Module I
BUSINESS ENVIRONMENT TODAY
 Liberalised & Hurtling Towards Full Globalisation
 Revolutionary Developments in Technology
 Short Product Life-Cycles
 Shift in Manufacturing - Retailer Relationships
 Mounting Pressures from
 Consumer Groups
 Environmentalists
 ‘Constant Change’ is Now A Permanent Feature
Adds to Increased Business Complexity of 4C
BUSINESS COMPLEXITY- 4C
Market
Trends
External Environment
Customers
Within Company
Completeness
Move to Integrate
Solutions, Not just
Products or Services
Complexity
- Simplest Ideas Exploited
- Barriers to Entry Increasing
- Technology Rates Rising
Competitiveness
- Reduced Monopolies
on Technology
- Work Done Almost
Anywhere
- Time and Quality
are Competitive
Resources
Customer Focus
New Standards Emerging in
Product Quality/ Price/
Delivery Services/ Flexibility
Competition
Increased Volatility that Necessitates Change In Ways of
Managing Customers/ Products/ Suppliers/ Employees
PLAN FOR CHANGE
 Create Responsive Systems & Institutions
 Create Customer Oriented Workforce At All
Levels
 Develop Plans to Manage Both Long & Short Term
Changes
 Emphasise Flexibility in Planning/ Operations &
Management To Hone Competitive Edge
 Manage ‘Change’ to Company’s Advantage
Implement Supply Chain Management Concept
A Paradigm Shift
RELAY RACE
Baton Slipped & Fell
3 MAJOR REASONS FOR FAILURE
 Participant’s Objectives -
DIFFERENT
 Goals at Change-Over Points -
CONFLICTING
 Participants Busy Improving
Own Performance
NO ONE FOR OVERALL
SUCCESS
FUNCTIONAL ORGANIZATION
Material Flow
Purchase
Customer Service
Materials
Production
Distribution
Sales
Baton - Material/ Goods/ Information
 Each Function Has Its Individual Goal
 All Functions Work Within Silos To Meet Individual Goals
 Company Unable to Match Customer Service Levels At
Competitive Costs
SCM Concept Integrates Functions/ Companies Along Supply Chain
SUPPLY CHAIN MANAGEMENT CONCEPT
SUPPLY CHAIN
Within & Beyond the
Company
Is considered a
SINGLE ENTITY
All MOVEMENT Activities
in
SUPPLY CHAIN
Constitute
TOTAL SYSTEM
FUNCTIONAL ORGANIZATION
Information Flows
Arms Length
Arms Length
Modified Order
S
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P
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I
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R
S
Purchase
Production
Information 4
Information 3
Order
Sales
Distribution
Information 2
Information 1
C
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T
O
M
E
R
S
Information C
Information S
Fragmented Information Flows
SCM IMPLEMENTED ORGANIZATION
Information Flows
S
U
P
P
L
I
E
R
S
Purchase
Production
Distribution
Sales
Information Flow
• Orders
• Forecasts
• Payments
• Delays
• Order Status
Seamless Information Flow
C
U
S
T
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R
S
SUPPLY CHAIN - WHAT
 Organizations (Stages) Involved Directly & Indirectly
In Satisfying Customer- Needs
 Supply Chain Comprises Value-Adding Organizations
 Manufacturers
 Suppliers  Transporters  Warehouses
 Distributors
 Retailers  Customers
 Functions That Fulfill Customer Requests Within An
Organization – Internal Supply Chain/ Logistics
 Internal Supply Chain Includes Functions Related To
 Materials Management
 Distribution
 Customer Service
Directly Involved
 Marketing
 Operations
 Finance
Indirectly Involved
SUPPLY CHAIN AS A NETWORK
Links
Nodes
Supplier Chains
Company
Customer
Chains
 Network of Facilities & Distribution Options Performing
 Material Procurement
 Transformation Into Intermediates & Finished Products
 Distribution of the Products to Customers
 Supply Chains Necessary for Production & Distribution Of
Both Tangible Products & Intangible Services
SUPPLY CHAIN MANAGEMENT – NEW STRATEGY
 In Traditional (Functional) Organizations Marketing/
Manufacturing/ Distribution/ Purchasing Organizations Along the
Supply Chain Operate Independently
