Supply Chain - Basics PDF

Supply Chain Management deals
with the management of materials,

information, and financial flows in
a network consisting of suppliers,
manufacturers, distributors, and
customers
This is best understood through a
simplified SCOR** Model
**SCOR stands for Supply Chain Operations Reference. The model presented in the following
slide is a simplified model. Interested candidates are advised to look up the detailed model.
PLAN SUPPLY CHAIN
PLAN SOURCE PLAN MAKE PLAN DELIVER PLAN RETURNS
CUSTOMERS
SUPPLIERS
SOURCE MAKE DELIVER
RETURN SOURCE RETURN DELIVER
ENABLE
⊸ Purchasing/Procurement ⊸ Order Processing
▫ What to Buy ⊸ Transportation
▫ Who to Buy From ▫ Inbound vs Outbound
⊸ Inventory Control ▫ Mode of transport (Rail,
▫ How much to stock where air, third Party)
▫ Replenishment plan ⊸ Customer Service
⊸ Warehousing ⊸ Geographic vs Product Line
▫ Storage, Mixing specific
▫ Pick, Pack and Ship
▫ Warehouse layout ⊸ Planning
(Ergonomics) ▫ Facility Location
▫ Network Design
⊸ Material Handling ▫ Demand Planning
▫ Movement Equipment
▫ Packaging
▫ Storage Layout
Objective(s), Decision variables and Constraints
PURCHASING
WAREHOUSING
INVENTORY MANAGEMENT
MATERIAL HANDLING
ORDER PROCESSING
TRANSPORTATION
Objective: Deliver at Lowest Total
Cost
CUSTOMER SERVICE
Variables:
• What carrier to select
• What is the Delivery window
• What is the delivery frequency
• What to stock where?
Constraint: Deliver within negotiated
time frame
Hence it can be argued that Supply Chain
Management is about Delivering at lowest total
cost in the least possible time. This time is often
referred to as Turn Around Time.
It is important to note that the objective is

reducing the “total supply chain Cost” and not
individual cost of the links. For example if
investment in material handling reduces inventory
management costs such that the total supply
chain cost reduces, then the investment in
question must be favoured even though it is not
optimal for the material handling function.
⊸Supply chain processes fall into one of two
categories depending on the timing of their
execution relative to customer demand
▫Pull: execution is initiated in response to a
customer order (reactive). Ex: E-Commerce,
Make to Order
▫Push: execution is initiated in anticipation of
customer orders (speculative). Example:
FMCG, Apparels, etc.
E-COMMERCE MARKETPLACE
Purchase Order Relay Online orders

orders based on
demand Products
Products
Forecasts E-COMMERCE COMPANY WAREHOUSE
Last mile
Products Delivery
VENDORS/SUPPLIERS CUSTOMERS
REGIONAL SEGREGATION HUBS
Direct Seller to customer in case of pure marketplace

Customer
Finished Customer Store
Component Goods DC DC
Raw Material
Manufacturing Component
Supplier DC
Customer
Store
Customer Customer
Final DC Store
Plant
Assembly Warehouse
Customer
Store
Forecasts
Finished
Goods DC Customer
DC
Customer
Store
Real Time Demand

Customers
External
Supplier of
Customers
new Service
Parts
Usable
Inventory
Technician Customers
Distribution
Deployment
Central Spares Warehouse Center
Center
External
Repair Customers
Services Defective
Inventory
Customers
Internal
Repair Depot
Manufacturer
Retailer
Customers
Product Flow
Information Flow
16
Factories
Retailer In-Transit Merge by

Carrier
Customers
Product Flow
Information Flow
17
Factories
Warehouse Storage by
Distributor/Retailer
Customers
Product Flow
Information Flow
18
Factories
Distributor/Retailer
Warehouse
Customers
Product Flow
Information Flow
19
Factories
Retailer Cross Dock DC
Pickup Sites
Customers
Customer Flow
Product Flow
Information Flow
20
Determines the nature of material procurement, transportation of
materials, manufacture of product or creation of service, distribution of
product
Consistency and support between supply chain strategy, competitive

strategy, and other functional strategies is important
Responsive
Efficient Supply Chains (Agile) Supply
Chains
An efficient Supply chain focuses on minimising costs throughout the
supply chain by holding the optimal amount of inventory and by achieving
manufacturing as well as logistics Economies of Scale. This strategy
typically applies to supply chains with very predictable demand patterns
On the other hand a responsive supply chain applies to those supply

chains that grapple with volatile demand or are susceptible to disruptions
(e.g. Natural calamities). Supply chains become responsive by having
excess spare capacity in terms of production, inventory and by identifying
alternate forms of transportation and sourcing. The objective is to fulfill
an order despite disruptions or demand spikes.
Efficient Responsive
Primary goal Lowest cost Quick response
Product design strategy Min product cost Modularity to allow
postponement
Pricing strategy Lower margins Higher margins
Mfg strategy High utilization Capacity flexibility
Inventory strategy Minimize inventory Buffer inventory
Lead time strategy Reduce but not at Aggressively reduce
expense of greater cost even if costs are
significant
Supplier selection Cost and low quality Speed, flexibility,
strategy quality
Transportation strategy Greater reliance on low Greater reliance on
cost modes responsive (fast) modes
In a nutshell, a firm’s optimal strategy (the ideal mix of efficiency
and agility) depends upon what Total supply chain cost is
acceptable to her.
Supply chain costs are affected by network structure:

▫Inventories (decision about safety inventory: How much to maintain where?)
▫Transportation (Mode and frequency of Transport)
▫Facilities and handling (Number of facilities and capex for handling
equipment, storage, etc. Fixed costs increase with number of facilities)
▫Information (IT infrastructure and the depth of information sharing.
Information sharing increases supply chain coordination thereby reducing
inventory and decreasing demand variability upstream. But building IT infra has
significant costs associated with it. This investment is a tradeoff in itself)

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Supply Chain Management deals

with the management of materials,

PLAN SOURCE PLAN MAKE PLAN DELIVER PLAN RETURNS

SOURCE MAKE DELIVER

RETURN SOURCE RETURN DELIVER

It is important to note that the objective is

Purchase Order Relay Online orders

REGIONAL SEGREGATION HUBS

Direct Seller to customer in case of pure marketplace

Real Time Demand

Retailer In-Transit Merge by

Retailer Cross Dock DC

Consistency and support between supply chain strategy, competitive

On the other hand a responsive supply chain applies to those supply

Supply chain costs are affected by network structure:

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