Supply chain mgt


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Supply chain mgt

  1. 1. Introduction to Supply Chain ManagementA supply chain is a network of facilities and distribution options that performs thefunctions of procurement of materials, transformation of these materials intointermediate and finished products, and the distribution of these finished productsto customers. Supply chains exist in both service and manufacturing organizations,although the complexity of the chain may vary greatly from industry to industryand firm to firm.Another definition is provided by the APICS Dictionary when it defines SCM asthe "design, planning, execution, control, and monitoring of supply chain activitieswith the objective of creating net value, building a competitive infrastructure,leveraging worldwide logistics, synchronizing supply with demand and measuringperformance globally."
  2. 2. Supply Chain Management is the process of planning, implementing andcontrolling the operations of the supply chain with the purpose of satisfying thecustomers requirement as efficiently as possible. Supply Chain spansall movement and storage of raw materials, Work-in-process, inventory andfinished goods from the point of origin to the point of consumption. • Supply chain is the system by which organizations source, make and deliver their products or services according to market demand. • Supply chain management operations and decisions are ultimately triggered by demand signals at the ultimate consumer level.In other words Supply Chain Management is a set of approaches used to efficientlyintegrate; Suppliers Manufacturers Warehouses Distribution centersSo that the product is produced and distributed In the right quantities To the right locations And at the right timeSystem-wide costs are minimized and,Service level requirements are satisfiedSupply Chain Management and Materials Management are competitivebusiness edge today. A supply chain is a system of organizations, people,technologies, activities, information and resources involved in moving a product orservice from supplier to customer.Supply chain activities transform natural resources, raw materials and componentsinto a finished product that is delivered to the end user.In sophisticated supplychain systems, used products may re-enter the supply chain at any point whereresidual value is recyclable.
  3. 3. In many organizations, materials form the largest single expenditure item,accounting for nearly 50 to 65 % of the total expenditure. With competitiongrowing by the day, cost reduction in business operations and yet making availablevarious products to customers, as per their requirement, come into sharp focus.Maintaining a flawless supply chain across all its operations thus becomesabsolutely necessary for any business.Importance of supply chainmanagement need not be over emphasized as it has become the cutting edge ofbusiness, after product quality and manufacturing capabilities of any business firm.Traditionally, marketing, distribution, planning, manufacturing, and the purchasingorganizations along the supply chain operated independently. These organizationshave their own objectives and these are often conflicting. Marketings objective ofhigh customer service and maximum sales dollars conflict with manufacturing anddistribution goals.Many manufacturing operations are designed to maximize throughput and lowercosts with little consideration for the impact on inventory levels and distributioncapabilities. Purchasing contracts are often negotiated with very little informationbeyond historical buying patterns. The result of these factors is that there is not asingle, integrated plan for the organization---there were as many plans asbusinesses. Clearly, there is a need for a mechanism through which these differentfunctions can be integrated together. Supply chain management is a strategythrough which such an integration can be achieved.Supply chain management is typically viewed to lie between fully verticallyintegrated firms, where the entire material flow is owned by a single firm, andthose where each channel member operates independently. Therefore coordinationbetween the various players in the chain is key in its effective management.Cooper and Ellram [1993] compare supply chain management to a well-balancedand well-practiced relay team. Such a team is more competitive when each playerknows how to be positioned for the hand-off. The relationships are the strongestbetween players who directly pass the baton, but the entire team needs to make acoordinated effort to win the race.Supply chain management (SCM) is management of a network ofinterconnected businesses involved in the provisionof product and service packages required by the end customers in a supplychain. Supply chain management spans all movement and storage of raw materials,work-in-process inventory, and finished goods from point of origin to point ofconsumption.
