Module 5 - SCM Notes_DNR.pdf

JSS Mahavidyapeetha
JSS Academy of Technical Education, Bengaluru
"C:UsersD N RoopaDesktopcourse fileAug 2022-Aug 2023even semesterSCMModule 3 - SCM
Notes.docx"
Course Code 18ME653 (Supply Chain Management) CIE Marks 40
Teaching Hours/Week (L: T:P) 3:0:0 SEE Marks 60
Credits 03 Exam Hours 03
Common to: CSE/ISE/ECE/EIE/CV
After learning this module, you should be able to answer the following questions:
CO4 Understand the emerging trends and impact of IT on Supply chain. L3
MODULE – 5
Current Trends: Supply Chain Integration - Building partnership and trust in Supply chain Value of Information:
Bullwhip Effect - Effective forecasting - Coordinating the supply chain. Supply Chain restructuring, Supply Chain
Mapping - Supply Chain process restructuring, Postpone the point of differentiation – IT in Supply Chain - Agile
Supply Chains -Reverse Supply chain. Future of IT in supply chain- E-Business in supply chain.
Question Bank Module 5
1. What is supply chain integration? Illustrate the three stages of supply chain integration
2. What is bullwhip effect? How it effects supply chain inefficiency?
3. Illustrate supply chain configuration design for agile supply chain.
4. Discuss the future trends of information technology in supply chain management.
5. Explain i) Agile Supply chain ii) Reverse Supply Chain
6. Describe the importance of E-Business in supply chain
7. Explain supply chain restructuring.
8. Explain building partnership and trust in supply chain.
9. Explain basic approach to forecasting.
10. Explain coordination in supply chain.
11. Explain supply chain mapping
12. Explain supply chain process restructuring.

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Supply Chain Integration:
The supply chain is said to be well managed if and only if, material, information, and finance flow across the
chain seamlessly. However, we witness an inefficient supply chain due to lack of integration across departmental
(functional) and organizational boundaries. Individual departments and firms may be interested in performance at
the local level rather than at the chain level. This results in material and products waiting for a considerable amount
of time at both boundaries.
The above figure, stage 1: the firm is structured on a functional basis and each function operates by focusing
attention only on its performance measures. Stage 2 : in this case the internal operations (functions) are integrated
at the organizational level, i.e. the firm functions as an integrated entity. However, there is no interaction with the
external members of the supply chain. Stage 3: the firm manages to integrate itself with suppliers as well as
customers and works as an integrated chain.
Supply chain integration involves a conscious effort on the part of the firms to move from stage 1 to stage 2 to
stage 3.
To make this integration possible, firms have to change in their structure, processes and performance measures.
Most of the firms by and large internally are integrated, while not much focus on external integration.
Lets, understand this with an example, Both FMCG companies have performed good in their WIP (Work in
Process) inventory, which demonstrates good management of internal integration with in manufacturing to some
extent
However, as we can see from the table, firms have not shown significant reduction in RM (Raw material) and
FG(Finished Goods) inventory. Further, it is observed that firms do not pay enough attention on inventories with
channels or suppliers. But it is a fact that any inefficiency in terms of higher channel inventory will finally come
back to focal firms like HUL, Godrej soaps in the form by showing up as higher accounts receivables (Cash does
not come back), higher margins to be paid to the channel or lost sales because the channel is not willing to stock
additional material.
Internal integration:

