What is SCM?

Supply chain management (SCM) is the active management of supply chain activities to
maximize customer value and achieve a sustainable competitive advantage. It represents a
conscious effort by the supply chain firms to develop and run supply chains in the most
effective & efficient ways possible. Supply chain activities cover everything from product
development, sourcing, production, and logistics, as well as the information systems needed to
coordinate these activities.

Logistics vs. supply chain management

logistics is a component of supply chain management. It focuses on moving a product or

material in the most efficient way so it arrives at the right place at the right time. It manages
activities such as packaging, transportation, distribution, warehousing and delivery. Logistics
typically refers to activities that occur within the boundaries of a single organization and
Supply Chain refers to networks of companies that work together and coordinate their actions
to deliver a product to market. Also, traditional logistics focuses its attention on activities such
as procurement, distribution, maintenance, and inventory management. Supply Chain
Management (SCM) acknowledges all of traditional logistics and also includes activities such
as marketing, new product development, finance, and customer service" - Michael Hugos

In contrast, SCM involves a more expansive range of activities, such as strategic sourcing of
raw materials, procuring the best prices on goods and materials, and coordinating supply chain
visibility efforts across the supply chain network of partners, to name just a few.
Why scm is so important?

IMPROVE CUSTOMER SERVICES

 Customers expect to receive the correct product mix and quantity to be delivered on
time. For example, if you buy five books from Amazon and only two of the actual titles
arrive, one is an entirely different book and two are missing, the customer will lose faith
in Amazon, prompting them to leave a bad review and hinder them from returning to
the platform.
 Products need to be on hand in the right location. Customer satisfaction is tarnished if
your car’s brake pads fail and the auto repair shop is delayed in making the repairs
because parts are not available in-house.
 Follow up support after a sale must be done quickly. When an appliance store sells a
furnace with a warranty and it breaks down when temperatures are below freezing, it is
a great possibility the customer will be irate if the heating unit cannot be fixed
immediately.

REDUCE OPERATING COSTS

 Decreases Purchasing Cost - Retailors depend on supply chains to quickly distribute

costly products to avoid sitting on expensive inventories.
 Decrease Production Cost - Any delay in production can cost a company tens of
thousands of dollars. This factor makes supply chain management ever more important.
Reliable delivery of materials to assembly plants avoids any costly delays in
manufacturing.
 Decrease Total Supply Chain Cost - Wholesale manufacturers and retailer suppliers
depend on proficient supply chain management to design a network that meets customer
service goals. This gives businesses a competitive edge in the marketplace.
IMPROVE FINANCIAL POSITION

 Insert Profit Leverage - Businesses value supply chain managers because they help
control and decrease supply chain expenditures.
 Decrease Fixed Assets - Supply chain managers decrease the use of large fixed assets
such as plants, warehouses and transportation vehicles, essentially diminishing cost.
 Increases Cash Flow - Firms appreciate the added value supply chain management
contributes to the speed of product flows to customers.

Why is supply chain management so important?

 To gain efficiencies from procurement, distribution and logistics

 To make outsourcing more efficient
 To reduce transportation costs of inventories
 To meet competitive pressures from shorter development times, more new products,
and demand for more customization

Driver of supply chain.

FACILITIES- Where the products of the supply chain are either stored, assembled or
fabricated. Location of this facility plays a major role in the performance of the supply chain
network.

INVENTORY- All the raw materials, WIP(Work-in-Process) and the FG(Finished Goods)
come under inventory. The amount of inventory is an important driver of the supply chain
because it determines whether a supply chain network is efficient or responsive.

TRANSPORTATION -This is how the inventory is moved from one place to another to fulfill
the requirement. There can be combinations of different modes of transportation. This driver
has a major impact on the Supply chain network, it’s effectiveness and the responsiveness.

INFORMATION-Data regarding the above three drivers are stored and analysed. It is the
most important driver because it affects the performance of the of the other drivers. This driver
will provide data even to the customer.

