Unit 1

Introduction

# CONCEPT OF SUPPLY CHAIN:-

Supply chain is a system of organizations, people, activities, information and resources involved in moving a product or services from supplier to
customers. Supply chain activities involve the transformation of natural resources, raw materials, and components into a finished product that is delivered to the end
customer.
A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. The supply chain includes not only the
manufacturers and suppliers, but also transporters, warehouses, retailers, and even customer themselves. Including manufacturer, it also includes other functions,
involved in receiving and filling a customer request such as new product development, marketing, and distribution finance and customer service.
Thus, a supply chain is the collection of steps that a company takes to transform raw components into the final product. Supply chain management
(SCM) is the active management of supply chain activities to maximize customer value and achieve a sustainable competitive advantage. It represents a conscious
effort by the supply chain firms to develop and run supply chains in the most effective & efficient ways possible. Supply chain activities cover everything from
product development, sourcing, production, and logistics, as well as the information systems needed to coordinate these activities.

# Stage of supply chain:-

A supply chain is dynamic and involves the constant flow of information, product and funds. There are different aspects and stages in supply chain. Some of key
aspects are mention below:
 Raw material supplier: A supplier plays a critical link in supply chain. Forming the right partnership with right terms and polices helps develop a good
relationship with the suppliers that will prove beneficial to all the parties involved.
 Manufactures: After acquiring the right raw material, the organization has to make careful decision on the manufacturing of the product. The demand for
the product, technologies required and other important decisions have to be carefully managed at this stage.
 Distributions: The distributors could include whole sellers and retailers. They are one of the important links between the organization and customers.
 Customers: They are the most important and also the end-link in the chain. An organization should identify their customers and make sure that the
product they produce is what is required.
Beside the above, logistics is also an important factor in the supply chain. Logistic is to plan, execute and control various aspects of supply chain, from
the point of origin to the point of consumption. To operate smoothly and profitable for an organization. It is necessary for the supply chain to keep
running.

# Objectives of chain:
 The object of every supply chain should be to maximize the overall value generated. The value (also known as supply chain surplus) a supply chain generates is the
difference between what the values of the final produced is to the customer and the cost the supply chain incurs the filling the customer request.
 The global objective of a supply chain is customer’s satisfaction.
 Another objective of the supply chain is to make product available to meet demand.
 Effective management of three flow i.e. materials, information and money (case).
 To increase supply chain profitability.
 To increase the consumers surplus as well as value.
 To improve quality and service and reduce costs.
 To improve customer service.
 Effectively and efficiently use system wide resources.
 Leverage partner strengths.

# Decision phases in supply chain:

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 phase.
The three main decision phases involved in the entire process of supply chain 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.
All the strategic decisions are taken by the higher authority or the senior management. There 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: Supply chain planning should be done according to the demand and supply view. In order to understand customer 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 day. The
objectives behind this decisions phase is minimizing uncertainty and perform and optimization, starting from handling the customer order to supplying the customer
with that product everything is included in this phase.
For example, if a customer demands an item manufactured in the company, then 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 distributors sends it to the customer within a time frame. All departments engaged in this process need to work with
an aim of improving the performance and minimizing uncertainty.

# Process view of supply chain:

Supply chain is a sequence of processes and flows that take place within and between different stages and combine to fill a customer need for a product. The processes in a
supply chain are divided into series of cycle, each performed at the interface between two successive stages of a supply chain. Cycle view of supply chain is useful in making
operational decisions as role of each member of supply chain is clearly defined.
 Procurement cycle: The procurement cycle occurs between the manufacture and supplier. It includes all processes to ensure the availability of materials and
components at the time and placed required in the production and maintenance schedule. These processes include supplier production scheduling and component
manufacturing, shipping and receiving. The cycle is triggered by requirements of the manufacture’s production schedule, the maintenance activity’s repair schedule,
or the restocking policy. This cycle may repeat several time between several fires of suppliers.
 Manufacturing cycle: The manufacturing cycle is found between a manufacturer or repair activity and the next downstream (toward the customer) member of the
supply chain. This next downstream member may be a wholesaler, a retailer or the customer. The cycle begins when a customer, retail activity, or wholesales places
a replenishment order, or wholesaler places a replenishment order, or when a manufacture forecasts customer demand. Processes in this cycle include production and
maintenance scheduling, and product repair shipping and receiving.
 Replenishment cycle: The replenishment cycle occurs between the retailer and the distributor or wholesaler and includes all processes for replenishing retail
inventory, retail order entry, fulfillment, and receipt. The cycle begins with the retail order trigger. This is a policy that starts the replenishment order placement.
  Customer order cycle: The customer order cycle sits at the interface between the customer and the retailer and includes all process for receiving and filling of
customer orders. Customer arrival order entry fulfillment and receipt.

# Value chain, value system, and supply chain:

Value chain: A value chain is a set of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. It is the process
involved in converting a product from raw material to its finished, saleable and consumable stage. it cover all the areas directly and indirectly involved in doing the business of
value creation from the stage of procuring the basic raw material all the way to delivery of the finished product to the customer. Its ultimate goal is to maximize value creation
while minimizing costs. The value chain framework is a powerful analysis tool for strategic planning.
The concept comes from business management and was first described and popularized by michael porter in 1985. According to porter, value chain analysis can be
used to identify an organization's internal business processes and how they interact. An organization in the process of creating value for different customer performs numerous
value activities. There could be a part if development, production, sales or distribution of its services and products.

