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Learning objectives

' After understanding this chapter reader will be able to have the knowledge of.

' Importance of Supply Chain Management in Organizations.

' Methodology of Supply Chain Management.

' How to apply Supply Chain Management in an organization.

' Implementation of a competitive approach to warehousing and distribution.

History of supply chain management

Interest in Supply Chain Management has increased in 1980s when firms started to notice the benefits of collaborative relationship within and outside the organization. They have discovered that they could not compete in isolation of their suppliers and other entities in Supply Chain. The history of initiative of Supply Chain can be traced into the early beginnings of textile industry with the quick response program and later to efficient consumer response in grocery industry. (supply chain logistics, n.d.)

SMC is needed for various reasons developing operations, effective outsourcing, increasing profits, enhancing customer satisfaction, generating quality output, tackling competitive pressure, increasing importance of E-commerce.

SMC was mainly focused in profit organizations and very few studies were attempted in non- profit organization. It assist the business organization to compete in the dynamic international market. The objective of SMC in to incorporate the activities across and within the organizations for providing the customer value.

The top companies around the world are searching for a strong new source of competitive edge, so for that purpose they are focusing on Supply Chain Management. It integrates topics from manufacturing operations, purchasing, transportation and physical distribution into a unified program.


supply chain logistics. (n.d.). Retrieved from


It is stated as 'the supply chain encompasses all of those activities associated with moving goods from the raw material stage through to the end users'

Advocates for this SMC process realized that significant productivity increases could only come from managing relationship, information and material flow across enterprise borders.

According to Bernard J. (Bud) Lalonde

'The delivery of enhanced customer and economic value through synchronized management of the flow of physical goods and associated information from sourcing to consumption'

As the 'from sourcing to consumption' part of the definition tells, though, achieving the real potential of Supply Chain Management requires integration not only for these entities within the organization, but also of the external partners. The latter includes the supplies, distributer, carriers, customers, and even the ultimate consumers.


 In Greek fable where slow and steady tortoise won the race. That might have been true in the Aesop's time, but in today's demanding business environment, slow and steady would not help you anymore. Managers believe that getting the goods to a customer faster than the others provide competitive edge over the other. To remain competitive in the era, companies must seek new ways, important to Supply Chain Management issues such as model analysis, supply chain management, load planning, and route planning and distribution network design. Companies are facing corporate challenges that impact the SMC such as Reengineering globalization and outsourcing.

Now the question is that

Q: why is that important for the companies to get their product to the customers quickly?

Faster product availability is the key to increase in sale.

R.Michael Donovan of Natick says

There in abundant profit chances for the extra time that you stay in the market while your competitors are not. He says 'if you can be their first, you are likely to capture more market share'

The ability to deliver a product faster also make or break a sale. If two alternatives are available in a market then there are more chances that people will prefer the pioneers.

'Supply Chain Management has an important role to play in moving goods more quickly to their destination'


The fright transportation industry has undergone a revolutionary change during the last decade. As deregulation spreads to the al means of transport, the number of surviving companies declined. Carrier unprotected by regulation discovered they could not differentiate themselves from the competition on price alone. Successful transportation companies are beneficial for the success of a company as it provide prompt service and ensures a safe delivery.

Customer need have also changed. The popularity of JIT(just in time)  and Quick Response inventory management and third party supply chain management requires all competitors in SMC to consider shorter cycle time a competitive advantage. Manufacturers, distributers and some carriers effectively use IT to reduce the cycle times and improve the quality of freight handling. Package handlers use the technology to great competitive advantage

LESS THEN TRUCK LOAD(LTL) carriers have started to provide services online and are begin to adapt their information system for this. To make it more beneficial so they will speed up the movement of the freight, these carrier must have low cost. Bar codes and radio frequency technology provide assistance to LTL carriers to strive and thrive


The fundamental objective is to "add value".

That brings us to the example of the fish fingers. During the Supply Chain Management'98 conference in the UK this fall, a participant in a supply chain management seminar said that total time from fishing dock through manufacturing, distribution, and final sale of frozen fish fingers for his European grocery-products company was 150 days. Manufacturing took a mere 43 minutes. That suggests an enormous target for supply chain managers. During all that time, company capital is--almost literally in this case--frozen. What is true for fish fingers is true of most products.

