Supply Chain Management

the supply chain refers to a wide range of functional areas. These include Supply

Chain Management-related activities such as inbound and outbound transportation,

warehousing, and inventory control. Sourcing, procurement, and supply

management fall under the supply-chain umbrella, too. Forecasting, production

planning and scheduling, order processing, and customer service all are part of the

process as well. Importantly, it also embodies the information systems so necessary

to monitor all of these activities. "the supply chain encompasses all of those

activities associated with moving goods from the raw-materials stage through to the

end user.". First One of the best definitions of supply-chain management offered to

date comes from Bernard J. (Bud) LaLonde, professor emeritus of Supply Chain

Management at Ohio State University.

Business logistics management and supply chain management are difficult to be separate

and they have the same mission or goals, which is getting right goods in the right place at

the right time with the desired condition.

It is difficult, in a practical way, to separate business logistics management from supply

chain management. In so many respects, they promote the same mission: To get the right

goods or services to the right place, at the right time, and in the desired condition, while

making the greatest contribution to the firm.

THE SUPPLYCHAIN

Logistics/SC is a collection of functional activities (transportation, inventory control

,etc.), which are repeated many times throughout the channel through which raw

materials are converted into finished products and consumer value is added.

Raw material sources, plants, and selling points are not typically located at the same

places and the channel represents a sequence of manufacturing steps, logistics activities is

repeated many times before a product delivered in the market.

A single firm generally is not able to control its entire product flow channel from raw

material source to points of the final consumption, although this is an emerging

opportunity. For practical purposes, the business logistics for the individual firm has a

narrower scope. Usually, the maximal managerial control that can be expected is over the

immediate physical supply and physical distribution channels.

Although it is easy to think of logistics as managing the flow of products from the points

of raw material acquisition to end customers, for many firms there is a reverse logistics

channel that must be managed as well. The life of a product, from a logistics viewpoint,

does not end with delivery to the customer. Products become obsolete, damaged, or

nonfunctioning and are returned to their source points for repair or disposition. Packaging

materials may be returned to the shipper due to environmental regulations or because it

makes good economic sense to reuse them.

The reverse logistics channel may utilize all or a portion of the forward logistics channel

or it may require a separate design. The supply chain terminates with the final disposition
of a product. The reverse channel must be considered to be within the scope of logistics

planning and control.

Physical supply channel is the time or space gap from getting raw material from supplier

to processing point

Physical distribution channel the time and space gap between the processing point and

the customer
IMPORTANCE OF LOGISTICS/ SUPPLYCHAIN

Logistics is about creating value—value for customers and suppliers of the firm, and

value for the firm’s stakeholders. Value in logistics is primarily expressed in terms of

time and place. Products and services have no value unless they are in the possession of

the customers when (time) and where (place) they wish to consume them. For example,

concessions at a sports event have no value to consumers if they are not available at the

time and place that the event is occurring, or if inadequate inventories don’t meet the

demands of the sports fans. Good logistics management views each activity in the supply

chain as contributing to the process of adding value. If little value can be added, it is
questionable whether the activity should exist. However, value is added when customers

are willing to pay more for a product or service than the cost to place it in their hands.

To many firms throughout the world, logistics has become an increasingly important

value-adding process for a number of reasons.

Logistics/SC Is Important to Strategy

Firms spend a great deal of time finding ways to differentiate their product offerings from

those of their competitors. When management recognizes that logistics/SC affects a

significant portion of a firm’s costs and that the result of decisions made about the supply

chain processes yields different levels of customer service, it is in a position to use this

effectively to penetrate new markets, to increase market share, and to increase profits.

That is, good supply chain management can generate sales, not just reduce costs.

Consider how Wal-Mart used logistics as the core of its competitive strategy to become

the world’s number one merchandise retailer.

Logistics/SC Adds Significant Customer Value

A product, or service, is of little value if it is not available to customers at the time and

place that they wish to consume it. When a firm incurs the cost of moving the product
toward the customer or making an inventory available in a timely manner, for the

customer value has been created that was not there previously. It is value as surely as that

created through the production of a quality product or through a low price.

It is generally recognized that business creates four types of value in products or services.

These are: form, time, place, and possession. Logistics creates two out of these four

values. Manufacturing creates form value as inputs are converted to out- puts, that is raw

materials are transformed into finished goods. Logistics controls the Time and place

values in products, mainly through transportation, information flows, and inventories.

