Supply Chain Management

MKRakeshPh.D scholar Mahatma Gandhi

Kashi VidyapeethVaranasimkrakesh@rediffmail.com
Through the past decades we have seen an increa
s i n g r a t e o f g l o b a l i z a t i o n o f t h e economy
a n d t h e re b y a l s o o f s u p p l y c h a i n s . Pro d u c t s a re
n o l o n g e r p ro d u c e d a n d consumed within the same
geographical area. Even the different parts of a product may,and
often do, come from all over the world. This creates longer and
more complex supplychains, and therefore it also changes the
requirements within supply chain management.This again affects
the effectiveness of computer systems employed in the supply
chain.A longer supply chain will often involve longer order to
delivery lead times. Flaherty[10] states, in accordance with the
discussion in Section, that the consequences of longer l e a d
t i m e s w i l l o ft e n b e l e s s d ep e n d a b l e f o re c a s t s a s t h e s e
h a v e t o b e m a d e e a r l i e r , reduced
production fl exibility, i.e. greater diffi culties to adjust
to order changes, higher levels of inventory. Therese M.
Flaherty. Global Operations Management. McGraw-Hill, New-York,
1996. The evident answer to the problem of longer lead
times is to speed up the supply chain.But a limit is often
reached beyond which further eff ort to shorten lead times
are futile,especially in international supply chains. Another
approach is to restructure the supplychain. This simply means
to reconsider the strategic level decisions priorly made. A
thirdapproach identifi ed by Flaherty [10] is changing
coordination
: The order, forecasting, procurement, and information
sharing procedures among the members of the supplychain.
We will dwell on the issue of coordination in the next
section.Globalization also brings foreign competition into markets
that traditionally were
local.Lo c a l c o m p a n i e s a re th e re b y f o rc e d t o re s p o n d b y
i m p ro v i n g t h e i r m a n u f a c t u r i n g practices and supply
chain management. Bhatnagar et al. [5] states that
attempts havefocused, among others, on reduction of inventory
levels, and increased flexibility throughreduced lead times. Yet
again we see how industry focuses on the issues of

inventorymanagement and flexibility to maintain high levels of

customer
satisfaction.DefinitionsS u p p l y c h a i n m a n a g e m e n t ( SCM) i
s t h e p r o c e s s o f planning, i m p l e m e n t i n g a n d controllin
gthe operations of thesupply chain as effi ciently as possible.
Supply
ChainM a n a g e m e n t s p a n s a l l m o v e m e n t a n d s t o r a g e
o f r a w m a t e r i a l s , work-in-processinventory, and finished
goods from point-of-origin to point-of-consumption
Tr a d i t i o n a l l y , m a r ke t i n g , d i s t r i b u t i o n , p l a n n i n g , m a n u f
a c t u r i n g , a n d t h e p u rc h a s i n g organizations along the
supply chain operated independently. These organizations
havet h e i r o w n o b j e c t i v e s a n d t h e s e a re o ft e n co n fl i c t i n
g . M a r ke t i n g ' s o b j e c t i v e o f h i g h customer service and
maximum sales dollars conflict with manufacturing and
distributiongoals. Many manufacturing operations are
designed to maximize throughput and
lower c o s t s w i t h l i t t l e co n s i d e r a t i o n f o r t h e i m p a c t o n i
n v e n t o r y l e v e l s a n d d i s t r i b u t i o n capabilities. Purchasing
contracts are often negotiated with very little information
beyondh i s t o r i c a l b u y i n g p a t t e rn s . T h e re s u l t
o f t h e s e f a c t o r s i s t h a t t h e re i s n o t a s i n g l e , 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 integratedtogether.
Supply chain management is a strategy through which such
integration can beachieved.There seems to be a universal
agreement on what a supply chain is. Jayashankar et al. [25]
defines a supply chain to beA network of autonomous or semiautonomous business entities collectively responsiblefor
procurement, manufacturing, and distribution activities
associated with one or morefamilies of related products.Lee and
Billington [17] have a similar definition:A supply chain is a
network of facilities that procure raw materials, transform them
intointermediate goods and then final products, and deliver the
products to customers througha distribution system.And
Ganeshan and Harrison [12] has yet another analogous
definition:A s u p p l y c h a i n i s a n e tw o r k o f f a c i l i t i e s a n d
d i s t r i b u t i o n o p t i o n s t h a t p er f o rm s t h e functions of

