TERM AND DEFINITIONS

What is a Supply Chain?

A supply chain consists of all parties involved, in way of directly or indirectly for that ways in

fulfilling a customer request. The supply chain includes not only the manufacturer and suppliers,

but also transporters, warehouses, retailers and even customers themselves. Within each

organization, such as manufacturer, the supply chain includes all functions involved in receiving

and filling a customer request. These functions include, but are not limited to, new product

development, marketing, operations, distribution, finance, and costumer service1.

From above statement, can be stated that the supply chain management can be included in

maritime sector which actually one of the part of maritime importing and exporting processes.

Supply chain management includes the management materials and information that occurs

between the raw materials and the end customer. This includes all logistics2, materials handling

and purchasing. The management goal is to increase efficiency and lower costs for the end

customer. Under the definition, supply chain managers decide where to locate manufacturing and

distribution facilities, how to route goods and materials among those facilities, and from which

parts of the world to source the inputs. Supply chain management unites disparate functions that

historically reported to different executive positions with different, and sometimes conflicting,

priorities.  

OBJECTIVES OF SUPPLY CHAIN MANAGEMENT

The objective of a Supply Chain is customer satisfaction. Therefore, There are essentially goals

of Supply Chain Management which enhancing customer service, expanding sales revenue,

reducing inventory cost, improving on-time delivery, reducing order to delivery cycle time,

reducing lead time, reducing, transportation cost, reducing warehouse cost, reducing / rationalize

supplier base, expanding width / depth of distribution.

1 Ref: Sunil Chopra. Supply Chain Management; Strategy, Planning and Operation 3rd edition. 2004. Pg 3.2 Logistics are integral to the supply chain. They include inbound shipments, outbound shipments and communication between suppliers.

IMPORTANCE OF SUPPLY CHAIN

Supply chain management (SCM) is a business practice that aims to improve the way a business

sources its raw materials, and delivers it to end users. For any product or service offered by any

business, there are usually a number of different business entities involved in the various stages

of the supply chain, including manufacturers, wholesalers, distributors and retailers and the last

group in a supply chain is consumers. SCM is important for modern businesses because of it

coordinates and synchronizes activities of partner businesses and giving higher efficiency. Proper

planning in supply chain management is critical for the success of any business. A breakdown in

the supply of goods to the market can result in diminished sales and reduced consumer interest.

This can ultimately sink a company. Effective supply chain management is the behind-the-scenes

backbone of any profitable company with benefits ranging from increased market presence to

heightened consumer confidence. Supply chain is important because it’s categorized as business

rules to monitoring production processes in the company and makes sure that the raw materials

are really in a high quality to be transformed into goods.  Supply chain management is much like

a department which concentrates on production of finished goods. The most important thing in

business is ensuring that your consumer is getting what they exactly want.

PROCESS VIEW OF SUPPLY CHAIN

A supply chain is a sequence of processes and flows that take place within and between different

stages and combine to fill a customer need for a product. There are a different ways to view the

processes performed in a supply chain. One of the views is cycle view3. Therefore:

Cycle view of supply chain processes:

Given the five stages of a supply chain shown in figure 1.1 which are supplier, manufacturer,

distributer, retailer and customer, all these supply chain processes can be broken down into the

following four process cycles as in figure 1.2 which can be stated are customer order cycle,

replenishment cycle, manufacturing cycle, and procurement cycle.

3 The processes in a supply chain are divided into series of cycles, each performed at the interface between two successive stages of supply chain.

Figure 1.1: Supply Chain Stages

Figure 1.2: Supply Chain process cycles

From the cycle shown, each cycle occurs at the interface between two successive stages of the

supply chain. The five stages thus result in four supply chain process cycles. In generally, each

cycle consists of six sub processes as shown in figure 1.3. Each cycle starts with the supplier

marketing the product to the customers. A buyer then places an order that is received by the

supplier. The supplier supplies the order, which is received by the buyer. The buyer may return

some of the product or other recycled material to the supplier or a third party4. The cycle of

activities then begins all over again.

4 Third party is often used to refer to a person or entity who is not involved in an interaction or relationship.

Figure 1.3: Sub processes in each supply chain process cycles

Procurement Cycle:

The procurement cycle occurs at the manufacturer/supplier interface and includes all processes

necessary to ensure or make sure that materials are available for manufacturing to occur

according to schedule. During the procurement cycle, the manufacturer order components from

suppliers that replenish the component inventories5. The relationship is quite similar to that

between a distributor and manufacturer with one significant difference. Whereas retailer or

distributor orders are triggered by uncertain customer demand, component orders can be

determined precisely once the manufacturer has decided what the production schedule will be.

Component orders depend on the production schedule. Thus it is important that suppliers be

linked to the manufacturer‘s production schedule. Of course, if a supplier’s lead times are long,

the supplier has to produce to forecast because the manufacturer’s production schedule may not

be fixed that far in advance.

5 A company's merchandise, raw materials, and finished and unfinished products which have not yet been sold.

Manufacturing Cycle

The manufacturing cycle typically occurs at the distributor/manufacturer and includes all

processes involved in replenishing distributor inventory. The manufacturing cycle is triggered by

customer, replenishment orders from a retailer, or by the forecast of customer demand and

current product availability in the manufacturer’s finished goods warehouse.

