Supply Chain Management

MKRakesh Ph.D scholar Mahatma Gandhi Kashi Vidyapeeth Varanasi mkrakesh@rediffmail.com

  Through the past decades we have seen an increasing rate of globalization of the economy and thereby also of supply chains. Products are no longer produced and consumed within the same geographical area. Even the different parts of a product may, and often do, come from all over the world. This creates longer and more complex supply chains, and therefore it also changes the requirements within supply chain management. This again affects the effectiveness of computer systems employed in the supply chain.

A longer supply chain will often involve longer order to delivery lead times. Flaherty [10] states, in accordance with the discussion in Section, that the consequences of longer lead times will often be less dependable forecasts as these have to be made earlier, reduced production flexibility, i.e. greater difficulties to adjust to order changes, higher levels of inventory. Therese M. Flaherty. Global Operations Management. McGraw-Hill, New-York, 1996.

The evident answer to the problem of longer lead times is to speed up the supply chain. But a limit is often reached beyond which further effort to shorten lead times are futile, especially in international supply chains. Another approach is to restructure the supply chain. This simply means to reconsider the strategic level decisions priorly made. A third approach identified by Flaherty [10] is changing coordination: The order, forecasting, procurement, and information sharing procedures among the members of the supply chain. We will dwell on the issue of coordination in the next section.

Globalization also brings foreign competition into markets that traditionally were local. Local companies are thereby forced to respond by improving their manufacturing practices and supply chain management. Bhatnagar et al. [5] states that attempts have focused, among others, on reduction of inventory levels, and increased flexibility through reduced lead times. Yet again we see how industry focuses on the issues of inventory management and flexibility to maintain high levels of customer satisfaction. DefinitionsSupply chain management (SCM) is the process of planning, implementing and controlling the operations of the supply chain as efficiently as possible. Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption

Traditionally, marketing, distribution, planning, manufacturing, and the purchasing organizations along the supply chain operated independently. These organizations have their own objectives and these are often conflicting. Marketing's objective of high customer service and maximum sales dollars conflict with manufacturing and distribution goals. Many manufacturing operations are designed to maximize throughput and lower costs with little consideration for the impact on inventory levels and distribution capabilities. Purchasing contracts are often negotiated with very little information beyond historical buying patterns. The result of these factors is that there is not a single, integrated plan for the organization---there were as many plans as businesses. Clearly, there is a need for a mechanism through which these different functions can be integrated together. Supply chain management is a strategy through which such integration can be achieved.

There seems to be a universal agreement on what a supply chain is. Jayashankar et al. [25] defines a supply chain to be A network of autonomous or semi-autonomous business entities collectively responsible for procurement, manufacturing, and distribution activities associated with one or more families of related products. Lee and Billington [17] have a similar definition: A supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products, and deliver the products to customers through a distribution system. And Ganeshan and Harrison [12] has yet another analogous definition: A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers.

According to Wikipedia.orgSupply Chain Management (SCM): Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose of satisfying customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work–in–process inventory, and finished goods from point–of–origin to point–of–consumption(http://en.wikipedia.org/wiki/Supply_Chain_Management).

The definition one American professional association put forward is that Supply Chain Management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies. More recently, the loosely coupled, self-organizing network of businesses that cooperates to provide product and service offerings has been called the Extended Enterprise.

Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point-of-origin to the point-of-consumption in order to meet customers' requirements.

“Efficient Management of the Supply Chain (source, make and deliver) in order to maximize the value for money to the customer”.

In other words Supply Chain Management means integration and management of Supply Chain organization and activities through coordinated and collaborative strategic alliances, efficient business processes and high levels of information sharing to create a value chain that would provide member organizations a sustainable competitive advantage and in turn provide value for money to the customer. Instead of brand versus brand or store versus store, it is now supply chain versus supply chain. In this emerging highly competitive and dynamic environment, the ultimate success of the Business entity will depend on management's ability to integrate the company's complicated network of business relationships. The graphic will explain the process of Integration in the Supply Chain network.

The broader view of SCM is depicted in the above figure in a simplified supply chain network structure. This would explain the basic difference between Logistics and SCM. Supply Chain is inter-company integration of business process and relationships and where as Logistics is intra-company integration.

A Working Definition of Supply Chain Management:We can define the supply chain as the flow of information and material to and from suppliers and customers. The objectives of Supply Chain Management (SCM) are to:

Maximize supply chain responsiveness and flexibility to customers, Minimize total supply chain cycle time, costs, inventory, and; Maximize supply chain capacity, utilization, and Return on Assets (ROA). There are four fundamental operating principles at work in SCM :

Set up the simplest, most direct, flow of information possible to and from those who produce it to those who use it. Set up the simplest, most direct, flow of material possible to and from those who produce it to those who use it. Establish the smoothest possible drumbeat or rhythm of production and usage. Create the ability to react to problems through short lead-times eliminating the need for inventories.

Why Supply Chain Management?

Experience shows that the gains to be made in cost, lead-time and quality through working in partnership with customers and suppliers are significant. In industry after industry one observes that:

50%-70% of total costs are supplier related (material versus direct labor or overhead costs). Supplier lead times are longer than one's own production lead times.

It goes without saying that the quality of your product depends on the quality of material your supplier provides. With customers awarding more and more business based on total price, quality and delivery, the whole process from one's supplier receiving raw material to one's customer using the product has to be the target for breakthrough improvement. Experience shows that customers use the products we produce in much more predictable ways than then it first appear. We assume that a customer's order pattern is related to his/her usage pattern. Often we do not look beyond the order pattern for information about actual usage. Worse yet we tend to create wide swings and unpredictability in buying patterns that would otherwise be stable and predictable.

The consumer products industry learned that it often incurred more costs than benefits through consumer promotions. They trained consumers to wait for a sale, then buy and stock product until the next sale. Swings in demand were amplified through the supply pipeline adding cost as the bulge worked its way through the system. Retail stores clogged backrooms with inventory or ran out of stock. Distributors added inventory to cover unexpected demand. Manufacturers added finished goods inventory, increased production through over-time, and put pressure on their suppliers to deliver more in shorter lead-times. Wal-Mart broke the cycle with Every-Day-Low prices. A master in logistics, Wal-Mart understood that it was more profitable to always offer the lowest competitive prices to the consumer in return for more stable, predictable demand. The more predictable the demand, the easier it is to synchronize activities to true customer demand throughout the supply chain. The result is better on-time delivery, fewer stock-outs, and higher customer satisfaction with less inventory, reduced administrative work and lower overall costs.

Managing multiple flows:

Organizations increasingly find that they must rely on effective supply chains, or networks, to successfully compete in the global market and networked economy. In Peter Drucker's (1998) management's new paradigms, this concept of business relationships extends beyond traditional enterprise boundaries and seeks to organize entire business processes throughout a value chain of multiple companies.During the past decades, globalization, outsourcing and information technology have enabled many organizations, such as Dell and Hewlett Packard, to successfully operate solid collaborative supply networks in which each specialized business partner focuses on only a few key strategic activities (Scott, 1993). The concept involved in a supply chain can be well understood by the following list of figured models. A Generic Supply chain model

Issues in Supply Chain ManagementThe classic objective of logistics is to be able to have the right products in the right quantities (at the right place) at the right moment at minimal cost. Figure (from

Suppliers Manufacturers Distributors Customers

NEVEM-workgroup [19]) translates this overall objective into four main areas of concern within supply chain management.

   Figure: Hierarchy of Objectives.The two middle boxes in the lower row of Fig. , delivery reliability, and delivery times, is both aspects of customer service, which is highly dependent on the first box, flexibility, and on the last box, inventory.

Improving Supply Chain Management The above sections describe issues and challenges of supply chain management. It is time to approach solutions. A key to improved supply chain management lies in integration and coordination, look to Section for a discussion. Section introduces important tools of supply chain managers, modeling and simulation. Goal and Principle of SCMSCM goal:Providing enhanced value to customers at the least Total costValue, Velocity and VisibilitySCM Principles:Ultimate customer focusNetwork of organizations working for common purpose and mutual benefitsProcess orientationTotal systems thinkingCost DimensionsInventory TransportationWarehousing Information

Figure below shows us the relation ship between some of the components of supply chain.

Delivery and lead-time.

Inventory Costs

Warehouse cost

SCM Framework A framework to understand the various issues involved in SCM is provided by the pyramid structure for the SCM paradigm (fig.) the pyramid allows issues to be analysed on four levels:

Strategic: On the strategic, level it is important to know how SCM can contribute to the enterprises’ basic “value proposition” to the customers. Important questions that are addressed at this level include: What are the basic and distinctive services needs of the customers? What can SCM do to meet these needs? Can the SCM capabilities be used to provide unique services to the customers? Etc. Structural: After the strategic issues are dealt with, the next level question(s) that should be asked are: Should the organization market directly or should it use distributors or other intermediaries to reach the customers? What should the SCM network look like? What products should be sourced from which manufacturing locations? How many warehouses should the company have and where should be located? What is the mission of each facility (full stocking, fast moving items only, cross-docking etc.)? Functional: This is the level where operational details are decided. Functional excellence requires that the optimal operating practices for transportation management, warehouse operations, and materials management (which includes forecasting, inventory management, production scheduling, and purchasing) be designed. These strategies should keep in view the trade-offs that may need to be made for the overall efficiency of the system. Achieving functional excellence also entails development of a process-oriented perspective on replenishment and order fulfillment so that all activities involved in these functions can be well integrated.

Fig. SCM Framework PyramidSource: Based on work done by William C.Capacino.

Implementation: Without successful implementation, the development of SCM strategies and plans is meaningless. Of particular importance are the organizational and information systems issues. Organizational issues centers on the overall structure, individual roles and responsibilities, and measurement systems needed to build an integrated operation. Information systems are “enablers” for supply chain management operations and therefore must be carefully designed to support the SCM strategy. Supply chain managers must consider their information needs relative to decision support tools, application software’s, data capture, and the system’s overall structure.

It is important to note that the decisions made within the SCM strategy pyramid are interdependent. That is, it must be understood what capabilities and limitations affect the functional and implementation decisions and consider those factors while developing a supply chain management strategy and structure.

The SCM models used in practice lie in a continuum between two extreme models: on one end of the spectrum lies the vertically integrated supply chain model in which the organization has direct control over each and every component of the supply chain, while on the other end of the spectrum lies the horizontally diversified supply chain model (ideally) in which the number of participant is as large as the number of distinct parts of the supply chain. In a vertically integrated supply chain system, the organization can control every component of the chain and can make various changes to the system to optimize the chain very easily. But in a horizontally diversified supply chain the tendency will be to optimize only the functions that the organization is involved in, thus conscious efforts must be made by the various participants in the supply chain for the integration of their respective components in the supply chain. If an organization can be identified as the major/dominant partner in the supply chain, then this organization has to take an initiative in seeking the co-operation of the other participants in the supply chain.

