SUPPLY CHAIN MANAGEMENT

ACKNOWLEDGEMENT

It is a great pleasure in presenting this project as a part of our curriculum. We would like to thank

people who helped us making our project a success.

First of all we would like to thank Prof. Vinay for giving us an opportunity to work on this

project and for his immense help and coordination, who gave us encouragement and guidance

during our project period.

We would also like to thank our institution (BMA) for giving us an opportunity to work on this

project.

SAURABH
SANJID Page 1
SUPPLY CHAIN MANAGEMENT

Introduction:

Until the dawn of 20th century business as well as distribution channel used the traditional

delivery process for the experience and expertise dating back to the industrial revolution era. But

the introduction of information technology brought up a new dimension to the whole delivery

process. Information technology has given business connectivity a new way of order relationship

called Supply Chain Management. Supply Chain Management is a process where in firms

collaborates with each other in the bid of leveraging their strategic positioning and to increase

their operating efficiency (Bowersox, Closs, 2008).

Marketing, distributing, Planning, manufacturing and purchasing was considered independently

as not a part of supply chain during the outset of industrial revolution. Each of the processes had

their own set of goals and objectives and they operated independently.

Marketing considered high customer service and maximization of profitable sale as their

objective; Manufacturing had higher and efficient output at the lower costs as their objective etc.

Thus there was a need of mechanism wherein all independent functions could be integrated

together (Ganeshan, Harrison, 1995).

Supply chain management can be viewed as a decision making process between strategy and

operation. It’s also seen as a mechanism that lies in-between this completely vertically integrated

individual firms where the whole operation takes place with the mix of coordination and

effective management. Thus supply chain is like a relay team within each team is more

competitive and there needs to coordinate between the entire team for achieving results.

SAURABH
SANJID Page 2
SUPPLY CHAIN MANAGEMENT

Executive summary:

The competitive and global nature of today’s business environment dictates that this direction

and transformation takes place in a way that is efficient and effective as possible. Continuing

emphases on time, cost and quality improvements have sharpened the need to coordinate and

cooperate with trading partners around the world to achieve results that allow customers to be

successful. Thus Supply chain management focuses on the integration of activities across several

companies to manage the flow of products, services, people, equipment, facilities and other

resources.

The report covers the literature behind Supply chain and Supply chain management. The various

objectives and analysis of Supply chain management are covered in the report. There are many

elements which form a backbone of Supply chain management. Efforts are been made to explore

these dimensions with the help of retail giant “Wal-mart”. The report also covers the evolution of

Wal-mart with Supply chain management technology at its behest. Efforts are been made to

understand different processes that Wal-mart uses in its Supply chain management.

SAURABH
SANJID Page 3
SUPPLY CHAIN MANAGEMENT

Literature Review:

The movement of a product or a service from supplier to customer takes place with the help of

organizations, people, technology and resources. According to Terry.Harrison “a supply chain is

a network of facilities and distribution options that perform the functions of procurement of

materials, transformation of materials into intermediate and finished products and the distribution

of the finished products to customers”. Supply chain finds its place in both services as well and

manufacturing industry. Supply chain can also be explained as the association of the retailers,

distributors, transporters and suppliers who come together and share the process of sale, delivery

and production of a particular product or service.

Supply chain management is an efficient way of managing the above mentioned activities.

According to Jessie Chinami Supply chain management can be defined as “an oversight of

materials, information and finances as they move in a process from supplier to manufacturer to

wholesaler to retailer and finally to the consumer”. The basic aim of supply chain management

is coordinating and integrating the flow which takes place within and among companies.

The basic three types of supply chain management flows are:

➢ The product flow

➢ The information flow

➢ The finances flow

The product flow deals with the goods and services that are subjected to movement from a

supplier to a customer and vice-versa. The information flow manages the upgrading as well as

SAURABH
SANJID Page 4
SUPPLY CHAIN MANAGEMENT

management relating to the status of the delivery process while the financial flow manages all

the finances related to the delivery process.

A schematic diagram of the Supply chain management process is as shown. The various

processes in Supply chain management are:

➢ Supply chain strategy

➢ Logistics

➢ Product lifecycle management

➢ Procurement

➢ Asset management

➢ Enterprise applications

➢ Supply chain planning

SAURABH
SANJID Page 5
SUPPLY CHAIN MANAGEMENT

The decisions associated with supply chain management cover both the long-term and short-

term. Strategic decisions deal with corporate policies, and look at overall design and supply

chain structure. Operational decisions are those dealing with every day activities and problems of

an organization. These decisions must take into account the strategic decisions already in place.

