Operations & Supply Chain

Management (SCM) - 205

 Various topics under 205

1. Introduction to Operations & SCM

2. Operations Processes

3. Production Planning & Control (PPC)

4. Inventory Planning & Control : 4.1 Concept of Inventory, need for

Inventory, Types of Inventory 4.2 Inventory Costs 4.3 EOQ 4.4 Inventory
control – ABC analysis, VED, HML, FSN,

5. Supply Chain Management : 5.1 SCM models, Key issues in SCM, 5.2
Customer service: SCM and customer service linkage, Customer
satisfaction enablers of SCM
Chain of Information & Material flow
Flow of Material, information & Finances
 What is SCM …….
Supply Chain Management is a hot topic in business today. The idea is to
apply a total systems approach for managing the entire flow of information ,
materials , and services from raw materials suppliers through factories and
warehouses to the end customer. Managing this complete operation is called
as SCM.

Why SCM is hot topic today and tomorrow : There are many companies
achieving significant competitive advantage by the way they manage their
supply chain operations. Thus SCM consists of developing a strategy to
organize, control, and motivate the resources involved in the flow of services
and materials.

It is probably one of the most important functions in current business

The unwavering focus on the customer and changing customer demands has
made the role of SCM function very critical.
 Functions involved in SCM

Generally SCM is a very big team , consist of following major

functions.

• Procurement / Purchase ( Domestic & Imports )

• Materials Planning ( PPC )
• Warehouse / Stores
• Logistics ( Inbound & Outbound ), GST & Dispatch
• Functional Excellence
• Strategic Sourcing / Development
 Supply Chain Management

Order Processing …Order Fulfillment Process

Is one of the most important deliverable for all SCM functions. In fact the reliability of
Supply Chain depends on how successfully and consistently you are hitting the delivery
Commitments to your customers. OFP is very critical process for any manufacturing
organization , because this process has direct linkage to customer satisfaction.

In general following is the flow of activities / processes involved in order fulfilling.

Mktg / Sales SCM Reqt Commu Receipt of RM & Components

Disrtn W / House Finished Product Assly Mfg of parts in Plant

It’s a responsibility of entire SCM function to manage OFP and to keep the customer
satisfied on account availability of products as per commitment. Of course as per the
committed quality norms and at the most competitive cost .
E-Commerce Supply Chain
 Inventory Planning & Control

The term “Inventory” originates from the French word “inventaire” and Latin word
“Inventariom” , which implies a list of things found. The term inventory has been
defined by several authors.

The more popular of them are the term inventory includes materials- Raw , In Process,
Packaging , spares , and others stocked in order to meet an unexpected demand for
distribution in future. Another definition of Inventory : It can be used to refer to the
stock on hand at a particular time of RM’s , goods in process of Manufacture , FG’s ,
and the like tangible assets which can be seen , measured and counted ….

Yet another definition is that the term inventory includes the following categories of
items:
1) Production Inventories – Raw Materials , Parts and components which enter the
firm’s product in the production process.
2) MRO Inventories -- Maintenance , repair and operating supplies which are
consumed in the production process but which do not become part of the product
3) In-Process Inventories – Semi-Finished products found at various stages in the
production operation.
4) Finished goods Inventories – Finished Product ready for shipment.
 Inventory Management

Objectives of Inventory Management :

1) Ensure a continuous supply raw materials and supplies to facilitate uninterrupted

production.
2) Maintain sufficient – Finished goods for smooth sales operations and efficient
customer service.
3) Inventories permit the procurement of RM’s in economic lot sizes as well as
processing of these RM’s into FG’s is the most economical qty known as “ELS”
( economic Lot Size )
4) Reduced dependencies of one another and enable the organizations to schedule
it’s operations independently.
5) Inventory Management helps to reduce material handling costs.
6) It helps to utilize people and equipment reasonably.
7) It facilitates product display and service to customers.
 Inventory Costs

Inventory Costs : Inventories cost money. The cost factor must be considered while
taking any decision regarding inventories. Inventory cost includes ordering cost ,
carrying cost , out of stock or shortage cost and capacity cost. The details are as
follows.

