Supply chain management involves the management of the flow of goods and services. It includes all activities related to sourcing, procurement, conversion, and logistics management. Effective supply chain management can help reduce costs, improve responsiveness to market changes, and enhance quality.

2. What is supply chain management?
• Supply chain management (SCM) is the
management of a network of interconnected
businesses involved in the provision
of product and service packages required by
the end customers in a supply chain. Supply
chain management spans all movement and
storage of raw materials, work-in-process
inventory, and finished goods from point of
origin to point of consumption.

3. Value Chain
Porter’s value chain within the enterprise
PRIMARY VALUE-ADDING ACTIVITIES
Inbound Outbound Marketing
Production Service
Logistics Logistics & Sales
Margin
IT systems
ACTIVITIES
SUPPORT
Human resources management & training
Research & development
Purchasing & contracting
Finance, planning, etc.
M1:U1:1.1-1

4. Delivery of a superior value: Quality, Flexibility,
Innovation & Value flow to the customer
Supplier’s Customer’s
Supplier Buyer Customer
Supplier Customer
Demands for low pricing, high quality; Customer; Supplier
Integration across a responsive & flexible supply chain
Value acquisition from Value added in Value delivery to
Suppliers production customers

5. Supply Chain Varies
• Supply Chain varies
from organization
to organization and
the it must be
defined.

6. SZS’ Supply Chain (Northern Operations)
Supply chain varies from organization to organization.
SZS’ Supply Chain is as follows
1. The store submits purchase requisition to the procurement. Note:
Store is using FIFO method with Warehousing Management
System.
2. The procurement department issues a purchase order against the
purchase requisition.
3. The supplier is intimated.
4. The supplier delivers the food and beverage stock to the store via
inbound logistics.
5. The store intimates the logistics department who are using
TTMECS (A TMS System).
6. Outbound logistics with supply to the site.
7. New demand sent to the store from the site.

7. Need for SCM
• Change in Customer Buying Habits
– Demand changes frequently
– Shorter product lifecycle
– Increased cost of holding inventory
• Increased Competition
– Multiple buying options for customer
– Hence, need of making product accessible to customer
– Minimize the cost
– Efficient distribution result

8. Need for SCM Continued
• Increasing pressure of profit margins earned
– Emphasis on integration of SCM process
– Helps in cost cutting
• Technology Driven World
– Information plays an important role
– Product availability has increased

9. Vision, Mission, Goals..
Vision focuses on the long term, i.e., where the organisation aspires to be
in the future. Vision is broad & general.
Mission represents what the company considers its basic role
to be. Mission is more concrete.
Goals are aligned with the mission & are more specific.
Strategy is the way of achieving the goals.
Policies define the principles and guidelines to be complied with.
M1:U3:3.3-2

10. How competitive are your firm’s
products or services?
• Quality
• Availability Benefits
• Customer service & = customers
seek
responsiveness
• Low cost Regularly obtain
feedback from actual
or potential
customers.
M1:U4:4.4-5

11. Purchase Specification
Purchase
Specification
Specifying Other
the required information
product/ needed by the
service supplier
Specifying
Specifying
Specifying supplier service/
the quantity
the delivery responsiveness
requirements
ITC M2:U3:3.1-1

12. Better Supply Chain Management
helps a firm to...
Ensure continuity of production
Reduce total costs
Respond Improve
quickly to quality
market
changes Innovate
M1:U4:4.4-3

13. SZS Business Volume

14. The technique enables individual
minimum/maximum levels of inventory
to be easily determined by classifying
inventory into three categories
ITC M11:U3:3.3-2

15. Calculating the average usage value
of purchased items
Item. Average usage X Unit value = Average usage
No per week (price) value per week
1 3 $ 2.5 $ 7.5
2 2.5 $ 1 $ 2.5
3 20 $ 5 $ 100
4 175 $ 2 $ 350
5 1 $ 10 $ 10
6 15 $ 2 $ 30
ITC M11:U3:3.3-3

16. Ranking and ABC classification of purchase items
Cumulative
Percentage
Weekly Total Cumulative percentage
Item of total ABC
Usage value Usage of total
No. usage classification
Value ranking Value usage
value
value
4 $ 350 1 $ 350 70 % 70 % A
3 $ 100 2 $ 450 20 % 90 % B
6 $ 30 3 $ 480 6% 96 % C
5 $ 10 4 $ 490 2% 98 % C
1 $ 7.5 5 $ 497.5 1.5 % 99.5 % C
2 $ 2.5 6 $ 500 0.5 % 100 % C
ITC M11:U3:3.3-4

17. When designing an inventory or product coding
system, the code used should:
 Be as brief as possible
 Relate uniquely to one individual part or product
 Allow for all parts currently in use as well as all foreseeable parts
 Be acceptable to all users of the code
 Take account of any relevant legislation, industry standards etc.
Two basic types of coding systems:
 Simple sequential systems
 Structured coding systems
ITC M11:U3:3.5-1

18. STOCK CODING SYSTEMS:
SIMPLE SEQUENTIAL CODES
ADVANTAGES DISADVANTAGES
 Require no special knowledge or  Do not facilitate variety reduction
understanding of the product
 Harder to remember
 Easily extendable
 Need an index
 Brief
 Easy to make errors
ITC M11:U3:3.5-2

19. STOCK CODING SYSTEMS:
STRUCTURED CODES
ADVANTAGES DISADVANTAGES
 Facilitate variety reduction  Difficult to customise or design
 Allow universal understanding  Limited life
 Easy to use  Code length longer
 Built-in index
 No duplication of codes
 Facilitate error detection
ITC M11:U3:3.5-3

20. Re-order Level
• Re-order level (or reorder point)
is the inventory level at which a
company would place a new
order or start a new
manufacturing run.

