B-Tech 8th Sem Subject - SCM

Unit-1 “FUNDAMENTALS OF SUPPLY CHAIN MANAGEMENT”

Supply Chain Management (SCM)

Supply chain management (SCM) is the monitoring and optimization of the production and distribution
of a company’s products and services. It seeks to improve and make more efficient all processes involved
in turning raw materials and components into final products and getting them to the ultimate
customer. Effective SCM can help streamline a company's activities to eliminate waste, maximize
customer value, and gain a competitive advantage in the marketplace.

5 Phases of Supply Chain Management (SCM)

1. Planning
To get the best results from SCM, the process usually begins with planning to match supply with
customer and manufacturing demands. Companies must try to predict what their future needs will be
and act accordingly. That means taking into account the raw materials or components needed during
each stage of manufacturing, equipment capacity and limitations, and staffing needs.
2. Sourcing
Effective SCM processes rely very heavily on strong relationships with suppliers. Sourcing entails
working with vendors to supply the materials needed throughout the manufacturing process. Different
industries will have different sourcing requirements.
3. Manufacturing
Using machinery and labor to transform the raw materials or components the company has received
from its suppliers into something new is the heart of the supply chain management process. This final
product is the ultimate goal of the manufacturing process, though it is not the final stage of SCM.
4. Delivery
Once products are made and sales are finalized, a company must get those products into the hands of
its customers. A company with effective SCM will have robust logistic capabilities and delivery channels
to ensure timely, safe, and inexpensive delivery of its products.
5. Returns
The SCM process concludes with support for the product and customer returns.
The return process is often called reverse logistics, and the company must ensure it has the capabilities
to receive returned products and correctly assign refunds for them. Whether a company is conducting
a product recall or a customer is simply not satisfied with the product, the transaction with the
customer must be remedied.

Supply chain network

Supply chain network is a strategic, data-driven approach to optimize the flow of goods,
information, and finances across a business's entire supply chain. Any consumer facing an empty
supermarket shelf or waiting for a late package knows the meaning of 'supply chain disruption.
Supply chain networks allow us to look at the big picture; giving us a better understanding of the
flow of materials and information.
Often organizations focus only on their organisation; what they produce or provide and not what
the end customer receives. Looking at a supply chain network enables firms to look at the overall
movement of materials/information from start to end, allowing organisations to see the value in creating
partnerships; and the value in working together to ensure the best possible value is provided to the end-
customer.
Supply chains and supply networks both describe the flow and movement of materials & information, by
linking organizations together to serve the end-customer.
‘Network’ describes a more complex structure, where organisations can be cross-linked and there are
two-way exchanges between them; ‘chain’ describes a simpler, sequential set of links (Harland et al.,
2001)

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In order to understand a supply chain network; we need to understand what a supply chain is. A supply
chain is a series of processes linked together to form a chain.

Integrated supply chain planning

An integrated supply chain connects all the stakeholders, offers better operational visibility, and allows
businesses to make data-driven decisions. According to reports, companies with a fully integrated supply
out power other businesses by 20%. Moreover, companies that switched to integrated systems
experienced a 25% gain in productivity.

Integrated Supply Chain Planning (ISCP) is a strategy that aims to synchronize and optimize the
activities and processes across an entire supply chain, from raw material procurement to final product
delivery to customers. It involves aligning various functional areas such as procurement, manufacturing,
logistics, and sales, to ensure that all parts of the supply chain work together efficiently and effectively.

Here are key components and principles of Integrated Supply Chain Planning:

1. Collaboration Across Functions

 Different departments (e.g., sales, marketing, operations, finance, logistics) work together to
forecast demand, plan inventory, and optimize production schedules.
 Collaboration also extends to suppliers and customers to share data and insights, improving
decision-making and reducing inefficiencies.
2. Demand Planning
 Accurate demand forecasting is critical to ISCP. By understanding customer demand patterns,
businesses can optimize inventory levels and production plans, reducing the risk of stockouts or
overproduction.
 Demand planning includes not only historical data but also insights from sales teams, market
trends, and promotional activities.
3. Inventory Management
 Balancing inventory levels to meet customer demand while minimizing carrying costs is a core
element of ISCP.
 The goal is to optimize inventory across the supply chain, ensuring that the right products are
available in the right quantities at the right time.
4. Production Planning
 Efficient production scheduling based on demand forecasts ensures that manufacturing can

