INTRODUCTION TO

SUPPLY CHAIN
MANAGEMENT
MEANING
 Supply chain management (SCM) is the discipline that
manages supplies and processes through all of the stages
of a project, product or business deliverable.
 Business material has a journey as it moves from one state
to the next until it’s ready to be delivered to the customer
or stake holder.Then there’s the logistics of taking the
finished product from one place to another.
 Getting through these various stages efficiently requires
control- that’s where supply chain management comes in.
OBJECTIVES OF SUPPLY CHAIN MANAGEMENT
 To maximize the overall profitability:

◉ Business that runs strong and efficient supply chains tend to generate
more revenue and higher profits.
◉ In order to increase profitability through supply chain management, you
can look at several different areas, including:
a) inventory management – e.g. finding the balance between too much/not
enough stock.
b) supply and pay agreements – e.g. automating process, such as order
placement, etc.
c) Control of operating expenses – e.g. preventing incorrect orders,
distribution errors, etc.
 Enhancing customer service:

◉ Consistent focus on end customer demands to meet the

increasing customer requirements and ensure a high degree of
flexibility
◉ Deliver products to customers faster and with greater
accuracy than you could with a manual system, track
shipments to ensure they reach their destinations safely and
on time, maintain optimal inventory levels so you always
have the right items in stock that your customers want.
◉ All three of these strengths help you to build relationships of
 Reduce inventory cost:

◉ The objectives of SCM are to maximize overall

value generated and look for sources of revenue and
cost like cost quality improvement, replenishment of
the material whenever required, reduce cost
reduction, to optimize pre and post production
inventory levels etc.
 Reduce warehousing cost:

◉ It costs money to keep supplies and inventory in a warehouse.

◉ A more efficient supply chain management strategy could
reduce the amount of space you use and the amount of time it
takes to find and pull items.
◉ This could be result in reduced rent and payroll costs.
 Reduce transportation cost:

◉ Transportation costs can be a significant part of a company’s

overall logistics spending.
◉ With increase in the price of fuel, the proportion allocated to
transportation can be upward of 50 percent.
◉ This cost is passed on to the customer and the price of goods
continues the rise.
 Reduce lead time:

◉ Reducing lead time is profitable aim for commerce

entrepreneurs.
◉ Not only does a shorter lead time mean less time spend
waiting for stock to arrive, but it also allows for greater
flexibility.
◉ Retailer can order according to market demand fluctuations if
a product that takes a month to arrive suddenly goes out of
favour with consumers in the second week of lead time, you
have to figure out what to do with it two weeks later when a
 Ensuring on-time delivery to customers:

◉ Just-In-Time (JIT) delivery in an inventory

management strategy that helps facilitate speedier
order fulfilment with particular applications in raw
materials orders and manufacturing.
FUNCTIONS OF SUPPLY CHAIN MANAGEMENT
 Purchasing :

◉ Purchasing is the first function of supply chain management

and pertains to procuring raw materials and other resources
that are essential for the manufacturing of a product or good.
◉ It requires coordination with suppliers in order for delivery to
arrive without any potential delays.
 Operations :

◉ Within supply chain, the operation team engages in demand planning and
forecasting.
◉ In order for the team to be able to properly order materials, the company
has to anticipate potential market to demand and the number of units that
will ne needed to be produced within a timely manner.
◉ This runs over into inventory management, production, and shipping.
◉ If you over anticipated demand, then it could easily result in excess
inventory cost.
◉ If the demand is under anticipated, the organization could be unable to
meet consumer demand, which leads to revenue loss.
 Logistics:

◉ Logistic pertains to requirement for co-ordination.

◉ The manufacturing of products has commenced, in which it needs space
for storage till it shipped for delivery.
◉ This will call for making local warehouse agreements.
◉ Logistics ensures that the products will reach the end-point delivery
without any hindrances.
 Resource management:

◉ Production consumes raw materials, technology, time, and labour.

