CHAPTER 1

INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

WHAT IS SUPPLY CHAIN MANAGEMENT?

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.
This includes material and information flows both up and down supply chain. A
full variety of processes such as systems management, operations and assembly,
procurement, production plan, order processing, inventory management, transport,
warehousing, and customer support are therefore included in the supply chain.
In today’s changing business environment, there is an increased focus on
delivering value to the customer at the cheapest possible costs. Hence there has been
increased interest in logistics and supply chain management practices since
performance is not only determined by actions and decision, but also the improvements
on return on investment and greater profitability.
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 and tight hold over internal inventories, production, distribution,
internal productions and sales.

IMPORTANCE OF SUPPLY CHAIN MANAGEMENT

Supply chain management is important since it can help meet many company
goals. For example, it can increase product quality by regulating production processes,
minimizing the possibility of recalls and litigation while helping to create a strong
customer brand. At the same time, by avoiding expensive shortages or cycles of
product oversupply. Restrictions over shipping procedures will enhance customer
support. Overall, supply chain management offers businesses with several ways to
increase their profit margins, which is particularly relevant for large and multinational
businesses.
Over the last twenty years, the supply chains of manufacturers and retailers have
become ever more tightly linked. In many Industries, retail sales trigger replenishment
orders to manufacturers with a well-tuned, just-in-time supply chain can automatically
restock retail shelves as products are sold. As collaboration has increased, additional

Chapter I. Supply Chain Management

data from supply chain partners has allowed companies to use advanced analytic tool to
further improve results. Examples include:
 Identifying potential problems before they occur. When a customer
orders more product than the manufacturer can deliver, the traditional
response has been to short the order. This leaves the buyer feeling
unimportant and convinced the manufacturer's service is poor
Manufacturers who anticipate the shortage before the buyer is
disappointed may be able to offer a substitute product or other incentive to
keep the buyer happy.
 Optimizing price dynamically. Seasonal products, particularly fashion
products, have a limited shelf life. Any that don't sell by the end of the
season are scrapped or sold at deep discounts to empty the warehouse.
Airlines, hotels, and other companies with a limited, but perishable
product, adjust prices dynamically to meet demand. While this is more
difficult with clothing and other products where the supply can vary widely,
similar forecasting techniques can improve margins.
 Improving the allocation of available to promise inventory. Today's tools
dynamically allocate resources and schedule work based on the sales
forecast. actual orders, and promised delivery of raw materials.
Manufacturers are able to confirm a product delivery date when the order
is placed, significantly reducing incorrectly filled orders.
SUPPLY CHAIN MANAGEMENT ADVANTAGES
Supply chain management plays a very significant role in this era of globalization, where
firms compete to supply consumers with the highest quality products and meet all their
demands. Both industries are heavily reliant on efficient supply chain processes.
Let’s take a look at the major advantages of supply chain. The key benefits of supply
Chain management are as follows:

 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
 Assists in achieving shipping of right products to the right place at the right time
 Creates better delivery mechanisms for products and services in demand with
minimum delay
 Develops better customer relationship and service.
 Enhances inventory management, supporting the successful execution of just-in
time stock models.
 Improvises productivity and business functions.
 Minimizes direct and indirect costs.

Chapter I. Supply Chain Management

  Minimizes warehouse and transportation costs.

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.
THE OVERALL GOAL OF SUPPLY CHAIN MANAGEMENT
The goal of SCM software is to improve supply chain performance Timely and
accurate supply chain information allows manufacturers to make and ship only as much
product as can be sold. Here are the three main goals of supply chain management:
 Improving Efficiency
Efficiency refers to the minimization of waste. Waste can exist in terms of wasted
materials, wasted money, wasted man hours, wasted delivery time, and much more.
Making sure that waste is at a minimum is a key component of supply chain
management.
How does supply chain management reduce waste? By managing production,
inventory, transportation and logistics, supply chain management aims to look for
opportunities to change procedures in order to cut down on waste. For example, by
sharing Inventory data with your supplier, and keeping it updated in real time using ERP
software, the business can replenish inventory quickly to keep up with customer
demand.
 Improving Quality
Reducing waste isn’t the only goal of supply chain management. Making sure that
the product and the customer experience are as positive and as effective as they can be
is another significant goal.
For example, if retailers are able to communicate feedback from the customer to
your company about your product’s experience, you’ll be able to know what things you
can change in order to improve it. Or, if there’s an issue with a supplier for a specific
part that a customer has discovered, you can address that issue with customer
feedback and relay those changes back to that supplier or switch suppliers.
 Improving Stability
Supply chain management is also about improving and maintaining overall stability
of the supply chain. Companies can aim to forge and maintain strong relationships with
their suppliers and distributors to make sure that business continues to run smoothly.
There are other aspects to stability, mainly with risk management. By keeping an
eye on possible risks associated with parts of the supply chain, a business can take
steps to alleviate the risk

Chapter I. Supply Chain Management

SIX (6) COMPONENTS OF SUPPLY CHAIN MANAGEMENT

Effective supply chain systems help both manufacturers and retailers reduce excess
inventory. This decreases the cost of producing, shipping insuring and storing product
that cannot be sold.

