SCM Processes

Supply chain activities aren't the responsibility of one person or one company. Multiple people need to be actively involved in
a number of different processes to make it work.

Winning the SCM “game” requires supply chain professionals to play similar roles. Each supply chain player must
understand his or her role, develop winning strategies, and collaborate with their supply chain teammates. By doing so, the
SCM team can flawlessly execute the following processes:

 Planning – the plan process seeks to create effective long- and short-range supply chain strategies. From the
design of the supply chain network to the prediction of customer demand, supply chain leaders need to develop
integrated supply chain strategies.
 Procurement – the buy process focuses on the purchase of required raw materials, components, and goods. As a
consumer, you're pretty familiar with buying stuff!
 Production – the make process involves the manufacture, conversion, or assembly of materials into finished
goods or parts for other products. Supply chain managers provide production support and ensure that key
materials are available when needed.
 Distribution – the move process manages the logistical flow of goods across the supply chain. Transportation
companies, third party logistics firms, and others ensure that goods are flowing quickly and safely toward the point
of demand.
 Customer Interface – the demand process revolves around all the issues that are related to planning customer
interactions, satisfying their needs, and fulfilling orders perfectly.

Seven Principles of SCM

More than ten years ago, a research study of 100+ manufacturers, distributors, and retailers uncovered some widely used
supply chain strategies and initiatives. These ideas and practices were distilled down to seven principles and presented in
an article in Supply Chain Management Review, a magazine widely read by SCM professionals.

 Principle 1: Segment customers based on the service needs of distinct groups and adapt the supply chain to
serve these segments profitably.

 Principle 2: Customize the logistics network to the service requirements and profitability of customer segments.

 Principle 3: Listen to market signals and align demand planning accordingly across the supply chain, ensuring
consistent forecasts and optimal resource allocation.

 Principle 4: Differentiate product closer to the customer and speed conversation across the supply chain.

 Principle 5: Manage sources of supply strategically to reduce the total cost of owning materials and services.

 Principle 6: Develop a supply chain-wide technology strategy that supports multiple levels of decision making and
gives clear view of the flow of products, services, and information.

 Principle 7: Adopt channel-spanning performance measures to gauge collective success in reaching the end-user
effectively and efficiently.
What is Supply Chain Management (SCM)?
Supply chain management (SCM) is the active management of supply chain activities to maximize customer value
and achieve a sustainable competitive advantage. It represents a conscious effort by the supply chain firms to
develop and run supply chains in the most effective & efficient ways possible. Supply chain activities cover
everything from product development, sourcing, production, and logistics, as well as the information systems
needed to coordinate these activities.

The concept of Supply Chain Management (SCM) is based on two core ideas:

1. The first is that practically every product that reaches an end user represents the cumulative effort of
multiple organizations. These organizations are referred to collectively as the supply chain.
2. The second idea is that while supply chains have existed for a long time, most organizations have only paid
attention to what was happening within their “four walls.” Few businesses understood, much less managed,
the entire chain of activities that ultimately delivered products to the final customer. The result was
disjointed and often ineffective supply chains.

The organizations that make up the supply chain are “linked” together through physical flows and information
flows.

Physical 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
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 materials up and down the supply chain.

Supply Chain Management can be defined as the management of flow of

products and services, which begins from the origin of products and ends at
the product’s consumption. It also comprises movement and storage of raw
materials that are involved in work in progress, inventory and fully
furnished goods.
The main objective of supply chain management is to monitor and relate
production, distribution, and shipment of products and services. This can be
done by companies with a very good and tight hold over internal
inventories, production, distribution, internal productions and sales.
In the above figure, we can see the flow of goods, services and information
from the producer to the consumer. The picture depicts the movement of a
product from the producer to the manufacturer, who forwards it to the
distributor for shipment. The distributor in turn ships it to the wholesaler or
retailer, who further distributes the products to various shops from where
the customers can easily get the product.
Supply chain management basically merges the supply and demand
management. It uses different strategies and approaches to view the entire
chain and work efficiently at each and every step involved in the chain.
Every unit that participates in the process must aim to minimize the costs
and help the companies to improve their long term performance, while also
creating value for its stakeholders and customers. This process can also
minimize the rates by eradicating the unnecessary expenses, movements
and handling.
Here we need to note that supply chain management and supply chain
event management are two different topics to consider. The Supply Chain
Event Management considers the factors that may interrupt the flow of an
effective supply chain; possible scenarios are considered and accordingly,
solutions are devised for them.

