Basic Concept & Philosophy of Supply Chain Management

Supply Chain Management includes, planning, design, control and

implementation of all business processes related to procurement,
manufacturing, distribution and sales order fulfillment functions of a
business.

Thus Supply Chain Management includes managing supply and demand,

sourcing raw materials and parts, manufacturing and assembly,
warehousing and inventory tracking, order entry and order management,
distribution across all channels, and delivery to the customer.

“Supply chain management is the integration of businesses from end user

through original suppliers that provides products, services, and information
that add value for customers.”

Supply Chain Management Definition

A supply chain consists of all the activities and entities that are involved in
extracting, processing, and manufacturing, distributing and selling the
products to the ultimate customers. However, the concept of SCM is much
broader than that of the marketing channels as SCM goes back to a distant
starting point / root and includes the raw material suppliers.

Definition : Logistics is used more broadly to refer to the process of

coordinating and moving resources – people, materials, inventory, and
equipment – from one location to storage at the desired destination. The
term logistics originated in the military, referring to the movement of
equipment and supplies to troops in the field. It’s a part of SCM involved
with the forward and reverse flow of goods and services

Features of SCM

Management of Inventory
Supply chain management focuses on maintaining an optimum inventory
always in organization. It keeps records and tracks supply of raw materials,
spare parts and finished goods. Management of supply chain ensures that
all inventories are available in right quantity at right time. It frames proper
strategies for procuring and maintaining all inventories as per requirements.
Supply chain management avoids any situations like under stocking or
overstocking.

Processing Customer Requirements

Supply chain management accelerates the production processes of

organization. It monitors all activities starting from purchase of raw
materials for producing goods till final delivery. It ensures that all sales
order are timely completed and handed to logistic team for delivering them
on time. All this is done by creating and tracking orders of purchase,
scheduling of suppliers deliveries, and also developing product and price
configurations.

Forecasting Of Demand

Anticipation of customer demands is necessary for every business. It can

help them in fulfilling customers need efficiently and timely. All production
activities are initiated in accordance with demand which helps in avoiding
wastages. Through proper anticipation, business does not need to invest
money in unnecessary raw materials and hold on excess finished goods.
All goods are produced in accordance with requirements of customers
thereby improving their confidence.

Supplier Relationship Management

Maintaining of better relations with suppliers is crucial for uninterrupted

continuity of business. Supply chain management helps in properly
managing all interactions with suppliers. It develops a proper network
between suppliers and business through which they can easily interact.
Proper supply chain enables timely procurement of all required raw
materials from suppliers. Supply chain management solutions provides
self-service portal through which suppliers can contact company in case of
any issues or problems.

Managing Logistics and Shipping

Supply chain management helps in enhancing the delivery performance of

business. It ensures that products are delivered faster and timely to all
customers. It coordinates well with all transportation channels and
warehouses. By supply chain management, companies can faster their
delivery process and provide on-time delivery. This will help in improving
the satisfaction of customers.

Return Management

Proper handling and inspection of damaged or defective goods is another

important function of supply chain management. It accelerates the return
mechanism through automated process on both buy and sells side of
business. Businesses are able to faster initiate the process of refund or
claims with distributors, suppliers and insurance companies.

Essential Features: Supply chain management

Supply chain management (SCM) is the process by which supply chain

activities are managed to have an advantage over competitors as well as
maximize the value of our customers. It basically represents the efforts by
which the supply chain management solutions help to develop and manage
supply chain activities in the most efficient way. When we talk about supply
chain management, we also pertain to product development, sourcing of
materials, production

need to manage by using logistics management software. We are able to

move with the flow and improve our output as a whole. If your company is
currently encountering these issues and would like more information on
how to resolve them, check out this article by Finget.

Benefits of supply chain management:

Today’s global supply chains are increasingly complex, making a data-

driven approach to supply chain management a must. Data-driven SCM
provides visibility from end to end for monitoring the flow of information,
services and goods from procurement to manufacturing and delivery to the
end consumer. Data isn’t the only driver of effective supply chain
management; other factors such as good vendor and supplier relationships,
effective cost control, securing the right logistics partners and adopting
innovative supply chain technologies make a big impact, too.

Better collaboration

Information flow is a prominent challenge for companies. According to

Oracle, 76% of companies lack an automated flow of information across
the supply chain, and half of companies say fragmented information results
in lost sales opportunities. Integrated software solutions remove
bottlenecks and allow for the seamless sharing of information, providing a
big-picture view of the supply chain from end to end. Thanks to improved
access to data, supply chain leaders have the information they need, in
context, to make more informed decisions.

