UNIT 2

Operations and Value Chain

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
Sourcing and Supply Management

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Supply Management
▪ A broad term describing the various acts of identifying, acquiring and managing the products
and/or resources needed to run a business or other organization.

▪ These include physical goods as well as information, services and any other resources
needed.

▪ The Institute for Supply Management defines supply management as the identification, acquisition,
access, positioning, and management of resources and related capabilities an organization needs
or potentially needs in the attainment of its strategic objectives.

▪ Supply management deals primarily with the oversight and management of materials and services
inputs, management of the suppliers who provide those inputs, and support of the process of
acquiring those inputs. The performance of supply management departments and supply
management professionals is commonly measured in terms of amount of money saved for the
organization.
 Supply Management
▪ Supply management often takes a process approach to obtaining required goods and services. We
can describe supply management as the process of identifying, evaluating, selecting, managing,
and developing suppliers to realize supply chain performance that is better than that of
competitors.
▪ supply management features a long-term, win-win relationship between a buying company and
specially selected suppliers. Except for ownership, the supplier almost becomes an extension of
the buying company. Supply management also recognizes the mutual benefits to both parties,
through shared information, provisions for on-site resources, and frequent help to suppliers in
exchange for dramatic and continuous performance improvements, including steady price
reductions. In short, supply management is a new way of operating, involving internal operations
and external suppliers to achieve advances in cost management, product development, cycle
times, and total quality control
 Role of Supply in business
3. Improve financial position
1. Boost customer service:

▪ Customer expectation • Profit increases

▪ Products in hand at right location • Decreases use of Fixed assets

▪ Right delivery time • Increases cash flow

▪ Follow up service after sale

2. Reduces operating cost

▪ Reduces production cost

▪ Decreases total supply chain cost

 Supplier Management

▪ The globalization of production, the opening of international markets for goods and
services, the increased pressure for cost management, and issues surrounding
resource availability have all contributed to moving the emphasis in businesses from
price-driven, tactical buying to strategic supply management.

▪ The most significant factor that has influenced this change is the development of
complex global supplier networks.

▪ Interdependence among the members of these networks brings risks and challenges
that need to be managed. Supply management is the system best suited to do it.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Supplier Selection

▪ The first step in supplier management is selecting the right suppliers.

▪ Suppliers are critical to effective supply chain management.

▪ They are the members of the chain that provide all the resources necessary to create
and move products to customers.

▪ The method a firm uses to identify, evaluate, qualify, select, and manage suppliers is
critical.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Selection of Supplier
▪ Manufacturing capabilities

▪ Financial conditions

▪ Reputation

▪ Service facility

▪ Quality of product produced by them

 Norms of Vendor Rating

Rating of vendor is done based on 3 parameters:

1. Quality performance: based on the quality of products he supplies.
2. Delivery performance:
-Adherence to time schedule
-Adherence to quantity schedule
3. Price performance: based on the price offered by the suppliers.
4. Service – pre purchase and post purchase services
 Supplier Choice and Evaluation

“the buying organization’s objective in carefully evaluating and

qualifying potential vendors is to locate those suppliers that have
the capacity to produce the needed item in the required quality
and quantity, are capable of fulfilling delivery and other service
needs, are price competitive and can be relied upon as a
continuous source of supply”
 Supplier Selection Firms absolutely must control the
supplier selection process.

If everybody in the organization is

allowed to choose suppliers without
regard to the buying firm's strategic
needs, there's really no benefit in having
a sourcing strategy.

Supply management is not alone in the

universe of organizational stakeholders.

However, to maximize the value the

supplier base contributes to the supply
chain, this function must be at the center
The flow chart provides a visual representation of a way by which suppliers are of that decision-making process.
moved from the stage of identification to that of supplier approval through a
rigorous process.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
Weighted Point Method
 Supplier Selection

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Supplier Selection

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Supplier Management

▪ An excellent supply base is a major asset to any firm—but it doesn't just happen.

