SUPPLY CHAIN MANAGEMENT

INTRODUCTION

• A research carried out in grocery stores revealed that it takes 3-4 months on an average to reach the consumer.

• Companies have managed supply chain for decades, but they never have pressure that they are having now.

• Companies all over the world realized that the difference between good and bad SCM can affect their business heavily.

• Due to superior SCM Dell computers managed profitability (operating profit as percentage of sales) of 8.6% compared to less than 1% earned by HP and IBM

• Wal-mart has emerged as the largest American Corporation with profitability close to 5.8%.

• In, India companies like Asian Paints and Marico have significantly managed their level of profit with the help of good SCM

Definition

• SCM is defined as the systematic ,strategic coordination of the traditional business functions and the tactics across these functions, within a particular company and across business within the supply chain, for the purpose of improving the long term performance of the individual companies in the supply chain and the supply chain members collectively

Definition

• Supply Chain Management is the integration of the various activities encompassed by the Supply Chain through improved supply chain relationships to achieve a sustainable competitive advantage.

Evolution of SCM

• First Revolution (1910-1920) : The Ford Supply Chain

• Second Revolution (1960-70): The Toyota Supply Chain

• Third revolution (1995-2000): The Dell Supply Chain

First Revolution (1910-1920) : The Ford Supply Chain

First revolution was staged by Ford motor company, where they have managed to build a tightly integrated chain. The Ford co owned every part of chain right from the timber to rail. Through its tightly integrated chain, it could manage the journey from the iron ore mine to the finished automobile product in 81 hours. Ford innovated and managed highly efficient but inflexible supply chain, that could not handle a wide product variety and was not sustainable in long run.

Second Revolution (1960-70): The Toyota Supply Chain

The be done Toyota co. came up with ideas that allowed the final assembly and manufacturing of key components to be done in-house. The bulk of components was sourced from large number of suppliers, who were part of kirestu system. Kirestu refers to a set of companies with interlocking business relationships and shareholdings. Toyota had long-term relationship with these suppliers, and they are located very close to assembly plant. Because of this setup time is reduced to minutes from hours. Principals followed by Toyota are known as ‘Lean Production System’.

Third revolution (1995-2000): The Dell Supply Chain

With advances in information technology, dell computers allowed customers to customize their computers. Dell allowed customers to configure their own PCs and track the same in their production and distribution systems. Unlike Toyota , Dell didn’t believe in long-term relationships with suppliers. Dell believe in working with world class suppliers who would maintain their technology and cost leadership. Because of advances in IT, Dell could integrate suppliers electronically. At Dell, the trigger for supplier order was actual orders by customers, and not forecasts. This helped Dell to reduce inventory cost.

Decisions in SCM

• Design Decision: • Supply chain design (network design) or strategic

decisions involve the following critical issues-• What activities should be carried out by the

nodal firm and what should be outsourced?• How to select entities/ partners for outsourcing?

What should be nature of relationship?• Decision pertaining to the capacity and location

of various facilities.

Decisions in SCM

• Operations Decisions:• This involves tactical decisions for short term

about three months to a year. This involves• Demand forecasting• Procurement planning & control• Production planning & control• Distribution planning & control• Inventory management• Transportation management

Importance of SCM

• Proliferation in product lines• Shorter product life cycles• Higher level of outsourcing• Shift in power structure in the chain• Globalization of manufacturing

Enablers of Supply Chain Performance

• Improvement in communication and IT• Entry of third – party logistics providers• Enhanced Inter-firm Coordination Capabilities

• KEY ACTIVITIES• Customer service staff in coordination with marketing • customer needs and wants for logistics customer service• Determine customer response to service• Transportation • Mode and transport service selection• Freight consolidation• Carrier Routing• Vehicle scheduling• Equipment selection• Claims processing• Inventory management• Raw Materials and finished goods stock policies• Short term sales Forecasting• Product mix at stocking points• Number, size and location of stocking points• Just in time push and pull strategies• Information flows • Sales order inventory interface procedures• Ordering rules

Support Activities

• Warehousing• Material handling• Purchasing• Protective packaging• Information maintenance• Cooperate with production/operations

Challenge in Maintaining a Supply Chain in India

• Taxation structure Drives Location Decisions – in India , most decisions pertaining to facility location have been driven y taxation considerations and not by customer service issues. Special Economic Zones offers tax benefits.

• Poor state of Logistics Infrastructure- both transportation and warehousing industries are unorganized. Which results in unreliable lead time and high damage cost.

Supply Chain Challenges in Indian FMCG Sector

• Managing availability in the complex Distribution Set Up

• Working with smaller pack size• Entry of National players in the Traditional

Fresh products sector• Dealing with complex taxation structure• Dealing with Counterfeit goods• Infrastructure

Measuring Supply Chain Performance

• Delivery• Quality• Time• Cost

Difference between SCM & Logistics

• Logistics concept began to appear in 1960 under the label of physical distribution i.e. outbound logistics. Later in 1980sbusiness sector approach to logistics developed into inbound logistics (materials management).

• In 1990s logistics began to be viewed in context of Supply or Demand Chain that linked all of organizations from the vendor’s vendor to customer’s customer.

• SCM is recent term that captures the essence of integrated logistics and even goes beyond that.

• SCM emphasizes the logistics interactions that takes place among the functions of marketing, logistics and production within a firm and those interactions that take place between separate firms.

Cycle view of SCM

CustomerCustomer order

cycleRetailer Replenishm

ent Cycle

SupplerProcure

ment Cycle

Distributor

Manufacturing Cycle

Manufacturer

Role of IT and Telecommunications on supply chainGlobal positioning system tracking location of delivery trucks

Satellite communication channels

Transmitting material requirements through Internet

Capturing demand and replenishment data through bar code technology

RFID tags, bar codes. Scanners, robotic arms and computers for real time material and product movement

FULL Network connectivity with its partners.