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A typical firm is functionally organized, and material and information have to go through multiple departments
across the internal supply chain. As each function is myopic in nature and is focusing on a narrowly defined local
performance, there are many inefficiencies and buffers at departmental boundaries. The examples for inefficiency
is given below by an example.
Example: An electric machinery firm, which has a manufacturing plant in Mumbai, serves the southern market
through a stock point in Chennai. The Mumbai plant ships goods to the Chennai stock point once a month because
monthly demand amounts to approximately a full truckload. Obviously by shipping goods using full truckloads,
the plant is able to minimize transportation costs. As it receives goods only once a month, the Chennai stock point
has to keep high safety stocks to ensure a reasonable level of service to its customers. Thus, both the Mumbai
plant and the Chennai regional stock point have made so-called locally optimal decisions A detailed analysis
shows that it will be optimal (total transportation and inventory cost will be lowest) for the firm to ship goods to
Chennai from Mumbai once a week. There is a trade-off between transportation and inventory costs, individual
departments chose to ignore this trade-off to make locally optimal decisions, resulting in a substantial increase in
the overall cost in the system.
As can be seen from the above case, each department focuses on local performance measures and takes
independent decisions leading to inefficiencies at the organizational level. Therefore firms have to find ways to
coordinate the planning and decision making across the organization. Firms achieve this either by centralizing all
planning activities or by decentralizing activities or a hybrid approach. And by creating customer supplier links
among all members of the internal chain.
This customer supply link reflects the highly coordinated effort between various functions of the firm. The very
best companies develop a managerial orientation toward demand-supply integration (DSI).
Under the DSI philosophy, those functional areas in the company responsible for creating customer demand
communicate frequently and are synchronized with all those functions responsible for fulfilling the created
demand.
External Integration:
A well-managed supply chain should have seamless flow of material/product and information across
organizational boundaries. However, it is found that the information flow gets significantly distorted as we move
along the chain and material/product flow is also accordingly distorted across the chain. In a supply chain all
entities are linked in buyer supplier chains and must ultimately serve the end customer. Information is passed on
from buyer to supplier in the form of orders, i.e. demand placed by buyer to the supplier. It is found that
information in the form of orders gets distorted as we move up the chain. This increased distortion results in
increase in costs for the members in the supply chain. The reason for this increased distortion is that each entity
within the supply chain focuses on its short term performance measures.
Building partnership and trust in Supply chain:
Historically, supply chain relationships have been based either on POWER or on TRUST. There seems to be
differences in approach across cultures. Japanese firms have traditionally focused on trust-based relationship while
American firms have focusses on contract-based relation.
In power-based relationship, the stronger party usually exploits the weaker one. The extensive research shows the
long-term benefits if trust-based relationships.
Steps in building successful relationships:

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Though importance of TRUST in a supply chain context is understood, it is very hard to build and sustain a trust
based relationship. Trust based relationships are built as a result of a series of interactions between parties
involved. A successful relationship building involves the following three elements:
❖ Design relationship with cooperation and trust: At design stage one has to ensure that the relationship is
win-win in nature and assess the value of the relationship for both the parties. In initial stages of
relationship both parties may worry that the other may take advantage of the relationship, so formal
contracts must be signed specifying operational roles, decision rights of all parties involved, performance
measures and design conflict resolution mechanisms.
❖ Manage and nurture relationships: Once the relationship is designed, during operations phase both parties
begin to understand in detail the environment and the tasks involved. However actual payoff may not be
on the lines of what one had expected. Both parties must evaluate the costs and benefits of relationship.
This helps both parties to revise the conditions of partnership. It is important that the initial contract is
kept sufficiently flexible to facilitate such changes. It is necessary that both parties work within the spirit
of partnership, trust gets built over the period of time and relationship moves upward spiral where each
interaction helps in carrying the partnership further. In order for the upward movement of relationship,
no parties in the supply chain behave in an opportunistic manner.
❖ Redesign relationship with change in environment: Economic environment will not remain stable and
with changes in environment, technology and competition, one has to redesign the relationship.
Value of Information: Bullwhip Effect
✓ Supply chain coordination requires each stage of the supply chain to share information and consider the
impact its actions have on other stages.
✓ A lack of coordination occurs either because different stages of the supply chain have objectives that
conflict or because information moving between stages is delayed and distorted. Different stages of a
supply chain may have conflicting objectives if each stage has a different owner. As a result, each stage
tries to maximize its own profits, resulting in actions that often diminish total supply chain profits.
✓ Today, supply chains consist of stages with different owners. For example, Ford Motor Company has
thousands of suppliers from Goodyear to Motorola, and each of these suppliers has many suppliers in
turn. Information is distorted as it moves across the supply chain because complete information is not
shared between stages.
✓ As we move away from the end customer, demand volatility keeps increasing. An increase in demand
variability as one moves up in the chain is referred to as BULLWHIP effect. As we move up in the supply
chain, from retailers to wholesalers and to manufactures, each stage in the chain distorts demand and
variability keeps increasing. Thus, though variability is quite low at the final customer end, a
manufacturer usually sees a high demand variability at his end. This behaviors of demand variability is
known as bullwhip effect or the whiplash effect. Bullwhip effect in a supply chain consisting of a
retailer, a wholesaler, a manufacturer and his supplier is as shown above figure.