▪ Decisions must be made about which suppliers to use, when to use a supplier or to do
something internally (make versus buy), where the best location in the world is for
sourcing those suppliers, and then how to manage them.

▪ The four key topics are Supplier selection:

1. Make-versus-buy
2. outsourcing decisions
3. Global sourcing
4. Supplier relationship management (SRM)
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Make-versus-Buy and Outsourcing Decisions

▪ The choice of whether to do something internally or have an outside firm do it is

referred to as a make-versus-buy decision.
▪ The term outsourcing is frequently applied to any type of activity that was or could be
performed internally but is done by an outside provider instead.
▪ In other words, any make-versus-buy decision that results in contracting with an
outside provider is called outsourcing.
▪ Outsourcing can be done with domestic firms or with companies in other countries
(offshore outsourcing).

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Outsourcing

▪ Outsourcing is defined as the contracting

of one or more of a company’s business
processes to an outside service provider to
help increase shareholder value, by
primarily reducing operating cost and
focusing on core competencies.
▪ The make or buy decision continues to be
one of the key strategic issues and options
confronting the purchasing function
 Outsourcing
▪ “ the complete transfer of a business that has been traditionally operated
and managed internally to an independently owned external service
provider”

▪ A complete transfer means that the people, facilities, equipment,

technology, and other assets are no longer maintained internally once the
business process is outsourced.

▪ Outsourcing is also sometimes thought to be similar to subcontracting, joint

venture
 Why do organizations outsource business processes?
▪ Cost minimization- reducing direct operating costs, eliminating overhead costs,
transforming fixed costs into variable costs
▪ Refocusing the organization to its core competencies- can focus what the
organization does best/ transform the business to focus new products and
services
▪ Improvement in operating performance – increasing quality, increasing
productivity, and obtaining new capabilities from external sources
▪ Increased market share and revenue- new market expansion
 Make-versus-Buy and Outsourcing Decisions

▪ There are many reasons why a firm may want to go outside for the manufacture of products or for
service providers, including the following:
▫ In-house expertise to do or create what is needed is lacking.
▫ Shifting the job to a supplier with better capabilities reduces company risk.
▫ A sole source is the only one capable of providing a product or service.
▫ Technology is unavailable in-house.
▫ Temporary requirements do not justify doing it inside.
▫ Customers have required the use of specific service providers.
▫ Total cost is improved because an outside provider is more efficient and effective.
▫ A company's core competencies do not include doing this activity.
▫ The lead time available is too short to staff or tool up to do it inside.
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Global Sourcing

▪ As global sourcing has become more important, supply management's role has gotten more complex
and challenging. If it's difficult to manage suppliers locally, it's even harder when the buying and
supplying firms are thousands of miles apart.

▪ Sourcing typically refers to the process by which a firm identifies and selects sources of supply for the
products and services it requires. The term sourcing embraces all the activities associated with the
purchasing process.

▪ Global sourcing is the search for and selection of suppliers anywhere in the world. This type of supplier
selection elevates the process to an even higher level of importance.

▪ The identification, evaluation, qualification, and selection of suppliers is challenging for domestic
sourcing. Doing it globally is much more difficult, time-consuming, and costly.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Global Sourcing

▪ Supply management's responsibilities for sourcing outside the country are really no
different than they are for finding domestic suppliers; however, there are additional
considerations that must be addressed in areas such as category management, supplier
relationship management (SRM), and total cost of ownership (TCO).
▪ The concept of TCO is defined as the "sum of all costs associated with acquisition, use,
ownership, and disposal of any organizational purchase." The application of this technique
is particularly valuable when a firm is making offshore sourcing and buying decisions.
▪ Total Cost of Ownership (TCO) analysis in global sourcing is a strategic approach used to
evaluate all direct and indirect costs associated with procuring goods or services from
international suppliers. It goes beyond the initial purchase price to include long-term costs
that affect profitability and efficiency.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Global Sourcing

