SUPPLY CHAIN MANAGEMENT NOTES

ELECTIVE COURSE – XXV

Subject Subject Name L T P S C

Code
PMF25 SUPPLY CHAIN MANAGEMENT 3 0 0 1 3
Course Objectives
C1 To familiarize the students to the basic concepts of Supply Chain management
C2 To provide insights on Supply chain synergies.
C3 To throw light on Sales & Operation Planning
C4 To elucidate on Customer value and supply chain management
C5 To create awareness on supply chain analytics.
SYLLABUS
Unit. Details Hours
No.
Introduction to Supply Chain
Historical perspective Understanding Supply Chain; key issues in
supply chain management Objectives, importance, Decision phases -
Unit I 9
Examples of supply chains Supply chain strategies,
The supply chain becomes value chain Supply chain as a competitive
weapon.
Supply chain synergies
Collaborate with supply chain partners Supply Chain Drivers and
Design Drivers of supply chain performance; Framework for
Unit II 9
structuring Facilities, including warehouse, Inventory,
Transportation, Information, Sourcing and Pricing – Yield
management /Revenue management.
Sales and Operations Planning
Demand management Demand forecasting, Aggregate Planning and
Managing Supply, Demand and Inventory Aggregate Planning in a
Unit III Supply Chain; role, aggregate planning problems, strategies, role of 9
IT, Implementation Responding to predictable variability in supply
chain – Types of supply chains-creating responsive supply chains
lean and agile supply chain their characteristics.
Customer value and supply chain management
Dimensions of customer value-value added services –customer value
Unit IV measures Push-pull boundary –mass customization and supply chain 9
management outsource - Third and Fourth - Party Logistics providers
–managing risk in supply chains Creating a sustainable supply chain.
Unit V Supply chain analytics 9
 Use of computer software in supply chain problems -Electronic
commerce –emerging mega trends supply chain of the future –
seeking structural flexibility –The multi-channel revolution 2020
vision.
TOTAL HOURS 45
Reference Books
Coyle, J., Langley, J., Gibson, B. and Novack, R., A Logistic Approach to Supply
1.
Chain Management, Cengage Learning, 2009.
Handfield, R. and Monczka, R., Sourcing and Supply Chain Management, 5th Edition,
2. Cengage Learning, 2012.

Hugos, M., Essentials of Supply Chain Management, 3rd Edition, John Wiley and Sons,
3.
2011.
4. Liu, J., Supply Chain Management and Transport Logistics, Routledge, 2011.
Sinha, A. and Kotzab, H., Supply Chain Management; A Managerial Approach, Tata
5.
McGraw-Hill Education, 2011.
6. Sople, V.V., Supply Chain Management; Text and Cases, Pearson, 2011.
E-Sources
1. http://www.scmr.com/article/global_supply_chains_prepare_for_uncertain_economy
http://www.scmr.com/article/supply_chain_crime_can_be_addressed_by_blockchain_
2.
strategy_says_deloitte_st
https://ocw.mit.edu/courses/engineering-systems-division/esd-273j-logistics-and-
3.
supply-chain-management-fall-2009/lecture-notes/MITESD_273JF09_lec01.pdf
https://ocw.mit.edu/courses/engineering-systems-division/esd-273j-logistics-and-
4.
supply-chain-management-fall-2009/lecture-notes/MITESD_273JF09_lec03.pdf
https://ocw.mit.edu/courses/engineering-systems-division/esd-273j-logistics-and-
5.
supply-chain-management-fall-2009/lecture-notes/MITESD_273JF09_lec05.pdf
http://www.nitc.ac.in/app/webroot/img/upload/Supply%20Chain%20Management%20-
6.
%20Note.pdf
https://kenyanexams.com/college-exams/supply-chain-management/warehousing-
7.
operations-stock-controlnov-2011/
Assessment Tools Used
1. Assignments 6. Group Discussions
2. Internal Assessment Tests 7. Role play
3. Model Exam 8. Quiz
4. Seminar 9. Simulation
 5. Case Studies 10. Management games
Content Beyond Syllabus
1. Supply Chain Process and Relationships
2. Warehousing Operation & Cost Control
3. Modern Material Handling
4. Recent Developments in Supply Chain Management
Additional Reference Books
W.J. Hopp and M.L. Spearman. Factory Physics; Foundations of Manufacturing
1.
Management. Irwin, McGraw-Hill, 1996.
N. Viswanadham. Analysis of Manufacturing Enterprises.Kluwer Academic
2.
Publishers, 2000.
Sridhar Tayur, Ram Ganeshan, Michael Magazine (editors).Quantitative Models for
3.
Supply Chain Management.Kluwer Academic Publishers, 1999.
R.B. Handfield and E.L. Nochols, Jr. Introduction to Supply Chain
4.
Management.Prentice Hall, 1999.
Course Outcomes
CO. No. Program
On completion of this course successfully the students will; Outcomes
(PO)

Be able to familiarize the students to the basic concepts of SCM. PO6, PO7

C325.1

C325.2 Possess insights on Supply chain synergies. PO6

C325.3 Have insights on Sales & Operation Planning PO6, PO7
C325.4 Learn about Customer value and supply chain management. PO6, PO7
Have better understanding on supply chain analytics. PO2, PO4,
C325.5
PO6, PO7
PROGRAMME EDUCATIONAL OBJECTIVES (PEOs)

PEO 1; Placement: To equip the students with requisite knowledge skills and right attitude
necessary to get placed as efficient managers in corporate companies.
PEO 2; Entrepreneur: To create effective entrepreneurs by enhancing their critical
thinking, problem solving and decision-making skill.
PEO 3; Research and Development: To make sustained efforts for holistic development
of the students by encouraging them towards research and development.

PEO4: Contribution to Society: To produce proficient professionals with strong

integrity to contribute to society.

Program Outcome

PO1: Problem Solving Skill

Apply knowledge of management theories and practices to solve business problems.

PO2: Decision Making Skill

Foster analytical and critical thinking abilities for data-based decision making.
PO3: Ethical Value
Ability to develop value based leadership ability.
PO4: Communication Skill
Ability to understand, analyze and communicate global, economic, legal and ethical aspects
of business.

PO5: Individual and Leadership Skill

Ability to lead themselves and others in the achievement of organizational goals,

contributing effectively to a team environment.
PO6: Employability Skill
Foster and enhance employability skills through subject knowledge.
PO7: Entrepreneurial Skill
 SUPPLY CHAIN MANAGEMENT

UNIT 1: Introduction to Supply Chain

Historical perspective Understanding Supply Chain: key issues in supply chain management
Objectives, importance, Decision phases -Examples of supply chains Supply chain strategies,
The supply chain becomes value chain Supply chain as a competitive weapon

UNIT II: Supply chain synergies

Collaborate with supply chain partners Supply Chain Drivers and DesignDrivers of supply chain
performance: Framework for structuring Facilities, including warehouse, Inventory,
Transportation, Information, Sourcing,and Pricing – Yield management /Revenue management

UNIT III: Sales and Operations Planning

Demand management Demand forecasting, Aggregate Planning and Managing Supply, Demand
and InventoryAggregate Planning in a Supply Chain: role, aggregate planningproblems,
strategies, role of IT, Implementation Responding to predictable variability in supply chain –
Types of supply chains-creating responsive supply chainslean and agile supply chain their
characteristics.