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✓ The variance of orders increases as one moves upstream. Although it is expected that for functional
products like grocery or FMCG products demand at the retail level should be more or less stable, for a
typical manufacturer or supplier to the manufacturer, a large variability is seen at their ends. Therefore
it is not uncommon to observe 3 to 5 months of inventory being struck in inventory.
✓ High distortions results in high cost for every one in the supply chain.
✓ The causes for bullwhip effect are:
o Forecast updating: Each member in the chain updates forecast based on orders received at his
end and not based on the demand raised by the end customer.
o Order batching: Each member of the chain has his own economies of scale in production and
transportation resulting in planning practices leading to order batching.
o Price fluctuations: Discounts or price promotions results in forward buying,
o Long lead time: Long lead times increase planning horizon of other partners in the chain.
Further, each partner is forced to keep large amount of safety stock, resulting overall distortion
increase in the chain.
✓ There are three kinds of initiatives through which one can minimize distortions in a supply chain:
o Information sharing across the chain: Instead of communicating information about just the
orders, if the end customer demand is communicated across the chain, one can reduce the
distortions in the chain and these can be further reduced if firms can work towards collaborative
forecasting. Suppliers must be priorly informed about future promotion plans.
o Aligning incentives across the chain: There must be incentives for decision makers to take
decisions from the chain perspective. Alignment of interest across the chain ensures that each
entity in the chain focuses on global rather than local optimization. Removing incentives from
the system that encourage distortions in the ordering pattern. Remove incentives that encourage
buyer to buy in bulk and avoid a shortage gaming situation in the chain. Aligning incentives
across the chain is more difficult in a situation of volatile raw material markets and highly
uncertain end market demand conditions. In such situations, distortions can be minimized by
introducing transparent price change mechanism.
o Improving operational efficiencies.: The bullwhip effect across the chain is created because of
long lead time and order batching owning to high transaction costs in the chain and can only be
handled by improving operational efficiencies in the chain. By reducing the transaction costs
involved in purchasing and reducing the setup time one can reduce the batching effect in the

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chain. Similarly, the magnitude of duration and uncertainty in lead time can be monitored by
joint improvement program.
EFFECTIVE FORECASTING:
The following basic approach helps an organization perform effective forecasting.
1. Understand the objective of forecasting.
2. Integrate demand planning and forecasting throughout the supply chain.
3. Understand and identify customer segments
3. Identify the major factors that influence the demand forecast.
4. Forecast at the appropriate level of aggregation.
5. Establish performance and error measures for the forecast
1. Understand the objective of forecasting.
Every forecast supports decisions that are based on the forecast, so an important first step is to identify these
decisions clearly. Examples of such decisions include how much of a particular product to make, how much to
inventory, and how much to order. All parties affected by a supply chain decision should be aware of the link
between the decision and the forecast. For example, Wal-Mart's plans to discount detergent during the month of
July must be shared with the manufacturer, the transporter, and others involved in filling demand, as they all must
make decisions that are affected by the forecast of demand. All parties should come up with a common forecast
for the promotion and a shared plan of action based on the forecast. Failure to make these decisions jointly may
result in either too much or too little product in various stages of the supply chain.
2. Integrate demand planning and forecasting throughout the supply chain.
A company should link its forecast to all planning activities throughout the supply chain. These include capacity
planning, production planning, promotion planning, and purchasing, among others. This link should exist at both
the information system and the human resources management level. As a variety of functions are affected by the
outcome’s of the planning process, it is important that all of them are integrated into the forecasting process. In
one unfortunately common scenario, a retailer develops forecasts based on promotional activities, whereas a
manufacturer, unaware of these promotions, develops a different forecast for its production planning based on
historical orders. This leads to a mismatch between supply and demand, resulting in poor customer service.
To accomplish this integration, it is a good idea for a firm to have a cross-functional team, with members from
each affected function responsible for forecasting demand and an even better idea is to have members of different
companies in the supply chain working together to create a forecast.
3. Identify the major factors that influence the demand forecast.
A firm must identify the customer segments the supply chain serves. Customers may be grouped by similarities
in service requirements, demand volumes, order frequency, demand volatility, seasonality, and so forth. In general,
companies may use different forecasting methods for different segments. A clear understanding of the customer
segments facilitates an accurate and simplified approach to forecasting.