 Each Function Have Their Own & Often Conflicting Objectives
• Marketing – High Sales Through High Customer Service
• Manufacturing – High Throughputs / Low Variety For Low Costs
• Distribution – Large Variety with Low inventory
• Purchasing – Low Costs with Little Consideration for Inventory
 This Result in Less Than Optimal Working in Traditional Firms
that Leads to Higher Costs & Subsequent Loss of Business To
Competition
 Companies Felt Urgent Need for Integration Among Departments
& Independent Companies Working Along the Supply Chain
 Supply Chain Management is the Strategy For Bringing This
Integration Within & Beyond Companies To Fight the Competition
INTEGRATED
INTEGRATED
SUPPLYSUPPLY
CHAIN MANAGEMENT
CHAIN
Material Flows
Reverse Logistics Flows
1 tier
Suppliers
Procurement
Transmission
Assembly
BSR
Depots
Dealers
Customers
2 tier Suppliers
COMPANY
Information Flows
Inbound
Logistics
External
Supply Chain
In-plant Logistics
Outbound
Logistics
Logistics/
Internal Supply Chain
Financial Flows
Managing the Flows Most Profitably
External
Supply Chain
SUPPLY CHAIN MANAGEMENT
DEFINITION
INTEGRATION of all Activities Associated with
Transformation and Flow of Goods from Raw Material
to Finished Products and Suppliers to the End Users,
Related Information Flow both UP and DOWN the
Supply Chain and Financial Flow from Customers to
Suppliers, through Improved Supply Chain Relations,
for Achieving Sustainable Competitive Advantage
SCM Implemented Company Creates Healthy Bottom
Line Today and Conditions for Same Tomorrow
INTEGRATION IN SUPPLY CHAIN
 Process Integration
 Collaborative Working with Buyer and Seller
 Joint Product Development
 Common Systems
 Shared Information
 System Integration
 Suitable ERP System Over- Laid with DSS
 Focussed on Processes, Suppliers and Customers
Chains that Enhance Competitiveness
Integration in Supply Chain
Critical for Organizational Success
STRATEGIC APPROACH IN SCM
 Unifying ALL ACTIVITIES Related To The Process
From Product Conception To Consumption
 Tying Together Diverse And At Times Conflicting
Activities In The Organisation
 SC Management Influences Large Chunks Of Costs
Directly Related To Current And Future Profits
Needs Strategic Orientation in Deciding
Activities under its Control
TOTAL SUPPLY CHAIN
Suppliers
Material
Costs
Manufacturers
Distribution Centers
Warehouses
Manufacturing
Costs
Transportation Costs
Transportation Costs
Customers
Inventory
Costs
Transportation Costs
• All Facilities Impact COSTS, Though in Varying Degrees
• Efficient and Cost-Effective ACROSS Total Supply Chain
• Decisions/Activities at Strategic-Tactical-Operational Levels
SUPPLY CHAIN MANAGEMENT - GOALS
High Level of
Customer Service
Towards
Markets and
Production
• Low level of
Tied-up Capital
in Inventories
• Low Inventory
Management
Costs
CONFLICTING GOALS
IN SC MANAGEMENT
• Low Material Cost
• Low Costs of Logistics
Achieved By Juggling
The Logistics Mix
• Low Overheads
ELEMENTS OF LOGISTICS MIX
 Inventory
 Facilities – Locations & Numbers
 Communications
 Unitisation (Packaging)
 Transportation
 Procurement & Purchase
 Distribution)
 Customer Service
Trade-Off Made Among Elements of Logistics Mix To
Enhance Customer Service With Lower Costs
TRADE - OFFS IN SC MANAGEMENT
 Lot Size - Frequency of Purchase/ Production
 Inventory – Transportation Cost
 Lead Time – Transportation Cost
 Product Variety – Inventory Cost
 Warehousing – Transportation Cost
 Cost – Customer Service
Advanced IT & Creative Network Design
Reduce Impact of Trade- Offs
EVOLUTION OF SUPPLY CHAIN MANAGEMENT
1960
Material Flow
Material
Control
Purchase
Production
Customer Service
W/H &
Transport
Sales
Admin
Inventory
Inventory
Functional Integration
1970
Material Flow
Materials
Management
Inventory
In-Plant
Management
Customer Service
Logistics
Integration Within Organisation
Inventory
EVOLUTION OF SUPPLY CHAIN MANAGEMENT
