Supply Chain management

Introduction to Supply Chain: Historical perspective Understanding Supply Chain key issues in
supply chain management Objectives, importance, Decision phases -Examples of supply chains
Supply chain strategies, The supply chain becomes value chain Supply chain as a competitive
weapon
Supply chain synergies: Collaborate with supply chain partners Supply Chain Drivers and Design
Drivers of supply chain performance: Framework for structuring Facilities, including warehouse,
Inventory, Transportation, Information, Sourcing, and Pricing – Yield management /Revenue
management

UNIT 1

Supply chain management (SCM) is referred to as the coordination of all the steps involved in the

making and delivering of products and services.

It involves the planning, sourcing the raw materials, manufacturing the products and then shipping it to

the customer. Supply chain management is also about making sure that all the operations run smoothly,

the costs are low and customer satisfaction is achieved.

Objectives of Supply Chain Management

Apart from the supply chain management meaning, let’s explore it’s objective and what makes it
important for businesses:
The primary objective of supply chain management is profitability. It aims to maximise the difference
between what a customer pays and how much it costs to produce and deliver the product.
Another objective is to find the right balance between quality and the cost of producing the goods. Here,
the main aim is to satisfy the customers with the price they pay for the products and the quality they
receive.
It also aims to identify the source of revenue that is involved in moving the information, products and
money throughout the supply chain.
Supply chain management also tries to reduce the time to fulfill the orders by making the ordering and
delivering process faster.
Another important objective is to maintain the balance between the supply and the demand. It aims to
achieve this by creating a flexible planning and control system that adapts quickly to changes.

Benefits of Supply Chain Management

Supply chain management helps businesses to boost their profits and competitiveness. Apart from this,

here are the key benefits:

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Improved operational efficiency: Streamlined supply chain processes optimise machine performance
and workflow. It reduces bottlenecks and enhances productivity.
Anticipating Customer Demand: Supply chain management helps businesses to better understand the
customer requirements, such as what they want and when they want it. This allows them to plan
accordingly.
Improved Visibility: It provides a clear view of the entire supply chain, which helps businesses to spot
any potential risk or any opportunity. This helps in proactive decision-making.
Accurate Forecasting: Data analysis and forecasting are an important part of supply chain management.
This enables businesses to predict the future demand more precisely, avoid bottlenecks and therefore
allocate the resources in an effective manner.
Enhanced Product Quality: Customer satisfaction and loyalty comes with improving product quality.
This is what supply chain management helps to achieve by monitoring and optimising the processes at
every stage.
Sustainability: With supply chain management comes responsible sourcing, initiatives for waste
reduction and transportation which is efficient. This helps to reduce the overall environmental impact
and the associated cost.
Cash Flow Management: Supply chain management also helps to manage the cash flow and avoid costly
disruptions by allocating the resources efficiently.
Efficient Logistics: It also assists in optimising the transportation and the distribution process. This
helps the businesses to deliver the products to the customers quickly.
Better customer service: Good supply chain management means happier customers. It helps companies
quickly meet customer needs, improve delivery times, and offer personalized products. This makes it
easier for companies to stay competitive.

Supply Chain Management Process

Supply chain management process comprises of different components to manage the seamless flow of

goods and services. Here is the break-down of these supply chain management components and their

functions:

Planning: This is the first component in the supply chain management. It starts with carefully planning
the supply in accordance with the customer demand. Planning involves forecasting the demand,
managing the raw materials and determining the production capacity and staffing.
Sourcing: The next component in the supply chain process is sourcing. It includes working closely with
the suppliers to get the required materials for production. The focus is on meeting the standards,
ensuring the prices are fair and deliveries are reliable.
Manufacturing: Once the raw materials are sourced, then comes the manufacturing. Here the raw
material is turned into the finished product. The steps involved are assembling, testing and packaging.
Delivering: This component in the supply chain management process deals with delivering the final
product to the customer. It includes organising the transportation and delivery channels to make sure
that the products arrive on time and in good condition.
Returning: If there are any issues in the product, a return may be required. This component is important
since it helps to improve customer satisfaction. This step starts with handling the returns and ends with
issuing the refunds promptly.

Key Drivers of Supply Chain Management

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Drivers of supply chain management directly impact its efficiency and effectiveness. The key drivers

include:

Production: The first driver of supply chain management is the production. How quickly a supply chain
responds to changes and how efficiently it keeps the operations running depends on how and where the
products are made. For example, if there are factories close to the customers, it makes the supply chain
more responsive.
Inventory: The second driver is inventory. When there is a lot of inventory at multiple locations,
responding to the customers becomes easier, however it can be costly too. While keeping inventory levels
low can say costs but on the other hand it may become difficult to meet sudden demands.
Transportation: The third driver is transportation. Deciding how products are moved impacts both the
speed and the cost. For example, using trucks, planes may increase the delivery speed but can be
expensive. Transporting in larger batches using slower options such as ships can reduce the cost but may
increase the delivery time.
Information: Lastly, Information is the key driver. Where there is information about customer demand
and production schedules, responding to market needs becomes easy and it improves the overall
performance.

Challenges of Supply Chain Management

Managing supply chains involves several significant challenges:

Rising Risks: There are several issues such as changing consumer demand, shortage of raw materials,
and economic uncertainties, which contribute to the increasing risks in the supply chain management.
Unexpected Delays: When there are long distances and a number of steps involved, it makes the supply
chain prone to delays, particularly with long lead times.
Cost Control: Another challenge is the increasing cost of the raw materials, labour, energy and freight,
which makes businesses to tighten the cost control to keep the operations running in a smooth manner.
Data Synchronisation: To manage the supply chain efficiently, it requires accurate and timely data,
which becomes challenging for businesses.
Digital Transformation: Although adopting the latest technologies such as IoT, AI, robotics and drones
is necessary for improved supply chain management, integrating them into the existing systems is not
easy at all. .

Types of Supply Chain Management

Continuous Flow: This type of supply chain management prioritises stability. It is suitable for businesses
with year-round demand. The focus in the model is on fine-tuning the processes and managing the costs
rather than reacting to the changes in the market.
Fast Supply Chain: Brands such as fashion labels rely on this type of supply chain management. It is
perfect for situations where the products go in and out of style quickly. Here the focus lies in predicting
the demand accurately, producing and moving goods quickly and managing the inventory to prevent to
prevent excess stock

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Flexible and Agile: When there are unpredictable demand swings, this type of supply chain management
comes in. It focuses on staying in touch with the suppliers to make sure the stock is enough during the
peak periods. It also reviews inventory for avoiding overstocking when the demand is low.

Best Practices in Supply Chain Management

To improve the management of the supply chain, it is important to implement the following best
practices:
Use technology for gaining comprehensive visibility into the whole supply chain including all the
stakeholders such as the suppliers and shipping partners. This helps in making informed decisions based
on real-time data.
The focus must be on direct suppliers and their suppliers (Tier II). This will help businesses in efficient
capacity planning, acquisition of raw materials and minimising disruptions down the line.
To ensure consistency and avoid errors, implementing quality assurance measures is important. It helps
in exceeding the minimal quality standards and ensuring regulatory compliance at every stage of the
supply chain process.
Backup plans should always be there to address unforeseen disruptions. It helps in ensuring the
continuity of operations even when the situations are challenging.

Role of A Supply Chain Management Software

It’s crucial for businesses to use supply chain management software today. Here’s how it helps:

A supply chain management software ensures that the day-to-day operations such as manufacturing,
distribution and fulfilment are running smoothly

It assists in anticipating the customer demand and managing the inventory levels by focussing on
inventory planning and demand forecasting.

This software provides real-time insights into the entire supply chain and allows businesses to identify
potential risks and manage them proactively to avoid disruptions.

Businesses can optimise inventory levels to ensure the right amount of stock in accordance with the
customer demand and avoid excess inventory costs.

