Supply Chain Management

Dr. T. T. Kachwala
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Supply Chain Management

 Introduction to Supply Chain – Flow, Facilities, Functions and Activities.

 Supply Chain Management – Key Aspects.

 Trends in Supply Chain - Re-evaluating Outsourcing (Decision to Near Sourcing),

Integrating IT (ERP), Adopting Lean Principles, Being Agile.

 Procurement Management - Purchasing Cycle.

 Supplier Management - Choosing Suppliers, Supplier Audit & Certification, Supplier

Partnerships, Strategic Partnering.

 Inventory Management – location, Inventory velocity, Bullwhip Effect, Vendor Managed

Inventory.

 Logistics – Movement within a Factory, Warehouse and Storage, Third-party logistics (3-PL)

 Creating an effective Supply Chain - Strategic Sourcing, SCOR, Reverse Logistics,

Delayed Differentiation, Disintermediation.

Introduction to Supply Chain

Factory
Farm to Market Supply
Chain

The sequence begins with

basic suppliers of raw
material and extends all the
way to customer.

Fabrication Shop
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Introduction to Supply Chain

1. Manufacturing Supply Chain
A Supply Chain
is the sequence
2. Service Supply Chain of Organizations
– their facilities,
functions &
3. Goods & Services, Cash Flow & Information Flow
activities – that
are involved in
producing &
delivering a
product or
service.
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Introduction to Supply Chain

 Product and Service flow: involves movement of goods and services

from suppliers to customers as well as handling customer service needs
and product returns.

 Information flow: involves sharing forecasts and sales data,

transmitting orders, tracking shipments, and updating order status.

 Financial flow: involves credit terms, payments, consignment and title

ownership arrangements.
 Facilities: includes Supplier centers, Warehouses, Factories, Distribution
centers, Retail outlets & Offices.
 Functions and Activities: includes Forecasting, Purchasing, Inventory
management, Information management, Quality assurance, Scheduling,
Production, Distribution & Customer service.
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Supply Chain Management (SCM)

 SCM is the strategic coordination of business functions within a business

organization and throughout its supply chain for the purpose of integrating
supply and demand management.

 Companies offering Supply chain solutions in India related to Warehousing,

Transportation & Logistics are GATI, DTDC, Safe Express, Mahindra Logistics, Blue
Dart & DHL.

 Key aspects of SCM:

 Managing Outsourcing
 Managing Procurement
 Managing Suppliers
 Managing Inventory
 Managing Logistics & Distribution
 Trends in Supply Chain

 Re-evaluating Outsourcing (Decision to Near Sourcing)

 Business has in the past made use of outsourcing (Global Supply Chains) for Product Design, Global
Sales, Manufacturing and Service activities to countries where cost are lower.
 Benefits of outsourcing are low cost, advantage of suppliers expertise, easier expansion outside the
country, allows Management to focus on Core strengths (Bharti Airtel).
 Drawbacks of outsourcing are longer lead times, higher transportation cost {pollution from Transportation
(Green Supply Chain) 3M}, Knowledge transfer and intellectual property concerns, Increased effort
required to manage the supply chain, Language and cultural differences, Currency fluctuations,
Infrastructure, Governmental, Environmental, Regulatory & Political issues (Clothing Industry – China).
 Near Sourcing reduces transportation time & cost, shortens the supply chain, reduces inventory &
increases responsiveness.
 Trends in Supply Chain

 Integrating IT (ERP)
 ERP (SAP / Oracle) encompasses planning for demand, managing supply, inventory
replenishment, production, warehousing & transportation, centralizing transaction data to
effectively plan & manage all the resources of a business enterprise (Hillerich Baseball
Manufacturing Co.).
 Key activity areas are supplier relationship management, performance management,
sales & order fulfilment & customer relationship management.
 ERP produces real time data to improve cost, quality, productivity, response time and
other supply chain operations.
 Information Technology plays an important role in integrating operations across Global
Supply Chains.
 Trend in Supply Chain
 Adopting Lean Principles (Toyota Japan)
 Lean principles are applied to improve the performance of Supply Chain by:
 eliminating non value added process

 improving product flow using pull system

 using fewer & certified suppliers

 continuously improving the system

 Being Agile
 Flexible to respond to changes in product / service requirements or volume of demand as
well as unpredictable changes such as delays, quality issues, changing demand,
transportation or other issues (Mumbai Dabbawalas).
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Procurement Management

Purchasing
Department obtains
materials, parts,
supplies & services
needed to produce
product or provide a
service.

Important factors are

cost, quality &
delivery of goods &
services
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Procurement Management

 Purchasing Cycle begins with a request to purchase material or other

items and ends with the receipt of shipment in satisfactory condition. The

main steps are:

 Receiving the requisition

 Selecting a supplier

 Placing the order with a vendor (E- Procurement - Marico, IBM, L&T)

 Monitoring orders

 Receiving orders
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Supplier Management

 Choosing Suppliers

 Company considers price, quality, supplier’s reputation, past experience, location,

lead time, on time delivery and service after sales for evaluating Vendors (vendor

evaluation using factor rating method).

 Supplier Audit & Certification

 A means of keeping current on suppliers’ production (or service) capabilities, quality

and delivery problems, material management, design, process improvements,

corrective action & follow up procedures (Product Audit, Process Audit, System Audit).