PRICING-Pricing determines how much a firm will charge for goods & services that it makes
available in the supply chain. Pricing affects the behavior of the buyer of the good or services,
thus affecting supply chain performance, for example, if a transportation company varies its
charges based on the lead time provided by the customers, it s very likely that customers who
value efficiency will order early & customers who value responsiveness will be willing to wait
& order just before they need a product transported. This directly affects the supply chain in
terms of the level of responsiveness required as well as the demand profile that the supply chain
attempts to serve. Pricing is also a lever that can be used to match supply & demand

SOURCING-Sourcing is the set of business processes required to purchase goods & services.
Managers must first decide which tasks will be outsourced & those that will be performed
within the firm. Components of sourcing decisions . In-House or outsource: The most
significant sourcing decision for a firm is whether to perform a task in-house or outsource it to
a third party. This decision should be driven in part by its impact on the total supply chain
profitability.Supplier selection: It must be decided on the number of suppliers they will have
for a particular activity. The must then identify the criteria along which suppliers will be
evaluated & how they will be selected like through direct negotiations or resort to an auction
SERVITISATION MODEL

servitization refers to industries using their products to sell “outcome as a service” rather than
a one-off sale. Netflix and Spotify are probably the most well-known example of this,
delivering media as a service, rather than customers buying the CDs, DVDs et cetera that
produce those outcomes.

How Does It Work?

There are three levels of servitization within manufacturing;

Product Provision – You’re already doing this and have been for years! This is the basics of
manufacturing business – build and sell. Once it leaves the factory, the product ceases to be a
concern to the manufacturer, but it also ceases to be a revenue stream.

Aftersales – Servicing, repairs and condition monitoring. The maintenance of a product

provides an ongoing source of revenue for manufacturers.

Advanced Services – Taking aftersales to the next level, advanced services are more
relationship focused and customer-centric than just selling and maintaining a product. In many
cases, advanced services are delivered on a subscription model in which the consumer pays for
the outcome – whether that be hours of jet propulsion or pages printed.

Benefits

There are a number of benefits for businesses adopting a servitization model, the first being
meeting customers’ demands, leading ultimately to greater customer retention. No longer can
a business rest on its laurels and assume that products alone will sustain a business. Customers
are becoming more demanding with their requirements and offering additional services that
can meet those demands.

With a servitised business model, a customer pays only for the value it receives from a supplier,
while a manufacturer builds a profitable business from constant streams of additional,
incremental revenue. What’s more, a manufacturer can gain useful insights into future R&D
processes by analysing the performance of a product sent to a customer and using this
information to strive towards continuous product improvement.
Risks

When a manufacturing business makes the decision to adopt a servitization model, there are
specific challenges they face, essentially because a service culture is different to a ‘make it sell
it’ culture. The design of services is different to the design of products, requiring a shift in
corporate mind-set to make the implementation of this model successful.

A further challenge for businesses implementing a servitization model is the uncertainty of

profitability. According to Neely (2008), a study of 10,000 companies, shows that while the
number of traditional product based companies that have been servitized is greater than
traditional manufacturing in terms of sales, they tend to generate lower percentage sales. In
addition, the number of servitized companies reporting bankruptcies tends to be higher than
amongst non-servitized companies. The key warning to heed here is that servitization takes
time to develop, and will not be an overnight sensation

inbound outbound
Inbound logistics refers to the transport, Outbound logistics refers to the same for
storage and delivery of goods coming into a goods going out of a business
business.
Inbound logistics refers to the sourcing, . On the other extreme, outbound logistics is
expediting and receiving of goods, that is all about warehousing, packaging and
coming to the business organization transporting of goods, going out of the
organisation.
Impact of dgitalizaion on society

So how can digital transformation make a positive contribution to society? We have focused
on three key areas:

Employment and skills

Current estimates of global job losses due to digitalization range from 2 million to 2 billion by
2030. There is great uncertainty, with concerns also about its impact on wages and working
conditions.
Environmental sustainability

The historic trend holds that for every 1% increase in global GDP, CO2e emissions have risen
by approximately 0.5% and resource intensity by 0.4%.¹ Current business practices will
contribute to a global gap of 8 billion tonnes between the supply and demand of natural
resources by 2030, translating to $4.5 trillion of lost economic growth by 2030.²

Trust

Social media, radio frequency identification (RFID) tags and user-generated websites such as
TripAdvisor have been instrumental in increasing transparency and overcoming information
asymmetries. However, according to the Edelman Trust Barometer, trust in all technology-
based sectors declined in 2015, with concerns over data privacy and security a key factor.
Broader ethical questions about the way organizations use digital technology also threaten to
erode trust in those institutions.

Creating a workforce for the machine age

Digitalization could create up to 6 million jobs worldwide between 2016 and 2025 in the
logistics and electricity industries. Elsewhere, automation will displace many human beings.
With both winners and losers resulting from digital transformation, a huge premium rests on
the near-term ability of businesses to upskill employees and shape the next generation of talent
for the machine age.