▪ The primary reason for the shift from domestic to foreign sourcing has been
cost reduction.
▪ This is why an up-front TCO analysis is important—to validate or invalidate
the assumption of cost savings.
▪ Offshore buying does not always result in the expected cost savings. The
geographic location, infrastructure, characteristics of the labor force, culture,
and political or legal environment will all influence the comparative costs of
sourcing around the world.
▪ Each must be factored into a TCO analysis.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Key Components of TCO in Global Sourcing

1. Purchase Price : Base cost of the product or service.

2. Logistics Costs: Freight, shipping, customs duties, insurance, and warehousing.

3. Quality Costs: Inspection, testing, rework, returns, and warranty claims.

4. Lead Time and Inventory Costs: Safety stock, buffer inventory, and carrying costs due to longer lead times.

5. Currency and Financial Risks: Exchange rate fluctuations, transaction fees, and hedging costs.

6. Compliance and Regulatory Costs: Import/export regulations, certifications, and legal fees.

7. Supplier Relationship Management: Travel, communication, and coordination expenses.

8. Sustainability and Ethical Sourcing : Environmental impact, labor practices, and reputational risks.
 TCO Analysis Template for Global Sourcing
Strategic Cost
Basic Information
Item Description Cost Description Estimat
Product/Service [Name of item] Element ed
Supplier [Supplier name] Indirect Cost Cost
Country of Origin [Country] Cost Element Description Estimated
Environmental
Currency [Currency used] Cost
Sustainabili and ethical
Inventory Costs due to longer ty sourcing ₹/$/€
Direct Cost Holding lead times ₹/$/€
Quality Inspection, testing,
Cost Element Description Estimated Cost Assurance rework ₹/$/€ Brand impact
Travel, Reputation due to supplier
Supplier communication, Risk issues ₹/$/€
Base price per Management coordination ₹/$/€
Unit Price unit ₹/$/€
Regulatory, legal, and Innovation Supplier's ability
Compliance certification costs ₹/$/€ Potential to co-develop ₹ / $ / €
Shipping & International
Freight transport costs ₹/$/€ Total cost
Hedging or exchange
Currency Risk rate impact ₹/$/€ Category Total Cost
Customs Import taxes and
Direct Costs ₹/$/€
Duties & Tariffs fees ₹/$/€ Time Delay Cost of delays or Indirect Costs ₹ / $ / €
Impact disruptions ₹/$/€ Strategic Costs ₹ / $ / €
Coverage during
Insurance transit ₹/$/€ Total Cost of
Ownership
(TCO) ₹/$/€
 33

SUPPLIER ALLIANCES

Alliances of Boeing 787:

 Supplier Relationship Management (SRM)
▪ Supplier Relationship Management (SRM) is the systematic approach to managing and optimizing an
organization’s interactions with its suppliers to maximize value, reduce risk, and improve overall
performance in the supply chain.
▪ SRM is the strategic planning and management of all interactions with suppliers that supply goods,
materials, or services to an organization. The goal is to build long-term, mutually beneficial
partnerships rather than simply transactional relationships.
▪ SRM is not a software package. It is a tool that facilitates but does not substitute for a well-structured
and practiced method of managing supplier relationships.
▪ SRM includes guidance in how that relationship is to be managed and the processes by which this is
accomplished.
▪ There are no universal ways to manage suppliers, and every situation will be different.
▪ What SRM does is set up a means of establishing mutual expectations, facilitating regular
communication, and resolving issues.
 Supplier Relationship Management

▪ How a firm views suppliers makes a big difference in the way supplier relationships are
handled.
▪ A strategic focus is long-term oriented and cost driven; a tactical focus is short-term
oriented and price driven.
▪ The greatest benefits come from the strategic alliances set up with key or critical
suppliers. These benefits include improved value to the supply chain through
collaboration in the following ways:
▫ Cost management
▫ Product development
▫ Inventory management
▫ Transportation management
▫ Product and process innovation

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
29
Supplier Relationship Management (SRM)
Objectives Element Description
•Improve supplier performance (quality,
delivery, cost, innovation) Classifying suppliers (e.g., strategic,
Segmentation tactical, transactional) based on their
value and risk level.
•Enhance collaboration and information
sharing Using KPIs (quality, delivery, cost,
Performance
responsiveness) to track and improve
Management
•Reduce supply chain risks supplier performance.

