Module 1 - SCM Notes.pdf

JSS Mahavidyapeetha
JSS Academy of Technical Education, Bengaluru
"C:UsersD N RoopaDesktopcourse fileAug 2022-Aug 2023even semesterscmModule 1 - SCM
Notes.docx"
Course Code 18ME653 (Supply Chain Management) CIE Marks 40
Teaching Hours/Week (L:T:P) 3:0:0 SEE Marks 60
Credits 03 Exam Hours 03
Common to : CSE/ISE/ECE/EIE/CV
Course Learning Objectives:
• To acquaint with key drivers of supply chain performance and their inter-relationships
with strategy.
• To impart analytical and problem-solving skills necessary to develop solutions for a
variety of supply chain management & design problems.
• To study the complexity of inter-firm and intra-firm coordination in implementing
programs such as e-collaboration, quick response, jointly managed inventories and
strategic alliances.
Module 1 Syllabus:
Introduction: Supply Chain – Fundamentals –Evolution- Role in Economy - Importance -
Decision Phases – Supplier Manufacturer-Customer chain. - Enablers/ Drivers of Supply Chain
Performance. Supply chain strategy – Supply Chain Performance Measures.
INTRODUCTION
What is Supply Chain Management?
Example:
Consider a customer walking into a Reliance-Mart store to purchase detergent. The supply
chain begins with the customer and his or her need for detergent.
The next stage of this supply chain is the Reliance Mart retail store that the customer visits.
The reliance mart stocks its shelves using inventory that may have been supplied from a
finished-goods warehouse or a distributor using trucks supplied by a third party.
The distributor in turn is stocked by the manufacturer (say, Procter & Gamble [P&G]).
The P&G manufacturing plant receives raw material from a variety of suppliers, who may
themselves have been supplied by lower-tier suppliers. For example, packaging material may
come from Plastipak while Plastipak receives raw materials to manufacture the packaging from
other suppliers. This supply chain is illustrated in Figure 1, with the arrows corresponding to
the direction of physical product

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Generally, The various stages of supply chain is as shown below:
As you can see,
• A supply chain consists of all parties involved, directly or indirectly, in fulfilling a
customer request. The supply chain includes not only the manufacturer and suppliers,
but also transporters, warehouses, retailers, and even customers themselves.
• Within each organization, such as a manufacturer, the supply chain includes all
functions involved in receiving and filling a customer request. These functions include,
Timber
company
Paper
Manufacturer
Plastipak
P&G or
other manufacturers
Reliance mart or
third-party DC
Reliance mart
store
Customer
Chemical
Manufacturer
Plastic
Producer
Informatio
n
Supply
Demand / Return
Product & Services
Cash/Finance

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but are not limited to, new product development, marketing, operations, distribution,
finance, and customer service.
• A supply chain is dynamic and involves the constant flow of information, product, and
funds between different stages
• The supply chain encompasses all activities involved in the transformation of goods
from the raw material stage to the final stage, when the goods and services reach the
end customer.
• Supply chain management involves Planning, Design & Control of flow of material,
information and finance along the supply chain to deliver superior value to the end
customer in an effective and efficient manner.
Supply Chain Fundamentals
Supply chain management represents the confluence of at least three main streams of
knowledge and practical experience of the business world spanning almost 60 years.
The fusion of these streams into one powerful movement, supply chain management sweeping
across the present-day industrial world has been brought about by intense competition
characteristics of the contemporary markets.
These streams include business processes and managerial practices. In course of their
development, these processes and practices have absorbed several allied and subsidiary
functions. The three principal streams are:
• Sourcing, procurement & supply management
• Materials management
• Logistics and distribution.
The supply chain is how a company turns raw materials into finished goods and
services for the
Sourcing is the process of locating products or services outside of your company. Procurement
is negotiating contracts and getting the best price for what you need.
Material management function includes all activities such as forecasting, inventory
management, stores management, warehousing, stock keeping, scheduling, production
planning and control.
Logistics and distribution – While the two are both necessary for moving goods or products,
they both provide different functions in the supply chain management process. Logistics is the