Unit IV: Customer value and supply chain management

Dimensions of customer value-value added services –customer value measures Push-pull

boundary –mass customization and supply chain management outsource - Third and Fourth -
Party Logistics providers –managing risk in supply chains Creating a sustainable supply chain
Unit V: Supply chain analytics
Use of computer software in supply chain problems -Electronic commerce –emerging mega
trends supply chain of the future –seeking structural flexibility –The multi-channel revolution
2020 vision

Reference Books
1. Coyle, J., Langley, J., Gibson, B. and Novack, R., A Logistic Approach to Supply Chain
Management, Cengage Learning, 2009.
2. Handfield, R. and Monczka, R., Sourcing and Supply Chain Management, 5th Edition,
Cengage Learning, 2012.
3. Hugos, M., Essentials of Supply Chain Management, 3rd Edition, John Wiley and Sons,
2011.
4. Liu, J., Supply Chain Management and Transport Logistics, Routledge, 2011.
5. Sinha, A. and Kotzab, H., Supply Chain Management: A Managerial Approach, Tata
McGraw-Hill Education, 2011.
6. Sople, V.V., Supply Chain Management: Text and Cases, Pearson, 2011.
 UNIT 1: INTRODUCTION TO SUPPLY CHAIN

Historical perspective Understanding Supply Chain: key issues in supply chain management
Objectives, importance, Decision phases -Examples of supply chains Supply chain strategies,
The supply chain becomes value chain Supply chain as a competitive weapon

SUPPLY CHAIN MANAGEMENT - MEANING

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.

Supply chain management (SCM) is the broad range of activities required to plan, control and
execute a product's flow, from acquiring raw materials and production through distribution to the
final customer, in the most streamlined and cost-effective way possible.

The supply chain encompasses all activities involved in the transformation of goods from the raw
material stage to the final stage, until the goods and services reach the end customer.

Example: For a simple product like soap, the HUL supply chain involves ingredient suppliers,
transporters, the company‟s manufacturing plants, carrying & forwarding agents, wholesalers,
distributors and retailers.

SCM encompasses the integrated planning and execution of processes required to optimize the
flow of materials, information and financial capital in the areas that broadly include demand
planning, sourcing, production, inventory management and storage, transportation or logistics
and return for excess or defective products. Both business strategy and specialized software are
DEFINITIONS:
The design and management of seamless, value-added process across organizational boundaries
to meet the real needs of the end customer.
-Institute for Supply Management

Christopher (1998) defined the supply chain as the network of organizations that are
involved, through upstream and downstream linkages, in the different processes and
activities that produce value in the form of products and services in the hands of the
ultimate customer.

Chopra and meindl (2001) “A supply chain consists of all stages involved, directly or
indirectly, in fulfilling a customer request”.

Handfield & Nichols (1999) “A supply chain encompasses all activities associated with
the flow and transformation of goods from the raw material stage, through to the end
user, as well as the associated information flows”.

A supply chain may be defined as an integrated process wherein a number of various business
entities like;
a) Suppliers
b) Manufacturers
c) distributors and
d) Dealers, Retailers etc.,

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 minimumdelay.

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.

OBJECTIVES OF SCM
A well designed SC is expected to support the strategic objectives of:-
1. Solving supplier‟s problems and beyond his level.
2. Customer service performance improvement.
3. Reduction of pre & post production inventory.
4. Minimizing variance by means of activities like standardization, variety reduction, etc.
5. Minimum total cost of operation & procurement.
6. Product Quantity control.
7. Achieving maximum efficiency in using labour, capital & plant through the company.
8. Flexible planning and control procedures.

The objective of Supply Chain performance is to achieve low cost through tradeoffs through;

1) Collaborations

2) Enterprise Extensions
3) Integrated Service Providers

1) Collaborations: Is the mutually benefiting performance, resulting in low cost and highefficiency
-Channel partners/function, which performs the same tasks can collaborate to improve
efficiency of each other.

-The collaboration also reduces the time and provides a greater value to the customers.

-Collaboration can be also seen between competing organizations to share resources, increase
efficiency as well to reduce the cost of operations

-Ex: Distribution of products of online marketers

2) Enterprise Extensions: Different firms with similar functions or different functions can
extent their enterprise support for effective and efficient as well cost effective performances to
deliver maximum value to their customers.

Example: McDonald’s Corporation along with its franchises, Joint ventured companies, the 3rd
Party Logistic Partners, the Marketing and Advertising agencies, Suppliers of Raw materials as
well kitchen equipment, building services as well as Toys manufacturing and carry away
package suppliers are extended enterprises.

3) Integrated Service Providers: Outsourcing of certain services, so as to better focus on their

core function.

-Those functions, which requires high set up cost as well large base of human resource, are
mainly outsourced.

Ex: A company wants to use Tele-Calling services for better customer relationship management
(CRM), can outsource BPO services.
IMPORTANCE OF SUPPLY CHAIN MANAGEMENT
Supply chain management is an integral part of most businesses and is essential to company success
and customer satisfaction. The main importance of Supply Chain Management are:-
REDUCE OPERATING COSTS
Decreases Purchasing Cost - Organizations generally prefer quick distributions of costly
products and raw materials to avoid expensive inventory
Decrease Production Cost - A reliable supply chain delivers materials to assembly plants
and avoid any costs that may occur due to delays.

IMPROVE CUSTOMER SERVICES

Right quantity and quality - Customer expects delivery of right quantity and quality of
products.

On-time delivery - Customers expect to receive the correct product mix and quantity to be
delivered on time. A reliable supply chain can help in avoiding any bottlenecks and ensure
customers get their products in the promised time frame

Services – After sales services is one of the important aspects in any business. If any kind of
problem occur in the product, customer expects it to be fixed quickly. A right supply chain
ensures that customers get the service they want.
ADVANTAGES OF SUPPLY CHAIN MANAGEMENT

1) Reduced Costs

2) Increased Efficiency

3) Increased Profits

4) Increased productive Output

KEY ISSUES OF SUPPLY CHAIN MANAGEMENT

The supply chain management issues concern activities of the firm at various levels of decision
making, ranging from operational level to strategic level via tactical level.

GLOBALIZATION:
One of the biggest challenges that companies are facing is how to reduce their supply
chain cost. In order to satisfy customers‟ price expectations, companies have opted to
relocate manufacturing to low cost countries around the world in an effort to reduce
direct and indirect costs and to minimize taxes. But, having global suppliers contributes
significantly to complexity that comes from extended delivery lead times. Customers not
only want lower prices, but they also want their products on time.

