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- 1. 1. INTRODUCTION SUPPLY CHAIN MANAGEMENT A supply chain management 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, ware-houses, 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, but are not limited to, new product development, marketing operations, distribution, and finance and customer service. Supply chain management is an application of total systems approach to managing the entire flow of information materials and services from raw material suppliers through factories and warehouses to the end customer. The linkages may be observed between suppliers that provide inputs, manufacturing and service distribution and local service providers that localize the product. Localization can involve just the delivery of the product or some more involved process that tailors the product or service to the needs of the local market. So why is supply chain management such a popular topic these days? The answer is that many companies are achieving significant competitive advantage by the way they configure and manage their supply chain operations. Dell computer, for example, skips the distribution and retail steps typical of a manufacturing company’s supply chain. Dell takes orders for its computers from customers over the Internet and manufactures directly to the orders. The computers are able to get the latest models at very competitive prices in only five or six days using this approach. A fundamental question in supply chain management is how value is created, if improved efficiency lowers the cost to the end customer and does that increase the perception of value? If so, then strategies such as the auto industry’s seeking to minimize labour cost have a role to play.
- 2. GOAL OF A SUPPLY CHAIN:- The goal of a supply chain should e to maximize overall supply chain profitability. Supply chain profitability is the difference between the revenue supply chain. Supply chain decisions have a large impact on the success or failure of each firm because they significantly influence both the revenue generated and the cost incurred. Successful supply chains manage flow of product information and funds to provide a high level of product availability to the customer while keeping costs low. KEY SUPPLY CHAIN DESION PHASES The supply chain decisions fall into three categories or phases, depending upon the frequency of each decision and the time frame during which a decision phase has an impact. 1. Supply chain strategy or design: - During this phase, given the marketing and pricing plans for a product, a company decides how to structure the supply chain over the next several years. It decides what the chain’s configuration will be, how resources will be allocated and what processes each stage will perform. Strategic decisions made by companies include whether to outsource or perform a supply chain function in-house, the location and capacity of production and warehousing facilities, the products to be manufactured or stored at various locations, the modes of transportation to be made available along different shipping legs and the type of information system to be utilized. A firm must ensure that the supply chain configuration supports its strategic objectives and increases the supply chain surplus during this phase. 2. Supply chain planning:- for decisions made during this phase, the time frame considered is a quarter to a year. Planning includes making decisions regarding which markets will be supplied form which locations, the subcontracting of manufacturing, the inventory policies to be followed and the timing and size of marketing and price promotions. Dell’s decisions regarding markets supplied by a production facility and target production quantities at each location are classified as planning decisions.
- 3. 3. Supply chains operations: - The time horizon here is weekly or daily and during this phase, firms allocate inventory or production to individual order, set a date on which that order is to be filled, generate pick lists at a warehouse, allocate an order to a particular shipping mode and shipment, set delivery schedules of trucks and place replenishment orders. 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. PROCESS VIEWS OF A SUPPLY CHAIN: - There are two different ways to view the processes performed in a supply chain. 1. 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. 2. Push/pull view: - The processes in a supply chain are divided into two categories, depending on whether they are executed in response to a customer order or in anticipation of the customer orders. Pull processes are initiated by a customer order, whereas push processes are initiated and performed in anticipation of customers orders. SUPPLY CHAIN MACRO PROCESSES IN A FIRM: - 1. Customer relationship management (CRM): All processes that focus on the interface between the firm and its customers. 2. Internal supply chain management (ISCM): All processes that are internal to the firm and work to plan for and fulfill customer orders.
