Introduction To SCM

Fundamentals of Supply Chain
Management
Learning Objectives
 Why is the supply chain important?

 What is supply chain management?
 What are the key supply chain decisions made by a firm?
Supply Chain Management: Success Stories
 Dell: Inventory turn-over ratio of 58.7 compared to industry
average of 12 (Net Profitability of 5.3.%) ( Drop from 7.8% in
2006)
 Wal-Mart: Inventory turn-over ratio of 9.9 compared to
industry average of 5.5 ( Net profitability of 3.5%)
 Zara Corporation: Lead-time from new product to stores is 15
to 20 days compared to industry average of six months ( Net
profitability of 11.3%)
Supply Chain Management: Horror Stories
 Cisco: Cisco wrote off 2.2 $ billion worth of inventory in May
2001. Biggest write-off in history.
 Sony: PlayStation II–a lost opportunity
 SONY could supply only 25% of the potential demand for
Christmas market
 Nintendo Wii Game Console : Shortage faced in the year 2007
 Kmart Launched supply chain initiative in May 2000 worth $1.4
billion in software and services. In 2001-02, announced that it was
abandoning most of the software purchased and taking $130 million
write-off
 Nike- i2 Technology Controversy: Lost $100 in sales in last quarter
of 2000 i2 Technologies was blamed. “ This is what we get for our
$400 million”—Nike Chairman
 Wal-Mart: RFID Initiative
-
Supply Chain Management: A Definition
 Encompasses all activities associated with the

transformation of goods from the raw material stage to the
final stage when the goods and services reach the end
customer.
 Involves planning, design and control of flow of material,
information and finance along the chain in order to deliver
value to the end customer in effective and efficient way.
 Network of suppliers, manufacturers, service providers,
warehouses, transporters, distributors, retailers, customers.
Supply Chain Management: A Pictorial Representation
C1
C2
C3
C4
C5
C6
VENDOR INBOUND INTERFACILITY DISTRIBUTION OUTBOUND

PLANTS CUSTOMERS
TRANSPORTATION TRANSPORTATION CENTERS TRANSPORTATION
SUPPLY CHAIN OF A TYPICAL OEM
7
SUPPLY CHAIN
Suppliers Manufacturers Warehouses & Customers

Distribution Centers
Transportation Transportation
Costs Costs
Material Costs Transportation
8
Manufacturing Costs Inventory Costs Costs
Managing Flows in A Supply Chain
 Material Flow
 Information Flow
 Financial Flow
Supply Chain objective

To have the right products in the right quantities at
the right place at the right moment at minimal
cost.
 Proliferation in product lines (SKU)
 Shorter product life cycles
 Higher level of outsourcing (3PL services etc.)
 Shift in power structure in the chain
 Globalization of manufacturing
Proliferation in product lines (SKU)
Shorter product life cycles
High level of outsourcing
Shift in power structure in the chain
Globalization of manufacturing
Global Supply Chain
Suppliers Corporation Customers
Domestic/Import Inbound Outbound Domestic/Export

Sourcing Throughflow
Materials Materials Distribution
Order Order
Order Order Processing Placement
Processing Processing
Supplier-Firm Transportation Transportatio

Interface n
Physical Costumer-Firm
Transportation Transportation Materials Distribution Interface
Management Management
Customer Physical
Service Distribution
Management
Storage Storage Inventory Storage Inventory Inventory

Management Management Management
Forward and Reverse Flow of Information, Products, and Funds

Supply Chain Design
 Deciding Scope ( What activities to be done in-house and what

activities to be outsourced)
 Design of Network
 Plant location and capacity decisions
 Warehouse location
 Vendor selection
 Nature of relationships
Managing Supply Chain Operations
• Demand forecasting
• Procurement planning
• Production planning
• Inventory management
• Transportation
• Order processing
• Relationship management
Enablers of Supply Chain Performance
 Improvement in communication and IT

 Better understanding of inter-firm coordination issues
 Entry of third-party logistics service providers
Decisions in Planning Supply Chain:
Forecasting the demand for the coming year
Which markets will be supplied from which locations?
The inventory policies to be followed
The timing and size of marketing and size of marketing and pricing
promotions
Steps in Supply Chain Operations:
Set delivery schedules of trucks
and placing orders
Set a date that the order to be filled.
Generate pick lists at a warehouse
Allocate a particular order to particular shipping mode

or shipment
Allocate inventory or production to individual orders.

Supply Chain Challenges for the
Indian FMCG Sector
 Managing Availability in the Complex Distribution Set up
 Working with Smaller Pack Sizes
 Entry of National Players in the Traditional Fresh Products
Sector
 Dealing with Counterfeit Goods
 Opportunistic Games Played by the Distribution Channel
 Infrastructure
 Emergence of Third-party Logistics Provider
 Emergence of Modern Retail Chains
The Marico Supply Chain
Integrated Supply Chain
Phase 1:
Independent
supply-chain Suppliers Purchasing Production Distribution Customers
entities
Phase 2:
Internal
Suppliers Purchasing Production Distribution Customers
integration
Internal supply chain

Materials management department
Phase 3: Internal
Supply-chain Suppliers supply Customers
integration chain
Integrated supply chain
21
Strategic, Tactical and Operational Decisions
Decision area Strategic Tactical Operational
Transportation Mode selection Seasonal equipment Dispatching

leasing
Inventories Location, Control policies Safety stock levels Order filling
Order Order entry, transmittal, Processing

processing and processing system orders, Filling
design back orders
Purchasing Development of supplier- Contracting, Expediting

buyer relations Forward buying
Warehousing Handling equipment Space utilization Order picking

selection, Layout design and restocking
Facility Number, size and

location location of warehouses
22
Supply Chain Management Operations Strategies
STRATEGY WHEN TO CHOOSE BENEFITS
Make to Stock standardized Low manufacturing costs;
products, relatively meet customer demands
predictable demand quickly
Make to Order customized products, Customization; reduced

many variations inventory; improved
service levels
Configure to Order many variations on Low inventory levels; wide
finished product; range of product
infrequent demand offerings; simplified
planning
Engineer to Order complex products, Enables response to

unique customer specific customer
specifications requirements
23

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Fundamentals of Supply Chain

 Why is the supply chain important?

 Encompasses all activities associated with the

VENDOR INBOUND INTERFACILITY DISTRIBUTION OUTBOUND

Suppliers Manufacturers Warehouses & Customers

Supply Chain objective

Suppliers Corporation Customers

Domestic/Import Inbound Outbound Domestic/Export

Supplier-Firm Transportation Transportatio

Storage Storage Inventory Storage Inventory Inventory

Forward and Reverse Flow of Information, Products, and Funds

 Deciding Scope ( What activities to be done in-house and what

 Improvement in communication and IT

Forecasting the demand for the coming year

Which markets will be supplied from which locations?

The inventory policies to be followed

Set a date that the order to be filled.

Generate pick lists at a warehouse

Allocate a particular order to particular shipping mode

Allocate inventory or production to individual orders.

Internal supply chain

Integrated supply chain

Transportation Mode selection Seasonal equipment Dispatching

Inventories Location, Control policies Safety stock levels Order filling

Order Order entry, transmittal, Processing

Purchasing Development of supplier- Contracting, Expediting

Warehousing Handling equipment Space utilization Order picking

Facility Number, size and

Make to Order customized products, Customization; reduced

Engineer to Order complex products, Enables response to

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