Supply Chain Management - Decision

Phases
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SUPPLY CHAIN MANAGEMENT CONCEPTS

What is Supply Chain?
The supply chain involves all the parties involved, directly or indirectly, in fulfilling a customer
request. The supply chain not only includes the service providers, manufacturers ,executers,
and the suppliers, but also the transporters, logistic managers, vendors, subcontractors,
warehouses, retailers and the customers themselves. Within each organization, the supply
chain includes all functions which are involved in receiving and filling the customer request.
These functions include, but are not limited to, delivery of services, product development,
marketing, operations, distribution, execution, and finance and customer service.
The primary purpose for the existence of any supply chain is to satisfy customer needs, in the
process generating profits for itself. The supply chain conjures up images of product and
services or supply moving from suppliers to executers or manufacturers to distributers to
retailers to customers along the chain. The term supply chain in the context of a manufacturing
or a service provider is a misnomer as it may imply that only one player is involved at every
stage. In reality the supply chain is actually a network of various entities at various stages. It is
more accurate to use supply chain network or supply chain web for most of the supply chains as
shown in Figure 3.1. It is important to realize the continuous flow
Figure :3.1 A Typical supply chain network of a manufacturing industry
The supply chain is the combination of all parties (e.g. external suppliers, partner
organisations, internal corporate services units) both inside and outside the
organisation, involved in delivering the inputs, outputs or outcomes that will meet a
specified organizational requirement.
Supply chain is the term used to describe the linkage of companies that turns a series of
basic materials, products or services into a finished product for the client.
All construction companies, be they client, main contractor, designer, surveyor, subcontractor,
or supplier are therefore part of a supply chain. Because of the project based
nature of construction and the way that procurement normally operates, they are
usually members of different supply chains on different projects.
Each company in the chain has a client – the organisation to which the services are
provided – but an integrated supply chain will have the objective of understanding and
working wholly in the interests of the ‘project client’.
The supply chain may be inbound into the organization – an operational requirement
for internal customers for example, or it may be outbound from the organisation – in
SUPPLIER MANUFACTURER DISTRIBUTER RETAILER CUSTOMER
SUPPLER MANUFACTURER DISTRIBUTER RETAILER CUSTOMER
SUPPLER MANUFACTURER DISTRIBUTER RETAILER CUSTOMER
FUNDS,MATERIAL, PRODUCT,SERVICES,INFORMATION FLOW
place to deliver wider organisational objectives to provide services for delivery to
citizens, or a combination of both.
The shape of the supply chain employed will vary considerably depending on a range of
different considerations.
The focus of SC can differ from industry sector-to-sector. In construction, the focus is
on the early establishment of a fully integrated client-supplier project team. In IT
projects, the focus may be on building scope for innovation and flexibility into the SC to
cater for changing requirements and rapidly evolving information and communications
technologies.
SCs can be long-term, strategic sets of relationships between multiple, diverse organizations
which are carried from project to project, or they can be ad-hoc structures established
postcontract award to deliver a discrete, one-off objective.
SCs can be fully integrated, networks of interconnected companies with common performance
and relationship management processes, or they could be characterized by arms length
contractor-subcontractor relationships. Each link within the chain can differ in the nature of the
interdependencies and the way in which the relationship needs to be managed.
SCs can be inbound to the organisation – suppliers delivering goods and services into
the organisation to support its operational objectives e.g. office furniture provision for
an organisation.
Objectives of Supply Chain
The objective of the supply chain is to maximize the overall value generated. The value of the
supply chain is the difference between what the final product is worth to the customer and the
effort the supply chain expends in filling the customer request or the services demanded.. For
the most of the supply chains the value will be strongly correlated with supply chain
profitability, the difference between the revenue generated from the customer and the overall
cost across the the supply chain. The supply chain profitability is the total profit to be shared
across the supply chain. The supply chain success should be measured in terms of supply chain
profitability and not in terms of the profits at an individual stage.
Supply Chain Management
All the flows of the information, product or funds generate costs while source of revenue is only
the customer. The supply chain management involves the management of these flows between