Digital initiatives in the industries we have examined could deliver an estimated 26 billion
tonnes of net avoided CO2 emissions from 2016 to 2025. This is almost equivalent to the CO2
emitted by all of Europe across that time period. Ensuring this potential value can be realized
and scaled means overcoming hurdles relating to the acceptance of new, circular business
models, customer adoption and the environmental impact of digital technology itself.

6135-societal-implications-1-icons_building-trust-in-the-digital-economy Building trust in

the digital economy

Usage-based insurance (UBI), coupled with assisted driving technologies, could reduce by
2025 the projected annual death toll from road accidents of more than 2 million by 10%.
However, it has raised concerns about data privacy, security and the ethical uses of data.
Establishing new norms of ethical behaviour with digital technology and reaching higher levels
of customer trust will be critical in a successful digital transformation.

Focus on creating a workforce for the machine age

The digital revolution has created new roles (such as search engine optimization managers and
social media account managers), new types of organizations (cloud computing providers and
social media agencies), and even new sectors of the economy (digital security and data
science). The impact of digitalization has also acted as a catalyst for employment growth in the
wider economy. In India, for example, it is estimated that three to four jobs are created for
every job within the business process outsourcing and IT-enabled services sectors.³

The truth is that we actually know quite little of what is going to happen. What will the
economic impact of innovations be in the future? How will humans interact with machines and
algorithms? What kind of skills do we need and how should we learn? How will all of this
impact labour markets?

The future of work

We can at least be sure that there will be three types of jobs, categorized by the percentage of
codifiable tasks within the role:

Those that will disappear (lost the race against the machine). For example, clerks and
administrative staff, or truck drivers.

Those that are in collaboration with machines / algorithms (run with the machine). For
example, those professions that rely on cognitive and social capabilities, such as doctors /
surgeons.

Those jobs that are completely new or remain largely untouched (running faster than the
machine or running a different race). For example, roles in the creative arts are unlikely to be
automated, as are new roles that involve managing data and machines.
Ir 4.0 challenges

Increase competitiveness: a clear majority of companies surveyed believe that the digital
transformation to industry 4.0 will increase their competitiveness. Only a small minority of
companies see this transformation affecting their current business, although they believe that
major change is inevitable. A few individual companies argue that industry 4.0 could slow
down the trend towards relocating production to low-wage countries, but this argument
overlooks the fact that, as a result of automation, the trend towards relocation is often driven
more by the need to produce goods locally in new growth markets than by the ability to produce
goods more cheaply.

Utilise opportunities and reduce risks: industry 4.0 represents a number of major
opportunities for Swiss manufacturing. It will open up new ways for companies to integrate
their customers’ needs and preferences into their development and production processes,
including via direct data-sharing with their machinery. It will also make it easier to analyse
machine data, helping to enhance quality and avoid faults in the production process. In terms
of risks, companies believe that the digital transformation to industry 4.0 could further increase
the already heightened cyber risk to manufacturing industry. Leading manufacturing
companies are taking a proactive approach to both opportunities and risks.

Adjust talent and IT resources: most of the companies surveyed note that in many areas, they
do not have all the staff they need to make the digital transformation to industry 4.0. One-third
of companies have an appropriate IT infrastructure in place for the switch to industry 4.0, but
just under half believe that their infrastructure is not wholly suitable. The remaining companies
report that they lack the appropriate infrastructure for change on this scale. If the digital
transformation to industry 4.0 is to be successful, however, it is essential that businesses invest
in appropriate skills and an excellent IT infrastructure.

Develop potential for individual business segments: research and development (R&D),
procurement and purchasing, production, and warehousing and logistics are currently at the
heart of the digital transformation to industry 4.0, while sales and services are the segments
with the greatest potential to benefit from it. In these segments, more strongly individualised
solutions have the capacity to take manufacturing into a whole new era of customisation. This
will require the sector to switch from the ’push into the market’ of better products for their
customers to an individualised understanding of customers’ needs and specialised, industry-
specific solutions (’pull from the customer’).
Use impetus from exponential technologies: a majority of companies surveyed agree that the
key technology 3D printing (additive manufacturing) will accelerate the transformation of the
Swiss manufacturing industry to industry 4.0. According to our survey findings, only very few
manufacturing companies are so far making full use of the scope offered by 3D printing
technology in their development, production and logistics processes. Just one-halve of those
surveyed plan to invest in 3D printing technology in future. Most companies are only just
beginning to use this new technology and there is a risk that they may miss the opportunity,
because some companies have already been working with 3D printing for several years and are
developing the next generation of applications. The same can be also said for other
exponentially growing technologies.