Supply chain management involves coordinating the flow of goods and information between suppliers, manufacturers, distributors, and customers. It includes planning production and inventory, coordinating transportation, and making sourcing and pricing decisions. Key drivers of supply chain performance are facilities, inventory, transportation, information, sourcing, and pricing. Firms must balance efficiency and responsiveness based on their competitive strategy. Demand management and forecasting are critical to align production with customer demand.
2. SCM Defined… (1)
Christopher (1998):
“SCM is the management of upstream and downstream relationships to deliver superior
customer value at lesser cost to the chain as a whole”.
2
3. SCM Defined… (2)
Zheng et.al (2000)
“SCM is the process of optimizing a Co’s internal practices and improving the interaction
with its suppliers and customers”.
3
4. SCM Defined… (3)
Beamon (1999):
“An integrated process where raw materials
are transformed into final products then
delivered to customers”.
4
5. What is a Supply Chain?
•All stages involved, directly or indirectly, in fulfilling a
customer request
•Includes manufacturers, suppliers, transporters,
warehouses, retailers, customers
•Within each company, the supply chain includes all
functions involved in fulfilling a customer request
(product development, marketing, operations,
distribution, finance, customer service)
5
6. What is a Supply Chain? Contd…
Customer is an integral part of the supply chain
Includes movement of products from suppliers to
manufacturers to distributors, but also includes movement
of information, funds, and products in both directions.
Probably more accurate to use the term “supply network”
or “supply web”
Typical supply chain stages: customers, retailers,
distributors, manufacturers, suppliers
All stages may not be present in all supply chains
(e.g., no retailer or distributor for Dell)
6
7. What is a Supply Chain?
7
Customer wants
TV set and goes
to X
X
Out let
Third
party DC
Samsung TV
manufacturer
Plastic
Producer
Packaging
Paper
Manufacturer
Timber
Industry
Circuit board
manufacturer
10. The Objective of a Supply Chain
•Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.)
•Supply chain profitability is total profit to be shared
across all stages of the supply chain
•Supply chain success should be measured by total
supply chain profitability, not profits at an individual
stage
10
11. The Objectives of a Supply Chain
Sources of supply chain revenue:
• the customer
Sources of supply chain cost:
• flows of information,
• products, or
• funds between stages of the supply chain
Supply chain management is the management of flows between and among
supply chain stages to maximize total supply chain profitability
11
12. Importance of Supply Chain Management
Firms have discovered value-enhancing and long term
benefits of SCM
Who benefits most? Firms with:
Large numbers of products
Large number of suppliers
Complex products
Customers with large purchasing budgets
13. Decision Phases of a Supply Chain
• Supply chain strategy or design
• Supply chain planning
• Supply chain operation
13
14. Supply Chain Strategy or Design
• Decisions about the structure of the supply chain and
what processes each stage will perform
• Strategic supply chain decisions
– Locations and capacities of facilities
– Products to be made or stored at various locations
– Modes of transportation
– Information systems
• Supply chain design must support strategic objectives
• Supply chain design decisions are long-term and
expensive to reverse – must take into account market
uncertainty.
