1. Introduction to Supply Chain Management
June 27, 2014

2. Definition and Meaning
According to Investopedia: Supply Chain Management (SCM) is the streamlining of a business' supply-side activities to maximize customer value and to gain a competitive advantage in the marketplace. Supply chain management (SCM) represents an effort by suppliers to develop and implement supply chains that are as efficient and economical as possible. Supply chains cover everything from production, to product development, to the information systems needed to direct these undertakings.

3. Logistics Versus SCM LOGISTICS SCM
Management of a network of interconnected businesses involved in final provision of products/services
Not synonymous to logistics. It’s a chain and extension to logistics
Requires coordination and implementation through various organizations
Effective SCM facilitates decrease in operating costs, improves asset productivity and reduces order cycle time
SCM is new and focuses on monitoring flow of information across all organizations till the product/services reaches the customer
A broad concept
Focuses on actual transportation and storage of goods
Not a sub-category of SCM but a specialized part of SCM
Used within a single organization
Logistics adds value when inventory is correctly positioned to facilitate sales
Logistics is an older concept than SCM
A narrower concept

4. Supply Chain Participants
Components/Raw Material and (intermediate) Product Suppliers
Manufacturers
Wholesalers and Distributors
Retailers
Customers
Logistics Service Providers (inventory management, transportation, storage, order fulfillment and related functions
Technology
Indirect Material Suppliers (consumables, tools and supplies)
Financial institutions
Government Agencies & regulatory authorities
Industry associations
DIRECT STAKEHOLDERS
FACILITATORS

5. Supply Chain Participants (Contd…)M E R
TIER III
Rubber Farming
TIER II
(metal working)
Stamping
Rubber For Tyres
Plastic Molding
Assembling
Dealers
TIER I
Sub-dealers
Tyres to Auto Co.
Distributors
Retailers
In-house Supply Chain
Outbound Supply Chain
Inbound Supply Chain
Similar Tiers for different components
inspection
Welding
Painting
DIRECT STAKEHOLDERS
FACILITATORS

6. Conventional Supply Chain
Customer place order for a certain product
Based on demand forecast (Remember: Lead, Lag and Match?) for a particular time period, finished goods are transported from warehouse to distributor to the retail outlet/customer
Based on demand projections, production schedule is decided ad order for supplies are placed
Demand is estimated and accordingly catered

7. Problems with Conventional Supply Chain

8. The Beer Game
4 Stations
A brewery
A distributor
A wholesaler
A Beer Retailer
Beer retailer draws (50 times) a number indicating weekly customer demand
Players on the other stations write down their expected demand on their slips
The teams circulates the slips and move beer cases through the supply chain WITHOUT communicating directly with each other (only through slips)
Each team’s four stations are penalized for an accumulation on inventory – Rs. 50 per case of beer per week
And for unfilled backorders stations are penalized Rs 100 per case of beer per week

9. Biscuits’ Game – JIT/KANBAN
Two stations – Incoming dock and Outgoing Dock
Incoming dock has 4 stations
Each station maintains 4 cases of (sugar-boiled) candies (peppermints)
Each station rolls the dice 20 times to represent 20 working days in a month
If a station rolls the dice to 3, then 3 cases are moved to the outgoing station without directly communicating to each other
If a station rolls a dice more than 4 (to 5 or 6), then all the four cases are moved to the outgoing station
If one station has finished working for 20 days, the chips of the station are passed to the next (immediate) station (simulating full truck load shipments)
Add Bhakti’s Variation to the game (Impromptu)
NOTE: The game involves NO verbal communications. (Hint: Use KANBAN)

10. Beer Game - Review Estimated Demand = Inventory
Actual Demand = Fluctuations
Flow of Beer Cases: Retailer -> Brewery -> Distributor -> Wholesaler -> Retailer
Communication was only via demand slips across this flow
Two Teams
Retailers: Nayanika, Nikita and Rajani (A)
Retailers: Joel, Josh and Vishisht (B)
Team A, initially took the flow for granted and made it brewery’s responsibility to pass demand slips and beer cases to Retailer. This was rectified
Team B, initially did not know which team was brewery and passed on demand slips to the wholesaler. This was rectified
Team B did not receive any beer cases but received estimated demand slips from the distributor who did not receive any beer cases from the brewery
Team B’s brewery was not aware that Beer cases had to passed along with invoice slips to the distributor
Team B smiled and the class had a good laugh! - Nonetheless, it means they are not very attentive
Team A had few unfulfilled orders but loses were not as exorbitant as Team B