21. Re-order level systems - formula:
ROL = (R d x L) + S
Where...
Re-order level (ROL) =
Demand in the lead-time + Safety stock (S)
Demand in the lead-time =
Rate of demand/usage (Rd) (e.g., per week)
x Lead-time (L) (e.g., in weeks)
ITC M11:U4:4.5-2

22. SWOT Analysis
• SWOT analysis (alternatively SWOT Matrix) is a
structured planning method used to evaluate the
Strengths, Weaknesses, Opportunities, and
Threats involved in a project or in a business
venture. A SWOT analysis can be carried out for a
product, place, industry or person. It involves
specifying the objective of the business venture
or project and identifying the internal and
external factors that are favorable and
unfavorable to achieving that objective.

23. SWOT Analysis
Strengths:
• An effective supply chain
• Effective control
• Effective use of FIFO
Weaknesses:
• ERP is lacking complete features as compared to
SAP
• PO should be computerized
• TTMECS Lacks features as well

24. SWOT Analysis
• Opportunities:
• SAP System
• System Generated Purchase Order
• RFIDs for Inventory Management in store
• Threats:
• Competing supply chain of Competitors like
Western Industrial Catering.
• Ineffective procurement method compared to
competitors.

25. PESTEL Analysis
• Political
• Economic
• Social
• Technological
• Environmental
• Legal

26. Reasons for Opting for Group Purchasing
in Disadvantaged Areas
• Lower unit price quotations arise from
bigger volume orders
• Lower-risk premium demanded by suppliers
• Less product damages due to bulk and
expert handling and storage
ITC M14:U1:1.1-2

27. A successful partnership is characterised by:
A high degree of interaction & information sharing
High levels of trust
Mutual interdependence
A focus on costs rather than price
Teamwork
Investment in the relationship
ITC M14:U1:1.2-1

28. Value Addition
Inputs Transformation Outputs
Capital Processing
Goods
Intellect Transporting
Management Storing and/or
Staff Exchanging Services
Land Communicating
Raw Materials Inspecting
Energy
Components Requirements
Requirements &
Facilities & Feedback
Feedback
Equipment
Information
Time
OPERATIONS
Requirements CONTROL
& Feedback
ITC M17:U1:1.2-1

29. Environmentally Preferable Purchasing
(EPP):
The purchase of products &
services that have less
negative environmental
impact
Demonstrates an organization’s
commitment to social &
environmental responsibility
Promotes sustainable consumption!
Involves making decisions on What
To Purchase & Whom to Purchase
From
ITC M13:U2:2.4-2

30. Forming contract management teams
For large contracts you may have
“core teams” & “extended teams”
Different contracts require different managers:
“Arms-length” relationships require people
who are good at applying contract law
Co-operative relationships require good
people managers
ITC M9:U2:2.1-1

31. Contract Managers: Roles
• Defines team roles
• Keeps the team motivated
• Ensures team members maintain communication
• Is responsible for the contract management plan
• Establishes contract management reporting systems
• Ensures proper contract administration
• Identifies & manages risk
• Identifies priorities
• Manages the buyer-supplier relationship
• Manages disputes
• Approves or rejects requests for contract changes
• Ensures learning points are fed back into the organisation
ITC M9:U2:2.2-1

32. Contract Managers: Skills, Competencies &
Experience
• An excellent communicator
• Relationship builder / good interpersonal skills
• Able to focus on issues & not personalities
• Has a working knowledge of the technical issues
• Respected, influential, & politically aware
• Knowledge of risk management techniques
• Knowledge of contract law
• Ability to see the “big picture”
• Skilled in project management techniques
• Skilled negotiator
ITC M9:U2:2.2-2

33. What makes a good contract?
Know what you want, what you want to avoid & your options if
things go wrong
Know your supplier
Aim at “win-win”
Don’t accept unrealistic promises
Avoid ambiguous drafting
Keep technology in mind
Keep intellectual & industrial property in mind
Have a clear dispute resolution clause
Have a clear termination clause
Keep culture in mind
ITC M8:U2:2.5-1

34. The Supply Positioning Model: 4 types of purchase items
H
M
Impact/ Bottleneck Critical
supply
opportunity/
risk rating Routine Leverage
L
N
80% of items = 20% of value 20% of items = 80% of value
Expenditure
ITC M6:U2:2.4-6

