Supply Chain Analytics

Prof. Dr. Rajat Agrawal

Department of Management Studies
Indian Institute of Technology-Roorkee

Lecture-01
Introduction to Supply Chain Management

Good afternoon friends, we are going to start our discussion on very important topic for
managers of the day that is supply chain analytics. Supply chain analytics is the combination
of data analytics into the supply chain management. Supply chain management we all know
in one of the most important aspects of business now a days, we know some of the popular
names of fortunate five hundred companies like Walmart, Dell and similarly 7, 11 etc from
Japan Alibaba from China.

These companies are known because of their supply chain competence and nowadays it is
believed that supply chain is one such area in the organization which can provide lot of
competitive advantage to a particular organization. If you go to the website of Harvard
publishing you will find maximum cases in the area of supply chain management and I come
particularly from the domain of operation management.

And now, many of us feel that supply chain management which was once upon a time
considered to be a subset of operation management. And now-a-days the situation is almost
reversed. The supply chain has become an umbrella term and operation management has
become a subset of supply chain management. So therefore, the course of supply chain
management and using the data analytics technique into the supply chain management. So the
name has become supply chain analytics.
(Refer Slide Time: 02:15)
In the first, this lecture we will have some kind of introduction of supply chain. The evolution
of supply chain over last hundred years then what are different important decision phases in
supply chain. There are different ways in which we case study the supply chain, those process
views we will see in our discussion in first two lectures which are the introductory lectures of
this course.

Then we will also see what are the importance of various types of flows in the supply chain.
We will also see some very important examples which makes supply chain so popular and
then we will also see the strategic aspects of supply chain management and than we see that
how can we achieve that strategic fit field with respect to the supply chain management and
the competitive strategy of the organization.

So in first two lecture we will have a broad over view of the subject and we will see that how
supply chain management has become the use of data analytics and particularly the present
form of supply chain management where most of the decisions that we are taking with the
help of real time data. So let us start with understanding of what is supply chain.
(Refer Slide Time: 03:37)
Now supply chain has become such a common term that we find so much mention of this
term in media reports. We find the mention of this term in parliamentary debates, we find the
mention of this term in day to day discussion also. So many times we may wonder whether it
is an academic term or it is more term of media and reports, but now we are going through a
formal course of supply chain management.

And therefore it will be very relevant for us to understand the real meaning of supply chain
and what does it mean, and what are the meanings of supply chain management further?
(Refer Slide Time: 04:36)

Now as, we can see that supply chain involves all the stages in the fulfilment of the
requirement of the customer. And these stages may include manufactures, suppliers,
transporters, warehouses, retailers and customers himself. It is very important to understand
all time and I will be emphasizing althrough this course that customer is a very much integral
part of supply chain all the time.

Please we need to ensure that customer is always considered, whenever we are taking a
decision related to supply chain, whenever we are talking of supply chain so customer is
always an integral part of the supply chain. Many a time we feel that up to retailer is our
supply chain and customer is not the part of supply chain, but now onwards once we are
going through this formal course please remember that customer is always very integral part
of the supply chain.

The role of supply chain is integration of demand and supply. This is very important, demand
comes from the customers side and supply comes from all these people manufacturer,
supplier, transporters, warehouses, retailers, they all help us in fulfilling the demand of the
customer.

So proper integration of demand and supply that is very much necessary for customer
satisfaction as well as for the profitability of the service providers. So therefore the
importance of this subject is becoming more and more in the coming competitive times and
within each company the supply chain includes all functions involving product development,
marketing, operations, distribution, finance, customer service, after sale services, etc.

Many of us may feel that supply chain is a more related to operations management but if we
talk in a very holistic manner now a days it is no longer specific to operations rather it is
more holistic concept and we require equal involvement of product development, the
involvement of marketing, the involvement of distribution, the involvement of finance, and
after sale services in achieving the objectives of supply chain management.