◉ All processes need to be efficient and effective, in which this phased will
be taken care of by the resource management function team.
◉ It decides the allocation of resources in the accurate activity at the right
time to optimize the production at reduced costs.
 Information workflow:

◉ Information sharing and distribution is what keeps all of the other

functions of supply chain management on track.
◉ If the information workflow and communication are poor, it could break
apart the entire chain.
PARTICIPANTS OF SUPPLY CHAIN MANAGEMENT
 Producers :

◉ Producers or manufacturers are organizations that make a product.

◉ This includes companies that are producers of raw materials and
companies that are producers of finished goods.
◉ Producers of raw materials are organizations that mine for minerals, drill
for oil and gas, and cut timber.
◉ It also includes organization that farm the land, raise animals, or catch
seafood.
◉ Producers of finished goods use the raw materials and sub-assemblies
made by other producers to create their products.
 Distributors :

◉ Distributors are companies that take inventory in bulk from producers and
deliver a bundle of related product lines to customers.
◉ Distributors are also known as wholesalers.
◉ They typically sell to other businesses and they sell products in larger
quantities that an individual consumer would usually buy.
◉ Distributors buffer the producers from fluctuations in product demand by
stocking inventory and doing much of the sales work to find and service
customers.
◉ For the customer, distributors fulfil the “Time and Place” function – they
deliver products when and where the customer wants them.
 Retailers :

◉ Retailers stock inventory and sell in smaller quantities to the general

public.
◉ This organization also closely tracks the preferences and demands of the
customers that it sells to.
◉ It advertises to its customers and often uses some combination of price,
product selection, service, and convenience as the primary draw to attract
customers for the products in sells.
◉ Discount department stores attract customers using price and wide
product selection.
◉ Upscale specialty stores offer a unique line of production and high levels
of service.
 Customers :

◉ Customers or consumers are any organization that purchases

and use a product.
◉ A customer organization may be an organization that
purchases a product in order to incorporate it into another
product that they turn sell to other customers.
◉ Or a customer may be the final end user of a product who
buys the product in order to consume it.
ROLE OF LOGISTICS IN SUPPLY CHAIN
MANAGEMENT
 Taking the order :

◉ The purchase order is central to any transaction between the

parties in a supply chain.
◉ This document contains all the necessary details such as the
technicalities of the product and commercial terms.
◉ Proper logistic ensures that this document is processed in
time so as to ensure an effective performance cycle and to
clear out any doubt about availability materials and payment
terms.
 Inventive inventory :

◉ An ideal inventory is one which has effective storage

capabilities to ensure smooth supply but can also cut down
cuts.
◉ Logistics ensures this minute balance between market
opportunities and budgeting.
◉ More than often a poorly managed inventory can eat away a
major chunk of the profit in a supply chain because it
includes expenses for pilferage and insurance also.
 The war is the warehouse :

◉ The warehouse is the central nervous system in a supply

chain and acts as the control room for everything logistical.
◉ An organization’s merit is determined by its effective
warehousing decisions.
◉ Factors like location, number, size, layout and design plays a
huge role in how the logistics of a supply chain will pan out.
 The tricky nature of transport :

◉ Transport is what keeps the supply chain moving literally and

figuratively and it is the single most important component in
the logistical side of supply chain management.
◉ The physical transfer of goods is the actual supplying process
and it cannot falter by any means.
◉ The transport infrastructure should be carefully studied so as
to ensure a fast delivery which is not too expensive.
◉ Determining the urgency of a supply is also important.
 Mastering material handling :

◉ Material handling is an often ignored aspect when it comes to

the role of logistics in supply chain management since lack of
proper material handling often leads to damage and delays
and incidental costs.
◉ The volume, speed and the level of service all must be taken
into consideration to ensure that the material handling process
goes smoothly.
 Packaging must be perfect :

◉ Logistical or industrial packaging is central to ensure the

effectiveness of the actual physical distribution of a product.
◉ This directly affects the logistical side of a supply chain as
opposed to product packaging which is governed by what the
market needs.
◉ The packaging cost often depends on the utilization of the
load.
 Information is incredibly important :

◉ Logistics help in transferred information across a supply

chain and therefore an information system a crucial role in
ensuring a superior service to customers.
◉ Logistics can be considered as a mundane of boring series of
activities but it is behind the well-oiled supply chain
machinery that keeps any business up and running.
 Comparison
You canbetween
also splitLogistics
your content
and SCM

