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Business Studies Notes 3
rd.
Year
Undergraduate / Graduate Level
SUBJECT: Introduction to
Supply Chain
Management
Authors: (Original Study Notes and Lecture Notes prepared by Mr. K.P. Saluja (M.B.A. from Indian Institute of Management Ahmedabad), and by Mr. K. K. Prasad (M.B.A from IGNOU Delhi) These notes are intended to be used by undergraduate students, completing Year 3 Business Degree Courses. These notes will help undergraduates and graduates complete case studies, coursework assignments and pass exams in Business Studies and Economics. Be sure to check out the full range of Advance Business Studies Notes here. Need more notes or advice? Contact us and we will do our best to put you in touch with a tutor who can help you.
TABLE OF CONTENTS
(1) Supply Chain Management – definition (2) Process of Supply Chain Management (3) Parts of a Supply Chain Model (4) Benefits of Supply Chain Management (5) Goals of Supply Chain Management (6) Supply Chain Management – Integration (7) Differences in Push and Pull System (8) Demand-Driven Strategies
Supply Chain Management - definition
Supply Chain Management can be defined as the management of flow of products and services, which begins from the origin of products and ends at the product’s consumption. It also comprises movement and storage of raw materials that are involved in work in progress, inventory and fully furnished goods. The main objective of supply chain management is to monitor and relate production, distribution, and shipment of products and services. This can be done by companies with a very good and tight hold over internal inventories, production, distribution, internal productions and sales. Supply chain management basically merges the supply and demand management. It uses different strategies and approaches to view the entire chain and work efficiently at each and every step involved in the chain. Every
In order to control inventory and the manufacturing process companies must plan to match demand with supply, which is known as supply chain planning. This prevents overspending on warehouse space or not having raw materials needed for your manufacturing and slowing down delivery of product.
2. Sourcing This step involves finding those vendors who can get the goods and services you need when you need them. Sourcing is how you get supplies when you need them and meet the demand of your customers. 3. Making Here is where those raw materials you procured are made into the products that meet your customers’ demand. This is where assembling, testing and packing occurs. Getting customer feedback is key to delivering customer value. 4. Delivering Getting your finished product to the customer is the next crucial step in the SCM process. If you’re not able to get what you make to your customers all the previous steps are for naught. This makes delivering key to supply chain performance. 5. Returning Returning or reverse logistics is part of what’s called post-delivery customer support process. It is important to have a clear channel for returns or risk tarnishing your brand. The company can then take these low qualities, defective or expired materials and return them to their suppliers.
Parts of a Supply Chain Model
To capitalize on SCM requires checking out at the higher perspective regarding an organization’s management. Never again is dealing with a singular organization capability enough. The coordination of movements of every sort engaged with the store network is fundamental: that implies reconciliation between various divisions, like buying and marketing. Supply chain management likewise needs combination and cooperation among buyers and suppliers, product development, normal systems and shared information. Here are the main pieces of any SCM system or model. Customer-Relations Management: There must be a managed approach to interacting with the company’s current and potential customers in order to understand what they want and expect. Customer-Service Management: This differs from customer-relations management in that it focuses on the interactions between the customer and the company instead of a more strategic management process. It helps facilitate a mutually satisfying goal for customer and the company, as well as eliciting customer feedback and maintaining communications between the two parties, so there are positive feelings from both parties. Demand-Management Style: A methodology to forecast, plan for and manage the demand for products and services. This can address both macro-levels, as in global economics, but also micro-levels within the company. Order Fulfilment: The process that encompasses everything from point-of-sale interest to delivery of that product or service to the customer. It is the way a company responds to customer orders. Manufacturing-Flow Management: Manufacturing is a process, and supplies feed that process based on historic data surrounding how it has been done and what was needed historically. But that process needs flexibility as quantities change. Therefore, one must manage all activities related to planning, scheduling and managing the manufacturing process.