The type and structure of the supply chain that is established depends on many factors, some of the major factors are:Geographical: If the supply chain is stretched across the globe then it may not be possible to incorporate some of the principles of lean production like JIT delivery, flexible manufacturing, and co-ordination among suppliers and customers. It can lead to uncertain transportation schedules, unpredictable lead-time and may need larger inventory carriage.Cultural: The difference in the “culture” of the participants in the chain (the difference can be due to geographical factors or corporate practices) can lead to friction and distrust. This may hamper the development of close ties.Government Legislation: The laws of the country may prohibit the sharing of information about some facet of the supply chain and thus, may lead to a restrictive participation by one or more participant in the supply chain.

Decisions on Three LevelsSupply chain management decisions are often said to belong to one of three levels; the strategic, the tactical, or the operational level. Since there is no well defined and unified use of these terms, this Section describes the how they are used in this thesis. Figure: shows the three level of decisions as a pyramid shaped hierarchy. The decisions on a higher level in the pyramid will set the conditions under which lower level decisions are made.

   Figure: Hierarchy of Supply Chain Decisions.On the strategic level long term decisions are made. According to Ganeshan and Harrison [12], these are related to location, production, inventory, and transportation. Location decisions are concerned with the size, number, and geographic location of the supply chain entities, such as plants, inventories, or distribution centers. The production decisions are meant to determine which products to produce, where to produce them, which suppliers to use, from which plants to supply distribution centers, and so on. Inventory decisions are concerned with the way of managing inventories throughout the supply chain. Transport decisions are made on the modes of transport to use. Decisions made on the strategic level are of course interrelated. For example decisions on mode of transport are influenced by decisions on geographical placement of plants and warehouses, and inventory policies are influenced by choice of suppliers and production locations. Modeling and simulation is frequently used for analyzing these interrelations, and the impact of making strategic level changes in the supply chain. On the tactical level medium term decisions are made, such as weekly demand forecasts, distribution and transportation planning, production planning, and materials requirement planning. The operational level of supply chain management is concerned with the very short term decisions made from day to day. The border between the tactical and operational levels is vague. Often no distinction is made. Major Network Design DecisionsNumber & locations of facilities (plants, warehouses & stores) Capacities (size) of facilitiesProduct mix at plantsAllocation of plants to warehousesAllocation of warehouses to stores

SUPPLY CHAIN - NETWORK & MEMBERS

Supply Chain Network Structure:All participate in a supply chain from the raw materials suppliers to the ultimate consumer. How much of this supply chain needs to be managed will depend on several factors, such as the complexity of the product, the number of acceptable suppliers, and the availability of raw materials. Dimensions to consider include the complexity of supply chain network, length of the supply chain and the number of suppliers and customers at each level. It is obvious that one firm will be participating in several supply chains. For most manufacturers, the supply chain looks like a chain of relationships and processes. One wonders how many such relations and processes needs hand holding. The closeness of the relationship at different points in the supply chain will differ. Management will need to choose the level of partnership appropriate for particular supply chain links. Not all links throughout the supply chain should be closely coordinated and integrated. The most appropriate relationship is the one that best fits the specific set of circumstances. Determining which parts of the supply chain deserve management attention must be weighed against firm capabilities and the importance to the firm.

In order to understand these relationships well and to focus on the appropriate ones, one should have explicit knowledge about the following:Members of the Chain; Network Structure; and Flows (Information, Product and Cash).

Supply Chain Members:While determining the network structure, it is necessary to identify the members of the supply chain who will operate within the network structure. Including all types of members may cause the total network to become highly complex, since it may explode in the number of members added from tier level to tier level. To integrate and manage all process links with all members across the supply chain would, in most cases, be counter-productive, if not impossible. The key is to sort out some basis for determining which members are critical to the success of the company and the supply chain, and thus should be allocated managerial attention and resources. The members of a supply chain include all companies/organizations with whom the focal company interacts directly or indirectly through its suppliers or customers, from point of origin to point of consumption. However, to make a very complex network more manageable it would be appropriate to classify members into two categories. One which deals with primary members who carry-out value adding activities in an independent environment are considered as Front enders and the group of companies which support these front enders can be considered as Support group or back-room boys.

In contrast, support group members are companies that simply provide resources, knowledge, utilities or assets for the primary members of the supply chain. For example, supporting companies include 3PL Companies, Integrators, Freight Forwarders, Banks and IT networking companies and all others who participate in the chain to support the Front enders or Focal companies. The same company can perform both primary and supportive activities. Likewise, the same company can be performing primary activities related to one process and supportive activities related to another process. An example

from one of the case studies is IT Company, which manufactures Hard Disk Drives (IBM), is a member of Support group when their finished product is HDD. IBM is considered as a Front ender when they are supplying their Computers. If we review the case of Intel, it plays both the roles. They work with PC manufacturing companies closely when designing the processors and also play the role of support function while supplying the processors as a supplier. At the time of design development of the processor Intel is adding value to the process and when they turn into supplier, they become support group of the Supply Chain network of a PC manufacturing company. It should be noted that the distinction between primary and supporting supply chain members is not obvious in all cases. Nevertheless, this distinction provides a reasonable managerial simplification and yet captures the essential aspects of who should be considered as key members of the supply chain and make the job all the more easier.

The definitions of primary and supporting members make it possible to define the point-of-origin and the point-of-consumption of the supply chain. The point-of-origin of the supply chain occurs where no previous primary suppliers exist. All suppliers to the point-of-origin members are solely supporting members. The point-of-consumption is where no further value is added, and the product and/or service is consumed.

Network Structure:

Two structural dimensions of the network are essential when describing, understanding, analyzing, and managing the supply chain. These dimensions are the horizontal structure, the vertical structure. The horizontal structure refers to the number of tiers across the supply chain. The supply chain may be long, with numerous tiers, or short, with few tiers. As an example, the network structure for bulk cement is relatively short. Raw materials are taken from the ground, combined with other materials, moved a short distance, and used to construct buildings. Where as the Supply Chain of a detergent product is different and lengthy. Consider a customer walking into any one of our departmental stores looking for a detergent. The Supply Chain begins with the customer and his or her need for detergent. The next stage of this supply chain is the Departmental store retail store that the customer visits to purchase the detergent. These departmental stores must be storing their products in their replenishment warehouses or warehouse managed by the third parties or VMI warehouses provided by the supplier. This is the last stage of phase-1 of the detergent supply chain. In the next stage we have the detergent manufacturer (say, Proctor & Gamble (P&G)). P&G supply chain includes the raw material supply, packing material suppliers, and service support suppliers.

The vertical structure refers to the number of suppliers/customers represented within each tier. A company can have a narrow vertical structure, with few companies at each tier level, or a wide vertical structure with many suppliers and/or customers at each tier level. In the companies studied different combinations of these structural variables were found. In one example, a narrow and long network structure on the supplier side was combined with a wide and short structure on the customer side. Increasing or reducing the number of suppliers and/or customers will influence the structure of the supply chain. For example, as some companies move from multiple to single source suppliers, the supply

chain may become narrower. Outsourcing logistics, manufacturing, marketing or product development activities is another example of decision making that likely will change the supply chain structure. It may increase the length and width of the supply chain, and likewise influence the horizontal position of the focal company in the supply chain network. In the companies studied, the supply chains looked different from each company's perspective. The reason for this is that the integration and management of business processes across company boundaries will be successful only if it makes sense from each company’s perspective.

Process and FlowsA Supply chain is dynamic and involves the constant flow of information, product and funds between different stages as explained in the graphic given above. Each stage of the supply chain performs different processes and interacts with other stages of the supply chain. Successful supply chain management requires a change in the mindset from managing individual functions within an organization to integrating activities among supply chain partners into key supply chain processes as explained in the below given graphic. Traditionally, both upstream and downstream portions of the supply chain have interacted as disconnected entitles receiving sporadic flows of information over time. The sourcing department placed orders as projected by the PSI (Production, Sales and Inventory Planning) team and marketing, responding to customer demand, interfaced with various distributors and retailers and attempted to satisfy this demand. Orders were periodically given to suppliers and their suppliers had no visibility at the point of sale or use. Satisfying the customer often translated into demands for expedited operations throughout the supply chain as member firms reacted to unexpected changes in demand.

Operating a supply chain requires continuous information flows among the supply chain partners/participants, which in turn help to create the best product flows. The customer remains the primary focus of the process. Achieving a good customer focused system requires processing information both accurately and in a timely manner for quick response systems that require frequent changes in response to fluctuations in customer demand. Controlling uncertainty in customer demand, manufacturing processes, and supplier performances are paramount to effective supply chain management.

The sharing of information among supply chain members with in the supply chain network is a fundamental requirement for effective supply chain management. Decision makers at all levels within the supply chain network are provided with timely and quality information they need, in the desired format, regardless of where within the supply chain this information originates. Fulfilling this requirement is a formidable challenge in front of any organization. Most of the supply chains fail due to lack of quality information at the right time. Differed decisions always lead to unacceptable results. Decisions are differed due to lack of appropriate information. Recent developments in technology have brought information to the forefront of resources from which forward-thinking firms can cultivate genuine competitive advantage to meet the challenges at the market place. These technologies provide the means for multiple organizations to coordinate their activities in an effort to truly manage a supply chain. As the rate of these technological advances increases, the cost associated with this information has decreased.

Simultaneously the speed with which this vital information can be made useful and applicable in a variety of business situations continues to increase.

Supply Chain Enablers:

The below mentioned four Supply Chain enablers need to be in place if Supply Chain optimization initiatives are to succeed. Organizational InfrastructureTechnologyStrategic AlliancesHuman Resources Partnership

Organizational Infrastructure: It is all about organizing the functional areas and coordinating the Change Management to achieve the corporate objective of retaining the customer and making profits to sustain in the business.

Technology: All forms of technology to improve the efficiency of the Supply Chain.Strategic Alliances: One cannot be good at every thing and physically be everywhere – One has to relay on your partners and focus only on your core competencies to achieve the corporate goal.

Human Resources Partnership: It is about respecting the contributions made by the employees in achieving the corporate goals and encouraging them by compensating adequately to continue their good work.

The above-mentioned enablers have to be successfully deployed in the organization to improve performance of the Supply Chain Drivers. The following are the four Supply Chain Drivers:

InventoryTransportationFacilities andInformation.