and amongst the stages of the supply chain to maximize total supply chain profitability.
Supply Chain Management is primarily concerned with the efficient integration of suppliers,
factories, warehouses and stores so that merchandise is produced and distributed in the right
quantities, to the right locations and at the right time, and so as to minimize total system cost
subject to satisfying service requirements. -Simchi-Levi
Call it distribution or logistics or supply chain management. By whatever name, it is the sinuous,
gritty, and cumbersome process by which companies move, materials, parts, and products to
customers.: Fortune (1994)
Supply Chain Management deals with the management of materials, information, and financial
flows in a network consisting of suppliers, manufacturers, distributors and customers. :
Stanford Supply Chain Forum
Supply Chain Management encompasses every effort involved in producing and delivering a
final product or service, from the supplier’s supplier to the customer’s customer. Supply Chain
Management includes managing supply and demand, sourcing raw materials and parts,
manufacturing and assembly, warehousing and inventory tracking, order entry and order
management, distribution across all channels, and delivery to the customer. : The Supply Chain
Council, U.S.A
Supply Chain Management: Schools Of Thought
Supply chain management as a concept is viewed by different businesses differently. The varied
view on SCM are classified broadly under following school of thought.
Functional school
Logistics school
Information school
Integration/process school
Functional school
This view concentrates on the material flow and the value addition process in the different
functional departments of the firm and other players in supply chain. This school of thoughts
holds the following basic view of the supply chain- the supply chain consists of the the
individual organization needed to procure material suppliers, transportation providers and
other groups. The main concern of supply chain management according to this view is reducing
costs in the primary functions. Some of the definitions in this school of thought are as under:-
Supply chain management deals with the total flow of materials from the suppliers
through end users.: Jones & Riley(1985)
Supply chain management covers the flow of goods from suppliers through
manufacturer and distributer to the end user.:Houlihan(1988)
Supply chain management focuses attention on the interactions of channel members to
produce an end product/service that will provide best comparative value for the end
user.:Cavinato(1991)
Supply chain management covers the flow of goods from the supplier through the
manufacturer and distributer to the end user.: Novack and simco(1991)
Control the flow of material from the suppliers, through the value adding processes and
distribution channels to customers.: Stevens(1990)
Networks of manufacturing and distribution sites that procure raw materials, transform
them into intermediate and finished products and distribute the finished products to
customers.:Lee and Billington(1992)
Logistics School
The logistics school of thought concentrates on the linkages between the different functional
areas of the supply chain. The supply chain is the set of the facilities through which a product
passes on its way to end customers. The objective of this school of thought is to lower the
logistics costs. Some of the definitions in this school of thought are as under:-
Supply Chain is used to refer the chain linking each element of the production and
supply process from raw material through to the end Customers.: Scott &
Westbrook(1992)
Technique that looks at all the links in the chain from raw material suppliers through
various levels of manufacturing to warehousing and distribution to the final customer.
;Turner(1993)
Information School
This school of thought concentrates on the flow on information up and down the supply chain.
This information may be demand and the sales data or advances shipment notices invitatory
availability etc. The objective here is to minimize the information processing cost. Some of the
definitions in this school of thought are as under:-
SCM is really an operations approach to procurement. It requires all participants of the
supply chain to be properly informed. With SCM, the linkage and the information flow
between various members of the supply chain are critical to overall performance:
Johannson(1994)
A supply chain is a system, the constituent parts of which include materials suppliers,
production facilities, distribution services, customers linked together via the thje feedforward of
materials and the feedback flow of the information.:Towill, Naim & Wikner
(1992)
Integration view
This is the most comprehensive view of the supply chain which brings all the activities involved
in serving the customer for the point of origin to the point of customer. The school of thought
advocates that business processes should be integrated across the supply chain to serve
customers cost effectively. One of the definitions in this school of thought is as under:-
Supply chain Management is an approach whereby the entire network from suppliers to the
ultimate customer, is analyzed and an managed in order to achieve the best outcome for the
whole system: Ellram & Cooper(1993)