LOGISTICS SUPPLY CHAIN

 The process of integrating the MANAGEMENT
movement and maintenance of  The coordination and
goods in and out the organization management of the supply chain
is Logistics. activities are known as Supply
 It’s main objective is Customer Chain Management.
Satisfaction.  It’s main objective is Competitive
 Logistics Management is a Advantage.
fraction of Supply Chain  Supply Chain Management is the
Management. new version of Logistics
Management.
CHANNEL MANAGEMENT
 Channel management involves the marketing and sales strategies
your company uses to reach and satisfy consumers, the
techniques you use to support your partners who help with the
distribution process, and how you manage vendors.
 The aim is to streamline communication between a business and
the customer.
 The goal of channel management is to establish direct
communication with customers in each channel. If the company
is able to effectively achieve this goal, the management will have
a better idea which marketing channel best suits that particular
customer base. The techniques used in each channel could be
different, but the overall strategy must always brand the business
consistently throughout the communication
CHANNEL INTEGRATION
 Channel integration refers to strategies aimed at
consolidating — either physically or logically —
customer information and its use to provide an all-
encompassing view of the customer.
 Channel integration ensures that your customers see
the same messages and the same branding everywhere
they engage with your brand. It also allows you to
send marketing messages to customers based on their
past interactions with your brand across all channels,
saving you money and removing the guesswork from
BULL WHIP EFFECT
 The bullwhip effect is a supply chain phenomenon describing how
small fluctuations in demand at the retail level can cause
progressively larger fluctuations in demand at the wholesale,
distributor, manufacturer and raw material supplier levels.
 The effect is named after the physics involved in cracking a whip. 
 When the person holding the whip snaps their wrist, the relatively
small movement causes the whip's wave patterns to increasingly
amplify in a chain reaction.
 In supply chain management, customers, suppliers, manufacturers
and salespeople all have only partial understanding of demand and
direct control over only part of the supply chain, but each influences
the entire chain with their forecasting inaccuracies.
 SWARAJ MAZDA LIMITED

Swaraj Mazda limited (SML) is a light commercial vehicle (LCV) manufacturing

company located in Punjab with the following description:
Company production 40 vehicles a day
Models offered 10 models with 79 variants
Manufacturing sequence Based upon demand (Flexible manufacturing)
Number of zonal offices 10
Number of dealers 130
Order receipt and shipment Firm orders are received from the zonal offices once a week
and shipments are made on the same day based on the
factory
stocks and shipment date schedule.
Demand variation Customer demand is assumed to be normally distributed.
Backordering Backordering is allowed but returns to the factory are not
allowed.
Transport lead time 2-3 days (depending upon the location of zonal
office/dealer.
 This inbound supply chain starts with 1st tier suppliers consisting of
foreign suppliers and local suppliers.
 Since SML imports various engine components in complete-knocked-
down condition (CKD), therefore they constitute 1st tier suppliers. These
components in raw material form or sub-assemblies reach the factory
stores for assembly.
 After manufacturing/assembly the finished vehicles reach the factory
stockyard for dispatches to zonal offices then zonal offices send the
vehicles to the dealers. Customers place the orders and get the delivery
from the dealers only and not from the zonal offices or the company
directly.
 The whole supply chain involves the flow of goods, cash and
information and some time reverse logistics also in the form of returned
QUANTIFYING THE BULL WHIP EFFECT
 The outbound supply chain in SML extends from the factory to the zonal
offices and from zonal offices to the dealers and then ultimate customers.
Dealers collect orders from the customers and send to the zonal offices (ZO).
Zos after consolidating the orders send them to the factory for replenishment.
 Since, ZOs do not have any access to the customers’ demand data. Therefore
the demand of ZOs for LCVs is forecasted on the basis of the demand of
dealers generated from the customers. The variability in orders placed by the
dealers is bound to be significantly higher than the variability in customers’
demand.
 The ZOs are forced to carry more inventories of finished vehicles than the
dealers in order to meet the same service level as the retailer. This demand
variability or bullwhip effect is more serious in large ZOs in south and
Madhya Pradesh.
 This results in ineffective transportation, more carrying cost, more ordering
cost and more manpower. Similarly company has to keep an extra inventory of
raw materials, sub-optimal space utilization in the factory stockyard, more
During the year 2005-06, the
cumulative figure from customer
demand to
the SML demand to suppliers
comes to a staggering figure of
2185 finished vehicles.
These vehicles remain hidden at
SML factory-stock-yard (FSY),
10 zonal offices and
130 dealer points. If we quantify
this figure into rupee value (An
average of Rs 5 lac),
the total Bullwhip cost amounts
to Rs 109.25 cr.
The total customer orders were 12975 during the year, but dealers demand
stood at
13980 with an increase of 7.75%. Similarly zonal offices also inflated their
demand to
14625, an increase of 12.71%. Finally SML‘s orders to supplies were
15360 with
 EFFECT OF LACK OF CO-ORDINATION