1980
Material Flow
Materials
Management
Suppliers
Arms
1990
In-Plant
Management
Customer Service
Arms
Logistics/
Internal Supply Chain
Arms length
Customers
Logistics
Length
Suppliers
2000
Internal Integration
Partnership
Length
Customers
Arms length
Partnership
INTEGRATED SUPPLY CHAIN MANAGEMENT
Customers
Co-Maker
Suppliers
Co-Maker
Integration Beyond Organisation
BASIC ELEMENTS OF SCM
 PLAN (Developing Strategies)
 For Managing Resources Efficiently To Delivery Value to Customer
 Developing Metrics To Monitor SCM Performance
 SOURCE
 Choose the Right Suppliers To Support Delivering Quality
 Developing Metrics To Monitor SCM Relationships
 Develop Processes For Sourcing & Managing Supplies
 MAKE
 Making Schedules for Production/ Testing/ Packaging/ Delivery
 Metrics To Monitor Quality/ Output/ Labour & Asset Productivity
 DELIVER (Logistics)
 Coordinating Customer Order Receipt & Timely/ Correct Delivery
 Developing Distribution Network of Transporters & Warehouses
 Setting Up Invoicing System to Receive Payments
 REVERSE LOGISTICS (Customer Returns)
 Creating Network/ Processes To Support Customers Facing Difficulty
with Delivered Products - Return/ Payment/ Discount Procedures
SCM OBJECTIVES
 SCM Objective is To Get the Right Product/ Services in
Right Quantities at The Right Place and Right Time At
Minimal Cost
 Other Objective is To Maximize Overall ‘Value Generated’
 Value - Difference Between Worth of the Product To
Customer & Cost Incurred by the Supply Chain
 SC Profitability Closely Related To ‘Value Generated’
 SC Profitability is the Profit Shared Across the Whole
Supply Chain
 Customer Satisfaction Achieved When SCM Objective is
Fulfilled in Providing Customer Service
 Customer Satisfaction Measured Using Metrics
• Order Fill-Rate
• On-Time Delivery
SUPPLY CHAIN MANAGEMENT ISSUES
 The SCM Objective Translates into the following SCM Issues
 Flexibility
• Delivery Reliability
• Delivery Time (Lead Time)
• Inventory Levels
 Flexibility
• Ability to Respond Quickly to Changes in the Environment
• Flexibility in Supply Chain is Highly Dependent on Flexibility
of All Independent Entities in the Supply Chain
 Inventory
• Raw Material/ Product (Component) Inventory (RPI)
• Work-in-Process (WIP)
• Finished Products/ Goods Inventory (FGI)
• Inventory That has Become Obsolete Called End-Off-Life
(EOL) Write Off
DECISION HIERCHY IN SCM
Higher Level
Middle Level
Lower Level
Strategic
Level
Tactical
Level
Operational
Level
Long-Term Decisions – Having Long-Term Effect
Medium-Term Decisions – Mid-Term Effect
Day-To-Day Decisions – Short-Term Effect
 Higher Level Decisions Set Conditions Within Which Lower Level
Decisions Have to be Made
 Strategic Level Decisions Relate to Location/ Production/
Inventory Policy/ Transportation Modes to Be Used
 Tactical Level Decisions Relate to Monthly Production Plan/
Monthly/ Weekly Supply Schedule
 Operational Level Decisions Relate to Daily Allocation of Jobs/
Employing Casual Labour/ Scheduling Staff for Front-Office Duty
ORGANISATIONAL LINKING MECHANISM
IN SCM IMPLEMENTED ORGANISATION
Strategic
Objectives
& Policies
Tactical
Plans &
Forecasts
Schedules
& Controls
Operational
Purchase
Function
Production
Function
Logistics
Function
Sales
Function
SUPPLY CHAIN MANAGEMENT DECISIONS
 Sourcing Decisions
 Production Decisions
• Quality of Product
• Choosing Right Suppliers/
Vendors
• Preferred Location of Supplier
• How Much Product to Order
• Which Transportation Mode to
Use
 Inventory Decisions
• Location of Plant (Domestic/
International)
• Make vs. Buy
• Capacity of Plants
• Product Quality – Low-Cost Leader/
Some other Differentiation Strategy
 Logistics Decisions
• How much Inventory To Hold
(Safety Stock)
• How Much To Order
• When To Order
• Scheduling Technique (JIT/ JIC)
• Transportation (30% of Log Cost)
 Road (Truck/ Vehicle)
 Rail