Improved quality control

Quality control issues follow the rule of 10, explains Arshad Hafeez, Global
Expert for Supply Chain Management and Quality Control, SCM-Group
Function (GF) in an article for CIO Review. According to the rule of 10, the
cost to replace or repair an item increases by tenfold at each step of the
progression, resulting in significant costs for companies when quality
issues arise.
Companies that have greater control over not only their direct suppliers but
also their suppliers’ suppliers benefit from improved quality control.
Implementing standard minimum quality criteria, for instance, enables
direct suppliers to identify and partner with secondary suppliers that meet
those requirements. Likewise, process guidelines can help suppliers
comply with your company’s quality requirements. Some companies go
beyond simply providing criteria, conducting periodic audits or requesting
documentation verifying suppliers’ compliance steps. Hafeez recommends
implementing a Management Operating System (MOS) for monitoring key
performance indicators including:

 On-time delivery

 Scrap rates, reworks and similar issues at suppliers

 Final product quality (as received by end customers)

 Time for complaint resolution

 Findings from supplier quality assessments

By analyzing performance data, companies can partner with the highest-

performing vendors and suppliers to maintain strict quality control.

Higher efficiency rate

Having real-time data on the availability of raw materials and manufacturing

delays allows companies to implement backup plans, such as sourcing
materials from a backup supplier, preventing further delays. Without real-
time data, companies often don’t have time to initiate plan B, resulting in
issues such as out-of-stock inventory or late shipments to end consumers.

Implementing smart automation solutions also results in higher efficiency.

Healing Hands Scrubs, for example, implemented 6 River Systems’
collaborative mobile robots, doubling productivity and reducing
unnecessary walking by 75%. Investing in the right automation solutions
and leveraging data to minimize delays supports a positive customer
experience and boosts your company’s reputation.

Keeping up with demand

“If consumer sales increase by 5 percent in a given week, a retailer could

end up ordering 7 percent more product in response to the increase and a
feeling that demand will continue,” according to a report by VISA. “The next
link in the chain, observing what appears to be a 7 percent increase in
demand, then orders a larger increase on his supplier. Eventually the
factory may observe an inflated 20 percent increase in orders.”

Known as the bullwhip effect, this phenomenon often results from delays in
communicating supply and demand changes. Supply chain leaders with
access to real-time, accurate information and integrated data can better
predict demand and readily respond to changing market conditions to avoid
challenges like the bullwhip effect.

Shipping optimization

According to Logistics Management’s The State of Logistics Report, freight

transportation costs increased by 7% from 2016 to 2017, while private and
dedicated trucking costs increased by 9%. Less-than-truckload costs rose
by 6%, and full truckload costs rose by 6%. Due to rising costs, shipping
optimization is a priority for supply chain leaders. Identifying the

If you are expanding and want to sell your products in other states, choose
a distribution network that provides coverage of your chosen markets.
Selling products around the world is now a practical reality for businesses
of any size, thanks to the Internet. The cost of setting up a website that any
customer with Internet access can reach is very low compared to the cost
of setting up or managing a global distribution network.

Skills
You want your customers to receive the best possible service. That's not
easy when you are dealing with customers through a third-party distribution
channel. If you sell high-value, complex products to business customers,
you need sales people with good product knowledge and the ability to build
relationships with customers. A direct sales force may be the right solution
if your customer base is small. If you have a large group of business
customers around the country, look for a distributor network selling similar
products. They will have the skills and knowledge to sell your products,
particularly if you provide their sales team with product training.

Customers

Using a distribution channel doesn't just give you a method of delivering

products to your own customers; it could also give you access to a much
larger customer base. Look for a distributor or retail network that sells
products that are complementary to your own. By offering sales incentives
to the distributor, you can tap into their customer base and grow your own
business. Control

Control is an important factor in channel selection. Check if the distribution

network is selling products that are competitive to yours. If it is, you need to
motivate the network to give preference to your products. You also need to
ensure that the network is willing to operate to the standards of customer
service you set. Allocate a member of your team to monitor and manage
the performance of the distribution channel. It is the people in the channel
who control the relationship with your customers, so the right choice is
critical.

The Differences Between Supply Chain Management and Logistics

Logistics Supply Chain

Logistics is one activity in supply chain management.

Supply chain management covers a wide range of activities, including
planning, sourcing materials, labor and facilities management, producing
and delivering those goods and services.

Logistics focuses on the efficient and cost-effective delivery of goods to the

customer.

Supply chain management targets higher operational performance that will

give the business a competitive advantage.