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4. Forecast at the appropriate level of aggregation.
Next, a firm must identify demand, supply, and product-related phenomena that influence the demand forecast.
On the demand side, a company must ascertain whether demand is growing, declining, or has a seasonal pattern.
These estimates must be based on demand-not sales data.
5. Establish performance and error measures for the forecast
Companies should establish clear performance measures to evaluate the accuracy and timeliness of the forecast.
These measures should be highly correlated with the objectives of the business decisions based on these forecasts.
For example, consider a mail-order company that uses a forecast to place orders with its suppliers up the supply
chain. Suppliers take two months to send in the orders. The mail-order company must ensure that the forecast is
created at least two months before the start of the sales season because of the two-month lead time for
replenishment. At the end of the sales season, the company must compare actual demand to forecasted demand to
estimate the accuracy of the forecast. Then plans for decreasing future forecast errors or responding to the observed
forecast errors can be put into place.
COORDINATING THE SUPPLY CHAIN.
• Effectively managed supply chain relationships foster cooperation and trust, thus increasing supply
chain coordination. In contrast, poorly managed relationships lead toeach party being opportunistic,
resulting in a loss of total supply chain profits. The management of a relationship is often seen as a
tedious and routine task. Top management, in particular, is often very involved in the design of a new
partnership butrarely involved in its management. This has led to a mixed record in running successful
supply chain alliances and partnerships.
• The below figures shows the basic process by which any supply chain partnership or alliance evolves.
• Once the partnership has been designed and established, both partners learn about the environment in
which the partnership will operate, the tasks and processes tobe performed by each partner, the skills
required and available on each side, and the emerging goals of each side. The performance of each
side is evaluated based on the improvement in profitability and on equity or fairness. At this stage, a
better evaluationof the value of the partnership becomes available, which provides both parties in the

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supply chain partnership an opportunity to revise the conditions of the partnership to improve
profitability and fairness. It is important that the initial contracts be designed with sufficient flexibility
to facilitate such alterations.
• Formal contracts may be restructured to reflect the changes. As the business environment and
company goals change, the cycle repeats itself and the relationship evolves. Any successful supply
chain partnership will go through many such cycles. Asupply chain partnership falters if the perceived
benefit from the relationship diminishesor one party is seen as being opportunistic. Problems arise
when communication between the two parties is weak and the mutual benefit of the relationship is not
reiterated regularly.
• When managing a supply chain relationship, managers should focus on the following factors to
improve the chances of success of a supply chain partnership:
• The presence of flexibility, trust, and commitment in both parties helps a supply chain
relationship succeed. Commitment of top management on both sides is crucial for success.
• Good organizational arrangements, especially for information sharing and conflict resolution,
improve chances of success. Lack of information sharing and the inability to resolve conflicts
are the two major factors that lead to the breakdown of supply chainpartnerships.
• Mechanisms that make the actions of each party and resulting outcomes visible help avoid
conflicts and resolve disputes. Such mechanisms make it harder for either party to be
opportunistic and help identify defective processes, increasing the value of the relationshipfor
both parties.
• The more fairly the stronger partner treats the weaker, vulnerable partner, the stronger the
supply chain relationship tends to be.
• The issue of fairness is extremely important in the supply chain context because most
relationships involve parties with unequal power. Unanticipated situations thathurt one party
more than the other often arise.
• The more powerful party often has greater control over how the resolution occurs. The fairness
of the resolution influences the strength of the relationship in the future.
• The relationship between Marks & Spencer and a manufacturer of a kitchen productprovides an
excellent example of a fair sharing of benefits. A few months after theproduct's introduction, the
manufacturer realized that costs had been miscalculatedand exceeded the price at which the
product was being sold to Marks & Spencer. Meanwhile, given its low retail price, customers
found the product an outstanding value and made it a big hit.
• When the manufacturer brought the problem to the attention of Marks & Spencer, its managers
helped the manufacturer reengineer both the product and the process to lower cost. Marks &
Spencer also lowered its margin to provide a sufficient profit for the manufacturer. The outcome
was one in which the relationship was strengthened between the two partners because Marks &
Spencer's fairness allowed a resolution that recognized the manufacturer's needs. In the long run,
both partners benefited and a higher level of trust developed.

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SUPPLY CHAIN RESTRUCTURING
• In the era of globalization, firms are under relentless pressure to continuously improve their
supply chain performance to minimize cost and maintain high levels of customer service.
• In the last decade, several leading firms have reaped substantial benefits by workingon initiatives
involving supply chain integration and supply chain optimization. These initiatives have helped
these firms in ensuring above-average businessperformance in their respective industry sectors.
• But in the last few years, leading firms have realized that initiatives involving supply chain
integration and supply chain optimization are not enough for ensuringabove-average business
performance. These initiatives are necessary for the very survival of a firm. These do not ensure
an above-average performance.
• Supply chain integration and related best practices have received adequate attentionin the industry.
These practices have percolated down from the best firms to emergeas necessary but insufficient
conditions for firms to establish themselves as marketleaders.
• Industries have realized that if they want to retain their leadership, they will have to go beyond
these initiatives and look at ways in which they can restructure supply chain architecture and
processes. Supply chain restructuring focuses on theseinnovative practices that separate leaders
from the “also-ran” companies.
Unlike supply chain integration and supply chain optimization, supply chain restructuring goes
beyond supply chain function and requires integrating product and process engineering with
supply chain function. Similarly, it may also involvecloser integration between marketing and
supply chain function.
Supply Chain Mapping:
• Before a firm sets out to restructure its supply chain, it has to find a method to successfully capture
and evaluate the existing supply chain processes. The methodused to capture current supply chain
processes is termed supply chain mapping.
• As can be seen in Figure 3, existing supply chain processes can be characterized based on the
following dimensions:
• Shape of the value-addition curve
• Point of differentiation
• Customer entry point in the supply chain

