Practical No.

: 5

AIM: Case study of Supply Chain Management

(SCM).
 Jhat is SCM?

Supply chain management (SCM) is the management of a network

of interconnected businesses involved in the ultimate provision of product
and service packages required by end customers (Harland, 1996). Supply
Chain Management spans all movement and storage of raw materials, work-
in-process inventory, and finished goods from point of origin to point of
consumption (supply chain).
According to the Council of Supply Chain Management Professionals
(CSCMP), Supply chain management encompasses the planning and
management of all activities involved in sourcing, procurement, conversion,
and logistics management. It also includes the crucial components of
coordination and collaboration with channel partners, which can be suppliers,
intermediaries, third-party service providers, and customers. In essence,
supply chain management integrates supply and demand management
within and across companies. More recently, the loosely coupled, self-
organizing network of businesses that cooperate to provide product and
service offerings has been called the Extended Enterprise.
A supply chain, as opposed to supply chain management, is a set of
organizations directly linked by one or more of the upstream and
downstream flows of products, services, finances, and information from a
source to a customer. Managing a supply chain is 'supply chain
management' (Mentzer et. al., 2001).
Supply chain management software includes tools or modules used to
execute supply chain transactions, manage supplier relationships and control
associated business processes.
Supply chain event management (abbreviated as SCEM) is a
consideration of all possible events and factors that can disrupt a supply
chain. With SCEM possible scenarios can be created and solutions devised.

 ÿunction of SCM

Supply chain management is a cross-function approach including

managing the movement of raw materials into an organization, certain
aspects of the internal processing of materials into finished goods, and the
movement of finished goods out of the organization and toward the end-
consumer.

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 As organizations strive to focus on core competencies and becoming
more flexible, they reduce their ownership of raw materials sources and
distribution channels. These functions are increasingly being outsourced to
other entities that can perform the activities better or more cost effectively.
The effect is to increase the number of organizations involved in satisfying
customer demand, while reducing management control of daily logistics
operations. Less control and more supply chain partners led to the creation
of supply chain management concepts.
The purpose of supply chain management is to improve trust and
collaboration among supply chain partners, thus improving inventory
visibility and the velocity of inventory movement.

Strategic
D Strategic network optimization, including the number, location, and
size of warehousing, distribution centers, and facilities.
D Strategic partnerships with suppliers, distributors, and customers,
creating communication channels for critical information and operational
improvements such as cross docking, direct shipping, and third-party
logistics.
D Product life cycle management, so that new and existing products can
be optimally integrated into the supply chain and capacity management
activities.
D Information technology chain operations.
D Where-to-make and make-buy decisions.
D Aligning overall organizational strategy with supply strategy.
D It is for long term and needs resource commitment.

actical
D Sourcing contracts and other purchasing decisions.
D Production decisions, including contracting, scheduling, and planning
process definition.
D Inventory decisions, including quantity, location, and quality of
inventory.
D Transportation strategy, including frequency, routes, and contracting.
D [enchmarking of all operations against competitors and
implementation of best practices throughout the enterprise.
D Milestone payments.
D ÿocus on customer demand.

rperational
D ‰aily production and distribution planning, including all nodes in the
supply chain.
D Production scheduling for each manufacturing facility in the supply
chain (minute by minute).
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 D ‰emand planning and forecasting, coordinating the demand forecast of
all customers and sharing the forecast with all suppliers.
D Sourcing planning, including current inventory and forecast demand, in
collaboration with all suppliers.
D Inbound operations, including transportation from suppliers and
receiving inventory.
D Production operations, including the consumption of materials and flow
of finished goods.
D rutbound operations, including all fulfillment activities, warehousing
and transportation to customers.
D rrder promising, accounting for all constraints in the supply chain,
including all suppliers, manufacturing facilities, distribution centers, and
other customers.
D ÿrom production level to supply level accounting all transit damage
cases & arrange to settlement at customer level by maintaining company
loss through insurance company.

