1.

1 Introduction

A supply chain involves parties that are involved directly or indirectly in fulfilling a customers request. The integral part of a supply chain is indeed the customer. Earning points along with customer satisfaction is the primary objective of the supply chain. The objective is attained not only with the help of manufacturers and suppliers but also with the esteemed help of the transporters, warehouses, retailers and lastly, the customers themselves. In each of these organizations, the supply chain performs all functions involved in receiving and filling a customer request. These functions include marketing, distribution, finance and sometimes the development of a new product. The supply chain thus begins with the customers order and ends with the satisfied customer having paid for the purchase made. Thus we can said that the movement of Goods, information and funds takes place in the supply chain in both the directions. Such movement takes place in the supply web or supply network. The supply chain has typical stages that are: a) b) c) d) e) Customers Retailers Wholesalers / Distributors Manufacturers Suppliers (raw material)

However it is not necessary for all the players to be present in a particular supply chain. Supply chain is a dynamic process involving the transfer of goods information and funds which are its most important attributes. The main objective of a supply chain is to maximize the overall value generated. The value that a supply chain generates is the difference between the worth of the final product to the customer and the effort to as the supply chain profitability. As we can see, Supply Chain Profitability = Revenue generated from the Customer Cost across the Supply Chain So it is very important to know the sources of revenue and cost.

From the above explanation it can be said that the customer is the only source of revenue for any organization in the supply chain. All the other cash flows are only the fund exchanges that take place between the organizations in the supply chain. As for as the costs concerned you should know that the transfer of the goods information and the funds generates costs between the stages in the supply chain. The effective management of these costs that occur between these stages is a key to effective supply chain management and helps increase the total supply chain profitability. Thus supply chain management is nothing but the effective management of the costs that occur between and among the stages of supply chain done in order to maximize and increase the total supply chain profitability.

Timber Company

Chemical Manufacturer

Paper Manufacturer

Plastic Producer

Tetra Pack

Hindustan Lever Ltd.

Food world or party Distributor

Food Word Mega Mart

Customer

Stage of a detergent soap supply chain

Activity A: Imagine that you are an automobile spare parts dealer. Prepare a flowchart depicting your supply chain.

1.2 Decision Phases in a supply chain The flow chart of products information and funds through the supply chain place in three phases. These three phases are: i) Supply chain design ii) Supply chain planning iii) Supply chain Operation

Proper execution of these phases is very important for the fulfillment of the supply chain. Let us now look at these phases. i) Supply chain Design This is the first phase in the supply chain decision process and involves the structuring of the supply chain over the next several years. Decisions regarding the configuration of the supply chain, the proper allocation of the resources and what processes each stage will perform are important. Decisions based on the companys strategies like the locations of the warehouses, the manufacturing facilities, the production, the different modes of transportation to be used and the information systems to be used are equally critical. During this phase it is very important for the company to configure their supply chain in accordance with the strategies objectives. The uncertainty prevailing in the anticipated market and in the concerned industry should be kept in mind over the next few years. This phase involves long-term decision-making and is very expensive if any reversal of decisions is required. ii) Supply Chain Planning

