Fundamentals of Supply Chain Management

FUNDAMENTALS
OF
SUPPLY CHAIN
MANAGEMENT
1
ASHU JOSHI
FR.CONCEICAO RODRIGUES COLLEGE OF
ENGINEERING

Sr.no Pg. no. Contents
1 3-5 What is a Supply Chain??
2 6-9 Major Stages in SCM
3 10-11 Push/Pull Supply Chain
4 12-14 Strategic Fit
5 15-26 Other parts in SCM
6 27-28 Aggregrate Planning
7 30-31 Effect of lack of coordination in
SCM
2

 A Supply Chain is an array which consists of all parties(stages)involved, directly or indirectly,
fulfilling a customer request.
 A supply chain does not include only manufacturer and a customer.But, also includes many other
stages in between such as suppliers,transporters,warehouses,retailers,marketing and market
research,Sales,Finance,Customer service,Quality Control and Management team.
 These all intergral parts in an array combine to from a network.This, network is called as the
Supply Chain Network/Supply Web or simply, a Supply Chain.
 So What we understand is , A supply chain transfers information,product,finance among various
stages of supply chain to fulfill customer’s demand.
1)What is a Supply Chain?
3

SUPPLY CHAIN OPERATIONS
4
Procurment
1.Supplier relations
2.Inbound logistics
3.Purchase order
4.Inventory
5.Storage
Warehouse
management
1.Picking
2.Handling unit
3.Intersite
Transfer
Outsourcing/partne
rship
1.Subcontracting
Its a part of
procurement.
Outsourcing=procu
rement+production
+logistics
Manufacturing
1.Storage
2.Planning
3.Production
Invoicing
generation
Demand
Planning

 The primary/main purpose of any supply chain network is to satisfy customer need and, in
process generate profit for itself.However it is very important to visualize
information,funds,product flows along both directions of this chain.
 In the Indian context , materials constitute almost 60% of the cost of finished good.So, it is very
essential to design and implement efficient supply chain network in order to gain appropriate
profit.
5

2)Major Stages of a Supply Chain Network
Sourcing, Procurement and Supply Management
 We clearly understand that the quality of the product plays a very important role among all
the parameters of a product.The quality of the product cannot be downgraded due to hike in
the prices of the raw materials procured from any supplier, as this eventually destroys the
fame of the industry among the customers and may greatly affect upon the business.
 The industries realized that in order to overcome this situation, increasing sales is a far better
option OR appointing a purchase specialist by the Top management to look for an
alternative supplier of the same quality.
 We understand that inflow of inputs and economic procurement into the enterprise and
efficient control over the flow of funds out of the industry is very necessary.
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Materials Management
 Material Management came to be recognized by the businesses in 1970.Efficient management is the route
to cost reduction and thereby to profitability.The selection of material inputs is done by a purchase
specialist.
Logistics
 Logistics, It’s a part of which involves transfer of raw material,finished goods into the company or out of
the company or within the company.
 Transportation is just a part of the logistics.Cost of transportation,it being General/Unimodal or
Multimodal transport, is nearly 50% of the total logistics cost.
 In India, Small scale industries work with unimodal mode of transportation.For Eg. Food Parcel Delivery
App-Swiggy,Zomato.(Mid-size Firm)They use only scooters/bikes(Roadways) as their only mode of
transport for delivering food from the restaurant to the customer.Whereas,Amazon,Flipkart(Large-size
Firm) uses trucks(Roadways),Cargo aeroplane jets(Airways),Cargo ships(Seaways) to deliver a product
from warehouse to the customer.
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Types of Logistics
I. Inbound Logistics.
II. Outbound Logistics.
III. In-house Logistics.
1. Inbound Logistics-
Flow of raw materials Or Finished goods into the company is called as the Inbound
Logistics.
2. Outbound Logistics-
Flow of finished goods out of the company is called as the Outbound Logistics.
3. Inhouse Logistics-
Flow of raw material/finished goods within the company is called as the Inhouse Logistics.
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3)Push or Pull Supply Chain
The only difference between Push and Pull Supply Chain is, the time execution of a customer
demand.
At the time of execution of a pull process,customer demand is known with certainity whereas in push
supply chain,demand of the customer is not known and so,The industry has to forecast the
customer’s demand which is near or sometimes equal to the actual demand of the customer.
However the demand is often constrained by the management team in a push phase.Major
difference in, demand and estimated figure in push phase will result in increase in industry inventory.
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4)Strategic Fit
A Strategic fit is the company’s ability to balance between responsiveness and effieciency that best
matches with the needs of it’s customers.
Some of the obstacles which disturbs the strategic fit are below.We will understand them one by one-
1. Increasing variety of products.
2. Increasingly demanding customers.
3. Globalization
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Increasing variety of products
 Increasing variety of products complicates the supply chain by making forecasting much more
difficult.Developing fashion has made to manufacture many varieties of same segment of product.
 Increased variety tends to raise uncertainity and increased uncertainity hurts both,efficiency and
responsiveness within the supply chain.
Increasingly demanding Customers
 Customers are constantly demanding improvement in delivery lead times,cost and product
performance.If they do not receive these improvements, they shift to new supplier.
 These tremendous growth in demands means that supply chain must be reconsidered and improved
to maintain its business.
13