Examine any extended supply chain, and it is likely to be a long one. James Morehouse, a vice president of consulting firm A.T. Kearney, reports that the total cycle time for cornflakes, for example, is close to a year and that the cycle times in the pharmaceutical industry average 465 days. In fact, Morehouse argues that if the supply chain, of what hecalls an "extended be cut to 30 days, that would provide not only more inventory turns, but fresher product, an ability to customise better, and improved customer responsiveness. "All that add value," he says. And it provides a clear competitive advantage.

Supply Chain Management becomes a tool to help accomplish corporate strategic objectives:

' Reducing work capital

' Taking assets of the balance sheet

' Accelerating cash to cash cycle

' Increasing inventory


If the supply chain management becomes the top religion of the management, then it needs a doctrine. Andersen Consulting has stepped forward to provide the needed guidance, espousing what it call the Seven Principles of SMC. When consistently followed, the consulting firm says, these seven principle are the core of competitive advantages.

These principle as articulated by Andersen are as follow:-


Companies usually grouped customer on the basis of industry, product, or trade channel and then provide the service of same level to everyone with in one segment.


In designing their supply chain network, companies intensely need to focus on the service requirement and profitability of customer identified segment.  


Sales and operation planning must span the entire chain to detect early warning signals of changing demand in ordering patterns, customer promotions, and so forth. This demend intensive approach leads to more consistent forecasts and the optimal allocation of the resource.


Now days companies do not afford to pile up the stocks of inventory to compensate for possibly forecasting error. Now they prefer just in time inventory.


By working closely with their key suppliers to reduce overall costs of owning the material and services, supply chain management leaders enhance margins for both themselves and their suppliers.


As one of the cornerstone of the supply chain management, information technology must support multiple levels of decision making. It should also afford the flow of products and services and information.


Excellent SMC measurement system do more than just monitor internal functions. They adopt measures that apply to every link in the Supply Chain. The systems carry both services and financial metrics, such as account true profitability.


For a company, which focuses intensely on actual demand of the customer, instead of forcing into the market product that may or may not sell quickly,( and thereby inviting high warehousing cost), they react to actual customer demand. And by doing so, the supply-chain leaders minimizing the flow of raw materials, finished product, and packaging materials at every point in the pipeline.

To respond more accurately to actual customer demand and keep inventory to a minimum, that leading companies have adopted a number of speed to market management techniques. The names by now have become part of supply chain management vernacular JIT manufacturing and distribution, quick response (QR), efficient consumer response (ECR), vendor managed inventory (VIM), and more. These are the tools that help build a comprehensive supply chain structure.

A Four Step integrated Approach

In view of the importance of Supply Chain Management to commercial success, making the right decision about which system is best is vital. Before deciding how to develop new service Supply Chain Management chains and economical distribution centres, many factors must be considered, such as, the required customer service levels, optimum location, stock holding policies and EDP systems. To help organizations make the best decisions, the Miebach Supply Chain Management Group employs an integrated planning approach, consisting of four steps from planning to realisation:

"The integrated planning process helps to find solutions that best match clients requirements and the technical demands of the problem", states Dr.Joachim Miebach, Chairman of the Miebach Supply Chain Management Group. "The only way to manage the growing complexity in international Supply Chain Management chains is through the integration of strategy, engineering and IT systems and methods."

' Potential analysis

' Concept study

' Detailed planning

' Project or change management

The main feature of Miebachs integrated approach is the simultaneous consideration of strategy, engineering and IT at every step to arrive at an optimum Supply Chain Management solution, the problem


Where the technique has being applied?

Do it right first time makes you think about the Toyota principles, Kaizen and other strategies that have been deployed to improve manufacturing processes and enable production lot sizes of one unit. Japanese companies have been forerunners to implement quality check procedures directly into the manufacturing and assembly process. The objective was to finish each single process step without defects thereby ensuring that following processes are not disturbed. What have they done to achieve this? Toyota pioneered the Total Quality Methods and provided every single employee with the SUPPLY CHAIN MANAGEMENT responsibility for his process. If an error occurred he had the power to stop the production or assembly line, even if many fellow workers would be impacted. This responsibility sharpened the operators sense for quality.

