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Supply Chain Management

Synopsis
Introduction And Origin Of Supply Chain Management
Traditional/Conventional Supply Chain Management Network
Difference Between Logistics And Supply Chain Management
Participants Of Supply Chain Management
Importance Of Supply Chain Management
Global Supply Chain Management Scenario& Its Importance And Challenges
Bull Whip Effect
Concept Of Extended Enterprise
Channel Agencies
Relationship Management
10 MARKS QUESTIONS
Q1.Difference between logistics and supply chainmanagementorexplain supply chain
management in detailand how is it different from logistics management?
POINTERS LOGISTICS MANAGEMENT SUPPLY CHAIN
MANAGEMENT
Definition Logistics management can be defined as
the process of planning, implementing
and controlling the efficient and effective
flow and storage of goods and services
and related information from the point of
origin to the point of consumption for the
purposeofmeeting customer requirement.
Supply chain management can be
defined as the integrated
management of all the linkages and
value added activities from the
supplier to the customer's customer
in such a waythatenhanced customer
value is achieved at lower costs.


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Supply Chain Management





Embodies It comprises of in-bound logistics, in-
plant logistics and out-bound logistics.
It comprises of all the players in the
supply chain from the raw material
source to finished product
consumer, vendors, their vendors,
shippers, warehouses, service
providers, customers and their
customers.
Main
Objective
Logistics cost reduction by integrating
the resources across the pipeline.
Supply chain profitability by value
creation.
How this is
created in
business?
By internal integration of logistics
functions handled by various
management functions within
organization.
By external integration of roles of
various players in the supply chain.
Origin It originated from a very old concept in
military planning.
It originated as a logical extension
of logistical management.
Focus Logistical management tries to take the
product to the consumer at a minimum
logistical cost. Hence it is supply driven.
SCM focuses on value creation in
the supply chain. Hence this is
customer focused or demand driven.
Scope Logistics is a narrow concept. SCM is a broader concept.
Activity
limitation
Logistics activities are conducted within
the organization.
SCM functions outside the
organization.
Flow There are two types of flows in logistics
are -
Value flow (flow of goods and services)
and Information flow.
There are three types of flows in
SCM are -
Value flow, Information flow. And
Financial flow.


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Supply Chain Management

Q2.Explain Bull Whip effect in detail?(Can come for 3 marks concept)
1. Introduction :
Demand variability increases as one move up the supply chain away from the retail
customer, and small changes in consumer demand can result in large variations in
orders placed upstream.
Eventually, the network can oscillate in very large swings as each organization in the
supply chain seeks to solve the problem from its own perspective
This phenomenon is known as the bullwhip effect and has been observed across most
industries, resulting in increased cost & poorer service.
2. Effects :

a) It increases manufacturing cost in the supply chain due to building of excess
production capacity or holding excess inventory. Both of which increase
manufacturing cost per unit.
b) It increase inventory cost in the supply chain due to carrying higher level of inventory
than would be required. The high level of inventory also increases the warehousing
space requirement & the cost thereof.
c) It increase the replenishment lead time by making production scheduling at supply
points much more difficult to actual requirements.
d) It increase transportation cost as transportation requirements fluctuates significally
over time & surplus capacity need to be maintained to cover high demand period.
e) It increase labor cost associated with shipping & receiving in the supply chain as the
fluctuation occurs in labor requirement & the cost thereof.
f) It also hurt the level of product availability & results in more stock-outs in the supply
chain. The large fluctuation makes it harder for manufacture to supply all distributors
/dealer on time.


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g) The bull whip effect has a negative effect on performance at every stage & thus hurt
the relationship between different stages of supply chain. There is tendency to assign
blame to others stages of supply change because each stage feels it is doing the best it
can.
h) It leads of loss of customer service and lot of sales.
i) The quality of products deteriorates

3. Causes of bullwhip effect: The following all can contribute to the bullwhip effect:
Over reaction to backlogs
Neglecting to order in an attempt to reduce inventory
No communication up and down the supply chain
No coordination up and down the supply chain
Delay times for information and material flow.
Order batching:larger orders result in more variance. Order batching occurs in an
effort to reduce ordering costs, to take advantage of transportation economics such as
full truckload economies, and to benefit from sales incentives. Promotion often
results in forward buying to benefit more from the lower prices.
Shortage gaming:Customers order more then they need during a period of short
supply, hoping that the partial shipments they receive will be sufficient.
Demand forecast inaccuracies:everybody in the chain ads a certain percentage to
the demand estimates. The result is no visibility of true customer demand