Globalization
 Supply Chains today are more likely than ever to global.Earlier there were fewer industries to
manufacture same product and customer tolerated longer delivery days but now,globalization has
made evolution of many other industries which now compete with others.
 This puts strain on supply chain network performance.So, to remain in competition,rethink and
improve your supply chain network to satisfy customer demands of early deliveries.
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5)Other parts of supply chain
management are-
1. Procurement.
2. Finance.
3. Sales and Maketing.
4. Quality Control.
5. Customer Service and Support.
6. Inventory.
7. Transportation.
We will go through all the points one by one.
15

16
Procurement
 Procurement, its a process of obtaining or buying goods and
services,negotiating,building contracts,creating policies,building relations with the
third party vendors.
 It often deals with payment to third party vendors.
 It also has control on inventory.As buying is also a function of procurement team,thus
inventory stock in obtained by the procurement team itself.
 Procurement is a process of company’s strategy as the purchased material will
determine the operational cost and whether the operational cost on material is
profitable for the organization or its not.

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Finance
 The Finance Departmenet in an industry is responsible for management of organization’s cash flow
and ensuring that, there are enough funds available to meet day to day payments.
 In very small size firm, the payments are made to employees on daily basis.However,in mid or large
size firm, where there is cash needs beyond the daily working capital.Here, the finance department is
responsible for advising and sourcing longer term financing.
Certain responsibilities of a Finance Department-
a.Financial reporting and analyse key numbers that have to be updated regularly which contributes to
growth of the organization.
b.Management of taxes.
It is a duty of Finance department to handle all the work related to payment of taxes.This creates good
corporate image among other organizations,customers,government ensuring that the tax matters are
solved within framed policies.
c.Mangement of Company’s investment.
It is core duty of Finance department to manage company’s existing assets.

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d.Assist managers in making strategic key decisions.It gives managers, information to make
strategic decision such as which markets, or projects to purchase,investment of large capital into a
business or how to allocate funds for investments such that, it eventually has a positive impact on
organization’s growth.
Sales and Marketing
Sales
 First of all, I would like to clear that,these both terms has a different meaning though they are
relatable.
 Sales is the team whose job is to “sell what’s in stock”.The company has some products/services
and it is a duty of sales department to sell those things.Sales department develops relation with
customer or partners.
 They knock down doors,overcome objections,develop relation,attain their trust,negotiate prices
and terms and report to organization whether their customer’s demand are getting fulfilled or
not.
 The revenue gained through sales is calculated weekly,monthly or quarterly to ensure success of
efforts input by sales team.

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Marketing
 A key job of Marketing Department is to understand marketplace or a area from perspective of the customer
looking back towards the company.Marketing Team understands the expectations, certain updates, may it be
cost or any modification in product or customer service.
 Marketing team needs to develop tools and tactics which attracts market, builds relation with customer and
develop leads over others.Marketing team directs sales department like where they should hunt public and
how to initiate sales.
 So this way, sales and marketing department are both dependent on each other but just not same because of
different primary duty/function.
 Absence of any one department will affect the revenue generated on sale of product.

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Quality Control
 It is a Modern Industrial Concept which deals that every product manufactured at a plant must be
checked against established standards to make sure that nothing defective reaches the customer.
 Quality Control Programs are stringent in industrially developed countries like Japan.However, in
industrially under developed nation like India, It is yet to be implemented in all types of industries and
just not in FMCG.
 Companies who are in relation with Government are required to take strong measures to assure
product quality and reliability.The standards of quality are measures that are decided by the Beaurau of
Indian Standards(Formerly known as Indian Standard Institution).
Some functions of Quality Control Dept are as follows:
a.To certify industrial goods.
b.To lead production of quality goods.
c.To protect consumers by assuring them good quality and product performance.
d.To eliminate unnecessary varities of products.
e.To promote general standards both at national and international levels.

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Customer Service and Support.
 In this department, a company representative interacts directly with the consumer or customer.
 They are employed to satisfy customers by solving their problem/querier as soon as possible.
 Along with this, They also provide information regarding their products and services to customers.
 Representative propose a solution or may attempt to solve your problem on phone itself.Some are also
authorized to send their customers replacement of same product or may initiate refund.
 Primary responsibility of any representative is to make sure that the complaints made are valid and are solved
within the bounds of their authority.