14
15. Supply Chain Planning
•Planning decisions:
• Which markets will be supplied from which locations
• Planned buildup of inventories
• Subcontracting, backup locations
• Inventory policies
• Timing and size of market promotions
•Must consider in planning decisions demand uncertainty,
exchange rates, competition over the time horizon
15
16. Supply Chain Operation
•Time horizon is weekly or daily
•Decisions regarding individual customer orders
•Supply chain configuration is fixed and operating policies
are determined
•Goal is to implement the operating policies as effectively as
possible
•Allocate orders to inventory or production, set order due
dates, generate pick lists at a warehouse, allocate an order
to a particular shipment, set delivery schedules, place
replenishment orders
•Much less uncertainty (short time horizon)
16
18. Flows in a Supply Chain
18
Customer
Information
Product
Funds
Producer
19. Process View of a Supply Chain
• Cycle view: processes in a supply chain are divided into a
series of cycles, each performed at the interfaces between
two successive supply chain stages
• Push/pull view: processes in a supply chain are divided into
two categories depending on whether they are executed
in response to a customer order (pull) or in anticipation
of a customer order (push)
19
21. 21
An over Simplified supply chain
Delivery of a superior value: Quality flexibility
innovation and values flow to the customer
Demands for low pricing, high quality, customer supplier
Integration across a responsive and flexible supply chain
Supplier
Supplier
Buyer Customer
Customer
customer
Supplier
Value acquisition
from suppliers
Value added
in production
Value deliver
To customers
22. Cycle View of a Supply Chain
•Each cycle occurs at the interface between two successive
stages
•Customer order cycle (customer-retailer)
•Replenishment cycle (retailer-distributor)
•Manufacturing cycle (distributor-manufacturer)
•Procurement cycle (manufacturer-supplier) Cycle view
clearly defines processes involved and the owners of each
process. Specifies the roles and responsibilities of each
member and the desired outcome of each process.
22
23. Customer Order Cycle
• Involves all processes directly involved in receiving and filling the
customer’s order
• Customer arrival
• Customer order entry
• Customer order fulfillment
• Customer order receiving
23
24. Replenishment Cycle
• All processes involved in replenishing retailer inventories (retailer is now
the customer)
• Retail order trigger
• Retail order entry
• Retail order fulfillment
• Retail order receiving
24
25. Manufacturing Cycle
• All processes involved in replenishing distributor (or retailer) inventory
• Order arrival from the distributor, retailer, or customer
• Production scheduling
• Manufacturing and shipping
• Receiving at the distributor, retailer, or customer
25
26. Procurement Cycle
•All processes necessary to ensure that materials are
available for manufacturing to occur according to schedule
•Manufacturer orders components from suppliers to replenish
component inventories
•However, component orders can be determined precisely
from production schedules (different from
retailer/distributor orders that are based on uncertain
customer demand)
•Important that suppliers be linked to the manufacturer’s
production schedule
26
27. Push/Pull View of Supply Chains
27
Procurement,
Manufacturing and
Replenishment cycles
Customer Order
Cycle
Customer
Order Arrives
PUSH PROCESSES PULL PROCESSES
28. Push/Pull View of Supply Chain Processes
•Supply chain processes fall into one of two categories
depending on the timing of their execution relative to
customer demand
•Pull: execution is initiated in response to a customer
order (reactive)
•Push: execution is initiated in anticipation of customer
orders (speculative)
•Push/pull boundary separates push processes from pull
processes
28
29. Considerations for Supply Chain Drivers
Driver Efficiency Responsiveness
Inventory Cost of holding Availability
Transportation Consolidation Speed
Facilities Consolidation /
Dedicated
Proximity /
Flexibility
Information What information is best suited for
each objective
29
30. Competitive Changes Over Time
Competitive pressures can change over time
More competitors may result in an increased
emphasis on variety at a reasonable price
The Internet makes it easier to offer a wide variety of
products
The supply chain must change to meet these
changing competitive conditions
31. Primary goal Efficient SC Responsive SC’s
Product design strategy Supply demand at the
lowest cost maximize
performance at a minimum
product cost
Respond quickly to
demand. Create
modularity to allow
postponement of product
differentiation
Pricing Strategy Lower Margins because
price is a prime customer
drive
Higher margins because
price is not a prime
customer drive.
Manufacturing strategy Lower costs through high
utilization
Maintain capacity
flexibility to buffer
31
Comparison of efficient and responsive supply chain
32. Primary goal Efficient SC Responsive SC’s
Inventory strategy Minimize inventory to
lower cost
Maintain buffer inventory to
deal with demand/supply
uncertainty
Lead time strategy Reduce but not at the
expense of costs
Aggressively reduce even if the
costs are significant
Supplier strategy Select based on cost and
quality
Select based on speed,
flexibility, reliability and
quality.