CUSTOMER PREFERENCES:
As stated above, global supply chains are complex. Add to that product features that are
constantly changing, and the challenge is even greater. A product is released and
customers rapidly pressure companies to come up with the next big thing. Innovation is
important since it allows companies to stay competitive in the market, but it‟s also a
 challenge. To enhance a product, companies have to redesign their supply network and
meet market demand in a way that‟s transparent for customers.
MARKET GROWTH:
 Another factor that presents a challenge is the pursuit of new customers. The cost of a
developing a product, from R&D to product introduction, is significant. Therefore,
companies are trying to expand their distribution to emerging markets in order to grow
revenues and increase market share. Companies all around the world are expected to
expand in their home and foreign markets. The introduction to new markets is difficult
due to trading policies, fees, and government policies.

The effectiveness and efficiency of the Supply Chain depends upon the contribution and
performances of the channel partners and the processes with which they will be operated.

EVOLUTION AND HISTORY OF SUPPLY CHAIN MANAGEMENT

History of Supply Chain Management: The History of Supply Chain Management can be studied
under different eras.
THE EVOLUTION OF SUPPLY CHAIN MANAGEMENT

1 Creation Era The term supply chain management was first coined
by an American industry consultant in the early
1980s. However the concept of supply chain in
management, was of great importance long before in
the early 20th century
2 Integration Era This era of supply chain management studies was
highlighted with the development of Electronic Data
Interchange (EDI) systems in the 1960s and
developed through the 1990s by the introduction of
Enterprise Resource Planning (ERP) systems.

PREPARED BY M.S.SIRANJEEVI, ASSISTANT PROFESSOR

3 Globalization Era This era is characterized by the globalization of
supply chain management in organizations with the
goal of increasing competitive advantage, creating
more value-added,

PREPARED BY M.S.SIRANJEEVI, ASSISTANT PROFESSOR

 and reducing costs through global sourcing
4 Specialization Era Phase - One In the 1990s industries began to focus on “core
Outsourced competencies” and
Manufacturing and Distribution adopted a specialization model. Companies
abandoned vertical
integration, sold off non-core operations, and
outsourced those
functions to other companies.
5 Specialization Era Phase Two - Specialization within the supply chain began in the
Supply Chain 1980s with the
Management as a Service inception of transportation brokerages, ware house
management, and
non asset based carriers and has matured beyond
transportation and
logistics into aspects of supply planning,
collaboration, execution and
performance management.
6 Supply Chain Management 2. 0 Web 2. 0 is defined as a trend in the use of the
(SCM 2. 0) World Wide Web that
is meant to increase creativity, information sharing,
and collaboration among users.

SUPPLY CHAIN MANAGEMENT - DECISION PHASES

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.
SUPPLY CHAINSTRATEGY
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 CHAINPLANNING
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.

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 CHAINOPERATIONS
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.

COMPONENTS OF SCM
✓ Planning
✓ Sourcing
✓ Making
✓ Delivering
✓ Returning
✓ Enabling
PLANNING- Enterprises need to plan and manage all resources required to meet customer
demand for their product or service. They also need to design their supply chain and then
determine which metrics to use in order to ensure the supply chain is efficient, effective, delivers
value to customers, and meets enterprise goals.

SOURCING - Companies must choose suppliers to provide the goods and services needed to
create their product. After suppliers are under contract, supply chain managers use a variety of
processes to monitor and manage supplier relationships. Key processes include ordering,
receiving, managing inventory, and authorizing supplier payments.

MAKING - Supply chain managers coordinate the activities required to accept raw materials,
manufacture the product, test for quality, package for shipping, and schedule for delivery. Most
enterprises measure quality, production output, and worker productivity to ensure the enterprise
creates products that meet quality standards.

DELIVERING - Often called logistics, this involves coordinating customer orders, scheduling
delivery, dispatching loads, invoicing customers, and receiving payments. It relies on a fleet of
vehicles to ship product to customers. Many organizations outsource large parts of the delivery
process to specialist organizations, particularly if the product requires special handling or is to be
delivered to a consumer‟s home.

RETURNING - The supplier needs a responsive and flexible network to take back defective,
excess, or unwanted products. If the produce is defective it needs to be reworked or scrapped. If
the product is simply unwanted or excess it needs to be returned to the warehouse for sale.

ENABLING - To operate efficiently, the supply chain requires a number of support processes to
monitor information throughout the supply chain and assure compliance with all regulations.
Enabling processes include finance, HR, IT, facilities, portfolio management, product design,
sales, and quality assurance.

Supply Chain Management is

• The processes of design and management

• Across organizational boundaries

• With the goal of matching supply and demand

• In the most cost effective way
 SUPPLY CHAIN STAGES
A typical supply chain may involve a variety of stages.
✓ Each stage in a supply chain is connected through the flow of products, information, and
funds.
✓ These flows often occur in both directions and may be managed by one of the stages or
an intermediary.

SUPPLY CHAIN MANAGEMENT FLOWS

SCM Can be divided into 3 main flows

✓ The Product Flow
✓ The information Flow
 ✓ The Finances Flow

THE PRODUCT FLOW

The product flow includes the movement of goods from a supplier to a customer, as well as
any customer returns or service needs.
THE INFORMATION FLOW
The information flow involves transmitting orders and updating the status of delivery.

THE FINANCIAL FLOW

The financial flow consists of credit terms, payment schedules, and consignment and title
ownership arrangements.

SCM - STRATEGIC SOURCING

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.

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.

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.

SUPPLIERMARKET 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.

SUPPLIERSURVEY
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. The motto is to
motivate the appropriate suppliers with the right structural layout to respond to the demands.

BUILDINGTHESTRATEGY
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, 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.

COMMUNICATION WITH NEWSUPPLIERS

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.

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.
 SUPPLY CHAIN STRATEGY
Determines the nature of material procurement, transportation of materials, manufacture of
product or creation of service, distribution of product –Consistency and support between supply
chain strategy, competitive strategy, and other functional strategies is important.

RELATIONSHIP BETWEEN COMPETITIVE STRATEGY & SUPPLY CHAIN

STRATEGIES:
Value Chain begins with new product development, which creates specification for the product -
Marketing and Sales generate demand by publicizing the customer priorities that products and
services will satisfy
✓ Marketing also brings customer input back to new product development
✓ Using new product specifications, operations transforms inputs to outputs to create
product
✓ Distribution either takes the product to the customer or brings the customer to the product
✓ Service responds to customer requests during or after the sale
✓ Finance, accounting, information technology, and human resources support and facilitate
the -functioning of the value chain
✓ To execute a company‟s competitive strategy, all these functions play a role, and each
must develop its own strategy Achieving Strategic Fit Strategic fit.
 UNIT II: SUPPLY CHAIN SYNERGIES

Collaborate with supply chain partners Supply Chain Drivers and Design Drivers of supply chain
performance: Framework for structuring Facilities, including warehouse, Inventory,
Transportation, Information, Sourcing, and Pricing – Yield management /Revenue management.

