UNIT II

CONCEPT AND IMPORTANCE OF

SUPPLY CHAIN
 SCM INTRODUCTION
Supply chain management is a major issue in
many industries as firms realize the importance
of creating an integrated relationship with their
suppliers and customers. Managing the supply
chain has become a way of improving
competitiveness by reducing uncertainty and
enhancing customer service.
 SCM MEANING
• supply chain management (SCM) deals with a system of
procurement (purchasing raw materials/components),
operations management (ensuring the production of high-
quality products at high speed with good flexibility and low
production cost), logistics and marketing channels, so that
the raw materials can be converted into a finished product
and delivered to the end customer. supply chain
management is the "design, planning, execution, control,
and monitoring of supply chain activities with the objective
of creating net value, building a competitive infrastructure,
leveraging worldwide logistics, synchronizing supply with
demand and measuring performance globally"
 SCM Definition
• Supply chain management is the handling of
the entire production flow of a good or service
— starting from the raw components all the
way to delivering the final product to the
consumer. A company creates a network of
suppliers (“links” in the chain) that move the
product along from the suppliers of raw
materials to those organizations that deal
directly with users.
 Four Elements of Supply Chain
Management

1. Integration
2. Operations
3. Purchasing
4. Distribution
 Four Elements of Supply Chain
Management
• The supply chain is a sequence of processes that must be
completed to produce and distribute a product or commodity.
This commodity may be goods or services, but either way, there
needs to be a clear manufacturing path for the goods or services
to be produced.
• Manufacturing businesses have long referred to the process of
getting goods to customers as the supply chain. However, since
so many businesses rely on manufacturers, the term has made
its way into the corporate world as well. Each process relies on
the others to provide a seamless path from plan to completion.
• Rachael Dent - Redline’s Manufacturing and Operations Manager
– explains are the four main elements to supply chain
management in today’s manufacturing sector.
 Four Elements of Supply Chain Management

Element One: Integration

• Supply chain integration is the process of connecting all parts of a
supply chain to ensure efficient and effective communication,
collaboration, and coordination. This includes connecting
different departments within an organization as well as linking
with suppliers, distributors, retailers, customers and other
“Integration is at the heart of the supply chain and is considered as
the brains and heart of the supply chain process. Integration is the
process of technology which closely coordinates with supply chain
functions and elements. This allows the supply chain to get the
details of all the actions and interactions. The key component of
integration is data and its collection, storing and use.
 Four Elements of Supply Chain
Management
• Element Two: Operations
To maintain a strong supply chain, day-to-day
operations are the backbone of the work that
manufacturers undertake. Supply Chain
Managers monitor the processes being
performed and ensure everything remains on
track. it’s monitoring processes or equipment to
achieve maximum performance or reducing work
or shift patterns during production slows down.
 Four Elements of Supply Chain
Management
Element Three: Purchasing
Sourcing is the process of finding, evaluating, and
engaging suppliers to provide goods and services to
business. Procurement is the process of purchasing goods
and services. In a B2B sale, the procurement function will
usually manage both the sourcing and the purchasing
functions ensuring an organisation has everything
required to manufacture a product or deliver a service,
including materials, supplies, tools and equipment. This
means staying ahead of the process and making sure that
everything is available prior to the process.
 Four Elements of Supply Chain
Management
• Element Four: Distribution
The supply chain ends when the product or
service is delivered to the customer. However,
delivering the product or service means having a
well-planned and managed distribution and
logistics organization. Most companies today use
logistics software to manage the shipment
process, whether they handle it on their own or
outsource to a third-party provider.
 Importance Of Supply Chain Management

