LOGISTICS AND SUPPLY CHAIN

MANAGEMENT
UNIT 3
 SUPPLYCHAIN - DEFINITION
A supply chain is a network of interconnected
entities and processes involved in the
production , distribution and delivery of goods
and services to end customers.
It includes the suppliers, manufacturers,
warehouses, transporters, distributors, retailers
and consumers, all working together to ensure
efficient product flow from raw materials to
final consumption.
 SUPPLYCHAIN MANAGEMENT - DEFINITION

Supply Chain management integrates and

coordinates the activities of suppliers,
distributors and customer logistics
requirements into one interrelated process
to include demand forecasting, supplier
relationship management,, materials
requisition, order processing, inventory
optimization, logistics planning, order
fulfillment, invoicing and bills payments
 Evolution of Supply Chain Management

Globalization Era
*Global System of
Creation Era supplier
Integration Era relationships Supply chain
*In the early 1980’s
(after 1990’s) *Specialization Era management
*Creation of
*Electronic Data – Phase I : 2.0
Assembly line
Exchange Outsourced *Use of WWW
*Japanese Practice of
*Enterprise Resource Manufacturing and
Management *Speed and
Planning Distribution
*Large scale changes,
*Increasing value Phase II – accuracy(Real
re engineering, Specialization time updation )
adding and cost
downsizing driven by within supply chain *Combination of
reduction through
cost reduction – Inventory the processes
integration
programmes Management ,
Warehouse
Management
Evolution of Supply Chain Management
Supply Chain Management (SCM) has evolved through various stages,
adapting to technological advancements, globalization, and market
demands. The key phases in this evolution are as follows:
1. Creation Era (Early 1980s)
 This era marked the initial development of supply chain concepts.
 The assembly line system was introduced, improving production
efficiency.
 Japanese management practices, such as Just-in-Time (JIT) and Lean
Manufacturing, gained popularity.
 Companies focused on large-scale production changes, cost reduction,
and operational efficiency.
 Downsizing and restructuring were driven by cost-cutting programs.
2. Integration Era (After 1990s)
 Technology advancements led to the integration of various supply chain
functions.
 Electronic Data Exchange (EDI) enabled better communication between
suppliers, manufacturers, and distributors.
 Enterprise Resource Planning (ERP) systems facilitated real-time data
sharing and process automation.
 Companies aimed to add value while reducing costs through integrated
supply chain management.
3. Globalization Era
 Supply chains expanded globally, fostering supplier
relationships across countries.
 The Specialization Era emerged in two phases:
Phase I: Outsourcing of manufacturing and distribution to third-
party providers for cost efficiency.
Phase II: Specialization in specific supply chain functions, such
as inventory and warehouse management, improving service
delivery and operational flexibility.
4. Supply Chain Management 2.0
 The Internet (WWW) revolutionized supply chain processes.
 Real-time data updates improved speed and accuracy in
decision-making.
 Companies integrated various processes, combining
manufacturing, logistics, and customer service into a
seamless system.
 Digital technologies, automation, and AI-driven analytics
further optimized supply chain operations.
 IMPORTANCE OF SUPPLYCHAIN MANAGEMENT