SML experienced complete lack of coordination,

since each stage in the supply
chain wanted to optimize its local objectives
without considering the impact on the
complete supply chain. It hurt the performance of
the entire supply chain and
ultimately the total supply chain profits were less
than what could be achieved
through coordination. SML receives demand
information even during periods of time
in which the dealer does not order. Therefore
SML is suffering from ‘Extended
Bullwhip Effect’. The following bullwhip ill
effects were seen:
COPING WITH THE BULL WHIP EFFECT
SML has tried its best in coping with this whiplash right from the
supplier stage to
production stage and finally to the distribution stage. SML witnessed
following main
obstacles to coordination in the supply chain:
 Lack of information sharing throughout the supply chain
 Forecasting based on orders and not on customer demand
 Push based production system

In the light of these obstacles, SML has reconfigured the entire supply
chain. The
following remedial and damage control measures have been adopted:
 INFORMATION SHARING

◉ SML and its supply chain partners have started using CPFR (collaborative
planning, forecasting and replenishment) for information sharing and
coordination. Previously, dealers, zonal offices and SML inflated the
forecasted demand by 50-100 vehicles for replenishments every time. But
now the orders are sent over the Internet every day without any additional
demand. The dealers also use internet while forwarding their requisitions
to zonal offices. This has saved SML 54.63 days of production and 437
man hours (2185/40= 54.63 days and 54.63x8= 437 man hours)
 PUSH-PULL PRODUCTION SYSTEM

The company has started following the push-pull production system. The
material is being pushed through assembly, but the assembled/complete
vehicle is pulled through actual demand/orders. The push through assembly
is based on the monthly forecast determined before the month’s demand
actually arrives. The pull-through replenishes what is being sold from the
stockyard. The production and distribution are demand driven so that they are
coordinated with true customer demand rather than forecast demand. T
blockage of large fixed and working capital in finished vehicles. As soon as
an order is received from the zonal office, SML tries to fill the order within
24 hours. Now SML has stopped inflating the demand from zonal offices.
The rationale of following this strategy in SML is to avoid blockage of large
fixed and working capital in finished vehicles. As soon as an order is
 Order-Placement Process – A Basis for Sales–force Estimates

The order-placement process involves the activities required to register the need for a product and to conform
the acceptance of the order. These activities are initiated by the customer but consummated by the firm
manufacturing the product. Since it is the order-placement process that generates the demand for the supply
chain, it is to the firm’s advantage to make it simple and fast. With this reason, SML is following the sales-
force estimates, where the forecasts are compiled from estimates of future demands made periodically by
members of the company’s sales force. The sales force makes a survey in the market to know which vehicle
customer is willing to buy. They make visit to the municipal corporations/committees, hospitals, and
schools/colleges/institutes to generate demand. Sales territories have been divided into zonal offices and
dealers have been appointed in every major city/town of the country. The forecasts of individual sales force
members are combined to get zonal and total sales. During the fourth quarter of each fiscal year, the marketing
and production departments determine the annual forecast. Based on the latest information, the annual forecast
is then broken down proportionately, into monthly and weekly manufacturing/assembly forecasts. As the year
progresses, the production department with the marketing department make forecast adjustments according to
market trends and events (Diwali, Navratras, and New Year). Similarly, at the beginning of each month, the
month’s forecasts are adjusted and agreed upon by both the departments.
 Production Planning