Having identified the Supply Chain Drivers, we have to identify the Obstacles also and they are:

Product Proliferation;Decreasing Product Life Cycles;Demand variability;Supply Chain fragmentation;Globalization and;Difficulty in executing new strategies.

Many obstacles, such as growing product variety and shorter life cycles, use and through concepts and ever demanding customers have made it increasingly difficult for Supply Chains to achieve strategic fit. Overcoming these obstacles offers a tremendous opportunity for firms to use SCM to gain competitive advantage.SCM encompasses a wide variety of interdisciplinary topics, such as supplier selection, quality management across the supply chain, scheduling, logistics, information flows, distribution channels, and customer satisfaction. It is vital to note that the SCM activities should be integrated into a firm’s operations and corporate strategies so that firms can gain competitive advantage and improve their performance in their respective industries.

Strategic importance of SCM:Several reasons are contributing to the increased attention to supply chain management by the industry and the academia.

First, globalization has created more alternatives for companies regarding the supplier and distributor decisions. Global supply chain management can be a source of competitive advantage for organizations. Second, there has been an increase in the partnership relationships between supplier-manufacturer and manufacturer-distributor pairs in several industries. Furthermore, a move from power-based relationships between suppliers and buyers towards more of a network model necessitates a higher level of integration and coordination.Third, the perception of effective purchasing and distribution as a strategic issue has added to the concern for effective supply chain management. Firms are trying to create competitive advantages by coordinating the flow of materials and information with their suppliers and distributors.Finally, trends such as outsourcing of non-core operations and reduction of the supplier base not only forces firms to cooperate with other companies down or up their supply chains but also requires a high level of integration of these complex form of operations for mutual benefits.As a result of globalization, the choices that are available to a company regarding the suppliers, processes, transportation modes, and distributors are becoming numerous which, in turn, creates a complex environment and uncertainty in supply chains. Unlike the traditional approach to materials management, SCM views the chain as a single entity and emphasizes full integration of its elements, most specifically of the customers into the chain. Developments in information, communication, and transportation technologies facilitate this integration.

SCM role in operations and corporate strategies:As a result of the importance of supply chain management, as discussed in academic and popular press, companies should develop a supply chain strategy. More importantly, the supply chain strategy must be integrated with the overall business strategy. A challenge to formulating successful supply chain strategies is the fact that the supply chain management is a collaborative effort among companies in the entire supply chain. However, functional integration is necessary first within the organization before integration can be extended to the entire supply chain. Following figure illustrates this integration and its possible impacts on company and supply chain performance.

SCM Philosophies:

The integration at the business level with the suppliers, distributors, and customers requires commitment of all the organizations within the supply chain at the top management level. In addition, as it is presented on Total quality management (TQM) is a crucial part of SCM. In a supply chain, activities are coordinated among the constituents based on the information gathered from the end customers regarding the products and services. In addition, each part of the chain is dependent on the others in the areas of customer satisfaction and quick response. Many have highlighted the

Supply Chain Management

External invironment Opportunities and Threats

Internal invironment

Strengths and Weaknesses

Corporate-Level Strategies

Business-Level Strategies

Functional-Level Strategies

Operations

Marketing

Research and Development

Information Systems

Finance Human Resources

Suppliers Distributors and

Customers

importance of a shared strategy for the development of TQM and continuous improvement in a supply chain.

Inventory management is a crucial activity under supply chain management. Excess inventories within the supply chain are an indication of poor inventory management and may be a call for the implementation of SCM. The companies within the supply chain can follow an integrated inventory management approach and coordinate their activities based on the demand from the end customers to reduce the channel inventories. Such a joint effort may lead to a reduction in the channel inventories. Vertical disintegration is another common approach undertaken in supply chain management practices. It is said that supply chain management is a move away from fully-vertically-integrated systems. However, the channel members do not operate completely independently but the activities are coordinated among the independent members. SCM is not only coordination of material flows but also of information flows. Therefore, information sharing is a key element for the success of SCM implementation. Logistics has a very broad scope including purchasing, transportation, warehousing, and customer service activities. It is pointed out that transportation cost is the single largest component of logistics cost. Therefore a joint effort by the members of the supply chain can reduce costs and increase the efficiency of the chain as a whole and its pieces. SCM can be viewed as the strategic management of an inter-business network. Toyota is a good example of a firm that strategically manages the supply chain and gains competitive advantages from this type of behavior.

SCM Challenge:

The challenge of supply chain management is to constrain plans with multiple constraints such as materials, capacity (production and distribution), time and locations, transportation, holding capacity, line and product sequencing, lot sizing of production quantities, production changeovers and down times, ramp up curves when switching between schedules or machines, campaign planning, multi-staging of production and distribution, and bills of materials. The end result of all these constraints is "combinatorial explosion”.

Key questions to be addressed in implementing SCM is:What are the true demand patterns? Behind those patterns, what are the forces at work i.e., the drivers? How can I get control over information that is there but hidden or getting to me late and/or distorted? How can I get access to up-to-date information, as close to real time and on-demand, as possible? What are the new rules of engagement in a more cooperative rather than adversarial customer supplier relationship? To whom do the benefits of SCM accrue?

The potential benefits of implementing SCM are significant. Analysis shows that time after time, industries after industry, the breakthrough improvement possible through SCM are as follows:

Improvements %

Manufacturing throughput time 75-95

Supplier lead time 75-95

Cost of poor quality 50-75

Productivity 20-50

Inventory 50-90

Equipment changeover time 75-90

Space 40-80

Administrative process time 75-95

A Supply Chain Management Road Map

The full benefits of SCM come in taking an integrated approach to implementation. In our experience the elements of a successful implementation strategy include:

Leadership - Setting clear strategic goals and a tone of cooperation. Customers - Identifying, measuring and improving on the dimensions of Product/service that drive loyalty in the marketplace Culture - Learning by getting concrete results, acquiring the skills to Replicate and sustain improvements by involving employees. Process - Building new capabilities through process re- design. Suppliers - Working with fewer suppliers as partners.

Every organization combines the elements of a successful SCM strategy in ways that are appropriate to its business structure and organization culture.

4. SUPPLY CHAIN IMPLEMENTATION

Whether one is implementing SCM as a Fortune 200 global enterprise, or a medium sized family company, the first steps are to: 1. Clarify strategic imperatives. Nothing sparks the imagination like a compelling need. Create a vision of where the business could be in three to five years. Break the vision down into stretch goals attainable in 12 to 18 months.

2. Get input from the marketplace to identify opportunities. Validate senior management's view of where the business needs to be with input from the marketplace, direct high level contact with customers and non-customers. Use that Contact to start measuring what is important to the marketplace. Look for potential SCM partners among existing key accounts.

3. Design in the capability to replicate and sustain results. Pick a cadre of high potential managers, appoint them full- time to developing and Implementing the SCM strategy. They should participate in the market contact as well as first process re-design pilots that involve customers and/or suppliers. Position this group of managers as internal consultants whose mission is to teach others to replicate the success of the pilots.

4. Pilot with a customer or supplier. Clear about strategic imperatives; pick a supplier or customer with whom you can Work to develop new capabilities. A key selection criterion is that the customer or supplier you chose shares similar strategic objectives (e.g., wants to compete on the basis of service) and believes that more is to be gained by cooperating than taking the traditional adversarial instance.

FUNCTIONALITIES & BENEFITS OF SCM

Functionalities/Areas of SCM

Areas of SCM Description

Demand Planning

Demand planning aims to reduce forecast errors and to suggest buffers considering demand variability. In order to improve accuracy of forecasting, collaborative forecasting is essential.

Master PlanningProvide multi-site planning. Master planning based on material, capacity, transportation, and other constraints, simultaneously.

ProcurementConstraints such as Vendor capacities, costs and lead-time can be modelled as part of supply chain resulting in superior plans.

Transportation Considering dynamic transportation requirement and generate Optimizing transportation plan.

Manufacturing Plan considering material, capacity and other constraints which impact on manufacturing.

EXPECTED BENEFITS OF SCM

Expected benefits from SCM can be described as follows:

Throughput improvements: Better co-ordination of material and capacity prevents loss of utilization waiting for parts.

Cycle time reductions: By considering constraints as well as its alternatives in the supply chain, it helps to reduce cycle time.

Inventory costs reductions: Demand and supply visibility lowers the requirements of inventory levels against uncertainty. Ability to know when to buy materials based on the customer demand, logistics, capacity and other materials needed to build together.

Optimized transportation: By optimizing logistics and vehicle loads.

Increase order fill rate: Real-time visibility across the supply chain (alternate routing, alternate capacity) enables to increase order fill rate. Analysis of the supply chain management can help to predict propagation of disturbances to downstream.

Increase customer responsiveness:Understanding the capability to deliver based on material, capacity, and logistics.

Improving the Supply Chain

We all understand the importance of improving our supply chain, but very few people have accurately defined the critical success drivers needed to achieve improvements. Mary Lou Fox, senior vice president of consulting at Manugistics, suggests that success depends on the several primary drivers, including the following:

Well-defined processes with well-defined guidelines for decision-making;Removal of organizational and functional barriers; Early visibility to changes in demand all along the supply chain; A single set of plans that drives the supply chain operations and integrates information across the supply chain.

While the first driver in this list is a given in most organizations, the importance of the remaining drivers is very high. Organizations that promote the formations of "functional silos" are less likely to achieve coordination within the various components of the supply chain than organizations that work without functional barriers. This also necessitates the integration of data across the enterprise so that, common information is shared by all planners in the supply chain. The task of improving the supply chain can be extremely complex and difficult. Various decisions integral to making improvements are forecasting, purchasing, production, storage, and distribution. Forecasting initiates the entire process of supply chain management in all environments of Assemble to Order (ATO), Make to Stock (MTS) and Make to Order (MTO). One needs to know how much to make and what to make before any of the other decisions can be triggered. A good

system will offer modules tailored to the decision being made, and will provide an end-to-end solution starting with forecasting, planning, and scheduling, and ending up with transportation planning.

It's important for organizations to have horizontal and vertical visibility into their supply chains. Every decision involved in purchasing, producing, storing, and distributing goods are interlinked. A change in any one dimension initiates a trickledown effect on the remaining components in the supply chain. For example, planning for upcoming seasonal builds impacts production, distribution, and materials. Matching a competitor's 20 percent price cut impacts the entire supply chain of an organization. If a single production line in a facility is down for a day, production must be rescheduled or moved across the enterprise to avoid delays in meeting customer demands, etc. As a result, good supply chain management systems need to be able to reconcile changes both horizontally and vertically in a computationally efficient manner.