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meet customer needs while avoiding delays and unnecessary costs.
 Integrated systems help synchronize production with materials and inventory, ensuring smooth
flow through the supply chain.
5. Supply Chain Visibility
 Real-time tracking of goods, shipments, and inventory is essential for integrated planning. This
allows for better decision-making and responsiveness to changes in demand or disruptions.
 Advanced technologies like IoT, RFID, and cloud-based platforms are used to provide end-to-end
visibility across the supply chain.
6. Advanced Analytics and Forecasting
 ISCP leverages data analytics, machine learning, and artificial intelligence to generate more
accurate demand forecasts, predict potential disruptions, and optimize decision-making.
 Predictive analytics help anticipate changes in demand, capacity, or supply, allowing businesses
to proactively adjust their plans.
7. Sales and Operations Planning (S&OP)
 This is the process through which organizations align their sales forecast with production and
procurement plans. It helps in creating a balance between supply and demand.
 S&OP brings together senior management and various departments to discuss, review, and
adjust plans to meet both strategic and operational goals.
8. Supplier and Partner Integration
 For true integration, suppliers and partners must be involved in the planning process. This
ensures that everyone in the supply chain is on the same page and can respond quickly to
changes in demand or supply conditions.
 Technologies like Electronic Data Interchange (EDI) and Supplier Relationship Management
(SRM) systems can streamline this integration.
9. Risk Management
 Integrated supply chain planning involves identifying potential risks (e.g., supply shortages,
geopolitical factors, natural disasters) and developing contingency plans.
 Businesses can proactively build resilience into their supply chains by diversifying suppliers,
increasing safety stock, and creating flexible sourcing strategies.
10. Technology Integration
 ISCP often requires the integration of various technological tools and systems, such as Enterprise
Resource Planning (ERP), Advanced Planning Systems (APS), and Transportation Management
Systems (TMS).
 These tools allow for seamless data sharing, real-time visibility, and improved coordination
across the entire supply chain.
Benefits of Integrated Supply Chain Planning:
 Improved Efficiency: Streamlined operations, reduced lead times, and better resource
utilization.
 Cost Reduction: By optimizing production and inventory levels, organizations can reduce costs
related to overproduction, storage, and waste.
 Enhanced Customer Satisfaction: Reliable delivery times, high product availability, and the
ability to respond quickly to changes in demand lead to higher customer satisfaction.
 Better Decision Making: Data-driven insights enable more accurate forecasts and better
strategic decisions.

Supply Chain Integration

Supply chain integration is the process wherein all stakeholders involved in creating, distributing, and
supporting an end product or service are seamlessly connected. The motive of an integrated supply
chain is to ensure everyone is working towards the same goal while optimizing performance.
A supply chain is like an actual chain where all the links represent the stakeholders like OEMs, suppliers,
customers, shippers, etc. The entire supply chain will weaken if these links (stakeholders) aren’t
seamlessly connected.
Supply chain integration helps strengthen the supply chain by improving relationships among all

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stakeholders and by bringing in more transparency and visibility. This empowers businesses to make
data-driven and well-informed decisions that positively impact a business’s bottom line.

Different Levels of Supply Chain Integration

There are three levels of supply chain integration:
 Operational: The first level of supply chain integration is the operational level, wherein stress is
laid on the optimization of individual processes. Businesses focus on individual processes without
considering their impact on other processes.
 Planned/Tactical: Planned/Tactical phase of supply chain integration lays stress on integrated
responsibilities and authorities. The primary focus is on controlling and designing material flow at
an organizational level and the application of information systems across the company.
 Strategic: The strategic level of supply chain integration is about fostering better partnerships,
alliances, and relationships among the stakeholders or supply chain members. It also involves
designing and integrating inter-organizational information systems, processes between different
companies, and collaboration at a supply chain level.

Decision Phases in a supply chain –

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.

