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Improving Effectiveness of Logistics Management: 1. Logistical Network 2. Information 3. Transportation 4. Sound Inventory Management 5. Warehousing, Materials Handling & Packaging This economics-related article is a stub. You can help Wikipedia by expanding it. Template:KVR Template:Prabhu Basic logistic services are measured in terms of 1. Availability 2. operational performance 3. service reliability. principles of logistic excellence' 1. Link logistics to corporate strategy 2. Organize Comprehensively 3. Use the power of information 4. Emphasize Human resources 5. Form strategic Alliances 6. Focus on financial performance 7. Target optimum service levels 8. Manage details 9. Leveraging of logistics volume 10. Measure and react to performance

What is Supply Chain Management ? Supply Chain Management ,as defined by the world famous, Institute of Supply Management Inc., USA, is the design and management of seamless , value added process across organizational boundaries to meet the real needs of the end customer.

Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies. Supply Chain Management is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive and high-performing business model. It includes all of the logistics management activities noted above, as well as manufacturing operations, and it drives coordination of processes and activities with and across marketing, sales, product design, finance and information technology. The development and integration of people and technological resources are critical to successful supply chain integration. As the corporations strive to focus on core competencies and become more flexible, they have reduced their ownership of raw materials sources. These functions are increasingly being outsourced to other corporations that can perform the activities better or more cost effectively. The effect has been to increase the number of companies involved in satisfying consumer demand while reducing the management control on daily logistics operations. Less control and more supply chain partners led to the creation of Supply Chain management concepts. The purpose of Supply chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and improving inventory velocity. Thus the answer to the question " What is Supply Chain Management ? " can be as Supply Chain Management is the process of planning , implementing and controlling the operations of the supply chain with the purpose of satisfying the customer's requirement as efficiently as possible. Supply Chain spans all movement and storage of raw materials , Work-in-process , inventory and finished goods from the point of origin to the point of consumption.

According to the CSCMP , a professional association, that developed the definition, Supply Chain Management encompasses the planning and management of all activities involved in sourcing and procurement, conversion and all logistics management activities. It also includes coordination and collaboration with channel partners which can be suppliers , intermediaries , third party etc.

Supply Chain management must address the following problems: Distribution Network Configuration: Number and location of suppliers, production facilities, distribution centers , warehouses and customers Distribution strategy: Centralized Vs decentralized , cross docking, direct shipment, pull or push strategies, third party logistics Information: Integrate systems and processes through the supply chain to share valuable information, including demand signals , forecasts, inventory and transportation Inventory management: Quantity and location of inventory including raw material, work-in-process and finished goods service providers and customers. Thus Supply chain management (SCM) can also be described as the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. It is said that the ultimate goal of any effective supply chain management system is to reduce inventory (with the assumption that products are available when needed). As a solution for successful supply chain management, sophisticated software systems with Web interfaces are competing with Web-based application service providers (ASP) who promise to provide part or all of the SCM service for companies who rent their service. Is Supply Chain Management an Extended Enterprise? Click and Read here....

Supply chain management flows can be divided into three main flows:

The product flow The information flow The finances flow

What is a Supply Chain ?

The product flow includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs. The information flow involves transmitting orders and updating the status of delivery. The financial flow consists of credit terms, payment schedules, and consignment and title ownership arrangements. In essence, Supply chain management integrates supply and demand management within and across companies. Some experts distinguish Supply Chain Management with Logistics while others consider the term to be interchangeable. From the point of view of an enterprise, the scope of supply chain management is usually bounded on the supply side to the supplier's supplier and on the customer side by your customer's customer.

Every organization, big or small, depends on materials and services from other organizations to varying extents. These materials and services are obtained through exchange of money and the physical arrangement of it all is called Materials Management or even Material Management. Various materials used as inputs, such as raw materials, consumables & spares, are required to be purchased and made available to the shops / users as & when needed to ensure uninterrupted production. Therefore, efficient management of input materials is of paramount importance in a business organization for maximizing materials productivity, which ultimately adds to the profitability of the organization. The main concern of any Business management is to maximise the Return on Investment (ROI). The relationship of various entities here can be expressed as: Profit Sales ROI = ---------- X ----------------------------------------Sales Current Asset + Fixed Asset Thus ROI = profit margin + asset turnover rate A firm's profit margin reflects management's ability to control costs in relations to revenue. The asset turnover rate reflects management's ability to effectively utilize the firm's productive assets. Hence a firm can improve ROI in three ways :