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overall planning and organization of moving, storing, and cataloging products. Distribution is
the process of optimizing the physical movement of goods from production to the consumer.
THE OBJECTIVE OF A SUPPLY CHAIN
• The net value (also known as supply chain surplus) a supply chain generates is the
difference between what the value of the final product is to the customer and the costs
the supply chain incurred in filling the customer’s request.
Net Value (or Supply Chain Surplus) = abs (Customer Value – Supply Chain Cost)
Value of the final product may vary from customer to customer and it can be estimated by the
maximum amount the customer is willing to pay for it.
Consumer surplus = abs (value of the product – price of the product)
Supply chain profitability = abs (revenue generated from customer – overall cost across supply
chain)
• Revenue is from customer – positive cash flow
• All flows of information, product or funds generates costs within the supply chain.
• The objective of Supply chain management is to the manage the flows between and
among stages in a supply chain to
o Maximize total supply chain profitability. &
o Maximize the net value generated.

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Evolution
The evolution of supply chain management over the past century has been a gradual process.
There have been three major revolutions along this journey, and we examine each of them in
the context of the broader evolution in the economic and technological environment..
1. The First Revolution (1910–1920):
This revolution is characterized by:
• Vertical Integrated Firms Offering Low Variety of Products.
• The first major revolution was staged by the Ford Motor Company where they had
managed to build a tightly integrated chain.
• The Ford Motor Company owned every part of the chain - right from the timber to the
rails.
• Through its tightly integrated chain, it could manage the journey from the iron ore mine
to the finished automobile in 81 hours.
• However, as the famous saying goes, the Ford supply chain would offer any colour, as
long as it was black; and any model, as long as it was Model T.
• Ford innovated and managed to build a highly efficient, but inflexible supply chain
that could not handle a wide product variety and was not sustainable in the long
run.
• General Motors, on the other hand, understood the demands of the market place and
offered a wider variety in terms of automobile models and colours.
• Ford’s supply chain required a long time for set-up changes and, consequently, it had
to work with a very high inventory in the chain.
• Till the second supply chain revolution, all the automobile firms in Detroit were
integrated firms.
• Even traditional firms in India, like Hindustan Motors, were highly integrated firms
where the bulk of the manufacturing was done in- house.
2. The Second Revolution (1960–1970):
• Tightly Integrated Supply Chains Offering Wide Variety of Products.
• Towards the end of the first revolution, the manufacturing industry saw many changes,
including a trend towards a wide product variety. To deal with these changes, firms had
to restructure their supply chains to be flexible and efficient.

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• The supply chains were required to deal with a wider product variety without
holding too much inventory.
• The Toyota Motor Company successfully addressed all these concerns, thereby
ushering in the second revolution.
• The Toyota Motor Company came up with ideas that allowed the final assembly and
manufacturing of key components to be done in-house.
• The bulk of the components was sourced from a large number of suppliers who
were part of the keiretsu system. Keiretsu refers to a set of companies with interlocking
business relationships and shareholdings.
• The Toyota Motor Company had long-term relationships with all the suppliers.
• These suppliers were located very close to the Toyota assembly plants.
• Consequently, set-up times, which traditionally used to take a couple of hours, were
reduced to a couple of minutes.
• This combination of low set-up times and long-term relationships with suppliers
was the key feature that propelled the second revolution - and it was a long journey
from the rigidly integrated Ford supply chain. The principles followed by Toyota are
more popularly known as lean production systems.
3. The Third Revolution (1995–2020):
• Virtually Integrated Global Supply Networks Offering Customized Products and
Services.
• Technology, especially information technology, which is evolving faster than
enterprises can find applications for some of the innovations, is the fuel for the third
revolution in supply chain. It will probably take at least couple of years before we can
fully understand the IT-enabled model that has emerged and begin to apply it to all
industries. However, we have enough information to get a reasonably good
understanding of the contours of the third revolution.
• We can understand the key characteristics of the third revolution using the example of
Dell computers (Customized product), Apple Inc.(Revolutionized user experience) and
Bharti Airtel(strategic outsourcing and partnerships with global partners for these core
activities). The first is a product company, the second combines product and service,
and third is a pure service organization.

