VEL TECH HIGH TECH DR.RANGARAJAN DR.

SAKUNTHALA ENGINEERING COLLEGE

DEPARTMENT OF INFORMATION TECHNOLOGY

Degree : DEPARTMENT OF Sub Code : OME752

INFORMATION TECHNOLOGY
Branch : DEPARTMENT OF Sub Name : SUPPLY CHAIN MANAGEMENT
INFORMATION TECHNOLOGY
Semester : SEMESTER VII Faculty Name : DR. J.SENTHIL MURUGAN

Elective : OPEN ELECTIVE - II

CO No Course Outcomes Knowledge Level

C752.1 The student would understand the framework and K1
scope of supply chain networks and functions.

OME752 SUPPLY CHAIN MANAGEMENT L T P C

3 0 0 3
OBJECTIVE:
 To provide an insight on the fundamentals of supply chain networks, tools and techniques.
UNIT I INTRODUCTION 9
Role of Logistics and Supply chain Management: Scope and Importance- Evolution of Supply
Chain - Decision Phases in Supply Chain - Competitive and Supply chain Strategies – Drivers of
Supply Chain Performance and Obstacles.
UNIT II SUPPLY CHAIN NETWORK DESIGN 9
Role of Distribution in Supply Chain – Factors influencing Distribution network design – Design
options for Distribution Network Distribution Network in Practice-Role of network Design in
Supply Chain – Framework for network Decisions.
UNIT III LOGISTICS IN SUPPLY CHAIN 9
Role of transportation in supply chain – factors affecting transportations decision – Design
option for transportation network – Tailored transportation – Routing and scheduling in
transportation.
UNIT IV SOURCING AND COORDINATION IN SUPPLY CHAIN 9
Role of sourcing supply chain supplier selection assessment and contracts- Design collaboration -
sourcing planning and analysis - supply chain co-ordination - Bull whip effect – Effect of lack of
co-ordination in supply chain and obstacles – Building strategic partnerships and trust within a
supply chain.
UNIT V SUPPLY CHAIN AND INFORMATION TECHNOLOGY 9
The role IT in supply chain- The supply chain IT frame work Customer Relationship Management
– Internal supply chain management – supplier relationship management – future of IT in supply
chain – E-Business in supply chain.
TOTAL: 45 PERIODS

OUTCOME:

 The student would understand the framework and scope of supply chain networks and
functions.
TEXTBOOK:
1. Sunil Chopra, Peter Meindl and Kalra, “Supply Chain Management, Strategy, Planning, and
Operation”, Pearson Education, 2010.
REFERENCES:
1. Jeremy F.Shapiro, “Modeling the Supply Chain”, Thomson Duxbury, 2002.
2. Srinivasan G.S, “Quantitative models in Operations and Supply Chain Management, PHI, 2010
3. David J.Bloomberg , Stephen Lemay and Joe B.Hanna, “Logistics”, PHI 2002.
4. James B.Ayers, “Handbook of Supply Chain Management”, St.Lucle press, 2000.
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OME752 : SUPPLY CHAIN MANAGEMENT

UNIT I - INTRODUCTION

Role of Logistics and Supply chain Management:

1. Scope and Importance
2. Evolution of Supply Chain
3. Decision Phases in Supply Chain
4. Competitive and Supply chain Strategies
5. Drivers of Supply Chain Performance and Obstacles.

ROLE OF LOGISTICS AND SUPPLY CHAIN MANAGEMENT:

Logistics is like the oxygen which makes the supply chain breathe and live because without proper
logistical support, the movement of goods across a chain wouldn’t be smooth.
Let us take a closer look at how logistics becomes the rock solid foundation on which any supply
chain stands:
Taking the Order!
The purchase order is central to any transaction between the parties in a supply chain. This
document contains all the necessary details such as the technicalities of the product and
commercial terms. Proper logistics ensures that this document is processed in time so as to ensure
an effective performance cycle and to clear out any doubt about availability of materials and
payment terms.
Inventive Inventory!
An ideal inventory is one which has effective storage capabilities to ensure smooth supply but can
also cut down cuts. Logistics ensures this minute balance between market opportunities and
budgeting. More than often a poorly managed inventory can eat away a major chunk of the profit
in a supply chain because it includes expenses for pilferage and insurance also.
The War is the Warehouse!
The warehouse is the central nervous system in a supply chain and acts as the control room for
everything logistical. An organization’s merit is determined by its effective warehousing decisions.
Factors like location, number, size, layout and design plays a huge role in how the logistics of a
supply chain will pan out.
The Tricky Nature of Transport!
Transport is what keeps the supply chain moving literally and figuratively and it is the single most
important component in the logistical side of supply chain management. The physical transfer of
goods is the actual supplying process and it cannot falter by any means. The transport
infrastructure should be carefully studied so as to ensure a fast delivery which is not too expensive.
Determining the urgency of a supply is also important.
Mastering Material Handling!
Material handling is an often ignored aspect when it comes to the role of logistics in supply chain
management since lack of proper material handling often leads to damages and delays and
incidental costs. The automation in the material handling process has been a boon for logistical
productivity. The volume, speed and the level of service all must be taken into consideration to
ensure that the material handling process goes smoothly.
Packaging Must Be Perfect!
Logistical or industrial packaging is central to ensure the effectiveness of the actual physical
distribution of a product. This directly affects the logistical side of a supply chain as opposed to
product packaging which is governed by what the market needs. Logistical packaging can ensure
minimal damage during material handling and save on important storage space. The packaging
cost often depends on the utilization of the load.
Information is Incredibly Important
Logistics helps in transferring information across a supply chain and therefore an information
system plays a crucial role in ensuring a superior service to customers. Information technology
tools are constantly used to identify access, store, analyse and retrieve important data which can
help a firm strengthen the function of logistics in their supply chain.
Logistics can be considered as a mundane and boring series of activities but it is behind the well
oiled supply chain machinery that keeps any business up and running!
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.
In the above figure, we can see the flow of goods, services and information from the producer to
the consumer. The picture depicts the movement of a product from the producer to the
manufacturer, who forwards it to the distributor for shipment. The distributor in turn ships it to
the wholesaler or retailer, who further distributes the products to various shops from where the
customers can easily get the product.
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 unit that participates in the process must aim to minimize the costs
and help the companies to improve their long term performance, while also creating value for its
stakeholders and customers. This process can also minimize the rates by eradicating the
unnecessary expenses, movements and handling.
Here we need to note that supply chain management and supply chain event management are two
different topics to consider. The Supply Chain Event Management considers the factors that may
interrupt the flow of an effective supply chain; possible scenarios are considered and accordingly,
solutions are devised for them.
Supply Chain Management - Advantages
In this era of globalization where companies compete to provide the best quality products to the
customers and satisfy all their demands, supply chain management plays a very important role.
All the companies are highly dependent on effective supply chain process.
Let’s take a look at the major advantages of supply chain. The key benefits of supply chain
management are as follows −
 Develops better customer relationship and service.
 Creates better delivery mechanisms for products and services in demand with minimum
delay.
 Improvises productivity and business functions.
 Minimizes warehouse and transportation costs.
 Minimizes direct and indirect costs.
 Assists in achieving shipping of right products to the right place at the right time.
 Enhances inventory management, supporting the successful execution of just-in-time stock
models.
  Assists companies in adapting to the challenges of globalization, economic upheaval,
expanding consumer expectations, and related differences.
 Assists companies in minimizing waste, driving out costs, and achieving efficiencies
throughout the supply chain process.
These were some of the major advantages of supply chain management. After taking a quick
glance at the concept and advantages on supply chain management, let us take a look at the main
goals of this management.
Supply Chain Management - Goals
Every firm strives to match supply with demand in a timely fashion with the most efficient use of
resources. Here are some of the important goals 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 fulfillment 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.
Lastly, supply chain management aims at contributing to the financial success of an enterprise. In
addition to all the points highlighted above, it aims at leading enterprises using the supply chain
to improve differentiation, increase sales, and penetrate new markets. The objective is to drive
competitive benefit and shareholder value.

1. Scope and Importance

From the point of view of an enterprise, the scope of supply chain management is usually
bounded on the supply side by your supplier's suppliers and on the customer side by your
customer's customers. The logistics plays an important role between sources of demand and
sources of supply
As freight volume grows and transportation becomes more complicated, the need for robust
logistics management increases. Logistics management is a primary factor in the success of any
company’s operations and has a direct impact on its bottom line. Additionally, meeting customer
demand and providing superior service is one of the goals of good logistics management.

Objectives of Supply Chain

The objective of the supply chain is to maximize the overall value generated. The value of the
supply chain is the difference between what the final product is worth to the customer and the
effort the supply chain expends in filling the customer request or the services demanded.. For the
most of the supply chains the value will be strongly correlated with supply chain profitability, the
difference between the revenue generated from the customer and the overall cost across the the
supply chain. The supply chain profitability is the total profit to be shared across the supply chain.
The supply chain success should be measured in terms of supply chain profitability and not in
terms of the profits at an individual stage.
What is Logistics Management?
According to the definition of The Council of Supply Chain Management, “logistics management
is a part of supply chain management that plans, implements, and controls the efficient flow and
storage of goods, services, and related information in order to meet customers’ requirements”.
Fundamentally, logistics management is the control and supervision of the movement of
goods. However, the scope of managed processes reaches far more than that. It involves a
multitude of different factors including transportation management, freight and inventory
management, materials handling, and order fulfillment.