- 4. 3. Supplier Relationship management (SRM): All processes that focus on the interface between the firm and its suppliers and include work to evaluate and select suppliers and then source goods and services from them. Supplier Firm Customer SRM ISCM CRM Source Strategic planning Market negotiate Demand planning Price Buy Supply Sell planning Design collaboration Fulfillment Call centre Supply collaboration Field service Order management Supply Chain Macro Processes COMPETITIVE AND SUPPLY CHAIN STARTEGIES:- A company’s competitive strategy is defined as relative to its competitors and the set of customer needs that it seeks to satisfy through its products and services. Wal-Mart aims to provide high availability of a variety of products of reasonable quality at low prices. Most products sold at Wal-Mart are commonplace (everything from home appliances to clothing) and can be purchased elsewhere. What Wal-Mart provides is a low price and product availability. Similarly, Dell has stressed customization and variety at a reasonable cost, with customers having to wait approximately to get their product. To wee the relationship between competitive and supply chain strategies, we start with the value chain for a typical organization as shown below –
- 5. The value chain disaggregates the firm into its distinct strategic activities. The value chain is the complete set of activities involved in a product. The value chain begins with new product development , which creates specifications for the product. Marketing and sales generate demand by publicizing the customer priorities that the products and services will satisfy. Marketing also brings customer input back to new product development. Using new product specifications and operations transforms inputs to outputs to create the product. Distribution either takes the product to the customer or brings the customer to the product. This service responds to customer requests during or after the sale. Finance, information technology, human resources support and facilitate the functioning of the value chain. Value chain analysis seeks to determine, within the company’s operations – from new product development to distribution – customer value can be enhanced or costs lowered. For each value added activity, the key questions are: 1. Can we reduce costs in this activity, holding revenue value constant? 2. Can we increase revenue in this activity, keeping the costs constant? 3. Can we reduce assets in this activity keeping costs and revenues constant? 4. Mostly importantly, can we do 1, 2 and 3 simultaneously? By systematically analyzing costs, revenues and assets in each activity, the business unit can achieve cost cum differentiation advantage. To execute a company’s competitive strategy, all the above functions play a role and each must develop its own strategy. Here strategy refers to what each process or function will try to do particularly well. A product development strategy specifies the portfolio of new products that the company will try to develop. It also decides whether the development effort will be made in-house or outsourced. A marketing and sales strategy specifies how the market will be segmented and how the products will be positioned, priced and promoted. A supply chain strategy determines the nature of procurement of raw materials, transportation of materials to and from the company, manufacture of the product or operation to provide the service and distribution of the product to the
- 6. customer, along with any follow up service and a specification of whether these processes will be performed in house or outsource. Given that firms are rarely completely vertically integrated, it is important to recognize that the supply chain strategy defines not only what processes within the firm should do well but also what role played by each supply chain entity is. Supply chain strategy includes a specification of the broad structure of the supply chain and what many traditionally call “operations strategy” and “logistics strategy”. The value chain emphasizes the close relationship the close relationship between the functional strategies within a company. Each function is crucial if a company is to satisfy customer needs profitably. Thus, the various functional strategies cannot be formulated in isolation. They are closely inter-twined and must fit and support each other if a company is to succeed. DRIVERS OF SUPPLY CHAIN PERFORMANCE: First we define each driver and discuss its impact on the performance of the supply chain: 1. Facilities are the actual physical locations in the supply chain network where product is stored, assembled or fabricated. The two major types of facilities are production sites and storage sites. Decisions regarding location, capacity and flexibility of facilities have a significant impact on the supply chain’s performance. 2. Inventory encompasses all raw materials work- in- process and finished goods within a supply chain. Changing inventory policies can dramatically alter the supply chain’s efficiency and responsiveness. 3. Transportation entails moving inventory from point to point in the supply chain. Transportation can take the form of many combinations of modes and routes, each with its own performance characteristics. 4. Information consist of data and analysis concerning facilities, inventory, transportation, costs, prices and customers throughout the supply chain information is potentially the biggest driver of performance in the supply chain because it directly affects each of the other drivers. Information presents management with the opportunity to make supply chain more responsive and more efficient.
- 7. 5. Sourcing is the choice of who will perform a particular supply chain activity such as production, storage, transportation or the management of information. At the strategic level these decisions determine what functions a firm performs and what functions the firm out-sources. Sourcing decisions affect both the responsiveness and efficiency of a supply chain. 6. Pricing determines how much a firm will charge for goods and services that it makes available in the supply chain. Pricing affects the behavior of the buyer of the good or service, thus affecting supply chain performance.