1. Higher Efficiency
Supply chain management uses various strategies to optimize the
overall operations by improving the flow of products, materials,
and information. It enhances the efficiency of businesses by
accurately analyzing the demand and sales forecasting.
2. Reduce Overall Operational Cost
Organizations are investing in effective supply chain management
as it can minimize the expenditure by analyzing the real-time
data to decrease the purchasing and production costs. The
supply chain tends to monitor financial inflows and outflows
which is a major advantage for the smooth running of
businesses.
 Importance of SCM
• 3. Risk Assessment and Mitigation
Identifying and assessing the risk beforehand can
allow companies to handle the disruptions efficiently.
The supply chain tends to deploy predictive analysis
which offers end-to-end visibility which detects the
issue and mitigates the risk. Businesses can take
corrective actions to enhance flexibility, accuracy, and
efficiency across the processes like product
development, demand, and supply planning, etc.
Therefore, it optimizes the value-chain nodes which
can create a positive impact on business.
 Importance of SCM
4. Enhance Customer Experience
It is focused on driving better customer services by
responding to their needs in real-time and providing on-
time delivery. Prioritizing the customer’s wants is foremost
essential as it is useful in customer retention and even
establishes the strong reputation of the company.
5. Improved Relationships
In volatile market conditions, businesses should seamlessly
share the information in real-time to build a growth-based
environment with suppliers or vendors. Therefore, retaining
productive relationships is valuable to control the cost and
ensure the long-term sustainability of the business.
 Other Importance of SCM
• Cost Efficiency: Effective supply chain management helps in minimizing
operational costs. By optimizing processes, reducing waste, and
streamlining logistics, businesses can achieve cost savings and improved
profitability.
• Improved Customer Service: A well-managed supply chain ensures that
products are available when and where customers need them. Timely
deliveries and efficient inventory management lead to higher customer
satisfaction and loyalty.
• Competitive Advantage: A well-designed and efficient supply chain can
serve as a competitive advantage. It allows companies to offer better
products, lower prices, and quicker deliveries, making them more
attractive to customers.
• Inventory Management: SCM helps in maintaining an optimal level of
inventory. This prevents overstocking or understocking, reducing
 Other Importance of SCM
• Risk Mitigation: By diversifying suppliers and establishing backup
plans, supply chain management can help mitigate risks, such as
disruptions in the supply chain due to natural disasters,
geopolitical issues, or other unexpected events.
• Innovation: SCM can lead to innovation in product design and
process optimization. Collaboration with suppliers and partners
can drive product improvements and cost reductions.
• Sustainability: Sustainable supply chain practices can reduce
environmental impact and improve a company's reputation.
Consumers and regulators increasingly favor businesses that
embrace sustainability.
• Global Reach: Many businesses operate on a global scale, and
effective SCM allows them to source materials and sell products
internationally. It helps navigate the complexities of cross-border
trade and international logistics.
 Other Importance of SCM
• Time-to-Market: A streamlined supply chain reduces the time it takes to bring
a product to market. This is especially important in industries with rapidly
changing consumer preferences or short product lifecycles.
• Data-Driven Decision-Making: Modern supply chains generate vast amounts
of data, which can be used for informed decision-making. Data analytics and
technology can optimize processes and predict demand more accurately.
• Supplier Relationships: Strong relationships with suppliers are essential for a
reliable supply chain. Effective SCM fosters collaborative and mutually
beneficial partnerships.
• Compliance: Supply chain management ensures that businesses adhere to
legal and regulatory requirements related to product safety, quality, and other
factors. Non-compliance can result in legal issues and reputational damage.
• Efficiency: SCM strives to reduce waste and streamline processes, leading to
improved operational efficiency. This can result in reduced lead times, lower
costs, and higher productivity.
• Resilience: A resilient supply chain can adapt to unexpected disruptions.
COVID-19 demonstrated the importance of supply chain flexibility and
 Evolution of Supply Chain Management
The evolution of supply chain management is the process of developing
integrated supply chains with integrated freight needs, time-sensitive
logistics, and demand-driven activities. The evolution of the supply chain
industry can be divided into five stages
• Stage 1: The early 1980s, when supply chain management was focused
on physical distribution and inventory management.
• Stage 2: Late 1980s, when supply chain management started to include
materials management and procurement.
• Stage 3: The early 1990s, when supply chain management integrated
logistics and operations across multiple functions and firms.
• Stage 4: Late 1990s, when supply chain management adopted a
strategic perspective and leveraged information technology and e-
commerce.
• Stage 5: The twenty-first century, when supply chain management is
driven by customer value, sustainability, and resilience. (लचीलापन)
 Key Issues in Supply Chain Management