Because, as I am saying that it is integration of demand and supply. So the demand side
information, the demand side data is normally captured by the marketing people and on the
basis of that data, that information the product development team, the operations team, they
develop new products, they ensure the supply of those products to the customers and then
further wherever the customer is ensuring the supply to that very point, to that very place is
the responsibility of distribution team.
So, it is very important that the scope of supply chain management to be understood in a
wider perspective and just not limited to the operation side. So therefore we will see in our
coming discussion that supply chain management has all three verticals of decision making. It
deals at the strategic level also, it is deals at the technical level also and it deals at the
execution level also because of involvement of all the functions.

It is very much similar when we talk of integrated marketing, when we talk of total quality
management or when we come to this class of supply chain management, we talk of
involvement of all functions. So this holisticity is very important in modern management
concepts and that is what we are trying to emphasize.

As I mention that customer is a very much integral part of the supply chain and the supply
chain includes movement of products from supplier, those are here in the left side of the
supply chain to the manufacture and to distributor and also includes movement of
information funds and products in both the direction.

We will see these things in a better pictorial manner in our coming slides. With increasing
competition it is more appropriate, nowadays to say that supply chain is now changing into
the form of a supply network or supply wave.
(Refer Slide Time: 09:44)

(Refer Slide Time: 09:46)

Because when we talk of a chain it is linear like this, but actually it is no longer a linear
system, you have many important players at each of these locations and there maybe a
crisscross at each of these stations and therefore it is more appropriate to say that supply
chain is now becoming supply network or supply wave. Let us see, these are some of the
generic type of supply chains.

Where you can see that in a very conventional type of normal supply chain which we all
know. There is a manufacturer, manufacturer is producing the goods, these goods are coming
to wholesaler, wholesaler is distributing to large number of retailers in the market, and those
products are coming to the customer. This is every conventional type of supply chain and we
all have used this type of supply chain.

But nowadays you can also see you can also understand that there are supply chains where
wholesalers are not there. You have large retail houses like big bazaar, like reliance chains,
like Walmart where probably wholesalers are not there and manufacturer directly supplying
these products to the retailer and retailer those big retailers are directly supplying these
products to the end customers.

And then there, supply chains where manufacturer is directly distributing products to the
customer. For example, BHEL take the example of BHEL. So BHEL is the manufacturer and
the customers are a state electricity board, so if BHEL is making a turbine, so there is no
wholesaler, no retailer in-between and in that supply chain BHEL is directly distributing
those products to the customers, end customers.
So depending upon your product to product, depending upon the nature, the unit cost and so
many other factors you may have variety of supply chain. These are some of the generic type
of supply chain and the suitability of the supply chain depends up on the type of products, the
type of customers, the type of intermediaries you require, but as I told you that these are very
linear kind of arrangements.

These three which I have shown here, these are very linear kind of arrangements. But actually
it is not so, actually the situation is like this where you have manufacturer, but many
wholesalers, many retailers are there, and these wholesalers, and retailers are making a
network kind of situation, so these are chains but what I have drawn on the board, this is
more like a network. So, this is supply chain network.

So, in the present environment we say that supply chain network is more appropriate than
simply supply chain. And one more thing which I will, like to emphasize in the beginning
that now a days the competition is not between one organization to another organization. It is
not correct to say that Maruti in India is competing with Tata Motors. Rather it is more
appropriate to say that supply chain of Maruti is competing with supply chain of Tata motors.

So, one supply chain competes with another supply chain and therefore for the success of the
organization it is very important that we develop the competence of entire supply chain. It is
not the competence of a single organization. If Apple is competing with Samsung, so it is not
the Apple and Samsung directly, but it is the result of entire supply chain of Apple which is
competing with the entire supply chain of Samsung.

Because lot of wholesalers, retailers, and there are large number of players on the left-hand
side of these manufactures also. So, in our coming slide we will go to those also and then
only this competition is taking place between one supply chain and another supply chain. So,
these are some generic supply chains but as we go ahead in this course, we will see more
specific supply chains also.
(Refer Slide Time: 15:13)
Now coming to a very specific example of a supply chain where some customer is going to
purchase some detergent at a big bazaar mall, supermarket and let us see how things are
happening in this real supply chain, those were the generic supply chains in the previous
slide. Now this is an example of a real supply chain. Now in this particular case you see
customer is coming to the big bazaar to purchase the detergent and big bazaar is keeping that
detergent.