Porter's value chain:

The idea of the value chain is based on the process view of organization, the idea of seeing a manufacturing (or service) organization as a system, made up of
subsystem each with inputs, transformation processes and outputs involve the acquisition and consumption of resources money, labour, materials, equipment, buildings, land,
administration and management. How value chain activities are carried out determines costs and affects profits. Most organization engage in hundreds, even thousands of activities
in the process of converting inputs to outputs. There activities can be classified as:
 Primary activities: Primary activities relate directly to the physical creation, sale, maintenance and support of a product or service. they consist of the following:
 Inbound logistics: Arranging the inbound movement of materials, parts and or finished inventory form suppliers to manufacturing or assembly plants, warehouse, or
retail stores.
 Operations: Concerned with managing the process that converts inputs (in the forms of raw materials, labor, and energy) into outputs in the form of goods and
services.
 Outbound logistics: It is the process related to the storage and movement of the final product and the related information flows from the end of the production line to
the end user.
 Marketing and sales: Selling a product or service and processes for creating communicating, delivering, and exchanging offerings that have value for customers,
clients, partners, and society at large.
 Service: Includes all the activities required to keep the product or service working effectively for the buyer after it is sold and delivered.
 Support Activities: These activities support the primary function. For example, procurement supports operations with certain activities but it also supports marketing and
sales with other activities.
 Infrastructure: It consists of activities such as accounting, legal, finance, control, public relations quality assurance and general management.
 Technological development: It pertains to the equipment, hardware, software, procedures and technical knowledge brought to bear in the firm's transformation of
inputs into output.
 Human resources management: Consists of all activities involved in recruiting, hiring, training, developing, compensating and (if necessary) dismissing or laying off
personnel.
 Procurement: The acquisition of goods, services or works from an outside external source.

# Value system:
The value system is a network of organizations and the value producing activities involved in the production and delivery of an offering. A value system includes the
value chains of a firm’s supplier, the firm itself, the firm distribution channels, and the firm’s buyers.
The firm’s value chain links to the value charts of upstream suppliers and downstream buyers. The result is a larger stream of activities known as value system. The
development of a competitive advantage depends not only on the firm-specific value chain, but also on the value system of which the firm is a past specifically, porter called the
value producing activities of one organization a value chain and the network organizations involved in the production and delivery of an offering to the and customer a value
system.
The firm’s value chains of upstream. Suppliers and downstream channels and customer porter calls this series of value chains the value system, shown conceptually
below.

Linkages exist not only in a firm’s value chain, but also between value chains. While a firm exhibiting a high degree of vertical integration poised to better coordination upstream
and downstream activities a firm having a lesser degree of vertical integration can forge agreements with suppliers and channels partners to achieve better coordination.
For example, an auto manufacturer may have its supplier set up facilities in close proximity in order to minimize transport costs and reduce parts inventories.
Clearly, a firm’s success in developing and sustaining competitive advantage depends not only on its own value chain but on its ability to manage the value system of which it is a
part.

# Supply chain:
Supply chain the interconnection of all the activities that starts form the manufacturing of raw materials into finished product and ends when the product reaches the
end when the product reaches the final customers.
In other words, it is a connection of all the parties; resources, business and activities involved in the marketing or distribution through which a product reaches the end
user. It creates a link between the channel partners like suppliers, manufactures, wholesalers, distributors, retailers and the customer. To put simply, it encompasses the flow and
storage of the raw material, semi-finished goods and the finished goods from point of origin to its final destination, i.e. consumption.
The process which plans controls the supply chain operations is known as supply chain mgmt. it is a cross-functional system that manages the movement of raw
material, within the organization and the movement of finished goods out of the firm along with full customer satisfaction side by side. The following activities are included in the
supply chain: integration, procurement, sharing of information, development of product, service to customer, production and distribution, performance analysis.

# Comparison of supply chain and Value Chain:

Basis for comparison Supply chain Value chain
meaning The integration of all the activities involved in Value chain is defined as the series of activities,
the procurement conversion and logistics of the that adds value to the products.
product is known as supply chain.
 Originated from Operation management Business management
Concept Conveyance Value addition
Sequence Product request-supply chain-customer Customer request-value chain-product
Objective Customer satisfaction Gaining competitive advantage

# Supply chain management (SCM):

The coordination and management of the supply chain activities are known as supply chain management. In other words, SCM is about the coordination of supply
chain flows (product, information, money) across functions and a across companies to achieve competitive advantage for individual companies in the supply chain and supply
chain members collectively.
Supply chain management is a series of interconnected activities related to the transformation and movement from raw material to the finished goods till it reaches to
the end users. It is the outcome of the efforts of multiple organizations that helped in making this chain of activities successful.
Their organization may include the firms with whom the organization is currently working like partners or suppliers, manufactures, wholesaler, retailers and
consumers. The activities may include integration sourcing, procurement, production, testing, logistics, customer services, performance measurement etc.
SCM has a multi-dimensional approach which manages the flow of raw materials and work in progress within the organization and the end product outside the organization till it
reaches the hands of the final consumer with a complete emphasis on the customer requirement.
 Characteristics of SCM:
 SCM strategies are linked to other strategies of the company. It should be aligned of the company. It should be aligned to the overall strategy of the
company.
 Conflicting objectives of members within SCM needs to be resolved.
 SCM is challenging due to the inbuilt uncertainties and risks in supply chain.
 Five basic components of SCM are plan, make, return, source and deliver.
 Strategic objective of SCM:
 To maximize overall value generated.
 Reduce working capital.
 To look for source of revenue and cost.
 Cost quality improvement.
 Shorting time to orders.
 To achieve world class performance.
 To fulfill customer demand through efficient resources.
 Reduce transportation cost.
 Increase inventory turn.
 Faster speed to market and efficient supply chain.
 Important of SCM:
 Reduce supply chain cost.
 Learn to design SCM and improve profit.
 Use product design strategic.
 Build and maximize supply chain co-ordination.
 Identify supply chain risk mitigation strategies.
 Explore purchasing, production and distribution strategies.
 Improve overall business function