4. Counter measures to the bullwhip effect: While its a common problem; many leading
companies have been able to apply countermeasures to overcome it. These are as follows:

Counter measures to order batching: High order cost is countered with electronic
data interchange (EDI) and computer aided ordering (CAO). Full truckload
economies are countered with third party logistics and assorted truckloads. Random
or correlated ordering is countered with regular delivery appointments. More frequent
ordering results in smaller order and smaller variance. However, when the entity
orders more often, it will not see a reduction in its own demand variance-the


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reduction is seen by the upstream entities. Alsowhen an entity orders more frequently,
its required safety stock may increase or decrease. Allocating units based on past
sales.
Counter measures to shortage gaming: Proportional rationing schemes. Ignorance
of supply chain conditions can be addressed by sharing capacity and supply
information. Unrestricted ordering capability can be addressed by reducing the order
size flexibility and implementing capacity reservations. Example: one can serve a
fixed quantity for a given year and specify the quantity of each other shortly before it
is needed, as long as the sum of the order quantities equals to the reserved quantity.
Countermeasures to fluctuating prices: High-low pricing can be replaced with
everyday low prices (EDLP). Special purchase contracts can be implemented in order
to specify ordering at regular intervals to better synchronize delivery and purchase.
Counter measures to demand forecast inaccuracies: Lack of demand visibility can
be addressed by providing access to point of sale (POS) data. Single control of
replenishment or Vendor Managed Inventory (VMI) can overcome exaggerated
demand forecasts. Long lead times should be reduced where economically
advantageous. Free return policies are not addressed easily. Often, such policies
simply must be prohibited or limited.
Q3. What is Supply Chain Management & explain its evolution? (SCM can come as a
concept question)
1. Definition: According to Council of Supply Chain Management Professionals the
integrated management of all linkages and value added activities from the suppliers
supplier to the customers customer in such a way that enhanced customer value is
achieved at lower cost
2. Meaning: It aligns the capabilities of suppliers, manufacturers, channel partners, service
providers and customers to develop a sustainable competitive advantage. SCM
contributes to the world-class performance of a business enterprise and adds value to its
product and service offerings. Logistics is considered as a subset of SCM.
3. A well-designed supply chain supports the strategic objectives are :
Solving suppliers problems and beyond his level.


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Customer service performance improvement.
Reduction of pre and post production inventory.
Minimizing variance by the means of activities like standardization variety
reduction tec.
Minimum total cost of operations and procurement.
Product quantity control.
Achieving maximum efficiency in using labour,capital and plant through out the
company.
Flexible planning and control procedures.
4. Drivers of supply chain performance:







5. Barriers of supply chain management:
Organizational barriers
Lack of visibility
Reluctance to share skills
Attitudinal problems
Traditional mindset
Inability to see long terms benefits
Distrust
Inadequate information flow.
6. Features of supply chain management:
Driver Efficiency (what we
do)
Responsiveness (what
customer sees)
Inventory Cost of holding Availability
Transportation Consolidation Speed
Facilities Consolidation/
Dedicated
Proximity / Flexibility
Information What information is best suited for each objective


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Complexity
Two way flows
Breaking the organizational barriers
Sharing of slaes information in real time
Inventory visibility-reduces inventories by reducing by reducing uncertainties.
Compresses value chain by slashing lead times thereby quickening cash flow.
Customer focus (customer orientation,help the customer to be a better supplier!) pull
system
Levels of customer service
Supply chain collaboration.
7. In Supply chain management there are mainly three flows:
Product flow: the movement of goods from a supplier to a customer, through the
manufacturer,distributor and retailer.
Information flow: it involves transmitting orders and updating the status of delivery.
The information flow is useful for the success of the supply chain management.
Financial flow: it consists of credit terms,payment schedule,discounts information
and consignment and title ownership arrangements.
8. Evolution of supply chain management :


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9. Traditional supply chain management:




10. Increases Customer Value: Then
the integrated Supply Chain Management
was introduced which is the integrated
management of all the linkages and value-
added activities from the supplier's
supplier to the customer's customer. This integrated process results in enhanced
customers value at the least cost.
(Please after this draw and refer the diagram given by sir in class in supply chain management
chap)
Traditional diagram which
illustrates an overall
generic channel structure
required completing the
marketing process. The
product passes from
supplier to the
manufacturer then the
distribution process takes
place finally to the
customers and the
products are then supplied
to the consumers.