When it comes to international supply chains, cost-effectiveness is key. A supply chain management
software helps to achieve this by managing the transportation and ensuring timely deliveries of goods.

It also assists in tracking and order fulfilment by improving the accuracy and the efficiency in warehouse
management.

How to Improve Supply Chain Management With Clear Supply Chain Cloud
Integrating cloud technology in supply chain management brings several benefits such as adaptability
and flexibility and these are crucial in today’s fast-paced business environment. With the help of cloud
based solutions, businesses can tackle unexpected sourcing issues and integrate with the latest
technologies seamlessly. This also simplifies managing the supply chain and reduces the cost associated
with upgrading the legacy systems. Not only this, businesses can use scalable cloud solutions like Clear
Supply Chain Cloud to optimise current assets and prepare for future growth.

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To sum up, it is essential for business’s today to have effective supply chain management for seamlessly
managing their operations from procurement to final delivery. The only way to achieve this is by
optimising the processes, and adapting to changing market demands.

Supply chain management‍-- HISTORY

While the term ‘supply chain’ is attributed to newspaper ‘The Independent’ in 1905, the concept of a
network of suppliers, producers/manufacturers and consumers had been around for a long time prior to
that. ‘Supply chain management’ wasn’t coined until the 1980s, so the field is still young compared to
related areas such as procurement, logistics, and manufacturing, which all play a role in supply chain
management.
Supply chain management generally refers to the management and optimization of systems and
processes involved in getting a product from its raw material state to an end point, the consumer.

According to the Council of Supply Chain Management Professionals, its aim is to ‘maximize customer
value’ while allowing a company to run profitably.

The early stages

The first example of production with a ‘truly global supply network’ was most likely rum. The supply
chain in this case started with slaves who were moved from Africa to the Caribbean to grow the
sugarcane, which came from India, and it ended in distilleries in the US.

Of course, if we think about the early stages of supply chain-related areas such as logistics, we have to go
back far earlier. Ancient empires across the world from Peru to Rome left their mark on the development
of logistics as a field in its own right, introducing roads, organized labor, transport and armies. All of these
required a massive organization effort, considering the land, human resources, food supplies, and
property.

From these ancient times up until the 18th century, all parts of a supply chain were kept mostly local due
to the lack of larger transport options and the high cost of moving goods around the world. Once shipping
capabilities expanded, the quantities of goods that could be transported along any part of the supply
chain grew exponentially.

Seismic shifts

In the late 1920s, the introduction of mass production along assembly lines laid the foundations for
supply chain management. First successfully implemented by Ford, the idea of producing consistent
products on a large scale with increased efficiency changed trade and supply chains irreversibly.

Mass production and the concept of interchangeable parts originated in the late 18th century with
weaponry in America and ship pulley production in England, but had not previously been combined with
division of labor, continuous workflow and specialization.

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Containerization, or container shipping, not only increased the quantity of available space for goods, but
also increased the speed of the freight movement while decreasing the cost. The speed increase came
from more effective warehousing processes as well as transport terminal efficiency. The improvement of
this transport process including loading and unloading goods—also known as transshipment—heralded a
new era of globalized trade.

Barcoding was another gamechanger for the industry, finally being used in a commercial context in in the
1970s despite being patented more than twenty years before. Its adoption was spurred forward by a
standard requiring an identifying number from the US National Association of Food Chains and
subsequent research showing large increases in profit from ‘point scale scanning’. Once the barcode was
adapted to become an internationally used standard, it could be used from for ‘monitoring of the supply
chain both globally and internationally’.

Technological advances

The innovation of the personal computer in the 1980s was the catalyst for more new tech that impacted
supply chain management immensely, such as spreadsheets, optimization models and algorithms that
could predict logistics issues for a supply chain. These solved problems with planning, resource
management and forecasting, as well as making oversight of the entire supply chain easier to visualize,
save, and share.

Faster and stronger computers were closely followed by the development of systems such as Enterprise
Resource Planning systems, or ERPs, which were an extension of the Electronic Data Interchange (EDI)
systems introduced decades earlier. ERPs enabled businesses to use software to manage all its activities,
which included automating business functions, centralizing information, managing finances and tracking
performance. Before ERPs, it was common for businesses to face issues such as being unable to access
information from different departments, which prevented businesses from scaling, limited their
productivity and missed errors.

In the last 15 years, the uptake of social media and big data have shone a light on poor practices along
parts of the supply chain that had been previously hidden to the world. Because of global pressure to have
sustainable, ethical supply chains and the ongoing pursuit of increased efficiency, analytics now play an
even more vital role in supply chain management.

The development and widespread adoption of analytics has introduced another layer to supply chain
management—monitoring. As product life cycles have shortened and efficiency has increased, supply
chain management has had to utilize technology to meet the needs of stakeholders. This includes the push
for real-time monitoring, particularly as public pressure to remain sustainable and socially responsible
has grown.

All parts of a supply chain can now fall under the scrutiny of the public or the law, so the scope of its
management has grown to include dealing with big data and having access to real-time visibility. ‍

To the future! ‍

In future, we are likely to see technology dramatically alter how supply chain management works. The
Internet of Things (IoT) will enable businesses to create and implement new systems while production
occurs. This will force companies to consider the needs of future product life cycles alongside their
distribution of existing products.

The integration of technologies like the blockchain is another area where supply chain management
might see a significant change in both operational requirements and each process along the supply chain.
Consumer demand for transparency and the worldwide demand for secure and reliable transactions can
both be met by the use of blockchain and smart contracts.

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There are already some use cases of these emerging trends. Examples of these are in Hong Kong, where a
shipping company has been successfully using smart contracts and cryptocurrency to combat unreliable
deliveries, and with Walmart, who used blockchain to trace the Chinese pork supply chain.

The Latest News on Supply Chain Management

According to a report by Grand View Research, the global supply chain management market size is
expected to reach USD 37.41 billion by 2027, growing at a CAGR of 11.2% from 2020 to 2027. The report
also highlights the increasing demand for supply chain visibility and transparency, as well as the adoption
of cloud-based supply chain management solutions.

Another report by McKinsey & Company emphasizes the importance of sustainability in supply chain
management, stating that companies that prioritize sustainability outperform their peers by 5.2% in
terms of annual revenue growth. The report also emphasizes the need for companies to develop agile and
resilient supply chains in response to disruptions such as the COVID-19 pandemic.

As technology continues to evolve, supply chain management is expected to become even more efficient,
transparent, and sustainable in the coming years.

Ongoing disruption to supply chains has highlighted their importance to everyday life. We take a

look at the history of supply chain management.

Supply Chains connect the world, and recent disruptions have been keenly felt across the globe. In this
timeline we look at the history of supply chain management - the art of keeping everything running
smoothly.

Pre-1900s: Local supply chains

Prior to the first industrial revolution, supply chains were typically local and restricted to regions. As the
use of railroads increased so did the distance that goods could be distributed.

1900-1950s: Supply chains continue to grow

Between the 1900s and 1950s, global supply chains started to take shape, organisations such as UPS
opened their doors. Industry leaders began to look at improving manual processes, researching the use of
mechanisation, and demonstrating the benefits of analytics in military logistics following World War
II. Leading up to the 1950s the concept ‘unit load’ became popular, later to be extended to transportation
management.

1960s-70s: Physical distribution

By the 1960s, DHL joined the growing number of logistics providers, along with FedEx in the 1970s. In
this time, time-dependent freight transportation transitioned to trucks, which led to organisations
coining the concept ‘physical distribution’.

1963: Key breakthroughs

The National Council of Physical Distribution Management was formed. meanwhile, IBM developed the
first computerised inventory management and forecasting system.

1975: First real-time WMS

Home decor company JC Penney created the first real-time warehouse management system (WMS). This
was a game changer. Updating stock inventory in real-time, Jit reduced time spent looking for stock and
allowed the company to focus on growing the business.

