Module 2

Module 2 – Introduction to Supply Chain – 9

Hours
Introduction to Supply chain Concepts, significance
and key challenges. Scope of SCM-historical
perspective, essential features, Drivers of SCM,
decision phases–process view, supply chain frame
work, key issues in SCM and benefits. Managing
uncertainty in Supply Chain, (Bullwhip Effect),
Impact of uncertainties, forecasting in Supply
Chain, Innovations in Supply Chain. Sourcing
Decisions in Global SCM, Key issues in Global
sourcing, Outsourcing. Network design in the SC.
Evolution of Supply chain
Supply Chain
• Consists of all parties involved, directly or
indirectly, in fulfilling a customer request.
• Supply chain includes not only manufacturers
and suppliers.
• It also includes transporters, warehouses,
retailers, customer themselves.
• Supply chain includes all functions involved in
receiving and filling a customer request.
Stages of Detergent Supply Chain
Stages in Supply chain

• Customers
• Retailers
• Wholesalers/distributors
• Manufacturers
• Component/raw material
suppliers
Stages in Supply Chain
Significance of Supply Chain
https://cscmp.org/CSCMP/Career/Starting_Your_SCM_Career/Importance_of_SCM/CSCMP/Develop/Starting_Your_Career/Importance_of_Supply_Chain_Management.aspx?
hkey=cf46c59c-d454-4bd5-8b06-4bf7a285fc65

• Essential to company success and customer

satisfaction.
• Boost Customer Service
– Customer expect the correct product assortment
and quantity to be delivered
– Products to be available at the right location
– Right delivery time
– Right After sale support
Significance of Supply Chain
• Reduce Operating Costs
– Decreases Purchasing Cost (decrease inventory
cost).
– Decreases Production cost (avoid material
shortages that shutdown production).
– Decreases Total Supply Chain Cost (meet customer
service goals at the least total cost).
Significance of Supply Chain
• Improve financial position
– Increases profit Leverage (Helps to control and
reduce supply chain costs.
• Decreases Fixed Assets
– Decreases use of Large fixed assets: Plant,
Warehouse, Transportation.
• Increases Cash Flow
– Speed up product flows to customers.
Societal Roles of SCM
• Sustains Human Life (To deliver basic
necessities such as food and water).
• Improves Human Healthcare (Medicines).
• Protects Humans from Climate Extremes
(Light, Heat, Refrigeration, air conditioning)
Supply Chain Improves Quality of Life
• Foundation for Economic Growth (Highway
system, vast Railroad network, numerous
Modern ports, Airports).
• Improves Standard of Living (exchange of goods
– quickly and at low cost).
• Job creation
• Opportunity to Decrease Pollution (cardboard
waste and carbon dioxide.
• Opportunity to Decrease Energy Use.
Protect Cultural Freedom and
Development
• Defending Human Freedom (Military
strategically locate aircraft, ships, tanks,
missiles and other weapons )
• Protects Delivery of Necessities (Design and
Operate food, medicine and water supply
chains)
Link
• https://cscmp.org/CSCMP/Career/Starting_Your_SCM_Career/Importance_of_SCM/CSCMP/Develop/Starting_Your_Career/Importance_of_Supply_Chain_Management.aspx?
hkey=cf46c59c-d454-4bd5-8b06-4bf7a285fc65
Challenges of Supply Chain
• Material scarcity – due to an abrupt rise in
consumer demand.
• Increasing freight prices
• Difficult demand forecasting.
• Port congestion.
• Changing consumer attitudes.
• Digital Transformation
• https://www.skubana.com/blog/future-of-supply-chain
10 Global Supply chain challenges
•
https://www.neatcommerce.com/global-supply-chain-management-challenges /
• Lead times
• Delays
• Cash flow
• Data management
• Exposure to risk
• Accountability and Compliance
• Quality control and defects
• Language barriers
• Time zones
• Exchange rate and Foreign transaction costs
Scope of SCM
Historical Perspective of SCM
Historical Perspective Video Link
• https://bohatala.com/the-history-of-supply-chain-management/

• https://www.youtube.com/
watch?v=M5HbUkR_XFA&t=6s
Decision phases in Supply Chain (SC)

1. Supply chain strategy or design

2. Supply chain planning
3. Supply chain operation
1. Supply chain strategy or design

• Given marketing and Pricing plans.

