Introducing to Supply Chain

Management
By S P Sarmah
 Books for the course
1. Supply Chain Management: Strategy planning and
Operation by Sunil Chopra, P Meindl, DV Kalra
published by Pearson
2. Supply Chain Network Design by M Watson, Sara
Lewis, P Cacioppi, J Jayaraman published by FT Press
3. Introduction to Logistics Systems Management by G
Ghiani, G Laporte, R Musmanno published by Willey
4. Designing and managing the supply chain: Concept
Strategies and case studies by D Simchi Levi, P
Kaminsky, and E Simchi Levi published by Mcgraw
Hill
 Recent Business Trend
• Market Volatility: Increase in demand and supply
uncertainty
• Role of Emerging Markets: In many industries,
growth is coming from emerging markets not
developed countries –
• Product Localization: Pressure to localize product
design and delivery strategies –
• Product life cycles: Shortened product lifecycle and
fast commoditization of innovation –
• Supply Chain Risks: Increase in the level of risk –
• Rising Costs: Increase in commodity costs, logistics
costs and labor costs in developing countries
And so on…. [Ack: Prof Simchi Levi]
 What is SCM

• SCM is the Art of Managing flow of materials and

products from source to users and counter flow of
information
• It encompasses all the activities, directly or indirectly,
in fulfilling a customer request
• It includes manufacturers, suppliers, transporters,
warehouses, retailers, customers
• All stages may not be present in all supply chains

• Customer is an integral part of the supply chain

 A Typical Supply Chain
SC Consists of:
• Trading Partners:
– Suppliers, Manufacturers, Distributor,
Customer
• Flows:
– Information, Physical/Material, Financial
• Transformations:
– Value addition at each stage

PLAN → SOURCE →
MAKE → DELIVER →
RETURN

-5-
 Challenges before Today’s SC
• Global supply chain with long lead times
• Rising and shifting customer expectations
• Increase in labor costs in developing countries
– Between 2011 and 2012, labor cost in China increase
13-21% nationwide
• Increase in logistics costs
– Due to rising energy prices; Truck driver shortage;
Security requirements etc.
– Logistics costs in India as a percentage of GDP is
around14% where as in USA it is around 8%
• Increase in Risk
• Importance of Sustainability
• Unprecedented Volatility in oil prices
 Examples of a manufacturing Supply Chain

Customer wants
P&G or other Owner or third
detergent and goes
manufacturer party DC Supermarket
to market

Chemical
Plastic Tenneco
manufacturer
Producer Packaging
(e.g. Oil Company)

Chemical
Paper Timber
manufacturer
Manufacturer Industry
(e.g. Oil Company)
Example of Petroleum supply chain network

Storage tanks of
Refinery products
MD 1
Well 2 Well 2

Well 2 Well 2
MD 2

Final production
Transportation
Crude oil
Well 1
Transportation MD3
Well 2

Well 3 Well 4
MD4

Crude oil production

 Example of a Petroleum SC (Contd.)

• The petroleum organization is producing three grades

of crude oil from ten gathering centers.
• The crude oil grades are light, mid and heavy, each
with different API gravity and sulphur content.
• Each grade may be exported to four crude markets, or
used as feed to local refineries.
• The petroleum organization is assumed to own and
operate three refineries.
 Example of a Petroleum SC

• Each refinery processes a specific mix of the three

grades of the produced crude oil.
• Six different products are produced by the three
refineries.
• Refinery products are then sent to eleven distinct
markets and so on…..
Another Example of SC: Indian Public Distribution
System
 Problems and challenges related to Indian PDS

• Reform in PDS. • Conformation of • The need for

• Implementation of NFSA 2013. expansion of PDS
NFSA 2013. • Availability of network.
Fair Price Shops • Operational
(FPS). efficiency of PDS.
National Food Access to food PDS Service
Security Act 2013 grains requirements

• Excess cost of food • Poor operational • Poor urban reach

grain transportation. efficiency of FPS of Indian PDS.
• Wastage of food grains. across country. • Leakage of food
grains at FPS level.

Inventory Efficiency
Transportation planning
management at FPS maximization
12
Another Example of SC: Vaccine development and
distribution System
Examples of Logistics problem: Urban solid waste
collection system
• The process of waste collection are as follows:-
- Collection from households to collection bins.
- Transfer from collection bins to transfer stations.
- Transport from transfer stations to processing plants or
landfills.
- Disposal of waste on landfills.
 Some other Examples from Service Sector

• Logistics problems also in service sector:

> distribution of some services such as water
and gas;
> postal services;
> urban solid waste collection;
> maintenance of road and electricity
networks;
> post-sales activities of manufacturing
companies.
 Supply Chain Management (SCM)
• Supply chain management is a set of approaches utilized to efficiently integrate
suppliers, manufacturers, warehouses, and stores, so that merchandise is
produced and distributed at the right quantities, to the right locations and at
the right time, in order to minimize system wide costs while satisfying service
level requirements.
- Simchi Levi, et al. (2004)
 Seven Principles of Supply Chain Management

1. Segment customers based on service needs

2. Listen to signals of market demand and plan accordingly
3. Develop a supply-chain-wide technology strategy
4. Customize the logistics network
5. Differentiate product closer to the customer
6. Source strategically
7. Adopt channel-spanning performance measures
Major Issues in Managing a SC…

• Conflicting Objectives
• Asymmetric Information

• Sub-Optimal Pay-off
Reasons of failure to deliver a perfect order by a
company
 At Least Nine Out of Ten Orders in a Typical Company Get
“Smashed” For Reasons Such As:

• Order Entry Error • Picking Error • Damaged Shipment

• Missing Information • Inaccurate Picking • Invoice Error
(e. g., Product Code) Paperwork
• Ordered Item Is • Late Shipment, • Overcharge Error
Unavailable Late Arrival

• Inability To Meet • Early Arrival • Error In Payment

Ship Date Processing

“Perfect Order Busters” (Selected Examples)

 Objective of a SC

• Maximize the overall value created

• Supply chain value =
Difference of the worth of the final product to
the customer and the effort the supply chain
expends in filling the customer’s request
• Value is correlated to supply chain profitability
(Revenue generated from the customer - the
overall cost across the supply chain)
 Objective of a SC

• Example: Dell receives Rs 60000 from a customer for

a computer (revenue)
• Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
• Difference between Rs 60000 and the sum of all of
these costs is the supply chain profit
• Supply chain profitability is total profit to be shared
across all stages of the supply chain
• Supply chain success should be measured by total
supply chain profitability, not profits at an individual
stage
 Objective of SC

• Sources of supply chain revenue: the customer

• Sources of supply chain cost: flows of information,
products, or funds between stages of the supply chain
• Supply chain management is the management of
flows between and among supply chain stages to
maximize total supply chain profitability
THANKS