1) Ordering Costs : A) Cost of placing an order with a vendor of materials –

Preparing PO , processing payments , receiving & inspecting the material. B)
Ordering from the plant – Machine set up , start up scrap generated from
getting a production run started.
2) Carrying Costs : A) Costs connected directly with materials – Obsolescence,
deterioration & pilferage B) Financial coats – Taxes , Insurance , Storage and
Interest.
3) Out of stock cost : A) Back ordering & B) lost sales.
4) Capacity Costs : A) OT payments when capacity is too small & B) Lay-offs and
idle time when capacity is too large.
 Benefits of Inventory

Benefits of Inventory management & Control : It ensures an adequate supply of

materials and minimizes inventory costs. Proper management and control of
inventories will result into following benefits to organization.

• Inventory control ensures an adequate supply of materials , stores etc , minimizes

stock-outs and shortages and avoids costly interruptions in operations.

• It keeps down investment in inventories & Inventory carrying costs.

• It provides a check against the loss of materials through carelessness and pilferage.

• It serves as a means of the location and disposition of inactive and obsolete items
of stores.

• Perpetual inventory values provide a consistent and reliable basis for preparing
financial statements.

• It helps in improving the reliability of supply chain of an organization.

 Steps in Inventory Control System

Steps to install a scientific inventory control system :

The installation of a scientific inventory control system involves the use of six basic
steps :
• Selective treatment of items to establish relative importance of the items in lieu of
expenditure incurred on them per period.

• Fixation of EOQ’s to determine ideal (theoretical) lot sizes to strike an optimum

balance between the cost of carrying stocks and the cost of procuring stocks.

• Rationalization of EOQ’s to modify them in light of practical difficulties faced by

the purchase , stores & receiving departments.

• Fixation of operating levels to enable the operating personnel in stores and

purchase department to know when to order and how much to order.

• Installation of the inventory control system to meet the desired objectives.

• Performance appraisal to take stock of actual achievements against expected gains

and thereby to introduce necessary changes in the model.
 Inventory Classification

Selective treatment : Selective control means variations in the method of control from
item to item based on selective basis. The criterion used for this purpose may be cost
of item , criticality , Supplier lead time , consumption pattern , procurement difficulties
, or something else. Various classifications are employed to render selective treatment
to different types of materials, where each classification emphasizes on particular
aspect. For example ABC analysis emphasizes on usage value (i.e. consumption of the
item in terms of money) , VED ( Vital-Essential- Desirable), analysis considers criticality ,
where as FSN (Fast-Slow-Non-moving) emphasizes on issue pattern of the items.

Types of Classification Criterion Employed

1) ABC analysis Usage Value (Consmpn X Value / pc)
2) HML analysis (High-Medium-Low) Unit price only (no consumption)
3) VED analysis (Vital-Essential-Desirable) Criticality of items only considered.
4) GOLF (Govt-Ordinary-Local-Foreign) Source of procurement
5) FSN (Fast-Slow-Non-moving) Issue pattern from stores
6) SOS (Seasonal-of-seasonal) Seasonality
7) XYZ analysis Inventory investment
 ABC Analysis
ABC Analysis : ABC analysis underlines a very important principle …… “
Vital few : trivial many”.
Statistics has proved that just a handful of items account for bulk of the annual
expenditure on materials. These few items are called as “ A class “ items , therefore hold
key to business. The other items are known as “B” and “C” items , are numerous in
number but their contribution to expenditure is less significant. ABC analysis thus ,
tends to segregate all items into three categories : A, B & C on the basis of their annual
consumption value (usage value). This categorization helps the organizations to pay the
right amount of attention for the right item.