  4. 4. Supply Chain Management TodayIf we take the view that Supply Chain Management is what Supply ChainManagement people do, then in 1997 Supply Chain Management has a firm handon all aspects of physical distribution and materials management. Seventy-fivepercent or more of respondents included the following activities as part of theircompanys Supply Chain Management department functions:• Inventory management• Transportation service procurement• Materials handling• Inbound transportation• Transportation operations management• Warehousing managementMoreover, the Supply Chain Management department is expected to increase itsrange of responsibilities, most often in line with the thinking that sees the orderfulfilment process as one coordinated set of activities. Thus the functions mostoften cited as planning to formally include in the Supply Chain Managementdepartment are:• Customer service performance monitoring• Order processing/customer service• Supply Chain Management budget forecastingOn the other hand, there are certain functions which some of us might feellogically belong to Supply Chain Management which companies feel are theproper domain of other departments. Most difficult to bring under the umbrella ofSupply Chain Management are:• Third party invoice payment/audit• Sales forecasting• Master production planning
  5. 5. History/ origin of SCMThe concept of Supply Chain Management (SCM) is fairly new in the businessliterature; It was initially introduced in the 1960s by J.W. Forrester, in his bookIndustrial Dynamics, where the author established that success of industrialcompanies was intrinsically related to the “interactions between flows ofinformation, materials, manpower and capital equipment”. Nevertheless, after thisinitial effort to define the term, approximately 20 years passed before for the actualconcept of “Supply Chain Management” to be addressed by scholars. • 1960’s - Inventory Management Focus, Cost Control. In 1960’s the focus of Supply Chain Management was only on managing the inventory in the organization and controlling the cost of production. • 1970’s - MRP & BOM - Operations Planning, again during 1970’s the focus of the Supply Chain Management was merely on managing the material requirements with the help of two systems namely; MRP (material requirements planning) and BOM (bill of material). • 1980’s - MRPII, JIT - Materials Management, Logistics; during 1980’s the companies started focus on integrating the various activities like integration of information flow, material handling, production, packaging, inventory, transportation, warehousing and oftentimes security. • 1990’s - SCM - ERP - “Integrated” Purchasing, Financials, Manufacturing, Order Entry; Enterprise resource planning (ERP) systems integrate internal and external management information across an entire organization, embracing finance/accounting, manufacturing, sales and service, customer relationship management, etc. ERP systems automate this activity with an integrated software application • 2000’s - Optimized “Value Network” with Real-Time Decision Support; Synchronized & Collaborative Extended Network; the extended network of supply chain management was used by the companies during the phase of 2000. Information technology was used by the companies to integrate the various activities of the organization with the help of various software.
  6. 6. Objectives of Supply Chain ManagementSupply Chain Management is consists of all parties (Including Manufacturer,Marketer, Suppliers, transporters, Warehouses, Retailers and even customers)directly or indirectly involved in fulfillment of a customer. The main objectives ofSupply chain management are to improve the overall organization performanceand customer satisfaction by improving product or service delivery to consumer.Supply Chain Management involves Movement and Storage of all materialsincluding Raw Material, WIP (Work in Progress) and Finished Goods.The fundamental objective of Supply Chain Management is to "add value" or tomaximize the overall value generated.Supply Chain Management becomes a toolto help accomplish corporate strategic objectives. The other objectives of supplychain management are: Replenishment of the Material or Product whenever required Cost Quality Improvement Shortening time to Order Faster Speed to Market Enhancing Customer Service Expanding Sales Revenue Reducing Inventory Cost Improving On-Time Delivery Reducing Order to Delivery Cycle Time Reducing Lead Time Reducing Transportation Cost Reducing Warehouse Cost Reducing / Rationalize Supplier Base Expanding Width / Depth of Distribution reducing working capital, taking assets off the balance sheet, accelerating cash-to-cash cycles, increasing inventory turns To look for Sources of Revenue and Cost