Possession value is often considered the responsibility of marketing, engineering, and

finance, where the value is created by helping customers acquire the product through

such mechanisms as advertising (information), technical support, and terms of sale

(pricing and credit availability). To the extent that SCM includes production, three out of

the four values may be the responsibility of the logistics/supply chain manager.

BUSINESSLOGISTICS/SC IN THE FIRM

It has been the tradition in many firms to organize around marketing and production

functions. Typically, marketing means selling something and production means making

something. Although few business people would agree that their organization is so

simple, the fact remains that many businesses emphasize these functions while treating

other activities, such as traffic, purchasing, accounting, and engineering, as support areas.

Such an attitude is justified to a degree, because if a firm’s products cannot be produced

and sold, little else matters. However, such a pattern is dangerously simple for many
firms to follow in that it fails to recognize the importance of the activities that must take

place between points and times of production or purchase and the points and times of

demand. These are the logistics activities, and they affect the efficiency and effectiveness

of both marketing and production.

Participants in the Supply Chain

In its simplest form, a supply chain is composed of a company and the suppliers and

customers of that company. This is the basic group of participants that creates a

simple supply chain. Extended supply chains contain three additional types of

participants. First there is the supplier’s supplier or the ultimate supplier at the

beginning of an extended supply chain. Then there is the customer’s customer or

ultimate customer at the end of an extended supply chain. Finally there is a whole

category of 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 that are

producers, distributors or wholesalers, retailers, and companies or individuals who

are the customers, the final consumers of a product. Supporting these companies

there will be other companies that are service providers that provide a range of

needed services.

Producers

Producers or manufacturers are organizations that make a product. This includes

companies that are producers of raw materials and companies that are producers of

finished goods. Producers of raw materials are organizations that mine for minerals,

drill for oil and gas, and cut timber. It also includes organizations that farm the land,

raise animals, or catch seafood. Producers of finished goods use the raw materials

and subassemblies made by other producers to create their products.

Producers can create products that are intangible items such as music,

entertainment, software, or designs. A product can also be a service such as mowing

a lawn, cleaning an office, performing surgery, or teaching a skill. In many instances

the producers of tangible, industrial products are moving to areas of the world

where labor is less costly. Producers in the developed world of North America,

Europe, and parts of Asia are increasingly producers of intangible items and

services.

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. They typically sell to other businesses and they sell products in larger

quantities than 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.

A distributor is typically an organization that takes ownership of significant

inventories of products that they buy from producers and sell to consumers. In

addition to product promotion and sales, other functions the distributor performs

are inventory management, warehouse operations, and product transportation as

well as customer support and post-sales service. A distributor can also be an

organization that only brokers a product between the producer and the customer

and never takes ownership of that product. This kind of distributor performs mainly

the functions of product promotion and sales. In both these cases, as the needs of

customers evolve and the range of available products changes, the distributor is the

agent that continually tracks customer needs and matches them with products

available.

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. Discount department stores attract customers

using price and wide product selection. Upscale specialty stores offer a unique line

of products and high levels of service. Fast food restaurants use convenience and

low prices as their draw

Customers

Customers or consumers are any organization that purchases and uses a product. A

customer organization may purchase 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.

Service Providers

These are organizations that provide services to producers, distributors, retailers,

and customers. Service providers have developed special expertise and skills that

focus on a particular activity needed by a supply chain. Because of this, they are able

to perform these services more effectively and at a better price than producers,

distributors, retailers, or consumers couldn’t do on their own.

Some common service providers in any supply chain are providers of transportation

services and warehousing services. These are trucking companies and public

warehouse companies and they are known as logistics providers. Financial service

providers deliver services such as making loans, doing credit analysis, and collecting

on past due invoices. These are banks, credit rating companies, and collection

agencies. Some service providers deliver market research and advertising, while

others provide product design, engineering services, legal services, and

management advice. Still other service providers offer information technology and
data collection services. All these service providers are integrated to a greater or

lesser degree into the ongoing operations of the producers, distributors, retailers,

and consumers in the supply chain. Supply chains are composed of repeating sets of

participants that fall into one or more of these categories. Over time the needs of the

supply chain as a whole remain fairly stable. What changes is the mix of participants

in the supply chain and the roles that each participant plays. In some supply chains,

there are few service providers because the other participants perform these

services on their own. In other supply chains very efficient providers of specialized

services have evolved and the other participants outsource work to these service

providers instead of doing it themselves.