Decision Phases in a Supply ChaiN MANAGEMENT

Decision phases can be defined as the different stages involved in supply

chain management for taking an action or decision related to some product
or services. Successful supply chain management requires decisions on the
flow of information, product, and funds that fall into three decision phases.
Here we will be discussing the three main decision phases involved in the
entire process of supply chain. The three phases are described below −

Supply Chain Strategy

In this phase, decision is taken by the management mostly. The decision to
be made considers the sections like long term prediction and involves price
of goods that are very expensive if it goes wrong. It is very important to
study the market conditions at this stage.

These decisions consider the prevailing and future conditions of the market.
They comprise the structural layout of supply chain. After the layout is
prepared, the tasks and duties of each is laid out.

All the strategic decisions are taken by the higher authority or the senior
management. These decisions include deciding manufacturing the material,
factory location, which should be easy for transporters to load material and
to dispatch at their mentioned location, location of warehouses for storage
of completed product or goods and many more.

Supply Chain Planning

Supply chain planning should be done according to the demand and supply
view. In order to understand customers’ demands, a market research
should be done. The second thing to consider is awareness and updated
information about the competitors and strategies used by them to satisfy
their customer demands and requirements. As we know, different markets
have different demands and should be dealt with a different approach.

This phase includes it all, starting from predicting the market demand to
which market will be provided the finished goods to which plant is planned
in this stage. All the participants or employees involved with the company
should make efforts to make the entire process as flexible as they can. A
supply chain design phase is considered successful if it performs well in
short-term planning.

Supply Chain Operations

The third and last decision phase consists of the various functional decisions
that are to be made instantly within minutes, hours or days. The objective
behind this decisional phase is minimizing uncertainty and performance
optimization. Starting from handling the customer order to supplying the
customer with that product, everything is included in this phase.

For example, imagine a customer demanding an item manufactured by your

company. Initially, the marketing department is responsible for taking the
order and forwarding it to production department and inventory
department. The production department then responds to the customer
demand by sending the demanded item to the warehouse through a proper
medium and the distributor sends it to the customer within a time frame. All
the departments engaged in this process need to work with an aim of
improving the performance and minimizing uncertainty.

Supply Chain Management - Process

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Supply chain management is a process used by companies to ensure that

their supply chain is efficient and cost-effective. A supply chain is the
collection of steps that a company takes to transform raw materials into a
final product. The five basic components of supply chain management are
discussed below −

Plan
The initial stage of the supply chain process is the planning stage. We need
to develop a plan or strategy in order to address how the products and
services will satisfy the demands and necessities of the customers. In this
stage, the planning should mainly focus on designing a strategy that yields
maximum profit.

For managing all the resources required for designing products and
providing services, a strategy has to be designed by the companies. Supply
chain management mainly focuses on planning and developing a set of
metrics.

Develop(Source)
After planning, the next step involves developing or sourcing. In this stage,
we mainly concentrate on building a strong relationship with suppliers of
the raw materials required for production. This involves not only identifying
dependable suppliers but also determining different planning methods for
shipping, delivery, and payment of the product.

Companies need to select suppliers to deliver the items and services they
require to develop their product. So in this stage, the supply chain
managers need to construct a set of pricing, delivery and payment
processes with suppliers and also create the metrics for controlling and
improving the relationships.

Finally, the supply chain managers can combine all these processes for
handling their goods and services inventory. This handling comprises
receiving and examining shipments, transferring them to the manufacturing
facilities and authorizing supplier payments.

Make
The third step in the supply chain management process is the
manufacturing or making of products that were demanded by the customer.
In this stage, the products are designed, produced, tested, packaged, and
synchronized for delivery.

Here, the task of the supply chain manager is to schedule all the activities
required for manufacturing, testing, packaging and preparation for delivery.
This stage is considered as the most metric-intensive unit of the supply
chain, where firms can gauge the quality levels, production output and
worker productivity.
Deliver
The fourth stage is the delivery stage. Here the products are delivered to
the customer at the destined location by the supplier. This stage is basically
the logistics phase, where customer orders are accepted and delivery of the
goods is planned. The delivery stage is often referred as logistics, where
firms collaborate for the receipt of orders from customers, establish a
network of warehouses, pick carriers to deliver products to customers and
set up an invoicing system to receive payments.

Return
The last and final stage of supply chain management is referred as the
return. In the stage, defective or damaged goods are returned to the
supplier by the customer. Here, the companies need to deal with customer
queries and respond to their complaints etc.

This stage often tends to be a problematic section of the supply chain for
many companies. The planners of supply chain need to discover a
responsive and flexible network for accepting damaged, defective and extra
products back from their customers and facilitating the return process for
customers who have issues with delivered products.

Supply Chain Performance: Achieving Strategic Fit

Understanding the customer and supply chain uncertainty:
First a company must understand the customer needs for each targeted segment and the uncertainty
the supply

chain faces in satisfying these needs. These needs help the company define the desired cost

and the service requirements. The supply chain uncertainty helps the company identify the

extent of disruptions and delay the supply chain must be prepared for. To understand the

customer, a company must identify the needs of the customer being served. In general the

customer demand from different segments may vary along several attributes as follows.

The quantity of product and services required in each lot or order

The response time or the time of execution of a service that a customer is willing

to tolerate.