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1980s: inbound, outbound and reverse flows

With the development of personal computers, supply chains had better access to planning capabilities,
including spreadsheets and map-based interfaces. By the mid-1980s supply chains were considered an
expensive, important, and complex function. Reflecting this transition, the National Council of Physical
Distribution Management changed its name to the Council of Logistics Management (CLM) to represent
inbound, outbound and reverse flows.

1982: Supply chain management coined

Keith Oliver coined the term ‘supply chain management, using the term in an interview with Arnold
Kransdorff of the Financial Times, on 4 June 1982. Oliver is a British logistician. Oliver defined it thus:
“Supply chain management is the process of planning, implementing, and controlling the operations of the
supply chain with the purpose to satisfy customer requirements as efficiently as possible. It spans all
movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-
origin to point-of-consumption.”

1990s-2000s: tech revolution and globalisation

This period saw the supply chain industry grow further, with solutions such as enterprise resource
planning and advanced planning and scheduling, as well as the increase in global imports and exports.

1996: First cobot is invented

A cobot, or collaborative robot, is a robot intended for human interaction. They were invented in 1996 by
J Edward Colgate and Michael Peshkin, professors at Northwestern University. Their invention sprang
from a 1994 General Motors initiative to find a way to make robots or robot-like equipment safe enough
to team with people.

1997 Amazon goes public

Amazon founder and CEO Jeff Bezos opened the virtual doors of Amazon's online store in July 1995.
It went public on May 15, 1997, with an IPO price of $18. It was the first Internet retailer to secure 1
million customers.

2010-2020: Industry 4.0

While the likes of AI, data, and the Internet of Things IoT have been around prior to 2010, the past decade
has seen an exponential increase in their adoption, and supply chains have not been left out.
Organisations around the world have been using Industry 4.0 tech to drive their digital transformation
strategies.

2020: Covid-19
The pandemic spread around the world, and supply chains grinded to a halt, leaving no one in any doubt
as to the importance of these vital functions of business. The outbreak of Covid-19 spurred investment in
localisation, and further investment in digitalisation, to mitigate the pandemic's impact.

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Supply Chain Management KEY OBJECTIVES

SCM is the practice of managing the movement of products and services across different processes and
locations. It includes the storage and transportation of raw materials, work-in-process inventory, finished
items, and end-to-end order fulfilment from the point of origin to the point of consumption.

SCM encompasses the planning, design, control, and execution of all business activities associated with a
company’s procurement, production, distribution, and sales order fulfilment functions. Thus, it involves
the administration of supply and demand, sourcing raw materials and components, manufacturing and
assembly, warehousing and inventory tracking, order processing and management, distribution across all
channels, and delivery to the final customer.

Supply chain managers are responsible for developing effective plans and strategies to ensure the supply
chain’s correct operation. They create well-defined action plans through extensive analysis and
forecasting, which result in improved performance throughout the enterprise.

The Supply Chain Management system is regarded to be the backbone of today’s commercial
organisations. Suppliers who adhere to SCM principles are expected to deliver significantly more value to
customers than those who have not implemented SCM concepts into their operations. The following are
the 7 most important objectives of Supply Chain Management.

1. Improving Efficiency
One of the most crucial objectives of Supply Chain Management is efficiency. Efficiency is synonymous
with waste minimisation. Waste can manifest itself in a number of ways, including wasted materials,
wasted money, wasted person-hours, wasted delivery time, and many other forms. Keeping waste to a
minimum is a critical component of Supply Chain Management.

How can SCM contribute to waste reduction? It tries to reduce waste by managing manufacturing,
inventory, transportation, and logistics. It does this by identifying opportunities to improve systems in
order to reduce waste. If, for example, your company shares inventory data with a supplier and keeps it
updated in real-time using ERP software, the company may replenish inventory promptly to meet buyers’
demand. The process of effectively managing these functions can be a difficult one to master, but knowing
how to do so can be extremely beneficial to your business’ overall success.

2. Improving Quality
Supply Chain Management is not solely concerned with waste reduction. Another key objective is to
ensure that the product is of the highest possible quality. Quality Assurance can be characterised as
adherence to various customer-specified quality attributes, ranging from performance to specific
features. This includes adhering to food safety regulations, demonstrating ethical and sustainable
practices, and other similar actions. It is critical to establish precise standards that involve supply
partners from the start. Being agile in managing change and variation to that specification in real-time is
essential to allow products to continue flowing across the supply chain. SCM has a direct impact on the
quality of a company’s products as well as its overall profitability. To achieve a competitive edge in the
market while simultaneously lowering operating expenses, quality management in the supply chain is
essential.

3. Optimising Transportation and Logistics

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The optimisation of transportation and logistics is yet another vital goal of Supply Chain Management. In
an independent business environment, each company is responsible for its own role in ordering,
shipping, and transporting goods. Costs are relatively higher in this business strategy due to poor
scheduling and coordination. Supply Chain Management ensures that your processes flow smoothly and
that suppliers, manufacturers, wholesalers, and retailers are always on the same page. SCM enables you
to optimise transportation and logistics activities with any vendors or purchasers with whom you do
business. Orders are automatically entered into a system, which notifies other facilities that additional
resources are required to fulfil this request. This makes the entire process very smooth and seamless.

4. Reducing Costs
It is the goal of Supply Chain Management to reduce a company’s operating expenses. It lowers the cost of
all types of business expenses, such as the cost of purchasing, manufacturing, and delivering goods, by
establishing an optimised supply chain. It is possible to shorten the holding period of both raw materials
and finished items by allowing a smooth flow of raw materials between a supplier and a company and the
movement of finished goods between a company and its customers. This helps to reduce losses and keep
the overall cost of doing business as low as possible.

5. Enhancing Customer Satisfaction

One vital objective of SCM is to maximise customer satisfaction. Your supply chain is by far the most
effective means of customer service. It has a direct influence on the two most critical components of client
satisfaction: pricing and delivery. Having an efficient supply chain enables you to outperform your
competition in terms of retail pricing and profitability. Having high-performing operations also helps you
to meet or exceed your customers’ expectations for product delivery. Providing your customers with
what they want, when they want it, and at the lowest price possible is critical to maintaining their
satisfaction.

That is precisely what effective Supply Chain Management empowers you to do. By selecting the
appropriate systems, methodologies, and partners for your supply chain, you can provide the exceptional
service, transparency, and visibility that your customers demand. You maintain complete control over the
lifecycle of your products, from conception to delivery, by establishing systems that minimise errors and
maximise inventory efficiency. The more optimised your supply chain, the better the customer
experience, the happier your customers will be, and the more likely they will make another purchase
from you.

6. Improving Distribution
Businesses benefit from Supply Chain Management because it streamlines the distribution process. In
order to facilitate the speedier movement of goods, it is necessary to achieve proper coordination
between various transportation channels and warehouses. Supply Chain Management enables businesses
to reduce overhead costs while also delivering items more quickly. As a result, the entire distribution
system is improved, allowing for the delivery of products at the appropriate time and location.

Hence, it is wise to invest in effective technology that allows you to manage inventory quickly, generate
thorough reports, automate delivery, provide real-time tracking, and perform other distribution functions
seamlessly.

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7. Maintaining Better Coordination

Supply Chain Management strives to improve coordination between the business’s various stakeholders.
A channel is established, allowing employees, customers, and suppliers to communicate with the
company efficiently. Managers can quickly direct their staff, and employees can communicate with their
supervisors via the established channel in the event of an emergency. Additionally, customers can obtain
necessary information via self-portals established as part of the customer support system. It facilitates
information sharing between all stakeholders and contributes to building an organisation with
exceptional coordination.

Why is Supply Chain Management necessary?

Effective Supply Chain Management systems reduce time, cost, and waste in the production cycle.
However, poor SCM can lead to delays, quality issues, and tarnished reputation. In some cases, it can also
cause legal problems if suppliers or processes are not compliant. Developments in technology have
unlocked enormous potential for Supply Chain Management, facilitating supply chain managers to work
closely and in real-time with members of the supply chain.