A Class items : It is usually found that hardly 5-10 % of the total items account for 70-
75% of the total money spent on materials. These items require detailed and rigid
control and need to be stocked in smaller quantities. These items are to be procured
very frequently.
B Class items : These items are generally 10-15% of the total items and represent 10-
15% of the total expenditure on the materials. These are intermediate items and control
on these items need not be as detailed & rigid as that of A class items.
C Class items : These are numerous , as many as 70-75% of total items , but they
contribute to hardly 5-10% of the total annual expenditure on materials. The
procurement policy for these items is exactly opposite to that of a class items. These
items are to procured infrequently and in sufficient quantities.
 ABC Analysis

Following procedure is suggested for developing an ABC analysis.

1) Prepare the total list of items and estimate their annual consumption.

2) Determine unit price (or cost) for each item.

3) Multiply each annual consumption by it’s unit price to get annual consumption
value for each item.

4) Arrange items in descending order of their annual usage starting with highest
annual consumption value down to the smallest value.

5) Calculate cumulative usage values and their percentages . Also express the
number of items into cumulative item percentages.

6) Graph cumulative consumption value percentages against cumulative item

percentages , and segregate all items into A,B and C categories.
 Management Control system
ABC Analysis

100
Percent of total annual consumption value

80

C class items
B class items
A class items

40

20

0 10 20 30 100

Percent of total number of inventory items

 FSN Analysis

FSN ( Fast moving-Slow moving-Non moving ) analysis : FSN analysis is based

only on the consumption figures of the items from the stores issue area. These
items under this analysis are classified into three groups : F (fast moving) , S
(slow moving) and N (non moving ). To conduct the analysis , the last date of
receipt or the last date of issue whichever is later is taken into account and the
period , usually in terms of number of months, that has lapsed since the last
movement is recorded. Such an analysis helps to identify ….

• Active items which require to be reviewed regularly.

• Surplus items whose stocks are higher than their rate of consumption , and

• Non-moving items which are not being consumed. The last two categories are
reviewed further to decide on disposal actions to deplete the inventory.

This analysis is very useful in controlling the obsolescence, which is a major area
of concern for all organizations.
 Q System & P System

Fixed order quantity system or “Q” system :

Means where , the fixed quantity of materials ordered whenever the stock on hand
reaches the re-order point. The fixed quantity of material is ordered each time is
nothing but the EOQ. When the new consignment arrives , the total stock ( existing
+ new arrival ) shall be within the maximum and the minimum limits.

Fixed order period system or “P” system :

In this system, inventory is ordered best on fixed period. Where stock position of
each item of material is regularly reviewed. When the stock level of given item is
not sufficient to sustain the production operation until the next scheduled review ,
an order is placed replenishing the supply. The frequency of reviews varies from
firm to firm. It also varies among materials within the same firm , depending upon
the importance of the material , specific production schedules , market conditions
and so forth.
 EOQ Calculations

EOQ : ( Economic Order Quantity ) – ( Definition )

EOQ is the level of Inventor Order of which Inventory cost is minimum. As seen earlier
under the Q system of inventory management , an order for supplies is placed when
the existing stock reaches re-order point. The relevant question now is – What should
be the size of ht order ? Buying in large quantities has it’s own problems , but of the
problems associated with bulk buying is the high ICC ( Inventory carrying cost ) Similarly
buying in small quantities reduces holding cost but adds to ordering cost. Consequently
, the materials manager is torn between a desire to keep inventories low by ordering in
small quantities and a desire to reduce the cost by buying large quantities.
 EOQ Calculations

Assumptions for EOQ Model :

EOQ can be worked out with the help of a mathematical formula. Following
assumptions are implied in the calculations –

1) Demand for the product is constant and uniform through-out the period.

2) Lead time ( time from ordering to receipt ) is constant.

3) Price per unit of product is constant.

4) Inventory holding cost is based on average inventory.

5) Ordering costs are constant.

6) All demands for the product will be satisfied ( no back orders are allowed ).
 EOQ Calculations

Graphical representation of the model :

Procurement cost per period ( the product of number of orders and procurement cost
per order ) varies with the number of replenishment. The procurement cost is high if
the item is procured frequently in small lots and is less if the item is procured less
frequently and in big lots.