Logistics are centered on the movement and transport of goods within a

company

SCM oversees the development of raw materials into finished goods that
move from the

producer to the manufacturer. Those goods get distributed to retailers or

directly to consumers.

What is customer relationship management in supply chain management?

Customer relationship management is the process of managing customer

interactions with a business. It allows businesses to improve customer
satisfaction, retention, and loyalty. It also includes the analysis of data to
identify customer needs, providing information to customers about various
products, and making sure customers are happy with their experience.
Customer relationship management is an essential part of supply chain
management because it creates value for the supply chain. By improving
customer satisfaction, retention, and loyalty, increases profit margins. CRM
also helps companies improve their sales and revenue by making the
supply chain more efficient. It provides a way to make sales and marketing
more targeted and impactful.

The Importance of Supply Chain Management

It is well known that supply chain management is an integral part of most
businesses and is

essential to company success and customer satisfaction.

Boost Customer Service

decreasing U. cereal supply chain costs just one cent per cereal box would
result in $ million dollars saved industry-wide as 13 billion boxes of cereal
flowed through the improved supply chain over a five year period. 
Decreases Fixed Assets – Firms value supply chain managers because
they decrease the use of large fixed assets such as plants, warehouses
and transportation vehicles in the supply chain. If supply chain experts can
redesign the network to properly serve U. customers from six warehouses
rather than ten, the firm will avoid building four very expensive buildings. 
Increases Cash Flow – Firms value supply chain managers because they
speed up product flows to customers. For example, if a firm can make and
deliver a product to a customer in 10 days rather than 70 days, it can
invoice the customer 60 days sooner.

Advantages of Supply Chain Management

Cost Efficiency Supply chain management assist in attaining cost efficiency

within the organization. It aims at optimizing all process of business which
bring down the production cost, packaging cost, warehousing and
transportation cost and avoids any wastage of goods by facilitating timely
delivery. It minimizes the overall operating expenses and enhances the
overall profitability.

Enhance Output The concept of supply chain management aims at

maximizing the overall productivity of business. Supply managers monitor
all production processes and ensure that all resources are efficiently
utilized. Any wastage of resources is avoided which lead to maximize the
overall output.

Avoids Delay In Process Preventing any delays of business process is one

of the major advantage of supply change management. Supply chain
manager ensure that all materials are timely acquired for facilitating
uninterrupted production of products. Also, they regulate all delivery and
logistics services of business which promote delivery at right time at right
location thereby avoiding any delays.

Easily Identify Problem Areas Supply chain management enable business

in recognizing its issue that are adversely affecting its reputation and
profitability. Managers can easily track the performance of every
department and identify which one is lacking in delivering its duties. In
absence of this concept, it will be difficult to detect the issue and every
department will blame each other for any problem that erupts.

Better Collaboration

Process of supply chain management bring better collaboration among

distinct parties of business. It focuses on developing a proper
communication channel within the business for avoiding any confusion or
disputes. Smooth flow of information among all stakeholders like
employees, customers, suppliers and distribution enhance understanding
which leads to create a better collaboration.

Disadvantages of Supply Chain Management

Expensive To Implement Major limitation of process of supply chain

management is that it is quite expensive to implement. It requires large
investment in terms of time, money and other resources that become
unaffordable for small businesses.
Complicated Process of supply chain management involves numerous
complexities as it involves several departments within the organization. It
may lead to create confusion and hamper the normal functioning of
business. Employees may feel hesitant and demotivated to accept this
concept as it is new to them thereby giving rise to several other difficulties.

Lack Of Co-Ordination Among Departments The concept of supply chain

management functions properly only if there is better coordination among
departments of departments. Establishing a coordination among several
departments within big corporate is a quite difficult task where this concept
may eventually fail to perform.

Requires Trained And Personalized Staff Supply chain management

requires qualified and trained human resources for its effective executive
within the company. Company need to incurs heavy expenses for acquiring
such taskforce that is professional and highly skilled. Small companies may
find it unfavorable for their implementation.

Lack Of Reliability Supply chain management lacks of reliability as it is

completely dependent upon the mode of information exchange among
several departments. If there is any instance of inaccurate information
sharing by any of the department, then it will have adverse effects on
performance of whole supply chain.