Supply chain optimization is certainly not a basic endeavour, yet viable SCM offers various advantages that work on the primary concern. Here is a glance at eight of the main advantages of effective supply chain management. Better collaboration Information flow is a prominent challenge for companies. According to Oracle, 76% of companies lack an automated flow of information across the supply chain, and half of companies say fragmented information results in lost sales opportunities. Integrated software solutions remove bottlenecks and allow for the seamless sharing of information, providing a big-picture view of the supply chain from end to end. Thanks to improved access to data, supply chain leaders have the information they need, in context, to make more informed decisions. Improved quality control Quality control issues keep the guideline of 10, makes sense of Arshad Hafeez, Global Expert for Supply Chain Management The executives and Quality Control, SCM-Gathering Capability (GF) in an article for CIO Survey. As per the standard of 10, the expense to supplant or fix thing increments by ten times at each step of the movement, bringing about massive expenses for organizations when quality issues emerge. Organizations that have more prominent command over their immediate suppliers as well as theirs providers benefit from worked on quality control. Carrying out standard least quality models, for example, empowers direct providers to recognize and cooperate with optional providers that meet those prerequisites. In like manner, process rules can assist providers with conforming to your organization's quality prerequisites. A few organizations go past essentially giving models, directing occasional reviews or mentioning documentation confirming providers' consistence steps. Hafeez suggests carrying out a Management Operating System (MOS) for checking key performance indicators including the following as mentioned below
On-time delivery Scrap rates, reworks and similar issues at suppliers Final product quality (as received by end customers) Time for complaint resolution Findings from supplier quality assessments By analysing performance data, companies can partner with the highest- performing vendors and suppliers to maintain strict quality control. Higher efficiency rate Having continuous information on the accessibility of raw materials and manufacturing delays allows companies to implement backup plans, such as sourcing materials from a backup supplier, forestalling further delays. Without constant information, organizations frequently lack opportunity and willpower to start plan B, bringing about issues, for example, and unavailable stock or late shipments to end consumers. Implementing smart automation arrangements likewise brings about higher productivity. Recuperating Hands Scours, for instance, carried out 6 Waterway Frameworks' cooperative versatile robots, multiplying efficiency and lessening superfluous strolling by 75%. Putting resources into the right robotization arrangements and utilizing information to limit postpones upholds a positive client experience and lifts your organization's reputation. Keeping up with demand “If consumer sales increase by 5 percent in a given week, a retailer could end up ordering 7 percent more product in response to the increase and a feeling that demand will continue,” according to a report by VISA. “The next link in the chain, observing what appears to be a 7 percent increase in demand, then orders a larger increase on his supplier. Eventually the factory may observe an inflated 20 percent increase in orders.”
Improved risk mitigation Breaking down higher perspective and granular supply chain data can uncover expected risks, empowering organizations to set up contingency plans to answer startling conditions promptly. By making a proactive move, as opposed to responding to production network interruptions, quality control issues or different worries as they emerge, organizations can stay away from adverse consequences. Understanding dangers likewise assists organizations with accomplishing less fatty tasks. For example, 87% of organizations accept they could decrease stock by 22% in the event that they had a superior comprehension of dangers in their supply chains. Improved cash flow The significance and advantages of supply chain management systems talked about above permit organizations to settle on more astute choices, pick the right accomplices, precisely foresee and answer market and request changes and decrease production network interruptions, yet entirely that is not all: they likewise work on the organization's primary concern. For instance, working with solid providers not just means less disturbances and more fulfilled clients, yet it additionally further develops income by permitting you to receipt (and get compensated for items and administrations) sooner. Executing more financially savvy answers for kill inefficient spend and lessening above costs likewise add to positive income. Supply chain interruptions have a cascading type of influence, influencing each crossroads all through the production network, yet the equivalent is valid for the up-sides: successful supply chain management has immediate and optional impacts that help the effective, consistent progression of data, labor and products from obtainment through final delivery.
Goals of Supply Chain Management
Each firm endeavors to coordinate supply with demand in an ideal design with the most productive utilization of assets. Here are a portion of the significant objectives of supply chain management Supply chain partners work collaboratively at different levels to maximize resource productivity, construct standardized processes, remove duplicate efforts and minimize inventory levels. Minimization of supply chain expenses is very essential, especially when there are economic uncertainties in companies regarding their wish to conserve capital. Cost efficient and cheap products are necessary, but supply chain managers need to concentrate on value creation for their customers. Exceeding the customers’ expectations on a regular basis is the best way to satisfy them. Increased expectations of clients for higher product variety, customized goods, off-season availability of inventory and rapid fulfilment at a cost comparable to in-store offerings should be matched. To meet consumer expectations, merchants need to leverage inventory as a shared resource and utilize the distributed order management technology to complete orders from the optimal node in the supply chain.