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Restructuring of the supply chain process involves altering the supply chain on at least one thethree dimensions.
It may also involve altering more than one dimension of the supply chain process. We initially take one
dimension at a time and later on discuss a specific innovation, which involves altering two dimensions in the
process.
Value-addition Curve:
• The supply chain encompasses all the activities/processes associated with the transformation of goods
from the raw material stage to the final stage when the goods and services reach the end customer.
• A typical supply chain starts with some input material and information, which are transformed into
the end product and delivered to the customer. This transformation involves several activities, with
each activity taking time, incurring cost, and addingvalue.
• One can debate on whether all activities add value or if there some activities that are non-value-added
activities. At this stage, we assume that the firm has removed all non-value-added activities from the
supply chain processes.
• On the x-axis we have the total time in a chain or the average flow time in the chain and on the y-axis,
we have the total cost (cumulative) in the chain.
Customer Entry Point in the Supply Chain:
• The point at which a customer places an order is shown as a dotted line in Figure 3. Inseveral industries
customers expect material off the shelf in the neighbourhood retail store.
• In such a case, the customer entry point is at the end of chain and is the same as the delivery time. But
in several industries, it is not uncommon for customers to give someamount of delivery lead time and
in such a case obviously the customer entry point willbe ahead of the delivery time. This is similar to
build-to-order or configure-to-order supply chain situations.
• Essentially, the customer entry point captures the order to delivery lead time. This dimension is
important because all the operations before the customer order must be done based on forecast,
whereas after the customer order one will be working with actual orders.
• In other words, before the customer entry point all the activities are carried out based on forecast while
subsequent activities are done based on order. As discussed in the chapter on demand forecasting,
however good the forecasting process, as per the first law of forecasting, a forecast is always wrong.
• So, if bulk of the activities can be carried out based on order rather than forecast one does not have to
worry about the likely forecast error that is inherent in any forecastingexercise.
Point of Differentiation:
• The concept of the point of differentiation is valid for any organization that is offeringa variety of end
products to customers. Products are made in a supply chain consistingof multiple stages. As the

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product moves in the chain, progressively, the product assumes an identity that is closer to the end
product.
• The point of differentiation is a stage where the product gets identified as a specific variant of the end
product. We will illustrate the concept using a toothpaste manufacturing firm. Let us assume that the
firm offers variety only in pack sizes.
• In such a firm, the packing stage is a point of differentiation. At a packing station the same basic
material, that is, toothpaste, is packed in sizes of varying dimensions. So, tillthe packing station one
has been working with the generic material, but at the packingstation the firm has to make an
irreversible decision in terms of committing the genericmaterial to a specific product variant.Similarly,
at a garment manufacturing firm, at thestitching stage the firm is committing the fabric to different sizes
and styles of garment.
• In automobile manufacturing firms like Tata, where usually large variety is offered in terms of colours,
the painting stage becomes the point of differentiation because at thatstage the firm makes an
irreversible decision about the colour of the car.
SUPPLY CHAIN PROCESS RESTRUCTURING
Supply chain process restructuring involves playing around with at least one of the threedimensions of
the supply chain in the direction as shown below:
• Postpone the point of differentiation. By moving the point of differentiation as muchas possible, a
bulk of the activities can be carried out using the aggregate-level forecastrather than the variant-level
forecast.
• Alter the shape of the value-addition curve. Shift the bulk of the cost addition as late as possible.
This will reduce the inventory in the chain and also help the firm in having some flexibility. If the
bulk of the cost addition takes place at a later point in time in the chain, one will be in a position to
respond to unforeseen changes with the least cost.
• Advance the customer ordering point. Move from an MTS to a CTO supply chain.By moving the
customer ordering point as early as possible, one can carry out the bulkof the activities against an
order, which reduces the importance of forecasting. If one were also able to postpone the point of
differentiation, one will be able to move from an MTS to a CTO supply chain.
In a CTO supply chain, since the point of differentiation takes place after customer order, one does
not have to prepare a variant-level forecast.
Before we get into a detailed discussion about supply chain restructuring, it will be important to
compare it against supply chain integration and supply chain optimization.
As can be seen in below figure,