The objectives of Supply Chain Management include-

1. Anticipating Problems: Through careful data analysis, manufacturers can ascertain the demand
as accurately as possible and anticipate the shortage before the buyer is disappointed. Other
problems that may arise during various stages of the business processes may also be better dealt
with proper Supply Chain Management.
2. Improving Inventory and Fulfilment: Analytical software helps dynamically allot resources
and schedule work based on the sales estimate, inventory count, actual orders and promised
delivery of raw materials. This introduces a lot of clarity regarding order fulfilment.
3. Adjusting Prices Dynamically: Businesses with perishable products typically adjust prices
dynamically to match demand and avoid wastage or shortage. By using analytical software,
similar forecasting techniques can improve margins.
Stages in Supply Chain Management
Supply Chain Management can be broadly broken down into the following five steps-

1. Planning: It involves outlining the network of manufacturing facilities and warehouses,

determining production levels, and drawing up transportation flows between sites. It also
comprises devising methods to improve the global supply chain and its management processes.
2. Sourcing: It includes selecting suppliers who will provide the raw materials, goods, or services.
This involves forming the contracts that govern the suppliers, along with managing and
monitoring existing relationships.
3. Manufacturing: It is concerned with scheduling of production activities, testing of products,
packing and dispatch. Companies should also set rules for performance, data storage, and
regulatory compliance.
4. Delivering: It generally involves coordinating customer orders, scheduling deliveries,
dispatching loads, invoicing customers and receiving payments.
5. Returns: It encompasses all product returns, including defective products and products that will
no longer be manufactured or sold. This stage also includes components from other stages, like
inventory and transportation management.

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Benefits of Supply Chain Management

To ensure qualitative progress and survive the competitive environment, a business must invest in
efficient Supply Chain Management to effectively and sustainably respond to disruptions. As globalisation
makes supply chain processes more complex, businesses are increasingly turning to analytical solutions
to enhance their decision-making capacities and improve the efficiency of their supply chains.

Supply chain optimisation offers various benefits that improve the overall functioning of an organisation.
A few of the most prominent advantages of effective Supply Chain Management are as follows-

1. Better Quality Control: Efficient Supply Chain Management directly affects the quality of a
company’s products and services. This compliance contributes to customer gratification and
sustainability. Moreover, companies with greater control over their suppliers enjoy improved
quality control. Process guidelines can help suppliers comply with the company’s quality
requirements. Some companies go beyond simply providing criteria, requesting documentation
verifying suppliers’ compliance steps or conducting periodic audits. By analysing performance
data, corporations can partner with the highest-performing suppliers and vendors to maintain
strict quality control.
2. Optimised Shipping: Because of increasing costs, shipping optimisation is a prime concern for
supply chain managers. Inefficient shipping techniques cause delays and interruptions in the
supply chain and lead to increased costs. Identifying the most suitable shipping methods for large
bulk orders, small parcels, and other shipping scenarios helps businesses get orders to customers
rapidly while minimising costs. Not only does this boost the company’s net income, but it also
improves customer satisfaction.
3. Reduced Overhead Costs: Warehouse fulfilment costs contribute massively to overhead.
Optimising the warehouse layout, implementing the appropriate automation solutions to
improve productivity and adopting a better inventory management system helps reduce these
costs. Supply Chain Management includes inventory management, which, when effectively
planned and executed, may help cut down costs. In order to maximise internal inventory, Supply
Chain Management has inventory management software that allows managers to make use of an
on-demand inventory model. Besides, with adequate accounting management and automated
processes, businesses can guarantee maximised cost-effectiveness.
4. Improved Risk Management: Analysing the big-picture and supply chain data can disclose
potential risks, allowing companies to keep backup plans in place to respond to unexpected
circumstances promptly. By taking proactive action, companies can avoid negative consequences.
Understanding risks also helps companies obtain leaner operations.
5. Higher Efficiency: When a company’s supply chain operations, including resource procurement,
logistics, and delivery, are tactically planned and executed, businesses can predict demand more
precisely and cater to them. This strengthens the efficiency of a company to respond to
disruptions, fluctuating industry trends and ever-evolving markets. Furthermore, having real-
time data on the availability of raw materials and manufacturing delays enables companies to
implement backup plans, like sourcing materials from a backup supplier, avoiding further delays.
Without such data, companies usually don’t have time to initiate plan B, resulting in problems
such as late shipments to consumers or out-of-stock inventory.
6. Better Technology: The hand of digital technologies in improving the functionality of Supply
Chain Management is substantial. With comprehensive tools and cutting-edge software in place,
businesses can scale their services sustainably and in a cost-efficient manner. From efficiency,
performance and risk mitigation to customer experience, technology plays an imperative role in
streamlining every phase of the supply chain. For instance, businesses may include cloud-
computing, artificial intelligence, machine learning, 3D printing, etc., in their supply chain
operations to enhance their existing supply chain.

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Measuring performance of SCM

Key Performance Indices (KPIs) help identify desired performance standards and allow supply chain
managers to measure performance against those standards and locate areas needing attention and
correction. Also, they are useful in measuring performance improvements. Common KPIs include-

1. Inventory Turnover: It is an efficiency ratio that determines the number of times inventory is
used or sold over a period such as a year, which is another factor affecting working capital.
2. Cash-to-cash Cycle Time: It is the number of days between paying for components and raw
materials and receiving payment for a product.
3. Perfect order rate: It is the number of orders delivered without mistakes, which is a critical
metric for e-commerce organisations striving for perfection.
4. GMROI: It is an inventory profitability analysis ratio that interprets a firm’s ability to turn
inventory into cash over the inventory cost.
The scope of Supply Chain Management goes beyond simply managing suppliers as and when necessary.
In fact, it’s about determining suitable supply chain strategies and taking data-driven steps to execute
them. Modern supply chains benefit from massive amounts of data produced by the chain process and
organised by data scientists and analytical experts. While improper management of the supply chain can
cost the business a fortune, efforts made towards maintaining an efficient supply chain provide the much
needed competitive edge to the enterprise. Hence, stakeholders are increasingly paying attention to this
crucial aspect of their business.

Decision phases can be defined as the different stages involved in supply chain management for taking an
action or decision related to some product or services. Successful supply chain management requires
decisions on the flow of information, product, and funds that fall into three decision phases.
Here we will be discussing the three main decision phases involved in the entire process of supply chain.
The three phases are described below −

Supply Chain Strategy

In this phase, decision is taken by the management mostly. The decision to be made considers the
sections like long term prediction and involves price of goods that are very expensive if it goes wrong. It is
very important to study the market conditions at this stage.
These decisions consider the prevailing and future conditions of the market. They comprise the structural
layout of supply chain. After the layout is prepared, the tasks and duties of each is laid out.
All the strategic decisions are taken by the higher authority or the senior management. These decisions
include deciding manufacturing the material, factory location, which should be easy for transporters to
load material and to dispatch at their mentioned location, location of warehouses for storage of
completed product or goods and many more.

Supply Chain Planning

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Supply chain planning should be done according to the demand and supply view. In order to understand
customers’ demands, a market research should be done. The second thing to consider is awareness and
updated information about the competitors and strategies used by them to satisfy their customer
demands and requirements. As we know, different markets have different demands and should be dealt
with a different approach.
This phase includes it all, starting from predicting the market demand to which market will be provided
the finished goods to which plant is planned in this stage. All the participants or employees involved with
the company should make efforts to make the entire process as flexible as they can. A supply chain design
phase is considered successful if it performs well in short-term planning.
Supply Chain Operations

The third and last decision phase consists of the various functional decisions that are to be made instantly
within minutes, hours or days. The objective behind this decisional phase is minimizing uncertainty and
performance optimization. Starting from handling the customer order to supplying the customer with
that product, everything is included in this phase.
For example, imagine a customer demanding an item manufactured by your company. Initially, the
marketing department is responsible for taking the order and forwarding it to production department
and inventory department. The production department then responds to the customer demand by
sending the demanded item to the warehouse through a proper medium and the distributor sends it to
the customer within a time frame. All the departments engaged in this process need to work with an aim
of improving the performance and minimizing uncertainty.
Prin Supply chain performance measure can be defined as an approach to judge the performance of
supply chain system. Supply chain performance measures can broadly be classified into two categories −
 Qualitative measures − For example, customer satisfaction and product quality.
 Quantitative measures − For example, order-to-delivery lead time, supply chain response time,
flexibility, resource utilization, delivery performance.
Here, we will be considering the quantitative performance measures only. The performance of a supply
chain can be improvised by using a multi-dimensional strategy, which addresses how the company needs
to provide services to diverse customer demands.