32
33. Drivers of Supply Chain Performance
Facilities
places where inventory is stored, assembled, or fabricated
production sites and storage sites
Inventory
raw materials, WIP, finished goods within a supply chain
inventory policies
Transportation
moving inventory from point to point in a supply chain
combinations of transportation modes and routes
Information
data and analysis regarding inventory, transportation, facilities throughout the
supply chain
potentially the biggest driver of supply chain performance
Sourcing
functions a firm performs and functions that are outsourced
Pricing
Price associated with goods and services provided by a firm to the supply chain
34. Supply Chain Decision Making Frame work
(Supply Chain Framework)
34
Efficiency Responsiveness
Inventory Transportation Facilities Information
Supply chain structure
Drivers
Competitive strategy
Supply chain strategy
35. Facilities
Role in the supply chain
the “where” of the supply chain
manufacturing or storage (warehouses)
Role in the competitive strategy
economies of scale (efficiency priority)
larger number of smaller facilities (responsiveness priority)
36. Inventory: Role in the Supply Chain
36
Inventory exists because of a mismatch between
supply and demand
Source of cost and influence on responsiveness
Impact on
material flow time: time elapsed between when
material enters the supply chain to when it exits
the supply chain
throughput
rate at which sales to end consumers occur
I = inventory; R = throughput; T = flow time
Inventory and throughput are “synonymous” in a supply chain
37. Inventory: Role in Competitive Strategy
37
If responsiveness is a strategic competitive priority, a
firm can locate larger amounts of inventory closer to
customers
If cost is more important, inventory can be reduced to
make the firm more efficient
Trade-off
39. Transportation: Role in the Supply Chain
39
Moves the product between stages in the supply
chain
Impact on responsiveness and efficiency
Faster transportation allows greater responsiveness
but lower efficiency
Also affects inventory and facilities
40. Transportation: Role in the Competitive Strategy
40
If responsiveness is a strategic competitive priority, then faster
transportation modes can provide greater responsiveness to
customers who are willing to pay for it
Can also use slower transportation modes for customers whose
priority is price (cost)
Can also consider both inventory and transportation to find the
right balance
41. Components of Transportation Decisions
41
Mode of transportation:
Route and network selection
In-house or outsource
42. Information: Role in the Supply Chain
The connection between the various stages in the supply chain
– allows coordination between stages
Crucial to daily operation of each stage in a supply chain –
e.g., production scheduling, inventory levels
43. Information: Role in the Competitive Strategy
43
Allows supply chain to become more efficient and more
responsive at the same time (reduces the need for a trade-off)
Information technology
What information is most valuable?
44. Components of Information Decisions
44
Push (MRP) versus pull (demand information transmitted
quickly throughout the supply chain)
Coordination and information sharing
Forecasting and aggregate planning
Enabling technologies
EDI
Internet
ERP systems
Supply Chain Management software
Overall trade-off: Responsiveness versus efficiency
45. Sourcing: Role in the Supply Chain
45
Set of business processes required to purchase goods and
services in a supply chain
Supplier selection, single vs. multiple suppliers, contract
negotiation
46. Sourcing: Role in the Competitive Strategy
46
Sourcing decisions are crucial because they affect the level of
efficiency and responsiveness in a supply chain
In-house vs. outsource decisions- improving efficiency and
responsiveness
47. Components of Sourcing Decisions
47
In-house versus outsource decisions
Supplier evaluation and selection
Procurement process
Overall trade-off: Increase the supply chain profits
48. Pricing: Role in the Supply Chain
48
Pricing determines the amount to charge customers in a supply
chain
Pricing strategies can be used to match demand and supply
49. Pricing: Role in the Competitive Strategy
49
Firms can utilize optimal pricing strategies to improve
efficiency and responsiveness
Low price and low product availability; vary prices by
response times
50. Components of Pricing Decisions
50
Pricing and economies of scale
Everyday low pricing versus high-low pricing
Fixed price versus menu pricing
Overall trade-off: Increase the firm profits
51. Examples of Supply Chains
• Dell / Compaq
• Toyota / GM / Ford
• McMaster Carr / W.W. Grainger
• Amazon / Borders / Barnes and Noble
• Webvan / Peapod / Jewel
51
52. Major Supply Chain Issues/Key Issues
• Supply Chain Networks
• Complexity
• Inventory Deployment
• Information
• Cost and Value
• Organizational Relationships
• Performance Measurement
• Technology
• Transportation Management
• Supply Chain Security
• Talent Management
52
53. Importance of Logistics in Business
• The Council of Supply Chain Management Professionals (CSCMP), the
largest professional organization on logistics, has provided the most useful
definition of logistics, and according to that,
Logistics management is that part of the SCM that plans, implements, and controls
the efficient, effective forward and reverse flows and storage of goods, services
and other related information between the point of origin and the point of
consumption in order to meet the customers’ requirements.