This is the second phase in the supply chain decision process which requires decisions to be made in consideration with the corporate time frame. This time frame is usually a quarter of a year to a year. Since the configuration of the supply chain is fixed in the first phase, it is now time to design the configuration strategically. It is in this phase that an organization gets its corporate strategy developed. Since the configuration established involves constraints, it is important for the planning to be done within these constraints. A lot of forecasting is involved in this phase like forecasting the demand in the next few years for the concerned product in different markets. Supplies to be made from different locations and whether manufacturing is to be done in house or outsourced. Policies regarding the inventory, the timing and size of marketing promotions. Such forecasting will enable the organization to establish parameters within which a supply chain will function within a specified time. It is easy for the organization to develop within a shorter time horizon with better forecasts and incorporate any flexibility in the supply chain design phase and try to improve its performance. So it can be seen that this phase is for a short period of time involving demand forecasts and helps for the structuring of corporate policies that govern short term operations. iii) Supply chain Operations The third phase in supply chain decision process involves the decisions to be taken daily or weekly or for a very short period of time. Here the time horizon is extremely short. Here the organization takes decisions on the basis of individual customer orders. The supply chain configuration is already set and also the policies of the organization are well defined. The main objective of this phase is to handle the incoming customers order in the best possible manner. In this phase the organization allocates the inventory or the production to individual orders, fixes the transport and delivery schedules of trucks, and also places replacement orders. Even small decisions required for reducing the uncertainty about the demand information are to be taken during this phase. Given the constraints established by the configuration and the planning policies the main objective is to reduce the uncertainty and improve the overall performance. The profitability and success of any organization can be optimized with the proper and timely execution of the above three decision making phrases in a supply chain. Activity B: Let us say that you are the CEO of a big company and you wish to put up a new manufacturing plant. What are the supply chain decisions that you need to take before you begin on your new project? Jot your points here.

1.3 Processes of a Supply Chain The supply chain process is a sequence of processes and flows taking place between different stages that together help to satisfy the needs of a customer. We can view the supply chain processes in two different forms: a) Cycle View b) Push / Pull View A) Cycle View These view deceits a series of cycle in the supply chain. These cycles are performed at the interface between two successive stages in the supply chain. The five supply chain stages thus result in four supply chain cycles

Customer Order Cycle Retailer Replenishment Cycle Distributor Manufacturing Cycle Manufacturer Procurement Cycle Supplier

Cycles of supply chain process

The cycle view shows the various cycles and each of the organizations in the supply chain. The various cycles are: a) b) c) d) Customer Order Cycle Replenishment Cycle Manufacturing Cycle Procurement Cycle

However, it is not necessary for every supply chain to have all the four cycles clearly separated. For example, a grocery supply chain in which a retailer stocks finished goods inventories and places replenishment orders with a wholesaler, is likely to have all the four cycles, whereas a company like anyway which believes in selling directly to customers thus bypassing wholesalers and retailers may have only 2/3 cycles. Let us now look at these cycles in detail. a) The customer order cycle The customer order cycle occurs at the interface of the customer and the retailer. It involves all the processes involved in receiving and filling the customers order. It begins when the customer visits a retailer in order to fulfill his demand and ends when the customer receives the order. The customer order cycle consist of the following processes: Customer arrival Customer order entry Customer order fulfillment Customer order receiving

Customer order cycle

Customer arrival

Customer order receiving

Customer order entry

Customer order fulfillment

i) Customer arrival Refers to the customer arrival at the point of purchase where he has access to product choices and makes decisions for purchase. This place may be retailers shop, an internet website of a mail order firm or even a call to a telemarketing center. ii) Customer order entry Refers to the customer informing the retailer what product he wants to purchase. At a super market, the loading of products desired on to their carts pr baskets by the customer can be considered as a customer order entry. iii) Customer order fulfillment In this process the customers order is fulfilled and sent to the customer. In the supermarket, the customer would do this process himself. Here, the replenishment of the stocks in initiated and it is here that the replenishment cycle begins. Here the objective is to fulfill the customers requirement as per his expectations and that too at the lowest possible cost. iv) Customer order receiving During this process the customer receives the desired product and takes ownership. At the supermarket, customer order receiving takes place after paying for and receiving the products from the checkout counter. b) The Replenishment Cycle The replenishment cycle occurs at the retailer and wholesaler interface and includes all the processes in updating and replenishment of inventory. Such a cycle may occur in an organization that is out of stock of a particular product. The replenishment cycle consists of the following processes: Retail order trigger Retail order entry Retail order fulfillment Retail order receiving