Production

Production refers to the capacity of a supply chain to make and store products. The

facilities of production are factories and warehouses. The fundamental decision that

managers face when making production decisions is how to resolve the trade-off

between responsiveness and efficiency. If factories and warehouses are built with a

lot of excess capacity, they can be very flexible and respond quickly to wide swings

in product demand. Facilities where all or almost all capacity is being used are not

capable of responding easily to fluctuations in demand. On the other hand, capacity

costs money and excess capacity is idle capacity not in use and not generating

revenue. So the more excess capacity that exists, the less efficient the operation

becomes.
Factories can be built to accommodate one of two approaches to manufacturing:

1. Product focus—A factory that takes a product focus performs the range of

different operations required to make a given product line from fabrication of

different product parts to assembly of these parts.

2. Functional focus—A functional approach concentrates on performing just a few

operations such as only making a select group of parts or only doing assembly.

These functions can be applied to making many different kinds of products.

A product approach tends to result in developing expertise about a given set of

products at the expense of expertise about any particular function. A functional

approach results in expertise about particular functions instead of expertise in a

given product. Companies need to decide which approach or what mix of these two

approaches will give them the capability and expertise they need to best respond to

customer demands. As with factories, warehouses too can be built to accommodate

different approaches.

There are three main approaches to use in warehousing:

1. Stock keeping unit (SKU) storage—In this traditional approach, all of a given type

of product is stored together. This is an efficient and easy to understand way to

store products.

2. Job lot storage—In this approach, all the different products related to the needs of

a certain type of customer or related to the needs of a particular job are stored
together. This allows for an efficient picking and packing operation but usually

requires more storage space than the traditional SKU storage approach.

3. Cross docking—An approach that was pioneered by Wal-Mart in its drive to

increase efficiencies in its supply chain. In this approach, product is not actually

warehoused in the facility. Instead the facility is used to house a process where

trucks from suppliers arrive and unload large quantities of different products. These

large lots are then broken down into smaller lots. Smaller lots of different products

are recombined according to the needs of the day and quickly loaded onto outbound

trucks that deliver the products to their final destination.

Inventory

Inventory is spread throughout the supply chain and includes everything from raw

material to work in process to finished goods that are held by the manufacturers,

distributors, and retailers in a supply chain. Again, managers must decide where

they want to position themselves in the trade-off between responsiveness and

efficiency. Holding large amounts of inventory allows a company or an entire supply

chain to be very responsive to fluctuations in customer demand. However, the

creation and storage of inventory is a cost and to achieve high levels of efficiency,

the cost of inventory should be kept as low as possible.

There are three basic decisions to make regarding the creation and holding of

inventory:
1. Cycle Inventory—This is the amount of inventory needed to satisfy demand for

the product in the period between purchases of the product. Companies tend to

produce and to purchase in large lots in order to gain the advantages that economies

of scale can bring. However, with large lots also comes increased carrying costs.

Carrying costs come from the cost to store, handle, and insure the inventory.

Managers face the trade-off between the reduced cost of ordering and better prices

offered by purchasing product in large lots and the increased carrying cost of the

cycle inventory that comes with purchasing in large lots

2. Safety Inventory—Inventory that is held as a buffer against uncertainty. If

demand forecasting could be done with perfect accuracy, then the only inventory

that would be needed would be cycle inventory. But since every forecast has some

degree of uncertainty in it, we cover that uncertainty to a greater or lesser degree by

holding additional inventory in case demand is suddenly greater than anticipated.

The trade-off here is to weigh the costs of carrying extra inventory against the costs

of losing sales due to insufficient inventory.

3. Seasonal Inventory—This is inventory that is built up in anticipation of

predictable increases in demand that occur at certain times of the year. For example,

it is predictable that demand for anti-freeze will increase in the winter. If a company

that makes anti-freeze has a fixed production rate that is expensive to change, then

it will try to manufacture product at a steady rate all year long and build up
inventory during periods of low demand to cover for periods of high demand that

will exceed its production rate. The alternative to building up seasonal inventory is

to invest in flexible manufacturing facilities that can quickly change their rate of

production of different products to respond to increases in demand. In this case, the

trade-off is between the cost of carrying seasonal inventory and the cost of having

more flexible production capabilities.