Quantitative Measures
Mostly the measures taken for measuring the performance may be somewhat similar to each other, but
the objective behind each segment is very different from the other.
Quantitative measures is the assessments used to measure the performance, and compare or track the
performance or products. We can further divide the quantitative measures of supply chain performance
into two types. They are −
 Non-financial measures
 Financial measures

Non - Financials Measures

The metrics of non-financial measures comprise cycle time, customer service level, inventory levels,
resource utilization ability to perform, flexibility, and quality. In this section, we will discuss the first four
dimensions of the metrics −

Cycle Time
Cycle time is often called the lead time. It can be simply defined as the end-to-end delay in a business
process. For supply chains, cycle time can be defined as the business processes of interest, supply chain
process and the order-to-delivery process. In the cycle time, we should learn about two types of lead
times. They are as follows −
 Supply chain lead time
 Order-to-delivery lead time
The order-to-delivery lead time can be defined as the time of delay in the middle of the placement of
order by a customer and the delivery of products to the customer. In case the item is in stock, it would be
similar to the distribution lead time and order management time. If the ordered item needs to be
produced, it would be the summation of supplier lead time, manufacturing lead time, distribution lead
time and order management time.

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The supply chain process lead time can be defined as the time taken by the supply chain to transform the
raw materials into final products along with the time required to reach the products to the customer’s
destination address.
Hence it comprises supplier lead time, manufacturing lead time, distribution lead time and the logistics
lead time for transport of raw materials from suppliers to plants and for shipment of
semi-finished/finished products in and out of intermediate storage points.
Lead time in supply chains is governed by the halts in the interface because of the interfaces between
suppliers and manufacturing plants, between plants and warehouses, between distributors and retailers
and many more.
Lead time compression is a crucial topic to discuss due to the time based competition and the
collaboration of lead time with inventory levels, costs, and customer service levels.

Customer Service Level

The customer service level in a supply chain is marked as an operation of multiple unique performance
indices. Here we have three measures to gauge performance. They are as follows −
 Order fill rate − The order fill rate is the portion of customer demands that can be easily
satisfied from the stock available. For this portion of customer demands, there is no need to
consider the supplier lead time and the manufacturing lead time. The order fill rate could be with
respect to a central warehouse or a field warehouse or stock at any level in the system.
 Stockout rate − It is the reverse of order fill rate and marks the portion of orders lost because of
a stockout.
 Backorder level − This is yet another measure, which is the gauge of total number of orders
waiting to be filled.
 Probability of on-time delivery − It is the portion of customer orders that are completed on-
time, i.e., within the agreed-upon due date.
In order to maximize the customer service level, it is important to maximize order fill rate, minimize
stockout rate, and minimize backorder levels.

Inventory Levels
As the inventory-carrying costs increase the total costs significantly, it is essential to carry sufficient
inventory to meet the customer demands. In a supply chain system, inventories can be further divided
into four categories.
 Raw materials
 Work-in-process, i.e., unfinished and semi-finished sections
 Finished goods inventory
 Spare parts
Every inventory is held for a different reason. It’s a must to maintain optimal levels of each type of
inventory. Hence gauging the actual inventory levels will supply a better scenario of system efficiency.

Resource Utilization
In a supply chain network, huge variety of resources is used. These different types of resources available
for different applications are mentioned below.
 Manufacturing resources − Include the machines, material handlers, tools, etc.
 Storage resources − Comprise warehouses, automated storage and retrieval systems.
 Logistics resources − Engage trucks, rail transport, air-cargo carriers, etc.
 Human resources − Consist of labor, scientific and technical personnel.
 Financial resources − Include working capital, stocks, etc.
In the resource utilization paradigm, the main motto is to utilize all the assets or resources efficiently in
order to maximize customer service levels, reduce lead times and optimize inventory levels.

Financial Measures
The measures taken for gauging different fixed and operational costs related to a supply chain are
considered the financial measures. Finally, the key objective to be achieved is to maximize the revenue by
maintaining low supply chain costs.

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There is a hike in prices because of the inventories, transportation, facilities, operations, technology,
materials, and labor. Generally, the financial performance of a supply chain is assessed by considering the
following items −
 Cost of raw materials.
 Revenue from goods sold.
 Activity-based costs like the material handling, manufacturing, assembling rates etc.
 Inventory holding costs.
 Transportation costs.
 Cost of expired perishable goods.
 Penalties for incorrectly filled or late orders delivered to customers.
 Credits for incorrectly filled or late deliveries from suppliers.
 Cost of goods returned by customers.
 Credits for goods returned to suppliers.
In short, we can say that the financial performance indices can be merged as one by using key modules
such as activity based costing, inventory costing, transportation costing, and inter-company financial
transactions.

SUPPLY CHAIN VALUE CHAIN

A supply chain is the network of people, resources, and activities that move a product from supplier to
customer, while a value chain is the set of activities that add value to a product or service throughout its
life cycle:

Supply chain Value chain

Focus Logistics and distribution of a Activities that add value to a product or service
product

Activities Procurement, production, and Product development, marketing, and delivery

distribution

Key What is being exchanged and how? How and why is something done?
questions

Benefits Ensures availability of materials Helps companies find ways to improve, choose where to
and immaterial elements put resources, and adjust to market changes

A supply chain is part of a value chain, as the exchange of goods increases customer value. Businesses can
use data-driven insights from both the supply chain and value chain to make informed decisions about
resource allocation and process optimization.

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The process of sourcing, manufacturing, transporting, storing and distributing a product can be

complicated, and carrying it out successfully relies on many interdependent areas working together

seamlessly as part of a chain. Two types of chains that many mix up when discussing this chain of

operations are value chains and supply chains.

Although value chains and supply chains can be interchangeable, they are distinct and separate

approaches to producing goods and benefiting consumers. One difference between the two is that, as

indicated by the name, a value chain seeks to add value to a product.

Here's more about value chain vs. supply chain.

What is the supply chain?

A supply chain is a series of interconnected processes focused on creating products and supplying them

to an end user or consumer. The four broad areas that make up most supply chains are sourcing,

manufacturing, logistics and retail. Each of these areas consists of several key activities.

Sourcing activities in the supply chain include identifying vendors that can source specific raw materials,

ingredients and parts for the final product as well as procuring the raw materials from the vendor and

transporting them.

Manufacturing activities in the supply chain include receiving raw materials from suppliers;

manufacturing finished products from ingredients, parts and materials; and giving the finished products

to logistics providers for storage and distribution.

Logistics activities in the supply chain include picking up, transporting, delivering and returning products

domestically and internationally as well as storing products as inventory until they are sent to retailers or

consumers. Other logistics activities are fulfilling orders for specific products and distributing products to

retailers or directly to consumers.

Retail activities in the supply chain include ordering products from manufacturers and logistics

providers, receiving items and selling products to consumers.

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The supply chain is primarily focused on the physical, direct operations of building products and

delivering them to the end user. The goal is to do this in a fast, reliable and cost-effective way.

What is the value chain?

A value chain seeks to add value to a product through a variety of approaches. This addition of value

benefits the product's end user and often improves a company's profitability.