One extreme in a manufacturing cycle is an integrated steel mill that collects orders that are

similar enough to enable the manufacturer to produce in large quantities. In this case, the

manufacturing cycle is reacting to customer demand. Another extreme is a consumer products

firm that must produce in anticipation of demand. In this case, the manufacturing cycle is

anticipating customer demand. The processes involved in the manufacturing cycle include the

following:

• Order arrival from the finished-goods warehouse, distributor, retailer, or customer

• Production scheduling

• Manufacturing and shipping

• Receiving at the distributor, retailer, or customer

Replenishment Cycle

The replenishment cycle occurs at the retailer/distributor interface and includes all processes

involved in replenishing retailer inventory. It is initiated when a retailer places an order to

replenish inventories to meet future demand. A replenishment cycle may be triggered at a market

that is running out of stock of detergent or at a mail order firm that is low on stock of a particular

shirt. The replenishment cycle is similar to the customer order cycle except that the retailer is

now the customer. The objective of the replenishment cycle is to replenish inventories at the

retailer at minimum cost while providing high product availability.

The processes involved in the replenishment cycle include:

• Retail order trigger

• Retail order entry

• Retail order fulfillment

• Retail order receiving

Customer Order Cycle

The customer order cycle occurs at the customer/retailer interface and includes all processes

directly involved in receiving and filling the customer’s order. Typically, the customer initiates

this cycle at a retailer site and the cycle primarily involves filling customer demand.

The retailer’s interaction with the customer starts when the customer arrives or contact is

initiated and ends when the customer receives the order. The processes involved in the customer

order cycle include:

• Customer arrival

• Customer order entry

• Customer order fulfillment

• Customer order receiving

Customer Arrival

The term customer arrival refers to the customer’s arrival at the location where he or she has

access to his or her choices and makes a decision regarding a purchase. The starting point for any

supply chain is the arrival of a customer.

Customer arrival can occur when

• The customer walks into a supermarket to make a purchase

• The customer calls a mail order telemarketing center

• The customer uses the Web or an electronic link to a mail order firm

From the supply chain perspective, the key flow in this process is the customer’s arrival. The

goal is to facilitate the contact between the customer and the appropriate product so that the

customer’s arrival turns into a customer order. At a supermarket, facilitating a customer order

may involve managing customer flows and product displays. At a telemarketing center, it may

mean ensuring that customers do not have to wait on hold for too long. It may also mean having

systems in place so that sales representatives can answer customer queries in a way that turns

calls into orders. At a Web site, a key stem may be search capabilities with tools such as

personalization that allow customers to quickly locate and view products that may interest them.

The objective of the customer arrival process is to maximize the conversion of customer arrivals

to customer orders.

Customer Order Entry

The term customer order entry refers to customers informing the retailer what products they want

to purchase and the retailer allocating products to customers. At a supermarket, order entry may

take the form of customers loading all items that they intend to purchase onto their carts. At a

mail order firm’s telemarketing center or Web site, order entry may involve customers informing

the retailer of the items and quantities they selected. The objective of the customer order entry

process is to ensure that the order entry is quick, accurate, and communicated to all other supply

chain processes that are affected by it.

Customer Order Fulfillment

During the process, the customer’s order is filled and sent to the customer. At a supermarket, the

customer performs this process. At a mail order firm this process generally includes picking the

order from inventory, packaging it, and shipping it to the customer. All inventories will need to

be updated, which may result in the initiation of the replenishment cycle. In general, customer

order fulfillment takes place from retailer inventory. In a build-to-order scenario, however, order

fulfillment takes place directly from the manufacturer’s production line. The objective of the

customer order fulfillment process is to get the correct orders to customers by the promised due

dates at the lowest possible cost.

Customer Order Receiving

During this process, the customer receives the order and takes ownership. Records of this receipt

may be updated and payment completed. At a supermarket, receiving occurs at the checkout

counter. For a mail order firm, receiving occurs when the product is delivered to the customer.

Logistic

Logistics can be classified as an enterprise planning framework for material management,

information, service and capital flows. Logistics when seen in the context of the modern day

prevalent work environment also includes information that is complex in nature besides giving

importance to all the communication and control system that are essential for efficient working

of the organization.

In the words of a layman, logistics can be defined as having the right type of product or service

at the right place, at the right time, for a right price and in the right condition.

Logistics has evolved as a common and well-known business concept because of the ever

increasing complexities of modern day business. The primary goal of logistics is to effectively

manage the project life cycles and resultant efficiency. This has greatly evolved with a logistics

manager's role in efficiently designing the products of the company keeping in view the principle

of efficient system of supply chain management.

In business terms, it can be summarized as a competitive strategy adapted by the enterprise to

meet and exceed the expectations of its existing and prospective customers. It refers to a

complete process of total supply chain management that is established to achieve a state of

perfection through efficiency and integration. Logistics does not mean a single work activity but

refers to a group of activities performed to attain the goal of a business enterprise that is

maximizing the Profits. This may involve steps like purchasing, planning, coordination,

transportation, warehousing, distribution and customer service. A business can run without

profits, but it needs money to fund its services, pay its employees and grow its customer base.

Logistics play an important part in the present business world; it cannot be neglected by an

enterprise focused on growth and profitability.

Logistics is a mixture of several professional disciplines, such as:

1. Planning

2. Controlling

3. Directing

4. Coordination

5. Forecasting

6. Warehousing and transportation

7. Facility location

8. Inventory management