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supply chain integration and supply chain optimization focus on lowering the value-addition curve.
This results in overall reduction in cost and time and will result in an absolute shift in the point of
differentiation but the relative position of the point of differentiation does not change. Unlike these
two approaches,
supply chain restructuring affects the shape of the value-addition curve, shifts customer ordering, or
shifts the point of differentiation.
This will essentially require supply chain process restructuring and may also involve a change in
product design or a change in the product service bundle offered to customers. Supply chain
restructuring is likely to bring in substantial business benefits in general and in special cases it
fundamentally changes the way in which the supply chain is managed by moving from the MTS to
the CTO business model.
postpone the point of differentiation
Delaying an operational process that results in variety explosion or customization to a later point in
the supply chain postpones the point of product differentiation. Delayingthe differentiating operations,
apart from reducing inventories, also reduces the time period for which one has to carry out forecasting
at the variant level and thereby reducesinventory and improves customer service and reduces product
obsolescence.
Postponement for Reducing Transportation Cost
Usually, postponing of the assembly process is carried out for shifting the point of differentiation to a
later stage. But there have also been cases where firms have used the postponement strategy for
delaying an operational process to a later point in the supply chain in order to reduce transportation
costs. Transportation cost is reduced in the case of bulky finished products by shifting the assembly
operations to the customerend as transporting parts as kits is cheaper than transporting a finished
product.
Example: Postponement in Bicycle Industry
The bicycle industry in India belongs to a category of industries that traditionally practices the
postponement strategy. The reasons for this practice are as follows:
• To reduce transport complexities and costs. The bicycle manufacturers limit their activities to
production of frames, handle bars and transmission parts. Other suppliers produce the tyres, tubes,
seats and many extra fittings. A large number of bicycle dealer’s stock products of all bicycle
manufacturers. The bicycle purchasing process isas follows: when the customer arrives at the bicycle

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shop, she/he opts for a particular frame size offered by a particular bicycle manufacturer. Similarly,
she/he will opt for aparticular tyre size, offered by a particular tyre manufacturer and so on. Given this
situation, it is imperative that the assembly of the final product is carried out at the dealer point.
Additionally, the entire assembly takes just 15–30 minutes.
• Less exposure to damage than when transported as fully assembled bicycles.
• Less need for shop space when material is stocked as components instead of as fully assembled
bicycles.
• Low-technology nature of the assembly operation, which ensures there are noinconsistencies in
product quality.
• Though the bicycle industry has worked on the idea of postponement of assembly to primarilyreduce
transportation cost, they can also take advantage of this strategy andoffer higher variety. The bicycle
industry can design a modular-level variety and allowcustomers to choose a combination of modules
and the retailer can assemble the bicycle, which is essentially configured to customer requirements.
This facilitates the bicycle industry’s transition to a mass-customization environment.
Problems with Implementing the Postponement Strategy
The examples cited above help in understanding the industrial and technologicalcharacteristics that
make the postponement strategy viable. In general, postponement strategy is likely to be advantageous
in the following situations:
• High level of product customization
• Existence of modularity in product design
• High uncertainty in demand
• Long transport lead time
• Short lead time of postponed operation
• Low value addition in transportation
• High value addition in postponed operation
• Difference in tariff rates for components and finished goods in different markets.
IT IN SUPPLY CHAIN
Information is crucial to the performance of a supply chain because it provides the basis on which supply chain
managers make decisions. Information technology consists of the tools used to gain awareness of information,
analyze this information, and execute on it to improve the performance of the supply chain.
Each of the supply chain driver’s facilities, inventory, transportation, sourcing, and pricing requires information
for decisions to be made. Information is the factual component on which decisions about each of the other drivers
are based. In essence, information is the glue that holds the entire supply chain together and allows it to function,
making information the most important supply chain driver.

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At its core, IT provides access and reporting of supply chain transaction data. More advanced IT systems then
layer on a level of analytics that uses transaction data to proactively improve supply chain performance. For
example, as a baseline, good IT systems will record and report demand, inventory, and fulfillment information for
Amazon.
IT systems that provide analytics then allow Amazon to decide whether to open new distribution centers and how
to stock them. Given that both reporting and analysis require the availability of accurate transaction data,
enterprise software forms the foundation of a supply chain IT system.
Further evolution of supply chain IT can be viewed in the context of the supply chain macro processes and their
associated processes are shown below:
• Customer relationship management (CRM). Processes that focus on downstream inter actions between the
enterprise and its customers.
• Internal supply chain management (ISCM). Processes that focus on internal operations within the enterprise.
Note that the software industry commonly calls this supply chain management (without the word internal), even
though the focus is entirely within the enterprise. In our definition, supply chain management includes all three
macro processes—CRM, ISCM, and SRM.
• Supplier relationship management (SRM). Processes that focus on upstream interactions between the enterprise
and its suppliers
All operation and analytics related to the macro processes rest on the transaction management foundation (TMF),
which includes basic enterprise resource planning (ERP) systems (and its components, such as financials and
human resources), infrastructure software, and integration software. TMF software is necessary for the three