Joint planning, forecasting, and

•Drive cost savings through better terms, joint Collaboration
problem-solving with suppliers.
process improvements, or innovations
Ensuring legal compliance, managing
Contract & Risk
liabilities, and securing continuity of
•Build innovation partnerships to co-develop Management
supply.
new products or processes
Encouraging suppliers to innovate,
Continuous
improve efficiency, and reduce costs
•Ensure sustainability & compliance (ESG Improvement
over time.
goals, ethical sourcing)
30

SRM Process
[Link] and segment suppliers

[Link] relationship strategies for

each segment

[Link] performance expectations & KPIs

[Link] and communicate regularly

[Link] performance against agreed

metrics

[Link] improvement & innovation

[Link] and renew strategies

periodically
 Supplier Relationship Management

▪ The interdependencies and the supply chain linkages between buying firms and their supply chain
network require a well-structured SRM process.

▪ SRM includes the methods and the tools that companies use to develop and maintain collaborative
working relationships with suppliers. For example, the key performance indicators (KPIs) are
measurements used to monitors supplier performance in critical areas.

▪ SRM software is the tool that aids in the assembly, analysis, and display of the data associated with
these KPIs.

▪ Interpersonal communications are also a part of SRM. Members of senior-level management as well
as buying personnel regularly interface with key suppliers' management who are responsible for
critical parts or materials and support of joint-product development activities.
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Facilities Location

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Facility location

▪ Facility location is the process of determining geographic sites for a firm’s operations,
which could include a manufacturing plant, a distribution center, and a customer
service center.
▪ Location choices can be critically important for firms and have a profound impact on
the strategic design of its supply chains.
▪ The expanding global economy gives firms greater access to suppliers around the
world, many of whom can offer lower input costs or better quality services and
products.
▪ The location of a business’s facilities has a significant impact on the company’s
operating costs, the prices it charges for services and goods, and its ability to compete
in the marketplace and penetrate new customer segments.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Facility location

▪ When manufacturing facilities are offshored, locating far from one’s suppliers can lead
to higher transportation costs and coordination difficulties.
▪ The customer relationship process can also be affected by the firm’s location
decisions. If the customer must be physically present at the process, it is unlikely that
a location will be acceptable if the time or distance between the service provider and
customer is great.
▪ If, on the other hand, customer contact is more passive and impersonal or if materials
or information are processed rather than people, then location may be less of an
issue.
▪ Internet can sometimes help overcome the disadvantages related to a company’s
location.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Factors Affecting Location Decisions

▪ Managers of both service and manufacturing organizations must weigh many factors
when assessing the desirability of particular locations, including their proximity to
customers and suppliers, labor costs, and transportation costs.

▪ Managers can divide location factors into dominant and secondary factors. Dominant
factors are derived from competitive priorities (cost, quality, time, and flexibility) and
have a particularly strong impact on sales or costs.

▪ Secondary factors also are important, but management may downplay or even ignore
some of these secondary factors if other factors are more important.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Dominant Factors in Manufacturing and Services
Manufacturing Services
Favourable Labor Climate Proximity to Customers

Proximity to Markets Transportation Costs and Proximity

to Markets
Impact on Environment Location of Competitors

Quality of Life Site-Specific Factors :

level of retail activity, residential density,
Proximity to Suppliers and Resources
traffic flow, and site visibility
Proximity to the Parent Company’s Facilities

Secondary Factors: room for expansion, construction costs,

accessibility to multiple modes of transportation, the cost of
shuffling people and materials between plants, insurance costs,
competition from other firms for the workforce, local ordinances
(such as pollution or noise control regulations), community
attitudes, and many others