 SCM problems

Supply chain management must address the following problems:

á ‰istribution Network Configuration: number, location and
network missions of suppliers, production facilities, distribution centers,
warehouses, cross-docks and customers.
á ‰istribution Strategy: questions of operating control (centralized,
decentralized or shared); delivery scheme, e.g., direct shipment, pool point
shipping, cross docking, ‰S‰ (direct store delivery), closed loop shipping;
mode of transportation, e.g., motor carrier, including truckload, LTL, parcel;
railroad; intermodal transport, including TrÿC (trailer on flatcar) and CrÿC
(container on flatcar); ocean freight; airfreight; replenishment strategy
(e.g., pull, push or hybrid); and transportation control (e.g., owner-
operated, private carrier, common carrier, contract carrier, or 3PL).
á rade-rffs in Logistical Activities: The above activities must be
well coordinated in order to achieve the lowest total logistics cost. Trade-offs
may increase the total cost if only one of the activities is optimized. ÿor
example, full truckload (ÿTL) rates are more economical on a cost per pallet
basis than less than truckload (LTL) shipments. If, however, a full truckload
of a product is ordered to reduce transportation costs, there will be an
increase in inventory holding costs which may increase total logistics costs.
It is therefore imperative to take a systems approach when planning
logistical activities. These trades-offs are key to developing the most
efficient and effective Logistics and SCM strategy.
á Information: Integration of processes through the supply chain to
share valuable information, including demand signals, forecasts, inventory,
transportation, potential collaboration, etc.
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á Inventory Management: Quantity and location of inventory,
including raw materials, work-in-progress (WIP) and finished goods.
á Cash-ÿlow: Arranging the payment terms and methodologies for
exchanging funds across entities within the supply chain.

Supply chain execution means managing and coordinating the movement

of materials, information and funds across the supply chain. The flow is bi-
directional.

 Advantages of SCM

The SCM has following advantages:

1. Profitability by driving down fixed cost by adopting flow through
strategies and reverse logistics management practices.
2. Performance through implementing real.
3. Time visibility and event management technologies.
4. The process of supply chain management enables the streamlining of
the supply chain, thus making it easy for the marketers to analyze the
demand and supply of their products or services.
5. Customers benefit from supply chain management as they always get
the merchandise of their choice and the merchandise is ready before
customer entry.
6. Supply chain solutions allow the sharing of sales-related information
between all the parties involved in the supply chain. [y means of supply
chain solutions, business organizations can achieve collaboration with their
partners and respond to their customers in real time.
7. Another important advantage of supply chain management is that it
results in business organizations gaining a competitive advantage by earning
the loyalty of customers, shareholders and employees.

 ‰isadvantages of SCM

1. The biggest disadvantage of global supply chain management is the

heavy investment of time, money, and resources needed to implement and
overlook the supply chain.
2. The decision to outsource a production facility or call center lowers the
cost of doing business for a company using global supply chain
management, but the decision to outsource or not can lead to consumer
backlash.
3. Integrating the supply chain and choosing the correct suppliers is
much more difficult than one can imagine. Not only do companies have to
strongly consider price and quality, but they also have to make sure that all
the organizations are willing to cooperate to benefit the group.

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 4. Managerial styles, objectives, and goals must have a strategic fit
between all companies involved and power must be evenly distributed
throughout the supply chain or the businesses will not benefit from the
advantages of global supply chain management.