Quality was measured at every single process step and depicted in process charts. Quality deviations could be spotted easily. Mistakes were allowed, but only once. Any occurrence was investigated to the root and actions have been taken to rectify the mistake such that it does not happen again. Teams have been put in place to continuously develop ideas for improvement. Performance feedback was given instantly to show the workers what they have achieved.

Why the intense, widespread interest in this emerging management technique?

The answer is simple: Companies increasingly recognise the tremendous payoff potential in successful supply-chain management. They read about Wal-Mart's leveraging of the chain to achieve a dominant position in the retail marketplace. They hear of companies like Dell Computer reconfiguring the supply chain to respond almost immediately to customized orders. They're intrigued by the bold measures taken by M&M Mars to virtually eliminate standing inventory from the pipeline.




Companies that want to improve their competitive position by reducing their order to delivery cycle are looking to SCM to help them achieve that goal. Because SCM encompasses all processes involved in producing and delivering and delivering a product to the customer, it offer the opportunity to identify bottlenecks that can slow down activities along the entire supply chain.

YOUNGBERG gives the example of an automaker that wants to build individual cars to order for delivery within one week. A supply chain analysis might discover that the seat supplier does not have the capability to produce and deliver seats in a variable colour sequence jeopardizing the car manufacturer's ability to offer its customer the kind of service it envisions. Inevitably, such problems will affect delivery to the final customer much as the domino falling at the front of a line eventually causes the one at the end to topple, too.

To obtain the greatest possible improvement in the total product cycle, it may be helpful to think of the supply chain dominoes falling backward. Under a supply chain management philosophy, customer demand is what derives the activities derive to fulfill the demand of customer, all the way back to raw material suppliers at the beginning of the production process. That is why it is important to first understand the customer's true needs, then work back from that, Morehaouse says: once the correct information is in hand, companies can design their supply chain processes to provide what customer really needs. Without that information, says Youngberg, companies risk falling into the 'wasted excellence' trap providing a higher service level or faster cycle time than is necessary. 'it dose not provide you with a competitive advantage, but it saddles you with costs that may not yield you anything'


Supply chain could be implemented to all the firms (manufacturing firms, retailer, services, etc.) and public organization that satisfy the following criteria:

' MINIMUN number of EMPLOYESS: (at least 4 in management position).

' Strong management commitment to new ways of working and innovation.


Today's supply chain management professionals must become conversant with information technology

IT is not a functional adjunct to supply chain management. Rather it is the enabler, the facilitator the linkage that connects the various components and the partners of the supply chain into an integrated unit. Electronic data interchange, onboard computers, satellite and cellular communications system, ware house management software, enterprise-wide system solutions and now the internet, these are among the information enablers of  successful supply chain management

In developing its seven principles, Andersen Consulting stressed the importance of information technology, grouping IT Requirments into three distinct categories.

' First, there are the short-term system that can handle routine day to day transaction like order processing and shipment scheduling.

' Then from a longer term perspective, the technology must facilitate the planning and decision making. These system support such activities as demand planning and master production scheduling to optimally allocate resources.

' Finally longer range information system must enable strategic analysis by proving modelling  and other tools that synthesise  data for use in high level 'what if' scenario planning.  These forward looking system help manager evaluate distribution centers, suppliers, and third party service options.

Regardless of their current knowledge level, supply chain management manager widely recognize the need to become even more conversant with information technology if they are to assume a future leadership position. An important finding from the 1996 Ohio State University survey of career patterns in supply chain management underscores the point.

The researchers ask the supply chain management professionals surveyed what they would study if they could return to college for 90 days. Topping the list of more than a dozen subjects mentioned was information technology.

Miebach Supply Chain Management experienced through numerous warehouse optimization projects: ideally, warehouse processes should be defined on those principles

' Total Quantity Management requires a review of all process, provided equipment and the management of the operation.

' Human performance in picking is and will be unmatched for most products in most ware house operation. (however, there are exception)

' Design the picking process with care and use automation where it supports people or helps to eliminate simple but challenging tasks.

' Create processes that immediately alert operators about mistakes and don't carry such mistakes through to a final quality check. Have errors corrected immediately.

' This provides feedback regarding performance not only on speed, but also on quality.