Key Issues 1: Globalization

• Globalization presents several critical supply chain management
challenges to enterprises and organizations:
First, to reduce costs across the supply chain, enterprises are moving
manufacturing operations to countries which offer lower labor costs, lower
taxes, and/or lower costs of transport for raw materials. For some
companies, outsourcing production involves not only a single country, but
several countries for different parts of their products. However,
outsourcing not only extends the production process globally, but also the
company’s procurement network. Having suppliers in different geographic
locations complicates the supply chain. Companies will have to deal with,
coordinate, and collaborate with parties across borders regarding
manufacturing, storage, and logistics. Furthermore, they have to extend or
maintain fast delivery lead times to customers who want to receive their
products on schedule despite the increased complexity in the
manufacturer’s supply chains.
• Second, as companies expand sales into global markets, localization
of existing products requires a significant change in the supply
chain as companies adapt their products to different cultures and
preferences. There is an inherent risk of losing control, visibility,
and proper management over inventory , especially if enterprise
applications are not integrated. This requires managing diverse
structures of data across geographies effectively.
• For example: many manufacturers in Asia still handle trading partner
communications via fax and email while suppliers in North America
and Europe have utilized EDI for decades. As technology matures,
suppliers in emerging markets may skip EDI altogether and move to
a more modern API driven approach to communication just as
developing countries have skipped land lines in favor cell phones.
• Supply chain practitioners need to ask if their enterprise technology
is prepared to handle these diverse forms of communication that
arise from Globalization, and build a business case to stay prepared.
• Key Issue #2: Fast-changing Markets
• consumer behavior is affected by cultural, social, personal, and
psychological factors that are quickly being changed by
technology and globalization. Social media is creating new
pressures for consumers to conform while putting pressure on
enterprises to utilize these sources of information to respond to
changing preferences in order to stay interesting and relevant.
• Like globalization, the fast-changing consumer market also
brings with it supply chain management challenges:
First, products have shorter life cycles due to rapidly changing
market demands. Enterprises are under pressure to keep up
with the latest trends and innovate by introducing new
products, while keeping their total manufacturing costs low
because they understand that trends will not last for a long time.
This also demands a flexible supply chain that can be utilized for
manufacturing other products and for future projects.
• Second, aside from new products, companies also need to
constantly update product features. Enhancing product features
requires enterprises to redesign their supply chain to
accommodate product changes.
Finally, innovation presents a challenge in forecasting demand
for new products. The constant innovation necessitated by fast-
changing markets also means enterprises will constantly have to
anticipate demand for new products. Enterprises need to create
and maintain an agile supply chain that can respond well to
spikes and dips in demand and production needs.
• For example, if stated lead times from suppliers are longer than
actual times, this will lead to higher inventory levels than are
actually required and affect costly decisions around network
planning and optimization. Omnichannel retail has created silos
of sales data that have to be blended and harmonized to detect
demand signals earlier in the planning process as well.
 Key Issue #3: Quality and Compliance