  7. 7. Expected Results / Benefits (Where the Supply Chain Creates Value)Supply chain managements ability to affect profitability and shareholder valueshould come as no surprise. As Richard Thompson, a partner in Ernst & Youngssupply chain practice, points out, supply chain management affects virtually everyaspect of a companys business. "Everything is involved," he says. "Supply chainmanagement [influences] plan-buy-make-move-and-sell."Enhanced revenues, tighter cost control, more effective asset utilization, and bettercustomer service are just the beginning. Thompson and his colleagues haveidentified five areas in which supply chain management can have a direct effect oncorporate value. They include:* Profitable growth. Supply chain management contributes to profitable growthby allowing assembly of "perfect orders," supporting after-sales service, andgetting involved in new product development. The bottom-line numbers give theanswer.According to A.T. Kearneys research, inefficiencies in the supply chain can wasteup to 25 percent of a companys operating costs. With profit margins of only 3 to 4percent, the consultants point out, even a 5-percent reduction in supply-chain wastecan double a companys profitability.* Working-capital reductions. Increasing inventory turns, managing receivablesand payables, minimizing days of supply in inventory, and accelerating the cash-to-cash cycle all are affected by supply chain execution. Thompson cites the caseof a consumerproducts company that took 20 minutes to make a product and fiveand a half months to collect payment for it. "If you can cut the cash cycle down,there are millions of dollars there," he says.* Fixed-capital efficiency. This refers to network optimization--for instance,assuring that the company has the right number of warehouses in the right places,or outsourcing functions where it makes more economic sense.* Global tax minimization. "Theres a ton of money here,” If companies look atassets and sales locations, transfer pricing, customs duties, and taxes.
  8. 8. * Cost minimization. This largely focuses on day-to-day operations, but it alsomay involve making strategic choices about such issues as outsourcing and processdesign.Based on experience with companies participating in MITs Integrated SupplyChain Management Program, there has been found that the most commonlyreported bottomline benefits are centered on reduced costs in such areas asinventory management, transportation and warehousing, and packaging; improvedservice through techniques like time-based delivery and make-to-order; andenhanced revenues, which result from such supply-chain-related achievements ashigher product availability and more customized products.The companies studied by Metz have recorded a number of impressive supply-chain accomplishments, including:• A 50-percent inventory reduction.• A 40-percent increase in on-time deliveries.• A 27-percent decrease in cumulative cycle time.• A doubling of inventory turns coupled with a nine-fold reduction in out-of-stockrates.• A 17-percent revenue increase.On a broader scale, research conducted by Mercer Management Consulting revealsthat organizations with the best supply chains typically excel in certain pivotalperformance areas. Specifically, they outperform their counterparts along such keymetrics as reducing operating costs, improving asset productivity, and compressingorder-cycle time. In a separate study, Mercer found that close to half of all seniorexecutives surveyed had specific supply-chain improvement projects among theirtop 10 corporate initiatives. This is a resounding affirmation at the highest levels ofsupply-chain managements competitive potential.A study by the management consulting firm of A.T. Kearney has come at thesupplychain payback from another angle--the costs of not paying careful attentionto the supplychain process. The Kearney consultants found that supply-chaininefficiencies could waste as much as 25 percent of a companys operating costs.Thus, assuming even a relatively low profit margin of 3 to 4 percent, a 5-percentreduction in supply-chain waste could double a companys profitability.
  9. 9. Supply Chain Management principlesIf supply-chain management has become top managements new "religion," then itneeds a doctrine. Andersen Consulting has stepped forward to provide the neededguidance, espousing what it calls the "Seven Principles" of supply-chainmanagement. When consistently and comprehensively followed these sevenprinciples bring a host of competitive advantages. 1. Segment customers based on service needs. Companies traditionally have grouped customers by industry, product, or trade channel and then provided the same level of service to everyone within a segment. Effective supply- chain management, by contrast, groups customers by distinct service needs-- regardless of industry--and then tailors services to those particular segments. 2. Customize the Supply Chain Management network. In designing their Supply Chain Management network, companies need to focus intensely on the service requirements and profitability of the customer segments identified. The conventional approach of creating a "monolithic" Supply Chain Management network runs counter to successful supply-chain management. 3. Listen to signals of market demand and plan accordingly. Sales and operations planning must span the entire chain to detect early warning signals of changing demand in ordering patterns, customer promotions, and so forth. This demand-intensive approach leads to more consistent forecasts and optimal resource allocation. 4. Differentiate product closer to the customer. Companies today no longer can afford to stockpile inventory to compensate for possible forecasting errors. Instead, they need to postpone product differentiation in the manufacturing process closer to actual consumer demand. 5. Strategically manage the sources of supply. By working closely with their key suppliers to reduce the overall costs of owning materials and services, supply-chain management leaders enhance margins both for themselves and their suppliers. Beating multiple suppliers over the head for the lowest price is out, Andersen advises. "Gain sharing" is in.