' Eliminate unnecessary handling steps. Handling product is the costly part in the warehouse. Do not try to use one warehouse process for all order types whatever size and service requirements they might have. Segmentation and integration of processes are keywords.



The framework below outlines the five key dimensions of supply chain management through the implementation procedure that are required to  achieve superior performance.

These areas must be addressed iteratively and generally, in a hierarchical fasion.

1. Strategy

The alignment of the supply chain strategies with the business direction. Key decision points for managers are

' What are required to align supply chain with the business strategy?

' What level of customer services must be provide to each customer segment to compete effectively?

' Which channel of distribution best meet our goals and our customer needs?

2. Infrastructure

Which affects cost service performance and establishes the boundaries within which the supply chain must operate. Pertinent question include

' How must be the physical network of plants and distribution be structured?

' Can we rationalize our current network?

' What transportation service can best link together the network of facilities?

' Which activities should be out sourced?

3. Process

The drive to achieve functional excellence and integration across all major processes. Manager must ask themselves the following

' What are the core supply chain processes driving the business?

' How can we adapt best in class approaches to our core processes (e.g) manufacturing, integrated demand planning, procurement, cycle time compression, dynamic deployment ?

' How can we build linkages with our suppliers and customers?

4. Organization

Providing the critical success factor of cohesion, harmony and integration across organization entities. Question to consider include:

' What level of cross functional integration is required to manage core processes effectively?

' ow can we leverage cross company skills and abilities?

' What performance measurement and reporting structure can help us achieve our objective?

5. Technology

Technology empowers SC to operate on a new level of performance and is creating clear competitive advantages for those campanies able to hardness it. Companies should address the following points:

' Do our IT platform and core applications software support world-class SCM?

' Where will advanced decision-support capabilities have the greatest impact on business performance?

' What data are required to manage the core business processes outlined above?

' How can we capitalise on advanced communications (e.g., intranets and the Internet) in managing the supply chain?

' How can we leverage enhanced visibility of customer demand and other key operating parameters?


An organised approach to warehousing and distribution is crucial to the continued growth of any business. With emerging technologies and the pressure to deliver a high level of customer service and turnaround of stock, tradition methods of warehousing and distribution are being replaced by those that are more sophisticated, aimed at reducing costs and maintaining that all important competitive factor.

Implementing a carefully structured, cost-effective approach to warehousing and distribution issues now, will inevitably see an organisation through to its long term business objectives and provide tangible financial pay backs.

Developing the best strategy required is a complex issue. A wide range of parameters needs to be considered; business growth, purchasing, stock levels, customer requirements.

The impact of changes over the next 5 to 10 years must be understood in order to assess the available options and develop appropriate solutions. Is it possible to take advantage of high technology to guarantee the future cost base, without sacrificing flexibility?

Making the right decisions, with so many issues to take into account, is not an easy undertaking. '


This chapter encompasses different aspects of Supply Chain Management in this chapter we have discussed about the increasing importance of supply chain management in the new era of business and after that we have learned the remedies to supply chain management  pipeline, we also throw light upon the objectives of Supply Chain Management, after giving brief introduction of the supply chain methodology we stepped forward towards the application of supply chain management and concluded the chapter at implementations of Supply Chain Management.


Q: Why supply chain management is becoming an attractive element of strategy for managers?

Q: What are the principles of supply chain management?

Q: In which companies supply chain can be applies?

Q: What are the five dimensions to improve the performance of an organization through implementation of SCM?


Competitive advantage: to get advantage due to some special quality

Vendors: flex makers

Just in time: at the time of an order

End users: consumer

Procurement: to get possession

Freight: goods that are carried by ships, airplanes or trucks

LTL carriers: truck service to carry goods

SCM: supply chain management







6. Logistics and Supply Chain Management : Strategies for Reducing Cost and Improving Service (Financial Times Management) -- Christopher Martin;

7. Introduction to Supply Chain Management -- Robert B. Handfield, Ernest L. Jr. Nichols

8. Advanced Supply Chain Management : How to Build a Sustained Competition -- Charles C. Poirier

9. Supply Chain Management : The Basics and Beyond (The St. Lucie Press/Apics Series on Resource Management) ~ William C. Copacino / Published 1997

10. Basics of Supply Chain Management James E. Hill,/ Published 1999

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