Aside from influencing consumer behavior, social media

highlights the importance of having high-quality products.
According to research conducted by eMarketer, reading reviews,
comments, and feedback is the top social media activity that
influences online shopping behavior. Furthermore, social media
has not only raised consumers’ expectations of product quality,
but has also amplified the damages caused by product recalls.
Thus, enterprises are under increasing pressure to create high-
quality products and to create them consistently. They can do so
by addressing quality at every level of the supply chain, such as
raw materials procurement, manufacturing, packaging, logistics,
and product handling.
Product quality often goes hand-in-hand with compliance.
Enterprises need to ensure that they meet local and international
regulatory standards in manufacturing, packaging, handling, and
shipping of their products.
• Aside from passing quality control and safety tests,
enterprises are also required to prepare compliance
documents such as permits, licenses, and certification
which can overwhelm them and their supply chain
management systems.
• Emerging capabilities like IoT, Smart Packaging, and
Block chain are changing how compliance is enforced
and measured. However, these innovations will
produce streams of data that can’t be handled with
the enterprise technology of the past 20 years.
Managers should carefully consider where these
investments make sense and asking IT if the business is
utilizing platforms based on micro-services and big
data to support these heavy data lifting requirements.
 Other issues of SCM
• Supply Chain Disruptions: Disruptions can be caused by natural
disasters, geopolitical events, economic fluctuations, or
pandemics. These disruptions can lead to supply chain
interruptions, delays, and increased costs.
• Demand Volatility: Fluctuating customer demand, influenced by
various factors, can make it challenging to forecast accurately
and maintain optimal inventory levels.
• Inventory Management: Balancing inventory levels to meet
customer demand while minimizing carrying costs and the risk of
overstocking or stockouts is a perennial challenge.
• Supplier Relationships: Building and maintaining strong, reliable
relationships with suppliers is essential. Issues such as supplier
quality, lead times, and capacity can impact supply chain
performance.
 Other issues of SCM
• Regulatory Compliance: Meeting local, national, and international
regulatory requirements, including customs regulations, product
standards, and environmental laws, can be complex and costly.
• Transportation Costs and Efficiency: Rising transportation costs,
along with challenges related to fuel prices, capacity constraints,
and sustainability goals, affect the efficiency of supply chain
transportation.
• E-commerce and Omni-Channel Retailing: The rise of e-commerce
has changed customer expectations for fast, low-cost shipping.
Omni-channel retailing has made it necessary to manage multiple
distribution channels effectively.
• Supply Chain Visibility: Gaining real-time visibility into the entire
supply chain is essential for tracking products, monitoring
performance, and identifying issues promptly.
 Other issues of SCM
• Cybersecurity: As supply chains become more digitally connected,
they are increasingly vulnerable to cybersecurity threats, including
data breaches, malware, and ransomware attacks.
• Talent and Skills Gap: Finding and retaining skilled supply chain
professionals who can navigate the complexities of global supply
chains and emerging technologies can be a challenge.
• Sustainability and Environmental Concerns: Meeting
sustainability goals and addressing environmental concerns,
including carbon emissions and waste reduction, are becoming
increasingly important in supply chain management.
• Ethical and Social Responsibility: Ensuring ethical and socially
responsible practices throughout the supply chain, including labor
conditions and fair trade, is a growing concern for both consumers
and regulators.
 Other issues of SCM
• Digital Transformation: Adapting to emerging technologies such as the
Internet of Things (IoT), blockchain, artificial intelligence, and data
analytics requires investment and a shift in organizational culture.
• Inventory Accuracy: Accurate inventory data is crucial for managing
stock efficiently and preventing issues like stockouts and overstocking.
• Lean Supply Chain Management: While lean practices aim to reduce
waste, they must be balanced with the need for flexibility and resilience
in the supply chain.
• Supplier Diversity: Diversifying the supplier base, especially in critical
industries, is a growing concern to reduce the risk of supply chain
disruptions.
• Reverse Logistics: Managing product returns, recycling, and disposal is
becoming more complex due to environmental regulations and
consumer expectations.
 Supply Chain Strategy

