost and service levels. Therefore, companies must consider important interrelationships among transportation, inventory and customer service in determining their policies. Fourth, most of the models under the "inventory theoretic" paradigm are very restrictive in nature, i.e., mostly they restrict themselves to certain well known forms of demand or lead time or both, often quite contrary to what is observed. The preceding sections are a selective overview of the key concepts in the supply chain literature. Following is a list of recommended reading for a quick introduction to the area.

http://lcm.csa.iisc.ernet.in/scm/supply_chain_intro.html

Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. It is said that the ultimate goal of any effective supply chain management system is to reduce inventory (with the assumption that products are available when needed). As a solution for successful supply chain management, sophisticated software systems with Web interfaces are competing with Web-based application service providers (ASP) who promise to provide part or all of the SCM service for companies who rent their service. Supply chain management flows can be divided into three main flows:

The product flow The information flow

The finances flow

The product flow includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs. The information flow involves transmitting orders and updating the status of delivery. The financial flow consists of credit terms, payment schedules, and consignment and title ownership arrangements. There are two main types of SCM software: planning applications and execution applications. Planning applications use advanced algorithms to determine the best way to fill an order. Execution applications track the physical status of goods, the management of materials, and financial information involving all parties.

Some SCM applications are based on open data models that support the sharing of data both inside and outside the enterprise (this is called the extended enterprise, and includes key suppliers, manufacturers, and end customers of a specific company). This shared data may reside in diverse database systems, or data warehouses, at several different sites and companies. By sharing this data "upstream" (with a company's suppliers) and "downstream" (with a company's clients), SCM applications have the potential to improve the time-to-market of products, reduce costs, and allow all parties in the supply chain to better manage current resources and plan for future needs. Increasing numbers of companies are turning to Web sites and Web-based applications as part of the SCM solution. A number of major Web sites offer e-procurement marketplaces where manufacturers can trade and even make auction bids with suppliers
(http://searchmanufacturingerp.techtarget.com/definition/supply-chain-management)

Importance

Importance of Supply Chain Management

Supply chain management is essential to company success and customer satisfaction. Did you know that SCM also plays a critical role in society? It's absolutely true. SCM knowledge and capabilities can be used to support medical missions, conduct disaster relief operations, and handle other types of emergencies. SCM also plays a role in cultural evolution and helps improve our quality of life. Whether dealing with day-to-day product flows or dealing with an unexpected natural disaster, supply chain experts roll up their sleeves and get busy. They diagnose problems, creatively work around disruptions, and figure out how to move essential products to people in need as efficiently as possible. Details regarding the importance of SCM can be found by clicking on each hyperlink in the diagram.

Financial Flows in the Supply Chain

Invoices and Payments
The fi nancial fl ow in a typical supply chain includes thousands of invoices and payments in a given year. The scale of this problem is challenging corporations to fi nd ways of streamlining their processing. There are also considerable savings to be obtained in other categories besides processing improvements. Any single organization in the supply chain has both Accounts Payable (A/P) and Accounts Receivable

(A/R) activities. Each invoice is an A/P from the downstream buyers perspective and an A/R from the upstream sellers viewpoint. Multiple invoices, however, are often paid by a single payment. This requires information as to which specifi c invoices are covered by a remittance. Also, when invoices are reconciled prior to payment, the three-way match of purchase order (P.O.), shipping receipt, and invoice may fail if all documents are not precisely consistent. Both of these potential failures can often be dealt with by innovative payment solutions with pre-established tolerances for automated processing.

Overview
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Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by end customers (Harland, 1996).[2] Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption (supply chain).