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Supply Chain Management

Q4.Explain global supply chain management & Its importance & challenges in detail? or
explain advantages or disadvantages/barriers of global supply chain management?
1. Definition: Its an integrated process where all business entities such as suppliers,
manufacturers, distributors & retailers work
together to plan, co-ordinate and control
materials, parts and finished goods from
suppliers to consumers.One or more of these
business entities operate in different
countries.
2. Global supply chain management scenario
and its importance:Companies are going truly global with Supply Chain Management
(SCM). A company can develop a product in The United States, manufacture in India and
sell in Europe. Companies have changed the ways in which they manage their operations
and logistic activities. Change in trade, the spread and modernization of transport
infrastructures and the intensification of competition have elevated the importance of
flow management to new levels.

3. Examples: a) McDonalds
Supplier I ngredients Location
1. Ghaziabad Sesame seeds Uttar pradesh
2. A)Shah bector and
sons
B)Cremica
Bans A)Khopoli-Maharashtra
B)Ludhiana
3. Dynamix dairy Cheddar chesse Baramati and Maharashtra
4. Kitron foods Vegetable patty Taloja- Maharashtra
5. Quake ceremica Special vegetarian sauce
(eggless)
Phillapur-Punjab

b) LI & FUNG Hong Kong garment producer makes jacket for US market.
To maintain the consistency in all over
the world franchises of McDonalds they
follow global supply chain management
and give the best quality to beat their
competitors.


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Thing produced Country produced in
1. Cotton China
2. Leading exporter of
imitation fur
Thailand
3. Stainless steel for zipper Japan
4. Outdoor clothing Taiwan
5. Snaps (buttons) Germany


4. Challenges of global supply chain management: Global supply chains pose
challenges regarding both quantity and value:
Changes in Supply and value chain trends
Globalization increasing the competition and creating new options
Increased cross border sourcing
Collaboration for parts of value chain with low-cost providers
Shared service centers for logistical and administrative functions
Increasingly global operations, which require increasingly global co-ordination
and planning to achieve global optimums
Complex problem involves also midsized companies to an increasing degree,
These trends have many benefits for manufacturers because they make possible larger lot sizes,
lower taxes, and better environments (culture, infrastructure, special tax zones,) for their
products. There will be many more challenges when the scope of supply chains is global; this is
because with a supply chain of a larger scope, the lead-time is much longer. Furthermore, there
are more issues involved such as multi-currencies, different policies and different laws. The
consequent problems include: Different currencies and valuation in different countries, Different
tax laws (tax efficient supply chain management). Different trading protocols, Lack of
transparency of cost and profit.


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Q5. Explain supply chain management with its advantages in current business
Environment?Or explain importance of supply chain management?
1. Definition: According to Council of Supply Chain Management Professionals the
integrated management of all linkages and value added activities from the suppliers
supplier to the customers customer in such a way that enhanced customer value is
achieved at lower cost
2. The five key functions of Supply chain Management are:
Procure-collection of materials required
Make-manufacturing of the product
Move-shifting of the product to store
Store-maintenance of product till customer demands
Service-supply of product when customer demands.
3. Logistics is involved at various stages of a supply chain:
From Supplier to Plants
From Plants to Distribution Centers
From Distribution Centers to Stores
From Stores to Customers or any of these combinations.
4. Importance of supply chain management: (can be asked as a 5 marks question)
Benefits to the customer: Improved customer service through fewer shortages.
Improved product cost. Quicker response to changes in demand.,Optimal purchase
cost due to possibility of long-term purchase contracts.
Benefit to the company: The firm carrying out the Best Chain Management will
have the competitive edge in the market. It will generate goodwill in the eyes of
customers. By this company gets the responsibility, authority and competence to
manage them in the best interest of itself. The company gets the following benefits-
Reduction in tide-up capital and administrative costs due to reduction or elimination
of inventory at all level, Reduction in time and money lost through production line
stoppage, More flexibility in planning, Sustained growth of sales and company
business, Increased shareholder value.