Supply Chain Management - Advantages

In this era of globalization where companies compete to provide the best
quality products to the customers and satisfy all their demands, supply
chain management plays a very important role. All the companies are
highly dependent on effective supply chain process.
Let’s take a look at the major advantages of supply chain. The key
benefits of supply chain management are as follows −
 Develops better customer relationship and service.

 Creates better delivery mechanisms for products and services in demand with minimum delay.

 Improvises productivity and business functions.

 Minimizes warehouse and transportation costs.

 Minimizes direct and indirect costs.

 Assists in achieving shipping of right products to the right place at the right time.

 Enhances inventory management, supporting the successful execution of just-in-time stock models.

 Assists companies in adapting to the challenges of globalization, economic upheaval, expanding consumer
expectations, and related differences.

 Assists companies in minimizing waste, driving out costs, and achieving efficiencies throughout the supply chain
process.

These were some of the major advantages of supply chain management.

After taking a quick glance at the concept and advantages on supply chain
management, let us take a look at the main goals of this management.

Supply Chain Management - Goals

Every firm strives to match supply with demand in a timely fashion with the
most efficient use of resources. Here are some of the important goals of
supply chain management −
 Supply chain partners work collaboratively at different levels to maximize resource productivity, construct
standardized processes, remove duplicate efforts and minimize inventory levels.

 Minimization of supply chain expenses is very essential, especially when there are economic uncertainties in
companies regarding their wish to conserve capital.

 Cost efficient and cheap products are necessary, but supply chain managers need to concentrate on value
creation for their customers.

 Exceeding the customers’ expectations on a regular basis is the best way to satisfy them.

 Increased expectations of clients for higher product variety, customized goods, off-season availability of
inventory and rapid fulfillment at a cost comparable to in-store offerings should be matched.

 To meet consumer expectations, merchants need to leverage inventory as a shared resource and utilize the
distributed order management technology to complete orders from the optimal node in the supply chain.

Lastly, supply chain management aims at contributing to the financial

success of an enterprise. In addition to all the points highlighted above, it
aims at leading enterprises using the supply chain to improve
differentiation, increase sales, and penetrate new markets. The objective is
to drive competitive benefit and shareholder value.
 Supply Chain Management - Process

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Supply chain management is a process used by companies to ensure that

their supply chain is efficient and cost-effective. A supply chain is the
collection of steps that a company takes to transform raw materials into a
final product. The five basic components of supply chain management are
discussed below −

Plan
The initial stage of the supply chain process is the planning stage. We need
to develop a plan or strategy in order to address how the products and
services will satisfy the demands and necessities of the customers. In this
stage, the planning should mainly focus on designing a strategy that yields
maximum profit.
For managing all the resources required for designing products and
providing services, a strategy has to be designed by the companies. Supply
chain management mainly focuses on planning and developing a set of
metrics.

Develop(Source)
After planning, the next step involves developing or sourcing. In this stage,
we mainly concentrate on building a strong relationship with suppliers of
the raw materials required for production. This involves not only identifying
dependable suppliers but also determining different planning methods for
shipping, delivery, and payment of the product.
Companies need to select suppliers to deliver the items and services they
require to develop their product. So in this stage, the supply chain
managers need to construct a set of pricing, delivery and payment
processes with suppliers and also create the metrics for controlling and
improving the relationships.
Finally, the supply chain managers can combine all these processes for
handling their goods and services inventory. This handling comprises
receiving and examining shipments, transferring them to the manufacturing
facilities and authorizing supplier payments.
Make
The third step in the supply chain management process is the
manufacturing or making of products that were demanded by the customer.
In this stage, the products are designed, produced, tested, packaged, and
synchronized for delivery.
Here, the task of the supply chain manager is to schedule all the activities
required for manufacturing, testing, packaging and preparation for delivery.
This stage is considered as the most metric-intensive unit of the supply
chain, where firms can gauge the quality levels, production output and
worker productivity.