The Replenishment Cycle

Retail order trigger

Retail order receiving

Retail order entry

Retail order fulfillment

Retail order trigger

After fulfilling the customers demand, the stocks get depleted and need to be replenished to meet the future demand. So the retailer has to prepare an ordering policy and this triggers an order from the previous stage. The main objective is to maximize profitability by ensuring economics of scale and balancing product availability and inventory holding costs. This order has to be passed on to the wholesaler for generation of the replenishment order. Retail order entry

Here the retailer places an order with the wholesaler. Here again like the customer order entry, this can be done electronically or by some other method, again inventory or production is allocated to fulfill the order. The objective here is that an order should be entered and conveyed accurately and quickly to all the supply chain processes affected. Retail order fulfillment

Here the order size is more than the ordered by a customer to a retailer. The main objective here is to supply the desired quantity on time and minimize on costs. Retail order receiving

As soon as the replenishment stock arrives at the retailer, he must physically update all inventory records. This process involves the flow of products from the wholesaler to the retailer, the flow of information updates at the retailer and funds flow from the retailer to the wholesaler. Here the main objective is inventory update and display of products at minimized costs. c) The Manufacturing Cycle This cycle typically occurs at the distributor and manufacturer interface. It involves the replenishment of the distributors inventory. This cycle is triggered by the customers order. The replenishment of the distributors inventory, or by the forecast of customer demand and also the availability of finished goods at the manufacturers warehouse. The processes involved in this cycle are as follows:

The Manufacturer cycle

Order arrival

Receiving

Production scheduling

Manufacturing & shipping

Order arrival Production scheduling Manufacturing and shipping Receiving

i)

Order arrival

During this process the distributor prepares a replenishment order based on the forecast for future demand and current product inventories. However in some cases, the customer may order directly from the manufacturer. ii) Production scheduling

During this process the forecasted orders are allocated to a production plan. This plan should be based on a precise production sequence. The objective of this process if to maximize the fulfillment of orders in proportion while keeping lower costs. iii) Manufacturing and shipping

During the manufacturing phase iv) Receiving

In this process the distributor receives the products and then updates his inventory records.

d) The Procurement Cycle This cycle occurs at the manufacturer and supplier interface. This cycle is exercised to ensure that the material are available on time to the manufacturer. Usually components and other raw material required for the production process are ordered from suppliers that replenish the concerned inventories. These orders are as per the production schedule.

Procurement cycle

Order by manufacturers production schedule

Receiving at the manufacturers facility

Suppliers production scheduling

Component manufacturing & shipping

B) Push and Pull View All the processes in supply chain management fall into any of two categories depending on the timing of their execution in relation to the customer demand. These processes are either Pull or Push in Nature. A Pull process is one in which execution is initiated after the customers order is received. Here there is no execution until the organization receives the desired order of the customer. Thus, in this process the customer demand in known with certainty. This process is also called as a Reactive Process Because it reacts to customer demand. A Push process is one in which execution is initiated in anticipation of a customers order. Here, there is an execution even before the product is demanded for. Thus in this process, the demand is not known and must be forecast. This process is also called as a Speculative Process because it reacts to a speculative or forecasted demand, rather than the actual demand.

Procurement manufacturing & Replenishment cycles Customer order cycle

PUSH

PULL

Customer Order Arrives

The Push and Pull process

Activity C: With an example, differentiate between a push view and a pull view process of a supply chain.

1.4 The Macro Processes of a Supply Chain The supply chain macro processes can be classified into three main processes. They are described briefly below: a] Customer Relationship Management (CRM) CRM consists of all those processes that take place at the interface between the concerned firm and its customers. This macro process helps to generate customer demand and helps for placing and tracking orders from various customers. Functions of marketing, promotion, sales and website management are performed during this process. b] Internal Supply Chain Management (ISCM) ISCM consists of all those processes that take place internally within the concerned firm. This macro process helps in fulfilling the demands of the CRM process. This process is concerned with the functions of internal production, inventory policies and storage capacity, and also the preparation of demand and supply chain plant. c] Supplier Relationship Management (SRM) Supplier relationship management consists of all those processes that take place at the interface between the concerned firm and its suppliers. This macro process performs the function of evaluation and selection of suppliers, the negotiation of the supply terms and communication regarding new products and orders with suppliers.