By reducing cost By getting more sales from available assets or Get Currency converter By some combination of the above Thus , it is the cost control that holds the key

In many manufacturing organisations, the cost of materials alone happens to range from 40 % to 60 % of the total expenditure. Obviously, a better management of material is expected to ensure reduction in overall cost of operation and smoothness in supply of inputs. This requires well coordinated approach towards various issues involving decision making with respect to materials. All the materials related activities such as material planning & indenting, purchase systems & procedure, variety reduction through standardization & rationalization, reducing uncertainties in demand & supply, handling & transportation, inspection, proper storage & issue of materials to the internal customers, inventory management, vendor management & finally disposal of obsolete, surplus & scrap materials etc. taken together is termed as INTEGRATED MATERIALS MANAGEMENT To carry out these functions efficiently, it is essential to have a very good supplier base, order booking process & inventory management system as well as expert MATERIALS MANAGEMENT (MM) professionals. Materials Management is a key business function that is responsible for co-ordination of planning, sourcing, purchasing, moving , storing and controlling materials in an optimum manner so as to provide a pre-decided service to the customer at a minimum cost. In its process of managing , materials management has such sub fields as inventory management , value analysis, receiving, stores and management of obsolete , slow moving and non moving. Materials Management's scope is vast. Its sub functions include Materials planning and control, Purchasing, Stores and Inventory Management besides others. The various activities represent these four functions:

Planning and control Purchasing Value analysis and Physical distribution

The planning and control functions areinventory management , production planning and scheduling. Purchasing functions are buying, subcontracting, value analysis and follow ups. Distribution functions are receiving , packaging, shipping, transportation andstorage,

making it the Integrated Materials Management. We expect business institutes , colleges and universities , worldwide, to make use of this site to promote international traineeships for the students

Supply Chain Optimization (Reducing waste) Reducing waste and non value added tasks within the supply chain is a great way of optimizing the supply chain. Firstly, to define waste we will take a look at the seven wastes. This is a well established path in segregating the types of wastes within an organization- lets have a look how they can be applied to a supply chain. 1. Overproduction: This may take many forms from typically including producing too much from documentation from quotations, requisitions, purchase orders. Overproduction can be characterized as producing too much of a product from one process step to another- with the recipient process not requiring as much as was provided. 2. Transportation: Typically characterized by over complex logistics routes and distance between warehouses and end users. 3. Waiting: High lead time can be a significant problem within supply chains- causing customer dissatisfaction and work stop in production environments- reducing lead time can result in both financial and efficiency benefits. 4. Inventory: Too much inventory is a common problem for organizations- ensuring the right level of stock is available to meet requirements is a common supply chain task however overstocking does not utilize companys cash effectively and requires additional overhead to resource. 5. Motion: Ensuring supply chain processes are optimized for the business environment can often be overlooked, poor planning of organizational layouts can be frustrating for the employees and dramatically reduce efficiency for example ensuring put away locations in warehouse environments are conveniently located, ensuring that workspaces are designed with ergonomics in mind.

6. Over processing: Reducing process steps to a minimum is required to reduce over-processing which can rear its head in many forms- complex control and authorizations are common areas for over processing. 7. Defects: Finally processes that require rework due to defects are a common cause of concern- for example suppliers requiring more information due to poor technical specifications- incorrect order quantities, or quality issues for products received in the warehouse are all common forms of defects. Supply chain improvement plans are often constructed to target all or a mixture of the above with a view of resources required to deliver the process output. Such improvement programs are often referred to as lean or leaning and were popularized by the activities from the Toyota organization. Research by the Canadian logistics industry have shown that of the wastes typically challenges are met in improving supplier lead time, improving forecasting and planning to improve stock requirement accuracy (and therefore reduce inventory) and improve vendor reliability (affecting both lead time and quality of product.)