Value chain activities can take many forms, depending on company priorities, consumer needs and brand

positioning.

Product development activities in the value chain include gaining a deep understanding of consumer

needs and market fit and conducting extensive research and development to define, prototype, and

improve products.

Customer service activities in the value chain include providing relevant information so consumers can

make an informed choice when selecting a product and offering after-sales care and support for

consumers if they have questions or need to return products. Another customer service activity is

including guarantees and warranties related to the function, reliability and durability of products.

Marketing and sales activities in the value chain include understanding consumer needs; telling

consumers how their needs will be met by the product; promoting, advertising and selling products; and

carrying out customer relationship management.

Supply chain activities in the value chain include ensuring that the right materials are in the right place in

the right time to carry out the manufacturing of products as well as improving quality control and quality

assurance. Another is ensuring product availability and adding value through order fulfillment and

distribution, such as the collection of old products.

The value chain is primarily focused on creating a competitive advantage and consumer benefits for the

end user. The goal is to carry this out in a consumer-centric, strategic way.

The differences between the value chain and the supply chain

The supply chain is always part of the value chain because adding value for a business or consumer relies

on the foundational supply chain activities of sourcing, manufacturing, selling and distributing products.

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However, a value chain goes further than a supply chain in terms of adding value and creating

a competitive advantage.

Supply chains are mainly focused on the following:

 Optimizing the operational management of product sourcing, manufacturing, and logistics.

 Building and storing products.

 Distributing products in a fast and reliable way.

 Reducing product and operational costs to maximize profit margins.

Meanwhile, value chains are mainly focused on the following:

 Considering the consumer's perspective for every aspect of a product.

 Improving consumer satisfaction throughout the supply and value chain.

 Creating a competitive advantage that makes a consumer more likely to purchase a company's

products.

Supply chains and value chains are both critical to satisfying consumer needs and improving a company's

bottom line.

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UNIT 2

SCM SYNERGIES

The goals of every player in distribution are essentially the same: increase sales, lower costs and increase
profitability. However, supply chain partners often aren’t aligned to help each other grow, meet customer
demand and continuously optimize the costs of doing business. Understanding the responsibilities within
the manufacturer-distributor relationship is critical to developing long-term success.

Manufacturers and distributors tend to pass responsibilities back and forth without taking ownership of
them, especially with customer outreach and marketing. Understanding who does the bulk of the
outreach, who supports it and how, and having a good collaborative process can help smooth the
relationship and ensure that both sides gain from the partnership.

A mutually beneficial arrangement begins with the manufacturer creating a quality product that meets
the technical and use case needs of a customer. An innovative product that solves a problem will create a
strong foundation for the marketing strategy on both sides of the partnership.

Establishing a fair pricing structure in line with market conditions helps provide an underlying base for
marketing, while the brand content and marketing materials created by the manufacturer further build
this foundation. Quality information that can easily be repurposed while maintaining the message is a
crucial element. Once this foundation is set, the manufacturer should aid in the marketing effort by
funding co-op programs and marketing support to downstream customers.

This manufacturer-created foundation enables and empowers the distributor to perform its side of the
equation – to sell products in the highest volume with the lowest costs possible. This begins with buying
in large enough bulk to ensure proper margins and that end customers can purchase without delay.

The distributor also shares marketing and promotion duties. The most important aspect of the distributor
relationship, however, is the relationship with the product’s end user. Closing the short-term sale is
essential, as is managing long-term customer satisfaction.

One way to increase the likelihood of a positive relationship is for both sides to supplement their sales
force outreach with a multichannel marketing solution. By using data-driven, multitouch communication
through a variety of channels, manufacturers and distributors can optimize marketing efforts while
keeping costs in check.

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In an economic environment of smaller margins, squeezed sales forces, increasing technology and
company mergers, accepting ownership of these responsibilities will often reduce profits in the short run,
but if both sides hold up their end of the bargain, profitability will eventually surge. When all elements of
the equation work together, sales will grow and costs will decrease, improving the bottom line for all
parties.

Synergy happens when the combined value of multiple companies is greater than the sum of those
companies. Thus, as we rethink the supply chain, it’s essential that we capture the collective value created
when all companies in the chain work together in a harmonious and congruent manner.

The evolution of supply chains has progressed over three decades from one of efficiency to effectiveness.
Yet the pandemic has opened our eyes to the need for more. The synchronization of supply and demand
has been disrupted, and the need today is for networks to be efficient, effective, respected and resilient.

This rethinking calls for address four keys to a synergistic supply chain:

 Network. The hubs and links of the complete supply chain must achieve synergy from E2E
operations.
 Synergy. They must work for the best interest of the entire network.
 Harmony. They must work together toward common objectives.
 Orchestration. They must operate on the same information, provided by the “conductor” in as
real-time a fashion as possible.
These criteria determine the synergies of the modern-day supply chain. And they enable the power to
deal with complexity, uncertainty, volatility and ambiguity, all of which characterize the supply chains of
today and tomorrow.

The need for collaboration among trading partners is hardly a new idea, but it hasn’t caught on as it
should. Let’s examine two major causes for this blockage.

One is the inability to determine the value to be distributed among trading partners. Corporate finance
hasn’t been well understood by supply chain leaders; thus, initiatives to deal with E2E chains and trading
partners have failed to pass hurdle rates for return on investment and other resource-allocation
decisions.

Value today is measured in several ways. Commonly accepted measures include stock price and earnings
per share (EPS). Many factors impacted by supply chain performance contribute to these market
measures, including COGS, optimized working capital, free cash flow, gross operating margins, cash-to-
cash cycle time, total supply chain lead times, product and service quality, and total delivered cost.

It’s important to understand that most if not all of these factors are determined by the E2E supply chain
— from source to delivery, or suppliers’ suppliers to customers’ customers. All trading partners in the
chain, including service providers, are creating or diminishing total value. Synergistic supply chains are
the true goal.

The actions taken by supply chain leaders impact key business objectives, including profitable growth,
margin improvement and capital efficiency. These in turn determine shareholder value.

The model for total delivered cost (TDC) illustrates this best. The E2E supply chain is made up of multiple
companies, each of which carries out its own supply chain processes — plan, buy, make, move, distribute
and sell — and as costs are incurred or allocated, they add up to the TDC. Operating independently, each
company seeks to maximize its margins, but if all operate in harmony with common goals, based on a
“single version of the truth,” then the overall TDC can be optimized. The same goes for other value
drivers, such as total supply chain time, working capital efficiency and economic profit.

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The recognition that E2E supply chains exist, but that trading partners work to optimize their own
businesses instead of the whole, isn’t new. Business leaders have realized this for years, and as supply
chains became increasingly global, vertical integration grew too costly. Offshore contract manufacturers,
co-packers and suppliers offered lower materials or product costs that couldn’t be ignored. The
synergism and benefits of common goals and “distributed value” were considered too complex, too
challenging and not possible because of the lack of real-time, reliable data.

The traditional gaps between operations and finance, in language, terminology, definitions and goal-
setting, have been a major barrier to the creation of synergistic supply chains. Another has been diverging
priorities, with finance and accounting driven by income and expenses, and operations leaders by
customer service, supply chain risks, disruptions and operating costs.