SUPPLY CHAIN DRIVERS

The supply chain drivers are grouped under two main drivers:
1. Logistics drivers
2. cross functional drivers

The following are the important drivers of the supply chain

SUPPLY CHAIN
DRIVERS

CROSS FUNCTIONAL
LOGISTICS

LOGISTICS DRIVERS:
1. Facilities- warehouse or storage locations or factory location.
2. Inventory- stock of rawmaterials or finished goods
3. Transportation- moving of goods from one place to another.
CROSS FUNCTIONAL DRIVERS:
4. Pricing- cost of goods
5. Information - Information is nothing but the customer needs and wants

Role in Competitive Components of the driver’s

Drivers Role in SC Strategy decision
Flexible.
Facilities Dedicated or Economies of scale Location
Higher numbers or
Combined smaller Capacity
Product focus facilities Facility-related Metrics
Cycle, Safety and Seasonal
Inventory How much/many? Is it the cost? (JIT) Or inventory
Cost Quantity? Availability of the product
Inventory-related metric
Faster mode is Design of transportation
Transportation good but Faster mode = greater network
will incur higher
cost responsibility Choice of transportation mode
Transportation-related metric
 allows
Information coordination of all Enable efficient flow of Push vs pull
Coordination and information
Stages information sharing
Sales and operations planning
Enabling technologies
Information-related metrics
crucial for efficient
Sourcing supply chain Fully vertically In-house or outsource
 "Virtual integration‟ Supplier selection
Procurement
Sourcing-related metrics
Amount to be Optimal pricing Pricing and economies of
Pricing charged strategies scale
Everyday low vs high low
pricing
Fixed vs menu pricing
Pricing-related metrics

The five drivers provide a useful framework for thinking about supply chain capabilities.
Decisions made about how each driver operates will determine the blend of responsiveness and
efficiency a supply chain is capable of achieving. The five drivers are illustrated in the diagram
below:
 FRAMEWORK FOR STRUCTURING FACILITIES

WAREHOUSING
Warehousing plays a vital role in the supply chain process. In today‟s industry, the demands and
expectations of the customers are undergoing a tremendous change. We want everything at our
door step – that too with efficient price. The management of warehousing functions demands a
distinct merging of engineering, IT, human resources and supply chain skills.

INVENTORY
• Inventory exists because of a mismatch between supply and demand
• Source of cost and influence on responsiveness
• Impact onMaterial flow time: time elapsed between when material enters the supply
chain to when it exits the supply chain
• If responsiveness is a strategic competitive priority, a firm can locate larger amounts of
inventory closer to customers
 • If cost is more important, inventory can be reduced to make the firm more efficient
• Trade-off
Cycle inventory
o

• Average amount of inventory used to satisfy demand between shipments

o Depends on lot size
Safety inventory
o Inventory held in case demand exceeds expectations
o Costs of carrying too much inventory versus cost of losing sales
Seasonal inventory
o Inventory built up to counter predictable variability in demand
o Cost of carrying additional inventory versus cost of flexible production
Overall trade-off: Responsiveness versus efficiency
o More inventory: greater responsiveness but greater cost
o Less inventory: lower cost but lower responsiveness

TRANSPORTATION
•Moves the product between stages in the supply chain.
• Impact on responsiveness and efficiency.
• Faster transportation allows greater responsiveness but lower efficiency.
• Also affects inventory and facilities.
• If responsiveness is a strategic competitive priority, then faster transportation modes can
provide greater responsiveness to customers who are willing to pay for it.
•Can also use slower transportation modes for customers whose priority is price (cost)
•Can also consider both inventory and transportation to find the right balance.
Mode of transportation:
o Air, truck, rail, ship, pipeline, electronic transportation.
o Vary in cost, speed, size of shipment, flexibility.
Route and network selection
o Route: path along which a product is shipped.
o Network: collection of locations and routes.
In-house or outsource
• Overall trade-off: Responsiveness versus efficiency.

INFORMATION
• The connection between the various stages in the supply chain – allows coordination between
stages.
•Crucial to daily operation of each stage in a supply chain – e.g., production scheduling,
inventory levels.
• Allows supply chain to become more efficient and more responsive at the same time (reduces
the need for a trade-off).
• Push (MRP) versus pull (demand information transmitted quickly throughout the supply chain)
•Coordination and information sharing.
• Forecasting and aggregate planning.

ENABLING TECHNOLOGIES
o EDI.
o Internet.
o ERP systems.
o Supply Chain Management software.

Overall trade-off: Responsiveness versus efficiency Sourcing

• Set of business processes required to purchase goods and services in a supply chain.
• Supplier selection, single vs. multiple suppliers, contract negotiation.
• Sourcing decisions are crucial because they affect the level of efficiency and
responsiveness in a supply chain.
• In-house vs. outsource decisions- improving efficiency and responsiveness.
• In-house versus outsource decisions.
• Supplier evaluation and selection.
• Procurement process.
• Overall trade-off: Increase the supply chain profits.
 YIELD MANAGEMENT /REVENUE MANAGEMENT

Revenue management is an approach that seeks to price at different levels depending upon a
number of factors, based on the premise that different customers are willing to pay different
prices for the same product or service. In the airline and hospitality industries there are high
fixed costs, finite capacity, a high degree of perishability and multiple market segments. Instead
of charging a single price to every potential customer, multiple pricing may apply depending
upon the target segment, the timing of the purchase and the amount of available capacity.

THE ROLE OF REVENUE MANAGEMENT IN SUPPLY CHAIN

MANAGEMENT
Revenue management is the use of pricing to increase the profit generated from a
Limited supply of supply chain assets.
– SCs are about matching demand and capacity.
– Prices affect demands.
Yield management similar to RM but deals more with quantities rather than prices.
Supply assets exist in two forms
– Capacity: expiring
– Inventory: often preserved
Revenue management may also be defined as offering different prices based oncustomer
segment, time of use and product or capacity availability to increasesupply chain profits. Most
common example is probably in airline ticket pricing
– Pricing according to customer segmentation at any time
– Pricing according to reading days for any customer segment.

UNIT III: SALES AND OPERATIONS PLANNING

Demand management Demand forecasting, Aggregate Planning and Managing Supply, Demand
and Inventory Aggregate Planning in a Supply Chain: role, aggregate planning problems,
strategies, role of IT, Implementation Responding to predictable variability in supply chain –
Types of supply chains-creating responsive supply chains lean and agile supply chain their
characteristics.