Concept of Supply Chain Management- a real understanding of what scm is

The first thing one needs to understand is that SCM doesnt replace what weve learned about management over the last 50 years; it builds upon it. The analogy that a chain is only as strong as its weakest link holds here as well. Thus the Supply Chain concept remains the same. Organizations must first be able to provide quality products or services in a timely, cost-effective manner if they want to tackle broader supply chain issues. Therefore, programs such as Total Quality Management, Justin-Time manufacturing, concurrent product development, and the like are just as relevant today as they were in the past. In fact, its interesting to note that many of the firms that have emerged as SCM leaders had already established their reputations in other areas beforehand. The second thing to understand about SCM is that it often requires significant changes in the firms organizational structure. SCM issues cut across functional areas and even business entities. Therefore, the responsibility and authority for implementing SCM must be placed at the highest levels of an organization.

Firms that attempt to imbed SCM within a functional unit (such as purchasing, operations, or logistics) usually have limited success. Third, SCM requires firms to put in place information systems and metrics that focus on performance across the entire supply chain. This is because individual units that seek to maximize their performance without regard to the broader impact on the supply chain can cause problems. For example, a manufacturing units decision to minimize its inventory levels may reduce delivery performance to the end user. Likewise, a distributors decision to chase highly seasonal demand may bullwhip its upstream partners, causing significant cost overruns. Putting in place the information systems and metrics needed to make intelligent decisions in the face of such trade-offs presents a significant challenge to supply chain partners. The organizations that make up the supply chain are linked together through physical flows and information flows. Physical flows involve the transformation, movement, and storage of goods and materials. They are the most visible piece of the supply chain. But just as important are information flows. Information flows allow the various supply chain partners to coordinate their long-term plans, and to control the day-to-day flow of goods and material up and down the supply chain. Finally, SCM adds another layer of complexity to a firms strategy development efforts. Years ago, firms could succeed by being particularly good in one functional area, such as marketing, finance, or operations. Then firms recognized that they had to have sufficient capabilities across multiple functional areas in order to survive. Nowadays, much competition occurs between multi-firm supply chains, not just between individual firms. In addition to their debates about functional- and businesslevel strategies, then, managers must now address how they will partner with other firms in order to compete. Some experts distinguish Supply Chain Management with Logistics while others consider the term to be interchangeable.

From the point of view of an enterprise, the scope of supply chain management is usually bounded on the supply side to the supplier's supplier and on the customer side by your customer's customer. Supply chain management concept is as much a philosophical approach as it is a body of tools and techniques, and typically requires a great deal of interaction and trust between companies to work. For right now, however, let's talk about three major developments that have brought SCM to the forefront of managements attention:

The information revolution Increased competition and globalization Relationship management

Supply chains , no doubt, are expensive and complicated at times. Yet because they leverage the over all efforts of reaching out to the ultimate customers in a cost effective and smooth manner that they've real benefit to have one or many. There could be a situation where a supplier may satisfy the ultimate customer directly, for example a vegetable vendor reaching out to his customer by the road side. This may not need any supply chain to work but suppose the same supplier meeting the needs of many customers spread along the length and the width of his city , needing vegetable around the same time. Obviously , they may be needing one or many delivery outlets from the supplier, some stocking by the supplier and thus a small but suitable warehouse by the supplier. Supply chains exist to overcome the gaps created when suppliers are distance away from the customers. They help in conducting operations that can be done only at a distance from the customers.

Benefit of supply chain can be understood by a simple imagination of a service that passes through various modes, covering various regions to finally reach the ultimate customers needing that service in yet another and various locations. It involves moving materials in geographically separate locations and meeting usually a mismatched demand of that material.

For example, let us say that a firm operating from four factories has to supply materials to eight customers. If all the factories supply to all the customers directly then there would be in all 32 routes !! However, if all the materials from the 4 factories are offloaded in a warehouse that caters to the need of the 8 customers then only 4 inward and 8 outbound routes , that is 4+8 = 12 routes shall be required. A well designed supply chain shall provide the following benefits :

Operations can be located in the best locations irrespective of customers locations Bigger facilities can be created and hence economies of scale can be thought of Large stocks need not be kept at the producer's end as the same can be kept with wholesalers near the customers Retailers carry less stocks as whole sellers provide them the materials whenever needed Lead times for retailers are short Uninterrupted availability to customers Transport is simpler and routine

Supply Chain flows and applications Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. It is said that the ultimate goal of any effective supply chain management system is to reduce inventory (with the assumption that products are available when needed).