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Service response: Service response logistics relates to the coordination of
nonmaterial activities to fulfill service efficiently & effectively. Many service
response logistic activities relate closely to the logistic activity of communication,
finance movement and information flow.
Integration of information: Information integration is sharing of information among
supply chain members from supplier, manufacturer, distributor, retailer and finally to
the customers. In supply chain management the information factor is moving from
top to bottom and bottom to top. Hence, the firm can adapt to changes and provide
response whenever needed.
Technology Assimilation: It is very important to note that all the participants in the
chain are well aware and knowledgeable about the same. So, it is essential to see that
accepted technology has to be assimilated properly within the people. Supply chain
should access the market through both physical channel and cyber based channel to
serve the needs of customer.
Workflow coordination:Workflow coordination is the efficiency of order fulfillment
processes for the products in the supply chain. Streamlining workflow activities
among supply chain partners is possible with workflow coordination of activities like
procurement, order execution, design optimization and financial exchanges.
Synchronization: There has to be appropriate matching of time period at all stages
in supply chain management. The goal of synchronization in supply chain integration
is to develop production and delivery mechanisms & processes that can produce
goods to the actual end user rate of demand for the smallest time period manageable.
Trust: Trust is very important factor in SCM. Trust is required in the organization
and across the supply chain partners. As the supply chain function on the information
shares between the partners. Hence, the information should be true.
Quick response: The supply chain management helps the management adopts the
activity like JIT and EDI system. Quick response system can positively affect the
inventory management.
Efficient customer response: It creates link between manufacturer and retailer, to
reduce, order-cycle time. In ECR, the retailer and supplier work closely together, to
capture point of sale information and send the information back through the channel


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of distribution. When the information is received, orders are automatically cut and the
product sent to the grocery store. Inventory falls, order cycle time reduces and cost
drops, all in a paperless environment. If properly implemented, ECR can reduce
customer prices substantially.


5 MARKS QUESTIONS


Q1. Explain the extended enterprise concept?(Can come for 3 marks concept)
1. An extended enterprise is a loosely coupled, self-organizing network of firms that
combining their economic output to provide products and services offerings to the
market.
2. Firms in the extended enterprise may operate independently, for example: through
market mechanisms cooperatively through agreements and contracts.
3. Alternatively referred to as a supply chain or a value chain ,the extended enterprise
describes the community of participants involved with provisioning a set of service
offering, extended enterprise is a more descriptive term than supply chain, in that it
permits the notion different types and degrees and permanence of connectivity.
The Dabbawalas are
a human chain of
around 5000-6000
members and still
growing


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4. Different Extended enterprises contribute towards the building of single/multiple
products for a mother company.
5. The notion of the extended enterprise has taken on more importance as firms have
become more specialized and inter-connected, trade has become more global, processes
have become more standardized and information has become accessible.
6. The standardization of business processes has permitted companies to purchase as
services many of the activities that previously had been provided directly by the firm.
7. By outsourcing certain business functions that had been previously self-provided, such
as transportation, warehousing procurement, information technology firms have been
able to concentrate their resources on those investments and activities that provide them
the greatest rate of returns.
8. The remaining company competencies determine the firms unique value proposition.
Example: Mcdonalds Corporation has the following
multiple agencies/enterprises such as:
a) Restaurants b) Services c) franchises d) food
suppliers e) advertising f) distributorsg) food
purchase co-operatives

Q2.List all the participants in supply chain management and explain their roles?
1. Suppliers: They are organization that provides goods and services to purchasing
organization (a manufacturer or a distributor). It is often used synonymously with
vendors but may also refer to an internal company resource.
Potatoes of French fries come
from the towns of Dessa and
Kheda in Gujarat


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2. Manufacturers: They are the companies engaged in the original production and
assembly of products, equipment and services. They sometimes refer to companies that
purchase such products or services manufactured or assembled in accordance with
company specifications.
3. Distributors:These are the external entities that sell for suppliers or manufacturers
directly and often collect all payments from customers and maintain an inventory of the
suppliers or manufacturers products.
4. Customer: They are the end receivers or users of the product or service. They are an
essential part of the supply chain as they are the ultimate consumers of the products and
services.