procurement of materials, transformation of these materials into

intermediateand finished products, and the distribution of these
finished products to customers.According to Wikipedia.orgSupply
Chain Management (SCM): Supply chain management (SCM)
is the process
of p l a n n i n g , i m p l e m e n t i n g , a n d c o n t ro l l i n g th e o p e r a t i
o n s o f t h e s u p p l y c h a i n w i t h t h e purpose of satisfying cu
stomer requirements as effi ciently as possible.
Supply chainm a n a g e m e n t s p a n s a l l m o v e m e n t a n d s t
o r a g e o f r a w m a t e r i a l s , w o r k i n p r o c e s s inventory,
and finished goods from pointoforigin to pointof
consumption(http://en.wikipedia.org/wiki/Supply_Chain_Managem
ent
).The defi nition one American professional association put
forward is that Supply ChainManagement encompasses the
planning and management of all activities involved
insourcing, procurement, conversion, and logistics manage
ment activities. Importantly, ita l s o i n c l u d e s co o rd i n a t i o n
a n d c o l l a b o r a t i o n w i t h c h a n n e l p a r t n e r s, w h i c h c a n b e s
uppliers, intermediaries, third-party service providers, and
customers. In essence,
SupplyChain Management integrates su p p l y a n d d e m a n d m
a n a g e m e n t w i t h i n a n d a c ro s s companies. More recently,
the loosely coupled, self-organizing network of
businessesthat cooperates to provide product and service
off erings has been called the
Extended Enterprise.

Logistics is that part of the supply chain process that plans,

implements, and controls theeffi cient, eff ective fl ow
and storage of goods, services, and related information

from the point-of-origin to the point-of-consumption in order to

meet customers' requirements.
E ffi c i e n t M a n a g e m e n t o f t h e S u p p l y C h a i n ( s o u rc e ,
m a ke a n d d e l i v e r ) i n o rd e r to maximize the value for money
to the customer.In other words Supply Chain Management
means integration and management of
SupplyC h a i n o rg a n i z a t i o n a n d a c ti v i t i e s th ro u g h c o o rd i n
a t e d a n d c o l l a b o r a t i v e s t r a t e g i c alliances, efficient business
processes and high levels of information sharing to create
av a l u e c h a i n t h a t w o u l d p r o v i d e m e m b e r o r g a n i z a t
i o n s a s u s t a i n a b l e c o m p e t i t i v e advantage and in turn
provide value for money to the customer. Instead of brand
versus brand or store versus store, it is now supply chain versus
supply chain. In this emerginghighly competitive and dynamic
environment, the ultimate success of the Business entitywill
depend on management's ability to integrate the company's
complicated network of business relationships. The graphic will
explain the process of Integration in the SupplyChain network.The
broader view of SCM is depicted in the above fi gure in a
simplifi ed supply chainnetwork structure. This would explain
the basic difference between Logistics and SCM.Supply Chain is
inter-company integration of business process and
relationships andwhere as Logistics is intra-company
integration.A Working Definition of Supply Chain Management:We
c a n d e fi n e t h e s u p p l y c h a i n a s t h e fl o w o f i n f o rm a t i o n
a n d m a t e r i a l t o a n d f ro m suppliers and customers. The
objectives of Supply Chain Management (SCM) are to:Maximize
supply chain responsiveness and flexibility to customers,Minimize
total supply chain cycle time, costs, inventory, and;Maximize
supply chain capacity, utilization, and Return on Assets
(ROA).There are four fundamental operating principles at work in
SCM :

Set up the simplest, most direct, fl ow of information

possible to and from those who produce it to those who use
it.Set up the simplest, most direct, flow of material possible to and
from those who produceit to those who use it.Establish the
smoothest possible drumbeat or rhythm of production and
usage.Create the ability to react to problems through short leadtimes eliminating the need for inventories.
Why Supply Chain Management?
E x p e r i e n c e s h o w s t h a t th e g a i n s to b e m a d e i n c o s t,
l e a d - t i m e a n d q u a l i t y t h ro u g h working in partnership with
customers and suppliers are signifi cant. In industry