54. Importance of Logistics in Business (Contd)
Logistics management activities typically include inbound and outbound
transportation management, fleet management, warehousing, materials
handling, order fulfilment, logistics network design, inventory management,
supply/demand planning, and management of third-party logistics (TPL)
service providers.
55. Basic Elements of Logistics
• Transportation
• Warehousing
• Inventory management
• Packaging and utilization
• Information and communication
56. Types of Logistics
• Business logistics: moving cargo
• General logistics: moving cargo and moving people
57. Types of Logistics (Contd)
• Inbound logistics or procurement logistics
• Production logistics or internal logistics
• Outbound logistics or distribution logistics or marketing logistics
• Reverse logistics
• Green logistics
• Defence logistics
• Medical logistics
• Disaster logistics
• War logistics
• Agricultural logistics
• Tourism logistics
58. Logistics Activities and Goals
• Network design
• Information processing
• Transportation
• Inventory management
• Warehousing, material-handling and packaging
59. Operational Objectives of a Logistics System
• Rapid response
• Minimum variance
• Minimum inventory
• Movement consolidation
• Quality
• Life cycle support
60. Components of Logistics
The basic elements of logistics include the following functions:
• Transportation
• Warehousing
• Inventory management
• Packaging and utilization
• Information and communication
61. Operational Objectives of a Logistics System
• Rapid response
• Minimum variance
• Minimum inventory
• Movement consolidation
• Quality
• Life cycle support
63. Demand Management
• Demand management is one of the key areas which impact the supply
chain performance. The ideal performance of a supply chain will,
however, be when the end-to-end chain and link in the entire value chain
is led by the real-term customers’ demand.
• If a business can achieve that status of seamlessly meeting the customer
demand by coordinating and managing the production operations as well
as inventory without any excess stock at any stage, that would be the ideal
situation.
• Demand management, thus, is a very critical area of influence that
determines the performance of the business.
64. Estimating the Total Market Demand
• Define the market.
• Divide the industry demand into its principal or main components.
• Forecast the key drivers of demand in each segment and project how they
are likely to change.
• Conduct sensitivity analyses to understand the most critical assumptions
and to gauge risks to base line forecast.
65. Demand Accuracy
• Customer data relating to the demographics, consumption pattern and
buying habits
• Seasonality of demands, if any
• Break-up of demands by customer segments including institutional
customers and bulk customers
66. Demand Accuracy (Contd)
• Information regarding how, when and where the expected demand has to
be met; also, information regarding channel intermediaries
• Common trade practices and trade terms
• Developing and executing the best practices for logistics, transportation
and distribution methods to deliver products and services to consumers in
the desired format
67. Efficient Demand Management
• Efficient demand management means servicing the customer
requirement on real-time basis at least cost or at affordable cost which
entails delivering the customer order wherever and whenever required at
minimal cost of servicing.
• Some companies have developed systems and processes to deliver
customer orders most efficiently.