ISSUES IN SCM

1. Managing customer expectations

2. Risk mitigation

Mitigating risk can be challenging for any supply chain manager. While risk
is a broad topic, there are some common supply chain risks that supply
chain managers should keep top of mind. These include:
 Reliance on one supplier for most of your purchases: Companies that are
too reliant on one supplier are vulnerable if that supplier can’t meet
demands. Be sure to diversify your supply chain as much as possible to
ensure business continuity.  Failure to prepare for force major events:
These became very real when COVID- started affecting the delivery of
goods and services globally. Do you have a backup plan?  Tracking
supply data on spreadsheets or outdated technology: Losing your supply
chain data due to corrupt servers or damaged computers is disastrous to
ongoing operations.  Controlling escalating costs: Do you know how much
you’ve spent in the past? Can you forecast what you’ll spend in the future?
Is there a critical cost commodity in your product that can be hedged? This
knowledge is critical when it comes to negotiating costs with suppliers. 
Accommodating multiple changes in channels to market: Ensuring your
supply chain gets the right goods to the right place at the right time is
critical to the success of any organization.  Managing inventory: Inventory
is expensive to procure, expensive to sit on, and, in the worst-case
scenario, expensive to write off.

1. The ever-increasing complexity of supply chain management

As supply chain management becomes more interconnected and complex,

a supply chain

manager’s job is also getting more complex every day.

7 .Qualified Personnel: Over the years, it has become a challenge to find

talent interested and

passionate about this line of work. Personnel hired in this field must have
an understanding about

the duties and responsibilities needed. Solution: Since locating dedicated

personnel to work for
this field has become increasing hard to find, their market value will start to
rise. Hiring and promoting through in-house staff would be the most
affordable solution at this point.

6 Delays Procurement of materials and products may be easy, but the

delivery may

not always be 100% on time, especially with time differences and a variety
of shipping time

frames. When items are sourced from different countries, delays like this
are very common.

8-Changing Markets:With technological advancements changing our

markets everyday, it is quite difficult to stay in pace and adapt to the variety
of innovations in the market. But because

the goal is to stay efficient in these changing times, companies would have
to be more flexible.

Various Flows in SCM

THE PRODUCT FLOW:

Product Flow includes movement of goods from supplier to consumer

(internal as well as external), as well as dealing with customer service
needs such as input materials or consumables or services like
housekeeping. Product flow also involves returns / rejections (Reverse
Flow).

In a typical industry situation, there will a supplier, manufacturer, distributor,

wholesaler, retailer and consumer. The consumer may even be an internal
customer in the same organization. For example in a fabrication shop many
kinds of raw steel are fabricated into different building components in
cutting, general machining, welding centers and then are assembled to
order on a flatbed for shipment to a customer. Flow in such plant is from
one process / assembly section to the other having relationship as a
supplier and consumer (internal). Acquisition is taking place at each stage
from the previous stage along the entire flow in the supply chain.

In the supply chain the goods and services generally flow downstream
(forward) from the source or point of origin to consumer or point of
consumption. There is also a backward (or upstream) flow of materials,
mainly associated with product returns.

THE FINANCIAL FLOWS:

The financial and economic aspect of supply chain management (SCM)

shall be considered from two perspectives. First, from the cost and
investment perspective and second aspect based on from flow of funds.
Costs and investments add on as moving forward in the supply chain. The
optimization of total supply chain cost, therefore, contributes directly (and
often very significantly) to overall profitability. Similarly, optimization of
supply chain investment contributes to the optimization of return on the
capital employed in a company. In a supply chain, from the ultimate
consumer of the product back down through the chain there will be flow of
funds. Financial funds (Revenues) flow from the final consumer, who is
usually the only source of “real” money in a supply chain, back through the
other links in the chain (typically retailers, distributors, processors and
suppliers).

Unit -

Logistics management is the part of the supply chain process that plans,
implements, and

controls the efficient, effective flow and storage of goods, services, and
related information from
the point of origin to the point of consumption to meet customer
requirements

Logistics refers to the procurement, transportation and storage of materials

throughout the

manufacturing and selling process. Different types of logistics activities

include harvesting or

purchasing raw materials; transporting those materials via truck, train, ship,
plane or a

combination thereof; storing the materials at a warehouse; processing the

materials into a

saleable product; and transporting the finished product to the point of sale.

Types of Logistics Costs

Shipping and storage expenses represent the two major types of logistics
costs. Once you find a source for your product or raw materials, you need
to pay a freight company to deliver it. The materials typically arrive at your
location in a semi truck, and it's your responsibility to have a safe space to
unload this truck and store the delivery. The volume of deliveries you
expect each day determines the size of your warehouse and the number of
docks available, all of which affect how much you pay in rent and utilities

Staffing represents another critical type of logistics cost. The warehouse

facility needs to be

staffed to unload and organize materials, and you also need a team of
logistics managers to schedule deliveries. However, a warehouse is only
temporary storage; the materials still need to

get to either a manufacturing plant or the end user in a process called

distribution. You can either
contract out this movement of materials to another freight company or hire
an internal

distribution team.