Deliver
The fourth stage is the delivery stage. Here the products are delivered to
the customer at the destined location by the supplier. This stage is basically
the logistics phase, where customer orders are accepted and delivery of the
goods is planned. The delivery stage is often referred as logistics, where
firms collaborate for the receipt of orders from customers, establish a
network of warehouses, pick carriers to deliver products to customers and
set up an invoicing system to receive payments.

Return
The last and final stage of supply chain management is referred as the
return. In the stage, defective or damaged goods are returned to the
supplier by the customer. Here, the companies need to deal with customer
queries and respond to their complaints etc.
This stage often tends to be a problematic section of the supply chain for
many companies. The planners of supply chain need to discover a
responsive and flexible network for accepting damaged, defective and extra
products back from their customers and facilitating the return process for
customers who have issues with delivered products.
Supply Chain Management - Process Flow

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Supply chain management can be defined as a systematic flow of materials,

goods, and related information among suppliers, companies, retailers, and
consumers.

Types
There are three different types of flow in supply chain management −

 Material flow

 Information/Data flow

 Money flow
Let us consider each of these flows in detail and also see how effectively
they are applicable to Indian companies.

Material Flow
Material flow includes a smooth flow of an item from the producer to the
consumer. This is possible through various warehouses among distributors,
dealers and retailers.
The main challenge we face is in ensuring that the material flows as
inventory quickly without any stoppage through different points in the
chain. The quicker it moves, the better it is for the enterprise, as it
minimizes the cash cycle.
The item can also flow from the consumer to the producer for any kind of
repairs, or exchange for an end of life material. Finally, completed goods
flow from customers to their consumers through different agencies. A
process known as 3PL is in place in this scenario. There is also an internal
flow within the customer company.

Information Flow
Information/data flow comprises the request for quotation, purchase order,
monthly schedules, engineering change requests, quality complaints and
reports on supplier performance from customer side to the supplier.
From the producer’s side to the consumer’s side, the information flow
consists of the presentation of the company, offer, confirmation of purchase
order, reports on action taken on deviation, dispatch details, report on
inventory, invoices, etc.
For a successful supply chain, regular interaction is necessary between the
producer and the consumer. In many instances, we can see that other
partners like distributors, dealers, retailers, logistic service providers
participate in the information network.
In addition to this, several departments at the producer and consumer side
are also a part of the information loop. Here we need to note that the
internal information flow with the customer for in-house manufacture is
different.

Money Flow
On the basis of the invoice raised by the producer, the clients examine the
order for correctness. If the claims are correct, money flows from the
clients to the respective producer. Flow of money is also observed from the
producer side to the clients in the form of debit notes.
In short, to achieve an efficient and effective supply chain, it is essential to
manage all three flows properly with minimal efforts. It is a difficult task for
a supply chain manager to identify which information is critical for decision-
making. Therefore, he or she would prefer to have the visibility of all flows
on the click of a button.

After understanding the basic flows involved in the supply chain

management, we need to consider the different elements present in this
flow. Thus, the different components of the flow of supply chain are
described below.

Transportation
Transportation or shipment is necessary for an uninterrupted and seamless
supply. The factors that have an impact on shipment are economic
uncertainty and instability, varying fuel prices, customers’ expectations,
globalization, improvised technologies, changing transportation industry and
labor laws.
The major elements that influence transportation should be considered, as
it is completely dependent on these factors for order completion as well as
for ensuring that all the flows work properly. The major factors are −

Long-term Decisions
Transportation managers should acknowledge the supply freight flow and
accordingly design the network layout. Now, when we say long term
decision, we mean that the transportation manager has to select what
should be the primary mode of transportation.
The manager has to understand the product flows, volume, frequency,
seasonality, physical features of products and special handlings necessities,
if any. In addition to this, the manager has to make decisions as to the
extent of outsourcing to be done for each and every product. While
considering all these factors, he should carefully consider the fact that the
networks need not be constant.
For example, in order to transport stock to regional cross dock facilities for
sorting, packaging and brokering small loads to individual customers, stock
destinations can be assembled through contract transportation providers.