Reduce the total supply chain cycle

Good relationship with customers and suppliers
Reduce risk and uncertainty in supply chain
Supply chain Thinking
Competitive advantage
 All the ‘Total quality Management’, ‘Just-in-Time
system’, ‘Reengineering’, and ‘delighting the
customers” depends on the relationships with
suppliers and distributors who are part of the supply
chain.
Managing different activities
 Increase competitiveness
Minimising waste and maximising value
1. Reduce the total supply chain cycle: The total time for
materials to travel through the entire supply chain can be
quite long. Since the materials spend so much time waiting in
inventory at various stages in the supply chain, there is a
great opportunity to reduce the total supply chain cycle time
leading to a corresponding reduction in inventory, increased
flexibility, reduced costs and better deliveries.
2. Good relationship with customers and suppliers:
Many companies have drastically improved their internal
operations and now find it necessary to consider relations
with external customers and suppliers in the supply chain to
gain further improvements in their operations.
3. Supply Chain Thinking: Supply chain thinking is an
application of systems thinking and provides a basis for
understanding processes that cut across a company’s internal
department and processes that extend outside the company
as well.
4. Reduce risk and uncertainty in supply chain: The
goals of supply chain management are to reduce uncertainty
and risks in the supply chain, thereby positively affecting
6. Competitive Advantage: Supply chain management has become
a hot competitive advantage as companies struggle o get the right
staff to the right place at the right time.
7. All the ‘Total quality Management’, ‘Just-in-Time system’,
‘Reengineering’, ‘Team work’ and ‘delighting the customers” depends
on the relationships with suppliers and distributors who are part of
the supply chain.
8. Managing different activities: Supply chain management
includes transportation, vendors, suppliers, distributors, banks, credit
and cash transfers, bills payable and receivable, warehousing and
inventory levels, order fulfilment and sharing customer, forecasting
and production information.
9. Increase competitiveness: As firms strive to increase their
competitiveness via product customisation, high quality, cost
reductions and speed-to-market, they place added emphasis on
supply chain management.
10. Minimising waste and maximising value: Supply chain
management builds a chain of suppliers that focus on both
minimising waste and maximising value to the ultimate customer.
The key to effective supply chain management is to make suppliers
‘partners’ in the firm’s strategy to satisfy the ever-changing market
place.
 OBJECTIVES OF SUPPLYCHAIN MANAGEMENT

Cost reduction
Improved customer service
Timely delivery
Inventory optimization
Supplier and partner relationship management
Flexibility and agility
Quality improvement
Sustainability and Environmental responsibility
Risk management
Global reach and market expansion
Maximizing profitability
Cost Reduction
Minimizing production, inventory, and transportation costs while
ensuring efficiency in supply chain operations.
Improved Customer Service
Ensuring timely product availability, reducing delays, and enhancing
overall customer satisfaction.
Timely Delivery
Ensuring that goods reach customers on time by streamlining
logistics, transportation, and supplier coordination.
Inventory Optimization
Maintaining the right amount of stock to meet demand while
avoiding overstocking or stock shortages.
Supplier and Partner Relationship Management
Building strong relationships with suppliers and partners to ensure a
seamless and reliable supply chain network.
Flexibility and Agility
Adapting quickly to changes in demand, supply disruptions, and
market trends for better responsiveness.
Quality Improvement
Enhancing product quality through better raw material sourcing,
production processes, and quality control measures.
Sustainability and Environmental Responsibility
Reducing carbon footprint, waste, and adopting eco-friendly
supply chain practices.
Risk Management
Identifying potential risks such as supply chain disruptions,
market fluctuations, and creating mitigation strategies.
Global Reach and Market Expansion
Enabling businesses to expand into new markets by establishing
an efficient international supply chain network.
Maximizing Profitability
Enhancing operational efficiency, reducing costs, and increasing
revenue through effective supply chain strategies.
 SCOPE OF SUPPLYCHAIN MANAGEMENT
Demand Planning and forecasting
Purchasing
Production and Manufacturing
Logistics and Distribution
Inventory Management/ Warehousing
Sales and order fulfilment
Returns Management
Sustainability and ethics
Demand Planning and Forecasting
Predicting future customer demand using historical data,
market trends, and analytics to ensure efficient
production and inventory management.
Purchasing
Procuring raw materials, components, and supplies from
reliable suppliers at the right price, quality, and quantity
to support production and distribution.
Production and Manufacturing
Converting raw materials into finished products through
efficient manufacturing processes while maintaining
quality, cost, and productivity standards.
Logistics and Distribution
Managing transportation, warehousing, and delivery of
goods to ensure timely and cost-effective movement
from suppliers to manufacturers and finally to customers.
Inventory Management/Warehousing
Tracking stock levels to prevent overstocking or stockouts
and ensuring optimal storage, handling, and
replenishment of goods.
Sales and Order Fulfillment
Processing customer orders accurately and efficiently,
ensuring products reach the right place at the right time
while maintaining customer satisfaction.
Returns Management
Handling product returns, replacements, and refunds
efficiently to maintain customer trust and optimize reverse
logistics operations.
Sustainability and Ethics
Implementing environmentally friendly and socially
responsible practices, such as reducing carbon footprint,
ethical sourcing, and minimizing waste in the supply
chain.
 PRINCIPLES OF PURCHASING
Right Quality
Right Quantity
Right Source
Right Quantity
Right time
Right place
Right procedure
Right Contract
Right Quality
Ensuring that the purchased materials or products meet the required
specifications and quality standards for optimal performance.
Right Quantity
Procuring the correct amount of materials to avoid overstocking or
shortages, ensuring efficiency in production and inventory
management.
Right Source
Selecting reliable and ethical suppliers who can provide quality goods
consistently while maintaining cost-effectiveness and sustainability.
Right Time
Receiving goods and materials at the right moment to ensure smooth
production and prevent delays or disruptions in the supply chain.
Right Place
Delivering materials and products to the correct location, reducing
transportation costs and ensuring availability where needed.
Right Procedure
Following proper procurement procedures, including ethical sourcing, legal
compliance, and best practices, to enhance transparency and efficiency.
Right Contract
Establishing fair and legally sound agreements with suppliers that clearly
define terms, conditions, pricing, and delivery expectations.
 PURCHASING PROCEDURE
Recognition of need, receipt and analysis of purchase
requisition