• Their service level and frequency are much higher than their competitors.
68. Why Is Demand Forecast Important?
• The entire enterprise resource planning (ERP) commences when the sales
forecasting exercise is completed and approved.
• The forecast of the annual budgetary revenue is therefore very important for
all businesses, irrespective of their types, nature and character.
• The bigger the company, more complex the forecast processes would be.
• Many decisions including recruitment or staffing, organization structure and
design are linked with the business forecast as well as the brand marketing
plan to achieve the forecasted volume.
69. Factors Influencing Forecast
• The forecast for a company’s product lines depends on many internal as
well as external factors.
• Internal factors largely include the company’s advertisement and
promotional plan, product’s past demand in the same market, whether
any new product variant in different price segment is being introduced or
not, competitive action in the same market, economic growth, product
category growth rate and so on.
70. Types of Forecasts
• Short-term forecasts: These short-term forecasts are usually for periods
up to three months.
• Medium-term forecasts: Medium-term forecasts are usually for a period
of one year. These are thus the annual budget of the business and have
significance for the planners.
• Long-term forecasts: These are usually for periods of three years and
upwards but not more than five years, as beyond five years it is not
realistically possibly to forecast considering the expected changes in
business environment including technology and so on.
71. Business Functions Dependent on
Demand Forecast for Their Planning
Other functions in a business can be directly and indirectly affected in their
planning considerations as a result of the sales forecast and such functions
will include the following:
• The production and operations department needs to know the sales
forecasts so that they can arrange production planning.
• The purchase department normally gets it cues to purchase from
production via purchase requisitions or bill of materials.
• The human resource department is also interested to know the sales
forecast from the manpower planning point of view.
72. Business Functions Dependent on
Demand Forecast for Their Planning (Contd)
• The finance and costing department needs to know the medium-term
sales forecast for their budgeting purpose.
• The research and development department also needs to know the
forecasts, although their requirement is more for technological point of
view.
• All sales promotion and marketing activities are aligned with the sales
forecast to ensure that the budgeted numbers are achieved.
73. Levels of Forecast
Forecasts can be prepared at different levels of aggregation, starting from
global level to national and ultimately to SKUs, month-wise as well as
weekly, salesperson territory wise, taking into account the seasonal impact
on sales performance and consumer demand which can really help the
corporation in designing and planning the supply chain to satisfy the
projected demand of the customers.
78. Consumer–User Survey Method
• The method essentially involves asking customers about their likely
purchase intention during the forecasting period.
• For an industrial product where numbers of customers are not too many,
such research are often carried out by involving the salespersons
responsible for servicing those customers.
• But if there is competition in the product category that your business
represents, then it may not be easy to ascertain what percentage of that
incremental demand of that customer will really be sourced or purchased
from you.
79. Sales Force Composite
• This method involves salespersons making a product-by-product forecast
for their particular sales territory.
• The sum total of all salespersons’ forecast covering the entire sales
territory would normally be equal to the company’s sales forecast taking a
bottom-up approach and sometimes it is also considered as a ‘grass-roots’
approach.
• This approach sometimes can be realistic as salespersons involved in
generation of or forecasting the numbers in their own territory will be
eventually responsible for delivering these forecasted numbers and hence
the company can rely on this forecast.
80. Delphi Method
• This method bears the resemblance of the ‘expert opinion’ method, and
the forecasting team is chosen using a similar criterion. The main
difference is that they do not meet in a committee.
• The project administers a structured questionnaire to each member of the
team. The questionnaire can be administered in different stages to
ultimately bring out a forecast for the company covering the product
categories that the company sells.
81. Bayesian Decision Theory
• This theory has been placed under qualitative techniques of forecasting,
although it is in reality a mix of both subjective and objective techniques.
• The technique is similar to the critical path analysis in that it uses a
network diagram and probabilities must be estimated for each event over
the network.
• Bayesian decision theory is a relatively new and somewhat controversial
method for dealing with future uncertainties.