As a solution for successful supply chain management, sophisticated software systems with Web interfaces are competing with Web-based application service providers (ASP) who promise to provide part or all of the SCM service for companies who rent their service. Supply chain management flows can be divided into three main flows: The product flow The information flow The finances flow The product flow includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs. The information flow involves transmitting orders and updating the status of delivery. The financial flow consists of credit terms, payment schedules, and consignment and title ownership arrangements. There are two main types of SCM software: planning applications and execution applications. Planning applications use advanced algorithms to determine the best way to fill an order. Execution applications track the physical status of goods, the management of materials, and financial information involving all parties.

Some SCM applications are based on open data models that support the sharing of data both inside and outside the enterprise (this is called the extended enterprise, and includes key suppliers, manufacturers, and end customers of a specific company). This shared data may reside in diverse database systems, or data warehouses, at several different sites and companies. By sharing this data "upstream" (with a company's suppliers) and "downstream" (with a company's clients), SCM applications have the potential to improve the time-to-market of products, reduce costs, and allow all parties in the supply chain to better manage current resources and plan for future needs. Increasing numbers of companies are turning to Web sites and Web-based applications as part of the SCM solution. A number of major Web sites offer e-procurement marketplaces where manufacturers can trade and even make auction bids with suppliers.

Bullwhip Effect - a lesson for scm partners to be fair

Process integration in a supply chain system plays extremely important role for the Supply Chain to be effective and competitively viable. It implies that the chain partners be fair in respect to information exchange. For example, a firm XYZ produces cycle chains for the cycle manufacturing firm ABC. Another company PQR produces chain bits for the company XYZ. Let us assume that the actual demand of ABC is not known to XYZ for a month. XYZ also produces the chain bits for other chain manufacturers. So, XYZ , in order to meet the unknown requirement of ABC would like to keep a higher safety stock or the month. PQR also shall have to keep a higher level of safety stock for meeting the unknown requirement of XYZ. This is a cascading effect resulting into higher safety stocks at the end of both the suppliers in the chain, XYZ and PQR. In this small example, with only two suppliers being in chain, the inventory levels have gone unnecessarily high because of the lack of information on accurate demand of cycles at ABC's end. Higher inventory is blocking of working capital for the firm that reduces the operational efficiency. Just imagine what would be happening under these circumstances if the number of chain partners were to be large. The aggregate inventory would have been much higher. This is calledBullwhip effect. That is the building up of inventory along the chain as a negative effect or loss of opportunity cost resulting from the absence of a coordinated effort , suitable and timely flow of information among the supply chain partners. In the supply chain, small changes in the consumer demands can lead to large variations in supply orders. This is related to 'Bullwhip effect'. It is not the change in demand that drives the effect, it is the interpretation of these changes that are magnified as forecasting and planning take place. There are collaboration programs between retailers and suppliers to utilize actual store data, not forecasts to replenish facilities and this takes out a lot of the bullwhip impact by having the actual consumer demand, not forecasted demand drive the process. The problem for Bull Whip effect arises from the part of the channel members when they do not share data with one another. The problem is with interpretation. Usually a distributor takes feed back from the retailers for placing the order backwards in the channel. Now, at any given point of time if there is a surge of demand from the retailer for some item, the distributor may get the message that there is increase in the demand of it. But in reality may be the reason for demand increase lies with