Therefore, an organization must structure the supply chain through long-term analysis and at the

same time focus on the day-to-day activities.

Furthermore, market demands, customer service, transport considerations, and pricing

constraints all must be understood in order to structure the supply chain effectively. These are all

factors, which change constantly and sometimes unexpectedly, and an organization must realize

this fact and be prepared to structure the supply chain accordingly.

Structuring the supply chain requires an understanding of the demand patterns, service level

requirements, distance considerations, cost elements and other related factors. It is easy to see

that these factors are highly variable in nature and this variability needs to be considered during

the supply chain analysis process. Moreover, the interplay of these complex considerations could

have a significant bearing on the outcome of the supply chain analysis process.

There are six key elements to a supply chain:

➢ Production

➢ Supply

➢ Inventory

➢ Location

➢ Transportation, and

➢ Information
SAURABH
SANJID Page 6
SUPPLY CHAIN MANAGEMENT

The following describes each of the elements:

1. Production

Strategic decisions regarding production focus on what customers want and the market demands.

This first stage in developing supply chain agility takes into consideration what and how many

products to produce, and what, if any, parts or components should be produced at which plants or

outsourced to capable suppliers. These strategic decisions regarding production must also focus

on capacity, quality and volume of goods, keeping in mind that customer demand and

satisfaction must be met. Operational decisions, on the other hand, focus on scheduling

workloads, maintenance of equipment and meeting immediate client/market demands. Quality

control and workload balancing are issues which need to be considered when making these

decisions.

2. Supply

Next, an organization must determine what their facility or facilities are able to produce, both

economically and efficiently, while keeping the quality high. But most companies cannot provide

excellent performance with the manufacture of all components. Outsourcing is an excellent

alternative to be considered for those products and components that cannot be produced

effectively by an organization’s facilities. Companies must carefully select suppliers for raw

materials. When choosing a supplier, focus should be on developing velocity, quality and

flexibility while at the same time reducing costs or maintaining low cost levels. In short, strategic

SAURABH
SANJID Page 7
SUPPLY CHAIN MANAGEMENT

decisions should be made to determine the core capabilities of a facility and outsourcing

partnerships should grow from these decisions.

3. Inventory

Further strategic decisions focus on inventory and how much product should be in-house. A

delicate balance exists between too much inventory, which can cost anywhere between 20 and 40

percent of their value, and not enough inventory to meet market demands. This is a critical issue

in effective supply chain management. Operational inventory decisions revolved around optimal

levels of stock at each location to ensure customer satisfaction as the market demands fluctuate.

Control policies must be looked at to determine correct levels of supplies at order and reorder

points. These levels are critical to the day to day operation of organizations and to keep customer

satisfaction levels high.

4. Location

Location decisions depend on market demands and determination of customer satisfaction.

Strategic decisions must focus on the placement of production plants, distribution and stocking

facilities, and placing them in prime locations to the market served. Once customer markets are

determined, long-term commitment must be made to locate production and stocking facilities as

close to the consumer as is practical. In industries where components are lightweight and market

driven, facilities should be located close to the end-user. In heavier industries, careful

consideration must be made to determine where plants should be located so as to be close to the

raw material source. Decisions concerning location should also take into consideration tax and

tariff issues, especially in inter-state and worldwide distribution.

SAURABH
SANJID Page 8
SUPPLY CHAIN MANAGEMENT

5. Transportation

Strategic transportation decisions are closely related to inventory decisions as well as meeting

customer demands. Using air transport obviously gets the product out quicker and to the

customer expediently, but the costs are high as opposed to shipping by boat or rail. Using sea or

rail often time’s means having higher levels of inventory in-house to meet quick demands by the

customer. It is wise to keep in mind that since 30% of the cost of a product is encompassed by

transportation, using the correct transport mode is a critical strategic decision. Above all,

customer service levels must be met, and this often times determines the mode of transport used.

Often times this may be an operational decision, but strategically, an organization must have

transport modes in place to ensure a smooth distribution of goods.

6. Information

Effective supply chain management requires obtaining information from the point of end-use,

and linking information resources throughout the chain for speed of exchange. Overwhelming

paper flow and disparate computer systems are unacceptable in today's competitive world.