Lane Operation Decisions

These functional decisions stress on daily freight operations. Here, the
transportation managers work on real time information on products’
requirements at different system nodes and must collaborate every move of
the product that is both inbound and outbound shipping lanes so as to
satisfy their services demands at the minimal possible cost.
Managers who make good decisions easily handle information and utilize
the opportunities for their own profit and assure that the product is moved
to them immediately, whenever it is demanded, that too in the right
quantity. At the same time, they are saving cost on transportation also.
For example, a shipment has landed from a supplier who is based in New
Jersey and in the same week, a product needs to be dispatched to New York
as it becomes available for movement. If the manager is aware of this
information in advance, he would prepare everything as per the demand
and the products could be shipped out immediately.

Choice and Mode of Carrier

A very important decision to be made is to choose the mode of
transportation. With the improvement in the means of transportation,
modes of transport that were not available in the traditional transportation
modes in the past can be now be a preferred choice.
For example, rail container service may offer a package that is cost-
efficient and effective as compared to a motor transport. While making a
decision, the manager has to consider the service criteria that need to be
met, like the delivery time, date special handling requirements, while also
taking into consideration the element of cost, which would be an important
factor.

Dock Level Operations

This involves the last level of decision-making. This comprises planning,
routing and scheduling. For example, if a carriage is being loaded with
different customers’ orders, the function of the dock-level managers is to
assure that the driver is informed of the most efficient route and that loads
are placed in the order of the planned stops.

Warehousing
Warehousing plays a vital role in the supply chain process. In today’s
industry, the demands and expectations of the customers are undergoing a
tremendous change. We want everything at our door step – that too with
efficient price. We can say that the management of warehousing functions
demands a distinct merging of engineering, IT, human resources and supply
chain skills.

To neutralize the efficiency of inbound functions, it is ideal to accept

materials in an immediately storable conveyance, like a pallet, case or box.
For labeling the structure, tool selection and business process demand the
types and quantities of orders that are processed. Further, the number of
stock-keeping units (SKU’s) in the distribution centers is a crucial
consideration.
The Warehouse Management Systems (WMS) leads the products to their
storage location where they should be stored. The required functionality for
the completion and optimization of receiving, storing and shipping functions
is then supplied.
Sourcing and Procurement
Sourcing and procurement are a vital part of the supply chain management.
The company decides if it wants to perform all the exercises internally or if
it desires to get it done by any other independent firm. This is commonly
referred as the make vs buy decision, which we will be discussing in brief in
another chapter.

Returns Management
Returns management can be defined as the management that invites the
merger of challenges and opportunities for inbound logistics. A cost-
effective reverse logistics program links the available supply of returns with
the product information and demand for repairable items or re-captured
materials. We have three pillars that support returns management
processes. These are as follows −
 Speed − It is a must to have quick and easy returns management and automate decisions regarding whether to
produce return material authorizations (RMAs) and if so, how to process them. Basically, the tools of speed
return processing include automated workflows, labels & attachments and user profiles.

 Visibility − For improving the visibility and predictability, information needs to be captured initially in the
process, ideally prior to delivering the return to the receiving dock. Most effective and easily implementable
approaches for obtaining visibility are web-based portals, carrier integration and bar-coded identifiers.

 Control − In case of returns management, synchronizing material movements is a common issue that needs to
be handled. The producers need to be very cautious and pay close attention to receipts and reconciliation and
update the stakeholders of impending quality issues. In this case, reconciliation activates visibility and control all
over the enterprise. The key control points in this process are regulatory compliance, reconciliation and final
disposition and quality assurance.