Selection of possible potential sources of supply

Making request for Quotation

Receipt and analysis for Quotation

Selection of right source of supply

Issuing the Purchase Order

Follow up and expediting the order

Analyzing receiving reports and processing discrepancies

and rejections

Checking and approving vendor’s invoices for payment

Purchasing Procedure: Step-by-Step Explanation
Recognition of Need, Receipt, and Analysis of Purchase
Requisition
 The purchasing process begins when a department or unit identifies the
need for materials, goods, or services.
 A purchase requisition (PR) is submitted for approval, detailing the
specifications, quantity, and expected delivery time.
Selection of Possible Potential Sources of Supply
 Identifying suppliers who can meet the requirements based on price,
quality, reliability, and previous performance.
 Existing suppliers may be considered, or new vendors may be evaluated.

Making Request for Quotation (RFQ)

 A formal request is sent to selected suppliers to submit their price quotes
and terms for supplying the required goods.
 RFQs help in comparing multiple suppliers to get the best deal.

Receipt and Analysis for Quotation

 Suppliers respond with their quotations, which are then analyzed for
pricing, delivery terms, payment terms, and compliance with
specifications.
 The purchasing team evaluates the best options based on cost, quality,
and supplier reliability.
Selection of Right Source of Supply
 The most suitable supplier is selected based on the analysis of quotations.
 Factors such as past supplier performance, reputation, and service quality are
considered before making the final decision.
Issuing the Purchase Order (PO)
 A formal purchase order (PO) is created and sent to the selected supplier.
 The PO serves as a legal contract specifying product details, quantity, price,
delivery date, and payment terms.
Follow-up and Expediting the Order
 Regular follow-ups are conducted to ensure that the order is processed on
time.
 Any delays or issues are addressed promptly to avoid disruptions in production
or operations.
Analyzing Receiving Reports and Processing Discrepancies and
Rejections
 Once the goods arrive, they are inspected to ensure they meet the specified
quality and quantity requirements.
 Any discrepancies, damages, or defects are reported, and necessary actions
(such as returns or replacements) are taken.
Checking and Approving Vendor’s Invoices for Payment
 After successful delivery and inspection, the supplier’s invoice is verified
against the PO and receiving report.
 Once approved, the payment is processed as per the agreed terms.
FACTORS TO BE CONSIDERED IN SELECTION OF SUPPLIER
Internal Facilities
*Has the supplier got
adequate facilities
Financial Adequacy
*Quality Check *Financial Status
*Adequate quality control *Reputation in the
and testing facilities market or with their
*Qualified and
experienced people for
bankers
production
Outlook
*Improvement in
product by using
modern techniques Reputat Location
*Improvement in
Technology
Research and
ion Type of
Supplier
Development
Factors to Be Considered in Supplier Selection
Selecting the right supplier is crucial for ensuring quality, reliability, and
efficiency in the supply chain. The following factors must be considered:
1. Internal Facilities
A supplier's infrastructure and operational capabilities play a major role in
the selection process. This includes:
 Adequate Facilities: The supplier must have sufficient space,
equipment, and technology to meet production requirements.
 Quality Check: The supplier should have a robust quality control
system to ensure that products meet the required standards.
 Testing Facilities: Availability of advanced quality control and testing
facilities ensures the reliability of the supplied products.
 Qualified and Experienced Workforce: A skilled workforce improves
production efficiency and reduces errors or defects.
2. Financial Adequacy
A supplier’s financial health determines its ability to sustain long-term
business relationships. Consider:
 Financial Status: The supplier should have stable financial standing to
ensure continuous operations and investment in technology and
resources.
 Market Reputation: A supplier’s credibility in the market or with their
bankers indicates financial reliability and stability.
3. Outlook
A supplier’s vision and adaptability to industry trends are key to long-term
partnerships. This includes:
 Improvement in Product Using Modern Techniques: Suppliers that innovate
and use modern technologies can offer better-quality products and cost savings.
 Investment in Technology, Research, and Development: A supplier engaged
in R&D ensures continuous improvement, leading to higher efficiency and product
innovation.
4. Reputation
 A supplier’s reputation in the industry is an indicator of trustworthiness, reliability,
and ethical business practices.
 Customer reviews, past performance, and feedback from existing clients should be
evaluated.
5. Service
 The quality of service, including responsiveness, after-sales support, and problem
resolution, is essential for smooth operations.
 A supplier should be able to handle urgent orders, provide technical assistance, and
ensure minimal disruptions.
6. Location
 The geographical location of the supplier affects lead time, transportation costs,
and supply chain efficiency.
 A supplier closer to the business reduces transit time and logistics expenses.
7. Type of Supplier
 Suppliers can be categorized as manufacturers, wholesalers, or distributors.
 Choosing the right type of supplier depends on the nature of the business, volume
DECISION PHASES IN A SUPPLY CHAIN