Another significant step to mitigate bullwhip effect is the use of MRP (material requirement
planning). The planning of assembly of vehicles begins with the monthly demand forecasts.
Based on the month’s forecasts, the production department and stores department determines the
amount of inventory that needs to be transferred from stores to the assembly site to ‘meet’ the
expected demand. Two days prior to the schedule the stores department releases the complete
stock list for ten vehicles. On that basis the current stock and the stock in line is calculated and
the shortage is determined for the purchasing department to place an order for replenishment.
Assembly schedules and replenishment orders for parts are based on the monthly demand
forecasts and current inventory levels. Fortnightly, the completed monthly plans containing the
monthly forecasts are sent to the assembly business units. A planner in the business unit plugs the
forecasts into a material requirement planning (MRP) system, which determines weekly
production schedules and component parts orders for each completed vehicle. The MRP system
determines assembly schedules and inventory orders based on (1) monthly forecasts; (2) the lead-
time for assembly, and (3) current inventory and the number of completed vehicles. Although the
MRP calculations may be run several times each week, the production department is not required
 Scheduling Dispatching and Production Control

The customers of SML place their orders for vehicles with dealers, and the
dealers dispatch orders to the zonal offices, and then the aggregate orders are
dispatched to the sales office. Sales office notifies production control to
proceed with the job. Production control performs detailed planning by
preparing a route sheet for every vehicle model to be produced. The stores
department prepares bill of material for ten vehicles by reviewing the
inventory status and the shortages are reported to the purchase group. The
purchase group prepares the purchase requisitions for all such shortages of
raw materials and components. Move tickets are prepared to instruct material
handling personnel to move the items to the appropriate next operation. If
any special tooling is required, it is specified and requisitioned to be
produced by the internal or external tool-and-die shop. Requisitions for
 The Demand Generation Module

In this module the zonal offices place their orders with the
factory over the Internet. Demand for each model is submitted
separately. First the zonal office adjusts his stocks against the
order fulfilled in the past one week. Normally a distributed order
is generated, which is a consolidation of all the orders received
during the past one week. This order generated ultimately
determines the dispatch from the factory and the sales in the
coming week. The order communicated to the factory depends
on the customers, backorders, the required buffer stock, and the
available stock.
 The Allocation Module

In this module, the decision regarding the allotment of vehicles

to the dealer is made. Allocation is done after the day’s
production run. For each model, if the factory stock is sufficient
to meet the demand, the demand is fully met. In case factory
stocks are inadequate, only the available stocks are delivered.
Demand and supply for each model is considered separately, and
shortfall in the supply of one model is not made up by extra
supply in any other model. The allocated stocks are dispatched
to their destination.
 Inventory Placement

◉ The fundamental supply chain decision in SML has strategic implications.

The company is maintaining 10 zonal offices throughout the country; the
main purpose is to preempt local competition by reducing delivery times
to its customers. It is also reaping the benefit of inventory pooling, with a
reduction in inventory and safety stock because of the merging of variable
demands from the customers. A higher than expected demand from one
zone /region can be offset by a lower than expected demand from another.
The company is following a ‘forward placement approach’, which means
locating stock closer to customers at a zonal office and dealer’s
stockyard . Forward placement has an advantage of faster delivery times
in the order fulfillment process; consequently service to the customer is
quicker.
 Distribution Module

The outbound logistics of SML extends from factory stockyard to zonal

offices, from zonal offices to dealers and then to ultimate customers. The
following figure shows the distribution module of SML.
CONCLUSION
Though, bullwhip impact of demand variability is omnipresent
in every company, but
it can be reduced to a great extent if the firm starts following
some precautions such
as reducing uncertainty throughout the supply chain by
centralizing demand
information that is providing each stage of the supply chain
with complete
information on actual customer demand. The case study
presented in this section
clearly indicates that lead times magnify the variability due to
demand forecasting,