An extensive area of research in operations relates to creation and delivery of value through better demand supply coordination which is also termed as “supply chain management”. Supply chain management is often referred to as efficient management of the end-to-end process, which starts with the design of the product or service and ends with the time when it has been sold, consumed, and finally, discarded by the consumer (Lee and Billington 1993; Swaminathan and Tayur 2003). Supply chain management, then, 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 organizations that make up the supply chain are “linked” together through physical flows and information 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 allow the various supply chain partners to coordinate their long-term plans, and to control the day-to-day flow of goods.

Status of Supply Chain Management in India

Effective Supply Chain Management and Logistics contributes to competitive advantage to organizations. To achieve this improved performance, organizations should focus on applying techniques which offer a strategic opportunity for companies to gain an increase in revenue. This is possible by refocusing on integrating IT with supply chain management and Logistics. The desired technology platform can capture enterprise-level data and deliver information to support the specific needs of their global manufacturing or distribution. Organizations must realize that they must harness the power of IT to collaborate with their business alliances.

Two Faces of Supply Chain Management

SCM has two major faces to it. The first can be called loosely as the back-end and comprises the physical building blocks such as the supply facilities, production facilities, warehouses, distributors, retailers, and logistics facilities. The back-end essentially involves production, assembly, and physical movement. Major decisions here include:

1.  Procurement (supplier selection, optimal procurement policies, etc.)

2.  Manufacturing (plant location, product line selection, capacity planning, production scheduling, etc.)

3.  Distribution (warehouse location, customer allocation, demand forecasting, inventory management, etc.)

4.  Logistics (selection of logistics mode, selection of ports, direct delivery, vehicle scheduling, etc.)

 5.  Global Decisions (product and process selection, planning under uncertainty, real-time monitoring and control, integrated scheduling)

Supply Chain Decisions

There are four major decision areas in supply chain management: 1) location, 2) production, 3) inventory, and 4) transportation (distribution), and there are both strategic and operational elements in each of these decision areas.

 

Location Decisions

The geographic placement of production facilities, stocking points, and sourcing points is the natural first step in creating a supply chain. The location of facilities involves a commitment of resources to a long-term plan. Once the size, number, and location of these are determined, so are the possible paths by which the product flows through to the final customer. These decisions should be determined by an optimization routine that considers production costs, taxes, duties and duty drawback, tariffs, local content, distribution costs, production limitations, etc.

Production Decisions

The strategic decisions include what products to produce, and which plants to produce them in, allocation of suppliers to plants, plants to DC’s, and DC’s to customer markets. As before, these decisions have a big impact on the revenues, costs and customer service levels of the firm. Another critical issue is the capacity of the manufacturing facilities--and this largely depends the degree of vertical integration within the firm. Operational decisions focus on detailed production scheduling.

Inventory Decisions

These refer to means by which inventories are managed. Inventories exist at every stage of the supply chain as either raw materials, semifinished or finished goods. They can also be in-process between locations. Their primary purpose to buffer against any uncertainty that might exist in the supply chain. Since holding of inventories can cost anywhere between 20 to 40 percent of their value, their efficient management is critical in supply chain operations.

Transportation Decisions

The mode choice aspect of these decisions are the more strategic ones. These are closely linked to the inventory decisions, since the best choice of mode is often found by trading-off the cost of using the particular mode of transport with the indirect cost of inventory associated with that mode. Since transportation is more than 30 percent of the logistics costs, operating efficiently makes good economic sense. Shipment sizes (consolidated bulk shipments versus Lot-for-Lot), routing and scheduling of equipment are key in effective management of the firm’s transport strategy.

Significant Drivers of Supply Chain Management

Inventory

Inventory is spread throughout the supply chain and includes everything from raw material to work in process to finished goods that are held by the manufacturers, distributors, and retailers in a supply chain. Again, managers must decide where they want to position themselves in the trade-off between responsiveness and efficiency. Holding large amounts of inventory allows a company or an entire supply chain to be very responsive to fluctuations in customer demand. However, the creation and storage of inventory is a cost and to achieve high levels of efficiency, the cost of inventory should be kept as low as possible.

Transportation

This refers to the movement of everything from raw material to finished goods between different facilities in a supply chain. There are six basic modes of transport that a company can choose from:

1. Ship which is very cost efficient but also the slowest mode of transport. It is limited to use between locations that are situated next to navigable waterways and facilities such as harbours and canals.

2. Rail which is also very cost efficient but can be slow. This mode is also restricted to use between locations that are served by rail lines.

3. Pipelines can be very efficient but are restricted to commodities that are liquids or gases such as water, oil, and natural gas.