1. Planning
2. Sourcing
3. Making
4. Delivering
5. Returning
6. 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.
Planning is imperative to control inventory and manufacturing processes.
Companies always try to match supply with aggregate demand by developing a course
of action using analytics. To procure what is planned is Source’ To plan what is ample
for production is ‘Make’ and to attain significant service levels by delivering on time with
quoted lead time is ‘Deliver’.
Sourcing-Companies must choose suppliers to provide the goods and s needed to
create their product. After suppliers are under contract, supply chain man use a variety
of processes to monitor and manage supplier relationships. Key prom include ordering,
receiving, managing inventory, and authorizing supplier payments.
Sourcing is identifying vendors who will procure goods and services to meet
planned/actual demand in the most economical and efficient way. There are c standards
that suppliers need to fulfil, thus assuring the firm to deliver quality goods to client.
Sourcing can be of perishable as well as non-perishable products. In the case of
perishable products, it is mandated to have a minimum supplier’s lead time which a
support a minimal inventory approach. On the other hand, in the case of non-perishable
products, the supplier’s quoted lead time must be less than the number of days by when
inventory reaches zero, thus leading to no loss in revenue.

Chapter I. Supply Chain Management

 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 ensure the enterprise creates products that meet quality standards.

As per the preference of the consumer, the firm will perform all activities related to
the transformation of raw material to the final product. Activities such as assembling
testing and packing happen at this element of Supply Chain Management. Feedback
from consumers creates a Win-Win situation for both (manufacturer and end-user) as
for the firm it is improving their production operations continuously.

Delivering- Another most important component of supply chain management is

contributing to direct/indirect integration with the consumers. 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.
It has a significant contribution to surge the brand image of the firm. Finished goods
and services, as demanded by consumers, have to meet expectations through the
company's delivery channels and logistics services. To have a seamless delivery, the
firm utilizes various freights road, air and rail.
Returning-It is a post-delivery customer support process that is associated with all
kinds of returned products It is also known as 'Reverse Logistics' It is one of the most
important components of supply chain management to minimize potential deterioration
of relationships with customers. 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 On the flip side, this process provides the same
course of action for the firm towards its suppliers. The firm returns the low quality,
defective, expired or excessive raw materials to the suppliers/vendors.
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.
COMPETITIVE AND SUPPLY CHAIN STRATEGIES
 Competitive strategy defines the set of customer needs a firm seeks to satisfy
through its products and services.

Chapter I. Supply Chain Management

  Product development strategy specifies the portfolio of new products that the
company will try to develop.
 Marketing and sales strategy specifies how the market will be segmented and
product positioned, priced, and promoted.
 Supply chain strategy determines the nature of material procurement
transportation of materials, manufacture of product or creation of service
distribution of product.
 All functional strategies must support one another and the competitive strategy.

SUPPLY CHAIN MANAGEMENT IN THE HOSPITALITY INDUSTRY

In the service industry, the hospitality industry is a wide group of industries including
accommodation, restaurants, event planning, theme parks, shipping, cruise ship, and
additional fields within the tourism industry. A hospitality unit such as a restaurant, hotel,
or even an amusement park consists of multiple groups such as facility maintenance,
direct operations (servers, housekeepers, porters, kitchen workers, etc.), management,
marketing, and human resources.
The supply chain is an important element within the hotel and catering industry.
For staff in this industry, it is crucial to build steady relationships with suppliers and work
with a good ordering system in order to improve the service level towards customers.
Cutting edge hospitality chains are reaching beyond inventory control systems to spend
intelligence tools, which help gather, rationalize, and analyze historic and real time
purchasing information. The creation of a supply chain leads to a better understanding
of the whole chain and thus implementation of common standards becomes easier. It is
implied and obvious that in coming era of hyper-competition the basis of competition in
many industries will revolve around supply chain development.

Activity No. 1

1. In your own thought, what is supply chain management?

2. What is the importance of supply chain management in a company?
3. Explain each of the components of supply chain management.
4. Explain the overall goal of supply chain management.
5. Briefly explain the six components of supply chain management.

Chapter I. Supply Chain Management