  10. 10. 6. Develop a supply-chain-wide technology strategy. As one of the cornerstones of successful supply-chain management, information technology must support multiple levels of decision making. It also should afford a clear view of the flow of products, services, and information. 7. Adopt channel-spanning performance measures. Excellent supply-chain measurement systems do more than just monitor internal functions. They adopt measures that apply to every link in the supply chain. Importantly, these measurement systems embrace both service and financial metrics, such as each accounts true profitability.The principles are not easy to implement, the Andersen consultants say, becausethey run counter to ingrained functionally oriented thinking about how companiesorganize, operate, and serve customers. The organizations that do persevere andbuild a successful supply chain have proved convincingly that you can pleasecustomers and enjoy growth by doing so.For one, they focus intensely on actual customer demand. Instead of forcing intothe market product that may or may not sell quickly (and thereby inviting highwarehousing costs), they react to actual customer demand. And by doing so, thesesupply-chain leadersminimize the flow of raw materials, finished product, andpackaging materials at every point in the pipeline.To respond more accurately to actual customer demand and keep inventory to aminimum, leading companies have adopted a number of speed-to-marketmanagement techniques. The names by now have become part of the Supply ChainManagement vernacular JIT manufacturing and distribution, quick response (QR),efficient consumerresponse (ECR), vendor managed inventory (VMI), and more.These are the tools that help build a comprehensive supply-chain structure."The integrated planning process helps to find solutions that best matchclient’srequirements and the technical demands of the problem". The only way tomanage the growing complexity in international Supply Chain Management chainsis through the integration of strategy, engineering and IT systems and methods."
  11. 11. Activities of supply chain managementSupply chain management is a cross-function approach including managing themovement of raw materials into an organization, certain aspects of the internalprocessing of materials into finished goods, and the movement of finished goodsout of the organization and toward the end-consumer. As organizations strive tofocus on core competencies and becoming more flexible, they reduce theirownership of raw materials sources and distribution channels.These functions are increasingly being outsourced to other entities that can performthe activities better or more cost effectively. The effect is to increase the number oforganizations involved in satisfying customer demand, while reducingmanagement control of daily logistics operations. Less control and more supplychain partners led to the creation of supply chain management concepts. Thepurpose of supply chain management is to improve trust and collaboration amongsupply chain partners, thus improving inventory visibility and the velocity ofinventory movement. The strategic level deals with decisions that have a long-lasting effect on the firm.This includes decisions regarding product design, product life cycle management, what to make internally and what to outsource, supplier selection, and strategic partnering as well as decisions on the number, location, and capacity of warehouses and manufacturing plants and the flow of material through the logistics network along with the Information Technology chain operators. The tactical level includes decisions that are typically updated anywhere betweenonce every quarter and once every year. These include purchasing and productiondecisions, inventory policies, and transportation strategies,Benchmarking of all operations against competitors, milestone payments, including the frequencywith which customers are visited. The operational level refers to day-to-day decisions such as daily production, production scheduling, demand planning, sourcing planning, inbound operations, outbound operations, production operations, order- promising,Managing non-moving, short-dated inventory and avoiding more products to go short-dated, lead timequotations, routing, and truck loading.