after industry one observes that:50%-70% of total costs are

supplier related (material versus direct labor or
overheadcosts).Supplier lead times are longer than one's own
production lead times.It goes without saying that the quality of
your product depends on the quality of materialyour supplier
provides. With customers awarding more and more business
based on total price, quality and delivery, the whole process from
one's supplier receiving raw materialto one's customer using
the product has to be the target for breakthrough
improvement.Experience shows that customers use the products
we produce in much more predictableways than then it fi rst
appear. We assume that a customer's order pattern is
related tohis/her usage pattern. Often we do not look
beyond the order pattern for informationabout actual
usage. Worse yet we tend to create wide swings and
unpredictability in buying patterns that would otherwise be
stable and predictable.The consumer products industry
learned that it often incurred more costs than
benefi tsthrough consumer promotions. They trained
consumers to wait for a sale, then buy andstock product
until the next sale. Swings in demand were amplifi ed
through the supply p i p e l i n e a d d i n g c o s t a s th e b u l g e
w o r ke d i t s w a y t h ro u g h t h e sy s t e m . Re t a i l
s t o re s clogged backrooms with inventory or ran out of
stock. Distributors added inventory tocover
unexpected demand. Manufacturers added fi nished goods
inventory, increased p ro d u c t i o n th ro u g h o v e r- t i m e , a n d
p u t p re s s u re o n t h e i r s u p p l i e r s to d e l i v e r m o re
i n shorter lead-times. Wal-Mart broke the cycle with
Every-Day-Low
prices. A master inlogistics, Wal-Mart understood that it was
more profi table to always off er the lowestcompetitive prices
to the consumer in return for more stable, predictable
demand. Themore predictable the demand, the easier it is
to synchronize activities to true customer demand
throughout the supply chain. The result is better on-time
delivery, fewer stock-outs, and higher customer satisfaction
with less inventory, reduced administrative work and lower overall
costs.Managing multiple flows:

O rg a n i z a t i o n s i n c re a s i n g l y fi n d t h a t t h e y m u s t re l y o n
e ff e c t i v e s u p p l y c h a i n s, o r networks, to successfully
compete in the global market and networked economy. In
Peter Drucker's (1998) management's new paradigms, this
concept of business relationshipsextends beyond traditional
enterprise boundaries and seeks to organize entire
business processes throughout a value chain of multiple
companies.During the past decades, globalization,
outsourcing andinformation technologyhaveenabled many
organizations, such asDellandHewlett
Packard, to successfully operatesolid collaborative supply
networks in which each specialized business partner focuses
ononly a few key strategic activities (Scott, 1993).The concept
involved in a supply chain can be well understood by the following
listof figured models.A Generic Supply chain modelIssues in
Supply Chain ManagementThe classic objective of logistics is
to be able to have
the right products in the
right q u a n t i t i e s ( a t t h e r i g h t p l a c e ) a t t h e r i g h t m o
ment at minimal cost
. Figure (from
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NEVEM-workgroup [19]) translates this overall objective into four

main areas of concernwithin supply chain management.
Figure:
Hierarchy of Objectives.The two middle boxes in the lower row of
Fig. , delivery reliability, and delivery times, is both aspects of
customer service
, which is highly dependent on the fi rst box,
flexibility
,and on the last box,
inventory

.Improving Supply Chain ManagementThe above sections

describe issues and challenges of supply chain
management. It
ist i m e t o a p p r o a c h s o l u t i o n s . A k e y t o i m p r o v e d s u
pply chain management lies ini
ntegration and coordination
, look to Section for a discussion.
S e c t i o n i n t ro d u c e s important tools of supply chain managers,
modeling and simulation.Goal and Principle of SCMSCM
goal:Providing enhanced value to customers at the least Total
costValue, Velocity and VisibilitySCM Principles:Ultimate customer
focus Network of organizations working for common purpose and
mutual benefitsProcess orientationTotal systems thinkingCost
DimensionsInventoryTransportationWarehousingInformationFi g u r
e b e l o w s h o w s u s t h e re l a t i o n s h i p b e t w e e n s o m e o f
t h e c o m p o n e n t s o f s u p p l y chain.
Delivery and lead-time.Inventory CostsWarehouse costSCM
Framework A f r a m e w o r k to u n d e r s ta n d th e v a r i o u s
i s s u e s i n v o l v e d i n S C M i s p ro v i d e d b y t h e pyramid
structure for the SCM paradigm (fig.) the pyramid allows issues to
be analysedon four levels:

Strategic:On the strategic, level it is important to know how

SCM can contribute to theenterprises basic
value proposition to the customers. Important questions
that areaddressed at this level include: What are the basic
and distinctive services needs of thecustomers? What can