DEMAND MANAGEMENT DEMAND FORECASTING

Demand Forecasting facilitates critical business activities like budgeting, financial planning,
sales and marketing plans, raw material planning, production planning, risk assessment and
formulating mitigation plans. Outlined below are the impacts of Demand Forecasting on Supply
Chain Management:
Improved supplier relations and purchasing terms: Demand Forecasting drives the raw material
planning process which facilities the Purchasing Managers to release timely purchase plan to
suppliers. Visibility and transparency of raw material demand improve supplier relations and
empowers Purchasing Managers to negotiate favorable terms for their companies.
Better capacity utilization and allocation of resources: Based on the current inventory levels,
raw material availability and expected customer orders, production can be scheduled effectively.
This leads to improved capacity utilization and judicious allocation of manufacturing resources.

Optimization of inventory levels: A proper Demand Forecast provides vital information for
driving the desired raw material, WIP and finished goods inventory levels. This reduces the
Bullwhip effect across the Supply Chain, leading to optimization of inventory levels and
reduction in stock-out or over-stocking situations.

Improved distribution planning and logistics: Apart from small businesses, this is particularly
evident in businesses dealing with multiple SKUs and wide distribution networks. Distribution
and Logistics Managers are enabled to balance inventory across the network and negotiate
favorable terms with Transporters.
Increase in customer service levels: With optimized inventory levels and improved Distribution
Planning and Logistics, customer service metrics like on-time delivery (OTD), on-time in-full
(OTIF), case-fill/fill-rate, etc. are improved due to right sizing and right positioning of inventory.

Better product lifecycle management: Medium to long range Demand Forecasts provide better
visibility of new product launches and old product discontinuations. This drive synchronized raw
material, manufacturing and inventory planning to support new product launches and most
importantly, reducing the risk of obsolescence of discontinued products.

Facilitates performance management: Management can set KPIs and targets for various
functions like Sales, Finance, Purchase, Manufacturing, Logistics, etc. based on the medium to
long range plans derived from the Demand Forecasting process. Organizational efficiency,
effectiveness, and improvement initiatives can be designed for key areas of the company.

3 MAIN ROLES OF FORECASTING IN SUPPLY CHAIN MANAGEMENT

Forecasting plays three major roles in effective supply chain management:

Pivotal in strategic planning of Business: Forecasting is the underlying hypothesis for strategic
business activities like expansion planning, budgeting, financial planning, risk assessment, and
mitigation. Critical business assumptions like turnover, profit margins, cash flow, capital
expenditure, etc. are also dependent on Forecasting.

Initiating all push–processes of Supply Chain: Forecasting is the starting point for all push-
processes of Supply Chain like raw material planning, purchasing, inbound logistics, and
manufacturing. Better forecasts help optimize the inventory levels and capacity utilization.

Driving all pull–processes of Supply Chain: Forecasting drives all pull-process of Supply Chain
like order management, packaging, distribution, and outbound logistics. Better forecast improves
the distribution and logistics and increases customer service levels.

An organization can finalize its business plans on the recommendation of demand Forecast. Once
business plans are ready, an organization can do backward working from the final sales unit to
raw materials required. Thus annual and quarterly plans are broken down into labor, raw
material, working capital, etc. requirements over a medium range period 6 months to 18 months.
This process of working out production requirements or a medium range is called aggregate
planning.
ROLE OF AGGREGATE PLANNING IN A SUPPLY CHAIN
• Capacity has a cost and lead times are often long
• Aggregate planning:
– process by which a company determines levels of capacity, production, subcontracting,
inventory, stock-outs, and pricing over a specified time horizon
– goal is to maximize profit
– decisions made at a product family (not SKU) level
– time frame of 3 to 18 months

Role of Aggregate Planning in a Supply Chain

• Specify operational parameters over the time horizon
– Production rate – Subcontracting
– Workforce – Backlog
– Overtime – Inventory on hand
– Machine capacity level
• All supply chain stages should work together on an aggregate plan that will optimize
supplychain performance.

THE AGGREGATE PLANNING PROBLEM

• Given the demand forecast for each period in the planning horizon, determine the production
level, inventory level, and the capacity level for each period that maximizes the firm’s (supply
chain’s) profit over the planning horizon
• Specify the planning horizon (typically 3-18 months)
• Specify the duration of each period
• Specify key information required to develop an aggregate plan
Aggregate demand forecast Ft for each Period t over T periods
• Production costs
– Labor costs, regular time ($/hr) and overtime ($/hr)
– Subcontracting costs ($/hr or $/unit)
– Cost of changing capacity – hiring or layoff ($/worker), adding or reducing machine capacity
($/machine)
• Labor/machine hours required per unit
• Inventory holding cost ($/unit/period)
• Stock-out or backlog cost ($/unit/period)
• Constraints – overtime, layoffs, capital available,stockouts, backlogs, from suppliers.
Identifying Aggregate Units ofProduction
• Aggregate unit should be identified in away that the resulting production schedulecan be
accomplished in practice
• Focus on the bottlenecks when selectingthe aggregate unit and identifying capacityand
production times
• Account for activities such as setups andmaintenance.

AGGREGATE PLANNING STRATEGIES

• Trade-off between capacity, inventory,backlog/lost sales
• Chase strategy – using capacity as thelever
• Time flexibility from workforce or capacitystrategy – using utilization as the lever
• Level strategy – using inventory as thelever
• Tailored or hybrid strategy – acombination of strategies

Chase Strategy
• Vary machine capacity or hire and lay offworkers as demand varies
• Often difficult to vary capacity and workforceon short notice
• Expensive if cost of varying capacity is high
• Negative effect on workforce morale
• Results in low levels of inventory
• Used when inventory holding costs are highand costs of changing capacity are low
Time Flexibility Strategy
• Use excess machine capacity
• Workforce stable, number of hours workedvaries
• Use overtime or a flexible work schedule
• Flexible workforce, avoids morale problems
• Low levels of inventory, lower utilization
• Used when inventory holding costs are highand capacity is relatively inexpensive

Level Strategy
• Stable machine capacity and workforcelevels, constant output rate
• Inventory levels fluctuate over time
• Inventories carried over from high to lowdemand periods
• Better for worker morale
• Large inventories and backlogs mayaccumulate
• Used when inventory holding and backlogcosts are relatively low

AGGREGATE PLANNING
FACTORS AFFECTING AGGREGATE PLANNING

Aggregate planning is an operational activity critical to the organization as it looks to balance

longterm strategic planning with short term production success. Following Factors are critical
before an aggregate planning process can actually start
• A complete information is required about available production facility and raw materials.
• A solid demand Forecast covering the mediumrange period
• Financial planning surrounding the production cost which includes raw material, labor,
inventory planning, etc.
• Organization policy around labor management, quality management, etc &or aggregate
planning to be a success, following inputs are required
• An aggregate demand forecast for the relevant period
• Evaluation of all the available means to manage capacity planning like subcontracting,
outsourcing, etc.
• Listing operational status of workforce number, skill set, etc., inventory level and production
efficiency Aggregate planning will ensure that organization can plan or work Force level,
AGILE SUPPLY CHAIN CONCEPT
Agility is a supply chain-wide capability that embraces organizational structures, value chain
configurations, information systems, logistics processes and in particular mindset and culture. A
key characteristic of an agile supply chain is flexibility, which should be interpreted from two
side of supply chain. From the inside of supply chain, such flexibility means configurations and
structures are not fixed. They may transform quickly as the needs arises. From outside, i.e. from
market and consumer perspective, the supply chain must deliver timely products and services;
and deliver them at the beginning of the usually short profit widows; often to be innovative and
to be the market leader.