Executives seeking to integrate E2E supply chains speak of five primary barriers to that effort:

 Complexities. While global supply chains have introduced new and challenging complexities,
today’s technology, fueled by the digital revolution, can provide real-time data and information to
all trading partners. A related pushback concerns smaller suppliers being dominated by larger
companies and their changing demands, subjecting them to extended payment terms and
contract changes in the middle of production runs. These complexities are manageable, and
should be controlled by the orchestrator.
 Processes. Commonly accepted practices dictate that business processes must be reengineered
prior to introducing new technologies and synergistic supply chains. This is no longer necessary.
High-level rethinking and preparation are adequate, coupled with collaborative agreements
among trading partners.
 Technologies. Pushback here results from huge investments in enterprise resource planning
(ERP) and point solutions, with no appetite for E2E systems. That attitude might be
understandable, but it isn’t defensible. When the most important ROI of an E2E system is to
optimize COGS and produce higher value factors, it becomes too important to delay or be overly
concerned about prior investments.
 Investments. Similar to that relating to technologies, this pushback is about hurdle rates, ROI,
skepticism and concerns about complexities of working the E2E chain. Operations leaders need
to improve their initiative proposals and business cases by linking investments to corporate
finance and enterprise value.
 Resistance to change. The digital age will leave behind those who are unable or too slow to adapt.
Speed matters, and customer satisfaction is now the driver of business. E2E supply chains must
be orchestrated to better serve customers and meet their need for speed, cost and quality.
1. PRODUCTION
This driver can be made very responsive by building factories that have a lot of excess capacity and use
flexible manufacturing techniques to produce a wide range of items. To be even more responsive, a
company could do their production in many smaller plants that are close to major groups of customers so
delivery times would be shorter. If efficiency is desirable, then a company can build factories with very
little excess capacity and have those factories optimized for producing a limited range of items. Further
efficiency can also be gained by centralizing production in large central plants to get better economies of
scale, even though delivery times might be longer.

[Simulate decisions about production in SCM Globe by defining different products and facilities in the
supply chain, and select locations for the facilities that make those products.]

2. INVENTORY
Responsiveness can be had by stocking high levels of inventory for a wide range of products. Additional
responsiveness can be gained by stocking products at many locations so as to have the inventory close to
customers and available to them immediately. Efficiency in inventory management would call for
reducing inventory levels of all items and especially of items that do not sell as frequently. Also,
economies of scale and cost savings can be gotten by stocking inventory in only a few central locations
such as regional distribution centers (DCs).

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[Decisions about inventory are simulated by setting production rates and delivery schedules for products,
and by defining on-hand amounts for different products at facilities throughout the supply chain.]

3. LOCATION
A location decision that emphasizes responsiveness would be one where a company establishes many
locations that are close to its customer base. For example, fast-food chains use location to be very
responsive to their customers by opening up lots of stores in high volume markets. Efficiency can be
achieved by operating from only a few locations and centralizing activities in common locations. An
example of this is the way e-commerce retailers serve large geographical markets from only a few central
locations that perform a wide range of activities.

[Simulate this decision by placing your facilities (factories, warehouses, stores) in selected locations, and
then define the storage capacities and operating expenses for those facilities. The screenshot below shows an
example of this.]

(click

4. TRANSPORTATION
Responsiveness can be achieved by a transportation mode that is fast and flexible such as trucks and
airplanes. Many companies that sell products through catalogs or on the Internet are able to provide high
levels of responsiveness by using transportation to deliver their products often within 48 hours or less.
FedEx and UPS are two companies that can provide very responsive transportation services. And now
Amazon is expanding and operating its own transportation services in high volume markets to be more
responsive to customer desires. Efficiency can be emphasized by transporting products in larger batches
and doing it less often. The use of transportation modes such as ship, railroad, and pipelines can be very
efficient. Transportation can also be made more efficient if it is originated out of a central hub facility or
distribution center (DC) instead of from many separate branch locations.

[Simulate transportation decisions in SCM Globe by the modes of transportation (truck, railroad, ship,
airplane) you use to move products between facilities, and by the delivery routes and frequencies you define.]

5. INFORMATION
The power of this driver grows stronger every year as the technology for collecting and sharing
information becomes more wide spread, easier to use, and less expensive. Information, much like money,
is a very useful commodity because it can be applied directly to enhance the performance of the other
four supply chain drivers. High levels of responsiveness can be achieved when companies collect and
share accurate and timely data generated by the operations of the other four drivers. An example of this is
the supply chains that serve the electronics market; they are some of the most responsive in the world.
Companies in these supply chains, the manufacturers, distributors, and the big retailers all collect and
share data about customer demand, production schedules, and inventory levels. This enables companies
in these supply chains to respond quickly to situations and new market demands in the high-change and

23
unpredictable world of electronic devices (smartphones, sensors, home entertainment and video game
equipment, etc.).

[SCM Globe simulations generate daily performance data on operating costs and inventory levels for all the
facilities in the supply chain. As you run a simulation you can see what is happening from end to end across
your supply chain. At present most companies don’t have access to this kind of data about the overall status
of the supply chains they participate in — but that will change as all markets take on the high-change and
unpredictable nature seen in the electronics market.]

WHEN TO BE EFFICIENT AND WHEN TO BE RESPONSIVE

The table below summarizes what can be done to guide the five supply chain drivers
toward responsiveness or efficiency. Companies and supply chains continually adjust their mix of
responsiveness and efficiency as situations change.

Over the long run, the cost of one driver — Information — continues to drop while the cost of the other
four drivers continues to rise. Companies that make best use of information to increase their internal
efficiency, and increase their responsiveness to external supply chain partners will gain the most
customers and be the most profitable.

Efficiency is good — In the 20th century, efficiency drove economic growth. The push for efficiency
increased productivity and lowered the prices of products from automobiles to home appliances thus
making them available to a wide segment of the population. Yet efficiency requires two things that are
becoming much harder to find. The first thing is predictability. To efficiently plan and manage production
and distribution of products you need to know what the demand will be for those products, and you need
to know what the cost of raw materials will be and what the selling prices will be for the products. Then
you can optimize your operations to produce the right amounts at the right prices and maximize profits.

Efficiency also requires one more thing — stability. You need to know that demand and prices will remain
relatively stable for some number of years (5 or 10 years or more). Because then you can build factories
and stores and transportation infrastructure to enable your efficient operating model. Efficiency is best
when producing relatively simple commodity products and services that sell in more predictable and
stable markets.

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Responsiveness is better — In the 21st century, responsiveness drives the economy. Responsiveness is
what drives continuous innovation in products and technology and continuous change in the ways we
organize businesses and serve customers. The big companies of the 20th century were efficient
manufacturing companies (Ford, GM, US Steel, Kodak, Whirlpool etc.), but the big companies of the 21st
century are responsive service and technology companies (Alibaba, Amazon, Apple, Facebook, Google,
Starbucks, Tencent, etc.). All these 21st century companies certainly need to be efficient, but their success
is based mostly on their ability to sense and respond quickly to changing markets and evolving customer
desires. Lowest price is not always the deciding factor in purchasing decisions. People want products and
services that respond quickly and meet their changing needs and desires.

Apple and Starbucks do not sell the lowest priced laptops or cups of coffee, nor does Porsche or Tesla
make the lowest priced automobiles, but as long as people value the quality and innovation offered by
those companies and others like them, they will pay more for their products. Home delivery of everything
from clothes to groceries costs a bit more, but people value and pay for the responsiveness and
convenience of those services. Responsiveness is best when providing complex or unique products and
services that sell in continuously changing markets driven by evolving technology and new customer
needs and desires.

THE RIGHT MIX OF EFFICIENCY AND RESPONSIVENESS

Even within supply chains that emphasize responsiveness, there are segments of those supply chains that
should focus on efficiency. Efficiency is critical wherever there are high volumes of predictable products
moving between facilities. For example, segments of supply chains that connect factories with
warehouses or distribution centers should be as efficient as possible. They should use the most efficient
transportation modes and delivery schedules, and those facilities should automate their operations as
much as possible.