SCM do to meet these needs? Can the SCM capabilities be used

to provide unique services to the customers? Etc.Structural:After
the strategic issues are dealt with, the next level question(s) that
should be asked are: Should the organization market directly or
should it use distributors or other intermediaries to reach the
customers? What should the SCM network look like?
What products should be sourced from which manufacturing
locations? How many warehousess h o u l d th e c o m p a n y h a v e
a n d w h e re s h o u l d b e l o c a t e d ? W h a t i s th e m i s s i o n o f
e a c h facility (full stocking, fast moving items only, cross-docking
etc.)?Functional:This is the level where operational details are
decided. Functional excellencerequires that
the optimal operating practices for transportation
management,
warehouseo p e r a t i o n s , a n d m a t e r i a l s m a n a g e m e n t (
w h i c h i n c l u d e s f o r e c a s t i n g , i n v e n t o r y m a n a g e m e n t,
p ro d u c t i o n s c h e d u l i n g , a n d p u rc h a s i n g ) b e d e s i g n e d . T
h e s e s t r a t e g i e s should keep in view the trade-offs that may
need to be made for the overall efficiency
of t h e s y s t e m . Ac h i e v i n g f u n c t i o n a l exc e l l e n c e a l s o e n t
a i l s d e v e l o p m e n t o f a p ro c e s s - oriented perspective on
replenishment and order fulfillment so that all activities involvedin
these functions can be well
integrated.Fig. SCM Framework PyramidSource: Based on work
done by William C.Capacino.Implementation:Without successful
implementation, the development of SCM strategiesand plans is
meaningless. Of particular importance are the organizational and
informationsystems issues. Organizational issues centers on the
overall structure, individual roles
andre s p o n s i b i l i t i e s , a n d m e a s u re m e n t s y s t e m s n e e d e d
t o b u i l d a n i n t e g r a t e d o p e r a t i o n . I n f o rm a t i o n s y s t e m s a
re e n a b l e r s f o r s u p p l y c h a i n m a n a g e m e n t o p e r a t i o n s
a n d therefore must be carefully designed to support the SCM
strategy. Supply chain managersmust consider
their information needs relative
to decision support tools, applicationsoftwares, data capture,
and the systems overall structure.

I t i s i m p o r t a n t t o n o t e th a t th e d e c i s i o n s m a d e w i th i n
t h e S C M s t r a t e g y p y r a m i d a re interdependent. That is, it
must be understood what capabilities and limitations affect
thefunctional and implementation decisions and consider
those factors while developing asupply chain management
strategy and structure.The SCM models used in practice lie in
a continuum between two extreme models: onone end of
the spectrum lies the vertically integrated supply chain
model in which theorganization has direct control over each and
every component of the supply chain, whileon the other end of
the spectrum lies the horizontally diversifi ed supply chain
model(ideally) in which the number of participant is as large as
the number of distinct parts of the supply chain. In a vertically
integrated supply chain system, the organization cancontrol
every component of the chain and can make various
changes to the system tooptimize the chain very easily. But in
a horizontally diversified supply chain the tendencywill be to
optimize only the functions that the organization is involved in,
thus consciousefforts must be made by the various participants in
the supply chain for the integration of their respective
components in the supply chain. If an organization can be
identifi ed asthe major/dominant partner in the supply
chain, then this organization has to take an initiative in

seeking the co-operation of the other participants in the supply

chain.The type and structure of the supply chain that is
established depends on many factors,some of the major
factors are:Geographical:If the supply chain is stretched across
the globe then it may not be
possiblet o i n c o r p o r a t e so m e o f th e p r i n c i p l e s o f l e a n p r
o d u c t i o n l i ke J I T d e l i v e r y , fl ex i b l e manufacturing, and coordination among suppliers and customers. It can lead to
uncertaintransportation schedules, unpredictable lead-time and
may need larger inventory carriage.Cultural:The diff erence in
the culture of the participants in the chain (the
diff erencecan be due to geographical factors or corporate
practices) can lead to friction and distrust.This may hamper the
development of close ties.Government Legislation: The laws of
the country may prohibit the sharing of informationabout some
facet of the supply chain and thus, may lead to a restrictive
participation byone or more participant in the supply
chain.Decisions on Three LevelsSupply chain management
decisions are often said to belong to one of three levels; the
strategic
, the
tactical
, or the
operational
level. Since there is no well defined and unifieduse of these terms,
this Section describes the how they are used in this thesis.Figure:
shows the three level of decisions as a pyramid shaped hierarchy.
The decisionson a higher level in the pyramid will set the
conditions under which lower level decisionsare made.