11. Supply Chain Strategies
Lean strategy – Preserving Value with Less Work
Agile Strategy – Flexibility, Speed and Accuracy to changing needs and demands
Postponement Strategy – Postponing delivery supported by demand forecasting with integrated Agile Strategy
Speculation Strategy – Bulk Supply to create economies of scale…Complement of Postponement

12. Example: Lean Strategy (Toyotism)
Idea was realized from a supermarket A customer in a super market takes the desired amount of goods off the shelf and purchases them. The store restocks the shelf with enough new product to fill up the shelf space Supermarket Idea in Toyota’s Plant A work-center needing parts would go to a 'store shelf' (the inventory storage point) for the particular part and 'buy' (withdraw) the quantity it needed. The 'shelf' would be 'restocked' by the work-center that produced the part, making only enough to replace the inventory that had been withdrawn.
JIT and KANBAN are approaches introduced under in Toyota Production Systems (TPS) OR Doing More With Less

13. Example: Agile Strategy
Walmart uses cross-docking to actively respond to the latest store demand Cross docking is a logistics procedure where products from a supplier or manufacturing plant are distributed directly to a customer or retail chain with marginal to no handling or storage time. Cross docking takes place in a distribution docking terminal; usually consisting of trucks and dock doors on two (inbound and outbound) sides with minimal storage space. The name ‘cross docking’ explains the process of receiving products through an inbound dock and then transferring them across the dock to the outbound transportation dock
Lean cannot deal with volatile demand except if complemented with agile strategy

14. Cross Docking Image 1

15. Cross Docking Image 2

16. Lean Versus Agile Supply Chain Strategies
Demand is meant to be constant (or predictable)
Focuses on low inventory costs and low wastes
Meant for supplying basic and functional products like food
Product Variety is Low
Product life Cycle is long
Forecast approach is calculative
Demand fluctuates and volumes are high
Focuses on assortment
Meant for supplying innovative products
Product variety is high
Product life cycle is short
Forecast approach is consultative (Requires market research)

17. Lean and Agile – Together?
A  firm may establish a store-based inventory policy using the lean principle to cover the supply lead-time from the primary warehouse to the store
While lean design drives their standard replenishment to the store, the process to handle exceptions to manage stock-outs may leverage agile principles, allowing priority replenishments to the store from a set of alternate sources in order to avoid losing substantial sales revenues.
Walmart uses inventory optimization (lean) and transportation optimization (agile)

18. Example: Postponement Strategy
Avon declined to label their bottles themselves for a long time, viewing this as additional cost and complexity. However, after developing an end-to-end supply chain visibility, Avon saw the opportunity in postponing the creation of its final product by placing the labels in the desired target language. It successfully deployed an idea that had been pushed out earlier, after understanding that this allowed them to postpone the production of final finished goods and better align their supplies to the end-demand without tremendously increasing their inventory.
Dell has mastered the art of postponement for their custom-designed machines for individual consumers. When Dell started, this was not necessarily the case in the industry, however, Dell invented a new business model and leveraged postponement as a business model – not as a supply chain strategy – though, it then designed their supply chain to support this business model. 
Postponement is not an absolute choice, it is an imperative forced by the type of industry, assortment, and demand patterns.
Can you postpone medical supplies to a trauma center or food to a grocery store?

19. Example: Speculation Strategy
The speculation strategy reduces the cost of logistics by maximizing the usage of resources like warehouses and trucks, and reduces the cost of manufacturing by running large production batches that improve throughput by reducing the cost of set-up changes and by reducing the raw material costs by buying in bulk.
Fast Food Restaurants? Full-service Restuarants?
Discuss D&B’s IR Team

20. Bull-Whip Effect

21. bhaktij@gmail.com www.headscratchingnotes.net www.pramaanam.com

22. sources