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Facilities.
 Role in the supply chain
o The “where” of the supply chain
o Manufacturing or storage (warehouses)
 Role in the competitive strategy
o Economies of scale (efficiency priority)
o larger number of smaller facilities (responsiveness priority)
 Components of facilities decisions
 Location
o Centralization (efficiency) vs. decentralization (responsiveness)
o Other factors to consider (e.g., proximity to customers)
 Capacity (flexibility versus efficiency)
 Manufacturing methodology (product focused versus process focused)
 Warehousing methodology (SKU storage, job lot storage, cross-docking)
 Overall trade-off: Responsiveness versus efficiency.
Inventory
 Inventory exists because of a mismatch between supply and demand
 Source of cost and influence on responsiveness
 Impact on
 Material flow time: time elapsed between when material enters the supply chain to when it exits
the supply chain
 If responsiveness is a strategic competitive priority, a firm can locate larger amounts of inventory
closer to customers
 If cost is more important, inventory can be reduced to make the firm more efficient
 Trade-off
 Cycle inventory
o Average amount of inventory used to satisfy demand between shipments
o Depends on lot size
 Safety inventory
o Inventory held in case demand exceeds expectations
o Costs of carrying too much inventory versus cost of losing sales
 Seasonal inventory
o Inventory built up to counter predictable variability in demand
o Cost of carrying additional inventory versus cost of flexible production
 Overall trade-off: Responsiveness versus efficiency
o More inventory: greater responsiveness but greater cost
o Less inventory: lower cost but lower responsiveness
Transportation
 Moves the product between stages in the supply chain

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  Impact on responsiveness and efficiency
 Faster transportation allows greater responsiveness but lower efficiency
 Also affects inventory and facilities
 If responsiveness is a strategic competitive priority, then faster transportation modes can
provide greater responsiveness to customers who are willing to pay for it
 Can also use slower transportation modes for customers whose priority is price (cost)
 Can also consider both inventory and transportation to find the right balance
 Mode of transportation:
o Air, truck, rail, ship, pipeline, electronic transportation
o Vary in cost, speed, size of shipment, flexibility
 Route and network selection
o Route: path along which a product is shipped
o Network: collection of locations and routes
 In-house or outsource
 Overall trade-off: Responsiveness versus efficiency
Information
 The connection between the various stages in the supply chain – allows coordination between
stages
 Crucial to daily operation of each stage in a supply chain – e.g., production scheduling, inventory
levels
 Allows supply chain to become more efficient and more responsive at the same time (reduces the
need for a trade-off)
 Push (MRP) versus pull (demand information transmitted quickly throughout the supply chain)
 Coordination and information sharing
 Forecasting and aggregate planning
 Enabling technologies
o EDI
o Internet
o ERP systems
o Supply Chain Management software
 Overall trade-off: Responsiveness versus efficiency
Sourcing
 Set of business processes required to purchase goods and services in a supply chain
 Supplier selection, single vs. multiple suppliers, contract negotiation
 Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a
supply chain
 In-house vs. outsource decisions- improving efficiency and responsiveness
 In-house versus outsource decisions
 Supplier evaluation and selection
 Procurement process
 Overall trade-off: Increase the supply chain profits
What is Revenue Management?
Revenue management is a complex practice that involves using data and factoring your revenue,
costs, and profits to make strategic pricing decisions and predict demand. The aim of revenue
management is to optimize your pricing and distribution so that you earn the highest possible revenue.
Some of revenue management metrics you could consider are:
 Performance data
 Local market data
 Competitor rates
In addition to using data to boost revenue, you can also consider your hotel’s unique features, location,
guests’ pricing expectations, and more to find other ways to attract ancillary revenue.

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Revenue management also includes supporting activities, such as marketing, responding to reviews,
and upselling. For example, you can provide upsell opportunities, like offering guests to upgrade their
room, to earn added revenue.
Why is Revenue Management Important?
If you’re not engaging in revenue management, you’re probably losing out on a lot of money.
Because demand changes so quickly, especially in 2022 where demand is so unpredictable post-
pandemic, you need to be able to change your prices to match your competitive set. If you don’t have a
revenue manager to monitor your rates throughout the day, you should be reviewing your rates at least
once per day!
Proper use of revenue management strategies can help you predict the profits you’ll potentially earn –
even a year in advance – helping you make informed decisions about your business, staffing, and budget.
A revenue management strategy will help you sell your rooms at the best prices and prevent you from
experiencing having too many rooms unsold due to improper pricing.
What Is Yield Management?
Yield management and revenue management are often used interchangeably, but they are different from
each other.
Yield management is a strategy used to get the most revenue possible out of a specific revenue
stream (e.g. an inventory of rooms). Revenue management is a broader strategy that aims to increase
revenue across the whole hotel.
Yield management is used to influence booking behavior and strike the right balance between incoming
bookings and ideal pricing. This strategy can be described as “selling the right room to the right customer
at the right time for the right price.”
Yield management operates on the fact that hotels have a set number of time-limited and perishable
rooms each night, and different travelers are willing to pay different prices for the same room.
Tip: You can calculate your yield by dividing actual revenue by potential revenue and multiplying the
result by 100.
HotelMinder, it is about:
 Optimizing occupancy, revenue or ADR
 Upgrading your software stack
 Solving distribution or/and tech issues
 Improving their hotel online presence

Why Is Yield Management Important?

Yield management is important because it can help you shape guest booking behavior to match your
room inventory. For example, if you have many available rooms, you may want to lower your rates or
offer a discount to try to get more bookings.
Similarly, if you notice a lull in your hotel’s restaurant from 3-4pm and you offer an Early Bird special at
that time, you’re opening up opportunities to receive sales from a different type of audience, but an
audience that wants to spend money at your hotel.
With effective yield management, you’ll earn more revenue for each booking.
8 tactics to increase revenue
How can you implement revenue management and yield management tactics in your business so you can
increase your bottom line?
Here are 8 practical things you can do to get the best results out of revenue management and yield
management in 2022.
1. Get a yield management system
There are many benefits of using a yield management system. They include: getting better data reporting
with visual analytics, discovering new opportunities to drive bookings, getting real-time monitoring of
your competitors’ pricing, and having one platform to manage all data and tools.
2. Oversell
Hotels expect cancellations and no-shows. To make sure you don’t lose out on revenue, you can oversell
your rooms. Overselling means that you take more bookings than you have capacity for. If you expect 3
no-shows and 2 cancellations each week, then you can oversell by 5 rooms each week.

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3. Use dynamic pricing
A dynamic pricing strategy is one of the most lucrative pricing examples in hospitality. With dynamic
pricing, you adjust your rates based on demand. In busy seasons when demand is high, increase your
room rates. In slower seasons where demand is low, decrease your prices.
4. Manage booking channels
If you have multiple booking channels, like OTAs, metasearch, and GDS, use them wisely. During busy
periods, turn off discounted rate plans on your booking channels so that you can make higher profits from
the increased demand.
5. Use revenue management technology
Investing in reputable, hospitality-focused revenue management technology will help you reach new
heights. Implementing revenue management technology allows you to set rules/triggers to automatically
alert you to change your pricing. For example, using smart pricing technology, you could create a rule to
be notified any time your hotel is priced 5% higher than your competitors’ so you can adjust your rates
accordingly.
6. Implement stay restrictions
Stay restrictions such as minimum length of stay (a.k.a. MinLOS) or closed to arrival (a.k.a. CTA) means
that you can increase your hotel’s occupancy on shoulder nights. For example, on holiday weekends you
can set a MinLOS so guests have to book a minimum of three nights. That way you prioritize bookings
from guests with longer stays. Similarly, if the holiday weekend is approaching and you need to sell your
remaining inventory, you can set an alert to remove the MinLOS stay restriction.
7. Offer different rate plans
If your pricing for different room types isn’t varied, you could be missing out on valuable revenue-making
opportunities. Rooms that have a higher demand than others (e.g. spacious rooms or rooms that offer a
better view) should be priced higher than those that don’t have the same features.
8. Listen to your market
Track which guest personas in your market segment are booking which rooms and when they’re booking
them. Use this information to adjust your rates because different traveler types will be willing to pay
different prices at different times.
Revenue management and yield management strategies will become more effective once you take some
time to learn about them. When you understand what they are and how you can implement them in the
everyday running of your lodging business, you will reap rewards, not to mention – earn more revenue.

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