E.g : The TATA NANO




Q3. Explain the conventional supply chain management?
Logistics management is a process of planning, implementing and controlling the
efficient and effective flow and storage of goods, services and related information from
point of origin to the point of consumption for the purpose of meeting to customers
requirements.
Supply chain management
can be defined as the
integrated management of
all the linkages and value
added activities from the
supplier to the customer's
customer in such a way that
I have more than 20 suppliers for
my NANO! , do you have any? -
Ratan Tata


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enhanced customer value is achieved at lower costs.
1. Collection of raw materials.
2. Reaching the raw materials to suppliers.
3. Processing the raw materials into finished goods.
4. Making availability of distribution channel
5. Reaching out to retailers or customers market
6. And then finally making the finished product reach to consumers.

Q4 Explain channel structures /Channel agencies?(can come as a 3 marks question also)
The American Marketing Association defines a distribution channel as the structure of
intercompany organizational units and extra company agent and dealers, wholesale and retail,
through which a commodity, product, or services is marketed. Distribution channel is nothing but
a process of transfers the products or services from producer to customer or end user.
Channel arrangements are dynamic as firm constantly seeks to improve their relative position. A
superior channel structure can lead to competitive advantage.

GENERIC CHANNELS OF DISTRIBUTION












Farms and
materials raw
Manufacturers and industrial users
Wholesalers

Retailers
Consumers and government


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An overall generic channel structure is required to complete the manufacturing process. In the
above diagram it shows the range of institutions that products may pass through and alternate
paths they can physically follow as they flow from original owner to final buyer.
For example retail stores may purchase from all levels of supply ranging from farmers to
wholesalers.
Despite the attractive simplicity of descriptive flow chart structure, they provide only minimal
assistance to managers concerned with developing and implementing a channel strategy.


3 MARKS QUESTIONS

Q1.What are the objectives of Supply Chain Management?
The Objectives of Supply Chain Management are:
Solving suppliers problems and beyond his level
Customer Service performance improvement.
Reduction of pre and postproduction inventory.
I. Minimizing variance by means of activities like standardization variety reduction.
II. Minimum total cost of operations and procurement.
III. Product Quality control.
IV. Achieving maximum efficiency in using labor, capital and plant throughout the
company.
V. Flexible planning and control procedure.


Q2.Write a short note on relationship Management?
Relationship Management is a relatively new label applied to an old and fundamental area of
business. The beginning of commercial activity, managers have been concerned with developing
and positioning customer and supplier relationships. The new thrust behind the popularity of
relationship management is based on the belief that successful business arrangements are most
likely to result when participating firms cooperate in planning and executing performance. The


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emphasis on cooperation represents a shift from managing relationships on the basis of power-
driven adversarial approaches. The basic premise of relationship management is that cooperation
between all participants in a channel system ultimately will result in synergism leading to the
highest level of joint achievement. This shift in priority toward building relationships is
extremely important for logistics.
Q3. Drivers of Supply Chain Management?








These drives form the basis for supply chain management.
Efficiency is the manufacturers side point of view.
Responsiveness is the what customer seeks from their point of view
Inventory: manufacturer being efficient will reduce its cost of holding as much as
possible but at the same time will make the product available for the customer.
Transportation: consolidation effort done by the manufacturer will reduce the cost
and will make the product reach fast.
Facilities: dedicated /consolidation effort from manufacturer side brings flexibility
/proximity effect for customers.
Information is what flows from both end to for both sides benefit.

Fill in the blanks
1. Logistics is considered as a subset ofsupply chain management.
2. Supply chain mapping means the study of value and non-value added activities.
3. Logistics is the activity that is primarily based on information.
Driver Efficiency Responsiveness
Inventory Cost of holding Availability
Transportation Consolidation Speed
Facilities Consolidation /
Dedicated
Proximity / Flexibility
Information What information is best suited for each
objective


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4. Four economic utilities that play a role in logistics management are possession, time,
place, and inventory.
5. Cost can be reduced only through logistics.
Questions From University Examinations

1. Explain the concept of supply chain briefly. (3 marks)(March 2011)
2. Discuss how Supply chain management and Logistical management are different from
each other.(10 marks)(March 2011)
3. What is Extended Enterprise? (3 marks)(November 2011)
4. How did Supply Chain Management evolve from traditional Logistics Management? (5
marks)(November 2011)
5. Comment on the impact of Bull Whip Effect in supply chain and show how this can be
neutralized? (10 Marks ) (March 2012)