Decision phases in a supply chain

Supply chain strategy or

design

Supply chain planning

Supply chain operations

 DECISION PHASES IN A SUPPLY CHAIN

Three Decision phases in a Supply Chain:

1. Supply Chain Strategy or Design

- Structuring the supply chain

- The location and capacities of production and
warehousing facilities
- Products to be manufactured
- Modes of transportation
- Information system
Decision Phases
DECISION in aIN
PHASES Supply Chain
A SUPPLY CHAIN

2. Supply Chain Planning

- Set of policies and plans that govern short-term

operations
- forecast for the coming year of demand in
different markets
- Which market to be served from which locations
- The planned build up of inventories and
inventory management
- The subcontracting of manufacturing
Decision Phases
DECISION in aIN
PHASES Supply Chain
A SUPPLY CHAIN

3. Supply Chain Operations

- weekly or daily basis

- Individual customer orders
- implementing the operating policies
- Allocating individual orders to inventory or
production
- Fulfilling orders

Design, Planning and Operations of a supply chain

affect the overall profitability and success of a firm
 TYPES OF PURCHASING

Centralize •Single department responsible for the

purchase of entire organization
d •All procurement decisions are controlled
from a central location usually

Purchasing
headquarters

Decentraliz •Individual departments, branches or

business units have the authority to
ed purchase goods independently
•Decisions are made at multiple level

Purchasing
instead of single headquarter
ADVANTAGES AND DISADVANTAGES OF CENTRALIZED
PURCHASING
ADVANTAGES:
Economy in buying in bulk
Uniform purchasing policy
Specialization of purchasing department
Records maintained at one place
Minimizes the possibility of duplication
DISADVANTAGES:
Slow decision making
Risk of Supply chain disruption
High transportation costs
Lack of Local market adaptation
ADVANTAGES AND DISADVANTAGES OF DECENTRALIZED
PURCHASING
ADVANTAGES
Faster decision making
Better adaptation to local markets
Lower transportation costs
More flexibility and Innovation
DISADVANTAGES:
Higher costs
Variation in quality
Difficult to monitor spending
Duplication of efforts
PROCESS VIEW OF SUPPLY CHAIN – CYCLE VIEW