• A supply chain strategy is a process that manages networks

and services between suppliers and companies without
causing friction. They include decision-making and
analytical processes that define roadmaps for products,
services and market interactions. It must involve end-to-end
supply chain processes like sourcing goods, delivery and
logistics.
• Implementing the best supply chain management strategy
is key to improving operational efficiency, enabling profits
and reducing overall costs.
• Every organization needs supply chain management
strategies to fulfill demand, build a great network, drive
customer loyalty, improve responsiveness and more.
 Five key Capabilities
successful strategy consists of five key capabilities:
• Supply Sense: Determine possible supply options.
• Supply Response: Check operations that can make your supply
chain functional, i.e., asset management, manufacturing and
more.
• Decision Making: Ensure there’s end-to-end supply chain
planning.
• Demand: Monitor and understand customer needs.
• Demand Response: Fulfill customer demand by facilitating
order fulfillment processes.
Incorporate all of these capabilities when developing end-to-end
supply chain strategies for your business. Your overall goal should
be to provide customers with the best service and products at a
profitable margin
 Supply Chain Strategy
Client-centric
• Fulfilling client demand is the most significant function of
supply chain management, especially with the rising digital
trends. However, this won’t be possible without automating
processes that focus on the client’s needs first. For example,
you’ll need to maximize forecasting accuracy from multiple
sources in real time to understand your client’s requirements.
• This method helps incorporate information from structured
and unstructured data. This data gives you accurate
information on sentiment analysis, point of sale, social media
activities, emails, number of orders and so on. Altogether, it
allows you to analyze actual demand to make better decisions
and improve overall performance.
Predictive Business
• As the term infers, predictive tools manage and adjust
shipments based on things like weather or traffic. This
capability is possible thanks to technologies like
digital twins, a cutting-edge tool that helps businesses
build and manage multiple networks. By providing a
framework between IoT sensors and your systems, you
can achieve complete visibility of your entire network’s
assets, products and equipment.
• It includes the machinery within your system,
commercial assets, products and more. The more
information you can gather about product
performance, the better you’ll understand customer
requirements. It also helps detect disruptions before
they happen.
Visibility
• Supply chain visibility provides real-time insights
on goods that are still in transit or production.
You can analyze real-time weather pattern,
accident and traffic jam disruption updates to
see how they impact sales.
• These insights enable better collaboration
across manufacturing industries, warehouses,
partners and distribution centers. Extended
supply chain visibility helps streamline cross-
border transactions, reduce exposure during
product recalls and maximize sustainability
across your global supply chain.
Smart Automation
• With a smart automation strategy in play, you can
utilize warehousing solutions to streamline processes
between systems, human workers and robots to
achieve multiple benefits such as:
• Mass product customization.
• Improved delivery and distribution processes.
• Flexibility to eliminate carrying costs.
• Cutting-edge technology like 3D printing for mass
manufacturing is one way to achieve reduced carrying
costs and better flexibility.
• Determining successful supply chain management
strategies is key to supporting your customer base and
retaining a competitive edge.
 Maintain Agility

• How quickly can your business adjust to ever-changing

market expectations? An agile supply chain keeps you
up to speed. It helps react to significant supply chain
changes like shipment delays or unexpected
incidences to stay competitive and fulfill customer
requirements.
• Agility is key to building an effective supply chain
strategy. A contingency plan helps your business stay
competitive and prepared for unexpected disasters.
Some examples include:
• Integrating smart warehousing and technology.
• Collaboration with multiple manufacturers.
• Stocking inventory in multiple distribution centers.
 Reinforce Partnerships

• Strengthening relationships with multiple

suppliers and partners can create competitive
supply chains. It improves delivery service,
quality and market share while reducing
product development cycles. Not having
trusted partnerships can cause certain
limitations.
• Open-ended communication leads to better
decision-making and exchange of information,
i.e., demand data, sharing costs and more to
ensure ongoing improvement.
 Upgrade Technology

• With technology becoming smarter, you’ll find

many solutions to optimize and streamline
supply chains. Some major ways include
employing best-in-breed logistics and supply
chain management tools.
• For instance, deploying a
transportation management system (TMS) in
conjunction with supply chain or ERP solutions
can improve visibility, automation,
transportation planning, freight management
execution and more.
 Put the Customer First

• Today, customers expect fast and reliable solutions.

Developing a customer-centric supply chain strategy
begins by understanding their perspective. It’s vital
to address your end consumer’s expectations for
product features, price, quality, purpose and more.
• Developing a customer-centric supply chain takes
time and effort. You’ll need innovative ways to meet
customer demand and exceed their expectations.
However, everything will work in your favor if you
get it right.
 Gather Data

• Data is king. Gathering as much information as

possible is essential if you’re looking to
improve decision-making. Without actionable
data, supply chains are weak.
• With supply chain analytics, businesses can
use quantitative and qualitative methods to
improve business decisions. It provides beyond
traditional datasets for analysis and applies
statistical methods to create new insights.
 Invest in Cybersecurity

• As digitization takes over, cyber threats are increasing at an

alarming rate, and your supply chain may not be as secure
as you think. Though it may seem challenging to build your
supply chain with cybersecurity in mind, you should.
• According to research by the NCC Group, the number of
cyber attacks on supply chains jumped nearly 51% from July
to December 2021. With the number of attacks likely to
increase, companies need to start investing in cybersecurity
strategies with the latest network security technology.
Conclusion
Developing a supply chain strategy is a multifaceted,
challenging process. You need to have an open mind when
creating business strategies to avoid the effects of supply
chain disruptions.
 Achieve Strategic Fit In Supply Chain