Supply Chain Management - Integration
Supply chain integration can be defined as a close calibration and collaboration within a supply chain, mostly with the application of shared management information systems. A supply chain is made from all parties that participate in the completion of a purchase, like the resources, raw materials, manufacturing of the product, shipping of completed products and facilitating services.
This system is based on the deliberation of customer’s demand. which can bring about overloading or bottlenecks and postponements, inadmissible help levels and item out dated nature. This system depends on the thought of client's interest. It attempts to promote whatever number items into the market as could be expected under the circumstances. Subsequently, the creation is tedious on the grounds that the maker and the retailer battle to respond to the progressions on the lookout. Figure or forecast assumes a significant part in the push system. Optimum level of products can be created through long term expectation. This deliberative nature of the push system prompts high creation cost, high stock expense as well as high shipment cost because of the organization's longing to stop items at each stage. Thus, in the push view of supply chain integration, the manager of a firm may sometimes fail to satisfy or cope with the fluctuating demand pattern. This system leads to high inventory and high size of batches. Here, the companies focus more on minimizing the cost of supply chain and neglect the responsiveness. This system models challenges along with demand management and transportation management. Pull System The pull-based supply chain is based on demand-driven techniques; the procurement, production and distribution are demand-driven rather than predicting. This system doesn’t always follow the make-to-order production. For example, Toyota Motors Manufacturing produces products yet do not religiously produce to order. They follow the supermarket model. According to this model, limited inventory is kept and piled up as it is consumed. Talking about Toyota, Kanban cards are used to hint at the requirement of piling up inventory.
In this system, the demand is real and the company responds to the customer demands. It assists the company in producing the exact amount of products demanded by the clients. The major drawback in this system is that in case the demand exceeds than the amount of products manufactured, then the company fails to meet the customer demand, which in turn leads to loss of opportunity cost. Basically in the pull system, the total time allotted for manufacturing of products is not sufficient. The production unit and distribution unit of the company rely on the demand. From this point of view, we can say that the company has a reactive supply chain. Thus, it has less inventories as well as variability. It minimizes the lead time in the complete process. The biggest drawback in pull based supply chain integration is that it can’t minimize the price by ranking up the production and operations.
Differences in Push and Pull System
The major differences between push and pull view in supply chain are as follows − In the push system, the implementation begins in anticipation of customer order whereas in the pull system, the implementation starts as a result of customer’s order. In the push system, there is an uncertainty in demand whereas in pull system, the demand remains certain. The push system is a speculative process whereas the pull system is a reactive process.
The inventory levels of the companies are disturbed because of the overcompensation done by the companies either by slowing down or speeding up production. These fluctuations prove to be a costly and inefficient affair for all participants. Basically, the demand-driven strategies or the demand-driven supply chain is completely based on the demand as well as the supply part of marketing. So it can be uniquely organized in terms of the demand side and supply side initiatives. The demand-side initiatives concentrate on efficient methods to acquire the demand signal closer to the source, observe the demand to sense the latest and most accurate demand signal and shape the demand by implementing and following promotional and pricing strategies to gear up demand in accordance with business objectives. On the other hand, the supply side initiatives mostly need to do with reducing reliance on the prediction by developing into an agile supply chain accompanied by faster response when absolute demand is known. All the strategies discussed above are addressed under the demand-driven strategy, but we a company following all of them is rare. In fact, we can conclude that companies concentrate on different markets on the basis of features of the market and industry. References Kozlenkova, Irina; et al. (2015). "The Role of Marketing Channels in Supply Chain Management". Journal of Retailing. 91 (4): 586 – 609. doi:10.1016/j.jretai.2015.03.003. Retrieved 28 September 2016. Ghiani, Gianpaolo; Laporte, Gilbert; Musmanno, Roberto (2004). Introduction to Logistics Systems Planning and Control. John Wiley & Sons. p. 3-4. ISBN
9780470849170. Retrieved 8 January 2023.
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