Customer
Order Cycle
 PROCESS VIEW OF SUPPLY CHAIN – CYCLE VIEW

Customer Order Cycle: occurs at the customer/retailer interface (

Retailer Customer)
Customer Arrival – The customer visits the
retailer (online or offline) to explore and decide on
a product.
Customer Order Entry – The customer places an
order, either selecting a product in-store or
ordering online.
Customer Order Fulfillment – The retailer
processes the order, retrieves the product from
inventory, and prepares it for delivery or pickup.
Customer Order Receiving – The customer
receives the product through in-store pickup or
home delivery
Replenishment Cycle: include all processes involved in replenishing inventory of the
retailer ( Retailer Distributor)
1. Retail Order Trigger
The retailer identifies the need for replenishment based on
inventory levels, demand forecasts, or predefined reorder
points.
2. Retail Order Entry
The retailer places an order with the distributor for required
products, specifying quantity, delivery timeline, and other
terms.
3. Retail Order Fulfillment
The distributor processes the retailer's order by picking,
packing, and shipping the requested inventory.
4. Retail Order Receiving
The retailer receives the replenished stock, inspects it for
quality and quantity, updates inventory records, and stores it
in the warehouse for future sales.
 PROCESS VIEW OF SUPPLY CHAIN – CYCLE VIEW
Manufacturing Cycle:

(Manufacturer Retailer/Distributor)
1. Order Arrival from Distributor, Retailer, or Customer
The manufacturer receives an order specifying the quantity and
type of product needed.
2. Production Scheduling
The manufacturer plans the production process, including resource
allocation, workforce scheduling, and machine utilization.
3. Manufacturing and Shipping
The production process takes place, and finished goods are packed
and shipped to the distributor, retailer, or directly to the customer.
4. Receiving at the Distributor, Retailer, or Customer
The recipient inspects and stores the received goods before selling
or distributing them further.
Procurement:
(Manufacturer Supplier)
1. Purchase Order Placement
The manufacturer places an order with suppliers for
raw materials, specifying quantity, quality, and
delivery schedule.
2. Supplier Delivers Raw Materials
The supplier ships the ordered raw materials to the
manufacturer’s facility.
3. Manufacturer Inspects and Stores Materials
The received raw materials undergo quality checks
before being stored in inventory for use in
production.
PUSH STRATEGY
PULL STRATEGY
 SUPPLY CHAIN DYNAMICS

Supply chain dynamics involves understanding

the complex interactions and behaviors within
supply chains, including factors that cause
variability and strategies to mitigate such
effects.
The dynamic nature of the supply chain
management systems arises from various
factors, including demand fluctuations, lead
times, and information delays. Understanding
these dynamics is crucial for effective supply
chain management.
 SUPPLY CHAIN DYNAMICS