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macro processes to function and to communicate with one another. The relationship between the three macro
processes and the transaction management foundation can be seen in Figure.
AGILE SUPPLY CHAINS
While designing supply chain configuration, a firm needs to understand the nature of demand and supply
uncertainty in the context of its business. Firms dealing with high uncertainty of demand and/or supply must
ensure that they have agile supply chain. An agile supply chain is all about flexibility. It uses data, automation,
technology, and collaboration to respond to sudden changes quickly and efficiently in the marketplace, supply
availability, and customer demand.
Agile supply chain configures their supply chain design and operations for handling high level demand uncertainty
and supply chain disruptions. The three factors such as demand uncertainty, business strategy and supply
uncertainty are addressed with agility to give the best supply chain performance.
Following strategies can be used:
• Firms facing high uncertain demand must look at innovations involving product redesign, process
redesign, network design restructure or value offering to customer.
• By observing early sales patterns, a firm operating in the fashion industry should update forecasts and
respond to the market with the updated, responsive manufacturing and high-speed transportation
systems.
• Managing supply chain disruptions involves managing certain events that have a low probability of
occurrences, but that which would have high impact on the supply chain performance.
• Firms first need to identify vulnerabilities across the entire range of its operations – from critical process
and equipment to manufacturing and warehousing sites, from technology and transportation to
distribution and management.
• To handle vulnerabilities, firms have to either create physical redundancies in the chain or develop the
necessary capabilities in the system that can manage the supply chain disruption situation in an effective
manner.
Reverse Supply chain.
What is a reverse supply chain? It’s the series of activities required to retrieve a used product from a customer and
either dispose of it or reuse it. And for a growing number of manufacturers, in industries ranging from carpets to

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computers, reverse supply chains are becoming an essential part of business. Firms are being forced to set up
reverse supply chains because of environmental regulations or consumer pressures. Companies are using reverse
supply chains as integral parts of new businesses. Bosch, for instance, has built a successful business selling power
hand tools that have been remanufactured.
Whether a company is establishing a reverse supply chain by choice or necessity, it will face many challenges. It
will have to educate customers and establish new points of contact with them, decide which activities to outsource
and which to do itself, and in general figure out how to keep costs to a minimum while discovering innovative
ways to recover value. It may also have to meet stringent environmental standards.
To make rational decisions about the structure of a reverse supply chain, it’s best to divide the chain into its five
key components and analyze options, costs, and benefits for each:
Product Acquisition. Retrieving the used product—is key to creating a profitable chain. The quality, quantity,
and timing of product returns need to be carefully managed. Otherwise, companies may find themselves flooded
with returned products of such variable quality that efficient remanufacturing is impossible. Companies often will
need to work closely with retailers and other distributors to coordinate collection.
Reverse Logistics. Once collected, products need to be transported to facilities for inspection, sorting, and
disposition. There is no one “best” design for a reverse logistics network; each has to be tailored to the products
involved and the economics of their reuse. Bulky products like tires, for instance, will require very different
handling than small but fragile products like cameras. Companies should consider not only the costs for shipping
and storing but also how quickly the value of the returned products will decline and the need for control over the
products. In many cases, it will make sense to outsource the logistics to a specialist.
Inspection and Disposition. The testing, sorting, and grading of returned products are labour-intensive and time
consuming tasks. But the process can be streamlined if a company subjects the returns to quality standards and
uses sensors, bar codes, and other technologies to automate tracking and testing. In general, a business should
seek to make disposition decisions—based on quality, product configuration, or other variables—at the earliest
possible stage in the returns process. That can eliminate many logistics costs and get remanufactured products to
market faster.
Reconditioning. Companies may capture value from returned products by extracting and reconditioning
components for reuse or by completely remanufacturing the products for resale. Reconditioning and
remanufacturing processes tend to be much less predictable than traditional manufacturing because there can be
a large degree of uncertainty in the timing and quality of returned products. Again, making smart decisions early
in the chain—in particular, when you accept and sort returns—will help to reduce manufacturing variability and,
hence, costs.
Distribution and Sales. If a company plans to sell a recycled product, it first needs to determine whether there is
demand for it or whether a new market must be created. If it’s the latter, the company should expect to make