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Dominant Factors in Manufacturing

▪ Favorable Labor Climate: Labor climate is a function of wage rates, training

requirements, attitudes toward work, worker productivity, and union strength. Having
a favorable climate applies not only to the workforce already on site but also to the
employees that a firm hopes will transfer to or will be attracted to the new site.
▪ Proximity to Markets: After determining where the demand for services and goods
are greatest, management must select a location for the facility that will supply that
demand. Often, locating operations offshore near the market is less expensive than
manufacturing the product at home and shipping it. Locating near markets is
particularly important when the final goods are bulky or heavy and outbound
transportation rates are high.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Dominant Factors in Manufacturing

▪ Favorable Labor Climate: Labor climate is a function of wage rates, training

requirements, attitudes toward work, worker productivity, and union strength. Having
a favorable climate applies not only to the workforce already on site but also to the
employees that a firm hopes will transfer to or will be attracted to the new site.
▪ Proximity to Markets: After determining where the demand for services and goods is
greatest, management must select a location for the facility that will supply that
demand. Often, locating operations offshore near the market is less expensive than
manufacturing the product at home and shipping it. Locating near markets is
particularly important when the final goods are bulky or heavy and outbound
transportation rates are high.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Dominant Factors in Manufacturing

▪ Impact on Environment: As the focus on sustainability has increased, firms are looking
to recognize the impact of the location decisions on the environment. Along with
minimizing the carbon footprint of the new facility and its accompanying facilities in
the supply chain, consideration must also be given to reducing overall energy costs.
▪ Quality of Life: Good schools, recreational facilities, cultural events, and an attractive
lifestyle contribute to quality of life. This factor can make the difference in location
decisions.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Dominant Factors in Manufacturing

▪ Proximity to Suppliers and Resources Firms dependent on inputs of bulky, perishable,

or heavy raw materials emphasize proximity to their suppliers and resources. In such
cases, inbound transportation costs become a dominant factor, encouraging such
firms to locate facilities near suppliers. Another advantage of locating near suppliers is
the ability to maintain lower inventories.
▪ Proximity to the Parent Company’s Facilities In many companies, plants supply parts
to other facilities or rely on other facilities for management and staff support. These
ties require frequent communication and coordination, which can become more
difficult as distance increases.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Dominant Factors in Manufacturing

▪ Utilities, Taxes, and Real Estate Costs Other location decision factors include utility
costs (telephone, energy, and water), local and state taxes, financing incentives
offered by local or state governments, relocation costs, and land costs.
▪ Secondary Factors: Still other factors may need to be considered, including room for
expansion, construction costs, accessibility to multiple modes of transportation, the
cost of shuffling people and materials between plants, insurance costs, competition
from other firms for the workforce, local ordinances (such as pollution or noise control
regulations), community attitudes, and many others. For global operations, firms need
a good local infrastructure and local employees who are educated and have good
skills.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Dominant Factors in Services

▪ Proximity to Customers Location is a key factor in determining how conveniently customers can
carry on business with a firm. The influence of location on revenues tends to be a dominant
factor for many service providers. In addition, customer proximity by itself is not enough—the
key is proximity to customers who will patronize the facility and seek its services. Being close to
customers who match a firm’s target market and service offerings is thus important for
profitability.
▪ Transportation Costs and Proximity to Markets For warehousing and distribution operations,
transportation costs and proximity to markets are extremely important. With a warehouse
nearby, many firms can hold inventory closer to the customer, thus reducing delivery time and
promoting sales.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Dominant Factors in Services

▪ Location of Competitors One complication related to estimating the sales potential of different
locations is the impact of competitors. Management must not only consider the current location
of competitors but also try to anticipate their reaction to the firm’s new location. Avoiding areas
where competitors are already well-established often pays off. However, in some industries, such
as new-car sales showrooms and fast-food chains, locating near competitors is actually
advantageous. The strategy is to create a critical mass, whereby several competing firms
clustered in one location attract more customers than the total number who would shop at the
same stores at scattered locations. Recognizing this effect, some firms use a follow-the-leader
strategy when selecting new sites.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Dominant Factors in Services