Supply Chain Management (SCM) is a management practice that governs the movement of goods and
services inside or outside the organisation. Effective SCM needs various decisions regarding the flow of
information, products, and finances. SCM includes all methods that convert raw materials into finished
goods, it comprises the designing, planning, executing, controlling and monitoring of all activities within
the supply chain.
Effective SCM has three main phases, namely:
1. Supply Chain Design/Strategy phase,
2. Supply Chain Planning phase,
3. Supply Chain Operations phase.
Supply Chain Design / Strategy phase
In the first phase, the organisation decides how to define the supply chain in the years to come. The
supply chain is configured in terms of allocation of resources, the methodology of production,

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warehousing, and different modes of transportation. All these decisions related to the supply chain are
typically made for the long term.
Supply Chain Planning phase
In the second phase, organisations prepare to incorporate flexibility into the supply chain in order to
optimise their performance. This phase also includes inventory decisions & allocation, in-time
production, production for customised orders and the allocation of transport mode for each product.
Benchmarking of operations, strategies against market competitors and the application of best practices
throughout the organisation are included in this phase. Supply chain planning decisions are generally
made for weeks or months.
Supply Chain Operations phase
The third and last decision phase comprises planning, daily or weekly production and distribution of
products. The planning of inbound & outbound operations (within & outside the organisation) is done in
this phase. It includes setting the delivery schedules and transportation modes with the suppliers,
manufacturing units and distribution centres.

Supply Chain Process View

A supply chain is a sequence of processes and flows that take place within and between different stages
and combine to fill a customer need for a product. Two ways to view the processes performed in a
supply chain
 Cycles view and
 Push/pull view
Cycle view
It defines the processes involved and the owners of each process. Process in a supply chain is divided
into a series of cycles. Cycles are performed at the interface between two successive stages of a supply
chain
Supply chain process can be broken down into four process cycles such as
 Customer order cycle
 Replenishment cycle
 Manufacturing cycle
 Procurement cycle
Each cycles occurs at the interface between two successive stages of the supply chain. A cycle view of
the supply chain is very useful when considering operational decisions. It clearly specifies the roles and
responsibilities of each member of the supply chain. It helps the designer to consider the infrastructure
required to support the processes.

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Push/Pull View

Categorizes processes in a supply chain based on whether they are initiated in response toa customer
order (pull) or in anticipation of a customer order (push). Categorization is based on the timing of
process execution relative to end customer demand.

At the time of execution of a pull process customer demand is known with certainty. In case of push
process at the time of execution of a process demand is not known and must be forecasted.

Hence,

 Pull process – reactive process

 Push process – speculative process

Push/pull boundary in a supply chain separates push process from pull process. Very useful when
considering strategic decisions relating to supply chain. Forces more global consideration of supply chain
processes as they relate to a customer order. More the pull process better the supply chain.

Supply Chain Flow

Supply chain management is the management of these three flows:

1. Material (Product) Flow
2. Information Flow
3. Financial Flow
Material (Product) Flow

This is the flow of the physical product from supplier all the way down to the customer. This flow is
usually uni-directional, that is, it only flows one direction from supplier to customer; however, in certain
instances, when the customer returns the product, the flow occasionally goes in the other direction. A
typical flow of materials usually begins with the raw materials suppliers to manufacturers to warehouses
and distribution to the the final customer.

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Information Flow

Information flow is the flow of information from supplier to customer and from customer back to
supplier. This flow is bi-directional, that is, it goes both direction in the supply chain. The type of
information that flows between customers and suppliers include quotations, purchase orders, delivery
status, invoices, customer complaints and so on. For supply chain to be successful there has to be
constant interaction between supplier and Customer. In many cases, other partners like distributors,
dealers, retailers, logistic service providers are involved in the information network.

kpakpakpa.com is an information network for product makers, suppliers and consumers of goods made
in Nigeria. Check out the information flow in our Q&A community.

Financial Flow

Lastly, financial flow involves the movement of money from the customer to the supplier. Usually, when
the customer receives the product and verifies it, the customer pays and the money travels back to the
supplier. Sometimes the finances flow the other direction (from supplier to customer) in form of debit.