Thus „agile supply chain‟ is essentially a practical approach to managing supply networks and
developing flexible capabilities to satisfy the fast changing customer demand. It is about moving
and transforming a supply chain that is structured around the focal company and its product
categories to the one that is centered on end-consumers and their requirement. As the Chairman
of Li and Fung Group - the largest export trader in Hong Kong, says that one of the key features
of his approach is to organise for customer, not on country units that may end up competing
against each other.
LEAN SUPPLY CHAIN CONCEPT
Lean supply chains operate efficient manufacturing processes and have lower administrative
costs. The benefits can be significant: reducing capital tied up in inventory, improved customer
services, increased capacity and not wasting time in routine day-to-day operations, all leading to
greater profitability.

Its detractors cite lack of flexibility and possible over-application as shortcomings. It also has
the reputation of stifling innovation because it emphasises tightly defined process improvements.
However, any initiative that involves eliminating waste to save money must work well for most
organizations.
 Comparison of lean supply with agile supply

Distinguishing Attributes Lean Supply Agile Supply

Typical products Commodities Fashion goods

Market place demand Predictable Volatile

Product variety Low High

Product life cycle Long Short

Customer drivers Cost Availability

Profit margin Low High

Dominant cost Physical cost Marketability cost

Stock-out penalties Long-term contractual Immediate and volatile

Purchasing policy Buy materials Assign capacity

Information enrichment Highly desirable Obligatory

Forecasting mechanism Algorithmic consultative

 UNIT IV: CUSTOMER VALUE AND SUPPLY CHAIN MANAGEMENT

Dimensions of customer value-value added services –customer value measures Push-pull

boundary –mass customization and supply chain management outsource - Third and Fourth -
Party Logistics providers –managing risk in supply chains Creating a sustainable supply chain

DIMENSIONS OF CUSTOMER VALUE-VALUE ADDED SERVICES

Customer Value Defines the SCM
SCM strategy determined by:
type of products or services it offers
value of various elements of this offering to the customer.

Examples:

If customers value one-stop shopping => carry a large number of products and
options
Personal customization of products => flexible supply chain
Supply chain needs to be considered in any product and sales strategy
SCM strategy could provide competitive advantages leading to increased
customer value

THE DIMENSIONS OF CUSTOMER VALUE

⚫ Conformance to requirements.

⚫ Product selection.

⚫ Price and brand.

⚫ Value-added services.
 SCM - 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.
There are different levels of supply chain integration. The initial step in integration shall include
choosing precise merchants to supply certain inputs and ensuring compliance for them for
supplying certain amount of inputs within the year at a set cost.

This assures that the company has the appropriate materials required to produce the expected
output of computers during the year. In the meanwhile, this computer company may sign a bond
with a large supplier of circuit boards; the bond expects it to deliver a precise quantity at precise
times within a year and fix a price that will be effective during the bond year.

If we move to a higher level, the next step would be to integrate the companies more closely. The
circuit board supplier may construct a plant close to the assembly plant and may also share
production software. Hence, the circuit board company would be able to see how many boards
are required in the upcoming month and can construct them in time, as the company requires
them in order to meet its sales demand.

Further higher level is referred as vertical integration. This level starts when the supply chain of
a company is actually owned by the company itself. Here, a computer company may buy the
circuit board company just to ensure a devoted supply of elements.

PUSH SYSTEM
In a push-based supply chain, the goods are pushed with the help of a medium, from the source
point, e.g., the production site, to the retailer, e.g., the destination site. The production level is set
in accordance with the previous ordering patterns by the manufacturer.
A push-based supply chain is time consuming when it has to respond to fluctuations in demand,
which can result in overstocking or bottlenecks and delays, unacceptable service levels and
product obsolescence.

This system is based on the deliberation of customer‟s demand. It tries to push as many products
into the market as possible. As a result, the production is time consuming because the producer
and the retailer struggle to react to the changes in the market. Forecast or prediction plays an
important role in the push system.

Optimum level of products can be produced through long term prediction. This deliberative
nature of the push system leads to high production cost, high inventory cost as well as high
shipment cost due to the company‟s desire to halt products at every 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 level of complexity is high in the push system whereas it is low in the pull system.
• The push based system concentrates on resources allocation whereas the pull system
stresses on responsiveness.
• The push system has a long lead time whereas the pull system has a short lead time.
• The push system assists in supply chain planning whereas the pull system facilitates in
order completion.

To conclude, the push based supply chain integrations works with an objective of minimizing the
cost whereas the pull based supply chain integration works with an objective to maximize the
services it provides.

PUSH &PULL SYSTEM

Mostly we find a supply chain as merger of both push and pull systems, where the medium
between the stages of the push-based and the pull-based systems is referred as the push–pull
boundary.

The terms push and pull were framed in logistics and supply chain management, but these terms
are broadly used in the field of marketing as well as in the hotel distribution business.

To present an example, Wal-Mart implements the push vs. pull strategy. A push and pull system
in business represents the shipment of a product or information between two subjects. Generally,
the consumers use pull system in the markets for the goods or information they demand for their
requirements whereas the merchants or suppliers use the push system towards the consumers.
In supply chains, all the levels or stages function actively for the push and the pull system. The
production in push system depends on the demand predicted and production in pull system
depends on absolute or consumed demand.

The medium between these two levels is referred as the push–pull boundary or decoupling point.
Generally, this strategy is recommended for products where uncertainty in demand is high.
Further, economies of scale play a crucial role in minimizing production and/or delivery costs.
For example, the furniture industries use the push and pull strategy. Here the production unit
uses the pull-based strategy because it is impossible to make production decisions on the basis on
long term prediction. Meanwhile, the distribution unit needs to enjoy the benefits of economy of
scale so that the shipment cost can be reduced; thus it uses a push-based strategy.

VALUE ADDED SERVICES:

Value Added refers to the increase in value of an item after any stage of processing. This value
addition to the item can be due to labor, machine, creativity, technology etc. Hence, it is nothing
but the enhancement of the value after each stage of the process.
MASS CUSTOMIZATION AND SUPPLY CHAIN MANAGEMENT

Mass customization has many explanations, but each of them is that in marketing,
manufacturing, call centers and management, it is the use of flexible computer-aided
manufacturing systems to produce custom output. Those systems combine the low unit costs of
mass production processes with the flexibility of individual customization. Mass customization is
a marketing and manufacturing technique that combines the flexibility and personalization of
“custom-made” with the low unit costs associated with mass production. Mass customization is a
business strategy that aims to fulfill individual customer needs at a cost level. That enables to
target a relatively large part of the market of a similar standard product. Production of
personalized or custom-adjusted goods or services to meet consumers diverse and changing
needs nearly to the mass production prices. Mass customization is not mass production.