 Case Study: Custom foot

Successfully addressing the technical issues surrounding selling-chain

management does not guarantee an implementation¶s success. These
implementations are extremely complicated. Custom ÿoot provides an
excellent, and sobering, illustration of a company that attempted to
completely reengineer its sales process by using selling-chain management
technology.
The shoe industry¶s greatest business challenges are providing value to
the customer in the form of quality, selection, and convenience at the right
price while simultaneously minimizing its inventory holding costs. Custom
foots, based in West port, Connecticut, aimed to solve these customer value
and inventory problems by implementing a selling-chain solution in which
customers could have shoes made to their specifications in about three
weeks²for prices starting at less than $100.
Custom foot¶s order process worked as follows. ÿirst, the customer
puts his or her feet on an infrared scanner that measured foot size. The 3-‰
scanner translated the data of each foot¶s counter into one of 670 shoe size.
Next, the customer set at a kiosk to select the options, such as leather
grade, style, color, and type of sole. Custom foot used a sales configurator
from trilogy software to allow it salespeople to configure orders interactively.
A dynamic image of shoe was visually display to the customer during option
selection. Customer could also see, in real time, how their choices changed
the shoe price.
rnce the customer was satisfy with the style, features, and price, the
order was routed to back office systems. The specifications were sent
electronically to a manufacturing plant in either Italy or Maine. Three weeks
later, the shoes were shipped to either the store for picked up or delivered
directly to the customer. Custom foot hoped that the system would enable it
to carry no inventory or associated stocking costs, because each pair of
shoes was manufactured only after it had been specified and ordered by the
customer. The goal was to eliminate 30% to 50% of warehousing and
distribution cost typically associated with retailing.
The case of custom foot illustrates the opportunities created by using
new selling techniques coupled with new configurator. Many analyst and
experts thought that custom foot would be an overnight success.
Unfortunately, Custom foot ceased operations and filed a bankruptcy petition
on June 1, 1998.

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 The reasons for Custom ÿoot¶s failure vary. In attempting to
reengineer its core process and implement a new business model, Custom
ÿoot encountered a number of issues. The first problem was a conflict
between shoe size and shoe-fit. [ut when Custom ÿoot began selling its
shoes, many customers complained that, although the shoe might have been
the ³right´ size, they didn¶t like the fit. Some people like shoes to fit snugly,
whereas others prefer a looser fit. Also, many people¶s right and left feet are
different sizes. According to James Metscher, the company¶s CEr, the single
biggest mistake that Custom ÿoot made was misjudging the importance of
subjectivity in shoe fitting.
As a result, Custom ÿoot lost money as customers returned their
custom made shoes and demanded that the company rework their orders.
To solve this problem the company replaced the infrared scanner with a new
one that offered three possible sizes for each foot measurement. [efore an
order was finalized at one of the Custom ÿoot¶s five stores, the customer
tried on left and right shoes in various sizes and expressed a preference.
This tactic resulted in a sharp decline in shoe returns.
The experience of Custom ÿoot, illustrates a basic e-business tenet:
the flow of precise order information from customers to company¶s dealing in
customized products or services is crucial to success. When such information
is lacking or misleading, it undermines the success of the entire sales
system.

 Case Study: Cisco

Cisco believes that a world-class supply chain allows us to offer our

customers world-class products and services. We select suppliers whose
standards align with our values, particularly with regard to business
integrity. And we conduct quarterly business reviews of our suppliers¶
business activities, financial stability, engineering practices, and quality
procedures.
When necessary, we request third-party audits of a supplier¶s business
operations to assess their adherence to each point of our Supplier Code of
Conduct. ‰espite a business model that is heavy on outsourcing, Cisco¶s
supply chain management structure gives us significant control over our
supply chain, helping to ensure that deliverables meet our cost, quality, and
delivery expectations.

Social Responsibility

Since 2004 Cisco has taken a leadership role in supply chain social
responsibility. We support the Electronics Industry Code of Conduct (EICC),
the Global e-Sustainability Initiative, and other key industry coalitions. As a
member of the EICC steering committee, we have been able to help guide
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the expansion and management of this groundbreaking group, and we have
actively contributed to the development of standardized methodologies,
tools, and processes for assessing and monitoring supply chain social
responsibility across our industry sector.
Cisco¶s involvement in these supply chain initiatives reflects our
commitment to working within the industry to improve the environmental,
labor, health, and safety performance of our common supply base. Cisco¶s
Supplier Code of Conduct reflects the common rules developed through the
EICC, but also includes additional requirements specific to our business and
operating model.