35. Action Point 5.4-4
Prioritising purchased items...
Annual Impact
Expenditure rank Product or service
expenditure rating
Highest
20% of
Medium – high items
Medium
Low-medium 80% of
items
Low
ITC M2:U5:5.4-16

36. The supply positioning model as a basis for prioritising
H Micro-
valves
Speakers
Give your highest priority
to items that represent
high levels of both
H
expenditure and of impact!
Tuning Electric
M devices motors
M
Impact
L L Tran-
sistors
Valves
Confce. Casings
room
hire
Nuts &
bolts
N Cleaning
Suppl.
Welding
mater.
N
80% of items = 20% of value 20% of items = 80% of value
Expenditure
ITC M2:U5:5.4-15

37. 80/20 Rule
• 20 % Efforts & Planning gives 80 % Results !

38. Forecasting demand for Rice
Centred
Year /
Demand moving Trend Seasonal variation
quarter
average
Y1/Q1 127
Y1/Q2 155
144
Y1/Q3 165 143 +22
141
Y1/Q4 130 139 -9
136
Y2/Q1 115 135 -20
133
Y2/Q2 134 133 +1
132
Y2/Q3 155 132 +23
132
Y2/Q4 123 134 -11
136
Y3/Q1 118 137 -19
137
Y3/Q2 147 139 +8
140
ITC M2:U4:4.2-18

39. Forecasting demand for item Rice (Cont’d)
Centred
Year /
Demand moving Trend Seasonal variation
quarter
average
Y3/Q3 160 142 +18
143
Y3/Q4 135 145 -10
146
Y4/Q1 131 148 -17
149
Y4/Q2 159 151 +8
152
Y4/Q3 172 154 +18
156
Y4/Q4 146
Y5/Q1 147
Y5/Q2
Y5/Q3
Y5/Q4
ITC M2:U4:4.2-19

40. Switching costs
Can be:
Costs related to negotiating a contact
Re-training of staff
Changes in processes & design
Obsolescence of old stock
Penalties for terminating the previous contract
Inefficiencies in start-up phase, etc.
ITC M4:U5:5.2-2

41. Switching costs
Suppliers may try to build in switching costs by:
• Offering benefits & discounts for customer loyalty
• Developing strong links with your executive
and/or technical staff
• Providing free training and other services
ITC M4:U5:5.2-4

42. Buyer Characteristics
Strong negotiators who are comfortable with
arms-length relationships (spot purchases and
when entering into term contracts)
If switching costs are high, the person
managing the contract need to be good at
establishing and maintaining a co-operative
relationship
ITC M4:U5:5.6-1

43. Determining appraisal criteria...
The Performance Equation
Performance = Capability Motivation
x
Evaluate the Evaluate the
supplier’s ability supplier’s interest &
to supply your company potential commitment
ITC M5:U2:2.5-1

44. Your appraisal criteria will relate to:
• Cost
• Quality
• Availability
• Supplier Service
• Responsiveness
ITC M5:U3:3.2-1

45. What is the 7 R’s Rule?
The 7 R‘s Rule describes how customer service can be created
through integrated logistics:
• Having the right product
• in the right quantity
• in the right condition
• at the right place
• at the right time
• for the right customer
• at the right cost
Inadequate functioning of any of these areas can result in
poor customer service
ITC M10:U3:3.3-2

46. The Role of Packaging
The physical characteristics of goods (solid, liquid, gas) affect the
way they can be handled.
Packaging has two important roles in relation to transport:
1) Protection
ensuring that the goods are adequately protected for transport in
conjunction with the type of vehicle being used
2) Optimising volumetric capacity & facilitating handling
allowing goods to be stacked more readily
Because of the volumes and the materials involved, packaging is
increasingly becoming an environmental issue
ITC M10:A:2.1-1

47. Commonly used packaging materials:
Natural materials (jute, cardboard, wood) as well as various types of plastic and metals are
used for many break bulk goods
Materials such as straw, paper, chipped & moulded polystyrene, etc. are used to fill free
space in boxes & cartons
Metals, plastic, glass, etc. is also used for specialised containers
Remember that weak packing will result in losses & damage but too strong packing will be
unnecessarily expensive
Buyers should take a proactive role in specifying dimensions, type & capacity of packaging
provided by suppliers

48. Packaging instructions
• Packaging is usually the supplier’s responsibility
but the buyer can influence how it is done!
• Dimensions of packaging should match standard storage location
sizes in stores to efficiently use the space
• Buyers could specify dimensions, type and capacity of packaging
ITC M10:A:2.6-1

49. Crux
• SCM
• Value Chain
• Delivery Process
• Variation Of Supply Chain
• Need For Supply Chain
• Vision, Mission, Goals
• Competitive Advantage
• Purchase Specification
• Benefits of Supply Chain
• ABC Analysis
• Inventory Coding System
• Re-Order Level
• SWOT Analysis
• PESTEL Analysis
• Group Purchasing
• The Transformation Model
• Environmentally Preferable Packaging
• Contract Management
• Supply Positioning
• 80/20 Rule
• Packaging