▪ Site-Specific Factors
Retailers also must consider the level of retail activity, residential density, traffic flow, and site
visibility. Retail activity in the area is important because shoppers often decide on impulse to go
shopping or to eat in a restaurant. Traffic flows and visibility are important because customers
arrive in cars. Management considers possible traffic tie-ups, traffic volume and direction by time of
day, traffic signals, intersections, and the position of traffic medians. Visibility involves distance
from the street and the size of nearby buildings and signs. A high residential density increases
nighttime and weekend business if the population in the area fits the firm’s competitive priorities
and target market segment.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 A Systematic Location Selection Process

Collect data on the alternatives

Consider alternative regions; then from location consultants, state
Identify the important location
narrow the choices to alternative development agencies, planning
factors and categorize them as
communities and finally to specific departments, chambers of
dominant or secondary.
sites. commerce, land developers,
banks, and onsite visits.

To merge quantitative and

Bring the qualitative factors Analyze the data collected,
qualitative factors, assign each
pertaining to each site into the beginning with the quantitative.
factor a weight of relative
evaluation. The qualitative factor, The quantitative factors that can
importance and calculate a
such as community attitudes, be measured in rupees, such as
weighted score for each site using
environmental factors, or quality of annual transportation costs or
a preference matrix. The site with
life. taxes.
the highest weighted score is best.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Supply Chain Management

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Supply Chain Management

▪ Supply Chain Management can be defined as the management of flow of products and services, which
begins from the origin of products and ends at the product’s consumption.
▪ The main objective of SCM is to monitor and relate production, distribution, and shipment of products and
services. This can be done by companies with a very good and tight hold over internal inventories,
production, distribution, internal productions and sales.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Supply Chain Management

▪ SCM basically merges the supply and demand

management. It uses different strategies and
approaches to view the entire chain and work
efficiently at each and every step involved in the
chain.
▪ Every unit that participates in the process must aim
to minimize the costs and help the companies to
improve their long term performance, while also
creating value for its stakeholders and customers.
This process can also minimize the rates by
eradicating the unnecessary expenses, movements
and handling.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Supply Chain Management–Advantages

2. Customer 3. Better Risk

1. Higher 4. Improved
Retention and Assessment and
Efficiency Relationships
Experience Management

5. Cost- 6. Qualitative 7. Reduces 8. Reduces

Effectiveness Improvements Legal Liabilities Delays

9. Uninterrupted 10. Benefits of

Cash Flow Technologies

[Link]

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Supply Chain Management Process

▪ Supply chain management is a process used by companies to ensure that their supply
chain is efficient and cost-effective.
▪ A supply chain is the collection of steps that a company takes to transform raw
materials into a final product. The five basic components of supply chain management
are : Plan – Source – Execute(Make) – Deliver – Return

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Supply Chain Management Process

Plan:
▫ The initial stage of the supply chain process is the planning stage.
▫ We need to develop a plan or strategy in order to address how the products and services
will satisfy the demands and necessities of the customers.
▫ In this stage, the planning should mainly focus on designing a strategy that yields maximum
profit.
▫ For managing all the resources required for designing products and providing services, a
strategy has to be designed by the companies. Supply chain management mainly focuses on
planning and developing a set of metrics.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Supply Chain Management Process

Develop (Source):
▫ In this stage, we mainly concentrate on building a strong relationship with suppliers of the raw
materials required for production.
▫ This involves not only identifying dependable suppliers but also determining different planning
methods for shipping, delivery, and payment of the product.
▫ Companies need to select suppliers to deliver the items and services they require to develop
their product. So in this stage, the supply chain managers need to construct a set of pricing,
delivery and payment processes with suppliers and also create the metrics for controlling and
improving the relationships.
▫ Finally, the supply chain managers can combine all these processes for handling their goods
and services inventory. This handling comprises receiving and examining shipments,
transferring them to the manufacturing facilities and authorizing supplier payments.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Supply Chain Management Process