Fostering innovation requires good organization of information. Linking computers through

networks and the internet, and streamlining the information flow, consolidates knowledge and

facilitates velocity of products. Account management software, product configurations,

enterprise resource planning systems, and global communications are key components of

effective supply chain management strategy.

Supply chain’s continuous endeavor would be to match supply and demand. In this process to

capitalize on efficiency execution of any strategy in supply chain would be vital. Minor deviation

could lead to costly repercussions (Richmond, 0000).

SAURABH
SANJID Page 9
SUPPLY CHAIN MANAGEMENT

The world’s largest retailer Wal-Mart was founded by Sam Walton in the year 1962. He opened

his first store in Rogers, Ark. On 31st October 1969, the company was incorporated as Wal-Mart

Stores. Key success factor was the guidance of Sam. Presently they are operating in fifteen

countries with more than 8,000 stores with 2.1 million employees(, 2009). Major features of

Wal-Mart stores are its store area, cleanliness and its shelves which is filled with varieties of

quality items that includes health care products, family apparels, electronic items, automotive

products, hardware items, jewelry etc.

Wal-Mart is giving more emphasis for customer needs and tried to reduce cost through the

effective usage of supply chain management system. In the year 2009, Fortune Magazine ranked

Wal-Mart as first among other retailers in its survey. Sales were about 401 billion U.S dollars in

the FY 2009.

Sam Walton claims that Wal-Mart’s vision had always been to increase sales through lowering

the costs through organized distribution system with the help of the Information Technology. It

is said that Wal-Mart’s extreme success could be attributed to its effective supply chain

management (Chandran, 2003). Wal-Mart’s efficiency in supply chain management was due to

two key factors namely automated distribution centre and the computerized inventory system.

This brought in minimizing a lot of time the later not only reduced the checking out time but also

recorded the transaction which is much needed to know envisage demand. Demand forecast is a

constant issue which could be a threat when not handled properly. This is due to the fact that

demand prediction is always inaccurate. Aggregation would be a remedy for this unpredictable

demand. Inventory management is one of the important things that have gained importance these

days.

SAURABH
SANJID Page 10
SUPPLY CHAIN MANAGEMENT

Wal-Mart’s focus has always been to sell goods at a lower price to the customers. They ensured

direct purchase form the companies bypassing the intermediaries. This by passing is one of the

ways to reduce cost. Wal-Mart preferred small vendors to the big players however the vendor

who provides the best price qualifies and gets the deal. This applies to the giants like P& G as

well. Their practice these days had been choosing few vendors and they literally negotiate the

best price the one that comes up with the best price qualifies. This does not blindly mean that

they have been ruthless. Wal-Mart also work with the vendors for improving its supply chain

efficiency.

Wal-Mart with its power distribution system made quite innovative changes like reducing paper

work, reduced its lead time drastically, used bar codes to bill which recorded inventory levels

and the access to the stock levels served as the valuable data for management. The movements of

products are systematic and strategically aliened in a way that it reduces the most valuable time

and cost and results in efficiency. Wal-Mart had a very effective rather responsive and flexible

distribution system to transport goods from docks to stores. It educated the drives with the ethics

and code of conduct which pictures their supply chain responsibility. Cross docking is one lethal

weapon that was used by Wal-Mart in their SCM.

Cross Docking:

Cross Docking is a method of handling goods. This happens when vendor and the company work

together. This is the method of supplying the product in the right time and the said quantity. This

cut down a lot of time. This also changed Wal-Mart’s way of looking things. This transitioned

Wal-Mart from being a centralized management to almost decentralized system took a major

turn in focus of pull strategy than a pull strategy. Cross-docking is one of the techniques used by

SAURABH
SANJID Page 11
SUPPLY CHAIN MANAGEMENT

Wal-Mart. It means there is no unnecessary storage or little storage in between the loading and

unloading of goods so that customer can enjoy the quality of the goods by first hand. Wal-Mart

have logistics infrastructure which is very fast transportation system wherein the distribution

centers are being serviced. Wal-Mart assured that their drivers are capable of doing their jobs

accordingly and do not cause unnecessary delays that can hamper the efficiency of the

distribution operations. To deliver it on time, the coordinators give information to the driver the

expected time of arrival or delivery of the goods.