INVENTORY
What is an Inventory?
 Inventory is a space in industry where stock of raw materials (used to produce goods in near future),
partially finished goods and finished goods.
 Inventory exists in the supply chain because of mismatch between supply and demand.
 Inventory has a major impact on responsiveness and supply chain.For eg. You walk-in a large retails
store suppose,Reliance Trends store.You find out a shirt of your choice but the size is small.So, you
asked the manager to look out in their stocks(here this space is called inventory and not
warehouse).The manager checks the stock of apparel section.The manager finally gets the size you are
requested for.This is called as immediate responsiveness.This action shown by the manager is called as
the Immediate Reponsiveness.
 Inventory has a significant impact on the material flow in the industry.
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Three Types of inventories are-
1.Cycle Inventory.
2.Safety Inventory.
3.Seasonal Inventory.
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1.Cycle Inventory
 Cycle Inventory is the average amount of inventory used to satisfy demand between receipts of supplier
shipments.
 It is caused when production,transportation or purchase of raw material is made in large lots at single
launch.
But, Why we buy in large lots at a single time?.Because of,
1. Economies exploit of scale in production,transportation and purchasing.
2. Uncertainity in supply and demand
Major problem faced by the managers is the carrying cost of inventory when demand is low.
2.Safety Inventory
 It is the inventory held in case demand exceeds the forecast.It is held to counter uncertainity.
 It is kept since the demand is uncertain and unpredictable at some time.
 Sometime, the company faces losses due to carrying cost of having too much inventory and cost of losing
sales when a customer required product is not available in inventory.
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Seasonal Inventory
 It is built up to counter predictable variability in demand over specific period of time.Companies
use seasonal inventory in period of low demand and store it for period of high demand when they
will not have capacity to produce all that is demanded at that time.
 Managers play an important role in forecasting how much seasonal inventory should be built up.
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TRANSPORTATION
 Transportation,It moves product between different stages in a supply chain network.
 Faster Transportation allow a supply chain to be more rensponsive but reduces its efficiency.
 The Type of transportation also affects the inventory and the cost of supply chain.
 To increase responsiveness and efficiency.It’s necessary to find balance between transportation
and inventory.
TRANSPORTATION BY AIR,SHIP,TRUCKS,SCOOTER,MINI VANS
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6)AGGREGRATE PLANNING
 Aggregrate planning is a process by which, a industry determines ideal levels of
capacity,production,subcontracting,inventory,stockouts and even pricing over a specified time horizon.
 The goal of aggregrate planning is to satisfy the demand while maximizing profit.
 It determines the total production level in a plant for a given month.
 Good forecast requires collaboration of management team of the industry with the downstream
partners.Without this,its not possible to predict a value.
 The plan for production of goods is prepared 6-8 months in advance by the aggregrate planners, so
that management plans the process accordingly.
 It gives time to management team to determine what quantity of materials and other resources have to
be procured,how much labour is required and when, so that total cost of operations of the industry is
minimum and the industry gains maximum profit.
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Aim of Aggregrate planning
 Minimize cost/Maximize profits
 Minimize cost of inventory
 Maximimze utilization of plant and machineries.
 Maximize Customer Satisfaction.
 Minimize changes in production rates.
 Minimize workforce.
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7)LACK OF COORDINATION IN SUPPLY CHAIN
 Supply chain coordination improves if all stages of the chain takes action that together increase the
total supply chain profits.
 Supply chain coordination requires each stage of the supply chain to take into the acoount, the
impact of its actions have on other stages.
 Lack of coordination occurs when stages of the supply chain has objectives that conflicts or
information moving between stages is delayed and distorted.
 Conflicts in objectives occurs as stages have different owners and each owner tries to maximize its
own profit.
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EFFECTS ON PERFORMANCE DUE TO
LACK OF COORDINATION
1.Manufacturing Cost
 Lack of informations between supply chain stages causes increase in manufacturing cost of a
good.Difference between the actual number of goods asked and inaccurate data transmitted
within a supply chain will affect the supply chain.
 For eg.Customer orders 200 water filters in a day.But the company manufactures only 100 in first
two shifts and remaining water filters are to be manufactured in the last shift.This ultimately
increases stress on the supply chain and the supply chain has to give maximum efforts to cover up
remaining in the last time.This overall increases production rate,cost of operation as more
machines are run simultaneously,which overall increases the manufacturing cost of that product.
2.Inventory Cost
 Lack of Coordination increases the cost of supply chain.Due to increased variability in demand, A
company has to hold higher level of inventory.Lack of co-ordination will affect the sales and
warehousing cost.
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3.Transportation cost
 It increases with lack of coordination.The transportation requirements
over a time and its suppliers are related with the orders of the customers
generated.Lack of information between the management team and the
transportation team increases the cost of transportation.
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