Inventory carrying cost ( the product of average inventory investment and the
carrying cost ) on the contrary falls when the quantity ordered per batch is small
because of low capital investment.

The two costs , therefore , are diametrically opposite to each other. The right quantity
to order will be the one that strikes at optimum balance between these two opposite
costs. When the costs have been balanced , the total cost is minimum and the
resultant quantity is termed as EOQ.
 EOQ Calculations

Mathematical treatment of the model :

The symbols used are as follows –

• Annual consumption of the items (units) – S

• Unit Price (Rs) – Cu
• Order Qty (units) – q
• Procurement cost / order cost (Rs) – Cp.
• Inventory carrying cost as a % of average inventory investment – i

• Economic order quantity- qo =

2 X S X Cp / Cu X i
 EOQ Calculations

EQO calculation illustration : A co uses 75 numbers of an item per month. Each

unit costs the co Rs. 25/- . The cost of putting through each order and inventory
carrying charges per month are computed at Rs.36/- and 1.5% of the average
inventory investment respectively.

In what economic lots should the items be purchased to minimize total cost ??

Now, S = Annual Consumption 75 X 12 = 900 Numbers

Cp= Procurement cost per order (Rs) = Rs.36.00
Cu= Price per unit (Rs) = Rs.25.00
i= Inventory Carrying cost / Year = 1.5 / 100 X 12 = 0.18

Now qo = 2 X 900 X 36
25 X 0.18

= 120 Numbers
 EOQ Calculations

EOQ calculations methodology , when ICC is “ Rs per unit “ in place of “ % ICC “

The EOQ formula undergoes a small change as under :

qo = 2 X S X Cp / Cu X i

Where i = ICC (decimals)

Cu = Price / Unit
Ch = ICC per unit per year = Price / Unit X ICC per year ( decimals) = Cu X i
Replacing Cu X i by Ch , we get the alternate formula for EOQ. Therefore

qo = 2 X S X Cp / Ch
1. Supply Chain Management : 5.1 SCM models, Key issues
in SCM, 5.2 Customer service: SCM and customer service
linkage, Customer satisfaction enablers of SCM
 SCM models

Each organization is having a different Supply Chain to manage their businesses

depending on many factors like ….type of product, customer base, product
costing, supplier base, manufacturing location and many more.

Following are some of the Supply Chain Models which are being used very
commonly now a days.

1) Integrated SC management

2) Responsive SC Management

3) SC with financial sophistication

4) Global SC Management
 SCM models
Integrated Supply Chain management : It is important to recognize that one of the
most important prerequisites for successful SC management is the integration of
information flows, material flows and all the business processes within a supply chain
network. Effective & efficient management of the SC requires the integration of all
processes that go beyond purchasing & logistics activities.

Supply chain integration is defined as “ Suppliers of raw materials to finished goods to

end- users the full process, including outsourcing , manufacturing , distribution,
inventory management, transportation, warehousing, customer service, unified
coordination and restructuring so that the enterprises can achieve maximum benefits.

Three important areas for Integrated SC management are ….

1) Collaboration

2) Enterprise Extension

3) Integrated service providers.

 SCM models
Collaboration : SCM , based on collaboration between Supply Chain , has been
especially impacted. Several collaboration initiatives have been identified as being
important in enhancing supply chain performance. The collaboration requires rational
amount of effect from all participating members to ensure the attainment of potential
benefits. The advantage of SC collaboration (SCC) creates the need, at the inter-
company level , to pay special attention to the understanding of collaboration in order
to provide the chain members to create collaborative efforts successfully.

SCC is often defined as – two or more chain members working together to create a
competitive advantage through sharing information, making joint decisions and
sharing benefits which result from greater profitability of satisfying end customers
needs than acting alone.