Execute:
▫ The third step in the supply chain management process is the manufacturing or making of
products that were demanded by the customer.
▫ In this stage, the products are designed, produced, tested, packaged, and synchronized for
delivery.
▫ Here, the task of the supply chain manager is to schedule all the activities required for
manufacturing, testing, packaging and preparation for delivery.
▫ This stage is considered as the most metric-intensive unit of the supply chain, where firms can
gauge the quality levels, production output and worker productivity.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Supply Chain Management Process

Deliver:
▫ The fourth stage is the delivery stage. Here the products are delivered to the customer at
the destined location by the supplier.
▫ This stage is basically the logistics phase, where customer orders are accepted and
delivery of the goods is planned.
▫ The delivery stage is often referred as logistics, where firms collaborate for the receipt of
orders from customers, establish a network of warehouses, pick carriers to deliver
products to customers and set up an invoicing system to receive payments.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 Supply Chain Management Process

Return:
▫ The last and final stage of supply chain management is referred as the return. In the stage,
defective or damaged goods are returned to the supplier by the customer.
▫ Here, the companies need to deal with customer queries and respond to their complaints
etc. This stage often tends to be a problematic section of the supply chain for many
companies.
▫ The planners of supply chain need to discover a responsive and flexible network for
accepting damaged, defective and extra products back from their customers and
facilitating the return process for customers who have issues with delivered products.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
Supply Chain Flows

Value-Added Services
Supplier Manufacturer Distributor Retailer Customer

Material/Product Flow

Funds/Demand Flow

Information Flow

Returns/Recycling
 SCM – Process Flow

Material Flow:
▪ Material flow includes a smooth flow of an item from the producer to the consumer. This is possible
through various warehouses among distributors, dealers and retailers.
▪ The main challenge we face is in ensuring that the material flows as inventory quickly without any
stoppage through different points in the chain.
▪ The quicker it moves, the better it is for the enterprise, as it minimizes the cash cycle. The item can
also flow from the consumer to the producer for any kind of repairs, or exchange for an end of life
material.
▪ Finally, completed goods flow from customers to their consumers through different agencies. A
process known as 3PL is in place in this scenario. There is also an internal flow within the customer
company.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 SCM – Process Flow

Information Flow:
▪ Information/data flow comprises the request for quotation, purchase order, monthly schedules,
engineering change requests, quality complaints and reports on supplier performance from
customer side to the supplier.
▪ From the producer’s side to the consumer’s side, the information flow consists of the presentation
of the company, offer, confirmation of purchase order, reports on action taken on deviation,
dispatch details, report on inventory, invoices, etc.
▪ For a successful supply chain, regular interaction is necessary between the producer and the
consumer. In many instances, we can see that other partners like distributors, dealers, retailers,
logistic service providers participate in the information network.
▪ In addition to this, several departments at the producer and consumer side are also a part of the
information loop. Here we need to note that the internal information flow with the customer for in-
house manufacture is different.
Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
 SCM – Process Flow

Money Flow:
▪ On the basis of the invoice raised by the producer, the clients examine the order for correctness. If
the claims are correct, money flows from the clients to the respective producer.
▪ Flow of money is also observed from the producer side to the clients in the form of debit notes.
▪ In short, to achieve an efficient and effective supply chain, it is essential to manage all three flows
properly with minimal efforts. It is a difficult task for a supply chain manager to identify which
information is critical for decision-making.
▪ Therefore, he or she would prefer to have the visibility of all flows on the click of a button.

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]
Important Topics:

Supplier Selection
Make-versus-Buy and Outsourcing Decisions
Global Sourcing and TCO
SRM
Facilities Location
Supply Chain Management Process
SCM – Process Flow

Department of Commerce, New Management Block, MAHE, Manipal, 576 104, Karnataka, India, Ph. No: 0820 25342 Email: [Link]@[Link]