For an efficient and effective supply chain, it is important that all three flows are managed properly with
minimal effort. By understanding your supply chain and how products, information and money flows
through it, you will be in a good position to find several inefficiencies and figure out how to significantly
improve your business.

Supply Chain Models

There are six types of supply chain models that can drive supply chain management for a business:
1. Continuous Flow
This is one of the most traditional models on the list. The continuous flow model is the best choice for
industries and businesses that operate with stability. Stability is essential for this model because it is
required on both ends, i.e. at the manufacturer and the buyer.
This model is well-suited for businesses that produce a uniform set of goods and can expect a stable
level of demand from the market. As the name suggests, goods are in continuous flow in this model, and
it is based on the stability of supply and demand in the market. The systems in this type of supply chain
management method are aligned so that a continuous flow of goods can be ensured.
2. Fast chain
The fast chain model is one of the new names in supply chain strategies. It is suitable for businesses that

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have product lines with short life cycles. For instance, a fashion designer might have a specific line of
designs in a season. The business needs to take the fashion line to the market to maximize returns, as it
is usually based on current trends. As supply chain efficiency can increase a business’s competitive edge,
this model is usually considered the best among the several types of supply chain integration.
3. Efficient Chain
The efficient chain model has been crafted for hyper-competitive industries. Under this model, the end
goal is to maximize efficiency. Following the efficient chain model, the organization is expected to create
proper production forecasts so that it can prepare machinery and raw materials accordingly.
The biggest drawback of this model is that a disruption in the production or sales cycle can create a lot
of ripple effects across the supply chain network.
For instance, challenges like labor shortages or raw material shortages could cause long delays, and the
organization may have to bear additional costs due to the delay in supply.
4. Agile
The agile model is well-suited for businesses dealing with specialty items where products may require
extra care in the supply chain. This model is usually fine-tuned for the product that it is being used for.
The agile model is known for the expertise it requires to transport the goods from point A to point B and
not so much for the automation or technology involved.
Supply chain companies that follow the agile model can charge a premium price for their services.
Compared to the efficient chain model that thrives on high volumes, the agile model is only profitable
till a threshold of volume is met. After that, it may prove costly to follow this model.
5. Custom-configured
The custom-configured model needs custom setups in the assembly and production stages. It is a mix of
agile and continuous flow methods where the product that is being manufactured may require some
extra customization, but it needs to operate on an end-to-end basis. It is usually used for prototype
design and manufacturing of small batches. The custom-configured model requires additional
investment from the company as compared to more traditional models.
6. Flexible
The flexible model can handle high demand during peak season and quickly adjust to a lean period with
low demand. To run a flexible model efficiently, a business requires the right supply chain management
software and the right people with the knowledge base to operate a flexible model with high efficiency.
These are the top six different supply chain models for enterprises, and they all come with their own
pros and cons. It is essential for businesses to identify a suitable model for their supply chains that will
meet their specific needs while helping them to avoid any additional costs.
Having the right supply chain model in place is as important as having the right people, processes
and technology to manage the supply chain. It enables an enterprise to improve efficiency and can help
it build resilience to disruptions and mitigate exposure to various risks. With the right model, companies
can turn their supply chains into a competitive advantage.

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Supply chain modeling systems-

Supply Chain Modeling

Supply chain modeling is designing and analyzing a supply chain to identify potential improvements. A
supply chain model can be used to simulate different scenarios to determine the most efficient or
practical course of action.

There are many supply chain models, including static, dynamic, and Monte Carlo simulation models. The
most appropriate model for a particular situation depends on the certain goals and constraints of the
business.

Some of the benefits of supply chain modelling include:

 Reduced costs
 Increased efficiency
 Improved customer satisfaction

The 8 Major Components of Supply Chain Modeling

1. Inventory: This is the most critical component of supply chain modelling as it directly affects the
bottom line.
2. Transportation: This includes all modes of transportation such as road, rail, air and water.
3. Warehousing: This is important for finished goods as well as raw materials. It includes storage,
retrieval and packaging.
4. Manufacturing: This converts raw materials into finished products. It includes processes like
assembly, testing and quality control.
5. Procurement: This involves sourcing raw materials and components from suppliers. It also
includes contract negotiation and management.
6. Distribution: This covers the delivery of finished products to customers through wholesalers,
retailers or direct sales channels.
7. Customer Service: This comprises activities like order taking, invoicing, returns processing and
after-sales service.
8. Information Technology: IT is critical in all aspects of supply chain management, from planning to

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execution.