some sales promotion part or some other reason except natural demand increase from customer. But due to non sharing of this data by retailer with his distributor, the distributor gets a wrong impression and he places more order backwards. This order magnifies itself as it goes backwards in the channel and by the time reaches the firm it has assumed a gargantuan shape. Now this is known as Bull whip Effect which starts as small and goes to become a large shape. Thus the main basis of Bull Whip could be found with wrong interpretation by channel members due to non availability of data amongst themselves. Here customer demand fluctuations shouldn't be blamed as they are bound to have a mind of their own and we have to make our Supply Chain such that these variations are easily absorbed. Transparency is required and also regular communications among all the channel members should be their to ensure that Bull Whip problem shouldn't arise because ultimately they are going to suffer with huge inventories Bullwhip is the result of misinterpretation of increase in demand, improper sharing of information. Even if we try to optimize our understanding and interpretation levels, what is more important here is that SYSTEMS, PROCESS, PROCEDURES delivers RESULTS!! Operators/Members just operate. It is a natural tendency of human being to estimate increase in demand thus the multiplicity of demand occur. The system should be transparent enough to let the members have a common data knowledge, and a common objective.! After discussing the bullwhip effect, now what steps should be taken to minimize it? Bringing transparency among all links in the chain would bring down this effect. All the players in the chain should share the information and data with each other. What other measures have proven successful in dealing with this problem? The problem/obstacles which generally lead to BullWhip Effect are of 5 types. If companies are able to overcome these difficulties then Bull Whip Effect wouldn't be a threat. These are: 1. Incentive Based Obstacles 2. Informational Obstacles 3. Operational or Lead time Obstacles 4. Financial Obstacles 5. Behavioural Obstacles The incentive based obstacles are generally with the sales people of the company. The incentive system is such that salespeople get bonus for all the sales they make to their customer who are generally wholesalers or in some case retailers. They are not concerned whether the sales have been made to the actual users i.e. common people who are actually going to use it. Thus they dump their products on the channel members and generating false sales and giving wrong information for achieving targets. Operational Obstacles means the amount of lead time for the material from supplier to Lead Firm and the amount of time for the product to reach the market from the firm. Thus higher the lead time, the Bull Whip would go on increasing. Thus there is a need for lowering that. Behavioural obstacles are with the company management who are only thinking of attaining local optimisation instead of going for the whole supply chain which will ultimately going to benefit all. But this mentality is not so easy to achieve wherein all are working to achieve some common objective but instead all the trying to increase its profitability over the expense of other partners Finally, there is financial obstacle where we talk about pricing. The pricing decision of the firm should be used only by the finance deptt. and not by the marketing deptt. The pricing should be such it should take care of all the costing and profits. No company should try to use low pricing method as means to market their products. They should try to increase their profits by lowering their costs of various operations which comes under supply chain management. Like if two modes of

transportation are present for taking from A to B, and takes 1hr & 3 hrs respectively, with same cost then everyone would go for the faster one. Thus in the same way customer want the best with the same price as available in the market. Higher the satisfaction he gets the better the result One can find out the solutions only when considering the actual obstacles, very well brought out by him. Adding to these points are : A company/Product manufacturer should not only focus on the manufacturing and then product delivery part to the immediate customer (distributors, retailers) but should also keep in mind that whether the product has reached the customer or the end user or not. This requires integration. The good example here is HUL. HUL has the system in which it collaborates the different partners of the supply chain, the distributors, retailers etc. They have a big system. Although maintaining such a collaboration isn't easy but the approach is right and results benefit for the organization. The other aspect is to have global objectives rather than local ones or at the individual partner level. Another prospective ,to add, of Supply Chain, which is very much helpful to minimize Bullwhip effect and many organizations are using it. There are 2 types of Supply Chains: 1) Push types Supply chain (It is a forecast based Supply Chain where each activity takes place in advance assuming that customer will have this much of requirement in future ) and 2) Pull types Supply Chain (It is a demand driven Supply Chain where each activity will take place after receiving of actual customer order). If an organization using Pull types supply chain then bullwhip effect will be minimal as each and every order will be placed on the actual customer demand not as per the forecast. The Key success of Pull System depends on the sharing of actual demand data at each level. Dell computer is the best example of Pull system where actual customer demand data shared among the suppliers on real time basis and by using such method Dell is capable to deliver all its order to the customers on time with zero inventory level. Surely the sharing of data would only go so far to minimize or mitigate the issues arising from the Bull Whip effect? While is it nice to know what the 'actual consumption rate' is for any given product, many companies still rely upon ERP systems to plan, replenish, & reserve inventory for the channel. Just 'knowing' is not enough for many of these ERP systems, I see more of a need to actually book & physically reserve inventory for a channel to consume stock at the DC. Without doing this companies would run the risk of order queuejumpers where the DC stocks are taken by one customer ahead of another. Despite having knowledge, presumably via VMI or another initiative, of one customers stocks & consumption rates, it is next to impossible to avoid inventory being sent to another party who simply orders product on the day. The dilemma of course to to ensure there is an appropriate mechanism for securing inventory for any VMI enabled customer in an effort to manage the Bullwhip event. How can a company reserve inventory in a lean & optimal manner without running a risk of stock out for the non-VMI channels? Who can say "sorry that inventory is reserved..." while only relying upon 'knowledge' alone?