Enterprise extension: The nature of business enterprise is changing. Today’s business

has come “boundary less” , meaning that internal functional barriers are being eroded
in favor of horizontal process management and externally the separation between
vendors, distributors, customers and the firm is gradually reducing. This is the idea of
the extended enterprises which is transforming our thinking on how organizations
compete & how value chains might me reformulated. The main point in extended
enterprises is that, each company has concentrated & focused on core competence ,
which supports the whole value chain.
 SCM models

Integrated Service Providers : The common name used through out industry to
describe ISP is third party & fourth party service, providers provide a range of logistics
services that includes all work necessary service customers. With the regulatory
changes in the transportation, the traditional logistics services providers started
offering warehousing & shared transportation services. Therefore, the ISPS initiated
the radical shift from single function to multifunction outsourcing.

Third Party Logistics (3PL) : The trend of using strategic partnerships in integrated
logistics has become an accepted practice in the industry. These partners are called
“Third Party service Providers” , in short 3PL firms. These services may be any one
among warehousing, transportation, Inventory management, Packaging etc. However,
the one who provides entire logistics services & offers logistics solution to customer
problem is called an “Integrator”

Fourth Party Logistics (4PL) : According to Anderson Consultants, “ 4PL assembles &
manages the resources, capabilities & technology of it’s own organization with those
of complementary service providers to deliver comprehensive supply chain solution.
The genesis of 4 PL lies in forming collaborative relationships among various logistics
service providers based on an IT backbone.
 SCM models
Fourth Party Logistics(4PL) : Hence, the network arrangement can be termed as 4PL
provided if it fulfills the following requirements ……

• It covers the entire supply chain of the customer

• It is collaboration between two or more logistics service providers on a resource

sharing basis to extend logistics solutions to a common customer.

• The integrator’s alliances are led by IT based and not asset based service providers.

• The arrangement is flexible

 SCM models
Responsiveness : The responsiveness of supply chains to changing market
requirements and their overall efficiency are important issues in supply chain design
and management the are therefore currently receive wide attention in practice.

According to Holweg, Responsiveness can be defined as “ ability to react purposefully

and within an appropriate time scale to customer demand or changes in market place
, to bring about or maintain competitive advantage.

The purpose of responsive supply chain is to react quickly to market demand. This
supply chain model best suites the environment in which demand predictability is low,
forecasting error is high, product life cycle is short, new product introductions are
frequent, and product variety is high.

There are three strategies for implementation of this model.

1) Anticipatory ( or Push ) business model

2) Responsive ( or Pull ) business model

3) Postponement
 SCM models
1) Anticipatory ( or Push ) business model : In this model, the order fulfillment is
achieved from inventory of finished products. In push system, production &
distribution are based on forecasts. The problem is that forecasts are often wrong.

Advantages of Push based supply chain:

• Due to higher inventory of finished goods & raw materials, very high level of order
fulfillment is seen.
• Less risk of customer going away from you

• Due to push, the transportation charges get divided over the large volumes and
finally it’s an advantage towards the reduction in logistics charges

Some disadvantages of Push supply chain :

• Production & Distribution decisions are based on forecasts.

• High level of inventories & ICC

• Inability to meet changing demand patterns

• More time is taken for changing demand patterns, higher lead times for customers
 SCM models
2) Responsive ( or Pull ) business model : A pull process is activated in response to a
confirmed order from a customer. This includes make to order or JIT manufacturing
process. The production & distribution processes in a pull system are driven by actual
downstream demand and not by forecasts.

Following are some of the advantages of pull based supply chain :

• Production & distribution are demand driven and are based on customer demand.
• In a pure pull system, the firm does not hold any inventory and only produces to
order.
• These systems are very attractive since they allow the firm to –
• A) Eliminate inventory &
• B) Generally react quickly to a changing market

Following are some of the disadvantages of pull based supply chain :

• In order for pull planning to be successful, it must be based true demand.