Point Of Sale:

Information sharing is one of the most important things when it comes to SCM. P&G with its

Pampers requested Wal-Mart to share its point of sale so that it could predict its demand more or

less and work on the information to bring in efficiency. When Wal-Mart shared this information

P&G could plan in advance and it with its efficient supply chain management could supply

pampers to Wal-Mart on time. Wal-Mart did not want to dedicate lot of space to pamper in its

warehouse of shop store either. Instead the supply was taken care by P& G. This led the

initiation of working with the vendors and coming out with huge efficiency by maintaining lower

inventory and satisfying demand without stock outs. Thus point of sale sharing would be a key

element for any company for its further scope of improvement and also when there is further

scope of improvement there is a role for Supply chain management.

SAURABH
SANJID Page 12
SUPPLY CHAIN MANAGEMENT

Information Technology and Wal-Mart:

As the goods flow from the company to the customers, information flows from customers to the

company. This is a very valuable source for SCM. Wal-Mart recognized this and invested

heavily in Information Technology. In 1983 Wal-Mart set up its own Satellite Communication

System. This helped them manage a lot of things better with the information that they received.

This helped to manage inventory, study the demand and also networked suppliers through

computers. Retail link has emerged into an internet based Supply chain management system by

1990’s. Supply chain management that had evolved was expected to cover Collaborative

planning, Forecasting and replacement (CPFR). CPFR was considered insufficient and discarded

at its outset. But Wal-Mart worked closely with its key suppliers and retail chains to start a

internet based system to determine a product-wise demand system. The only stumble block Wal-

Mart had was the initial investment and time constraints.

Wal-Mart differed from its competitor giants by their avid use of technological advancements in

a bid to improve their Supply chain management. By 2002 Wal-Mart introduced Web based EDI

where all the transactions between business partners were routed through the internet. Web based

EDI that Wal-mart implemented was also security free. In July 2003 Wal-Mart started using

RFID (Radio frequency Identification). This introduction meant a shift from tried and tested bar

code technology with RFID technology. Use of RFID has avoided the physical scanning of the

bar codes thus signifying the technology advances of Supply chain management.

SAURABH
SANJID Page 13
SUPPLY CHAIN MANAGEMENT

Key discussion and analysis:

Supply chain management is now an imperative part of any organizations strategic plans. Supply

chain management’s ability to adapt quickly to customers demands, uncertainty in demands, and

globalization in market place, creating longer supply chains and shorter product life cycle &

advanced technology has created a pool for its success apart from providing a dimension for long

term-relationships. Supply chain management though a new introduction in business is fast

catching up with the evolution of material management and purchasing. Companies have also

overlooked their strategic role which revolved around raw material and finished goods inventory

to working in tandem with suppliers and customers. Better and efficient technological

advancements have reduced the gap between suppliers and customers despite their existence in

the global market. (Ryerson, 2007)

Supply chain management is designed to improve customer service, balance costs and service,

uniform costing and provide a competitive advantage to organizations in supply chain. Suppliers

expect manufacturers to obligate themselves to purchase large quantities so as to imprint long

production runs and lower production runs and lower production costs. On the other hand if

customer demand is fewer manufacturers restores to inventory. Supply chain management brings

on integration between different blocks of process and is displayed as one whole lot. (Guyer,

2001)

The last 20 years have seen considerable improvements in the accounting of Supply chain

management. Wal-Mart as discussed in the literature review reflects how Supply chain

management has catapulted them to the top. Wal-Mart’s key to success is its legendary use of

SAURABH
SANJID Page 14
SUPPLY CHAIN MANAGEMENT

Supply chain management with technology apart from traditional elements like Inventory,

Logistics management etc.

The benefits reaped by Wal-Mart through Supply chain management are:

➢ Strengthened relationship with the customers, vendors and employees

➢ Each and every small opportunity was sensed in pursuit of bringing a efficient SCM

➢ Helped to capitalize on cost cutting resulting in efficiency

➢ Saving on cost was passed on to customers that added value

➢ Saved a huge amount in transportation cost

➢ Provided higher discounts to customer

➢ Resulted in higher sales volume and revenues

➢ Arriving at a rational and Supply chain management

Apart from this Wal-Mart’s ability to order inventory on demand enabled them to meet customer

demand. Wal-Mart observed that today’s fads and fashions were the obsolete inventories for

days to come.