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heavy investments in consumer education and other marketing efforts. Potential customers for remanufactured
products or components include not just the original purchasers but also new customers in different markets. The
company may, for example, want to target customers who cannot afford the new products but who would jump at
the chance to buy used versions at lower prices.
In general, the companies that have been most successful with their reverse supply chains are those that closely
coordinate them with their forward supply chains, creating what we call a closed-loop system. For example, they
make product design and manufacturing decisions with eventual recycling and reconditioning in mind. Bosch is
a good example. It builds sensors into the motors of its power tools, which indicate whether the motor is worth
reconditioning. The technology dramatically reduces inspection and disposition costs, enabling the company to
make a profit on the remanufactured tools. Even with reverse supply chains, forward thinking pays big dividends.
FUTURE OF IT IN SUPPLY CHAIN
The Future of IT in the Supply Chain At the highest level, we believe that the three SCM macro processes will
continue to drive the evolution of supply chain IT. Although there is still plenty of room to improve the visibility
and reporting of supply chain information, the relative focus on improved analysis to support decision making
will continue to grow. The following important trends will affect IT in the supply chain:
1. The growth in cloud and software as a service (SaaS)
2. Increased availability of real-time data
3. Increased use of mobile technology
4. Increased use of social media
The Goal of Supply Chain IT: From Silos to Coordination
SaaS is defined as software that is owned, delivered, and managed remotely through the cloud. Salesforce.com is
one of the best-known pure SaaS supply chain software providers (in CRM).
The availability of real-time information has exploded in most supply chains. Whereas current supply chain
software is focused primarily on improving strategy and planning decisions (often at the corporate level) that are
revisited infrequently, significant opportunity exists to devise software that will use real-time information to help
frontline supply chain staff (such as that in transportation and warehousing) make smarter and faster decisions
that are revisited frequently. The opportunity is to design systems that enable rapid insight based on real-time
data. There is significant opportunity in flagging exceptions as well as the use of predictive analytics to improve
the utilization of supply chain assets.

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The increased use of mobile technology coupled with real-time information offers some supply chains an
opportunity to better match demand to supply using differential pricing.
Mobile technology, along with real-time information, has also allowed improved use of existing supply chain
assets, often at a person-to-person level. The increased use of social media coupled with mobile technology has
the potential to alter supply chains, especially around the last mile.
E-Business in supply chain.
E-business is the execution of business transactions via the internet.
• One of the primary benefits of e-business is its ability to cut costs. This technology eliminates the need to have
a physical presence
• e-business strategies like social media and online advertising involve lower costs than traditional marketing
which allows startups and small companies to reach their target audience
The categories of E-Business can be:
B2C: The most common form of E business is B2C deals with electronic business relationships between
businesses and consumers. Many people enjoy this avenue of e-business because it allows them to shop around
for the best prices, read customer reviews and often find different products that they would not be exposed to in
the retail world. This e-business category also enables businesses to develop a more personalized relationships
with customers.
B2B - e-commerce refers to all electronic transactions of goods and sales that are conducted between two
companies. This type of e-commerce typically explains the relationship between the producers of a product and
the wholesalers who advertise the product for purchase to consumers.
C2c level of e-commerce encompasses all electronic transactions that take place between consumers.
Generally, these transactions are provided by online platforms (such as PayPal), but often are conducted through
the use of social media networks (Facebook marketplace) and websites
This E- business provides information across the supply chain • Negotiation of prices • Allows customers to
place orders • Allows customers to track orders • Filling and delivering orders • Receive payment from
customers
• Impact E-Business on responsiveness.
• Impact of E-business on efficacy.
Impact of E-Business on Responsiveness Enables a company to gain new revenues or to protect existing
revenues.
• Direct Sales to Customers.
• Hour access from any location.
• Wider Product portfolio and Information Aggregation.
• Personalization/Customization.
• Faster time to Market.

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• Flexible pricing, product portfolio, and promotions
• Price and Service discrimination
• Efficient funds Transfer
• Lower stock out levels.
• Convenience/automated processes
Impact of E-Business on efficacy:
• Reduces product handling with a shorter supply chain
• Decreases inventory cost
• Decreases delivery cost and time
• Reduces facility and processing costs
• Improve SC co-ordination
Two factors that influence consumers contemplating an online purchase are price comparisons and reviews.
These two, more often than not, are linked together in price comparison search engines, which are usually the first
thing shoppers see when they begin their search. Another reality in e-commerce is that Amazon ranks its vendors
in search results based on the same factors consumers expect: quickly and efficiently delivering good products.
Those who fail to live up to this expectation can expect to have their accounts suspended.

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Module 5 - SCM Notes_DNR.pdf