The most effective means of mitigating Bullwhip is via channel awareness & customer education. This is where Toyota's efforts to educate their competitors, channel partners, and general industry as being a pioneering process to removing Bullwhip events from global supply chains. If this off take rate at each channel partner is known to all the other partners then the preceding supplier can supply goods at the same time as well make a proper interpretation the nature of the off take. If this is followed backwards in the same fashion then it would surely help to mitigate the BULLWHIP effect through such Continuous Replenishment. As described , transparency and education over the whole supply chain is one way, but it does not depend on your company only, and therefore it will be a long way to optimize. Another way to avoid the propagation of this effect is : you have to work on your lead time reduction. When you will be fast enough to react to your customers changes in the time they require, you won't need any more forecast. The effect won't be propagated to your suppliers, and the bullwhip effect will not last. When anyone in the loop achieved this point, demand changes will not create some bullwhip effect. It can happen when the supplier does not have enough visibility on final consumer demands and forecasts began to overreact following the interpretation that is the situation at the moment "t". more collaboration from end to end supply chain is necessary in a win - win logic. There is a great game that points up how supply chains respond to forecasted and unforecasted demand called the beer game. Players assume certain critical roles in the supply chain, are set up with initial inventory, and then you play and watch the fun. Its unbelievable what happens between players with very little end user demand swings The Beer Distribution Game: http://www.beergame.lim.ethz.ch/ Supply chain simulation game ...explains inefficiencies of supply chains known as the bullwhip effect. We have played this game during our sessions of world class manufacturing and the result of which is we called the BULLWHIP effect. The results show that it is not fully the fault of the people who operate different processes in a supply chain, but the problem is the system. "An average person can perform well in an Efficient supply chain, but even a efficient person would not be able to perform so well in an average system" Systems deliver result, operators just operate. I am trying to conclude is that the dynamics of any supply chain lies in its structure. 1) I always compare it to a traffic phenomenous - Traffic jam : a small car movement on the road can cause big waves of cars slowing down a few kilometers behind ... 2) I did also run the Beer game a couple of times and it's a super business case. It 's not easy to manage, but results are great. Process integration therefore is the need of the hour for the Supply chain partners for benefit sharing through: reduced costs in inventory holding utilizing opportunity cost in better product design and

manufacturing and earning more profit

Benefits of Supply Chain - benefits of scm drive its huge importance Supply chains , no doubt, are expensive and complicated at times. Yet because they leverage the over all efforts of reaching out to the ultimate customers in a cost effective and smooth manner that they've real benefit to have one or many. There could be a situation where a supplier may satisfy the ultimate customer directly, for example a vegetable vendor reaching out to his customer by the road side. This may not need any supply chain to work but suppose the same supplier meeting the needs of many customers spread along the length and the width of his city , needing vegetable around the same time. Obviously , they may be needing one or many delivery outlets from the supplier, some stocking by the supplier and thus a small but suitable warehouse by the supplier. Supply chains exist to overcome the gaps created when suppliers are distance away from the customers. They help in conducting operations that can be done only at a distance from the customers. Benefit of supply chain can be understood by a simple imagination of a service that passes through various modes, covering various regions to finally reach the ultimate

customers needing that service in yet another and various locations. It involves moving materials in geographically separate locations and meeting usually a mismatched demand of that material.

For example, let us say that a firm operating from four factories has to supply materials to eight customers. If all the factories supply to all the customers directly then there would be in all 32 routes !! However, if all the materials from the 4 factories are offloaded in a warehouse that caters to the need of the 8 customers then only 4 inward and 8 outbound routes , that is 4+8 = 12 routes shall be required. A well designed supply chain shall provide the following benefits :

Operations can be located in the best locations irrespective of customers locations Bigger facilities can be created and hence economies of scale can be thought of Large stocks need not be kept at the producer's end as the same can be kept with wholesalers near the customers Retailers carry less stocks as whole sellers provide them the materials whenever needed Lead times for retailers are short Uninterrupted availability to customers Transport is simpler and routine