  12. 12. Application of Supply Chain Management in an organizationHow can Supply Chain Management (SCM) be applied to an organization?Domino Effect The most important thing is to first understand the customers trueneeds. Companies that want to improve their competitive position by reducingtheir order-todelivery cycle are looking to supply-chain management to help themachieve that goal. Because SCM encompasses all processes involved in producingand delivering a product to the customer, it offers the opportunity to identifybottlenecks that can slow down activities along the entire supply chain.Youngberg gives the example of an automaker that wants to build individual carsto order for delivery within one week. A supply-chain analysis might discover thatthe seat supplier doesnt have the capability to produce and deliver seats in avariable coloursequence--jeopardising the car manufacturers ability to offer itscustomers the kind of service it envisions. Inevitably, such problems will affectdelivery to the final customer, much as a domino falling at the front of a lineeventually causes the one at the end to topple, too.To obtain the greatest possible improvement in the total product cycle, it may behelpful to think of the supply-chain dominoes falling backward. In other words,under a supplychain management philosophy, customer demand is what drives theactivities required to fulfil that customers demand, all the way back to raw-materials suppliers at the beginning of the production process. That is why it isimportant to first understand the customers true needs, then work back from that,Morehouse says: Once the correct information is in hand, companies can designtheir supply-chain processes to provide what the customer really needs. Withoutthat information, says Youngberg, companies risk falling into the "wastedexcellence" trap, providing a higher service level or faster cycle time than isnecessary. "It doesnt provide you with a competitive advantage, but it saddles youwith costs that may not [yield] you anything," he explains.The process delivers an error free shipment, completed in one handling step,provides a direct quality feedback to the operator and allows you to manage eachworker based on his or her individual performance = quality + output.
  13. 13. Types of firms /organizations Supply Chain Management can be appliedSupply Chain Management could by implemented to all firms (manufacturingfirms, retailers, services, etc.) and public organizations that satisfy the followingcriteria: Minimum Number of employees: 20 (at least 4 in management positions). Strong management commitment to new ways of working and innovation.Conditions for implementation (infrastructures required etc.)Achieving gains of the magnitude explained above, requires much more thanefficient operations. It requires changing the process. It demands bothexecutivemanagement-level commitment and superb execution at the operationallevel. On the other hand, todays Supply Chain Management professionals mustbecome conversant with information technology.IT is not a functional adjunct to supply-chain management. Rather, it is the enabler,the facilitator, the linkage that connects the various components and partners of thesupply chain into an integrated whole. Electronic data interchange, on-boardcomputers, satellite and cellular communications systems, warehouse-managementsoftware, enterprise-wide systems solutions, and now the Internet…these areamong the information enablers of successful supply-chain management. Indeveloping its seven principles, Andersen Consulting stressed the importance ofinformation technology, grouping IT requirements into three distinct categories. First, there are the short-term systems that can handle routine day-to-day transactions like order processing and shipment scheduling. Then, from a longer-term perspective, the technology must facilitate planning and decision making. These systems support such activities as demand planning and master production scheduling to optimally allocate resources. Finally, longer-range information systems must enable strategic analysis by providing modelling and other tools that synthesize data for use in high-level "what if" scenario planning. These forward-looking systems help managers evaluate distribution centers, suppliers, and third-party service options.