Generally, constraints can be categorized under three groups: material-related constraints, production-related constraints, and distribution-related constraints. In the past, software companies have specialized in materials (MRP vendors), capacity (finite-capacity schedulers), and some have crossed into both material and capacity but with limitations on volumes or locations. In an age of rapid improvements in computing technology and better solution methodology, however, it's possible to take a broader perspective of the entire supply chain and solve for very large SKU counts--provided you don't try to solve the entire business problem as one computational problem. The trick is to solve the business problem and, yet, avoid the black hole of "combinatorial explosion."

Reengineering improvement into the supply chain:

The success of any supply chain mainly depends on the capability to reengineer the process in order to improve the productivity and look for cost innovations and reduced lead times. A critical part of streamlining supply chains involves reengineering the firm’s key processes to meet customer needs. Reengineering is a process aimed at producing dramatic changes quickly. Hammer and Champy define it as the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance such as cost, quality service, and speed. Improvement through reengineering cannot be accomplished in a haphazard manner. These changes must be supported at the top and driven through an overall management plan. A typical reengineering process proceeds through four stages as explained in the below given graphic:

Understanding the present condition and design the strategy keeping in view of the of business objective; Plan the process,Operate the system,And measure the performance.

Armed with the facts collected in the first stage, reengineering teams identify areas for improvement keeping in mind the business objective. This stage is very crucial and very critical stage in the whole process. One should clearly understand and analyze the present situation as well as the business objective in order to design the Supply Chain strategy. Organizational energy needs to focus on the firm's mission statement, which defines the business objective. The mission statement drives the business requirements in the organization. A complete assessment is made of the firm's culture, strategies, business practices, and processes. They analyze where value was added for the final customer with particular emphasis on customer contact points and product information transfers, which are currently ineffective or inefficient. After identifying improvement points the creative phase of redesigning business process and information flow begins. The outcomes of the creative phase will fundamentally change both the nature of the work and how it is performed.

If this analysis provides meaningful information and indications towards improvements, the management will review the situation and implements its business solution across the supply chain. Typically, improvements are required in one of the areas to enhance supply chain performance. An example of this reengineering is the new Mercedes-Benz micro car, which is based on the principle of systems supply. This reengineering of the process results in delegating more design activities to suppliers reducing the amount of engineering and labor at the primary manufacturer. The result is passing the savings of these efficiencies along to the customer in the form of increased value.

The operations will provide the vital information in the form of feed back about the improvements and the performance should be measured against the benchmark established at the time of strategy design to understand the progress and innovations. If necessary, one should not hesitate to re-invent the wheel in order to improve the process

Measure the Performance(How are we doing?)(How are we doing?)

Design Supply Chains & Strategies(What do we do?)

Design Supply Chains & Strategies(What do we do?)Operate the Systems

(Do it!)(Do it!)

Plan the Processes(How do we do it?)(How do we do it?)

Measure the Performance(How are we doing?)(How are we doing?)

Measure the Performance(How are we doing?)(How are we doing?)

Design Supply Chains & Strategies(What do we do?)

Design Supply Chains & Strategies(What do we do?)

Design Supply Chains & Strategies(What do we do?)

Design Supply Chains & Strategies(What do we do?)Operate the Systems

(Do it!)(Do it!)Operate the Systems

(Do it!)(Do it!)

Plan the Processes(How do we do it?)(How do we do it?)

Plan the Processes(How do we do it?)(How do we do it?)

and in turn to achieve customer’s delight. This is a never-ending activity as long as there is a buyer and a seller in the market place. Business community is becoming aware of the emerging paradigm of supply chain competition. The successful integration and management of key business processes across participating members of the supply chain will determine the ultimate success of the single enterprise. Managing the supply chain cannot be left to chance. For this reason, professionals are striving to interpret and determine how to manage the company's supply chain network, and achieve the potential of SCM.

In combination, the SCM definition and the new framework move SCM philosophy to its next evolutionary stage. The process of implementing the SCM in any organization involves identifying the supply chain members, with whom it is critical to link, what processes need to be linked with each of these key members, and what type/level of integration applies to each process link. The objective of SCM is not simply maximizing the return on investment to the stakeholders of the company but the whole supply chain network including the end-customers. Consequently, supply chain process integration and reengineering initiatives should be aimed at boosting total process efficiency and effectiveness across members of the supply chain.

This is considered as the next stage to Logistics Management. In order to conclude if the Logistics Management is integrating various value adding activities with in the organization, then the Supply Chain Management is integrating processes, flows and activities with in the Supply Chain network, which includes various other companies who participate in the network. The objective of Supply Chain Management is a cut above Logistics Management.

Tools to Support Effective Planning

For an extended period of time in the late 1970s and 1980s, the concept of Distribution Requirements Planning (DRP) was offered as a complete supply chain management solution. DRP provides the capability to model distribution bills, and translates time-phased demand into supply requirements. It also obeys calendaring requirements for shutdowns and closings. By itself, DRP does not solve the supply-planning problem. It does, however, enhance the capabilities of the logistics network of an organization. There is no one computation that will solve the entire planning and scheduling problem. It's not possible to scale up a detail-driven solution to extend it across the enterprise in a computationally efficient manner since the problem of planning and scheduling is inherently intractable. Therefore, different computations exist for different zones of planning. While designing scalable algorithms for the various planning and scheduling levels, it's essential to apply a best of breed approach. This approach might be a hybrid of mathematical programming techniques, goal driven heuristics, and rules based logic. But be sure to apply the right tool at the right time, however, and keep abreast of the latest in new search methodologies being researched in artificial intelligence and optimization.

With regard to the three-level planning areas, efficient algorithms are designed by allowing for true mathematical optimality in the Level One area. In the Level Two area, feasibility for all constraints is of primary importance given the extremely dynamic nature of businesses over the shorter time horizon. Mathematical optimality can be provided, but at a cost of computational time--which most users aren't willing to give up. In the third level, certain problems are best solved by heuristic (line scheduling) approaches. Developers of supply chain software cannot and should not be committed to providing only one solution methodology, as this will not allow for best of breed algorithmic approaches to solving the large enterprise-wide supply chain problem.

SUPPLY CHAIN DECISIONS & MODELING APPROACHES Decisions for supply chain management are classified into two broad categories -- strategic and operational. As the term implies, strategic decisions are made typically over a longer time horizon. These are closely linked to the corporate strategy (they sometimes are the corporate strategy), and guide supply chain policies from a design perspective. On the other hand, operational decisions are short term, and focus on activities over a day-to-day basis. The effort in these types of decisions is to effectively and efficiently manage the product flow in the "strategically" planned supply chain.

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 are of great significance to a firm since they represent the basic strategy for accessing customer markets, and will have a considerable impact on revenue, cost, and level of service. 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. Although location decisions are primarily strategic, they also have implications on an operational level.

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. These decisions assume the existence of the facilities, but determine the exact path(s) through which a product flows to and from these facilities. 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. These decisions include the construction of the master production

schedules, scheduling production on machines, and equipment maintenance. Other considerations include workload balancing, and quality control measures at a production facility.

Inventory Decisions:

These refer to means by which inventories are managed. Inventories exist at every stage of the supply chain as either raw material, semi-finished 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. It is strategic in the sense that top management sets goals. However, most researchers have approached the management of inventory from an operational perspective. These include deployment strategies (push versus pull), control policies --- the determination of the optimal levels of order quantities and reorder points, and setting safety stock levels, at each stocking location. These levels are critical, since they are primary determinants of customer service levels.

Transportation Decisions:

The mode choice aspect of these decisions is 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. While air shipments may be fast, reliable, and warrant lesser safety stocks, they are expensive. Meanwhile shipping by sea or rail may be much cheaper, but they necessitate holding relatively large amounts of inventory to buffer against the inherent uncertainty associated with them. Therefore customer service levels and geographic location play vital roles in such decisions. 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.

Supply chain modeling approaches

Clearly, each of the above two levels of decisions require a different perspective. The strategic decisions are, for the most part, global or "all encompassing" in that they try to integrate various aspects of the supply chain. Consequently, the models that describe these decisions are huge, and require a considerable amount of data. Often due to the enormity of data requirements, and the broad scope of decisions, these models provide approximate solutions to the decisions they describe. The operational decisions, meanwhile, address the day-to-day operation of the supply chain. Therefore the models that describe them are often very specific in nature. Due to their narrow perspective, these models often consider great detail and provide very good, if not optimal, solutions to the operational decisions.

To facilitate a concise review of the literature, and at the same time attempting to accommodate the above polarity in modeling, we divide the modeling approaches into three areas --- Network Design, Rough Cut methods, and simulation based methods. The network design methods, for the most part, provide normative models for the more strategic decisions. These models typically cover the four major decision areas described earlier, and focus more on the design aspect of the supply chain; the establishment of the network and the associated flows on them. "Rough cut" methods, on the other hand, give guiding policies for the operational decisions. These models typically assume a "single site" (i.e., ignore the network) and add supply chain characteristics to it, such as explicitly considering the site's relation to the others in the network. Simulation methods are a method by which a comprehensive supply chain model can be analyzed, considering both strategic and operational elements. However, as with all simulation models, one can only evaluate the effectiveness of a pre-specified policy rather than develop new ones. It is the traditional question of "What If?" versus "What's Best?”

Rough Cut Methods:These models form the bulk of the supply chain literature, and typically deal with the more operational or tactical decisions. Most of the integrative research (from a supply chain context) in the literature seems to take on an inventory management perspective. In fact, the term "Supply Chain" first appears in the literature as an inventory management approach. The thrust of the rough-cut models is the development of inventory control policies, considering several levels or echelons together. These models have come to be known as "multi-level" or "multi-echelon" inventory control models. Multi-echelon inventory theory has been very successfully used in industry. "OPTIMIZER" is one of the most complex models to date --- to manage IBM's spare parts inventory. They develop efficient algorithms and sophisticated data structures to achieve large-scale systems integration.

Although current research in multi-echelon based supply chain inventory problems shows considerable promise in reducing inventories with increased customer service, the studies have several notable limitations. First, these studies largely ignore the production side of the supply chain. Their starting point in most cases is a finished goods stockpile, and policies are given to manage these effectively. Since production is a natural part of the supply chain, there seems to be a need with models that include the production component in them. Second, even on the distribution side, almost all published research assumes an arborescence structure, i. e. each site receives re-supply from only one higher level site but can distribute to several lower levels. Third, researchers have largely focused on the inventory system only. In logistics-system theory, transportation and inventory are primary components of the order fulfillment process in terms of cost and service levels. Therefore, companies must consider important interrelationships among transportation, inventory and customer service in determining their policies. Fourth, most of the models under the "inventory theoretic" paradigm are very restrictive in nature, i.e., mostly they restrict themselves to certain well-known forms of demand or lead-time or both, often quite contrary to what is observed. Options:

There are four options available to combat the "explosion" effectively. They include the following:

Throw up your hands in despair and do nothing. This is the easiest option, but will result in the continued escalation of supply chain costs. Use the coin toss principle. Some organizations use this principle to make every decision arbitrarily. This process obviates the need for any planning or scheduling software, but can be detrimental to the well being of the organization.