82. Quantitative Forecasting Techniques
• This is also sometimes referred to as objective or mathematical
techniques. Quantitative techniques are based on the manipulations of
historical data. An underlying assumption of time series forecasting is that
the future demand is solely dependent on the past demand.
• For example, this year’s demand is 10% more than the last year’s actual
sales. Time series analysis takes into account the historical sales over a
longer period of years to arrive at a realistic level of the projected sales.
• Cause-and-effect forecasting (also referred to as associative forecasting)
assumes that one or more factors are related to the demand and that the
relationship between cause and effect can be used to estimate the future
demand.
83. Naive Forecasts
• Naive forecasting is the simplest forecasting technique and is often used
as the standard of comparison with the forecasts derived from other
methods.
• A large number of companies (over 30%) use this method of forecasting
on a regular basis.
• This method actually assumes that nothing is going to change and,
therefore, the next quarter’s forecast will actually be the current level of
sales performance.
84. MAPE Method
• When you like to compare the forecasting accuracy over several time
periods, the mean absolute percentage error (MAPE) method is the
method used by most of the businesses. The MAPE can be calculated
using the following formula:
1
(Forecast Actual) / Actual
MAPE 100%
n
i
N
85. Moving Average Method
• The moving average method actually predicts the future sales on the
average sales performance for the same product categories in the recent
past. As such, the average sales revenue actually achieved for several
periods in the recent past is used to predict or forecast the sales for the
next period, using the following formula:
𝑆𝑡 + 𝑆𝑡−1 + 𝑆𝑡−2 + … + 𝑆𝑡−𝑛+1
𝐹𝑡+1 =
N
87. Trend- and Seasonality-Corrected
Holt–Winters’ Exponential Smoothing
• The trend-corrected exponential smoothing as per Holt’s model is
appropriate when the demand is assumed to have a level and a trend in
the systematic component but no seasonality, which would mean that
Systematic Component of Demand = Level + Trend
• Both trend- and seasonality-corrected exponential smoothing as per
Winters’ model are appropriate when the systematic component of the
demand has a level, a trend and also a seasonality factor, which thus
would mean that
Systematic Component of Demand = (Level + Trend) × Seasonal Factor
88. Applicability of the Methods
Forecasting Methods
• Moving average method
• Simple exponential smoothing
• Holt’s model
• Winters’ model
Where Applicable
• No trend or seasonality
• No trend or seasonality
• Trend but no seasonality
• Trend and seasonality
89. When to Use Quantitative
Forecasting Methods
• Quantitative forecasting techniques are best employed in situations
where we have access to historical data, and these are also helpful if the
time series we are trying to forecast are stable and do not often change
the direction.
• Quantitative methods have a distinctive advantage in situations where
frequent forecasts are to be made for very large numbers of products and
product categories which may also need the use of computers and
forecasting software because of large numbers of calculations.
90. Changing Business Environment
• The numerical methods for forecasting sales normally attempt to make
projections from historical data and often do not take into consideration
the impact of any significant development in the business environment on
sales numbers.
• Percentage rate of change, unit rate of change and two variable regression
are in fact poor predictors of series under a significant turning point in
business.
• Naive, moving average and exponential smoothing are somewhat better
because they tend to lag and then adapt to new realities.
91. Forecasting in Practice
For deriving realistic forecasts, a close coordination between sales and SCM
teams and also the channel partners including the IT team of the company is
very much desirable. Share only those data which are valuable for the
specific business function. The value of the data depends on where one is
located in the entire chain.
92. What Industry Practices
Industry tends to use simplistic methods to forecast sales. The only concern
is the degree of errors in their method. If the degree of error is very low
and/or does not put the SCM tasks in difficulty in terms of handling a
possible stock-out situation resulting in loss of sales or a sudden spurt in
demand offering short-term opportunities to capture and grow, then the
methods that are being employed are for all practical purposes working well
for the company.
