Supply chain management

Supply chain management is much larger in scope and is concerned with and
emcampasses the entire gamut of activities of the enterprise its in bound
logistic , various material management functions such as sourcing , vendor
development , purchasing and storing , conversion of inputs into products ,
physical distribution of the finished products , and the channel functions of
taking the product to the ultimate consumers

Supply chain management deals with the

management of materials , information and financial flows in a network
consisting of suppliers, manufacturers, distributors and customers.
An organization procured raw material from its
suppliers, added value through a set of processes and delivered a finished
product to its customers. A raw material or a finished product should move
down the supply chain with minimum delay or maximum speed and
minimum overheads.
 OBJECTIVES OF SUPPLY CHAIN MANAGEMENT

1.Reduction in distribution cost.

2. To provide acceptable level of service at minimum cost.

3. Proper selection of mode of transportation and route.

4. Verification of transportation rate from market.

5. Gain commercial advantage over competitors.

6. Efficient running of supply chain to earn more profits.

7. To provide right item, at right place, at right time, in right condition and at
right price.

8. To prevent delays in supply chain and minimize overheads.

a
 DISTRIBUTION

Distribution logistic essentially consists of activities that accomplish

effective and efficient delivery of the product to the channel and the
consumers.
Physical distribution is to deliver the right goods to the right
customer at the right time and place. Physical distribution means the process
of delivering the product to the user or consumer promptly, safely and in
time. Physical distribution involves planning, action and control of the
physical flows of raw material and finished products from the points of
origin to the points of consumption to meet the customer need.
Distribution planning and accounting , in bound transport,
receiving, inventory management, in plant warehousing, order processing,
packaging, dispatch of goods , out bound transport, field warehousing,
customer service, communication these are the components of physical
distribution .
The main components are,
1. Transportation.
2. Warehousing.
3. Inventory management.
 TRANSPORTATION

Transportation and warehousing of inventories constitute the core of

physical distribution package. Physical distribution system is nothing but a
network of activities consisting primarily storage at multiple points
interconnected by a series of transport links in the machinery of distribution.
Material handling can be reduced by reducing the number of times an item is
handled and also reducing the amount of time for each handling,
The modes transport are : 1. Railway, 2. Road, 3. Water, 4. Air.
The choice of transport is governed by speed, dependability,
frequency of service, element of cost , operational flexibility, availability.
Railways offer widest variety therefore, flexibility in transport. Road
transport offers unlimited geographic locations which can be served easily
and also gives flexibility. Water transport is cheapest. Air transport is fastest
and suitable for perishable goods.
Physical distribution management has assumed great importance
as it alone can reduce the cost of transport, storage, order processing,
material handling, marketers are giving special attention to physical
distribution because it can assure a competitive level of serving demand
while holding down the total cost of distribution as much as possible . In
short, railway transport is preferred for bulky and heavy products and for
long distance traffic. Road transport is preferred for short distance traffic.
Water transport is very cheaper but it is also very slow.
 Function of transportation

1. Transport aids production : It moves the goods from those places

where they are abundant to those places where they are scare. At all
stage of production of transport is involved.
2. Transport carries goods within a short time and this provides the
goods to consumers at that time when they are keenly required. It
equalizes the supplies from the view point of place. Thus , it creates
place utility.
3. Transport widens market by bringing producers, distributors and
consumers nearer to one another. The railway, ships, motor, trucks,
aeroplanes are helpful in moving goods from one place to another at
considerably low expenses and with greatest ease and speed.
4. Territorial division of labour : Transport enables all countries in the
world to exchange the commodities of one another . Each country can
specialise in the production of particular commodities and rely on
other countries for those which it cannot produce. Thus, transport
makes possible the territorial division of labour.
5. Movement of capital, technical knowledge : Transport enables
movement of capital ,technical and personnel knowledge, from
advanced countries to under developed regions and thus brings about
a fair distribution of wealth and economic equilibrium among all
countries in the world.
6. Equalisation of labour supply : Transport moves labour from one
place to another and thus reduce cost of production by bringing about
the equalization of labour supply.
7. Transformation of economy : Transport helps in the transformation
of the economy. Firstly, develop means of transport transforms
agriculture from substance to commercial form and secondly moving
raw material, fuel, labour, etc. Transport stimulates the growth of
industries and leads transformation in the industrial economy of the
country.
8. Transport provides employment : To perform all these function,
service of millions of persons are required. Thus, transport gives job
to millions.
 WAREHOUSING

Warehousing perform many of the usual functions of wholesalers, these are

dispatch of smaller consignments to retailers, regulating the goods flow to
retailers, holding the stock for retailers, providing market intelligence and
many other merchandising services of manufacturers. A full service
warehouse is called as distribution centre. All customer orders directly sent
to the distribution centre in that region. A customer gets goods within three
days of the receipt of an order . A distribution centre provides services with
the help of a computer and modern material handling equipments.
Distribution centre can reduce cost of inventory, storage,
handing and transports. Distribution centre concept has given a new look to
traditional warehouses which were acting only as places for storage of goods
and which were usually located near the centre of production or transport.
The new system of distribution has reduce the total cost of distribution.
Many companies are shifting steadily from storage warehouse to distribution
centre in their plans of physical distribution. A wholesaler is a merchant
middleman whereas a distribution centre is merely an agent middleman.
 Inventory management