Boil the ocean. Some supply chain solutions are built by aggregating detail-oriented solutions from the manufacturing realm. This implies solving for every decision at all times. Every time there is a change in any one data point in the system, one needs to resolve for the entire problem. This reasoning makes little sense from the perspective of the decision-making cycles that exist in all businesses. While this process will lead to generating optimal solutions at all times, there are still some problems. You will need more economical, faster computers; otherwise you will be memory-bound, and you won't be able to generate rapidly entire supply chain solutions that can scale large volumes in real time.

Decision scope based planning. The supply chain problem is mainly a "calendaring" game, intimately tied to the time-phased nature of decision-making cycles in the business world. Be sure to examine the scope of the decision being made, as well as the authority of the decision maker. This means solving the problem by providing tools to support various levels of decision-making, namely those that are strategic, tactical, and operational in nature. Since decisions made at each of these levels differ significantly, the solution procedures embedded in these tools vary. These tools also should be configured so that they are fully integrated, which will reduce implementation costs as well as time-to-benefit.

The system must meet the need:We live in a dynamic environment. Prices change, machines break down, trucks

fail to show up at agreed upon destinations, customers generate sudden orders, and on and on. But we still plan even under uncertainty. This doesn't imply that planning is futile, but that care should be taken to make the right decisions at the right time. For example, don't commit a priority order that is three months out since the demand profile may change significantly over the next few planning periods. This order commitment process shouldn't be within the scope of a strategic tool, but should be used as a guideline for other supply chain decisions, such as resource planning. A decision to invest in a new piece of machinery, however, needs to be made with a time horizon that is even longer due to the lead-time for delivery. This can even be accomplished by using historical data or incomplete information.

A multi-level approach:Therefore, we can conclude that in order to build an effective supply chain

management system that solves the entire business problem, scales for volumes, and

doesn't require high maintenance; a company needs to adopt a multi-level planning approach.

An example of a multi-level approach would be a three level planner. At each level, a series of decisions are made based on the decision's scope and the associated timeline. That information is passed on to the subsequent levels. The levels can be tied together at the data level, at the algorithm level, or it can be a hybrid of both. Listed below are the decision levels that might be found in an example of a three-level planner:

Level-One Decisions: These decisions are in the area of business planning, and they have a long-term effect on the supply chain. Very often, detailed information is not available or reliable. Senior management is frequently the decision maker and user of this information. Quick response is not a requirement at this level since these decisions are not made or revisited every day Examples of Level One decisions are dynamic sourcing, capacity planning, and prebuilt planning.

Level Two Decisions: These decisions are in the area of tactical planning, and they have a shorter life than Level One decisions. Detailed information is available, and the data probably is very reliable. These decisions are constrained by Level One decisions with some leeway to account for sudden changes in data. At this level, quick response is nice to have, and occasionally is something you must have. An example of a Level Two decision is one that needs to commit priority orders and obey commitments made in Level One.

Level Three Decisions: These decisions are in the area of operational planning and scheduling. The effect of these decisions reverberates throughout the next couple of days or shifts, and they are constrained by Level One and Level Two decisions. Quick response is an absolute necessity, and the concepts of Available to Promise (ATP) and Capable to Promise (CTP) need to be designed to work upstream with the other levels. Examples of Level Three Decisions are prevalent in the area of line scheduling, material and inventory allocation, and transportation planning.

This three-level approach emphasizes the fact that supply chain management is a series of business decisions characterized by distinct business models, which are largely influenced by location topology, product granularity, and elapsed cycle time. The challenge in building a layered system is to avoid the problem of the "deadly embrace," which occurs when a decision made at a higher level is completely redone at a lower level and the upstream data isn't updated. When the data isn't updated, it causes reconciliation errors both upstream and downstream. As a result, the trickle-down effect should be observed and effective loop back mechanisms should be provided to navigate between levels. A strong loop back mechanism also allows for complete integration of the entire suite, which reduces the number of interfaces to maintain while implementing the entire suite of supply chain tools. The fewer the number of interfaces, the easier a system will be to maintain in the long term. It will also reduce the chances of a failed batch or interactive runs.

Key factors:While designing solutions to a problem, pay attention some key factors:

The information available and its associated detail. If an organization is trying to do a long-term business plan--for example, 18 months out--it's highly possible that the forecast numbers for SKU demand would either be unavailable or extremely inaccurate. This leads us to promote an aggregate level of planning for long-range decisions.

Scope and authority of decision makers. Often, the use of various modules in supply chain management software attracts different levels of users. A senior level logistics manager rarely will be the primary user of line scheduling software, and a line scheduler--in most cases--will not be a user of long-range planning tools. This means that the tools should be built to suit a primary audience. The level of detail displayed or used also should be modified accordingly, while keeping in mind the concept of loop backs and the "deadly embrace."

The lasting impact of the decision. Opening and closing warehouses and manufacturing facilities are decisions that have a lasting impact on the business. As a result, these types of decisions need to be made with the entire supply chain in mind, since, ultimately, there will be a trickle-down effect of these decisions on the rest of the manufacturing components.

Response time required making the decision. Given the inherent drawbacks in economical computing technology, as well as the processing speed of existing machines, turn-around time to generate solutions becomes an important criterion in deciding the inputs and outputs in a layer. It would be unacceptable for a line scheduler to have to wait a couple of hours to generate an optimal schedule by using a complex mathematical programming formulation of the scheduling problem. It's also essential that supply chain solutions be integrated so that the task of maintaining the various interfaces is lessened. The result will allow for optimal use of the implementers' time. A good solution must also provide end-to-end visibility from forecasting all the way down to transportation planning. Furthermore, it's essential to provide users with the ability to navigate through the supply chain (i.e., to go through the various levels within and across the supply chain in real time).

EVALUATION OF SUPPLY CHAIN PERFORMANCE MEASURES:

Cost, activity time, customer responsiveness, and flexibility have all been used as supply chain performance measures either singly or jointly. Yet the measures used thus far possess some significant weaknesses. Supply chain models have predominately utilized two different performance measures: (1) cost and (2) a combination of cost and customer responsiveness. Costs may include inventory costs and operating costs. Customer responsiveness measures include lead-time, stock out probability, and fill rate.

Single Supply Chain Performance Measures:

The use of a single performance measure is attractive because of its simplicity. However, one must ensure that if a single performance measure is utilized, this measure adequately describes the system performance. It was earlier identified and evaluated various individual supply chain performance measures. But significant weaknesses were present in each of the performance measures evaluated, based on such criteria as inclusiveness, universality, measurability, and consistency. Repeatedly, the most consistent weakness for these performance measures was inclusiveness. In order for a measure to be inclusive, it must measure all pertinent aspects of the supply chain. Consider an example in which a company decides to use cost as the measure of supply chain performance. Although the supply chain may be operating under minimum cost, it may simultaneously demonstrate poor customer response time performance, or lack flexibility to meet random fluctuations in demand.

Cost as a Single Supply Chain Performance Measure:

Although cost as a resource measure is important, there are downfalls to relying on cost as the sole performance measure. Many shortcomings were identified in traditional management accounting. The problems include a lack of relevance of the cost categories, cost distortions (especially overhead), and inflexibility, such as reports that are too late to be valuable. Many pitfalls were also identified supply chain management and one identified pitfall is the incorrect assessment of inventory costs. They identify two commonly omitted inventory costs: (1) obsolescence and (2) rework due to engineering changes. This problem is magnified by current cost accounting methods, such as overhead calculations, and omitted inventory costs. Existing supply chain models have typically restricted themselves to traditional cost measures, and have not yet utilized the advantages of strategic cost management of the supply chain.

Goals of Performance Measure Types:

Performance Measure Type

Goal Purpose

Resources High level of Efficiency Efficient resource management is Critical to profitability.

Output High level ofCustomer Service

Without acceptable output, customers will

Turn to other supply chains.

SUPPLY CHAIN OPTIMIZATION

To realize its true potential, a supply chain must be considered not as a group of autonomous organizations, but rather as a synergistic organism. Each part of the system depends either directly or indirectly on all the other parts to function smoothly. Such a

system exists today in the most efficient, productive and advanced automotive production facilities in the world. It is usually called lean production. For several years now we have been inundated with information touting the great savings to be gained through optimization of the "supply chain." The fundamental basis for such claims is valid; improving operational performance should reduce lead times, stocking levels, and costs. A recent report, however, found that the number of days of inventory in the supply chain for the grocery industry-a leader in supply chain management-has increased over the past ten years.

What could be going wrong? Are the theories just not practical for the real world? The answer lies not in the theory, but rather in the execution. To better understand what's happening, we must take a moment to consider exactly what the supply chain is. A supply chain is represented by a number of organizations, from those who produce and refine raw materials to those who process the resulting compounds into products or components of products. A typical plastics supply chain, for example, might start with an oil company, then extend to refiners and chemical companies, a plastics compounder, and a molder. The final manufacturing organization-the one that brings all the components together in a product ready for the consumer-must also be included. At the end of the chain are the packaging and distribution channels that lead to the consumer and finally the retail operation that presents and sells the merchandise.

The traditional approach has been to view the supply chain as a series of discrete organizations functioning basically as stand-alone operations. Information passes from one link of the chain to another in a haphazard fashion, with little or no consideration for the need for accurate and timely data throughout the chain. To realize its true potential, however, a supply chain must be considered not as a group of autonomous organizations, but rather as a synergistic organism. Each part of the system depends either directly or indirectly on all the other parts to function smoothly. How can individual organizations develop an initiative that addresses such a wide range of requirements? Such a system is not only possible; it exists today in the most efficient, productive, and advanced automotive production facilities in the world. It's usually called "lean production."

Lean production involves a synergy between all of the organizations participating in automotive production. If Toyota needs a part, the supplier is called in to design it, schedule it, train the workers to install it, and even determine the costs. Should something vary from the schedule, the companies’ pool resources to resolve the issue? Each organization in the production system is willing to suppress its individualism for the good of the total system, thus attaining a synergistic organization that functions more effectively and efficiently than would ever be possible with the individual component groups. Applying this concept to our supply chain, we have what is best described as "lean distribution." This is not a fad management technique, program, or initiative. It is a fundamental change in the business approach. Enabling lean distribution involves a conscious effort by all players to sculpt a new entity that outperforms the old supply chain in every way.