Supplier Code of Conduct

The Cisco Supplier Code of Conduct forms the basis for our supply
chain social responsibility program. All contracts with suppliers make
reference to the Supplier Code of Conduct, and suppliers agree to the tenets
of the Code before working with us.
Cisco¶s supplier assessment process evaluates supplier performance on
Supplier Code of Conduct issues. rur assessment is consistent with the
process developed collaboratively within the EICC. It consists of:

á isk assessment of each supplier facility

á eview of the systems for those facilities that are identified as being
most at risk
á A process for conducting third-party facility audits (where appropriate)
á Corrective action program

Progress and ÿuture Plans

In 2007 our supplier assessment process started with our participation

in the EICC Joint Pilot Audits. The pilot consisted of third-party audits of
more than a dozen EICC member facilities in China, including both contract
manufacturers and commodity suppliers. Using the EICC-designed tools and
reporting format, the audits focused on the labor, environmental, health,
safety, ethics, and management system aspects of the code of conduct. The
results of these audits enable Cisco to identify potential opportunities for
improvement and work with our suppliers to resolve any challenges.
[eyond our supplier assessment program, Cisco is also evaluating
other aspects of supplier performance, including ozone-depleting chemical
use, energy consumption, and waste disposal programs.
ÿor ÿ 08 Cisco plans to expand the scope of its supplier assessment
process to include our first-tier supply base, as well as any key commodity
suppliers that participate in Phase II of the EICC joint audits that will take

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place at the end of 2007. We plan to report metrics around this program in
the 2008 Cisco Corporate Citizenship eport.

Supplier ‰iversity

Many of Cisco¶s suppliers are small businesses or independent

contractors that provide a number of services. ‰iversity among these
suppliers is an important aspect of Cisco¶s supply chain philosophy. We
believe diversity is good for our business in a variety of ways.

á egional diversity gives us access to worldwide skills and markets, and

provides business resiliency if disruptions should occur in a particular region.
It also helps reduce transportation costs.
á Cultural diversity, with suppliers offering different viewpoints and
styles of interacting, helps us develop and market products that fit the needs
of the broad global community.
á Social diversity promotes inclusiveness that benefits communities and
local economies.

Any time we engage a new partner, we conduct an assessment that

takes into account financial, technological, geographic, and political risks. In
this way, we try to avoid possible problems by making sound business
resiliency decisions at the outset. egional diversity helps us balance the
risks to the supply chain posed by such factors as potential civil unrest,
natural hazards, and economic uncertainties.
The Cisco Global Supplier ‰iversity [usiness ‰evelopment (GS‰[‰)
program was established more than 15 years ago to provide equal access to
businesses owned by minorities, women, disabled people, and military
veterans, as well as to companies in Historically Underutilized [usiness
Zones (HU[zones). Cisco has an internal goal of awarding 10 percent of our
supplier expenditures to such businesses.
The GS‰[‰ team also provides ongoing supplier diversity training
throughout Cisco¶s business units. To help identify diverse suppliers, Cisco is
working with external inclusion organizations as well as with Cisco¶s own
employee networks. We also have implemented a vendor management tool
that allows us to manage and prioritize certified diverse suppliers.
ÿor the past four years, Cisco has been recognized for our supplier
diversity efforts by ‰iversity[usiness.com. Cisco ranks as one of the top 50
U.S. companies providing multicultural business opportunities, based on
feedback received from more than 350,000 women- and minority-owned
businesses.

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 Conclusion

After this study of SCM, it can be said that for making an

organization¶s foundation strong operationally, SCM is mostly needed. Also
seen how Cisco and Custom ÿoot improved its Supply Chain so that
customers need is met properly and efficiently.

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