Location

Location refers to the geographical siting of supply chain facilities. It also includes

the decisions related to which activities should be performed in each facility. The

responsiveness versus efficiency trade-off here is the decision whether to centralize

activities in fewer locations to gain economies of scale and efficiency, or to

decentralize activities in many locations close to customers and suppliers in order

for operations to be more responsive. When making location decisions, managers

need to consider a range of factors that relate to a given location including the cost

of facilities, the cost of labor, skills available in the workforce, infrastructure

conditions, taxes and tariffs, and proximity to suppliers and customers. Location

decisions tend to be very strategic decisions because they commit large amounts of

money to long-term plans. Location decisions have strong impacts on the cost and

performance characteristics of a supply chain. Once the size, number, and location of

facilities is determined, that also defines the number of possible paths through

which products can flow on the way to the final customer. Location decisions reflect

a company’s basic strategy for building and delivering its products to market.
Transportation

This refers to the movement of everything from raw material to finished goods

between different facilities in a supply chain. In transportation the trade-off

between responsiveness and efficiency is manifested in the choice of transport

mode. Fast modes of transport such as airplanes are very responsive but also more

costly. Slower modes such as ship and rail are very cost efficient but not as

responsive. Since transportation costs can be as much as a third of the operating

cost of a supply chain, decisions made here are very important.

There are six basic modes of transport that a company can choose from:

1. Ship which is very cost efficient but also the slowest mode of transport. It is

limited to use between locations that are situated next to navigable waterways and

facilities such as harbors and canals.

2. Rail which is also very cost efficient but can be slow. This mode is also restricted

to use between locations that are served by rail lines.

3. Pipelines can be very efficient but are restricted to commodities that are liquids

or gases such as water, oil, and natural gas.

4. Trucks are a relatively quick and very flexible mode of transport. Trucks can go
almost anywhere. The cost of this mode is prone to fluctuations though, as the cost

of fuel fluctuates and the condition of roads varies.

5. Airplanes are a very fast mode of transport and are very responsive. This is also

the most expensive mode and it is somewhat limited by the availability of

appropriate airport facilities

6. Electronic Transport is the fastest mode of transport and it is very flexible and

cost efficient. However, it can only be used for movement of certain types of

products such as electric energy, data, and products composed of data such as

music, pictures, and text. Someday technology that allows to convert matter to

energy and back to matter again may completely rewrite the theory and practice of

supply chain management.

Given these different modes of transportation and the location of the facilities in a

supply chain, managers need to design routes and networks for moving products. A

route is the path through which products move and networks are composed of the

collection of the paths and facilities connected by those paths. As a general rule, the

higher the value of a product (such as electronic components or pharmaceuticals),

the more its transport network should emphasize responsiveness and the lower the

value of a product (such as bulk commodities like grain or lumber), the more its

network should emphasize efficiency.

Information

Information is the basis upon which to make decisions regarding the other four

supply chain drivers. It is the connection between all of the activities and operations

in a supply chain. To the extent that this connection is a strong one, (i.e., the data is

accurate, timely, and complete), the companies in a supply chain will each be able to

make good decisions for their own operations. This will also tend to maximize the

profitability of the supply chain as a whole. That is the way that stock markets or

other free markets work and supply chains have many of the same dynamics as

markets.

Information is used for two purposes in any supply chain:

1. Coordinating daily activities related to the functioning of the other four supply

chain drivers: production; inventory; location; and transportation. The companies in

a supply chain use available data on product supply and demand to decide on

weekly production schedules, inventory levels, transportation routes, and stocking

locations.

2. Forecasting and planning to anticipate and meet future demands. Available

information is used to make tactical forecasts to guide the setting of monthly and

quarterly production schedules and timetables. Information is also used for

strategic forecasts to guide decisions about whether to build new facilities, enter a

new market, or exit an existing market.

Within an individual company the trade-off between responsiveness and efficiency

involves weighing the benefits that good information can provide against the cost of

acquiring that information. Abundant, accurate information can enable very efficient

operating decisions and better forecasts but the cost of building and installing

systems to deliver this information can be very high.

Within the supply chain as a whole, the responsiveness versus efficiency trade-off

that companies make is one of deciding how much information to share with the

other companies and how much information to keep private. The more information

about product supply, customer demand, market forecasts, and production

schedules that companies share with each other, the more responsive everyone can

be. Balancing this openness however, are the concerns that each company has about

revealing information that could be used against it by a competitor. The potential

costs associated with increased competition can hurt the profitability of a company.