4. Trucks are a relatively quick and very flexible mode of transport. Trucks can go almost anywhere. The cost of this mode is prone to fluctuations though, as the cost of fuel fluctuates and the condition of roads varies.

5. Airplanes are a very fast mode of transport and are very responsive. This is also the most expensive mode and it is somewhat limited by the availability of appropriate airport facilities.

6. Electronic Transport is the fastest mode of transport and it is very flexible and cost efficient. However, it can only be used for movement of certain types of products such as electric energy, data, and products composed of data such as music, pictures, and text.

Information

Information is the basis upon which to make decisions regarding the other four supply chain drivers. It is the connection between all of the activities and operations in a supply chain. To the extent that this connection is a strong one, (i.e., the data is accurate, timely, and complete), the companies in a supply chain will each be able to make good decisions for their own operations. This will also tend to maximize the profitability of the supply chain as a whole. Information is used for two purposes in any supply chain:

1. Coordinating daily activities related to the functioning of the other four supply chain drivers: production; inventory; location; and transportation. The companies in a supply chain use available data on product supply and demand to decide on weekly production schedules, inventory levels, transportation routes, and stocking locations.

2. Forecasting and planning to anticipate and meet future demands. Available information is used to make tactical forecasts to guide the setting of monthly and quarterly production schedules and timetables. Information is also used for strategic forecasts to guide decisions about whether to build new facilities, enter a new market, or exit an existing market. Within an individual company the trade-off between responsiveness and efficiency involves weighing the benefits that good information can provide against the cost of acquiring that information. Abundant, accurate information can enable very efficient operating decisions and better forecasts but the cost of building and installing systems to deliver this information can be very high. Within the supply chain as a whole, the responsiveness versus efficiency trade-off that companies make is one of deciding how much information to share with the other companies and how much information.

The importance of information in an integrated supply chain management environment:

IT infrastructure capabilities provide a competitive positioning of business initiatives like cycle time reduction, implementation, implementing redesigned cross-functional processes. Several well know firms involved in supply chain relationship through information technology.

Information and Technology: Application of SCM:

In the development and maintenance of Supply chain’s information systems both software and hardware must be addressed. Hardware includes computer’s input/output devices and storage media. Software includes the entire system and application programme used for processing transactions management control, decision-making and strategic planning. Recent development in Supply chain management software is:

1. Base Rate, Carrier select & match pay (version 2.0) developed by Distribution Sciences Inc. which is useful for computing freight costs, compares transportation mode rates, analyse cost and service effectiveness of carrier.

2. A new software programme developed by Ross systems Inc. called Supply Chain planning which is used for demand forecasting, replenishment & manufacturing tools for accurate planning and scheduling of activities.

3. P&G distributing company and Sabre decision Technologies resulted in a software system called Transportation Network optimization for streamlining the bidding and award process.

4. Legibility planning solution was recently introduced to provide a programme capable managing the entire supply chain.

Electronic Commerce

It is the term used to describe the wide range of tools and techniques utilized to conduct business in a paperless environment. Electronic commerce therefore includes electronic data interchange, e-mail, electronic fund transfers, electronic publishing, image processing, electronic bulletin boards, shared databases and magnetic/optical data capture. Companies are able to automate the process of moving documents electronically between suppliers and customers.

Electronic Data Interchange

Electronic Data Interchange (EDI) refers to computer-to-computer exchange of business documents in a standard format. EDI describe both the capability and practice of communicating information between two organizations electronically instead of traditional form of mail, courier, & fax. The benefits of EDI are:

1. Quick process to information.

 2. Better customer service.

 3. Reduced paper work.

 4. Increased productivity.

 5. Improved tracing and expediting.

6. Cost efficiency.

7. Competitive advantage.

8. Improved billing.

 Though the use of  EDI supply chain partners can overcome the distortions and exaggeration in supply and demand information by improving technologies to facilitate real time sharing of actual demand and supply information.

 

 

 

Bar coding and Scanner

Bar code scanners are most visible in the checkout counter of super market. This code specifies name of product and its manufacturer. Other applications are tracking the moving items such as components in PC assembly operations, automobiles in assembly plants.

 

Data warehouse

Data warehouse is a consolidated database maintained separately from an organization’s production system database. Many organizations have multiple databases. A data warehouse is organized around informational subjects rather than specific business processes. Data held in data warehouses are time dependent, historical data may also be aggregated.

Enterprise Resource planning (ERP) tools

Many companies now view ERP system (e.g., Baan, SAP, People soft, etc.) as the core of their IT infrastructure. ERP system have become enterprise-wide transaction processing tools which capture the data and reduce the manual activities and task associated with processing financial, inventory and customer order information. ERP system achieve a high level of integration by utilizing a single data model, developing a common understanding of what the shared data represents and establishing a set of rules for accessing data.