1. SUPPLY CHAIN MANAGEMENT
Supply Chain: The sequence of organization’s facilities, functions,
and activities that are involved in
producing and delivering a product or service.
Need for Supply Chain Management
1. Improve operations
2. Increasing levels of outsourcing
3. Increasing transportation costs
4. Competitive pressures
5. Increasing globalization
6. Increasing importance of e-commerce
7. Complexity of supply chains
8. Manage inventories
Benefits of Supply Chain Management
1. Lower inventories
2. Higher productivity
3. Greater agility
4. Shorter lead times
5. Higher profits
6. Greater customer loyalty
Elements of Supply Chain Management
Logistics
The goal of logistic work is to manage the completion of project
life cycles, supply chains and resultant
efficiencies. Often Logistics is termed as the art and science of
managing and controlling the flow of
goods, energy, information and other resources like products,
services, and people, from the source of
production to the marketplace.
It also refers to the movement of materials and information within
a facility and to incoming and
outgoing shipments of goods and materials in a supply chain.
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Logistics Deciding how to best move and store materials
Location Determining location of facilities

2. Suppliers Monitoring supplier quality, delivery, and relations
Purchasing Evaluating suppliers and supporting operations
Inventory Meeting demand while managing inventory costs
Processing Controlling quality, scheduling work
Design Incorporating customer wants, mfg., and time
Forecasting Predicting quantity and timing of demand
Customers Determining what customers want
Element Typical Issues
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Logistics is the time related positioning of resources and is
commonly seen as a branch of engineering
which creates "people systems" rather than "machine systems. It
involves the integration of information,
transportation, inventory, warehousing, material handling, and
packaging.
.
Important Characteristics of Logistics
1. Movement within the facility
2. Bar coding
3. Incoming and outgoing shipments
4. EDI (Electronic Data Interchange)
5. Distribution
6. JIT Deliveries
Logistics: Evaluating Shipping Alternatives
L A situation that arises frequently in some businesses in making a
choice between quicker(
expensive) shipping alternatives such as overnight or 2 day air and
slower but cheaper alternatives.
The decision in such cases often focuses on the cost savings of
alternatives versus the increased
holding cost that result from using slower alternative.
h Often the supplier gets paid on delivery of the product through
EDI the very same time the order
reaches its destination.

3. The Incremental Holding cost incurred by using the slower
alternative is computed as follows:
Incremental Holding Cost= H ( d/365)
Where H=Annual Holding cost for the item.
d = Time savings in days and d/365 is fraction of year saved.
Logistics Example
Determine the shipping alternative ( with in Pakistan) for a Karachi
based Montessori toy
manufacturer,1 days or 5 days are best when the holding cost of
the item is Rs. 100,000 per year and the
1 day shipping cost is Rs 1500 and 3 day shipping cost is
Rs. 600
Rs. 500
Solution
H= Rs. 100,000 per year
Time savings = 2 days using 1 day alternative
Holding cost for additional 2 days
= 100,000 X ( 2/365)
= Rs. 547.95=548.
Or Holding cost per day = Rs. 274
Alternative A
Cost savings = Rs. (1500-600)= Rs. 900, because the actual cost of
savings of Rs 900 is more than
the holding cost of Rs. 548, use the 3 day option.
Cost savings = Rs. (1500-500) = Rs. 1000, because the actual cost
of savings of Rs 1000 is greater
than the holding cost of Rs.548, use the 3 day option.
Distribution Requirements Planning
Distribution requirements planning (DRP) is a system for
inventory management and distribution
planning. Extends the concepts of MRPII.
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Uses of DRP

4. Management uses DRP to plan and coordinate:
1. Transportation
2. Warehousing
3. Workers
4. Equipment
5. Financial flows
Electronic Data Interchange
EDI is the direct transmission of inter-organizational transactions,
computer-to-computer, including
purchase orders, shipping notices, and debit or credit memos.
Electronic Data Interchange gives an organization the following
benefits and advantages.
1. Increased productivity
2. Reduction of paperwork
3. Lead time and inventory reduction
4. Facilitation of just-in-time systems
5. Electronic transfer of funds
6. Improved control of operations
7. Reduction in clerical labor
8. Increased accuracy
Efficient Consumer Response
Efficient consumer response (ECR) is a supply chain management
initiative specific to the food
industry. ECR reflects companies’ efforts to achieve quick
response using EDI and bar codes.
E-Commerce: is the use of electronic technology to facilitate
business transactions.
Successful Supply Chain
1. Trust among trading partners
2. Effective communications
3. Supply chain visibility
4. Event-management capability
a. The ability to detect and respond to unplanned events
5. Performance metrics
Summary

