Introduction,

Need
&
Challenges
of
Supply Chain Management
Agenda –

 What is Supply Chain ?

 Why the need to manage?
 How to manage it?
 Challenges for SCM

( Ref Book – SCM by David Simchi-Levi)

Bu sines s Pre ssu re s of 21 st C entu ry

• Globalization & Liberalization effect

 → Fierce competition

• Customer’s Taste changing

 → New products with shorter life cycle.

• Heightened expectations of customer service.

 → Better quality, faster delivery, at low cost.
Why S.C.M.?

In order to reduce costs

 1980’s – JIT, Kanban, Lean Mgmt, TQM
 1990’s – Supply Chain Issues
(Movement, Storage across the chain,
Strategic Partnership)
e.g. Cereal Box Delivery – 3 Months
New Car Delivery – 15 days (ag. 4)
Cross Docking in Wal-Mart
 C1

C2

C3

C4

C5

C6
INBOUND INTERFACILITY DISTRIBUTION OUTBOUND
PLANTS CUSTOMERS
VENDORS TRANSPORTATION TRANSPORTATION CENTERS TRANSPORTATION
Various Improvement measures built over the years

Intrafirm Interfirm Supply Chain

Production Production Production
Craft Production Dispersed Production
Mass Production Tiered Production Build to Order Production
JIT Production
Lean Production Postponement
Flows in a Supply Chain

Materials & credit

Consumer
2nd Tier
Supplier
Distributors/
Dealers Small to
2nd Tier
Supplier Midsize
Anchors Companies
1st Tier
2nd Tier Supplier
Supplier Large
Companies

Orders & cash

Supply Chain Mgmt.
( Definition & Coverage)
SCM is a set of approaches –
 To integrate Suppliers, Manufacturing Centers ,

Warehouses, Dist. Centers, Retail Outlets

 Merchandise is produced & distributed

 Right quantities, to right locations, at right time

 Aim – To minimize system-wide cost, while satisfying

service level requirements

Supply Chain is also Called Logistics Network

SCM Coverage
- every facility that has impact on cost

Objective of SCM
- Efficiency & Cost Effectiveness across the
entire Chain

What makes SCM difficult?

• Process of finding the best “Entire System-wide”
strategy (Also called Global Optimization)
• Designing supply chain, to eliminate uncertainty
( Managing Uncertainty )
Challenges of “Global Optimization”

• S.C is a Complex Network, spread over large

geography

• Different partners have diff. & conflicting objectives

( Suppliers, Mfr., Distributor, Transporter )

3. S.C. is a dynamic system ( Demand variation, PLC down,

Customization, Buyers’ Pressure)

4. Systems variation over time. ( Seasonal Fluctuation,

Trends, Ads & Promotions, Competitor's Strategies.)
Challenges of “Managing
Uncertainty”
• Matching Supply & Demand is a challenge.
(Risk & commitment based on demand forecasting - creating
Excess Capacity, Non-moving stocks.)

• Bull Whip Effect

• Forecast can never be accurate

4. Other sources of uncertainty

(Delivery, Yield, transportation, Component Availability)
Why SCM ?
 In 1998, American Cos. spent about 10 % of US
GNP on supply related activities.

That includes –
Cost of movement, storage, across the chain,

Also – unnecessary cost-components like

redundant stock, transport inadequacies.
e.g. Cereal Box delivery, Car Delivery
Key Issues in SCM
 Strategic Decisions
 Distribution Network Configuration
 Inventory Control
 Supply Contracts
 Distribution Strategies
 SCM Integration & Strategic Partnership
 Outsourcing & Procurement Strategies
 Product Design
 IT & Decision Support System ( DSS)
 Customer Value
Key Issues in SCM
 Strategic Level: ( Long Term Nature)
Numbers, Locations & Capacities of Mfg plants,
------ “ ------- “ --------- “--------------- Warehouses,
Flow of material thru’ logistics network
 Tactical Level: (1 Qr to 1 yr)
Purchasing & Production Decisions,
Inventory policies, Transportation Strategies,
Frequency of customer visits
 Operational Level (Day-to-day):
Scheduling, Quotations, Routing, Truck Loading.
 Key Issues in SCM - ( Syllabus
Coverage)
 Distribution Network Configuration :
Changing demand pattern requires new capacity or
new locations
 Inventory Control:
Why to hold inventory ?
Who to hold inventory ?
( Retailer, Distributor, Manufacturer or All? )
How much to hold?
How reliable demand forecast?
What is the point of Reorder- at Retailer, Distributor?
Key Issues in SCM
 Supply Contracts
Traditional Approach -Each party focuses on its own profit
SCM Approach- Supply contracts that optimize entire SCM
performance
e.g. Volume Discount
Revenue Sharing

 Distribution Strategies
Cross Docking,
How many Cross-dock points
RFID
Key Issues in SCM

 SCM Integration & Strategic Partnership

How many suppliers?
Information sharing?
Technology Up gradation

 Outsourcing & Procurement Strategies

What is our core competency ?
What to subcontract / outsource ?
Key Issues in SCM

 Product Design

Shorter Life Cycle necessitates shorter lead time

Concurrent Engineering

Mass Customization Possibility

Key Issues in SCM

 IT & Decision Support System ( DSS)

Which data is significant?
How to analyze & use?
What is the impact of internet?
Role of eCommerce
What infrastructure required?
Internally & externally
Can IT & DSS be used as main tool for gaining
Competitive Advantage?

IT is a critical enabler of effective SCM

Key Issues in SCM

Customer Value
( a new measure, superseding Quality & Customer Satisfaction)
It is a measure of company’s contribution
to its customers, based on the entire range of
Products, Services & Intangibles that constitute
the company’s offerings.

How is it measured ?
How SCM contribute to Customer Value ?
What relationship between –
“Products Price” and “Brand Name”.