What is the bullwhip effect?

The bullwhip effect is the demand distortion that travels upstream in the
supply chain. Upstream in the supply chain consists of the retailer through
to the wholesaler and manufacture. The distortion is created by the
variance of orders which may be larger than sales.

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.

A simplified example of the bullwhip effect

The bullwhip effect often occurs when retailers become highly reactive to
demand, and in turn,

amplify expectations around it, which causes a domino effect along the
supply chain. Suppose,

for example, a retailer typically keeps 100 six-packs of one soda brand in
stock. If it normally

sells 20 six-packs a day, it would order that replacement amount from the
distributor. But one

day, the retailer sells 70 six-packs and assumes customers will start buying
more product, and
responds by ordering 100 six-packs to meet this higher forecasted demand.

The distributor may then respond by ordering double, or 200 six-packs,

from the manufacturer to

ensure they do not run out. The manufacturer then produces 250 six-packs
to be on the safe side.

In the end, the increased demand has been amplified up the supply chain
from to 100 six-packs at

the customer level to 250 at the manufacturer.

This example is highly simplified but conveys the sense of exponentially

increasing

misalignment as actions and reactions continue up and down the chain..

What causes bullwhip effect in the supply chain?

The bullwhip effect can distort the whole supply chain, so it’s important to
recognise what causes it. Here are just a few things to watch out for:

 Demand forecast update: Members of the supply chain updating their own
demand forecasting

 Reduce lead times  Take a look at your reordering procedures and

forecasting methods

 Limit price fluctuations where possible  Integrate planning and

performance measurements within your organization

 Foster supply chain communication and collaboration.  Use better

forecasting and visibility tools  Explore a demand-driven approach to
supply chain management.

Vendor Management ;-
Vendor management it a structure process ,focuses vending maintain good
working relationship with supplier or along the bases so as to prevent
potential supplier disruptions and

mean business objective and the beat value.

It open up possibilities for faster on boarding of multiple vendors that can

minimize potential

suppliers side risk and delays ,business also in says lower cost and faster
delivery to maintain

accountability in business.

Vender Management Process ;-

 Choosing vendor

 Engage in contract negotiation

 Track and emulate vendor performance

 Monitoring and managing risk

 Timely payment

 On bounding of vendors

Monitoring and managing risk ;- vendor should be monitored for risk that
could impact the company. Such as the risk of compliance breaches laws
and unit ,data security issues and loss of intellectual property.

Payment ;- Ensuring vendors are paid on time for the good and services
they provide in line with the agreed terms.

Monitoring vendor performance ;- As part of the vendor management

process ,companies will monitor and evulate the performance of
vendor .This may include evulating their
performance against key performance indicators such as quality and and
volume of goods or delivery dates.

Vendor onboarding ;- This will involve gathering the documentation and

information needed to set the vendor up as an approval supplier to the
company and ensure that the vendor can be paid for the goods or services
they provide. As well as essential contract can payment information ,the
onboarding process may also include information such as relevant licenses
held by the vendor as well as to form and insurance details.

Challenges vendor Management ;-

 Choosing are right vendor

 Hassle of manual strong of vendor data

 No- visibility for design decision making

 In ability to handle different payment

 In ability to handle delay payment

 Organization all vendors in to one centralized view ;- You work with

dozen of vendors

from coffee capsule suppliers to employee engagement software providers.

Organizing and management them effectively is impossible without suitable
process and tools.

 Relaying to heavily on certain vendors ;- With strong buyer – vendor

relationship comes

the danger of supplier overreliance. What if you lose them? Your business
operations will inevitably be disrupted unless you have a supply chain
backup plan.

Benefits of Vndor Management

 Facilated better solution from a wider solution of vendor providing more
choice at

competitive rates.

 Vendor management enable the company to negosiate better date and

gain lower price

and discount.

 Affecting contract management (vendor management system is

centralized take this make

is easier to track contract and make decision more effectively.

 Strong vendor management.

Improve vendor acquisition strategies;-Once you consolidate vendors you

will have a much better set of criteries with which to sluct new vendors you
will have a better defination of pricing ,freight, service and quality .Finally
you will be able to clearly define the type of agreement that work best for
your supply chain.

Better vendor solution;- A comprehensive vendor management plan

supports the selection of the right strategic vendor partners. By identifying
business need and setting clear expectations a business can find and
invert in high quality supplier that pay of issue the long run.