• Decides how to structure the supply chain.
• Resources allocation.
• Outsource or Perform.
• Production, location, warehouse facilities.
• Modes of transportation.
• Different shipping legs.
• Type of information systems.
2.Supply chain planning

• Time frame considered is a quarter to a year.

• Supply chain configuration determined in the
strategic phase is fixed.
• Goal is to maximize the supply chain surplus.
• Forecasts, costs, prices, .
• Which market from which location.
• Subcontracting of manufacturing, inventory
policies, the timing, size of marketing & price
promotions.
Supply chain Surplus

• Supply chain surplus is the difference between the

value generated for the customer and the total cost
incurred across all stages of the supply chain.
• A focus on the supply chain surplus grows the size of
the overall pie for all members of the supply chain.
• They significantly influence both the revenue
generated and the cost incurred.
• Successful supply chains manage flows of product,
information, and funds.
• To provide a high level of product availability to the
customer while keeping costs low.
3. Supply chain operation

• Goal is to handle incoming customer orders in

the best possible manner.
• Exploit the reduction of uncertainty and
optimize performance.
• Allocate inventory or production, date to fulfill
order, shipping mode, delivery schedule,
replenishment orders.
PROCESS VIEWS OF A SUPPLY CHAIN

• Cycle View: The processes in a supply chain

are divided into a series of cycles, each
performed at the interface between two
successive stages of a supply chain.
• Push/Pull View: The processes in a supply
chain are divided into two categories
depending on whether they are executed in
response to a customer order or in
anticipation of customer orders.
• Pull processes are initiated by a customer
order,
• Push processes are initiated and performed in
anticipation of customer orders
Supply chain Process Cycle
Push/Pull Processes
Supply chain framework
Key Issues in SCM
Benefits of SCM
Managing uncertainty in Supply Chain
(Bullwhip Effect)
WHAT IS THE BULLWHIP EFFECT?
• The bullwhip effect is a phenomenon that occurs
in supply chain management.
• Small changes in consumer demand at the retail
level lead to much more significant fluctuations
in need at the manufacturer and supplier levels.
• Orders placed by retailers to suppliers fluctuate
more extensively than the sales to customers.
• The term “Bullwhip Effect” was first coined
by Procter & Gamble researchers in the early
1990s. It described the phenomenon they
observed in the supply chain for their Pampers
brand diapers.
• They noticed that small changes amplified
consumer demand as they moved up the
supply chain, leading to significant
inefficiencies and increased costs.
BULLWHIP EFFECT EXAMPLE

• The COVID-19 pandemic provided one of the most recent and

noteworthy real-world examples of the bullwhip effect,
mainly concerning toilet paper.
• Stores rushed to increase their orders and keep their shelves
stocked as panic buying caused supply shortages.
• Manufacturers further up in global supply chains likewise
increased production to keep up with the excessive increase
in customer demand.
• However, the lack of toilet paper was only a short-term
phenomenon, and a bullwhip effect had occurred.
• The bullwhip effect got triggered by increasing customer
demand shifts and wanting to stock their houses in
preparation for the pandemic.
WHAT CAUSES THE BULLWHIP EFFECT?