KEY ELEMENTS IN SUPPLY CHAIN DYNAMICS

Demand variability
Lead time
Inventory Management
Supplier and Vendor Relationships
Risk Management
Technology
Globalization
Sustainability
Supply chain visibility
1.Demand Variability
Fluctuations in customer demand can lead to inefficiencies, stockouts, or
overstock situations. Accurate demand forecasting and flexible supply
chain strategies help mitigate these issues.
2.Lead Time
The time taken for goods to move through the supply chain, from
procurement to delivery. Reducing lead time through automation,
better logistics, and supplier coordination enhances efficiency.
3.Inventory Management
Balancing stock levels to prevent shortages and excess inventory.
Techniques like Just-in-Time (JIT), Economic Order Quantity (EOQ), and
safety stock help optimize inventory management.
4.Supplier and Vendor Relationships
Strong supplier partnerships ensure consistent quality, reliability, and
cost-effectiveness. Long-term contracts, supplier diversification, and
collaborative planning improve supply chain resilience.
5.Risk Management
Identifying and mitigating risks such as supply disruptions, geopolitical
issues, and demand fluctuations. Strategies include supplier
diversification, contingency planning, and insurance.
Technology
Digital solutions like AI, IoT, blockchain, and ERP systems
enhance supply chain visibility, automation, and decision-
making, leading to increased efficiency and accuracy.
Globalization
Expanding supply chain operations across multiple countries
introduces challenges like trade regulations, currency
fluctuations, and cultural differences. Effective global
sourcing and logistics management are essential.
Sustainability
Implementing eco-friendly practices such as green logistics,
ethical sourcing, and waste reduction to meet regulatory
and consumer expectations while maintaining profitability.
Supply Chain Visibility
Real-time tracking of goods, orders, and inventory using
digital tools to improve transparency, efficiency, and
responsiveness in supply chain operations.
 BEST PRACTICES IN SCM
Strategic Sourcing
Supplier Collaboration
Inventory Optimization
Demand Forecasting
Risk Management
Continuous Improvement
Supplier Diversification
Technology Leverage
Supply Chain Alignment
Performance metrics
Sustainability Practices
1.Strategic Sourcing
Selecting suppliers based on cost, quality, reliability, and long-
term value rather than just price.
2.Supplier Collaboration
Building strong relationships with suppliers to enhance
efficiency, innovation, and responsiveness.
3.Inventory Optimization
Using techniques like Just-in-Time (JIT) and demand-driven
replenishment to balance stock levels and reduce costs.
4.Demand Forecasting
Utilizing data analytics, AI, and market trends to predict
customer demand and align supply accordingly.
5.Risk Management
Identifying, assessing, and mitigating risks such as supply
chain disruptions, geopolitical issues, and financial risks.
6.Continuous Improvement
Implementing lean principles and Six Sigma methodologies to
enhance processes and reduce inefficiencies.
7.Supplier Diversification
Expanding supplier networks to prevent over-reliance on a
single source and reduce vulnerability to disruptions.
8.Technology Leverage
Using ERP, IoT, blockchain, and AI-driven analytics to improve
visibility, efficiency, and decision-making.
9.Supply Chain Alignment
Ensuring all stakeholders (suppliers, manufacturers,
distributors, and retailers) work towards common business
goals.
10.Performance Metrics
Tracking KPIs such as order accuracy, lead time, and cost
efficiency to continuously improve supply chain
performance.
11.Sustainability Practices
Integrating eco-friendly processes, ethical sourcing, and
green logistics to reduce environmental impact and
enhance corporate responsibility.
 SUPPLY CHAIN FRAMEWORK

Supply Chain frameworks are established

models or approaches that provide a
structured way of managing and optimizing
the supply chain. These frameworks help
businesses identify key areas for improvement
SCOR FRAMEWORK(Supply Chain
Operations Reference Model)
Developed by the Supply Chain Council(SCC) ,
the SCOR Model provides a standardized
framework for understanding and improving
supply chain processes.This SCM framework
integrates concepts such as benchmarking,
measurement and reengineering.
 SUPPLY CHAIN FRAMEWORK
The standardized set of performance metrics is
categorized into five attributes
 Reliability
 Responsiveness
 Agility
 Costs
 Asset Management efficiency
 SUPPLY CHAIN FRAMEWORK
4. Costs:
1.Reliability: Ordering Cost
 On time delivery Holding cost
 Order fill rate Transport costs
 Perfect order fulfilment Purchase costs

2.Responsiveness:
 Order cycle time 5. Asset Management
 Manufacturing cycle time Efficiency :
 Inventory Days of Supply
 Time to market
Capacity Utilization
3.Agility: Return on Assets
 Upside Supply chain flexibility
 Downside Supply Chain flexibility
 SUPPLY CHAIN FRAMEWORK

The SCOR Model offers a comprehensive

framework for analyzing and improving the
supply chain efficiency which includes Plan,
Source, Make, Deliver and Return
Plan :
The plan phase involves developing strategies
to balance supply and demand effectively. Key
activities include
Supply and demand planning
Sourcing Strategy Development
Inventory planning
 SUPPLY CHAIN FRAMEWORK

Source:
The source phase focuses on procuring goods
and services to meet demand. Activities include
Supplier selection
Contract negotiation
Order placement
Supplier performance evaluation
Supplier Relationship Management
 SUPPLY CHAIN FRAMEWORK

Make
This phase centers on transforming raw
materials into finished goods
Production planning
Manufacturing
Packaging
Equipment and facility management
Deliver : It involves fulfilling customers and
ensuring timely delivery
Order Management
Transportation management
Distribution management
 SUPPLY CHAIN FRAMEWORK

Return – This phase deals with the return of

defective products and post delivery support
Return processing
Reverse logistics
Sustainability practices