Thus Wal-Mart’s SCM not only increased efficiency but also increased customer service that

resulted in customer satisfaction. This brought in reducing stocks and increased its

responsiveness in distribution through the bar codes and radio frequency technologies. It cut cost

by cross docking which resulted in decreasing space in warehouses and manual labor cost to a

huge extent.(Guyer, 2001)

SAURABH
SANJID Page 15
SUPPLY CHAIN MANAGEMENT

Conclusion:

Supply chain management is here to stay and we are at the beginning of the spectrum. We still

have a long way to go and miles to conquer before the entire industry, all players and all

participants become supply chain enabled and get necessary tools to make informed decisions.

Companies have a lot to gain from Supply chain management implementations. Individual

companies will definitely gain tremendously but the benefits will move beyond the four walls of

the company and everybody will gain. This will obviously have direct repercussions on the

organization and thus add to their locked-in working capital. Supply chain management

principles primarily focus on three things. Its tells that the company can compress its lead times

and raise quality and accuracy at every stage, service will improve thus getting rid of costs out of

business. Secondly organizations should take a process view rather than a functional view of the

operation Third working across functional boundaries to integrate business processes in the

future. Thus change in the supply chain can be focused on improving the characteristics of

supply in the context of the goals that have been set for changing the service objectives.

SAURABH
SANJID Page 16
SUPPLY CHAIN MANAGEMENT

Bibliography

Guyer, P. (2001). The future of supply chain management. Logic tools .

Ryerson. (2007). Fundamentals of supply chain management. Mc-graw - Hill pvt Ltd.

Walmart. (2009). Retrieved August 1, 2009, from Wal-Mart Stores Inc. - About Us.:

http://walmartstores.com/AboutUs/

➢ David Bowersox , David Gloss (2008). Supply chain management Mcgraw-hill

➢ Ram Ganeshan, Terry P. Harison (1995) Introduction to supply chain management

➢ Sussan Happek (2005) Supply chain strategy, The importance of aligning your strategy

➢ Ortmeyer, K.Gwendolyn, and Lattin M.James,”A Theoretical Rational for Every Day

Low Pricing by by grocery retailers,” Stanford graduation school of business, 1991.

➢ ”Distribution and retailing in china-revolution and competition”, ww.albert.org.nov 12,

1996.

➢ Rowatt,chriatinem,”cross docking: the move from supply to demand”,

www.dmg.co.uk,august 1998.

➢ Hulet.d.william,”global warming and wal-mart, why global warming is a municipal

government conbcern”, www.elements.nb.ca,sep 1998.

➢ Cross docking delivers for retail”, www.spscommerce.com,1999.

➢ ”cross docking and cross docking network design”,www.tli.isye.gatech.edu,1998-1999.

SAURABH
SANJID Page 17
SUPPLY CHAIN MANAGEMENT

➢ Harrington liisa,”digital age warehousing,”penton media,

www.industryweek.com,july,1999.

➢ ”Distribution strategies, supply chain analysis at Volkswagen of

America,”www.eng.auburn.edu, 2000.

➢ O’brien, p.kevin,”value chin report-warehouse management system add

value,”www.industryweek.com, www.iwvaluechain.com,feb 10, 2000.

➢ Weiscott, n.mania,”warehouse evolution: high tech developers get industry cooking”,

plants, sites and parks magazine,www.bizsitess.com,feb/march,2000.

➢ Colosina, Robert and medwyk, Nicholas,”wholesale distribution, managing complex

supply chain requirements in the foodservice

industry,”wholesaledistribution.services.ibm.com, april21, 2001.

➢ Daudelin, alexandre,”supply chain management the wal-mart way”, supply chain and

logistics journal, www.infochain.org.april21,2001.

➢ ”Wal-mart.com: the physical giant goes virtual,” red herring magazine,

www.redherring.com,may 7, 2001

➢ Hutten, staffen and Nyberg, anna,”voluntary retail chains and the threats and

opportunities of European integration,”www.snee.org, May 15, 2001.

➢ ”It’s not only the retail side, wal-mart distribution”, www.wal-martwatch.com,jan 6,

2002.

➢ ”Stauffer V wal-mart stores, Inc., wwww.oalj.gov, June 14, 2002.

○ Coyle, j.john, bardi, j.eddward, Langley, c.john,”the management of business logistics:

A supply chain prospective,”www.house.gov, June 25, 2002.

SAURABH
SANJID Page 18
SUPPLY CHAIN MANAGEMENT

○ ”Thrify wal-mart partners for flat rate rental plan,” auto rental news,

www.autorentalnews.com,july 29, 2002.

○ “Trans-loading, cross docking,”www.commoditylogistics.com, October 23, 2002.

SAURABH
SANJID Page 19