Now how many different parties are involved in this entire process. Big bazaar is procuring
the detergent from the Procter and gamble. Now Procter and gamble are manufacturing the
detergent or any other manufacturer which is manufacturing the detergent, it requires plastic
producer, it requires packaging, it requires chemical manufacturer. And they also like plastic
producer is further requiring the supplier like chemical manufacturer to get the plastic
granules.

This packaging supplier this requires timber industry and paper manufacturer. Paper
manufacturer is the supplier to the packaging industry and paper industry requires the timber
industry. And then again, this chemical manufacturer which is required for making the
detergent. So now you see to get a product like detergent from the big bazaar and which is
manufactured by some manufacturer like P and G and someone like that.

You have even timber industry in that supply chain. For a normal customer it is very difficult
to realize that the detergent which I am purchasing from a big bazaar mall is actually
originating the supply chain from the timber manufacturer or timber industry. But when you
see in a very holistic manner you will find that this entire supply chain is there.

And now because of you can say limitation because of our interest is not that much, you can
further find that there may be few suppliers before this chemical manufacturer also, there
may be few other suppliers before this paper manufacturer also. I have only listed the timber
industry here. But there may be some other suppliers also before this paper manufacturer. So
just to give you an idea that how real supply chain rather a supply network looks like.

So you do not have only single supplier here rather you have a variety of suppliers supplying
different types of components, different types of raw material to Procter and gamble and then
it is going to make the final product and finally you get a packet of detergent at the big bazaar
mal. So, this way this looks very simple but there are so many individuals to whom we need
to manage and therefore this management can provide a very important competitive desk to
the organization.
(Refer Slide Time: 18:54)

Going further this slide is very important to understand that normally we feel or we normally
in our day to day discussion are more concern about the flow of product in the supply chain.
But actually, as I told you in the beginning the second slide that in a supply chain we are
actually having the flow of 3 important elements. And these three important elements are
information, product and funds.
You can see the arrows in both the direction in this slide just to tell you normally the primary
thing which flows in the supply chain that is product and product flows from the
manufacturer side to the customer side, product flows from the manufacturer side to the
customer side. But nowadays because of environmental issue and because of so many other
cause related issues lot of products also flow in the reverse direction also.

And therefore, we have arrows with respect to product in both the directions. You have
example of LPG cylinders, so filled LPG cylinders flow from the manufacturer to the
customers, but empty cylinders flow from the customer to the manufacturer for refilling. You
have glass bottles of Pepsi, coke, the filled in bottles flow from manufacturer to the customer,
but the empty bottles flow from the customer to the manufacture side.

So, and in pharma, in FMCG and in variety of these organizations you have expired products
also. So expired product flow from the customer side to the manufacture side for proper
disposal. Information is also very important. Information related to product availability flows
from manufacturer side to the customer side. But information related to what types of
products are required.

In how much quantity these products are required that type of information flows from the
customer side to manufacture side. So that accordingly new products can be develop.
Accordingly, designs can be changed, accordingly quantities can be adjusted for all those
things this information flows in both the directions. Funds that is the third important flow
which is there in the supply chain.

Normally the flow of funds, the source of that is the customer. Customer is the only positive
source of cash flow, or fund flow in this supply chain. But when we talk of reverse logistics,
when we talk of products going from the customer side to the manufacturer side, in that case
funds may flow from that side, left side to the right side also. So therefore, the arrows in all
three cases information, product and funds are in both this directions.

But one thing is very important, flow of information is independent. Flow of information is
independent, why flow of product and funds are related. The direction of flow of products
and funds is always opposite to each other. If products are flowing left to right, so in that case
funds will flow right to left and if products are flowing right to left in that case funds will
flow left to right.

So, these directions are restricted directions and the flow of information is independent, it can
flow independently in both the direction. So that is about 3 important flows in supply chain.
Normally, most of our cost related diseases are linked with the flow of products. That how
the flow of product is taking place in your supply chain. But at the same time when we are
talking of supply chain analytics the flow of information is equally important.