How Logistics Management Can Benefit You?

Increased customer satisfaction
Consumers demand better service, and this mandate creates a need for shippers to provide fast,
accurate and quality service. Good management strategy is aimed to constantly optimize
transportation processes and eliminate disruptions. Therefore, it has a direct impact on your
customers’ satisfaction. Improved customer service can bring a good reputation to a company’s
brand and help generate more business. The smoother the freight moving processes are within and
beyond your company means that you will provide more value to your clients. Ultimately, well-
handled logistics contributes to the overall positive customer’s experience.

Visibility and insight Cost Savings

It is important to create visibility into a company’s supply chain. Advanced transportation
management systems (TMS) analyze historical data and track the real-time movement of goods in
and out of a business. Logistics managers can use this information for process optimization and
avoiding potential disruptions. TMS data analysis keeps a company’s supply chain moving more
efficiently, all while gaining operational insight.
Cost Savings
Managing logistics on a proper level will give a company control over inbound freight, keep
inventory at optimal levels, organize the reverse flow of goods, and utilize freight moves on the
proper transportation modes – all of which can cut costs significantly.
Key Logistics Management Goals
Essentially, before turning to external help and investing in management technology, you want to
make sure it will bring beneficial results. That’s why it is important to know how to measure the
effectiveness of any new practices.

1. Increase revenue
2. Improve operating cost structure
3. Reduce overall transportation costs
4. Improve customer service

Many companies look to third-party logistics providers (3PL’s) for help as this simple concept can
often become very complex and not so easy to execute. 3PL’s have the expertise and advanced
technology to cut costs and improve processes much more efficiently than companies can in-
house.

2. Evolution of Supply Chain

Evolution of the Supply Chain Concept

Over the years, most firms have focused their attention on the effectiveness and efficiency of
separate business functions such as purchasing, production, marketing, financing, and logistics.
The lack of connectivity among these functions, however, can lead to sub-optimal organizational
goals and create inefficiency by duplicating organizational efforts and resources. To capture the
synergy of interfunctional and interorganizational integration and coordination across the supply
chain and to subsequently make better strategic decisions, a growing number of firms have begun
to realize the strategic importance of planning, controlling, and designing a supply chain as a
whole. In today’s global marketplace, individual firms no longer compete as independent entities
with unique brand names, but rather as integral parts of supply chain links. As such, the ultimate
success of a firm will depend on its managerial ability to integrate and coordinate the intricate
network of business relationships among supply chain partners (Drucker, 1998; Lambert and
Cooper, 2000).
A supply chain is referred to as an integrated system that synchronizes a series of interrelated
business processes in order to: (1) create demand for products; (2) acquire raw materials and parts;
(3) transform these raw materials and parts into finished products; (4) add value to these products;
(5) distribute and promote these products to either retailers or customers; (6) facilitate information
exchange among various business entities (e.g., suppliers, manufacturers, distributors, third-party
logistics providers, and retailers). Its main objective is to enhance the operational efficiency,
profitability, and competitive position of a firm and its supply chain partners. More concisely,
supply chain management is defined as “the integration of key business processes from end-users
through original suppliers that provide products, services, and information and add value for
customers and other stakeholders” (Cooper et al., 1997b, p. 2). A supply chain is characterized by a
forward flow of goods and a backward flow of information, as illustrated by Figure 1.1 (Min and
Zhou, 2002, p. 232).
Figure 1.1. The supply chain process

Typically, a supply chain is composed of two main business processes:

 Material management (inbound logistics)

 Physical distribution (outbound logistics)

Material management is concerned with the acquisition and storage of raw materials, parts, and
supplies. To elaborate, material management supports the complete cycle of material flow—from
the purchase and internal control of production materials, to the planning and control of work-in-
process, to the warehousing, shipping, and distribution of finished products (Johnson and Malucci,
1999). On the other hand, physical distribution encompasses all outbound logistics activities
related to providing customer service. These activities include order receipt and processing,
inventory deployment, storage and handling, outbound transportation, consolidation, pricing,
promotional support, returned product handling, and life-cycle support (Bowersox and Closs,
1996).