• Companies employing a pull- only replenishment approach may also fail to have
the right products in the right place at the right time.
 SCM models
1) Postponement : The design of a responsive supply chain begins with the basic
premise that uncertainty in demand and large forecast errors are often reality.
Therefore, the supply chain requires certain strategies for addressing these issues. In
a postponement strategy, variety creation is postponed as much as possible to the
point of consumption.

Postponement deals with delaying the start of activities until time there is a real
demand, i.e. specific customer order.

The postponement is a useful approach, especially, in the mobile infrastructure

markets which is characterized by turbulent demand fluctuations, short product life
cycles and large amount of product varieties.
 SCM models
Financial Sophistication : Traditionally supply chain management focuses on both
materials & information flow. However, considerable cost reductions can also be
achieved through optimally designed financial flows within the chain. Therefore, it is
the scope of supply chain management to integrate three flows -- Product ,
Information & Financial. Integrating financial services into supply chain management
will not create a new product. It is however about realizing unused opportunities for
cost reductions. The financial implications of the supply chain are generally not
understood as the flow of the product, which they should be.

Fast delivery within supply chains translates to less inventory and reduced need for
distribution facilities. Faster delivery to customer means less working capital is
required to support supply chain operations. The cash conversion cycle is a measure of
working capital efficiency.

Cash Conversion Cycle (CCC) : Is a process or a cycle where the company purchases
inventory, sells the inventory on credit as an account receivable, and then collects the
account receivable or turns it into cash. The cycle is composed of three main working
capital components: A) Days Inventory Outstanding (DIO) B) Days Sales Outstanding
(DSO) & C) Days Payable Outstanding (DPO)

Therefore , CCC = DIO + DSO – DPO

 SCM models
Global Supply Chain Management : To remain competitive in this new global
environment, companies will have to continuously seek ways in which cost can be
lowered and services will be enhanced, meaning that supply chain efficiency &
effectiveness will become ever more critical.

Information is crucial to supply chain performance because it provides the foundation

on which supply chain processes execute transactions and managers make decisions.
Without information manager will not know what customers want, how much inventory
is in stock, and when more products to be produced & shipped. Therefore, information
makes the supply chain visible to a manager. With increase in global business the
environmental complexity, uncertainty also increased.

There is a huge reflection of political, economical, and cultural factors in different

countries and in different states within a country which impacts on customers tastes
and which ultimately has got impact on global supply chain specially when you are
operating in multiple countries. Supply chain under these circumstances become very
dynamic and very complex to manage. There are factors involved like …dynamic
exchange rates, unpredictable inflation rate and unexpected change in political climate .
The global supply chains have no control over these factors, and they need to take
decisions while working in such an uncertain environment.
 SCM models

Role of technology in Global Supply Chains : Technology plays following major roles in
supply chain decisions.

1) Ease of communication: Internet has changed the world of communication even in

the supply chains. Quick transformation of information and feedback to customers is
managed through the latest technologies in all the global supply chains. Ultimately ,
communication is the key.
2) Competitive Advantage: Incorporating right technology, and the right team to
manage and systems that streamline the supply chain processes is very critical. This
gives the companies a competitive advantage over their competitors.
3) Easy to implement & simple to integrate: Identification technologies, like bar
coding, Radio Frequency Identification (RFID) have proved to be very useful additions to
any system. Moreover these systems are very easy to implement & simple to integrate.
4) Better manage the flow of goods: The use of latest technologies in supply chain
operations will help to manage the flow goods while optimizing cost.
5) Technology creates new customers : In particular, “Digitization” in supply chain has
the ability to transform customer’s expectations and behavior, increasing the focus on
transparency, simplicity, and reliability of the service.
 Key issues in SCM
SCM is a very critical area specially in manufacturing & distribution business. There are
many issues in managing the supply chain of any organization. Following are some of
the key thrust areas of SCM which would lead to decision making in SCM.