Objectives of Supply Chain Management

The fundamental objective is to "add value".

During the Supply Chain Management '98 conference in the United Kingdom this

fall, a participant in a supply chain management seminar James Morehouse, a vice

president of consulting firm A.T. Kearney, said that reports that the total cycle time

for corn flakes, for example, is close to a year and that the cycle times in the
pharmaceutical industry average 465 days. In fact, Morehouse argues that if the

supply chain, of what he calls an "extended enterprise," is encompassing everything

from initial supplier to final customer fulfillment, could be cut to 30 days, that would

provide not only more inventory turns, but fresher product, an ability to customize

better, and improved customer responsiveness. "All that add value," he says. And it

provides a clear competitive advantage.

Supply Chain Management becomes a tool to help accomplish corporate strategic

objectives:

 reducing working capital

 taking assets off the balance sheet

 accelerating cash-to-cash cycles

 increasing inventory turns, and so on.

LOGISTICS/SC STRATEGY

Selecting a good logistics/SC strategy requires much of the same creative processes as

developing a good corporate strategy. Innovative approaches to logistics/SC strategy can

give a competitive advantage.

It has been suggested that a logistics strategy has three objectives: cost reduction, capital

reduction, and service improvement.

Cost reduction is strategy directed toward minimizing the variable costs associated with

movement and storage. The best strategy is usually formulated by evaluating alternative

courses of action, such as choosing among different warehouse locations or selecting

among alternative transport modes. Service levels are typically held constant while the

minimum cost alternatives are being found. Profit maximization is the prime goal.

Capital reduction is strategy directed toward minimizing the level of investment in the

logistics system. Maximizing the return on logistics assets is the motivation for this

strategy. Shipping direct to customers to avoid warehousing, choosing public warehouses

over privately owned warehouses, selecting a just-in-time supply approach rather than

stocking to inventory, or using third-party providers of logistics services are examples.

These strategies may result in higher variable costs than strategies requiring a higher

level of investment; however, the return on investment may be increased.

Service improvement strategies usually recognize that revenues depend on the level of

logistics service provided. Although costs increase rapidly with increased levels of

logistics customer service, the increased revenues may offset the higher costs. To be

effective, the service strategy is developed in contrast with that provided by the

competition.

Mission of logistics :

Is to deliver  the right item in the right quantity at the right time at the right place for the right price

in the right condition to the right customer"

The closed loop supply chain

ideally , a zero waste supply chain that completely reuses , recycles , or composts all

materials . however , the term can also be used to refer to corporate take-back programs ,

where companies that produce a good are also responsible for its disposal

Reverse logistics

reverse logistics refers to the movement of goods from customer to vendor. This is the

reverse of the traditional supply chain movement of goods from vendor to customer.

Reverse logistics is the process of planning, implementing and controlling the efficient

and effective inbound flow and storage of secondary goods and related information for

the purpose of recovering value or proper disposal.

Typical examples of reverse supply chain include:

• Product returns and management of their deposition.

• Remanufacturing and refurbishing activities.

• Management and sale of surplus, as well as returned equipment and machines from the
hardware leasing business.
 Each cycle occurs at the interface between two successive stages

1. Customer order cycle (customer-retailer)

2. Replenishment cycle (retailer-distributor)

3. Manufacturing cycle (distributor-manufacturer)

4. Procurement cycle (manufacturer-supplier)

 Cycle view clearly defines processes involved and the owners of each process.

Specifies the roles and responsibilities of each member and the desired outcome

of each process.
 Supply chain processes fall into one of two categories depending on the timing of

their execution relative to customer demand

 Pull: execution is initiated in response to a customer order

 Push: execution is initiated in anticipation of customer orders

  Responsiveness can be defined as the ability of the supply

chain to respond purposefully and within an appropriate

time-scale to customer requests or changes in the market-

place. In contrast, a supply chain can be considered to be

efficient, if the focus is on cost reduction and no resources

are wasted on non-value added activities. Balancing the

conflict between these two dimensions is where real

challenges lie.

References
1-bozarth, cecil.,handfild ,Robert ;introduction to operation and supply chain

management;3rd ed; united states :Pearson,2013

2-emmett, staurt.,sood,vivek ; green supply chain ;1st ed; united kingdom:wiley,2010

3-Ballou, Ronald H. Business Logistics/Supply Chain Management, 5th Edition. Pearson

(UK),2004.

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