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• In this revolution, one can see that we have moved single product as offered by Ford to
wide variety of product as offered by Toyota to Customization as offered by Dell,
Apple, Bharati Airtel.
• This revolution has demonstrated that businesses must offer user experiences along
with product and services, which would be of great value to individual customer.
• In the age of virtual integration where all information regarding the customer is
harnessed to provide a personalized customer experience.
The characteristics of these global networks that are enabling the companies to deliver this
experience seamlessly are:
1. High degree of engagement with strategic partners based on cost and technology
leadership for core offerings. (eg. Bharati airtel outsources core activity of network
management to a strategic partner with clear revenue sharing arrangement, which ensures both
are aligned completely)
2. The way global resources of varying kind are harnessed with the help of Information
technology and highly evolved and efficient transportation infrastructure world over. Physical
proximity of strategic partners is no longer an important factor. (eg. Apple sourcing Apps from
corners of the world, dell sourcing chips,)
3. Leveraging of IT in the creation of a platform using which multiple partners having low
engagement contribute to non core activites. (Eg. Apples app development platform)
Presently, An organization which exhibits these three characteristics – ability to strategic
outsourcing by building strong medium term relationships based on cost and technology
leadership, ability to harness global resources and creation of an easy to use platform to
diversify global supply base – Are the companies which are able to create virtual
integration necessary to provide user experiences.

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Role in Economy
The growth of global supply chains has changed the distribution of incomes across countries.
Participation in these supply chains, initiated by the successful completion of low value-added
manufacturing tasks, contributed to industrialization and high rates of economic growth in
several Asian developing economies. Manufacturing managers decide where to locate the
company based on the costs of production. That's led to a lot of jobs outsourcing in technology
to India and China. Many call - centers have outsourced to India and the Philippines.
Natural disasters are becoming an increasing threat that can disrupt any part of the supply chain.
The United Nations Refugee Agency reported their frequency has doubled in the last 20 years
due to global warming. The impact on local productivity can last decades after an event. If a
disaster is bad enough, it can slow global growth. In 2011, Japan's earthquake and the resultant
tsunami created the most damage to the world's supply of automobiles, electronics, and
semiconductor equipment. The wings, landing gears, and other major airline parts are also
made in Japan, so the quake disrupted the production of Boeing's 787 Dreamliner. U.S. gross
domestic product slowed in 2011 as 22 Japanese auto part plants suspended production.
Efficient management of the supply chain can reduce costs, maximize customer value, and
maximize competitive advantage. It entails effective coordination and control of linked sectors,
departments, systems, and organizations.
IMPORTANCE
There is a close connection between the design and management of supply chain flows
(product, information, and funds) and the success of a supply chain. Walmart, Amazon, and
Seven - Eleven Japan are examples of companies that have built their success on superior
design, planning, and operation of their supply chain.
In contrast, the failure of many online businesses, such as Webvan, can be attributed to
weaknesses in their supply chain design and planning.
In the past, customers were not very demanding and competition was not really intense. As a
result, firms could afford to ignore issues pertaining to the supply chain. Today, firms that do
not manage their supply chain will incur huge inventory costs and eventually end up losing a
lot of customers because the right products are not available at the right place and time.
The following are the five major trends that have emerged to make supply chain management
a critical success factor in most industries.

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a) Proliferation in product lines:
Companies have realized that more and more product variety is needed to satisfy the growing
range of customer tastes and requirements. This is evident from the fact that every time a
customer walks into a neighborhood store, he or she is bound to discover a couple of items on
the shelf that he or she had not seen during his or her last visit and that he or she has more
varieties to choose from now.
b) Shorter product life cycles:
With increased competition, product life cycles across all industries are becoming shorter. For
example, technology leaders like Apple works with a life cycle as short as 6 months.
c) Higher level of outsourcing:
Firms increasingly focus on their core activities and outsource non-core activities to other
competent players. Michael Dell, the CEO of Dell Computers, had mentioned that if his
company was vertically integrated, it would need five times as many employees and would
suffer from a drag effect.
d) Shift in power structure in the chain:
In every industry, the entities closer to customers are becoming more powerful. With increasing
competition, a steadily rising number of products are chasing the same retail shelf space. Retail
shelf space has not increased at the pace at which product variety has increased. So there have
been cases of retailers asking for slotting allowance when manufacturers introduce new
products in the market place.
e) Globalization of manufacturing:
Over the past decade, tariff levels have come down significantly. Many companies are
restructuring their production facilities to be at par with global standards. Unlike in the past,
when firms use to source components, produce goods and sell them locally, now firms are
integrating their supply chain for the entire world market. Eg: The rise and subsequent fall of
the bookstore chain “Borders” illustrates how a failure to adapt its supply chain to a changing
environment and customer expectations hurt its performance. Dell Computer is another
example of a company that had to revise its supply chain design in response to changing
technology and customer needs. Walmart has been a leader at using supply chain design,
planning, and operation to achieve success. From its beginning, the company invested heavily
in transportation and information infrastructure to facilitate the effective flow of goods and
information. Walmart designed its supply chain with clusters of stores around distribution