Combining the activities of material management and physical distribution, a supply chain does
not merely represent a linear chain of one-on-one business relationships, but a web of multiple
business networks and relationships. Along a supply chain, there may be multiple stakeholders,
composed of various suppliers, manufacturers, distributors, third-party logistics providers,
retailers, and customers. For example, a supply chain for typical automobile seats linking
suppliers, manufacturers, third-party logistics providers, and customers is graphically illustrated
in Figure 1.2. As shown in this figure, the supply chain begins with customers such as Ford,
General Motors, and Fiat-Chrysler, who need to use automobile seats as critical parts of their
manufactured cars. At the next upstream stage of the supply chain, the car manufacturer often
purchases automobile seats from the original equipment manufacturer (OEM). This OEM needs to
acquire the parts and components of the automobile seats, including brackets, foam, fabric, and
fasteners from tier-one suppliers fabricating those parts and components. Because these parts and
components are made of metals, screws, bolts, plastics, and textiles, the tier-one suppliers should
acquire some simple parts and raw materials from tier-two suppliers, who should obtains such
parts and materials from tier-three suppliers such steel and yarn producers. These tier-three
suppliers, in turn, obtain their sources of materials from ore mining and cotton plants at the
furthest upstream of the supply chain. In case logistics activities involving the movement,
handling, storage, and packaging of these materials, parts, components, and finished goods are
outsourced from third-party logistics providers, the complexity of the supply chain network will be
increased due to the possibility of both forward and reverse flow of products. As illustrated by this
example, the typical supply chain cannot be explained by a linear linkage among the supply chain
members.
Figure 1.2. The supply chain network for automobile seats

In a nutshell, the concept of supply chain management has evolved around a customer-focused
corporate vision, which drives changes throughout a firm’s internal and external linkages and then
captures the synergy of interfunctional, interorganizational integration and coordination. Herein,
integration does not entail merger/acquisition or equity of the ownership of other organizations.
The successful integration of the entire supply chain process can bring about a number of bottom-
line benefits (Schlegel, 1999):

 Improved customer service and value added—Customer service can be improved

through increased inventory availability, better on-time delivery performances, higher order
fill rates, and lower post-sales costs.
 Enhanced fixed capital—Fixed capacity is maximized through a strategic partnership and
joint planning that can increase overall capacity and throughput.
 Utilized asset—Asset utilization can be maximized by increasing inventory turns and
closely aligning supply with demand.
 Increased sales and profitability—The ability to assess outcomes due to price changes,
promotional events, and new product development can be enhanced through increased
visibility resultant from information sharing among supply chain partners.

Financial benefits can be accrued from successful supply chain integration. For instance, thanks to
streamlined supply chain integration, Dell’s personal computer (PC) market share in the U.S. grew
from 2.7% in 1995 to 24.1% in 2014 (Gartner, 2014). Similarly, Walmart, which happens to be
another supply chain leader, enjoyed the rapid growth of its market share from 6.8% in 1992 to
17.1% in 2004 before declining to 11.4% in 2013 (Foster, 2006; Statistica, 2014). Despite these
benefits of supply chain integration, firms engaged in this effort must be aware of the various
challenges because of the unprecedented number and diversity of products and services available
to customers in the era of mass customization. This variety will make it more difficult for a firm to
predict customer needs and requirements. Therefore, the consequence of making forecasting errors
will be more serious than ever before. Unfortunately, in a stretched supply chain with complex
layers of suppliers and distributors, the severity of forecasting errors could be far beyond the level
of compromise. Hardest hit by such forecasting errors are often upstream suppliers with little
resources whose visibility of true demand is blindsided by distorted information passed by their
immediate customers (e.g., manufacturers) and other downstream customers (e.g., distributors and
retailers). This phenomenon was often explained by the so-called “bullwhip” effect.

The bullwhip effect is generally referred to as an inverse ripple effect of forecasting errors
throughout the supply chain that leads to amplified supply and demand misalignment, where
orders (perceived demand) to the upstream supply chain member tend to exaggerate the true
patterns of end-customer demand because each chain member’s view of true demand can be
blocked by its immediate downstream supply chain member (Min, 2000; Lee et al., 1997a). The
common symptoms of the bullwhip effect include delayed new product development, constant
shortages and backorders, frequent order cancellations and returns, excessive pipeline inventory,
erratic production scheduling, expedited shipments, and chronic overcapacity problems (Min,
2000; Lee et al., 1997b). The failure to mitigate or eliminate the bullwhip effect can disrupt the
firm’s revenue driver and adversely affect the firm’s bottom line. According to Hendricks and
Singhal (2005), supply chain disruptions led to:

 Significant reduction in stock returns relative to their benchmarks (e.g., 33% to 40%
reduction over a three-year period)
 Increased share price volatility (e.g., 13.5% increase in share price volatility one year after
supply chain disruptions)
 Decline in profitability (e.g., 107% drop in annual operating income, 7% decline in annual
sales growth, and 11% annual total cost increase)
 Debilitating firm performances (e.g., at least two consecutive years of lower performances
after supply chain disruptions)

Similarly, another worldwide survey of 602 financial executives conducted by FM Global and
Harris Interactive indicates that supply chain disruptions are the biggest threat to a firm’s revenue
drivers (Yang and Gonzalez, 2006). Considering the enormous impact of supply chain disruptions
on a firm’s financial status, today’s firms are increasingly pressured to manage their supply chain
right. Thus, supply chain management has become the forefront of the firms’ competitive strategy.
The discipline of supply chain management, however, is still undergoing an evolutionary process.
Table 1.1 summarizes the changes in the philosophy, focus, and performance metrics of supply
chain management, from the earlier stages to the current era (see Martin and Towill, 2000).