1) Minimizing Uncertainty: Demand & forecast variations are key pain areas for any
supply chain. Demand uncertainty can be reduced to some extent by forecasting
techniques and better communication with customers.
2) Reducing Lead times: Lead times at the stages of procurement , conversion, and
distribution can be cut down by faster modes of transport, better planning practices and
process technologies.
3) Minimizing the number of stages: The numbers of stages that goods and services
flow through add to the complexity of SCM. Unification of tasks and reducing the
number of stages make the co-ordination of decisions easier. This is the essence of
another management concept namely, Business Process Reengineering .
4) Improving Flexibility: Reducing set up or change over times in various processes and
the use of flexible manufacturing and assembly techniques improves the flexibility of
response.
5) Improving process quality: A prerequisite to effective SCM in the light of reducing
inventories and wastage is to do things RFT. This is ideal for improving process quality.
6) Minimizing variety: Variety is one of the major causes for inventory in the down
stream part of supply chains. One response is to modularize product designs so that
variety is offered in a controlled way.
 Key issues in SCM
7) Managing demand: Uncertainty and anticipated variations in demand should be
dealt with by appropriate promotion and branding. This will unable a better control of
SC right from demand generation.
8) Delaying differentiation: The value addition through product differentiation should
be postponed as far as possible, so that precise customer needs can be met without
holding committed stocks in the entire chains.
9) Kitting of Supplies : In assembly systems, a major source of delay is the staging delay
where some components for assembly have to wait since matching components are not
available.
10) Focusing on “A” category : This is a well known idea from classical economics and
inventory theory, where items that account for a large part of the value or which are
critical to organization or customer, they get special attention.
11) Planning for multiple supply chains: Doing better SCM would often require different
supply chains for different customer segments based on response requirements.
12) Modifying performance measures: It becomes important to shift the performance
measurement areas in SC rather than going on with traditional measures. For example
….. In the context of a warehouse, space utilization as the primary measure of
warehouse performance , the retrieval time would be more in tune with SCM , since this
focuses on both the warehouse and down stream players.
13) Competing on service: The big opportunity in SCM for long term competitive
advantage is on the service aspects of value delivery to the customer.
 SCM and customer service linkage
According to Turban : Customer service is a series of activities design to enhance the
level of customer satisfaction. i.e. The feeling that a product or service has met the
customer expectation.

According to the International Customer Service Association (ICSA) : Customer

service is those functions within a business that have customer satisfaction as their
responsibility and provide that satisfaction through the fulfilment of the sale order.

SCM & Customer Service Linkages: SCM is primarily concerned with the efficient
integration of suppliers, factories, warehouses and retail outlets so that merchandise
is produced & distributed in the right quantities, to the right locations and at the right
time in a fashion that minimize total system cost. Thus customer service is an integral
component of SCM.

Objectives of customer service :

1) To increase sales
2) To improve customer satisfaction
3) To reduce distribution cost
4) To create value in SC
5) To retain customers.
 SCM and customer service linkage
Elements of Customer Service:

1) Pre-transaction elements : A) Written customer service policy B) Accessibility C)

Organizational structure D) System flexibility

2) Transaction elements : A) Lead time B) Inventory availability C) Order fill rate &
D) Order status information.

3) Post-transaction elements: A) Customer complaints, claims & returns B) Product

installation, commissioning & technical snags C) Customer education and training.

Seven rights of customer service : The concept of customer service from a supply
chain / logistics perspective is based on attainment of seven rights.

1) Right Product
2) Right Place
3) Right Cost
4) Right Customer
5) Right time
6) Right quantity
7) Right condition
 Enablers of Supply Chain
Following are the cross-functional drivers of supply chain performance :

1) Facilities
2) Inventory
3) Transportation
4) Information
5) Sourcing
6) Pricing

These drivers interact with each other to determine the supply chain’s
performance in terms of responsiveness & efficiency. It is important to realise
that these drivers do not act independently but interact with each other to
determine the overall supply chain performance. Goof SC design and
operations recognizes this interaction & makes the appropriate trade-offs to
deliver the desired level of responsiveness.

The performance of the supply chain, both it’s efficiency and responsiveness,
depends upon the above six derivers.