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centers to facilitate frequent replenishment at its retail stores in a cost-effective manner.
Frequent replenishment allows stores to match supply and demand more effectively than the
competition. Walmart has been a leader in sharing information and collaborating with suppliers
to bring down costs and improve product availability. The results are impressive. The growth
in sales represents an annual compounded growth rate of more than 20 percent.
The failure of many online businesses, such as Webvan and Kozmo, can be attributed to their
inability to design appropriate supply chains or manage supply chain flows effectively. Webvan
designed a supply chain with large warehouses in several major cities in the United States, from
which groceries were delivered to customers’ homes. This supply chain design could not
compete with traditional supermarket supply chains in terms of cost. Traditional supermarket
chains bring product to a supermarket close to the consumer using full truckloads, resulting in
very low transportation costs. They turn their inventory relatively quickly and let the customer
perform most of the picking activity in the store. In contrast, Webvan turned its inventory
marginally faster than supermarkets but incurred much higher transportation costs for home
delivery, as well as high labor costs to pick customer orders. The result was a company that
folded in 2001, within two years of a very successful initial public offering.
Dell is another example of a company that enjoyed tremendous success based on its supply
chain design, planning, and operation but then had to adapt its supply chain in response to shifts
in technology and customer expectations. Dell experienced unprecedented growth of both
revenue and profits by structuring a supply chain that provided customers with customized PCs
quickly at reasonable cost. This success was based on two key supply chain features that
supported rapid, low-cost customization. The first was Dell’s decision to sell directly to the end
customer, bypassing distributors and retailers. The second key aspect of Dell’s supply chain
was the centralization of manufacturing and inventories in a few locations where final assembly
was postponed until the customer order arrived. As a result, Dell was able to provide a large
variety of PC configurations while keeping low levels of component inventories.

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Decision Phases
The combination of these four entities can model any supply chain anywhere in the world –
simple or complex. The decisions that may have to be taken is to modify the characteristics of
these entities as we explore different Plan, Design and operations options.
Successful supply chain management requires many decisions relating to the flow of
information, product, and funds. Each decision should be made to raise the supply chain
surplus.
Supply chain decision phases may be categorized as design, planning, or operational,
depending on the time frame during which the decisions made apply.
Each phase decisions must consider uncertainty over the time frame.
1. Supply chain strategy or design: (Design Decision Phase)
• During this phase which are long term decisions, a company decides
o how to structure the supply chain over the next several years.
o It decides what the chain’s configuration will be,
o how resources will be allocated,
o and what processes each stage will perform.
• Strategic decisions made by companies include
o whether to outsource or perform a supply chain function in-house