• COMPLEX SUPPLY CHAIN

• BATCH ORDERS
• CONSUMER PRESSURE
• BAD COMMUNICATION
• PRICE VOLATILITY
• LEAD TIMES ISSUES
• INCORRECT FORECASTS
Impact of uncertainties
• INCREASED OPERATIONAL COSTS
• INCREASED LABOR
• CUSTOMER DISAPPOINTMENT
• WASTE
Forecasting in Supply Chain
• Forecast tools are software systems that predict
future demand for products or services.
• These tools analyze historical data and identify
demand patterns, trends, and seasonality.
• Several forecast tools are available, including time
series analysis, causal analysis, and machine learning-
based methods.
• Businesses must integrate these tools into their
operations to choose the best to work for them in line
with achieving their goals and objectives
SOLVING THE BULLWHIP EFFECT
• Introduce forecast tools
• Improve supply chain communication
• Transparency
• Reduce order size
• Reduce lead times
• Try to minimize price fluctuations
• Try to minimize price fluctuations
Forecasting in Supply Chain
• Collective Opinion
• Customer Survey Method
• The Barometric Method
• The Expert Opinion Method
• The Market Experiment Method
• The Statistical Method, which allows a company to
identify and analyze the relationships between
different variables; establish performance history
over time, identify trends and extrapolate potential
future trends.
Innovations in Supply Chain
• Artificial Intelligence • Augmented Reality
(AI) and Machine (AR) and Virtual Reality
Learning (ML) (VR)
• Blockchain Technology • Predictive Analytics and
• Internet of Things (IoT) Big Data
• 3D Printing/Additive • Collaborative Platforms
Manufacturing and Networks
• Robotics and • Autonomous Vehicles
Automation and Drones
• Green Supply Chain
Sourcing Decisions in Global SCM,
Key issues in Global sourcing
• Global sourcing is the process of obtaining goods and services
from around the world to meet the needs of a business.
• This can range from sourcing raw materials, to outsourcing
production, to finding new suppliers or distributors.
• It’s a way for companies to take advantage of different
countries’ resources and capabilities to create a competitive
advantage.
• Global sourcing has become increasingly popular as
technology has made it easier to work with suppliers and
partners from around the world.
• It’s also become more affordable, as companies have access
to a larger pool of potential suppliers.
Sourcing Decisions in Global SCM
• Cost Savings
• One of the biggest benefits of global sourcing is cost savings. By sourcing
goods and services from different countries, companies can take advantage
of different economies of scale, access cheaper labor and materials, and
reduce production costs.

• Access to New Markets and Suppliers

• Global sourcing also allows companies to access new markets and new
suppliers. By sourcing from different countries, companies can find new
suppliers with different capabilities and resources, access new customers
and expand their reach.

• Opportunities for Innovation

• Finally, global sourcing can also create opportunities for innovation. By
working with suppliers from different countries, companies can find new
ideas and technologies that can help them stay ahead of the competition.
Sourcing Decisions in Global SCM
• Evaluating Your Company’s Capabilities
• Before embarking on a global sourcing strategy, it’s important to
evaluate your company’s capabilities. This includes assessing your
resources and capabilities, understanding your goals and ensuring you
have the right processes and infrastructure in place to support global
sourcing.

• It’s also important to assess your risk tolerance. Global sourcing can
come with a number of risks, and it’s important to make sure you’re
comfortable with them before you begin.

• Establishing Relationships with Suppliers

• When it comes to global sourcing, it’s important to establish strong
relationships with suppliers. This includes understanding their
capabilities, building trust and setting clear expectations.
• It’s also important to ensure that suppliers understand your company’s values and
expectations. This includes making sure they comply with local laws and regulations, and
that they understand the importance of quality and ethical standards.

• Developing a Sourcing Strategy

• Once you’ve evaluated your company’s capabilities and established relationships with
suppliers, it’s time to develop a sourcing strategy. This includes assessing your needs,
researching potential suppliers and negotiating terms.

• It’s also important to consider the total cost of sourcing from different countries. This
includes not only the cost of goods and services, but also transportation and logistics
costs, taxes and other fees.

• Managing Logistics and Transportation

• Logistics and transportation can be a major challenge when it comes to global sourcing.
It’s important to make sure that goods and services are delivered on time and in the
right condition.

• This includes researching different transportation methods, understanding the different

regulations and laws and finding the most cost-effective and reliable transport options.
It’s also important to consider the environmental impact of transportation and to make
sure that suppliers comply with environmental regulations.
• Risk Management
• Global sourcing can come with a number of risks, and it’s important to manage
these. This includes assessing potential risks, understanding their impact on your
business and putting in place systems to mitigate them.

• It’s also important to have a system in place for dealing with disputes and
resolving issues. This includes understanding the legal and regulatory framework
in each country and having a plan for dealing with any potential problems.

• Monitoring and Evaluating Performance

• Monitoring and evaluating the performance of suppliers is crucial. This includes
assessing the quality of goods and services, understanding supplier performance
and making sure they comply with your company’s standards and expectations.