 Air
 Water
 Multi-Modal Transportation
• Location of Plants/ Warehouse/ DC
 Supply Chain Management Decisions Must Ensure
• Seamless Flow of Communication/ Material/ Finances
• Reduction in Inventory While Maintaining High Customer Service Levels
• Reduction in Supplier Base & Developing Supplier Relationship To
Reduce Overall Costs
• Standardize Parts For Reducing Variety For Reducing Inventory
INTERDEPENDENCY IN SUPPLY CHAIN
Customer
Service
Flexibility
Inventory
 Higher Customer Service Comes with Higher Costs To Hold/ Carry Higher
Inventory (Inventory Carrying Costs=(30-40)% of Inventory Value)
 SCM Strives for Providing Higher Customer Service at Lower Costs
 High Flexibility is Ability of Changing/ Adapting to Customer Demand/
Change in Demand Quickly (Shorter Lead Times)
 Higher Flexibility in Supply Chain Helps in Providing Higher
Customer Service Even with Lower Inventory i.e. at Lower Costs
 SCM Applies Trade-Off Between System Flexibility & Inventory
To provide The Desired Level of Customer Service
OPTIMIZING SCM PERFORMANCE
 SCM Performance Optimized By Achieving Coordination &
Collaboration Among All Member Companies in Supply Chain &
Managing Relationships Among Them
 Within Company Coordination Provided Through
• Integration of Logistics Activities of Purchasing/ Prod. Planning
& Scheduling/ Inventory Management/ Distribution/ Customer Service
• In Multi-Plant Companies Production & Related Decisions Closely
Coordinated to Ensure Improvement in Overall Performance
 Improved Integration & Coordination in Total Supply Chain
Achieved With Help of Logistics Information Systems (LIS)
 Integration - By Providing Real-Time Information Enabling All Members To
Work Together For Achieving SCM Goals
 Coordination – Coherent Operations of the Entire System Achieved By
Managing Dependencies Among Functional Activities
SCM Ensures Integration & Coordination in Total Supply Chain
Using Enhanced ERP/ Inter Organizational Systems (IOS)/
Executive Support Systems (ESS)/ Decision Support Systems (DSS)
CHANGED FOCUS IN COMPANIES
Traditional Focus
SCM Focus
Purchasing as a Reactive Function
Sourcing/ Vendor Development
are Strategic/ Proactive Function
Emphasis - Rules/Regulations/
Procedures With limited/
Short-Term View of Entire Process
Emphasis - Networking/
Developing Long-Term
Relationships
Compartmentalized/ Silo View
System Oriented/ Process View
Cost/ Price-Based
Value-Based
Not Much Importance to
Information Management
High Importance to Managing
Information
Single-Dimensional Performance
Measures
Multi-Dimensional Performance
Measures
Limited Role of IT
Significant Role of IT as Enabler
Critical Success Factors
For
Supply Chain Management
 Integration
 Integrated Information System
 Coordination
 Systems + Communications
 Collaboration  Management Agreements
+
Commitment from ALL
DIFFICULT TO REPLICATE BY COMPETITORS
BENEFITS TO THE COMPANY
 Improved CUSTOMER SERVICE
 Reduction in TIED-UP CAPITAL
 Reduction in ADMINISTRATIVE COSTS
 Sharper COMPETITIVE EDGE
 Sustained GROWTH
 Increased SHAREHOLDER VALUE
SUCCESSFUL INDIAN SCM COMPANIES
Industry
Major Companies
Apparels
Madura Coats/ Reliance
Automobiles
Maruti/ Hero Honda/ Tata Motors/ M & M
Chemicals/ Paints
Asian Paints/ Reliance/ Goodlass Nerolac
Consumer Durables
LG/ Godrej/ Samsung
FMCG
HUL/ P&G/ Coke/ Pepsi
Packed Food
Godrej/ Cadbury/ Parle/ Amul/ Dabur
Computers
Wipro/ HCL
Newspaper
Times of India/ Hindustan Times
Petroleum Products
IOC/ Bharat Petroleum
Pharma
Dr. Reddy’s Lab/ Dabur/ Ranbaxy
Unorganized
Mumbai Dabbawala
IN ESSENCE
SUPPLY CHAIN ACTIVITIES ARE FOCUSSED
ON
PARAMETERS OF CUSTOMER SERVICE AND
SUPPLY CHAIN ORGANIZATION HAS THE
RESPONSIBILITY, AUTHORITY & COMPETENCE
TO
MANAGE THE 3 FLOWS IN THE BEST INTEREST
OF
THE WHOLE SUPPLY CHAIN
RELAY RACE
THE BOAT RACE
Single Entity
One Objective
Seamless Integration
Any Questions Pl?