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o the location and capacities of production
o and warehousing facilities
o the products to be manufactured or stored at various locations,
o the modes of transportation to be made available along different shipping legs,
and
o the type of information system to be used. Eg: Pepsi Co Inc.’s decision in 2009
to purchase two of its largest bottlers is a supply chain design or strategic
decision.
• A firm must ensure that the supply chain configuration supports its strategic objectives
and increases the supply chain surplus during this phase.
• Supply chain design decisions are typically made for the long term (a matter of years)
and are expensive to alter on short notice.
• Consequently, when companies make these decisions, they must take into account
uncertainty in anticipated market conditions over the following few years.
2. Supply chain planning: (Planning Decision Phase)
• For decisions made during this phase, the time frame considered is from a quarter to a
year. Therefore, the supply chain’s configuration determined in the strategic phase is
fixed.
• This configuration establishes constraints within which planning must be done.
• The goal of planning is to maximize the supply chain surplus that can be generated over
the planning horizon given the constraints established during the strategic or design
phase.
• Companies start the planning phase with a forecast for the coming year (or a
comparable time frame) of demand and other factors, such as costs and prices in
different markets.
• Planning includes making decisions regarding which markets will be supplied from
which locations, the subcontracting of manufacturing, the inventory policies to be
followed, and the timing and size of marketing and price promotions.
• In the planning phase, companies must include uncertainty in demand, exchange rates,
and competition over this time horizon in their decisions. Given a shorter time frame
and better forecasts than in the design phase, companies in the planning phase try to
incorporate any flexibility built into the supply chain in the design phase and exploit it
to optimize performance.

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• During planning phase, companies define a set of operating policies that govern short-
term operations.
3. Supply chain operation: (Operations Decision Phase)
• The time horizon here is weekly or daily.
• During this phase, companies make decisions regarding individual customer orders.
• The goal of supply chain operations is to handle incoming customer orders in the best
possible manner.
• By this decision phase, should have already defined supply chain design configuration
planning policies.
• During this phase,
o firms allocate inventory or production to individual orders
o set a date by which an order is to be filled
o generate pick lists at a warehouse,
o allocate an order to a particular shipping mode and shipment
o set delivery schedules of trucks, and
o place replenishment orders.
• Because operational decisions are being made in the short term (minutes, hours, or
days), there is less uncertainty about demand information.
• Given the constraints established by the configuration and planning policies, the goal
during the operation phase is to exploit the reduction of uncertainty and optimize
performance.
We understand that Design decisions constrain or enable good planning, which in turn
constrains or enables effective operation.
The design, planning, and operation of a supply chain have a strong impact on overall
profitability and success. It is fair to state that a large part of the success of firms such as
Walmart and Seven-Eleven Japan can be attributed to their effective supply chain design,
planning, and operation.
Supplier - Manufacturer - Customer chain
Basically, there are four kinds of participants in any supply chain. Each participant is
responsible to perform activities that make a supply chain work efficiently.
These participants are:
1) Producers or manufacturer

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2) Distributors or Wholesalers
3) Retailers
4) customers or consumers.
The purpose of a supply chain is to supply the customers demand for products and services.
Supply chain is a combination of organizations. Each organization will have company and its
suppliers and its customers .
Finally, there are companies who are service providers to other companies in the supply chain.
These are companies who supply services in logistics, finance, marketing, and information
technology.
In any given supply chain, there is some combination of companies who perform different
functions. There are companies:
Who are producers,
Who are distributors or wholesalers
Companies who are retailers, and
companies or individuals that are the customers who are the final consumers of a product.
Supporting these four kinds of companies there are other companies that are service providers
providing a range of needed services.
• Producers:
Producers or manufacturers are organizations that make a product.
Producers or manufacturers may be are:
producers of raw materials (eg: that mine for minerals, drill for oil and gas, and cut
timber. farm the land, raise animals, or catch seafood etc)
producers of finished goods. (eg: Producers of finished goods use the raw materials and
sub-assemblies made by other producers to create their products.)
• Distributors:
Distributors are companies that take inventory in bulk from producers and deliver a
bundle of related product lines to customers.
Distributors are also known as wholesalers.
Supplier A Supplier B Company End customer
Customer
Service provider

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They typically sell to other businesses and they sell products in larger quantities that an
individual consumer would usually buy.
Distributors buffer the producers from fluctuations in product demand by stocking
inventory and doing much of the sales work to find and service customers.
For the customer, distributors fulfill the “Time and Place” function – they deliver
products when and where the customer wants them.
In addition to product promotion and sales, other functions the distributor performs are
ones such as inventory management, warehouse operations and product transportation
as well as customer support and post sales service.
• Retailers:
Retailers stock inventory and sell in smaller quantities to the general public.
This organization also closely tracks the preferences and demands of the customers that
it sells to.
It advertises to its customers and often uses some combination of price, product
selection, service, and convenience as the primary draw to attract customers for the
products it sells.
• Customers: Customers or consumers are any organization that purchase and use a
product. A customer organization may be an organization that purchases a product in
order to incorporate it into another product that they in turn sell to other customers. Or
a customer may be the final end user of a product who buys the product in order to
consume it.