All executives today recognize the need to provide outstanding service to customers. Focusing
on the customer, however, is both an imperative and a potential curse. In their desire to become
customer driven, many companies have resorted to invent new programs and procedures to meet
every customer‟s request. But as customers and their needs grow increasingly diverse, such an
approach has become a surefire way to add unnecessary cost and complexity to operations.
Managers have discovered that mass customization if not properly operated, too, can produce
unnecessary cost and complexity.

Mass customization is based on several significant aspects:

✓ Mass customization is based on product-based strategy,
✓ No more brands –consumer becomes its own brand by creating their own personal brand,
✓ Consumers require adjustment,
✓ Modulating means mass customization,
✓ Mass customization sells customized products or services.

THIRD AND FOURTH - PARTY LOGISTICS PROVIDERS

Third-party logistics provider (3PL) is an asset based company that offers logistics and supply
chain management services to its customers. It commonly owns and manages distribution centers
and transport modes. A fourth-party logistics provider (4PL) integrates the resources of
producers, retailers and third-party logistics providers in view to build a system-wide
improvement in supply chain management. They are non-asset based meaning that they mainly
provide organizational expertise. However, about 75% of all the 3PLs are also offering 4PLs
services. The main factors behind the increasing role of 3PLs and 4PLs are:

The international division of production associated with globalization helped set a global
network of manufacturing activities, implying that producers and consumers tend to have an
acute geographical separation requiring complex transportation services.

A increasing focus of manufacturers and retailers on their core business (known as core
competencies) and sub-contracting activities such as logistics where they have less expertise.
The goal is to promote the respective specializations in production and distribution.

Better utilization of transportation assets and resulting economies of scale. 3PLs can make better
use of transportation assets by balancing the needs of multiple client shippers across
transportation and distribution functions, locations, etc. (e.g. developing networks to maximize
backhaul).

Productivity gains in supply chain management in terms of costs and reliability that can be
derived from the managerial and information technology expertise provided by 3/4PL.

Offshoring and outsourcing resulted in longer and more complex supply chains in which several
segments of the transport chain are taking place in environments unfamiliar to the outsourcing
company.

3/4PLs are more prone to implement novel supply chain management practices requiring a
higher expertise on material flows such as trans-loading, cross-docking and shipment tracking.
A general trend towards de-regulation permitting a higher level of interaction between
transportation modes. These interactions rely on complex transport services.
GREEN SUPPLY CHAIN MANAGEMENT
Green Supply Chain Management is all about delivering products and services from suppliers,
manufacturers to end customers through material flow, information flow and cash flow in the
context of environment. Traditional Supply Chain Management focuses on Total Quality,
optimum Cost and best service which in some way contributed to environment. Today's Green
Supply chain management mandates to incorporate the environmental idea in each and every
stage of the product and service in a Supply Chain. Hence Supply chain managers have a great
role in developing innovative environmental technologies to tackle the problems faced by the
economy on environmental problems and communicate this to every stake holder in the chain.

BENEFITS OF GSCM

1. GSCM will help us to gain a competitive advantage and help us to attract new customers.
2. Increased use of resources, improved efficiency and reduced production cost.
3. It contributes greater towards improved financial performance.
4. Reduces risk by avoiding hazardous material that leads to environmental effect.
5. Improved quality of products and services gives higher customer delight and reputation.

UNIT V: SUPPLY CHAIN ANALYTICS

Use of computer software in supply chain problems -Electronic commerce –emerging mega
trends supply chain of the future –seeking structural flexibility –The multi-channel revolution
2020 vision

SUPPLY CHAIN MANAGEMENT - ROLE OF IT

Companies that opt to participate in supply chain management initiatives accept a specific role
to enact. They have a mutual feeling that they, along with all other supply chain participants,
will be better off because of this collaborative effort. The fundamental issue here is power. The
last two decades have seen the shifting of power from manufacturers to retailers.
When we talk about information access for the supply chain, retailers have an essential
designation. They emerge to the position of prominence with the help of technologies. The
advancement of inter organizational information system for the supply chain has three distinct
benefits. These are −
 Cost reduction − The advancement of technology has further led to ready availability of
all the products with different offers and discounts. This leads to reduction of costs of
products.

Productivity − The growth of information technology has improved productivity

because of inventions of new tools and software. That makes productivity much easier
and less time consuming.

Improvement and product/market strategies − Recent years have seen a huge growth
in not only the technologies but the market itself. New strategies are made to allure
customers and new ideas are being experimented for improving the product.

It would be appropriate to say that information technology is a vital organ of supply chain
management. With the advancement of technologies, new products are being introduced within
fraction of seconds increasing their demand in the market. Let us study the role of information
technology in supply chain management briefly.

The software as well as the hardware part needs to be considered in the advancement and
maintenance of supply chain information systems. The hardware part comprises computer's
input/output devices like the screen, printer, mouse and storage media. The software part
comprises the entire system and application program used for processing transactions
management control, decision-making and strategic planning.

ELECTRONIC COMMERCE
Electronic commerce involves the broad range of tools and techniques used to conduct business
in a paperless environment. Hence it comprises electronic data interchange, e-mail, electronic
fund transfers, electronic publishing, image processing, electronic bulletin boards, shared
databases and magnetic/optical data capture.
Electronic commerce helps enterprises to automate the process of transferring records,
documents, data and information electronically between suppliers and customers, thus making
the communication process a lot easier, cheaper and less time consuming.

ELECTRONIC DATA INTERCHANGE

Electronic Data Interchange (EDI) involves the swapping of business documents in a standard
format from computer-to-computer. It presents the capability as well as the practice of
exchanging information between two companies electronically rather than the traditional form
of mail, courier, & fax.

The major advantages of EDI are as follows −

Instant processing of information

Improvised customer service

Limited paper work

High productivity

Advanced tracing and expediting

Cost efficiency

Competitive benefit
 Advanced billing

The application of EDI supply chain partners can overcome the deformity and falsehood in
supply and demand information by remodeling technologies to support real time sharing of
BARCODE SCANNING
We can see the application of barcode scanners in the checkout counters of super market. This
code states the name of product along with its manufacturer. Some other practical applications
of barcode scanners are tracking the moving items like elements in PC assembly operations and
automobiles in assembly plants.

DATA WAREHOUSE
Data warehouse can be defined as a store comprising all the databases. It is a centralized
database that is prolonged independently from the production system database of a company.

Many companies maintain multiple databases. Instead of some particular business processes, it
is established around informational subjects. The data present in data warehouses is time
dependent and easily accessible. Historical data may also be accumulated in data warehouse.