Table 1.1. The Evolution of Supply Chain Management Disciplines

Evolution Time Period Philosophy Key Driver Key Performance

Stage Metric

I Early 1980s Product driven Quality  Inventory turns

 Production cost

II Late 1980s Volume driven Cost  Throughput

 Production
 Evolution Time Period Philosophy Key Driver Key Performance
Stage Metric

capacity

III Early 1990s Market driven Product  Market share

availability  Order fill rate

IV Late 1990s Customer Lead time  Customer

driven satisfaction
 Value added
 Response time

V Early twenty- Knowledge Information  Real-time

first century driven communication
 Business
intelligence

3. Decision Phases in Supply Chain

Decision phases can be defined as the different stages involved in supply chain management for
taking an action or decision related to some product or services. Successful supply chain
management requires decisions on the flow of information, product, and funds that fall into three
decision phases.
Here we will be discussing the three main decision phases involved in the entire process of supply
chain. The three phases are described below –
Supply Chain Strategy
In this phase, decision is taken by the management mostly. The decision to be made considers the
sections like long term prediction and involves price of goods that are very expensive if it goes
wrong. It is very important to study the market conditions at this stage.
These decisions consider the prevailing and future conditions of the market. They comprise the
structural layout of supply chain. After the layout is prepared, the tasks and duties of each is laid
out.
All the strategic decisions are taken by the higher authority or the senior management. These
decisions include deciding manufacturing the material, factory location, which should be easy for
transporters to load material and to dispatch at their mentioned location, location of warehouses
for storage of completed product or goods and many more.
Supply Chain Planning
Supply chain planning should be done according to the demand and supply view. In order to
understand customers’ demands, a market research should be done. The second thing to consider
is awareness and updated information about the competitors and strategies used by them to satisfy
their customer demands and requirements. As we know, different markets have different demands
and should be dealt with a different approach.
This phase includes it all, starting from predicting the market demand to which market will be
provided the finished goods to which plant is planned in this stage. All the participants or
employees involved with the company should make efforts to make the entire process as flexible
as they can. A supply chain design phase is considered successful if it performs well in short-term
planning.
Supply Chain Operations
The third and last decision phase consists of the various functional decisions that are to be made
instantly within minutes, hours or days. The objective behind this decisional phase is minimizing
uncertainty and performance optimization. Starting from handling the customer order to
supplying the customer with that product, everything is included in this phase.
For example, imagine a customer demanding an item manufactured by your company. Initially,
the marketing department is responsible for taking the order and forwarding it to production
department and inventory department. The production department then responds to the customer
demand by sending the demanded item to the warehouse through a proper medium and the
distributor sends it to the customer within a time frame. All the departments engaged in this
process need to work with an aim of improving the performance and minimizing uncertainty.
Supply chain performance measure can be defined as an approach to judge the performance of
supply chain system. Supply chain performance measures can broadly be classified into two
categories −
 Qualitative measures − For example, customer satisfaction and product quality.
 Quantitative measures − For example, order-to-delivery lead time, supply chain response
time, flexibility, resource utilization, delivery performance.
Here, we will be considering the quantitative performance measures only. The performance of a
supply chain can be improvised by using a multi-dimensional strategy, which addresses how the
company needs to provide services to diverse customer demands.
Quantitative Measures
Mostly the measures taken for measuring the performance may be somewhat similar to each
other, but the objective behind each segment is very different from the other.
Quantitative measures is the assessments used to measure the performance, and compare or track
the performance or products. We can further divide the quantitative measures of supply chain
performance into two types. They are −
 Non-financial measures
 Financial measures
Non - Financials Measures
The metrics of non-financial measures comprise cycle time, customer service level, inventory
levels, resource utilization ability to perform, flexibility, and quality. In this section, we will
discuss the first four dimensions of the metrics −
Cycle Time
Cycle time is often called the lead time. It can be simply defined as the end-to-end delay in a
business process. For supply chains, cycle time can be defined as the business processes of
interest, supply chain process and the order-to-delivery process. In the cycle time, we should learn
about two types of lead times. They are as follows −
 Supply chain lead time
 Order-to-delivery lead time
Customer Service Level
The customer service level in a supply chain is marked as an operation of multiple unique
performance indices. Here we have three measures to gauge performance. They are as follows −
 Order fill rate − The order fill rate is the portion of customer demands that can be easily
satisfied from the stock available. For this portion of customer demands, there is no need
to consider the supplier lead time and the manufacturing lead time. The order fill rate
could be with respect to a central warehouse or a field warehouse or stock at any level in
the system.
 Stockout rate − It is the reverse of order fill rate and marks the portion of orders lost
because of a stockout.
 Backorder level − This is yet another measure, which is the gauge of total number of
orders waiting to be filled.
 Probability of on-time delivery − It is the portion of customer orders that are completed
on-time, i.e., within the agreed-upon due date.
Inventory Levels
As the inventory-carrying costs increase the total costs significantly, it is essential to carry
sufficient inventory to meet the customer demands. In a supply chain system, inventories can be
further divided into four categories.
  Raw materials
 Work-in-process, i.e., unfinished and semi-finished sections
 Finished goods inventory
 Spare parts
Every inventory is held for a different reason. It’s a must to maintain optimal levels of each type
of inventory. Hence gauging the actual inventory levels will supply a better scenario of system
efficiency.
Resource Utilization
In a supply chain network, huge variety of resources is used. These different types of resources
available for different applications are mentioned below.
 Manufacturing resources − Include the machines, material handlers, tools, etc.
 Storage resources − Comprise warehouses, automated storage and retrieval systems.
 Logistics resources − Engage trucks, rail transport, air-cargo carriers, etc.
 Human resources − Consist of labor, scientific and technical personnel.
 Financial resources − Include working capital, stocks, etc.
In the resource utilization paradigm, the main motto is to utilize all the assets or resources
efficiently in order to maximize customer service levels, reduce lead times and optimize
inventory levels.
Finanacial Measures
The measures taken for gauging different fixed and operational costs related to a supply chain are
considered the financial measures. Finally, the key objective to be achieved is to maximize the
revenue by maintaining low supply chain costs.
There is a hike in prices because of the inventories, transportation, facilities, operations,
technology, materials, and labor. Generally, the financial performance of a supply chain is
assessed by considering the following items −
 Cost of raw materials.
 Revenue from goods sold.
 Activity-based costs like the material handling, manufacturing, assembling rates etc.
 Inventory holding costs.
 Transportation costs.
 Cost of expired perishable goods.
 Penalties for incorrectly filled or late orders delivered to customers.
 Credits for incorrectly filled or late deliveries from suppliers.
 Cost of goods returned by customers.
 Credits for goods returned to suppliers.
In short, we can say that the financial performance indices can be merged as one by using key
modules such as activity based costing, inventory costing, transportation costing, and inter-
company financial transactions.