Supply chain planning

Supply chain planning is typically divided into three levels: strategic, tactical, and operational. Each level
has a distinct role and focuses on different time horizons, goals, and decision-making processes within
the supply chain. Let’s break down each of these levels:
1. Strategic Supply Chain Planning
Time Horizon: Long-term (typically 1–5 years or more)
Focus: High-level decisions related to the overall direction of the supply chain, including infrastructure,
capacity, and network design.
Key Objectives:
 Network Design: Deciding the locations of warehouses, manufacturing facilities, and distribution
centers.
 Supply Chain Structure: Determining the number of suppliers, the level of outsourcing versus in-
house production, and the sourcing strategy (global or local).
 Technology Investments: Deciding on investments in new technologies, IT systems, and
automation that will support supply chain operations in the future.
 Capacity Planning: Ensuring that the supply chain can handle projected demand in the coming
years, including long-term equipment and labor capacity.
 Risk Management: Identifying and planning for risks (e.g., geopolitical risks, natural disasters, or
supply chain disruptions) and developing long-term resilience strategies.
Example: A company may decide to build a new production facility in a different region or expand its
network of suppliers to mitigate risk.
2. Tactical Supply Chain Planning
Time Horizon: Mid-term (typically 6 months to 1 year)
Focus: Translating the strategic decisions into actionable plans and optimizing resources to meet
medium-term goals. This level deals with planning and balancing supply and demand, inventory levels,
and production schedules.

Key Objectives:
 Demand Forecasting: Developing a forecast of demand based on historical data, market trends,
and sales input, with a mid-term outlook.
 Production Planning: Planning production schedules, ensuring that manufacturing capacity aligns
with forecasted demand.
 Inventory Management: Setting inventory policies (e.g., reorder points, safety stock levels) to
balance supply and demand.

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 Supplier Management: Negotiating contracts, managing supplier relationships, and ensuring the
right amount of materials are available at the right time.
 Sales and Operations Planning (S&OP): Aligning the sales forecast with production plans,
inventory strategies, and procurement needs.
Example: A company may adjust production schedules or reorder inventory to align with anticipated
sales increases during a seasonal demand period.

3. Operational Supply Chain Planning

Time Horizon: Short-term (typically up to 3 months)
Focus: Day-to-day execution of the plans created at the tactical and strategic levels, involving real-time
decision-making and adjustment of operations to meet immediate demands.
Key Objectives:
 Order Fulfillment: Managing the flow of orders and ensuring that products are delivered to
customers on time.
 Scheduling and Dispatching: Determining daily or weekly production and shipping schedules to
meet immediate customer demand.
 Inventory Management: Managing stock levels to ensure that products are available for delivery
without overstocking or stockouts.
 Production Control: Overseeing the actual production process to ensure that plans are being
followed and any immediate disruptions (e.g., machine breakdowns) are dealt with quickly.
 Logistics Coordination: Coordinating with transportation and warehouse teams to manage the
efficient movement of goods.

Understanding Supply Chain through Process Mapping

Process mapping is a visual representation of the workflow or steps involved in a process, which can be
used to understand and optimize the flow of materials, information, and resources within a supply
chain. By mapping out the different processes in the supply chain, businesses can identify inefficiencies,
bottlenecks, and areas for improvement, ultimately helping to enhance overall performance and
streamline operations.

In the context of supply chain management, process mapping helps visualize the sequence of activities
from the sourcing of raw materials to delivering finished goods to customers. The map will typically
include all the key processes and stakeholders involved, from procurement and manufacturing to
distribution and customer delivery.