  14. 14. Regardless of their current knowledge level, SCM managers widely recognize theneed to become even more conversant with information technology if they are toassume a future leadership position. An important finding from the 1996 OhioState University Survey of Career Patterns in SCM underscores the point. MiebachSCM experienced through numerous warehouse optimization projects: ideally,warehouse processes should be defined on those principles.• Total Quality Management requires a review of all processes, provided equipmentand the management of the operation.• Human performance in picking is and will be unmatched for most products inmost warehouse operations. (However, there are exceptions)• Design the picking process with care and use automation where it supports peopleor helps to eliminate simple but unergonomic tasks.• Create processes that immediately alert operators about mistakes and dont carrymistakes through to a final quality check. Have errors corrected immediately. Thisprovides feedback regarding performance not only on speed, but also onquality.• Eliminate unnecessary handling. Handling product is the costly part. Do not try touse one warehouse process for all order types whatever size, service requirementsthey might have. Segmentation and integration of processes are keywords.Duration and implementation cost of Supply Chain ManagementLooked at from a cost standpoint, SCM’s true potential becomes evident. Onerecent study found that total supply-chain costs represent the majority share ofoperating expenses for most companies. In some industries, in fact, these costs canapproach 75 percent of the operating budget. Given the dollars on the table, its notsurprising that top management has become keenly interested in supply-chainmanagement. A Mercer Management Consulting study conducted among seniorcorporate executives confirms the high-level interest. Close to one-half of theexecutives surveyed reported that the programs to improve the supply chain wereamong the top 10 percent of all companywide initiatives.
  15. 15. IMPLEMENTATION PROCEDURE of SCMSubsequent actions to implement the supply-chain agenda, which Kearney saysshould be carried out by individual project teams, typically fall into these broadcategories: Designing the long-term supply-chain structure to position the company in the right roles in the right supply chains with the right customers and suppliers. Re-engineering supply-chain processes to streamline product, information, and funds flow internally and externally. Reinforcing the supply chains functional foundation by improving quality and productivity within operational areas such as warehousing, transportation, and fleet management.A Flexible ApproachSpecializes in the design, development and implementation of solutions to SupplyChain Management problems. Consultancy approach is tailored to suit theparticular requirements of a clients project. This ensures the provision of the mostappropriate form of assistance, from a full traditional consultancy assignment, to aplacement working within a clients team. Strategic Analysis Specification Implementation a) Strategic Analysis: - Its the study of the current and future needs of business and development of such solutions to meet these requirements. This normally involves the use of computer models to gain a full understanding of the key issues and to examine the practical alternatives. A recommendation follows with the most appropriate and cost effective solution. This approach: Gives confidence in the recommended solution. Identifies a clear way forward. Determines the associated cost and timescales. Enables the next stage of the project to be planned.
  16. 16. b) Specification: - In this stage, any recommendations have to include operational detail, enabling systems, equipment or buildings to be procured to meet the exact requirements of the solution. This provides: Correct logical emphasis on each aspect of the solution. A clear specification of proposals, minimising the risk of unforeseen cost. Finalised project cost budgets. Competitive equipment procurement. Agreed implementation timescales. c) Implementation: -Refers to responsibility for the tendering of equipment and supplier selection, contract negotiation and placement. Contract Management through to completion to ensure that the project is progressed in accordance with the requirements of time, cost and quality. Work with the client on preparing any organisational changes and training to ensure a smooth start to the new operation.There has been found that many companies have not thought comprehensivelyabout the design of their supply chains. Often, their attempts to achieve excellencehave been focused on perhaps one or two supply chain building blocks--and not, asthey should be, on all of the dimensions required for world-class performance.The framework below outlines the five key dimensions of Supply ChainManagementthrough the implementation procedure that are required to achievesuperior performance. These areas must be addressed iteratively and, generally, ina hierarchical fashion:1. Strategy--specifically, the alignment of supply chain strategies with the overallbusiness direction. Key decision points for managers here include: What is required to align the supply chain with the business strategy? What level of customer service must we provide to each customer segment to compete effectively? Which channels of distribution best meet our goals and our customers needs?