4. Competitive and Supply chain Strategies

Strategic sourcing can be defined as a collective and organized approach to supply chain
management that defines the way information is gathered and used so that an organization can
leverage its consolidated purchasing power to find the best possible values in the marketplace.
We cannot build up the significance of operating in a collaborative manner. Several decades have
witnessed a major transformation in the profession of supply chain, from the purchasing agent
comprehension, where staying in repository was the criterion, to emerging into a supply chain
management surrounding, where working with cross functional and cross location teams is
important, to achieve success.

Strategic sourcing is organized because of the necessity of some methodology or process. It is

collective because one of the most essential necessities for any successful strategic sourcing
attempt is of receiving operational components, apart from the procurement, engaged in the
decision-making and assessment process.
The process of strategic processing is a step by step approach. There are seven distinct steps
engaged in the process of strategic processing. These steps are explained below in brief.
Understanding the Spend Category
The first three steps involved in the strategic sourcing are carried out by the sourcing team. In this
first stage, the team needs to do a complete survey on the total expenditure. The team ensures that
it acknowledges every aspect regarding the spend category itself.
The five major regions that are analyzed in the first stage are as follows −
 Complete previous expenditure records and volumes.
 Expenditures divided by items and sub items.
 Expenditures by division, department or user.
 Expenditures by the supplier.
 Future demand projections or budgets.
For example, if the classification is grooved packaging at a customer goods company, the team
has to acknowledge the description of the classification, application patterns and the reason
behind specification of particular types and grades specified.
Stakeholders at all functioning units and physical locations are to be determined. The logistics,
for instance, needs an updated report regarding the transportation specifications and marketing
requirements to acknowledge some quality or environmentally applicable features.
Supplier Market Assessment
The second step includes frequent assessment of the supplier market for pursuing substitute
suppliers to present incumbents. A thorough study of the supplier marketplace dynamics and
current trends is done. The major element of the key products design is should-cost. Along with
it, an analysis on the major suppliers’ sub-tier marketplace and examination for any risks or new
opportunities are also important.

Now, it is not recommended to analyze the should-cost for every item. There are many instances
where conservative strategic sourcing techniques tend to work better. But in the instances where
the application of strategic sourcing is not applicable, the should-cost analysis supplies a valuable
tool that drives minimizing of cost and regular progress efforts of the supplier.
Supplier Survey
The third step is developing a supplier analysis for both incumbent and potential substitute
suppliers. This analysis assists in examining the skills and abilities of a supplier. In the
meanwhile, data collected from incumbent suppliers is used for verifying spend information that
suppliers have from their sales systems.