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Supply Chain Process View
A supply chain is a sequence of processes and flows that take place within and between
different stages and combine to fill a customer need for a product. Two ways to view the
processes performed in a supply chain
• Cycles view and
• Push/pull view
Cycle View: Cycle View: The processes in a supply chain are divided into a series of cycles,
each performed at the interface between two successive stages of a supply chain.
Supply chain process can be broken down into four process cycles such as
• Customer order cycle
• Replenishment cycle
• Manufacturing cycle
• Procurement cycle
Each cycles occurs at the interface between two successive stages of the supply chain. A cycle
view of the supply chain is very useful when considering operational decisions. It clearly
specifies the roles and responsibilities of each member of the supply chain. It helps the designer
to consider the infrastructure required to support the processes.

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Push/Pull View
Categorizes processes in a supply chain based on whether they are initiated in response to a
customer order (pull) or in anticipation of a customer order (push). Categorization is based on
the timing of process execution relative to end customer demand.
At the time of execution of a pull process customer demand is known with certainty. In case
of push process at the time of execution of a process demand is not known and must be
forecasted.
Hence,
• Pull process – reactive process
• Push process – speculative process
Push/pull boundary in a supply chain separates push process from pull process. Very useful
when considering strategic decisions relating to supply chain. Forces more global consideration
of supply chain processes as they relate to a customer order. More the pull process better the
supply chain.

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Enablers/ Drivers of Supply Chain Performance
Three major enablers that have helped firms and nations in reducing the supply chain costs are
as below:
1. Improvement in communication and IT
2. Emergence of third party logistics provider
3. Enhanced inter firm coordination capabilities
1. Improvement in communication and IT
Computing power has become cheaper and communication costs too have come down. This
has helped firms in coordinating global supply chains in a cost effective manner. Advances in
ERP (enterprise resource planning) systems have helped firms in automating several business
processes, which has enabled seamless information flow through out the company across
different functions. Internet technology has changed the nature of information flow in inter
firm transactions. In the past, the investment on integrating with partners using EDI
technologies was huge, but now even small companies can communicate with their chain
partners using worldwide Web at a fraction of cost. Companies are realizing that they can
replace physical inventory by information.
To completely exploit the benefit of IT and Communication developments, organizations need
to re-engineer their supply chain and other supporting organizational processes.
Eg.
a) A company with multiple plants can work with a common pool of safety stock of raw
materials and does not need to have safety stock for each individual plant.
b) Order processing systems can be designed to handle customized orders and their
manufacturing and distribution systems can track these customized product in the
system.
However, we witness that, number of companies have used IT to just automate the existing
supply chain systems and processes.
2. Emergence of third-party logistics providers
Traditionally, many firms have been managing their logistics activities internally. Lately,
companies have realized that they need to focus their energies on managing core business
activities. Therefore, companies have been exploring the possibility of outsourcing logistics
activities to third party logistics (3PL) service providers (Concentrates on logistics part for the
company from whom they receive outsourcing for order fulfillment - warehousing, picking and

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packing orders, and shipping packages.). In developed economy markets, companies are going
for outsourcing to fourth party logistics (4PL) service providers (a step further, they manage
the entire supply chain, including fulfillment, transportation, and technology. )
Currently, the 3 PL industry in India is still evolving. One set of 3 PL companies involves
traditional transporters, shippers, warehouse service providers and freight forwarders. Second
set of 3PL service providers are international 3PL companies that have come to India along
with their global MNC customer.
3. Enhanced Inter-Firm coordination capabilities
Coordination of global network of companies has been gearing up globally. For a global
network to function meaningfully one needs a firm to play a role of the strategic center. While
each company in the supply chain network focuses on its core competencies, the strategic
centers function as a leading system. The real challenge here is align of interest of all
participators in the network.