Software solutions can assist in speeding up the returns management by

supporting user profiles and workflows that state supply chain partners and
processes, by labeling and documentation that tracks the material along
with the web-based portals and by exception-based reporting to deliver
information for timely reconciliation. These characteristics, when executed
with the three pillars mentioned above, support a reliable and predictable
returns process to count value across the company.
Post - Sales Service
Now that the ordered shipment is over, what is the next step? The post
sales service in supply chain tends to be an increasingly essential factor as
businesses offer solution instead of products.
The post sales services comprise selling spare parts, installing upgrades,
performing inspection, maintenance and repairs, offering training &
education and consulting.
Presently, with the growing demands of the clients, a high volume of after
sales service proves to be a profitable business. Here, the services are
basically heterogeneous and the value-added services are different from
those provided prior to sales service.

Supply Chain Management - Decision Phases

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Decision phases can be defined as the different stages involved in supply

chain management for taking an action or decision related to some product
or services. Successful supply chain management requires decisions on the
flow of information, product, and funds that fall into three decision phases.
Here we will be discussing the three main decision phases involved in the
entire process of supply chain. The three phases are described below −

Supply Chain Strategy

In this phase, decision is taken by the management mostly. The decision to
be made considers the sections like long term prediction and involves price
of goods that are very expensive if it goes wrong. It is very important to
study the market conditions at this stage.
These decisions consider the prevailing and future conditions of the market.
They comprise the structural layout of supply chain. After the layout is
prepared, the tasks and duties of each is laid out.
All the strategic decisions are taken by the higher authority or the senior
management. These decisions include deciding manufacturing the material,
factory location, which should be easy for transporters to load material and
to dispatch at their mentioned location, location of warehouses for storage
of completed product or goods and many more.
Supply Chain Planning
Supply chain planning should be done according to the demand and supply
view. In order to understand customers’ demands, a market research
should be done. The second thing to consider is awareness and updated
information about the competitors and strategies used by them to satisfy
their customer demands and requirements. As we know, different markets
have different demands and should be dealt with a different approach.
This phase includes it all, starting from predicting the market demand to
which market will be provided the finished goods to which plant is planned
in this stage. All the participants or employees involved with the company
should make efforts to make the entire process as flexible as they can. A
supply chain design phase is considered successful if it performs well in
short-term planning.

Supply Chain Operations

The third and last decision phase consists of the various functional decisions
that are to be made instantly within minutes, hours or days. The objective
behind this decisional phase is minimizing uncertainty and performance
optimization. Starting from handling the customer order to supplying the
customer with that product, everything is included in this phase.
For example, imagine a customer demanding an item manufactured by your
company. Initially, the marketing department is responsible for taking the
order and forwarding it to production department and inventory
department. The production department then responds to the customer
demand by sending the demanded item to the warehouse through a proper
medium and the distributor sends it to the customer within a time frame. All
the departments engaged in this process need to work with an aim of
improving the performance and minimizing uncertainty.
SCM - Performance Measures

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Supply chain performance measure can be defined as an approach to judge

the performance of supply chain system. Supply chain performance
measures can broadly be classified into two categories −
 Qualitative measures − For example, customer satisfaction and product quality.

 Quantitative measures − For example, order-to-delivery lead time, supply chain response time, flexibility,
resource utilization, delivery performance.

Here, we will be considering the quantitative performance measures only.

The performance of a supply chain can be improvised by using a multi-
dimensional strategy, which addresses how the company needs to provide
services to diverse customer demands.

Quantitative Measures
Mostly the measures taken for measuring the performance may be
somewhat similar to each other, but the objective behind each segment is
very different from the other.
Quantitative measures is the assessments used to measure the
performance, and compare or track the performance or products. We can
further divide the quantitative measures of supply chain performance into
two types. They are −

 Non-financial measures

 Financial measures

Non - Financials Measures

The metrics of non-financial measures comprise cycle time, customer
service level, inventory levels, resource utilization ability to perform,
flexibility, and quality. In this section, we will discuss the first four
dimensions of the metrics −

Cycle Time
Cycle time is often called the lead time. It can be simply defined as the end-
to-end delay in a business process. For supply chains, cycle time can be
defined as the business processes of interest, supply chain process and the
order-to-delivery process. In the cycle time, we should learn about two
types of lead times. They are as follows −