Steps Involved in Creating a Supply Chain Process Map

1. Identify the Scope and Objectives:

o Determine the scope of the supply chain processes to map (e.g., procurement to delivery,
order fulfillment process, or production planning).
o Define the objectives of the process mapping (e.g., reducing lead times, improving
communication between suppliers, increasing operational efficiency).
2. List Key Processes and Stakeholders:
o Identify all the key processes involved in the supply chain, such as procurement,
production, inventory management, transportation, warehousing, and order fulfillment.
o Include all stakeholders like suppliers, manufacturers, logistics providers, warehouses,
and customers.
3. Document Each Process Step:
o Break down each supply chain process into its individual steps. Each step should be
described clearly, such as ordering raw materials, inspecting goods, manufacturing
products, packaging, shipping, etc.
4. Define Inputs and Outputs:

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o For each process step, identify the inputs (raw materials, data, information, resources)
and outputs (finished goods, completed orders, reports, etc.).
5. Identify Relationships and Flow of Information:
o Identify how information and materials move between the processes. This includes the
flow of goods and the communication of information such as order status, inventory
levels, or demand forecasts.
o Highlight dependencies between processes, such as how production is reliant on
inventory levels or how transportation schedules depend on manufacturing lead times.
6. Use Process Mapping Symbols:
o Utilize standard process mapping symbols to represent different types of activities,
decision points, and flow directions:
 Ovals: Start and end points of the process.
 Rectangles: Steps or actions in the process (e.g., production, inspection).
 Diamonds: Decision points where the process can branch based on certain criteria
(e.g., quality check passes or fails).
 Arrows: Flow of materials, information, or decisions.
7. Analyze the Process Map:
o Once the process map is created, analyze it for inefficiencies, bottlenecks, and
opportunities for improvement. Look for areas where delays, high costs, or inventory
imbalances occur.
o Evaluate whether certain processes can be automated or streamlined, or whether new
technologies can be introduced.
8. Implement Changes and Monitor Progress:
o Based on the analysis, implement changes to optimize the processes. This could involve
changes in workflow, new technologies, revised procedures, or improved communication
channels.
o Continuously monitor the processes to ensure that the improvements are delivering the
desired results and make adjustments as needed.

Understanding Supply Chain through Process flow chart

A process flowchart is a type of diagram that visually represents the sequence of steps or activities
involved in a process. When applied to supply chain management, a process flowchart helps illustrate
how materials, information, and resources move through the supply chain, from the sourcing of raw
materials to the delivery of finished goods to customers.

Using a flowchart in supply chain management allows businesses to clearly understand, analyze, and
improve their operations, identify bottlenecks, and optimize the flow of products and information.

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Creating a Supply Chain Process Flowchart

A supply chain process flowchart typically includes key stages such as procurement, manufacturing,
inventory management, transportation, warehousing, and order fulfillment. Here’s how you can create a
supply chain process flowchart:

1. Define the Scope:

o Determine which part of the supply chain you want to map out (e.g., procurement
process, order fulfillment, production process, or end-to-end supply chain).
o Identify the start and end points of the process, such as the first step of raw material
acquisition and the final delivery of products to the customer.
2. Identify Key Steps:
o List all the significant steps in the supply chain process. These could include:
 Sourcing raw materials
 Manufacturing or assembly
 Warehousing and storage
 Order placement
 Shipping and delivery to customers
 Returns and after-sales service
3. Use Flowchart Symbols:
o Flowcharts use standardized symbols to represent different types of activities:
 Oval: Start and end points of the process.
 Rectangle: A process step or action (e.g., procurement, manufacturing).
 Diamond: A decision point (e.g., "Is inventory sufficient?" or "Has the order been
confirmed?").
 Arrow: Represents the flow of materials, information, or decisions.
 Parallelogram: Input or output, such as receiving an order or sending an invoice.
4. Map the Flow:
o Start by mapping the flow of materials, goods, and information. Show how items or
information move from one process to the next.
o Identify any decision points (e.g., checking stock levels, confirming orders) and where
alternative paths may occur (e.g., reordering materials if stock runs low).
5. Simplify and Clarify:
o Keep the flowchart simple and easy to follow by focusing on the main processes. Avoid
overcomplicating the flowchart with too many details unless necessary.
6. Review and Optimize:
o Once the flowchart is created, use it to analyze inefficiencies, bottlenecks, and areas of
improvement in the supply chain process. This visualization helps pinpoint where changes
or optimizations can be made.

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