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Supply chain strategy - Supply Chain Performance Measures
• A firm must ensure a smooth fit between its business strategy and supply chain strategy
• Business strategy: the firm decides the market segment in which it wants to operate
and the level of customer services it wants to offer
• Supply chain strategy: issues of costs that the firm has to incur to provide superior
value (product and service) to customer in efficient and effective manner.
To understand the relationship between supply chain strategy and business strategy, lets
understand cost vs service tradeoff in business.
For any given both business strategy and supply chain strategy, firms generally have an
efficient frontier. Efficient frontier defines the path of tradeoff between cost and service. Ideally
firms would love to provide high level of customer service (high variety, short delivery time
etc) at low cost. But as shown in the figure below, firms have a tradeoff between cost and
service level at the efficient frontier.
As it can be observed from the graph, if a firm Wants to improve its performance on the
customer service front, it must accept deterioration in cost and vice versa. Efficient frontier
provides a lower envelop below which firms can not choose to operate. Efficient firms can
choose to operate at any point of the efficient frontier.
Efficient frontier is an upper ceiling on performance and it is achieved at best between the
supply chain strategy and business strategy.

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Above figure depicts the revenue (price*demand) curve and cost curve obtained for a given
level of service. The optimal level of service that a firm must operate is a service level at which
the profit contribution is maximum.
This level how ever is not static, changes with customer taste and competitive offerings, have
an impact on revenue curve and cost curve.
Supply Chain Performance Measures.
An exhaustive list of supply chain performance measures is observed here along with its’
significant impact of supply chain performance on business performance using benchmarking
data and also the methodology for linking the two.
Among various sets of supply chain performance measures discussed in the literature, we focus
on a set of performance measures that have been most widely accepted in the industry. The
Supply-Chain Council is an independent, non-profit, global corporation interested in getting
the industry to standardize supply chain terms so that meaningful supply chain benchmarking
can be carried out.
It has developed the Supply Chain Operations Reference (SCOR) model as the industry
standard for supply chain management. Several supply chain software vendors have adopted
the SCOR performance measures in their performance management module. SCOR recognizes
six major processes: Plan, Source, Make, Delivery, Return, and Enable.
As per the SCOR model, supply chain performance measures fall under the following five
broad categories:
i. Cost
ii. Assets (Asset Management Efficiency)
iii. Reliability
iv. Responsiveness

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v. Agility
Further, the SCOR model develops 10 performance measures as shown in the figure. The
Supply-Chain Council refers to measures related to costs and assets as internal-facing
measures, while reliability, responsiveness, and agility are termed as customer-facing
measures.
Typically, a firm offers a bundle consisting of price, delivery and flexibility to its customers.
Price, in competitive markets, is dictated by the market place. Thus, only delivery- and
response-related measures are termed as customer-facing measures. The performance measures
related to assets and costs affect the profitability of the firm and are, thus, termed as internal-
facing measures. The use of standard measures allows firms to carry out meaningful
benchmarking studies. Benchmarking studies carried out by the Supply-Chain Council have
shown that there are significant differences in performance across firms in various industries.
SCOR measures, however, do not capture measures related to product variety. So, to that extent,
performance measures under the SCOR model do not seem to be comprehensive. While
relating the SCOR model to the cost versus customer service trade-off framework, we combine
costs- and assets-related measures. Supply chain benchmarking using frameworks like SCOR
is difficult to implement in countries in Asia where data availability is a big problem.
Alternatively, one may like to focus on fewer but important metrics like cost and assets
utilization data, for which data are available in financial statements of listed companies.

JSS Mahavidyapeetha
Notes.docx"
Question Bank Module 1:
1. What is supply chain management? Explain the structure of supply chain management
with an example.
2. Why is it believed that “Not every supply chain process will have all four cycles clearly
separated"? Analyse.
3. Explain the importance of supply chain management
4. Explain the drivers of supply chain management.
5. Explain the decision phases in a supply chain
6. Explain the evolution of supply chain till date
7. Explain the objective of a supply chain
8. Explain the supply chain performance measures.
9. Explain how service level can impact costs and revenues?
10. How do you measure the performance of a supply chain?

Module 1 - SCM Notes.pdf

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Module 1 - SCM Notes.pdf