5. Supply Chain Management is primarily the flow of information
which ensures the effective flow of
materials throughout the value chain. The chain extends from the
Suppliers to the organization and from
the organization to the customers. Operations Managers should be
able to identify that the strength of
the Supply Chain is the strength of its weakest link. If an
organization fails to make use of the customer
feed back it not only looses its customer base but also weakens its
supply chain and loses its business to
its customers. Suppliers normally come at the upstream of the
organization and customers at the
downstream to complete the Supply Chain. Many Software are
available to ensure that Supply chain is
managed effectively by the organization. Supply Chain
Management is now gaining popularity in
Pakistan.
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Production and Operations Management –MGT613 VU
Lesson 40
SUPPLY CHAIN MANAGEMENT-I
Learning Objective
In this lecture we will focus on certain important parameters of
Supply Chain Management. We will
discuss the Supply Chain Operational Reference Metrics and
Collaborative Planning Forecasting
and Replenishment Process, which would help us analyze the
Supply chains. This would also help
us an operation manager to design effective supply chains. We will
try to understand the concepts of
Velocity and Bullwhip effect and how they pose a serious
challenge to the effectiveness of the
Supply Chain.
Supply Chain Operational Reference (SCOR) Metrics

6. Perspective Metrics
Reliability On-time delivery
Order fulfillment lead time
Fill rate (fraction of demand met from
stock)
Perfect order fulfillment
Flexibility Supply chain response time
Upside production flexibility
Agility to obtain competitiveness
Expenses Supply chain management costs
Warranty cost as a percent of revenue
Value added per employee
Assets/utilization Total inventory days of supply
Cash-to-cash cycle time
Net asset turns
Supply chain response time often makes or breaks a supply chain.
CPFR
CPFR is an acronym derived from the first letters of the following
phrase: Collaborative Planning,
Forecasting and Replenishment.
1. Focuses on information sharing among trading partners.
2. Forecasts can be frozen and then converted into a shipping plan.
3. Eliminates typical order processing.
CPFR Process consists of the following steps.
Step 1 – Front-end agreement
Step 2 – Joint business plan
Steps 3-5 – Sales forecast
Steps 6-8 – Order forecast collaboration
Step 9 – Order generation/delivery execution
Creating an Effective Supply Chain
1. Develop strategic objectives and tactics.
2. Integrate and coordinate activities in the internal supply chain.
3. Coordinate activities with suppliers with customers.
4. Coordinate planning and execution across the supply chain.
5. Form strategic partnerships.

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Production and Operations Management –MGT613 VU
Supply Chain Performance Drivers
1. Quality
2. Cost
3. Flexibility
4. Velocity
5. Customer service
Velocity
1. Inventory velocity: The rate at which inventory (material) goes
through the supply chain.
2. Information velocity: The rate at which information is
communicated in a supply chain.
Challenges to an Effective Supply Chain Management
1. Barriers to integration of organizations
2. Getting top management on board
3. Dealing with trade-offs
4. Small businesses
5. Variability and uncertainty
6. Long lead times
Trade-offs
1. Cost-customer service
a. Disintermediation
2. Lot-size-inventory
a. Bullwhip effect
3. Inventory-transportation costs
a. Cross-docking
4. Lead time-transportation costs
5. Product variety-inventory
a. Delayed differentiation
a Bullwhip effect represents the real life time situation that
Inventories are progressively
larger moving backward through the supply chain.

8. Cross-docking represents the fact that the goods arriving at a
warehouse from a supplier are
unloaded from the supplier’s truck and loaded onto outbound
trucks. Avoids warehouse
storage.
s Delayed differentiation relates to the Production of standard
components and
subassemblies, which are held until late in the process to add
differentiating features.
d Disintermediation is reducing one or more steps in a supply
chain by cutting out one or
more intermediaries.
Supply Chain Issues
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Quality control
Production planning and
control
Inventory policies
Purchasing policies
Production policies
Transportation
policies
Quality policies
Design of the
supply chain,
partnering
Strategic Issues Tactical Issues Operating Issues
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Production and Operations Management –MGT613 VU
Supply Chain Benefits and Drawbacks
Problem Potential
Improvement
Benefits Possible
Drawbacks
Large inventories Smaller, more frequent

9. deliveries
Reduced holding costs Traffic congestion
Increased costs
Long lead times Delayed differentiation
Disintermediation
Quick response May not be feasible. May
need absorb functions
Large number of
parts
Modular Fewer parts
Simpler ordering
Less variety
Cost
Quality
Outsourcing Reduced cost, higher
quality
Loss of control
Variability Shorter lead times,
better forecasts
Able to match supply
and demand
Less variety
Supplier Partnerships
Ideas from suppliers could lead to improved competitiveness
1. Reduce cost of making the purchase
2. Increase Revenues
3. Enhance Performance
Critical Issues
1. Technology management
a. Benefits
b. Risks
2. Strategic importance
a. Quality
b. Cost
c. Agility

10. d. Customer service
e. Competitive advantage
Operations Strategy
1. SCM creates value through changes in time, location and
quantity.
2. SCM creates competitive advantage by integrating and
streamlining the diverse range of
activities that involve purchasing, internal inventory, transfers and
physical distribution.
Summary
Supply Chain Management dynamics allow an Operations
Manager to evolve an effective strategy that
creates value. Logistics and purchasing alone can allow an
operations manager to effectively control the
flow of information and materials with in and to and fro from the
organization. Organizations aiming for
SCM implementation often fail because of lack of training of their
employees as well as top
managements commitment.
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