 Detailed examination of a supplier’s policies and capabilities to meet or exceed

the requirements of a buyer based on standard industry certification such as ISO

9000(Godrej Appliances).
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Supplier Management

 Supplier Partnerships

 Organizations are seeking to establish partnerships with other

organizations in their supply chains involving long term relationships,
sharing of information & cooperation in planning (Maruti Udyog).

 Strategic Partnering

 Strategic partnering occurs when two or more business organizations

that have complimentary product or services that would strategically
benefit the others agree to join so that each may realize a strategic
benefit. Collaborative Planning, Forecasting and Replenishment
(CPFR) is used to achieve supply chain integration (NestleUSA &
Ocean Spray).
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Inventory Management

 Inventories are a key component of Supply Chain (Chrysler).

 Three aspects of inventory management are particularly important for
Supply Chain Management – location of inventory, speed at which
inventory moves & demand variability on inventories
 Location of inventories is important for material flow and order
fulfillment. It is often a tradeoff between lower inventory & lower
shipping cost. Centralized locations result in lower overall inventory
(Reliance Ltd). Decentralized location results in lower shipping cost &
faster delivery.
 Speed at which inventory moves is referred as inventory velocity.
Greater the velocity, lower the inventory holding cost and faster orders
are filled and goods are turned in to cash.
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Inventory Management

 Demand variations can easily cause inventory fluctuations to get out of control.
Variation in demand at the consumer end of a supply chain tend to ripple backwards
through the chain. Inventory oscillations become progressively larger looking
backward through the supply chain which is known as bullwhip effect. Shortages &
Surpluses occur through out the chain, resulting in higher cost & lower customer
satisfaction (CISCO).
 Factors contributing to bullwhip effect are demand variability, quality problems, labor
problems, unusual weather conditions, delays in shipment, forecast inaccuracies, over
reaction to stockouts, order batching etc.
 Strategic buffering, Information sharing & need based inventory replenishment can
overcome bullwhip effect (Cummins).
 Vendor Managed Inventory (VMI) monitors goods and replenish retail inventories
when supplies are low. VMI lets companies reduce overhead by shifting responsibility
for owning, managing and replenishing inventory to vendors (Wegmans Supermarket).
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Logistics
Movement within a Factory
Movement within a
factory from incoming
vehicle to storage to
work centers to final
storage to shipping to
outgoing vehicle

Logistics refers to the

movement of
materials, services,
cash, and information
in a supply chain
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Warehouse and Storage

1.Layout of Warehouses depends on frequency of order of items & also correlations between the items.

Other considerations include the number and widths of aisles, the height of storage racks, rail and / or

truck loading and unloading, and the need to periodically make a physical count of stored items.

2.Consolidation are used when shipments from various sources are pulled together in a warehouse and

combined into larger shipment with a common (long distance) destination thereby improving the

efficiency of the entire system.

3.Cross-docking is used where large shipments are broken in to small shipments for local delivery in an

area. Either a full inbound pallet is redirected to an outbound shipment or an inbound pallet is broken

down in to small cases right on the dock, and then the case are immediately distributed to out bound

pallets (cross-distribution) thereby saving warehouse storage & handling cost (Wegmans, Walmart).
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Warehouse and Storage

1. Hub-and-Spoke system combine the idea of consolidation & cross-docking.

Warehouse is the hub that are located in strategic location near the geographic

center of the region with the sole purpose of sorting incoming goods immediately to

each designated area for shipment to specific retail location (spokes of the system).

1. RFID (Radio Frequency IDentification) technology using radio waves identify goods

in supply chains. It increases supply chain visibility, improves inventory

management, improves quality control, enhance relationships with suppliers and

customers (Wegmans, Springdale). Bar Code India Limited is offering automations

solutions.
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Third-party logistics (3-PL)

 3PL is a person / entity who solely receives, holds, or otherwise

transports a consumer product in the ordinary course of

business but who does not take the title of the product.
 The outsourcing of logistics management (3-PL) includes

Shipping, Warehousing and Distribution (Mahindra Logistics).

 Potential benefits for the parent company includes taking

advantage of 3PLs specialists’ knowledge, their well-developed

information system, their ability to obtain more favorable
shipping rates & enabling the parent company to focus more on
its core business.
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Creating an effective Supply Chain

 Strategic Sourcing is creating an effective supply chain that

requires a thorough analysis of all aspects of Supply Chain to
lower costs by reducing waste and non value added activities
and improving supplier performance (Amul).
 SCOR (Supply Chain Operations Reference) model provides
five steps: Plan , Source, Make, Deliver & Manage Returns.
 Reverse Logistics is the process of physically transporting
returned items. Two key elements are Gatekeeping
(screening returned goods to prevent incorrect acceptance of
goods & Avoidance (finding ways to minimize the number of
items returned).
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Creating an effective Supply Chain

 Delayed Differentiation is production of standard components

& subassemblies, which are held until late in the process to

add differentiating features (TVS Motors).

 Closed – Loop Supply Chain is a situation where a

manufacturer controls both the forward & reverse logistics.

 Disintermediation is reducing one or more steps in a supply

chain by cutting out one or more intermediaries (example ship

directly from ware house to customer to reduce waiting time).