ENTERPRISE RESOURCE PLANNING(ERP) TOOLS

The ERP system has now become the base of many IT infrastructures. Some of the ERP tools
are Baan, SAP, PeopleSoft. ERP system has now become the processing tool of many
companies. They grab the data and minimize the manual activities and tasks related to
processing financial, inventory and customer order information.

ERP system holds a high level of integration that is achieved through the proper application of a
single data model, improving mutual understanding of what the shared data represents and
constructing a set of rules for accessing data.

With the advancement of technology, we can say that world is shrinking day by day. Similarly,
customers' expectations are increasing. Also, companies are being more prone to uncertain
environment. In this running market, a company can only sustain if it accepts the fact that their
conventional supply chain integration needs to be expanded beyond their peripheries.
The strategic and technological interventions in supply chain have a huge effect in predicting
the buy and sell features of a company. A company should try to use the potential of the internet
to the maximum level through clear vision, strong planning and technical insight. This is
essential for better supply chain management and also for improved competitiveness.

We can see how Internet technology, World Wide Web, electronic commerce etc. has changed
the way in which a company does business. These companies must acknowledge the power of
technology to work together with their business partners.

We can in fact say that IT has launched a new breed of SCM application. The Internet and other
networking links learn from the performance in the past and observe the historical trends in
order to identify how much product should be made along with the best and cost effective
methods for warehousing it or shipping it to retailer.

MEGA TRENDS OF SUPPLY CHAIN MANAGEMENT

DIGITAL SOCIETY:
The first trend is about the digital society. We, humans, share a lot of data for example on social
media like Facebook, Instagram, and Twitter but also on Google, but also machines share a lot of
data. Currently, we already have more machines on the internet than humans.

HUMAN BEHAVIOR:
The second trend is around human behavior. Over the last years, we have been working on
algorithms, optimizers, and all kind of tools to improve decision making what we need to
understand is, what humans do with all this information? How do they take decisions?

SCARCITY:

The third trend is about scarcity. We are already running short on some basic materials. When you
want to produce a mobile phone, we have to go deep into the sea to collect some of its basic
materials.

DIGITAL MANUFACTURING:

A fourth trend is in digital manufacturing. 3d printers, additive manufacturing, in the coming year,
in the U.S. only, 200,000 industrial 3d printers will be installed.

STRUCTURAL FLEXIBILITY IN SUPPLY CHAIN MANAGEMENT

Flexibility in the supply chain adds the requirement of flexibility within and between all partners
in the chain, including departments within an organization, and the external partners, including
suppliers, carriers, third-party companies, and information systems providers. It includes the
flexibility to gather information on market demands and exchange information between
organizations. Six components of supply chain flexibility have been identified from the literature
on manufacturing flexibility, strategic flexibility and the limited writings on supply chain
flexibility:

1. Operations system flexibility (both manufacturing and service) – ability to configure assets
and operations to react to emerging customer trends (product changes, volume, mix) at each node
of the supply chain.

2. Market flexibility – ability to mass customize and build close relationships with customers,
including designing and modifying new and existing products. . A critical need in today‟s
competitive environment is the ability to design and introduce new products as customers‟ needs,
materials, and technologies change.

3. Logistics flexibility – ability to cost effectively receive and deliver product as sources of
supply and customers change (customer location changes, globalization, postponement).

4. Supply flexibility – ability to reconfigure the supply chain, altering the supply of product in
line with customer demand. The flexibility of supply includes flexibility in establishing the
relationships with partners. Companies may choose to solicit short-term bids, enter into long-
term contracts and strategic supplier relationships, form joint ventures, form consortiums, create
problem-solving councils or vertically integrate.

5. Organizational flexibility – the ability to align labor force skills to the needs of the supply
chain to meet customer service/demand requirements.

6. Information systems flexibility – the ability to align information system architectures and
systems with the changing information needs of the organization as it responds to changing
customer demand.

DIMENSIONS OF SUPPLY CHAIN FLEXIBILITY SUPPLY CHAIN FLEXIBILITY

TAKES INTO ACCOUNT TWO MAIN ASPECTS:

1. Process flexibility of each supply chain plant, concerning the number of product types that
can be manufactured in each production site (supplier or assembler);

2. logistics flexibility, related to the different logistics strategies which can be adopted either to
release a product to a market or to procure a component from a supplier. The flexibility
dimensions are:
a. Product flexibility, defined in a supply chain framework as the ability to handle difficult,
non-standard orders, to meet special customer specifications, and to produce products
b. Volume flexibility, defined as the ability to effectively increase or decrease aggregate
production in response to customer demand). Volume flexibility directly impacts supply chain's
performance by preventing out-of-stock conditions for products that are suddenly in high
demand or by preventing high inventory levels.

c. Routing flexibility- is the capability of processing a part through varying routes by using
alternative machines, flexible material handling, and flexible transporting network; this
flexibility reduces the negative impact of environmental uncertainty and unforeseen
inefficiencies in the production process. d. Delivery flexibility is the company's capability to
adapt lead times to the customer requirements; an example of high delivery flexibility is JIT,
when suppliers deliver the products to the customer at the right quantity, place and time.

e. Trans-shipment flexibility involves movement of stock between locations at the same

echelon level where physical distances between the demand locations and the supply locations
are small .

f. Postponement flexibility implies the capability of keeping products in their generic form as
long as possible, in order to incorporate the customer's product requirements in later stages.

g. Sourcing flexibility is related to the company's ability to find another supplier for each
specific component or raw material.

h. A flexibility dimension suitable to many industries is responsiveness to target markets

(response to market flexibility). This flexibility captures the overall ability of the firm to respond
to the needs of its target markets.

i. Launch flexibility – the ability to rapidly introduce many new products and product varieties
is a strategically important flexibility that requires the integration of numerous value activities
across the entire supply chain.

j. Access flexibility – the ability to provide widespread or intensive distribution coverage. This
flexibility is facilitated by the close coordination of downstream activities in the supply chain
whether performed internally or externally to the firm.

THE MULTI-CHANNEL REVOLUTION 2020 VISION

The 2020 Future Value Chain project identifies the trends that will have the greatest impact on
the Consumer Goods industry in the coming 10 years. Twelve global root trends have been
identified that address change in society, shopper behavior, environment and technology. These
root trends are:

1. Increased Urbanization
2. Aging Population
3. Increasing Spread of Wealth
4. Increased Impact of Consumer Technology Adoption
5. Increase in Consumer Service Demands
6. Increased Importance of Health and Wellbeing
7. Growing Consumer Concern about Sustainability
8. Shifting of Economic Power
9. Scarcity of Natural Resources
10. Increase in Regulatory Pressure
11. Rapid Adoption of Supply Chain Technology Capabilities
12. Impact of Next-Generation Information Technologies

MULTI-CHANNEL REVOLUTION 2020 VISION