  17. 17. 2. Infrastructure, which affects cost-service performance and establishes theboundaries within which the supply chain must operate. Pertinent questionsinclude: How must the physical network of plants and distribution be structured? Can we rationalise our current network? Can we use contract manufacturing or third-party logistics capabilities? What transportation services can best link together the network of facilities? Which activities should we outsource?3. Process--the drive to achieve functional excellence and integration across allmajor processes. Managers must ask themselves the following: What are the core supply chain processes driving the business? How can we adapt best-in-class approaches to our core processes (e.g., manufacturing, integrated demand planning, procurement, cycle-time compression, dynamic deployment)? How can we build linkages with our suppliers and customers?4. Organisation--providing the critical success factors of cohesion, harmony, andintegration across organisation entities. Questions to consider include: What level of cross-functional integration is required to manage core processes effectively? How can we leverage cross-company skills and abilities? What performance-measurement and reporting structure can help us achieve our objectives?5. Technology, which empowers the supply chain to operate on a new level ofperformance and is creating clear competitive advantages for those companies ableto harness it. Companies should address the following points: Do our IT platform and core applications software support world-class SCM? Where will advanced decision-support capabilities have the greatest impact on business performance?
  18. 18. What data are required to manage the core business processes outlined above? How can we capitalise on advanced communications (e.g., intranets and the Internet) in managing the supply chain? How can we leverage enhanced visibility of customer demand and other key operating parameters?From a different point of view the consulting firm of A.T. Kearney has developedan instructive framework for establishing a strategic supply-chain agenda and thenimplementing it. To spearhead the effort, Kearney recommends creation of asupply-chain assessment team that works under the aegis of a companywidesteering committee. The agenda-setting process proceeds along 4 key steps. The teams first task is to assess the supply-chain competitiveness of the organisation. The evaluation begins with a comparison of business objectives against existing capabilities and performance. This exercise typically reveals where the existing supply chain can achieve immediate competitive advantage and where inefficiencies may be leaving the company vulnerable to the competition. Step two in the agenda-setting process is to create a vision of the desired supply chain. Through a series of "visioneering" sessions that might also include key customers and suppliers, the team considers how such trends as globalisation, channel shifts, and new technology will affect the desired supply-chain configuration. That exercise addresses such questions as, What supply-chain factors and performance levels drive customer buying decisions? What would make one supply chain a winner over others? Step three in the A.T. Kearney approach defines those actions required to close the gap between tomorrows supply-chain vision and todays reality. The team identifies possible re-engineering, restructuring, or other actions that could help narrow any gaps. At this stage, the team also works closely with management to assess the organisation’s readiness to pursue needed changes. Finally, step fourprioritises the action items identified in the preceding step and then commits the appropriate resources. The end result of this task is a unified commitment to a supply-chain strategy and a clear agenda to achieve that strategy.
  19. 19. Problems addressed in Supply Chain ManagementSupply chain management must address the following problems: Distribution Network Configuration: number, location and network missions of suppliers, production facilities, distribution centers, warehouses, cross-docks and customers. Distribution Strategy: questions of operating control (centralized, decentralized or shared); delivery scheme, e.g., direct shipment, pool point shipping, cross docking, direct store delivery (DSD), closed loop shipping; mode of transportation, e.g., motor carrier, including truckload, Less than truckload (LTL), parcel; railroad; intermodal transport, including trailer on flatcar (TOFC) and container on flatcar (COFC); ocean freight; airfreight; replenishment strategy (e.g. pull, push or hybrid); and transportation control. Trade-Offs in Logistical Activities: The above activities must be well coordinated in order to achieve the lowest total logistics cost. Trade-offs may increase the total cost if only one of the activities is optimized. It is imperative to take a systems approach when planning logistical activities, to developing the most efficient and effective Logistics and SCM strategy. Information: Integration of processes through the supply chain to share valuable information, including demand signals, forecasts, inventory, transportation, potential collaboration, etc. Inventory Management: Quantity and location of inventory, including raw materials, work-in-process (WIP) and finished goods. Cash-Flow: Arranging the payment terms and methodologies for exchanging funds across entities within the supply chain. The Bullwhip effect: A problem frequently observed in unmanaged supply chain is the bullwhip effect. This effect is an oscillation in the supply chain caused by demand variability.Supply chain execution means managing and coordinating the movement ofmaterials, information and funds across the supply chain. The flow is bi-directional.
  20. 20. Supply chain management of