This is not something that will just happen, nor is it a short-term project. At the center of a lean distribution system is an organization that acts as the overall data manager. This entity has responsibility for passing demand information throughout the system in near-real time (all elements of the system updated at least once a day). Each functional part of the supply chain then uses this timely data to allow for optimization of its core competence. Gone would be the error factors and inventory fluff created by forecast systems working with dated data. Gone would be the guesswork of interpreting a customer’s purchase order into meaningful business data. Gone would be a significant surplus that is being held in the total supply chain, from raw materials to work-in-progress to buffer stock in the warehouse. The resulting evolution will be a true synthesis of the supply chain, and optimization of performance. Such a change, however, presents obstacles both at the organizational and system level. Most businesses are not adept at change and flexibility Rather, companies inadvertently foster an environment of rigidity, a "stay the course" attitude. Change is not encouraged, and learning from both mistakes and successes is more accidental than planned. Addressing this attitude is the first step toward lean distribution. Once this has happened, the rest will follow.

Optimization requires New Technology:

In the early 90s, integrated supply programs in which suppliers took a greater responsibility for managing inventories and stock replenishments began to emerge. Often, this involved sole sourcing and streamlining of the procurement process. Today's most advanced supply-chain-management programs go further. They include a total outsourcing or elimination of tool cribs, consigned or vendor-managed inventories, and automated point of-use dispensing (and return) of high-use, high-cost, and mission critical items.

Optimized systems rely on sophisticated software to manage and report on the flow through the supply chain. The payoff for a well-conceived and properly executed program can be dramatic. Case studies reveal that tool and supply use can be cut by 10% to 20%. Stock outs, expedited orders, and emergency shipments can be virtually eliminated. In addition, procurement costs can be reduced by 20% to 30%, inventories can be reduced by over 50%, and inventory accuracy can be increased to near 100%.

The emergence over the last few years of supply-chain-management systems is more than an extension of the MRP and ERP systems now in place. In a true supply-chain management system, transaction monitoring keeps constant vigil over key events, including use, inventory levels, orders, shipments, receipts, delays, and more. Decision-support systems include predictive models that can assist all members of the supply chain in forecasting demand and making adjustments in order size, shipping dates, transportation means, and other dynamic variables as circumstances change. Third-generation supply-chain management systems are now emerging. Enabling technologies have been developed to bring supply-chain management to levels of efficiency that were unobtainable just a few years ago. Advanced systems can now automatically control, track, and manage the issuing and return of critical items at the point-of-use.

Collecting data in real time and linking usage to process variable (What job was the tool used for? What machine was the maintenance part used on?) Provide the basis for new types of analyses. Communications networks, including Internet-enabled systems, transmit accurate, real-time data to any internal or external member of the supply chain anywhere in the world. Electronic links can be established to existing MRP/ERP accounting, inventory, and purchasing systems.

Suppliers, shippers and distributors can all be armed with the most current information available from the shop floor. Analytical tools provide key members of the supply chain with graphical reports so they can quickly analyze the flow of material and changes in use patterns. This permits adjustments and intervention before supply chain problems occur. These new technologies let manufacturing managers and all other members of the supply chain work together more efficiently than ever before. In the years to come, the competitive edge will go to manufacturers that successfully optimize the flow of materials into their plants. Supply-chain-management technology will be their secret weapon.

Optimize the Extended Supply Chain:

Today’s Supply Chain Managers have gone one step ahead in optimizing the Supply Chains. The larger the Organization and the greater the number of external suppliers and the Supply Chains are Complex. Organizations like General Motors have included second tier and third tier suppliers also into their Supply Chain Network and closely monitor the product movement. This strategy is rather called as a proactive thinking process and nothing is left to chance. Supply Chain integrators are becoming indispensable in these circumstances. The benefits of such a solution include reduced lead times to market place, lower costs, low inventory levels, no productions stoppages and productivity improvements. Today everything is measurable and particularly the performance of a Supply Chain. One can set performance norms and compare the actual performance in order to work on improvements. The accountability of all Stake holders in the Supply chain has increased tremendously.

STRATEGIES FOR SUPPLY CHAIN OPTIMIZATION

Designing efficient supply chain strategies:

Continuous replenishment programme using EDI links for information sharingCapture Point-of-Sale data for accurately and immediately updating forecastInvest in supply chain partnership programmes both on the “in-bound” and “out-bound” side.Integrate material planning and control systems with ERP to benefit from improved data visibility.Develop robust inventory control mechanisms to accurately fix reorder points and order levels.

Designing responsive supply chain strategies:

Accept uncertainty in demand & large forecast errors as the realityDevise strategies for managing uncertaintyImprove responsiveness by cutting lead timesPostponement strategies/Delayed differentiationDeploy standardization, modular design and product platform strategies

Postponement strategies:

Packaging postponement savings in transportation (bulk containers) handle multi-lingual requirements (HP printers) Assembly postponement low levels of investment in FG ability to handle a large variety through modular design (computer - the case of Dell) Manufacturing postponement final stages of mfg. delayed until firm orders are received (Benetton dyeing of fabrics)

THE HUMAN RISKS IN MANAGING SUPPLY CHAINS

Supply Chain Management has emerged as a key lever in creating value for today’s companies as they seek to lower costs, increase asset productivity, and improve lead times and customer relationships. The success of supply chain largely depends on the people who manage and operate the Supply Chains. Today’s management faces many serious questions about how to deal with ‘people issues’ in their organizations:

What makes today’s workforce so different from years past? Why don’t the old approaches to human resource management work now? How to recruit the right people for the right job?Which should take precedence: recruitment or retention—or both? What motivates the employees?What do employees really want from an organization? What are the best ways to keep employees motivated and engaged?

Indeed, the challenge of building and maintaining a high-performance talent base is a tall one for many organizations, especially when you consider the enormous impact of the digital economy and the wave of technology-driven change that has followed in its wake. Yet, it is also one of the most critical topics on the minds of today’s management all around the globe. According to one research, 80 percent of global leaders think ‘people issues’ are more important than 3 years ago, and 68 percent believe that retaining and developing existing talent has become more important than acquiring new blood.

The strategic fit that a company aims is achieved through balancing responsiveness and efficiency in its supply chain that best meets the needs of the company’s competitive strategy. To understand how a company can improve supply chain performance in terms of responsiveness and efficiency, we must examine the four enablers of supply chain:

Organizational Infrastructure,Technology,Strategic Alliances,Human Resources Management.

Within the Human resources management the focus areas are:How job descriptions are designed,How positions are filled,How people are recognized and compensated,How career paths are directed.

The right person for the right job:

Globally, a high employee turnover rate and a tight labor market make hiring and retaining the right person for a job, crucial. It takes more than just good intuition—it requires defining, documenting and communicating what people do and how they do it. The success of the Supply Chain mainly depends on the human resources. Ultimately, hiring the wrong person could end up costing you more than you bargained for. In fact, 98 percent of all resumes contain some sort of fraud. In addition, turnover from hiring an employee, who has misrepresented him/herself in person, or on paper, will cost a company one and half times the salary of the individual in lost productivity lost job activities and disruption of workflow. Research conducted by Columbia University indicates that 73 percent of employee turnover is due to misleading job descriptions and in some cases no job descriptions at all! If the organization is vague on job descriptions or do not provide descriptions at all, it may be the basis for discrimination claims from employees who don’t work out.

Gone are the days when people were hired to merely fill a void. Today, the tables have turned. Employees want to work in an environment that makes them feel good about themselves. They’re looking for direction, feedback and empowerment. If they are not supported by management and allowed to flourish in their careers both employer and employee lose. Job description is the first step in filling a position. If we go wrong here, the entire process may go wrong and the objective will be defeated.

The job descriptions should include:The job title The department The grade Work relationships Brief summary of job function or main purpose of the job Main duties and responsibilities with indication of % of time spent Occasional duties with indication of % of time spent Any special working conditions Purpose and frequency of contact with others.

Tips:Be specific Be justifiable in relation to the job needs Not be unnecessarily restrictive.

The Challenge:

The challenges faced by today’s Supply Chains are complex and today’s supply chain needs constant improvements. Some of the challenges are:Complex Customer expectations;Complicating networks;Increasing competition;Demanding lead times.

The tools identified to address these challenges are:Strategies;Technology;And People.

The balancing and integration of these three tools will help the organizations to address the above-mentioned challenges. If one looks at the three tools carefully, one can realize the people play the important role. The right strategy depends on the people and people and improvements select the right technology and the people develop innovations. And finally people manage all the Strategies, technologies and people. The real challenge lies in recruiting the right person for the right job and retaining. We often come across situations similar to this:

"We need the best person for this job, but we don't want to be accused of favoritism …""I'm spending so much time on staffing that I don't have time to do the rest of my job""We keep hiring the wrong people, but I don't know why."

Your challenge is…

To find the right person for the right job, but who will also fit in with the team and the organization. The two selection criteria are Eligibility and Suitability. Eligible candidates are those who have all the technical abilities and the suitable candidate is the right fit for the organization.

Tip for Selection:Ideal Fit - High Eligibility and High Suitability;Unfit - Low Eligibility and Low Suitability;Poor Fit - High Eligibility and Low Suitability;Surprise Fit - Low Eligibility and High Suitability.

ROLE OF IT IN SUPPLY CHAIN

Back bone of Supply Chain Decisions:

Information + Technology + Communication

Areas of IT usage: Sourcing Manufacturing Delivering Supply Chain Optimization Supply Chain Decision Making.

Strategic Tools:

Advanced Planning and Scheduling (APS); Preactor; RSS Solutions etc.Supply Chain Optimization: Caps Logistics.

Tactical Tools:Business Process Optimization Tools:i2 TechnologiesManugistics.

Operational Tools:Enterprise Resources Planning:SAPBAANOracleJD Edwards.

Communication Tools:Data CapturingBAR CODINGRFID TAGS.

Data Communication:EDIFlat File transfersXML Internet

EDI Messages in a Supply Chain:

EDI is the tool that can enable businesses to achieve dramatic increases in speed, while they realize at the same time the benefits of improved accuracy in the transfer of critical information. Documents transferred directly from computer to computer move in orders of magnitude more quickly than paper documents, with no loss of accuracy.