Again you must remember the flow of information, products and funds takes place through these three macro processes and helps in the generating, receiving and fulfilling of the customers request. SRM Source Negotiable Buy Design Collaboration Supply Collaboration ISCM Strategic Planning Demand Planning Supply Planning Fulfillment Field Services The different macro processes with their functions CRM Market Research Sell Products Call Centers Order Management

It is very important to note that the above three macro processes are aimed to satisfy the same customer, so it is essential to integrate these three processes for the supply chain to be successful. Thus, we can conclude from the above description that within a firm, all the supply chain activities belong to one of these three macro processes.

Activity D:

1.5 Unit review Introduction a) A supply chain consists of all parties involved in fulfilling a customer request: manufacturers, Suppliers, Transporters, Warehouses, Retailers and Customers. b) Covers all functions involved in receiving and filling a customer request like: new products development marketing, operations, distribution and finance.

Supply Chain management Decision phases: a) Design b) Planning c) Operation Flow of information, products and funds decisions fall in three phases: a) Strategy or design i) How to structure to supply chains over next several years: Structure, Configuration, resource allocation, location & capacities of production of warehousing, modes of transport, type of information system etc. ii) Very expensive decisions and need to take into account uncertainty.

b) Planning: i) Over next quarter to a year planning must be within constraints established by strategic configuration. ii) iii) iv) Starts with demand forecast Which market from which location Subcontracting, manufacturing, inventory policies, operating policies

c) Operation: i) ii) Time horizon: weekly or daily decisions regarding individual customer orders. Allocate inventory set order fill date, pick, select shipping mode, ship, set delivery schedules, replenish.

Supply chain process view: A) Cycle View

a) Customer order cycle i) Customer arrival maximize conversion ii) Customer order entry iii) Customer order fulfillment Correct order at lowest cost iv) customer order receiving b) Replenishment cycle : At retailer or distributor i) Retail order Trigger Maximize profitability by balancing availability/inventory ii) Retail order entry Accurate and communicated, Fulfillment-On time and lowest cost iii) Retail order fulfillment iv) Retail order receiving c) Manufacturing cycle: i) Order arrival ii) Production scheduling-maximize orders filled on time at lowest cost iii) Manufacturing and shipping create and ship on time, quality and cost procurement iv) Receiving d) Procurement cycle i) Order by manufacturers production schedule ii) Suppliers production scheduling iii) Component manufacturing and shipping iv) Receiving at the manufacturers facility

B) Push/pull view i) One of two categories depending on timing of their execution relative to end customer demand. ii) Push execution in anticipation of customer demand. Speculative. iii) Pull: Execution initiated in response to customer demand. Reactive

Supply Chain Macro Processes a] Customer Relationship Management (CRM) b] Internal Supply Chain Management (ISCM) c] Supplier Relationship Management (SRM)

a] Customer Relationship Management (CRM) i) Market ii) Sell iii) Call Center iv) Order Management b] Internal Supply Chain Management (ISCM) i) Strategic Planning ii) Demand Planning iii) Supply Planning iv) Fulfillment v) Field Services c] Supplier Relationship Management (SRM) i) Source ii) Negotiable iii) Buy iv) Design Collaboration v) Supply Collaboration 1.6 Self assessment questions. 1. What do you mean by a supply chain and supply chain management? 2. Explain with a diagram the typical stages involved in supply chain management. 3. Define the following terms: a) CRM b) ISCM c) SRM d) SCM 4. Describe in detail, and with diagrams, the processes involved in a supply chain 5. Explain the importance of push and pull processes in a supply chain and explain its use in any industry of your choice.