The survey team considers the above-mentioned areas for gathering information. The areas are as
follows −
 Feasibility
 Capability
 Maturity
 Capacity
The analysis is done to examine the potential and skills of the market to satisfy the customer
demands. This analysis helps in the examination done at the initial stage to find out if the
proposed project is feasible and can be delivered by the identified supply base.
This analysis also supplies an initial caution of the customer demands to the market and enables
suppliers to think about how they would react to and fulfill the demand. Here the motto is to
motivate the appropriate suppliers with the right structural layout to respond to the demands.
Building the Strategy
The fourth step comprises constructing the sourcing strategy. The merger of the first three steps
supports the necessary elements for the sourcing strategy. For every region or category, the
strategy depends on answering the questions given below.
 How willing is the marketplace to oppose the supplier?
 How supportive are the clients of a firm for testing incumbent supplier relationships?
 What are the substitutes to the competitive assessment?
Generally, these substitutes are opted when a purchasing firm has little leverage over its supply
base. They will depend on the belief that the suppliers will share the profits of a new strategy.
Thus, we say that the sourcing strategy is an accumulation of all the drivers thus far mentioned.
RFx Request
Mostly, the competitive approach is applied in general cases. In this approach, a request for
proposal or bid needs to be prepared (e.g., RFP, RFQ, eRFQ, ITT) for most spend classifications
or groups.
This defines and clarifies all the needs for all prequalified suppliers. The request should comprise
product or service specifications, delivery and service requirements, assessment criteria, pricing
structure and financial terms and conditions.
In the fifth stage, an interaction plan needs to be executed to allure maximum supplier interest. It
must be ensured that each and every supplier is aware that they are competing on a level playing
field. After sending the RFP to all suppliers, it is to be confirmed that they are given enough time
to respond. In order to motivate greater response, follow-up messages should also be sent.
Selection
This step is all about selecting and negotiating with suppliers. The sourcing team is advised to
apply its assessment constraints to the responses generated by the suppliers.
If information across the limitation of RFP response is required, it can be simply asked for. If
done correctly, the settlement process is conducted first with a larger set of suppliers and then
shortlisted to a few finalists. If the sourcing team utilizes an electronic negotiation tool, large
number of suppliers can sustain in the process for longer duration, giving more wide suppliers a
better opportunity at winning the enterprise.
Communicaction With New Suppliers
After informing the winning supplier(s), they should be invited to take part in executing
recommendations. The execution plans vary according to the scale of switches the supplier
makes.
For obligatory purposes, a communication plan will be set up, including any modification in
specifications and improvements in delivery, service or pricing models. These tend to be
communicated to users as well.
As we know, the company gains immensely from this entire process of creating a communication
plan, making some modifications according to the customer demand and further forwarding this
to the customer. It’s essential that this process should be acknowledged by both the company and
the supplier.
For new suppliers, we need to construct a communication plan that copes with the alteration from
old to new at every point in the process engaged by the spend category. The sections that have an
impact of this change are the department, finance and customer service.
In addition, the risk antennae will be particularly sensitive during this period. It is essential to
gauge closely the new supplier’s performance during the first weeks of performance.
Another essential task is to grasp the intellectual capital of the sourcing team, which has been
developed within the seven-step process, so that it can be used the next time that category is
sourced.

5. Drivers of Supply Chain Performance and Obstacles.

Supply Chain Drivers and Obstacles.The performance of a supply chain (responsiveness and
efficiency) is determined by decisions in the areas of inventory, transportation, facilities and
information. Hence these four areas are identified as drivers of supply chain performance.

Drivers of Supply Chain Performance

• Facilities
– places where inventory is stored, assembled, or fabricated
– production sites and storage sites (distribution facilies (DC))
– Location, capacity, flexibility
– Responsive – several DC close to customer v.s. Efficiency- central few DCs
• Inventory
– raw materials, WIP, finished goods within a supply chain
– inventory policies
– Responsiveness – Large inventories, Efficiency – low inventories
• Transportation
– moving inventory from point to point in a supply chain
– combinations of transportation modes and routes
– Transportation choices make big impact on responsiveness

Drivers of Supply Chain Performance

• Information
– data and analysis and sharing regarding inventory, transportation, facilities,costs, prices, supplier
performance, demand forecast throughout the supplychain
– potentially the biggest driver of supply chain performance, affects all other drivers directly.
• Sourcing
– Sourcing functions that are outsourced, like production, storage, management of information etc.
– Motorolla suffered from responsiveness after outsourcing production to contract manufacturers
in china because of long distances, started flying in some of its cellular phones.
• Pricing
– Price associated with goods and services provided by a firm to the supplychain
– Affects the behavior of the buyer.
– Transportation company charging based on lead time provided by customer. Efficiency
customers will order early. If the price is not dependent on lead time early orders are very unlikely.

Structuring Drivers; Wal-Mart example

• Competitive strategy; every-day-low-price, reliable product

availability, wide-variety.
• Supply chain must be efficient with adequate level of
responsiveness
• Inventory – low levels of inventories, cross-ducking (no storage
at DCs) (efficiency)
• Transportation – owns its fleet of trucks (responsiveness)
• Facilities – Centrally located DCs. Won’t open stores until
demand justifies several of them and a DC to support them.
• Information – High investment on information technology,
sharing sales data directly and timely with its suppliers
• Sourcing – finding efficient suppliers, feeding them with large
orders
• Pricing – Every day low price (no sales season), assuring steady
Demand
The supply chain strategic fit concept requires that a company achieve the desired responsiveness
and efficiency in its supply chain that best meets the needs of the company's competitive strategy.
The performance of a supply chain (responsiveness and efficiency) is determined by decisions in
the areas of inventory, transportation, facilities and information. Hence these four areas are
identified as drivers of supply chain performance.
A Framework for Structuring Supply Chain Drivers
Supply chain managers have to take research and development efforts to improve both
responsiveness and efficiency of their supply chains on a continuous basis. In the past there were
technological and managerial breakthroughs which improve one of them without any deterioration
in the other and also improvement in both dimensions simulataneously. Actual economic theory
tells, new technologies (capital investments) are adopted for capital productivity. Capital
productivity in the context of supply chains comes through improvement in responsiveness and
efficiency.
But at a certain point in time, there can be tradeoffs between responsiveness and efficiency. Hence
supply chain designers come with supply chains that give various combinations of responsiveness
and efficiency (responsiveness - efficiency frontier) and the optimal combination is chosen based
on the competitive strategy considerations.
Definition/Explanation of Four Drivers

Inventory: It consists of all raw material, work in process, and finished goods within a supply
chain.
Transportation: It involves moving inventory from one point in the supply chain to another point.
Facilities: A facility is a place where inventory is stored, manufactured or assembled. Hence
facilities can be categorised into production facilities and storage facilities.
Information: It consists of data and results of analysis regarding inventory, transportation,
facilities, customer orders, customers, and funds.

Inventory
Inventory is maintained in the supply chain because of mismatches between supply and demand.
Types of inventory based on reasons for keeping them:
Cycle inventory: This results due to producing or buying larger lots to minimize acquisition costs
related to processing each purchase order or production order.
Safety Inventory: It is held to counter against uncertainty or variability of demand.
Seasonal Inventory: It is inventory maintained to satisfy higher demands in a period compared to
production capacity. It arises due to the decision to service predicted variability in demand through
extra production during slack period or low demand periods.
Increasing inventory gives higher responsiveness but results in higher inventory carrying cost.
Transportation
Number of decisions have to be taken in designing a supply chain regarding transportation.

Decisions
Mode of Transportation
Six basic modes exist
Air
Truck (Road)
Rail
Ship
Pipeline
Electronic transportation (the newest mode for music, documents etc)

Route and Network Selection

Network is a set of facilities or destinations which can be used for transportation of goods. Route
is a specific selection of facilities or destinations through which goods move.

Own Transport or Outsourced Transport

Facilities
Within a facility, inventory is either transformed into another state or stored.
Facilities Related Decisions
Location
Capacity
Manufacturing Methodology or Technology
Warehousing methodology

Information
Information does not have a physical presence. It is likely to be overlooked. But it deeply affects
every part of supply chain. Information is the connection between various stages in a supply chain
and allows them to coordinate actions and increase the maximum supply chain profitability. It is
also essential in daily operations. The stocks available in warehouses must have visibility so that
when a customer wants an item, it can be delivered to him.
Decisions related to Information

Push Process Information and Pull Process Information

Coordination and information sharing across various facilities in the supply chain.
Forecasting
Aggregate Planning
Enabling technologies
Obstacles to Achieving Strategic Fit
Increasing Variety of Products:In the era of mass customization production variety is increasing.

The customers becoming increasingly demanding. Today's customers are demanding faster
fulfillment, better quality, and better performing products for the same price that they are paying
today.
The supply chain is getting fragmented. At one time vertical integration was the order of the day.
But the present trend is to concentrate on core competence and outsource more activities. Thus the
supply chain is more fragmented now.
Globalization is creating global supply chains and hence physical distance is increasing between a
company and its suppliers and a company and its customers.While creating a strategy is difficult,
executing it is much more difficult. Many companies understand Toyota Production System now,
but still find it difficult to implement and operate.

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