The importance of Information Flows and Technology

All these years, the decisions taken in the area of Supply Chain were going wrong because of lack of accurate information about Inventory Pipe line; Customer requirements; Customer behavior pattern; Vendor information and many other knowledge databases. With advent of Information Technology and Internet, the flow of information has revolutionized the Supply Chain and the industry as well as the customer benefited immensely from this development. Today the manufacturer is able to find out the vendors information and product (component) availability; the current inventory levels; and Customer present demand. With this information the demand projections have improved and the manufacturer is slowing shifting to pull system from the push system.

If we review the broad spectrum of industries and their present Supply Chain style, we will get to know that more and more industries are moving towards Pull System. The below given table will explain the Supply Chain Style of few industries.

Industry Push/Pull Method

IT and High Tech Industry Pull

Automotive Push and Pull

Consumer Goods Push and Pull

Medical Care Pull and Push

Food Push

The main objective for shifting from the Push to Pull style is to minimize the Inventory in the pipe line and to save costs. One more reason is customization. In today’s world the customer is drifting towards more customized products compared to standard shelf products. This has resulted in postponement in production. This impacted the pre-production Inventory strategy also. More and more suppliers are encouraged to support the VMI (Vendor Managed Inventory) concepts or JIT concept. Again the main objective is to eliminate the inventory in the pipeline and save the Inventory carrying costs. We may have to recognize the fact that all industries cannot move towards pull style of Supply Chain. They still have to continue with the Push method. However, the information availability has eliminated the risk of excess inventory to large extent. Particularly consumer goods and food industry has benefited infinitely from the information flow such as POS. Internet and EDI has enabled the flow of information and totally eliminated the clerical errors that may creep into the information data base. In today’s world entire Supply Chain is visible to all the stakeholders. The transparency ushers confidence in the Investors, Manufacturers and the Customers. The below given diagram will illustrate the transparency in the Supply Chain information flow.

Improvement in Lead-time and transportation costs through IT:

With the advent of Pull system, the transportation system was put under tremendous pressure to perform and deliver the products on time and every time at a very competitive price. This has triggered off new initiatives in the transportation system. As the volume

has increased but the size of the consignment has decreased. This has resulted in consolidations to save costs and improve lead times. Companies like UPS and FedEx have popularized the transportation of small consignments quickly and cost effectively. The transportation industry very quickly and efficiently responded to the challenges thrown at them by the Industry. The requirements of each organization are unique and different from the others. This has resulted in witnessing concepts such as consolidations; cross-dock; cross-dock merging; multi-modal etc. Flow of information also helped the transportation industry to large extent. GPS is very effectively used to track-n-trace the movement of goods from origin to destination and are able to project the ETD (expected time of delivery) more accurately. This also helps the production lines to work with just required inventories and avoid excess inventory.

Today’s world is called the “Global Village”, the entrepreneurs are willing to travel distances to put up their manufacturing facilities in order to save money. We have seen the dominance of Mexico, China, Malaysia and India specializing in cost effective production centers. This was made possible due to quick and efficient transportation system, which is able to deliver the product to any corner of the world with a very competitive lead-time. The below given graphic would give you an understanding how the information flow in the transportation industry has helped the supply chain.

Speed of Information Movement and Analysis Dynamic data, such as customer orders, status information and inventories, is very sensitive to the frequency of updating. Measuring accuracy is relative to the purpose for which it is used. Think of decisions as a process. That process has basic elements:

Data collection and conversion Analysis Issuing an action.

Each step of the process has a lead-time. One of the primary objectives of improving supply chain management is to increase the information flow rate and thereby decrease the overall lead-time of the decision making process. This is done by attacking each process element separately, analyzing the cause of lead-time then implementing improvements.

Other factors

Other factors which influenced the Supply Chains performance to large extent are Customer Services; Liberalized Government Policies; Strategic/Collaborative Alliances; Information Sharing. Finding the right SCM strategy for an organization can be very difficult because of the great variety of products, customers, services in the business community today.

While the value chain and marketing approaches propose generic ideas and capabilities, proponents of the supply chain approach go a step further and identify specific activities,

backed by detailed processes that can improve a firm’s competitive advantage and success. Supply chain management encompasses end-to-end management of a product or service. Note that when all the supply chain categories are linked together they form The Supply Chain Management System.

Figure: Key categories of the supply chain: Together they form the Supply Chain Management System

Activities/functionsSupply chain management is a cross-functional approach to manage the movement of raw materials into an organization, certain aspects of the internal processing of materials into finished goods, and then the movement of finished goods out of the organization toward the end-consumer. As organizations strive to focus on core competencies and becoming more flexible, they have reduced their ownership of raw materials sources and distribution channels. These functions are increasingly being outsourced to other entities that can perform the activities better or more cost effectively. The effect is to increase the number of organizations involved in satisfying customer demand, while reducing management control of daily logistics operations. Less control and more supply chain partners led to the creation of supply chain management concepts. The purpose of supply

chain management is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and improving inventory velocity.Several models have been proposed for understanding the activities required to manage material movements across organizational and functional boundaries. SCOR is a supply chain management model promoted by the Supply Chain Management Council. Another model is the SCM Model proposed by the Global Supply Chain Forum (GSCF)[2]. Supply chain activities can be grouped into strategic, tactical, and operational levels of activities.

Strategic:Strategic network optimization, including the number, location, and size of warehouses, distribution centers and facilities. Strategic partnership with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics. Product design coordination, so that new and existing products can be optimally integrated into the supply chain, load management Information Technology infrastructure, to support supply chain operations. Where-to-make and what-to-make-or-buy decisions Aligning overall organizational strategy with supply strategy.

Tactical:Sourcing contracts and other purchasing decisions. Production decisions, including contracting, locations, scheduling, and planning process definition. Inventory decisions, including quantity, location, and quality of inventory. Transportation strategy, including frequency, routes, and contracting. Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise. Milestone payments Focus on customer demand.

Operational:Daily production and distribution planning, including all nodes in the supply chain. Production scheduling for each manufacturing facility in the supply chain (minute by minute). Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers. Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers. Inbound operations, including transportation from suppliers and receiving inventory. Production operations, including the consumption of materials and flow of finished goods. Outbound operations, including all fulfillment activities and transportation to customers. Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers... In the 21st century, there have been a few changes in business environment that have contributed to the development of supply chain networks. First, as an outcome of globalization and the proliferation of multi-national companies, joint ventures, strategic alliances and business partnerships, there were found to be significant success factors, following the earlier "Just-In-Time", "Lean Manufacturing" and "Agile Manufacturing"

practices.[4] Second, technological changes, particularly the dramatic fall in information communication costs, which are a paramount component of transaction costs, have led to changes in coordination among the members of the supply chain network (Coase, 1998).

Developments in Supply Chain Management

Six major movements can be observed in the evolution of supply chain management studies: Creation, Integration, and Globalization (Lavassani et. al., 2008a), Specialization Phases One and Two, and SCM 2.0.

1. Creation EraThe term supply chain management was first coined by an American industry consultant in the early 1980s. However the concept of supply chain in management, was of great importance long before in the early 20th century, especially by the creation of the assembly line. The characteristics of this era of supply chain management include the need for large scale changes, reengineering, downsizing driven by cost reduction programs, and widespread attention to the Japanese practice of management.

2. Integration EraThis era of supply chain management studies was highlighted with the development of Electronic Data Interchange (EDI) systems in the 1960s and developed through the 1990s by the introduction of Enterprise Resource Planning (ERP) systems. This era has continued to develop into the 21st century with the expansion of internet-based collaborative systems. This era of SC evolution is characterized by both increasing value-added and cost reduction through integration.

3. Globalization EraThe third movement of supply chain management development, globalization era, can be characterized by the attention towards global systems of supplier relations and the expansion of supply chain over national boundaries and into other continents. Although the use of global sources in the supply chain of organizations can be traced back to several decades ago (e.g. the oil industry), it was not until the late 1980s that a considerable number of organizations started to integrate global sources into their core business. This era is characterized by the globalization of supply chain management in organizations with the goal of increasing competitive advantage, creating more value-added, and reducing costs through global sourcing.

4. Specialization Era -- Phase One -- Outsourced Manufacturing and DistributionIn the 1990s industries began to focus on “core competencies” and adopted a specialization model. Companies abandoned vertical integration, sold off non-core operations, and outsourced those functions to other companies. This changed management requirements by extending the supply chain well beyond the four walls and distributing management across specialized supply chain partnerships.

This transition also refocused the fundamental perspectives of each respective organization. OEMs became brand owners that needed deep visibility into their supply base. They had to control the entire supply chain from above instead of from within. Contract manufacturers had to manage bills of material with different part numbering schemes from multiple OEMs and support customer requests for work -in-process visibility and vendor-managed inventory (VMI).The specialization model creates manufacturing and distribution networks composed of multiple, individual supply chains specific to products, suppliers, and customers who work together to design, manufacture, distribute, market, sell, and service a product. The set of partners may change according to a given market, region, or channel, resulting in a proliferation of trading partner environments, each with its own unique characteristics and demands.

5. Specialization Era -- Phase Two -- Supply Chain Management as a ServiceSpecialization within the supply chain began in the 1980s with the inception of transportation brokerages, warehouse management, and non asset based carriers and has matured beyond transportation and logistics into aspects of supply planning, collaboration, execution and performance management.At any given moment, market forces could demand changes within suppliers, logistics providers, locations, customers and any number of these specialized participants within supply chain networks. This variability has significant effect on the supply chain infrastructure, from the foundation layers of establishing and managing the electronic communication between the trading partners to the more-complex requirements, including the configuration of the processes and work flows that are essential to the management of the network itself.Supply chain specialization enables companies to improve their overall competencies in the same way that outsourced manufacturing and distribution has done; it allows them to focus on their core competencies and assemble networks of best in class domain specific partners to contribute to the overall value chain itself – thus increasing overall performance and efficiency. The ability to quickly obtain and deploy this domain specific supply chain expertise without developing and maintaining an entirely unique and complex competency in house is the leading reason why supply chain specialization is gaining popularity.Outsourced technology hosting for supply chain solutions debuted in the late 1990s and has taken root in transportation and collaboration categories most dominantly. This has progressed from the Application Service Provider (ASP) model from approximately 1998 through 2003 to the On-Demand model from approximately 2003-2006 to the Software as a Service (SaaS) model we are currently focused on today.