The variety of product or services needed

The service level required

The price of product or service.

The desired rate of innovation in the product

The desired level of quality of the product or service.

1. What is the bullwhip effect and how does it relate to lack of coordination in a supply chain?

The bullwhip effect refers to the fluctuation in orders along the length of the supply chain as
orders move from retailers to wholesalers to manufacturers to suppliers. The bullwhip effect
relates directly to the lack of coordination (demand information flows) within the supply chain.
Each supply chain member has a different idea of what demand is, and the demand estimates
are grossly distorted and exaggerated as the supply chain partner is distanced from the
customer.

2. What is the impact of lack of coordination on the performance of a supply chain?

The impact of lack of coordination is degradation of responsiveness and poor cost performance
for all supply chain members. As the bullwhip effect rears its ugly head, supply chain partners
find themselves with excessive inventory followed by stockouts and backorders. The
fluctuations in inventory result in increased holding costs and lost sales, which in turn spike
transportation and material handling costs. Ultimately, the struggle with cost and
responsiveness hurts the relationships among supply chain partners as they seek to explain their
lack of performance.

3. How do trade promotions and price fluctuations affect coordination in a supply chain? What
pricing and promotion policies can facilitate coordination?

Trade promotions and price fluctuations make supply chain coordination more difficult.
Customers seek to purchase goods for less and engage in forward buying which creates spikes in
demand that may exceed capacity. All parties would benefit if the supply chain used every day
low pricing (EDLP) to mitigate forward buying and allow procurement, production, and logistics
to function at a steadier pace. If price incentives must be offered, the chain is better served by
implementing a volume-based quantity discount plan instead of a lot size based quantity
discount, i.e., providing incentives to purchase large quantities over a long period of time,
perhaps a year.

4. How is the building of strategic partnerships and trust valuable within a supply chain?

Cooperation and trust within the supply chain help improve performance for the following
reasons:

When stages trust each other, they are more likely to take the other party’s objectives into
consideration when making decisions, thereby facilitating win-win situations.
 Action-oriented managerial levers to achieve coordination become easier to implement and the
supply chain becomes more agile.

An increase in supply chain productivity results, either by elimination of duplicated effort or by

allocating effort to the appropriate stage.

Detailed sales and production information is shared; this allows the supply chain to coordinate
production and distribution decisions.

5. What issues must be considered when managing a supply chain relationship to improve the
chances of developing cooperation and trust?

The following issues merit attention when management endeavors to improve the chances of
success in supply chain partnership:

The presence of flexibility, trust, and commitment in both parties helps a supply chain
relationship succeed. In particular, commitment of top management on both sides is crucial for
success.

Good organizational arrangements, especially for information sharing and conflict resolution,
improve chances for success.

Mechanisms that make the actions of each party and resulting outcomes visible help avoid
conflicts and resolve disputes.

The more fairly the stronger partner teats the weaker, vulnerable partner, the stronger the
supply chain relationship tends to be.

6. What are the different CPFR scenarios and how do they benefit supply chain partners?

Collaborative planning, forecasting, and replenishment (CPFR) is defined as a business practice

that combines the intelligence of multiple partners in the planning and fulfillment of customer
demand. In order to be successful, the two parties must have synchronized their data and
established standards for exchanging the information.
The four scenarios that sellers and buyers can collaborate along include:

 Retail event collaboration – the identification of specific SKUs that will be involved in
sales promotions and sharing of information regarding the timing, duration, pricing,
advertising, and display tactics to be deployed. The benefit of retail event collaborations
is a reduction in stockouts, excess inventory and unplanned logistics costs.
 DC replenishment collaboration – the forecasting of DC withdrawals or demand from
the DC to the manufacturer is converted to a stream of orders that are locked in over a
specified time horizon. A successful DC replenishment collaboration reduces production
costs at the manufacturer and inventory and stockouts at the retailer.
 Store replenishment collaboration – the forecasting of store-level orders that are
committed over a specific time horizon. Such a collaboration results in greater visibility
of sales for the manufacturer, improved replenishment accuracy and product
availability, and reduced inventories.
 Collaborative assortment planning – the forecasting (collaborative interpretation) of
industry trends, macroeconomic factors, and customer tastes for seasonal goods. This
forecast is converted into a planned purchase order at the style/color/size level that is
used to produce sample products for a fashion event before final merchandising
decisions are made. The manufacturer benefits from this collaboration by having more
lead time to purchase raw materials and plan capacity.