In the multidimensional approach to logistics, inventory is yet another

important dimension. Inventory is also referred as stocks. In many
companies upto 50% of the current asset are tied up in inventories of
different types. Hence, inventory management is treated as important
function of management.
Inventory management is a powerful tool in the process of
creation and satisfaction of customer demand. Inventory is the link
interconnecting the customers order and the companys production activity.
The entire physical distribution management rotates around the inventory
management. Managerial decisions regarding size, location, handling and
transporting of inventories assume unique significance in physical
distribution.
Inventory management involves – (1) to offer maximum service
and satisfaction to the customer with regard to rigidly fulfilling the due
delivery dates as per orders. (2) management is interested in minimizing
capital investment and cost of storage and transport. The best inventory
control recognizes the conflict and forces a business to take action, which
balances the objectives and then faithfully assures compliance with the
balance arrived at in day to day operation.
Raw material, work in proress as semi-finished goods and
finished goods are main types of inventory. In the distribution management,
inventory of finished goods is taken care of. Finished goods inventory can
be at three different places viz., (1) At the manufacturing place (2) In transit,
(3) In the warehouse or stock point. Suitable inventory management system
has to be evolved for individual organization after considering important
aspects like profitability, current assets, sales and customer services level
etc.
 Functions of inventory management

1. Meet demand of the customers :

2. Meet demand supply fluctuations :

3. Anticipating inventories :

4. Transit time :

5. Hedging :

6. To prevent stock out situation :

7. Avoid lead time uncertainties :

 METHODS OF INVENTORY MANAGEMENT

(a) ABC Analysis : In this items are classified on the basis of their annual
consumption value. The items which contribute to about 75% of
total inventory value are classified as A . These are very few in
number, just about 10-15 % of total number of items.These are
very few in number, just about 10-15% of total number of items.
About 75% to 80% of total items contribute to just about 10 % of
total inventory value. These are classified as C items. Remaining
15% of items contribute to about 15% of total invewntory value.
These are classified as B items .
The material manager must pay best attention to A items,
moderate attention to B items and less attention to C items .

(b) H M L Classification : In this, items are classified based on the unit

value of the item. The limitations on value are laid down by the
management. Say items costing Rs 10000/- and more may be
called H (High value )items, Rs 1000/-to Rs 10000/- M items and
below Rs 1000/- L items. The authority for purchase of M
(Medium value ) and L (Low value ) items may be delegated while
the authority of purchase of H items would be exercised by senior
managers.

(c) V E D Classification : The Vital, Essential, and Desirable

classification mostly related to spare parts. Criteria being critical
nature of item for production. This classification helps in deciding
stocking level of inventory. Classification of items is done on the
basis of condition of machinery or equipment, one’s experience,
ease of availability of parts etc. For V items, larger stocks would
be necessary . For V –A classification, close control should be
kept on stock levels whereas for V- C items , large stocks can be
maintain.

(d) S D E Classification : The Scarce, Difficult and easy classification

relate to difficulty in obtaining these items. A scarce item may not
be easily available in market or may be it is difficult to
manufacture or there are only few manufacturers available and
lead time is too much, or item may be imported one. Such item
needs higher level of stocking.

(e) GOLF Classification : Government, Ordinary, Local and Foreign

classification pertains to source of procurement. Certain items can
be procured only through government agencies like STC, MMTC,
etc. Due to procedural delays, the lead time may be high. So keep
 higher stocks. Same applies to foreign source. But for ordinary and
local sources, safety stocks need not be maintain.

(f) F S N Classification : In MSS India PVT LTD, they use this

classification for inventory analysis . They classify the raw
material as Fast moving, Slow moving, and Non-moving
materials. And then planned for new raw material to be
purchase for production in the period of one to two years.
These classification helps them as, Fast moving
items should be stocked in sufficient quantity. But for slow
moving and non moving items, critical analysis must be carried
out to se why those items have become so. Timely action should
be taken to use/dispose off such item to prevent loss to the
company due to obsolescence.

(g) SOS Classification : Seasonal or off seasonal classification relates to

seasonality of some items/commodities. For example agricultural
product. These need to be procured in large quantities during
season.

:
 INTRODUCTION TO DEMAND FORCASTING

As it is very important part of suuply chain management it is essential to

know the future demand to make the supply chain work in smoothly manner,
in a proper and continuous form without any distrubance in supply chain.
These help to eliminate the confusion occuring in supply chain
which is very important to smooth flow of any supply chain.
The demand for any commodity is the quantity of it a consumer
decides to buy at a given price, at a given time.
A forcast is a prediction about a future event which is most
likely to happen under given conditions . In a world full of certainties,
formation of some veiw about the future is inevitle. Therefore , firms try to
forecast the likely demand for their products. Predictions for future demand
for a firms products are known as demand forcasts.
Forcasting as an important function of management came in
vogue after the great depression and became more common after the second
world war. Demand forcast are important because huge resource are
involved in the modern large scale production. It has come to be reckoned as
an important function of management.
To avoid breakage in the supply chain management it is very
important to know the future demand for preplanning of bugets, human
resource, etc.
 MEANING

Forcasting is guessing. The art of forecasting is in the collection of very best

guesses you can obtain and the construction of a scenario from these,
picturing the future. Forcasting is the estimation of the value of a variable
(or set of variables) at some future points in time. Forcasting is using the
knowledge to estimate what will happen at some future moments of time. A
forcasting is usually carried out in order to provide an aid to decision-
making and in planning in future. Forcasting is important for all managers—
marketing, materials, finance, operations, human resource etc.
 OBJECTIVES OF DEMAND FORCASTING

(a) Short term objectives :

(1) Formulation of production plan and policy.

(2) Ensuring regular supply of raw material.

(3) Maximum capacity utilisation.

(4) Ensuring regular labour availability.

(5) Formulation of pricing policy.

(6) Ensuring adequate finance.

(b) Long term objectives :

(1) Decision on new plant and production capacity.

(2) Estimation of labour requirement.

(3) Arrange for long term finance.

Sr
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