To achieve strategic fit, a company must ensure that its

supply chain capabilities support its ability to satisfy the
needs of the targeted customer segments.
Steps to Align Supply Chain with Corporate Strategy
1.Define and communicate a clear corporate strategy.
2. Identify the areas of your corporate strategy that are
enabled by the supply chain.
3. Align supply chain performance metrics with the
corporate strategy.
4. Structure your supply chain to optimize the strategic
goals.
 Achieve Strategic Fit In Supply Chain
5. Segment the Supply Chain:
– Recognize that different products or customer segments may
require different supply chain strategies. Segmenting the supply
chain allows for tailored approaches that meet the unique needs
of each segment.
6. Match Supply Chain Processes:
– Ensure that the supply chain processes, including procurement,
manufacturing, logistics, and distribution, are designed to support
the strategic objectives. This may involve making process
improvements or adopting new technologies.
7. Strategic Sourcing:
– Choose suppliers and sourcing strategies that align with the
company's goals. This may involve selecting suppliers based on
criteria such as quality, cost, sustainability, or proximity.
 Achieve Strategic Fit In Supply Chain
8. Inventory Management:
Optimize inventory levels based on the business strategy. For example,
a focus on quick product delivery might require lean inventory
management, while a focus on cost reduction might involve larger
inventory buffers.
9. Network Design:
The physical network of warehouses, distribution centers, and
production facilities should be strategically located to meet demand
efficiently. Network design can impact cost, lead times, and service
levels.
10. Technology Integration:
Invest in technology that supports supply chain visibility, data
analytics, and process automation. Integrated systems can improve
decision-making and responsiveness.
 Achieve Strategic Fit In Supply Chain
11. Risk Management:
Identify potential risks and disruptions that could affect the supply chain.
Develop strategies to mitigate these risks and ensure business continuity.
12. Performance Metrics:
Establish key performance indicators (KPIs) that align with the strategic
objectives. Regularly monitor and evaluate supply chain performance
against these metrics.
13. Collaboration:
– Foster collaboration and partnerships with suppliers, logistics providers, and
other supply chain partners to ensure a seamless flow of goods and
information.
14. Continuous Improvement:
– Maintain a culture of continuous improvement. Regularly reassess the
supply chain strategy and make adjustments as needed to adapt to changing
market conditions and evolving business goals.
 Achieve Strategic Fit In Supply Chain
15. Customer-Centric Approach:
– Consider the needs and preferences of customers in supply chain
decisions. A customer-centric approach can help in achieving high
service levels and customer satisfaction.
16. Environmental and Social Responsibility:
– Incorporate sustainability and ethical considerations into the
supply chain strategy, which is increasingly important for
companies and customers.
• Achieving strategic fit in the supply chain is an ongoing
process that requires adaptability and responsiveness to
changing market dynamics. By aligning the supply chain with
the business strategy, organizations can enhance their
competitiveness, improve customer service, and achieve
better financial performance.
 Strategic Fit Example
Strategic fit expresses the degree to which an organization is
matching its resources and capabilities with the
opportunities in the external environment. The matching
takes place through strategy and it is therefore vital that the
company has the actual resources and capabilities to execute
and support the strategy.
strategic alignment in supply chain
• Strategic alignment translates a company's organizational
strategy into concrete actions, making sure all
departments work as one, pursuing the same goal.
Strategic alignment is indispensable for a company's
success and it is particularly the supply chain that suffers
under a lack of alignment
Challenges to Achieving and Maintaining Strategic Fit in the Supply Chain

• Increasing Product Variety and Shrinking Life

Cycles.
• Globalization and increasing uncertainty.
• Fragmentation of Supply Chain ownership.
• Changing Technology and Business
Environment.
• The Environment and Sustainability issue.
 Align Supply Chain With Marketing Strategy

• ► Alignment of marketing strategies with supply chain partners

is positively associated with supply chain performance.
• ► Supply chain performance is positively associated with
organizational performance.
• ► Manufacturers should work with supply chain partners to
align marketing strategies to improve performance.
Six Sigma in supply chain management
• The Six Sigma method was originally developed to combat
defects in manufacturing, lowering them within an acceptable
tolerance. The in-depth insight into quality control processes
provided by Six Sigma analysis can be invaluable to any supply
chain manager