 Supply chain lead time

 Order-to-delivery lead time

The order-to-delivery lead time can be defined as the time of delay in the
middle of the placement of order by a customer and the delivery of
products to the customer. In case the item is in stock, it would be similar to
the distribution lead time and order management time. If the ordered item
needs to be produced, it would be the summation of supplier lead time,
manufacturing lead time, distribution lead time and order management
time.
The supply chain process lead time can be defined as the time taken by the
supply chain to transform the raw materials into final products along with
the time required to reach the products to the customer’s destination
address.
Hence it comprises supplier lead time, manufacturing lead time, distribution
lead time and the logistics lead time for transport of raw materials from
suppliers to plants and for shipment of semi-finished/finished products in
and out of intermediate storage points.
Lead time in supply chains is governed by the halts in the interface because
of the interfaces between suppliers and manufacturing plants, between
plants and warehouses, between distributors and retailers and many more.
Lead time compression is a crucial topic to discuss due to the time based
competition and the collaboration of lead time with inventory levels, costs,
and customer service levels.

Customer Service Level

The customer service level in a supply chain is marked as an operation of
multiple unique performance indices. Here we have three measures to
gauge performance. They are as follows −
 Order fill rate − The order fill rate is the portion of customer demands that can be easily satisfied from the
stock available. For this portion of customer demands, there is no need to consider the supplier lead time and
 the manufacturing lead time. The order fill rate could be with respect to a central warehouse or a field
warehouse or stock at any level in the system.

 Stockout rate − It is the reverse of order fill rate and marks the portion of orders lost because of a stockout.

 Backorder level − This is yet another measure, which is the gauge of total number of orders waiting to be
filled.

 Probability of on-time delivery − It is the portion of customer orders that are completed on-time, i.e., within
the agreed-upon due date.

In order to maximize the customer service level, it is important to maximize

order fill rate, minimize stockout rate, and minimize backorder levels.

Inventory Levels
As the inventory-carrying costs increase the total costs significantly, it is
essential to carry sufficient inventory to meet the customer demands. In a
supply chain system, inventories can be further divided into four categories.

 Raw materials

 Work-in-process, i.e., unfinished and semi-finished sections

 Finished goods inventory

 Spare parts

Every inventory is held for a different reason. It’s a must to maintain

optimal levels of each type of inventory. Hence gauging the actual inventory
levels will supply a better scenario of system efficiency.

Resource Utilization
In a supply chain network, huge variety of resources is used. These
different types of resources available for different applications are
mentioned below.
 Manufacturing resources − Include the machines, material handlers, tools, etc.

 Storage resources − Comprise warehouses, automated storage and retrieval systems.

 Logistics resources − Engage trucks, rail transport, air-cargo carriers, etc.

 Human resources − Consist of labor, scientific and technical personnel.

 Financial resources − Include working capital, stocks, etc.

In the resource utilization paradigm, the main motto is to utilize all the
assets or resources efficiently in order to maximize customer service levels,
reduce lead times and optimize inventory levels.

Finanacial Measures
The measures taken for gauging different fixed and operational costs
related to a supply chain are considered the financial measures. Finally, the
key objective to be achieved is to maximize the revenue by maintaining low
supply chain costs.
There is a hike in prices because of the inventories, transportation,
facilities, operations, technology, materials, and labor. Generally, the
financial performance of a supply chain is assessed by considering the
following items −
 Cost of raw materials.

 Revenue from goods sold.

 Activity-based costs like the material handling, manufacturing, assembling rates etc.

 Inventory holding costs.

 Transportation costs.

 Cost of expired perishable goods.

 Penalties for incorrectly filled or late orders delivered to customers.

 Credits for incorrectly filled or late deliveries from suppliers.

 Cost of goods returned by customers.

 Credits for goods returned to suppliers.

In short, we can say that the financial performance indices can be merged
as one by using key modules such as activity based costing, inventory
costing, transportation costing, and inter-company financial transactions.