• It’s also vital to assess the performance of your global sourcing strategy. This
includes tracking costs, evaluating the effectiveness of different suppliers and
understanding the overall impact on your business.
Key issues in Global sourcing
• Legal and Regulatory Issues
• Different countries have different laws and regulations, and it’s important to
ensure that suppliers comply with them. It’s important to do due diligence
when working with suppliers from different countries. This includes researching
local laws and regulations and monitoring suppliers for any issues.
• Currency and Exchange Rate Fluctuations
• Currency and exchange rate variations can also be challenging when it comes to
global sourcing. Different currencies can fluctuate in value, which can affect the
cost of goods and services.
• To mitigate this risk, it’s important to monitor these fluctuations and
understand how they could affect your bottom line. It’s also important to
consider ways to guard against currency risks, such as using forward contracts
or hedging strategies.
• Political and Economic Instability
• Changes in government or in the wider economy can affect the cost of goods
and services and can make it difficult to do business.
Key issues in Global sourcing
• To mitigate this risk, it’s important to pay close attention to the political
and economic situation in the countries you’re sourcing from. This
includes monitoring news reports and staying up to date with any
changes that could affect your operations.
• Language and Cultural Barriers
• Language barriers can be a major obstacle when working with suppliers
from different countries. This can make it difficult to communicate
effectively and can lead to misunderstandings and delays. Cultural
differences can also create challenges when it comes to global
sourcing. Different countries have different values and customs, and it’s
important to be aware of these when working with suppliers.
• For example, a supplier in China might be used to working with a
different set of ethical standards than one in the US. It’s important to
make sure that suppliers in different countries understand the values
and expectations of your company.
Outsourcing
• Strategic positioning
• Increased value
• Reduced operational cost
• Improved ability to meet customer demand
• Flexibility
• Increased working resources
• Risk mitigation
What is Supply Chain Network Design?
• Supply chain network design is a systematic approach to
determining the best location and optimal size of the facilities
to be included in the supply chain and ensuring an optimal flow
of products using advanced mathematical modeling.
• The success of any supply chain network depends on the plants,
suppliers, warehouses, and how the product flows from each
of the origins to the final customer.
• For any successful supply chain, the number of facilities and
their locations is a critical factor.
• In fact, 80 percent of the operational costs of the supply chain
design on where the facilities are located and the product flows
between them.
• To cut costs, you need a more systematic engineering approach
so that you can plan and design the network efficiently. That is
why the network design in the supply chain is so important.
The role of network design in supply chain
operations involves the following:
• Defining the business objectives
• Defining the project scope
• Determining the analyses to be performed
• Determining the tools to be utilized
• Completion of the project in accordance with
the design.
Supply Chain Network Models:
• The first step for network design in the supply chain is to
collect the data specific to the business, construct a basic
model based on that and validate the same.
• The supply chain network design models include outputs
such as the total costs, which are the same as those in real-
world operations.
• First, the basic model is validated, and then depending on
the results an alternative design is created or the existing one
is modified for cutting costs further and increasing profits.
• The construction of the supply chain network design models
is handled by highly skilled consultants who collect high-
quality data, validate the model, and propose alternative
solutions.
Factors That Influence Supply Chain Design Decisions:

1. Location and Distance:

• Distance between the different locations of the supply chain
and the locations themselves are important factors to be
considered. The location of the supply chain network
includes customers, suppliers manufacturing abilities,
airports, ports, and so on.
2. Current and Future Demand:
• The current and future demands of the company are taken
into account as well and should be grouped appropriately.
3. Service Requirements:
• The maximum allowable transit time and distance are used
to determine the location of the warehouses to be added to
the supply chain.
Factors That Influence Supply Chain Design Decisions:

4. Size and Frequency of Shipment:

• The size and frequency of the shipment are essential factors
for determining the costs – the higher the frequency, the
greater the cost; the smaller the shipment, the higher the cost.
5. Warehousing and Labour Costs:
• Warehousing costs are fixed costs and are factored into the
decision-making process. The labor costs are not fixed, and
they play a role as well.
6. Trucking Costs:
• The cost and type of trucking are of considerable importance.
7. Mode of Transportation:
• Which mode of transportation is used in the running of the
supply chain matters as well.