Because now a days we are moving for real time decision making of supply chain. And for
that purpose the efficient flow of information, efficient flow of data is very important in this
particular case. So that our decision making becomes more efficient, more useful helping the
supply chain or helping ultimately the objectives of the organization.
(Refer Slide Time: 24:14)

Now let us see what are the objectives, typical objectives of a modern day supply chain. So
modern day supply chain the objectives are to maximize the value which we are creating in
the supply chain. The supply chain value is actually the difference between what the final
product which we are offering to customer is worth and the customer is giving how much for
that and this value we can directly relate with the profitability of the supply chain.
(Refer Slide Time: 24:58)
And just to give you the idea of the process of this value in the supply chain. This slide is
very helpful for us where you see now in this case you have 3 entities to the left side of the
manufacturer and these are vendors, these are suppliers to the manufacturer, which we call
them Tier-1 supplier, Tier-2 supplier, Tier-3 suppliers. They are supplying raw materials,
they are supplying components, they are supplying parts, some assemblies etc. to the
manufacturer.

And most of the value addition from this side till the manufacturer finishes the final product
is because of processing and the manufacturing activities. You are doing lot of processing,
you are doing painting, you want fabrication, and all these things are happening. So
incremental value addition is taking place because of all these activities. Once product leaves
the manufacturer and it reaches wholesaler, retailer, and to the customer.

The value addition is taking place in these phases also. But here the value addition is because
of marketing and logistics activities. So, we need to see that finally when the product reaches
in the hand of the customers. So, what is the value the product has acquired and how much
customer is paying for that value and we want to actually maximize this difference.

So, that difference is actually the profitability of the organization. So it is very important to
understand that we need to do value addition but for that value addition how much customer
is ready to pay. If you do excess value addition and for which it is difficult to get money out
of the customers pocket then your profitability will be certainly under the question mark. So,
you need to see that, do not waste your resources in those things where you do not add
significant value and therefore the concepts will help us in achieving that objective.
(Refer Slide Time: 27:13)

For an example this slide gives you that if I purchase a mobile phone of micromax at the
price of Rs. 10,000 and the supply chain this is the revenue of the supply chain when I am
paying Rs. 10,000 for purchase of a micromax mobile, so if I am paying Rs. 10,000 so this
revenue of the supply chain. And supply chain incurs cost in getting the information, storage,
transportation, the components, the assembly etc.

So, all that is the cost of supply chain. Now the difference between this Rs.10,000 and sum of
all these cost is the profit of the supply chain. And throughout this course we are actually
targeting to maximize the supply chain profit. So, supply chain profitability is total profit to
be shared across all stages of this supply chain. Now it is also very important to understand
that when we are talking of supply chain.

So, we are talking of total profit and that total profit is shared among all these supply chain
partners, all these stages, so I am not talking of profit of an individual stage, or individual
member of the supply chain. So, supply chain success should be measured by total supply
chain profitability and not profit of an individual stage. And as soon as we start of individual
stage, the very objective of supply chain, the very objective of working together is defeated.

And then the purpose of the competing with supply chain, competing with supply network
will be lost. So all the time we need to keep this in mind and later on with the help of some
data and some kind of modelling exercises, we will see that how this supply chain profit
which we are talking in totality is always more than we talk of profit at the individual stage.

So, it is not a more like preaching statement, it can be proved with the help of some kind of
quantitative data also. Now we also need to see the evolution of supply chain over last 100
years and we will use our part 2 of the lecture to discuss the evolution of supply chain
management, so at the time we are just stopping here to discuss that what is supply chain and
how we need to do business in a supply chain environment with the help of coordination with
the help of all entities working together.

And not to think for individual supply chain, individual gains, or individual profits, it is a
business with the help of coordination, with the help of cooperation of all the members of
supply chain and therefore the success of supply chain lies in the coordination supply chain
success lies in trusting each other and these are the fundamentals of supply chain
management. Thank you very much.