6. Supply Chain Management 2.0 (SCM 2.0)Building off of globalization and specialization, SCM 2.0 has been coined to describe both the changes within the supply chain itself as well as the evolution of the processes, methods and tools that manage it in this new "era".Web 2.0 is defined as a trend in the use of the World Wide Web that is meant to increase creativity, information sharing, and collaboration among users. At its core, the common attribute that Web 2.0 brings is it helps us navigate the vast amount of information

available on the web to find what we are looking for. It is the notion of a usable pathway. SCM 2.0 follows this notion into supply chain operations. It is the pathway to SCM results – the combination of the processes, methodologies, tools and delivery options to guide companies to their results quickly as the complexity and speed of the supply chain increase due to the effects of global competition, rapid price commoditization, surging oil prices, short product life cycles ,expanded specialization, near/far and off shoring, and talent scarcity.SCM 2.0 leverages proven solutions designed to rapidly deliver results with the agility to quickly manage future change for continuous flexibility, value and success. This is delivered through competency networks composed of best of breed supply chain domain expertise to understand which elements, both operationally and organizationally, are the critical few that deliver the results as well as the intimate understanding of how to manage these elements to achieve desired results, finally the solutions are delivered in a variety of options as no-touch via business process outsourcing, mid-touch via managed services and software as a service (SaaS), or high touch in the traditional software deployment model.Supply chain business process integrationSuccessful SCM requires a change from managing individual functions to integrating activities into key supply chain processes. An example scenario: the purchasing department places orders as requirements become appropriate. Marketing, responding to customer demand, communicates with several distributors and retailers as it attempts to satisfy this demand. Shared information between supply chain partners can only be fully leveraged through process integration.Supply chain business process integration involves collaborative work between buyers and suppliers, joint product development, common systems and shared information. According to Lambert and Cooper (2000) operating an integrated supply chain requires continuous information flow. However, in many companies, management has reached the conclusion that optimizing the product flows cannot be accomplished without implementing a process approach to the business. The key supply chain processes stated by Lambert (2004) [6] are:Customer relationship management Customer service management Demand management Order fulfillment Manufacturing flow management Supplier relationship management Product development and commercialization Returns management One could suggest other key critical supply business processes combining these processes stated by Lambert such as:Customer service management Procurement Product development and commercialization Manufacturing flow management/support Physical distribution Outsourcing/partnerships

Performance measurement

a) Customer service management process Customer Relationship Management concerns the relationship between the organization and its customers.Customer service provides the source of customer information. It also provides the customer with real-time information on promising dates and product availability through interfaces with the company's production and distribution operations. Successful organizations use following steps to build customer relationships:determine mutually satisfying goals between organization and customers establish and maintain customer rapport produce positive feelings in the organization and the customers

b) Procurement process Strategic plans are developed with suppliers to support the manufacturing flow management process and development of new products. In firms where operations extend globally, sourcing should be managed on a global basis. The desired outcome is a win-win relationship, where both parties benefit, and reduction times in the design cycle and product development are achieved. Also, the purchasing function develops rapid communication systems, such as electronic data interchange (EDI) and Internet linkages to transfer possible requirements more rapidly. Activities related to obtaining products and materials from outside suppliers requires performing resource planning, supply sourcing, negotiation, order placement, inbound transportation, storage, handling and quality assurance, many of which include the responsibility to coordinate with suppliers in scheduling, supply continuity, hedging, and research into new sources or programmes.

c) Product development and commercialization Here, customers and suppliers must be united into the product development process, thus to reduce time to market. As product life cycles shorten, the appropriate products must be developed and successfully launched in ever shorter time-schedules to remain competitive. According to Lambert and Cooper (2000), managers of the product development and commercialization process must:coordinate with customer relationship management to identify customer-articulated needs; select materials and suppliers in conjunction with procurement, and develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product/market combination.

d) Manufacturing flow management process The manufacturing process is produced and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be flexible to respond to market changes, and must accommodate mass customization. Orders are processes operating on a just-in-time (JIT) basis in minimum lot sizes. Also, changes in the manufacturing flow process lead to shorter cycle times, meaning improved responsiveness and efficiency of demand to customers. Activities related to planning, scheduling and supporting manufacturing operations, such as work-in-process storage, handling, transportation, and time phasing of components, inventory at manufacturing sites and maximum flexibility in

the coordination of geographic and final assemblies postponement of physical distribution operations.e) Physical distribution This concerns movement of a finished product/service to customers. In physical distribution, the customer is the final destination of a marketing channel, and the availability of the product/service is a vital part of each channel participant's marketing effort. It is also through the physical distribution process that the time and space of customer service become an integral part of marketing, thus it links a marketing channel with its customers (e.g. links manufacturers, wholesalers, retailers).f) Outsourcing/partnerships This is not just outsourcing the procurement of materials and components, but also outsourcing of services that traditionally have been provided in-house. The logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage and everything else it will outsource. This movement has been particularly evident in logistics where the provision of transport, warehousing and inventory control is increasingly subcontracted to specialists or logistics partners. Also, to manage and control this network of partners and suppliers requires a blend of both central and local involvement. Hence, strategic decisions need to be taken centrally with the monitoring and control of supplier performance and day-to-day liaison with logistics partners being best managed at a local level.g) Performance measurement Experts found a strong relationship from the largest arcs of supplier and customer integration to market share and profitability. By taking advantage of supplier capabilities and emphasizing a long-term supply chain perspective in customer relationships can be both correlated with firm performance. As logistics competency becomes a more critical factor in creating and maintaining competitive advantage, logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes more narrow. A.T. Kearney Consultants (1985) noted that firms engaging in comprehensive performance measurement realized improvements in overall productivity. According to experts internal measures are generally collected and analyzed by the firm includingCost Customer Service Productivity measures Asset measurement, and Quality. External performance measurement is examined through customer perception measures and "best practice" benchmarking, and includes 1) customer perception measurement, and 2) best practice benchmarking. Components of Supply Chain Management are 1. Standardization 2. Postponement 3. Customization Theories of Supply Chain ManagementCurrently there exists a gap in the literature available in the area of supply chain management studies, on providing theoretical support for explaining the existence and the boundaries of supply chain management. Few authors such as Halldorsson, et al. (2003), Ketchen and Hult (2006) and Lavassani, et al. (2008b) had tried to provide theoretical

foundations for different areas related to supply chain with employing organizational theories. These theories include:Resource-based view (RBV) Transaction Cost Analysis (TCA) Knowledge-based view (KBV) Strategic Choice Theory (SCT) Agency theory (AT) Institutional theory (InT) Systems Theory (ST) Network Perspective (NP) Components of Supply Chain Management IntegrationThe management components of SCMThe SCM components are the third element of the four-square circulation framework. The level of integration and management of a business process link is a function of the number and level, ranging from low to high, of components added to the link (Ellram and Cooper, 1990; Houlihan, 1985). Consequently, adding more management components or increasing the level of each component can increase the level of integration of the business process link. The literature on business process reengineering,[7] buyer-supplier relationships,[8] and SCM[9] suggests various possible components that must receive managerial attention when managing supply relationships. Lambert and Cooper (2000) identified the following components which are:Planning and control Work structure Organization structure Product flow facility structure Information flow facility structure Management methods Power and leadership structure Risk and reward structure Culture and attitude However, a more careful examination of the existing literature[10] will lead us to a more comprehensive structure of what should be the key critical supply chain components, the "branches" of the previous identified supply chain business processes, that is, what kind of relationship the components may have that are related with suppliers and customers accordingly. Bowersox and Closs states that the emphasis on cooperation represents the synergism leading to the highest level of joint achievement (Bowersox and Closs, 1996). A primary level channel participant is a business that is willing to participate in the inventory ownership responsibility or assume other aspects of financial risk, thus including primary level components (Bowersox and Closs, 1996). A secondary level participant (specialized), is a business that participates in channel relationships by performing essential services for primary participants, thus including secondary level components, which are in support of primary participants. Third level channel participants and components that will support the primary level channel participants, and which are the fundamental branches of the secondary level components, may also be included.

Consequently, Lambert and Cooper's framework of supply chain components does not lead us to the conclusion about what are the primary or secondary (specialized) level supply chain components (see Bowersox and Closs, 1996, p.g. 93). That is, what supply chain components should be viewed as primary or secondary, how these components should be structured in order to have a more comprehensive supply chain structure, and to examine the supply chain as an integrative one (See above sections 2.1 and 3.1).Baziotopoulos reviewed the literature to identify supply chain components.[11] Based on this study, Baziotopoulos (2004) suggests the following supply chain components:For customer service management: Includes the primary level component of customer relationship management, and secondary level components such as benchmarking and order fulfillment. For product development and commercialization: Includes the primary level component of Product Data Management (PDM), and secondary level components such as market share, customer satisfaction, profit margins, and returns to stakeholders. For physical distribution, manufacturing support and procurement: Includes the primary level component of enterprise resource planning (ERP), with secondary level components such as warehouse management, material management, manufacturing planning, personnel management, and postponement (order management). For performance measurement: Includes the primary level component of logistics performance measurement, which is correlated with the information flow facility structure within the organization. Secondary level components may include four types of measurement such as: variation, direction, decision and policy measurements. More specifically, in accordance with these secondary level components, total cost analysis (TCA), customer profitability analysis (CPA), and asset management could be concerned as well. For outsourcing: Includes the primary level component of management methods, and the strategic objectives for particular initiatives in key areas of information technology, operations, manufacturing capabilities, and logistics (secondary level components). Extra end

Reverse Supply Chain Reverse Logistics is the process of planning,implementing and controlling the efficient, effective inbound flow and storage of secondary goods and related information opposite to the traditional supply chain direction for the purpose of recovering value or proper disposal. Reverse logistics is also referred to as "Aftermarket Customer Services". In other words, anytime money is taken from a company's Warranty Reserve or Service Logistics budget, that is a Reverse Logistics operation.

What is Green Supply Chain?Green supply chain management (GSCM) involves traditional supply chain management practices, which integrate environmental criteria. A green supply chain imitates nature, running in cycles that mimic natural energy and material cycles. Moving from a linear to more of a cyclical material and energy flow means keeping wastes within the industrial system in order to conserve energy and prevent the dissipation of harmful materials into the environment. In order to design a green supply chain the entire inputs and outputs in the product life cycle need to be holistically considered. Inputs include energy, materials,

and other resources. Outputs include products, waste, and revenues generated. Unnecessary inputs can be eliminated and outputs can be re-used.

Companies are not in business to solve the world of environmental problems. Yet, managers are starting to look at environmental problems as business issues where many can gain sustained competitive advantage. Companies charting green supply chain strategies are finding that both the buyer and seller can benefit through shared cost savings, among other things. Successful strategies consider the entire life cycle where opportunities for improvement are noted at each stage of the product life cycle, from raw material sourcing through manufacturing, use, and product end-of-life. The following guidelines can help companies get ahead of the green curve and transform GSCM into a business value driver, rather than a cost center: