Supply Chain Management and Logistics (English Version)-munotes

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1 MODULE - I
1
INTRODUCTION TO SUPPLY CHAIN
MANAGEMENT - I
Unit Structure
1.0 Objectives
1.1 Introduction
1.2 Supply chain management
1.3 Principles of supply chain management
1.4 Summary
1.5 Exercise
1.0 OBJECTIVES 1. The main objectives of Supply chain management are to reduce cost,
improve the overall organization performance and customer
satisfaction by improving product or service delivery to the consumer.
2. SCM's primary goal is to keep a firm afloat and ultimately to drive it
to success. Other objec tives of SCM include improving efficiency and
quality, minimising costs, optimising delivery and distribution and
providing the best possible experience to your customers.
3. To impart understanding on processes and operations associated with
supply chain management.
1.1 INTRODUCTION Store network the executives is the administration of the progression of
labour and products and incorporates all cycles that change unrefined
components into end results. It includes the dynamic smoothing out of a
business' stock side exercises to expand client worth and gain an upper
hand in the commercial center. Inventory network the executives (SCM) is
the concentrated administration of the progression of labour and products
and incorporates all cycles that change unrefined su bstances into eventual
outcomes.
The five most basic components of SCM are fostering a system, obtaining
natural substances, creation, dissemination, and returns. SCM depends on
the possibility that virtually every item that comes to showcase results
from the endeavors of different associations that make up an inventory
network. Despite the fact that supply chains have existed for a long time,
most organizations stand out enough to be noticed as a worthy addition to
their tasks. Production network the boar d is the act of organizing the
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2 Supply Chain Management and Logistics
2 business' clients. Instances of production network exercises can
incorporate planning, cultivating, assembling, bundling, or transporting.
SCM has co me to zero in on the need to check out completely at the
progression of significant worth conveyance to a client. Esteem is
conveyed through the characterized business action of the association as
labour and products.
Supply Chain Management incorporates, arranging, plan, control and
execution of all business processes connected with obtainment,
assembling, conveyance and deals request satisfaction elements of a
business. In this way Supply Chain Management incorporates overseeing
the organic market, obtai ning unrefined components and parts, assembling
and gathering, warehousing and stock following, request passage and
request the executives, circulation across all channels, and conveyance to
the client.
1.2 SUPPLY CHAIN MANAGEMENT A store network comprises the relative multitude of exercises and
substances that are engaged with separating, handling, fabricating,
dispersing and offering the items to a definitive client. Notwithstanding,
the idea of SCM is a lot more extensive than that of the showcasing
chan nels as SCM returns to a far -off beginning stage/root and incorporates
the unrefined substance providers. "Store network the board is the mix of
organizations from end client through unique providers that give items,
administrations, and data that add an i ncentive for clients."
"A store network is an organization of offices and dissemination choices
that carries out the roles of obtaining materials, change of these materials
into moderate and completed items, and the dispersion of these completed
items to clients. " Supply chain management is the combination of art and
science that goes into improving the way your company finds the raw
components it needs to make a product or service, manufactures that
product or service and delivers it to customers.
Planned operations are the spine on which the inventory chains are driven.
Strategies alludes to the administration of stream of products and supplies
including data, information and documentation between two elements or
focuses. Operations assumes a significant part in the post obtainment
capacity of conveyance of unrefined substance and supplies from the
provider to the plant or creation focus and the dispatch of completed
merchandise from the production line to the mark of conveyance to the
client.
Whenever me rchandise moves from provider to industrial facility to retail
location they course through an organization of transportation by street,
rail, boat or air. They might be put away in stockrooms prior to being
moved to advanced areas. This whole movement inc ludes different
providers, specialists and offices including cargo forwarders, packers,
customs division, merchants and Logistics specialist co -ops and so forth. munotes.in

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3 Introduction to Supply Chain Management - I Planned operations in this manner is a vital part of Supply Chain
Management.
By and large Su pply fasten is frequently alluded to as Logistics as well as
the other way around. However, operations and inventory networks are
complicatedly connected, both don't mean something similar. Coordinated
operations is a sub part and expansion of the store ne twork. In recent
decades, globalization, outsourcing, and information technology have
enabled many organizations, such as Dell and Hewlett Packard , to
successfully operate collaborative supply networks in which each
specialized business partner focuses on only a few key strategic activities.
This inter -organisational supply network can be acknowledged as a new
form of organisation. Howeve r, with the complicated interactions among
the players, the network structure fits neither "market" nor "hierarchy"
categories. It is not clear what kind of performance impacts different
supply -network structures could have on firms, and little is known ab out
the coordination conditions and trade -offs that may exist among the
players. From a systems perspective, a complex network structure can be
decomposed into individual component firms. Traditionally, companies in
a supply network concentrate on the inpu ts and outputs of the processes,
with little concern for the internal management working of other
individual players. Therefore, the choice of an internal management
control structure is known to impact local firm performance.
1.2.1 Features:
1. Ability to integrate throughout the supply chain :
Technology is an enabler, and a digital solution should introduce
functionalities that span the entire supply chain, integrating multiple
entities like suppliers, OEMs, shippers, warehouse centers, and customers.
It should connect with all your other applications, including enterprise
software, legacy systems, third -party applications, help desk, and email —
regardless of the information source, operating system, or platform. This
can eliminate connectivity issues and enable efficient information flow
across a chain. For instance, the ability to create orders and bill customers
from a single, central location simplifies the work of operations managers.
It eliminates redundancies and the chance for miscommunication or w rong
orders. Flexible features within the order management and billing function
can be used to customize the system to suit different customer segments or
product categories, and cater to unique requirements of chain.
2. Real -time and collaboration capabil ities:
Real-time information is essential to avoiding things like bottlenecks,
missing goods —and unhappy customers. With real -time capabilities,
organizations are empowered to respond to changes in the supply chain
immediately, as they arise. Effective sup ply chain management software
should allow multiple stakeholders to work together on a project so that
they‘re on the same page, without the need for frequent back and forth
communication or manual updates. For example, a fleet manager, a truck munotes.in

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4 Supply Chain Management and Logistics
4 driver, and a customer located in physically different places can stay
connected and have the same visibility on an order, thus increasing
collaboration and maintaining end -to-end transparency.
3. Process optimization abilities :
If routine, repetitive tasks are autom ated, it enables staff to work on more
revenue -generating ones. Apart from automating operational tasks with
custom rules, businesses can leverage AI and machine learning to
optimize other tedious tasks, as well. For example, software can be trained
to app rove a product only if it‘s in its best -finished state, eliminating the
need for manual intervention. This approach enables organizations to
explore more agile ways of working, better manage high levels of
complexity, and call in human intervention only in the case of exceptions.
Optimization tools in logistics and transportation help companies move
goods in an efficient manner, at the lowest cost possible. This is important
in the face of rising fuel costs, as well as constantly evolving national and
regio nal regulations that can introduce uncertainties or slow down the
movement of shipments.
4. Analytics and forecasting :
Along with automating day -to-day tasks, good supply chain management
software should help you evaluate your business, with built -in analy tics
and forecasting capabilities to help you:
 Understand the health and performance of your business
 Identify bottlenecks
 Capitalize on your current strengths
 Anticipate customer demand and plan future production
 Spot inefficiencies in your system
 Predict events which are likely to occur
Some advanced software has predictive analytics that help balance
disparities between supply and demand by providing data on both internal
(demand) and external (weather, industry, regulation) trends.
5. Customization :
Prebuilt components in the application and customized configuration of
business rules introduce flexibility that helps businesses adapt to changes
quickly and go to market faster, with customized solutions for consumers.
Some supply chain solutions let develo pers extend their features with
programming languages like Java and Python. Open architecture also
encourages organizations to build their own applications to suit their
unique requirements like developing multiple variations of a product to
cater to diffe rent customer segments, thus maximizing profitability.
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5 Introduction to Supply Chain Management - I 6. Cloud -based access and mobility :
With cloud -based supply chain software, businesses can be accessed by
authorized users from anywhere, at any time, so they can continue to
manage, track and monitor the progress of transactions on the move. An
additional benefit is that businesses can set up a cloud -based solution at a
lower cost, in less time, and with less risk than investing in an on -premise
system.
Organizations that have access to a mobile app f or managing their supply
chain and logistics functions have a better chance of staying up to date on
various activities, like order status or shipping. Real -time alerts can be
sent directly to users‘ mobile phones, collaboration between different
parties i s enhanced, and immediate action can be taken in case of any
issues.
7. Security :
Data security is the heart of any business software. While choosing a
supply chain management solution, companies should evaluate:
 Data encryption
 Virus -scanning
 Network mon itoring
 Audit trail
 Fault tolerance
They should also ensure the necessary standards for secure
communications between authorized parties, and that all technology -
related compliance is maintained.
8. Scalability :
Any software must grow with a business. And as organizations make
inroads into new regions, expand their product portfolio, and acquire new
customers, a supply chain solution should be able to handle the increasing
volume that comes with it. It also needs to support multiple applications
and additio nal channels without affecting the system‘s performance.
9. Supply -chain management:
It is a cross -functional approach that includes managing the movement of
raw materials into an organization, certain aspects of the internal
processing of materials into f inished goods, and the movement of finished
goods out of the organization and toward the end consumer. As
organizations strive to focus on core competencies and become more
flexible, they reduce ownership of raw materials sources and distribution
channels. These functions are increasingly being outsourced to other firms
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6 Supply Chain Management and Logistics
6 10. Personalization of customer:
The effect is to increase the number of organizations involved in satisfying
customer deman d, while reducing managerial control of daily logistics
operations. Less control and more supply -chain partners lead to the
creation of the concept of supply -chain management. The purpose of
supply -chain management is to improve trust and collaboration amo ng
supply -chain partners thus improving inventory visibility and the velocity
of inventory movement. We have to communicate with all the vendors,
suppliers and after that we have to take some comparisons after that we
have to place the order.
1.2.2 Evoluti on:
Six major movements can be observed in the evolution of supply - chain
management studies: creation, integration, and
globalization, specialization phases one and two, and SCM 2.0.
Creation era:
The term "supply chain management" was first coined by Keith Oliver in
1982. However, the concept of a supply chain in management was of great
importance long before, in the early 20th century, especially with the
creation of the assembly line . The characteristics of this era of supply -
chain management include the need for large -scale changes, re -
engineering, downsizing driven by cost reduction programs, and
widespread attention to Japanese management practices. However, the
term became widely adopted after the publication of the seminal
book Introduction to Supply Chain Management in 1999 by Robert B.
Handfield and Ernest L. Ni chols, Jr., which published over 25,000 copies
and was translated into Japanese, Korean, Chinese, and Russian.
Integration era:
This era of supply -chain -management studies was highlighted with the
development of electronic data interchange (EDI) systems i n 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 e xpansion of Internet -based collaborative
systems. This era of supply -chain evolution is characterized by both
increasing value -added and reducing costs through integration.
A supply chain can be classified as a stage 1, 2 or 3 network. In a stage 1 –
type su pply chain, systems such as production, storage, distribution, and
material control are not linked and are independent of each other. In a
stage 2 supply chain, these are integrated under one plan and enterprise
resource planning (ERP) is enabled. A stage 3 supply chain is one that
achieves vertical integration with upstream suppliers and downstream
customers. An example of this kind of supply chain is Tesco.

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7 Introduction to Supply Chain Management - I Globalization era:
It is th e third movement of supply -chain -management development, the
globalization era, can be characterized by the attention given to global
systems of supplier relationships and the expansion of supply chains
beyond national boundaries and into other continents. Although the use of
global sources in organisations' supply chains can be traced back several
decades (e.g., in the oil industry), it was not until the late 1980s that a
considerable number of organizations started to integrate global sources
into their c ore business. This era is characterized by the globalization of
supply -chain management in organizations with the goal of increasing
their competitive advantage, adding value, and reducing costs through
global sourcing.
Specialization era (phase I): outsou rced manufacturing and
distribution:
In the 1990s, companies began to focus on "core competencies" and
specialization. They abandoned vertical integration, sold off non -core
operations, and outsourced those functions to other companies. This
changed manage ment requirements, as the supply chain extended beyond
the company walls and management was distributed across specialized
supply -chain partnerships.
This transition also refocused the fundamental perspectives of each
organization. Original equipment manufacturers (OEMs) became brand
owners that required visibility deep into their supply base. They had to
control the entire supply chain from above, instead of from within.
Contr act 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 -mana ged inventory (VMI).
The specialization model creates manufacturing and distribution networks
composed of several individual supply chains specific to producers,
suppliers, and customers that work together to design, manufacture,
distribute, market, sell, and service a product. This 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.
Specialization era (phase II): supp ly-chain management as a service:
Specialization within the supply chain began in the 1980s with the
inception of transportation brokerages, warehouse management (storage
and inventory), and non -asset -based carriers, and has matured beyond
transportation a nd logistics into aspects of supply planning, collaboration,
execution, and performance management.
Market forces sometimes demand rapid changes from suppliers, logistics
providers, locations, or customers in their role as components of supply -
chain networ ks. This variability has significant effects on supply -chain
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8 electronic communication between trading partners to more complex
requirements such as the configuration of processes and w orkflows 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 the ir core competencies
and assemble networks of specific, best -in-class partners to contribute to
the overall value chain itself, thereby 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 a 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 primarily in transportation and collaboration
categories. This has progressed from the application service provider
(ASP) model from roughly 1998 through 2003 to the on -demand model
from approximately 2003 through 2006, to the software a s a service
(SaaS) model currently in focus today.
Supply -chain management 2.0 (SCM 2.0):
Building on globalization and specialization, the term "SCM 2.0" has been
coined to describe both chang es within supply chains themselves as well
as the evolution of processes, methods, and tools to manage them in this
new "era". The growing popularity of collaborative platforms is
highlighted by the rise of TradeCard 's supply – chain -
collaboration platform, which connects multiple buyers and suppliers with
financial institutions, enabling them to conduct automated supply -chain
finance transactions.
Web 2.0 is 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 attrib ute of Web 2.0 is to help navigate the vast
information available on the Web in order to find what is being bought. It
is the notion of a usable pathway. SCM 2.0 replicates this notion in supply
chain operations. It is the pathway to SCM results, a combina tion of
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 global competition; rapid price fluctuations; changing oil
prices; short product life cycles; expanded specialization; near -, far-, and
off-shoring; and talent scarcity.
1.2.3 Importance:
1. Improved customer satisfaction :
Problems in your supply chain can lead to several customer -centric issues,
including:
 Being unable to meet customer d emand munotes.in

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9 Introduction to Supply Chain Management - I  Sending part or incorrect orders to customers
 Extended waits for orders to arrive
 Products not being in the right place at the right time
Effective supply chain management and streamlining product flow will
help you minimise such events and ensure cu stomer satisfaction remains
high. Supply chain management is important because it can help achieve
several business objectives. For instance, controlling manufacturing
processes can improve product quality, reducing the risk of recalls and
lawsuits while h elping to build a strong consumer brand. At the same time,
controls over shipping procedures can improve customer service by
avoiding costly shortages or periods of inventory oversupply.
2. Reduced operating costs :
Supply chain inefficiencies are potential ly having an enormous impact on
your bottom line. By conducting thorough reviews as part of your
management process, you can reduce your supply chain costs and the time
it takes for a finished product to arrive in your customer's hands. Don't just
look for inefficiencies within operations, either. Look at your supply chain
model yourself. For example, if you're able to migrate towards a just -in-
time model, you can massively reduce warehousing and other storage
costs.
3. Improved cash flow :
Efficient supply chains are efficient from end to end. As such, you can
accurately forecast what you're going to sell and how much product you'll
need to meet customer demand. So you end up with a seamless process
where you're selling products while ordering efficiently, i mproving your
cash flow and making it easier to analyse your financial metrics.
4. More efficient sourcing and procurement :
An efficient supply chain makes it easier for your sourcing and
procurement teams to find new suppliers when necessary. Because you' ll
have a clear idea of what good looks like in terms of what you want from
suppliers. As such, you can find suppliers that meet your expectations and
needs or work with them to ensure they reach the required standard. Either
way, by having excellence in y our supply chain to start with, you'll know
what you're looking for if you need to replace a part of it.
5. Safeguarding supply of raw materials:
It's vital to remember that supply chain management isn't just about
business processes. It's about your relationships with your suppliers and
how you work together. Suppose you have a robust and respectful
relationship with your suppliers. In that case, you'll find you're at the front
of the queue and given priority if there are issues like shortages of raw
materials. Having robust relationships to mitigate these potential
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10 6. Better inventory management :
If you could boil down the objective of your supply chain into one phrase,
what would you say?
"Right product, right place, right time" wou ld be a pretty good starting
point.
A well -managed supply chain will achieve this as it'll enable your
inventory management to be much more effective. So, whether your
supply chain management process helps you move towards a just -in-time
supply chain strat egy, improves your forecasting, or sees you provide
suppliers with better warehousing solutions, there are benefits to realise
wherever you look.
7. Better partnerships with distributors :
Many businesses make the mistake of thinking a product arriving in -store
or at their distribution centre is the end of their supply chain.
Consequently, those same businesses don't have much in the way of a
relationship with the distributors they rely upon to get the final product
into their customers' hands. Remember that your supply chain ends
successfully when your customers - not you - receive a product. Make
distributor partnerships a crucial part of your supply chain management
strategy.
8. Ensure adherence to legal and ethical standards :
The nature of modern global s upply chains means that you're held
accountable for your suppliers' adherence to legal and ethical standards as
much as you are your own. Supply chain sustainability and transparency
has become increasingly vital in recent years and will continue to do so.
By closely managing your supply chains and working with your suppliers,
you can ensure you meet the required standards both at home and
wherever your suppliers are.
9. A competitive a dvantage in your industry :
Every supply chain has unique complexities and challenges. While it's
often easy to identify inefficiencies and areas for improvement, the truth is
that many businesses fail to deal with these as effectively as they
potentially c ould. Overall, supply chain management provides several
opportunities for companies to improve their profit margins and is
especially important for companies with large and international
operations. Organizations increasingly find that they must rely on ef fective
supply chains, or networks, to compete in the global market and
networked economy. In Peter Drucker 's (1998) new management
paradigms, this concept of business relationships extends bey ond
traditional enterprise boundaries and seeks to organize entire business
processes throughout a value chain of multiple companies.
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11 Introduction to Supply Chain Management - I 1.2.4 Process of supply chain management:
The supply chain management process is composed of four main parts:
demand mana gement, supply management, S&OP, and product portfolio
management.
1. Demand management:
Demand management consists of three parts: demand planning,
merchandise planning, and trade promotion planning.
 Demand planning is the process of forecasting demand to make sure
products can be reliably delivered. Effective demand planning can
improve the accuracy of revenue forecasts, align inventory levels with
peaks and troughs in demand, and enhance profitability for a
particular channel or product.
 Merchandise planning is a systematic approach to planning, buying,
and selling merchandise to maximize the return on investment (ROI)
while simultaneously making merchandise available at the pl aces,
times, prices, and quantities that the market demands.
 Trade promotion planning is a marketing technique to increase
demand for products in retail stores based o n special pricing, display
fixtures, demonstrations, value -added bonuses, no -obligation gifts,
and other promotions. Trade promotions help drive short -term
consumer demand for products normally sold in retail environments.
2. Supply management :
Supply mana gement is made up of five areas: supply planning , production
planning , inventory planning , capacity planning , and distribution planning.
 Supply planning determines how b est to fulfil the requirements
created from the demand plan. The objective is to balance supply and
demand in a manner that achieves the financial and service objectives
of the enterprise.
 Production planning addresses the production and manufacturing
modu les within a company. It considers the resource allocation of
employees, materials, and production capacity.
 Production/supply planning consists of:
 Supplier management and collaboration
 Production scheduling
 Inventory planning determines the optimal quant ity and timing of
inventory to align it with sales and production needs.
 Capacity planning determines the production staff and equipment
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12  Distribution planning and network planning oversees the movement
of goods from a supplier or manufacturer to the point of sale.
Distribution management is an overarching term that refers to
processes such as packaging, inventory, warehousing, Supply chain,
and logistics.
3. Sales and operations planning (S&OP) :
 Sales and operations planning (S&OP ) is a monthly integrated
business management process that empowers l eadership to focus on
key supply chain drivers, including sales, marketing, demand
management, production, inventory management, and new product
introduction.
 With an eye on financial and business impact, the goal of S&OP is to
enable executives to make be tter-informed decisions through a
dynamic connection of plans and strategies across the business. Often
repeated on a monthly basis, S&OP enables effective supply chain
management and focuses the resources of an organization on
delivering what their custom ers need while staying profitable.
4. Product portfolio management :
Product portfolio management is the process from creating a product idea
creation to market intro duction. A company must have an exit strategy for
its product when it reaches the end of its profitable life or in case the
product doesn‘t sell well.
Product portfolio management includes:
 New product introduction
 End-of-life planning
 Cannibalization plan ning
 Commercialization and ramp planning
 Contribution margin analysis
 Portfolio management
 Brand, portfolio, and platform planning
5. Supply chain management best practices :
To succeed in a growing global market, you need a supply chain that‘s
connected fr om start to finish, across your enterprise and beyond. Here are
five steps we recommend to achieve connected supply chain planning .
1. Make the move to real -time supply chain planning :
When using ERP systems and spreadsheets for planning, companies
typically rely only on historical data, resulting in little wiggle room for
changes should any disruptions occur in demand or supply. For example, munotes.in

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13 Introduction to Supply Chain Management - I based on the previous year‘s numbers, a company can estimate the number
of products it will sell in the next quarter. But what if a massive hurricane
destroys a key distribution center, leading to too little supply on the
shelves? With Anaplan‘s real -time connected supply chain plann ing
solution, you can create ―what -if‖ scenarios and plan more effectively so
you‘re ready when disruptions occur.
2. Unify supply chain pl anning with enterprise planning:
A vital second step is connecting traditionally siloed supply chain
planning to sale s and operations planning and financial planning.
Companies can benefit from synchronizing their short -term operational
planning with their wider business planning processes to make real -time
updates to inventory forecasts and supply. Deploying real -time S &OP
solutions that enable enterprise -wide collaboration means that key
stakeholders across the business can create new scenarios and quickly
assess how to use their resources to optimize profitability when an
unforeseen event happens.
3. Anticipate the dem and of the end customer :
For consumer packaged -goods companies, anticipating what customers
want and when they want it is an ongoing challenge. A solution like
Anaplan allows end -to-end visibility across the supply chain and beyond
an existing network of wholesalers and retailers to sense demand signals
from customers. When changing consumer sentiments can be rapidly
identified and changes to demand for the product assessed, the compan y,
partners, and customers benefit from improved profitability, margins, and
lead time.
4. Leverage real -time data across all points of the supply chain:
Because supply chain planning typically involves a myriad of suppliers,
channels, customers, and prici ng schemes, models can become large and
potentially unwieldy —especially when spreadsheets are the primary
planning tools. Incorporating a solution that uses real -time data allows
planning with great accuracy and reduces the risk of stock -outs or surplus
inventory.
5. Ensure the flexibil ity to cope with change:
When technology facilitates efficient planning and quick reactions,
disruptions aren‘t disruptive because re -planning and re -forecasting is
easy—resulting in time and money saved and increased profita bility.
One could suggest other critical supply business processes that combine
these processes stated by Lambert, such as:
6. Customer service management process :
Customer relationship ma nagement concerns the relationship between an
organization and its customers. Customer service is the source of customer
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14 scheduling and product availability through interfaces with th e company's
production and distribution operations. Successful organizations use the
following steps to build customer relationships:
● determine mutually satisfying goals for organization and customers
● establish and maintain customer rapport
● induce positive feelings in the organization and the customers
7. Inventory management :
Inventory management is concerned with ensuring the right stock at the
right levels, in the right place, at the right time and the right cost.
Inventory management entails inventory p lanning and forecasting:
forecasting helps planning inventory.
8. Procurement process :
Strategic plans are drawn up with suppliers to support the manufacturing
flow management process and the dev elopment of new products.[56] In
firms whose operations extend globally, sourcing may be managed on a
global basis. The desired outcome is a relationship where both parties
benefit and a reduction in the time required for the product's design and
development.
The purchasing function may also develop rapid communication systems,
such as electr onic data interchange (EDI) and internet linkage, to convey
possible requirements more rapidly. Activities related to obtaining
products and materials from outside suppliers involve resource planning,
supply sourcing, negotiation, order placement, inbound transportation,
storage, handling, and quality assurance , many of which include the
responsibility to coordinate with suppliers on matters of scheduling,
supply continuity (inventory), hed ging, and research into new sources or
programs. Procurement has recently been recognized as a core source of
value, driven largely by the increasing trends to outsource products and
services, and the changes in the global ecosystem requiring stronger
relationships between buyers and sellers.
9. Product development and commercialization :
Here, customers and suppliers must be integrated into the product
development process in order to reduc e the time to market. As product life
cycles shorten, the appropriate products must be developed and
successfully launched with ever -shorter time schedules in order for firms
to remain competitive. According to Lambert and Cooper (2000),
managers of the pr oduct development and commercialization process
must:
1. Coordinate with customer relationship management to identify
customer -articulated needs;
2. Select materials and suppliers in conjunction with procurement; and munotes.in

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15 Introduction to Supply Chain Management - I 3. Develop production technology in manufacturin g flow to manufacture
and integrate into the best supply chain flow for the given
combination of product and markets.
Integration of suppliers into the new product development process was
shown to have a major impact on product target cost, quality, delive ry, and
market share. Tapping into suppliers as a source of innovation requires an
extensive process characterized by development of technology sharing,
but also involves managing intellectual property issues.
10. Manufacturing flow management process :
The manufacturing process produces and supplies products to the
distribution channels based on past forecasts. Manufacturing processes
must be flexible in order to respond to market changes and must
accommodate mass customization. Orders are processes operati ng on a
just-in-time (JIT) basis in minimum lot sizes. Changes in the
manufacturing flow process led to shorter cycle times, meaning improved
responsiveness and efficiency in meeting customer demand. This process
manages activities related to planning, sch eduling, 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
geographical and final assemblies‘ postponement of physical distribution
operations.
11. Physical distribution :
This concerns the movement of a finished product or service to customers.
In physical distribution, the customer is the final destination of a
marketing channel, and the availabi lity of the product or 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 (i.e., it links manufacturers, wholesalers, and retailers).
12. Outsourcing /partnerships :
This includes not just the outsourcing of the procurement of materials and
components, but also the 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 in which it has a
distinctive advantage and outsource everything else. This movement has
been particularly evident in logistics, where the provision of transport,
storage, and inventory control is increasingly subcontracted to specialists
or logistics partners. Also, managing and controlling this network of
partners and suppliers requires a blend of central and local involvement:
strategic decisions are taken centrally, while the monitoring and control of
supplier performance and day -to-day liaison with logistics partners are
best managed locally.
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16 13. Performance measurement :
Experts found a strong relationship from the largest arcs of supplier and
customer integration to market share and profitability. Taking advantage
of supplier capabi lities and emphasizing a long -term supply -chain
perspective in customer relationships can both be correlated with a firm's
performance. As logistics competency becomes a critical factor in creating
and maintaining competitive advantage, measuring logistics performance
becomes increasingly important, because the difference between profitable
and unprofitable operations becomes narrower..
14. Warehousing management :
To reduce a comp any's cost and expenses, warehousing management is
concerned with storage, reducing manpower cost, dispatching authority
with on time delivery, loading & unloading facilities with proper area,
inventory management system etc.
15. Workflow management :
Integrating suppliers and customers tightly into a workflow (or business
process ) and thereby achieving an efficient and effective supply chain is a
key goal of workflow management.
Let us have a look into this use case of Wal -Mart for better understanding
of the process.
Wal-Mart strategic sourcing approaches :
In 2 010, Wal-Mart announced a big change in its sourcing strategy.
Initially, Wal -Mart relied on intermediaries in the sourcing process. It
bought only 20% of its stock directly, but the rest were bought through the
intermediaries. Therefore, the company came to realize that the presence
of many intermediaries in the product sourcing was actually increasing the
costs in the supply chain. To cut these costs, Wal -Mart decided to do away
with intermediaries in the supply chain and started direct sourcing of its
goods from the suppliers. Eduardo Castro -Wright, the then Vice President
of Wal -Mart, set an ambitious goal of buying 80% of all Wal -Mart goods
directly from the suppliers.
Walmart started purchasing fruits and vegetables on a global scale, where
it interacted directly with the suppliers of these goods. The company later
engaged the suppliers of other goods, such as cloth and home electronics
appliances, directly and eliminated the importing agents. Th e purchaser, in
this case Wal -Mart, can easily direct the suppliers on how to manufacture
certain products so that they can be acceptable to the consumers. Thus,
Wal-Mart, through direct sourcing, manages to get the exact product
quality as it expects, sin ce it engages the suppliers in the producing of
these products, hence quality consistency. Using agents in the sourcing
process in most cases leads to inconsistency in the quality of the products,
since the agent's source the products from different manufa cturers that
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17 Introduction to Supply Chain Management - I Wal-Mart managed to source directly 80% profit from its stock; this has
greatly eliminated the intermediaries and cut down the costs between 5 -
15%, as markups that are introduced by these middlemen in the supply
chain a re cut. This saves approximately $4 –15 billion. This strategy of
direct sourcing not only helped Wal -Mart in reducing the costs in the
supply chain but also helped in the improvement of supply chain activities
through boosting efficiency throughout the ent ire process. In other words,
direct sourcing reduces the time that takes the company to source and
stock the products in its stock.
The presence of the intermediaries elongated the time in the process of
procurement, which sometimes led to delays in the s upply of the
commodities in the stores, thus, customers finding empty shelves. Wal -
Mart adopted this strategy of sourcing through centralizing the entire
process of procurement and sourcing by setting up four global
merchandising points for general goods a nd clothing. The company
instructed all the suppliers to bring their products to these central points
that are located in different markets. The procurement team assesses the
quality brought by the suppliers, buys the goods, and distributes them to
various regional markets. The procurement and sourcing at centralized
places helped the company to consolidate the suppliers.
The company has established four centralized points, including an office
in Mexico City and Canada. Just a mere piloting test on combinin g the
purchase of fresh apples across the United States, Mexico, and Canada led
to the savings of about 10%. As a result, the company intended to increase
centralization of its procurement in North America for all its fresh fruits
and vegetables. Thus, cen tralization of the procurement process to various
points where the suppliers would be meeting with the procurement team is
the latest strategy which the company is implementing, and signs show
that this strategy is going to cut costs and also improve the e fficiency of
the procurement process.
Strategic vendor partnerships are another strategy the company is using in
the sourcing process. Wal -Mart realized that in order for it to ensure
consistency in the quality of the products it offers to the consumers an d
also maintain a steady supply of goods in its stores at a lower cost, it had
to create strategic vendor partnerships with the suppliers. Wal-Mart
identified and selected the suppliers who met its demand and at the same
time offered it the best prices for the goods. It then made a strategic
relationship with these vendors by offering and assuring the long -term and
high volume of purchases in exchange for the lowest possible
prices. Thus, the company has managed to source its products from the
same supplier s as bulks, but at lower prices. This enables the company to
offer competitive prices for its products in its stores, hence, maintaining a
competitive advantage over its competitors whose goods are more
expensive in comparison.
Another sourcing strategy Wa l-Mart uses is implementing efficient
communication relationships with the vendor networks; this is necessary
to improve the material flow. The company has all the contacts with the munotes.in

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18 Supply Chain Management and Logistics
18 suppliers whom they communicate regularly and make dates on when the
goods would be needed, so that the suppliers get ready to deliver the goods
in time. The efficient communication between the company's procurement
team and the inventory management team enables the company to source
goods and fill its shelves on time, without c ausing delays and empty
shelves. In other words, the company realized that in ensuring a steady
flow of the goods into the store, the suppliers have to be informed early
enough, so that they can act accordingly to avoid delays in the delivery of
goods. Thus, efficient communication is another tool which Wal -Mart is
using to make the supply chain more efficient and to cut costs.
Cross -docking is another strategy that Wal -Mart is using to cut costs in its
supply chain. Cross -docking is the process of transfer ring goods directly
from inbound trucks to outbound trucks. When the trucks from the
suppliers arrive at the distribution centers, most of the trucks are not
offloaded to keep the goods in the distribution centers or warehouses; they
are transferred direct ly to another truck designated to deliver goods to
specific retail stores for sale. Cross -docking helps in saving the storage
costs. Initially, the company was incurring considerable costs of storing
the suppliers from the suppliers in its warehouses and t he distributions
centers to await the distribution trucks to the retail stores in various
regions.
1.2.5 Barr iers to supply chain management:
Managerial barriers:
These barriers arise because the managers dealing with supply chains do
not realize the real benefits of information sharing and do not have
confidence in the information sharing system. These senior executives do
not wish to invest in innovation and culture, conducive to information
sharing.
The emphasis should be given on co -ordinated manageri al guidance rather
than imposing the hierarchy of top to down leadership. Lack of training
and experience and low literacy about the new technology is also
considered as one of the barriers of information sharing. Ives et al. (2002)
have suggested that tra ining and ongoing support with clear guidelines are
prerequisite for effective information sharing on all the levels of
organizations. Fawcett et al. (2008) concluded that lack of trust makes it
difficult to share sensitive information because supply cha in managers feel
that they cannot afford to share sensitive proprietary information without
ensuring that other members of the chain will protect it from misuse.
Organizational barriers:
Organizational barriers are categorized as those barriers that are originated
from attitudes of the organizations towards the implementation of
information sharing. These barriers are due to the organizational structure
and the groups involved in information sharing. The process of
information sharing may become complicat ed because of organizational
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19 Introduction to Supply Chain Management - I and behavior of individuals as well as organizations. Normally the
organizations and individuals resist the changes because of structural
conflicts an d managerial practices of different organizations in the supply
chain. The delay to address these embedded barriers lead to
disappointment and failures.
Organizational factors that are deeply embedded in institutional and
professional realities also creat e barriers to inter -organizational
information sharing. Tsai (2002) reported that organizations with
centralization in strong hierarchical structure have a significant ne gative
impact on sharing of information in a supply chain. The interests of
employees to share information are greatly reduced when they do not
enjoy the freedom due to limited autonomy and when they are required to
seek permission from their superior for every decision.
Willem and Buelens (2007) have mentioned that horizontal
departmentisation in bureaucracy could also constitute barriers for
information sharing. Gil-Garcia et al. (2007) found that the complexity of
information sharing gradually increases from the organizational level to
the inter -organizational level. Small to medium organizations associated in
the supply chain feel that information sharing is suited o nly to big
companies and that it is an additional financial burden that will not bring
any major returns on investment to their businesses.
The organizations with high levels of bureaucracy and strict administrative
control lack the information sharing spi rit in the supply chain. They have
also reported that less formalized organization structure and voluntary
information sharing arrangements can lead to more flexible and open
interactions among employees and seem to create a more beneficial
environment for information sharing in the supply chain. Barson et al .
(2000) has concluded that some organizations fear losing company
stability/market position in case they share technical information with
other chain members.
Caudle et al . (1991) has shown that with out support from the top
management, an innovation in information sharing system is less likely to
be adopted. Top management support has been consistently found to play
an important role in the adoption and implementation of information
sharing systems an d is treated as an organizational barrier.
Financial barriers:
Financial constraints are a key barrier to Information sharing in the supply
chain. Cost considerations are the prime challenges to support the
infrastructure and man -power requirements of the information system.
Information and technological systems require more funds because
without this efficient information sharing cannot take place in the supply
chain.
Large amounts of financial resources are needed for redesigning internal
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20 Supply Chain Management and Logistics
20 and training of staff to achieve efficient information sharing in the supply
chain. Cragg et al . (2002) has reported that lack of re sources inhibits
organizations to adopt information sharing using information technology .
It is because of difficulties i n raising finance to invest i n information
sharing systems .
Clark and Hammond (1997) reported that implementation of transparent
information sharing systems has become ve ry expensive in supply chains
with many members. They have concluded that most chain members such
as retailers show unwillingness to invest in sophisticated infrastructure for
using information technology tools for the purpose of ordering and
business proc essing. The financing of feasibility studies, systems design
and management efforts to start up new supply chain communication
channels becomes a substantial barrier to implement the efficient
information sharing system.
Technological barriers:
The advan cement of information technology has increased the ease of
information sharing and has provided better methods to share a nd integrate
information. Technological linkages across organizational units as well as
up and down the supply chain are particularly critical to sharing
information.
Study has shown that complexity of a technology is a major factor that
affects the adopt ion of information sharing. Different organizations may
use various types of hardware, software, data standards and definitions, as
well as programming languages and the task of integrating them could be
very challenging. Hoffman and Mehra (2000) stated that the technological
factors can cause the failure of any information system in the supply chain
so that technological barriers need to be tackled at the earliest.
Monczka and Morgan (1997) termed poor IT infrastructure as a barrier in
the supply chain integration. However, poor IT infrastructure may be
attributed to lack of funds and la ck of awareness and commitment of top
management about the use of IT tools in a supply chain. The deployment
of IT tools in a supply chain is also not free from barriers. Some of these
barriers are due to lack of trust in information technology tools, fear of
information system breakdown etc. Lack of ability of professionals to
maintain adequate levels of knowledge and expertise due to the fast pace
of rapidly and radically changing technology used in information sharing
systems is one of the major barriers of information sharing.
Individual barriers:
Barriers originating from behavior and actions of either individuals or
groups within or between various business functions are considered
individual barriers. Information is scattered among individuals and ac ross
groups or among group members. The information that other chain
members might need may be available with any individual or group in the
chain. Constant et al . (1994) concluded that organizations‘ effort to
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21 Introduction to Supply Chain Management - I collaborative information and communication technology becomes useless
if employees are not willing to share the information.
They have also stated that individuals are more willing to share
information when they are happy in thei r organizations and unsatisfied
individuals always hesitate or refuse to share information. They have
suggested that it is important to explore people‘s attitudes toward sharing
information and to see whether there are significant factors that can
influenc e people‘s attitudes. Many employees are reluctant to share and
contribute their own information to shared databases. Thorpe and Mead
(2001) concluded that some individua ls may feel that they are already
having an overload of information sharing. Information overload is
described as having more relevant information than one can assimilate.
Johnson and Payne (1985) demonstrated that information overload can
even worsen the effectiveness of decisions because more information
sometimes only confuses and distracts the decision maker.
Individuals feel that power, ownership and privilege of pos sessing crucial
information are lost when they share the information. Some employees
regard information as a symbol of power. Sharing information is viewed
as losing power and social influence among all. These factors inhibit
information sharing and can re sult in something that has been termed as
information pathologies e.g., preservation of information from co -workers
to show superiority. Pendlebury et al. (1998) has cited lack of training as
one of the barriers to information sharing. In his study, the majorit y of
respondents have reported that no formal training was provided with
regard to the use of the information communication systems.
Social -cultural barriers:
Kamal and T he mistocleous (2006) regarded misinterpretation or misuse
of shared information as one of the barriers of inter -organizational
information sharing. The proprietary information shared with collaborators
may be either intentionally or unintentionally revea led to competitors.
Bures (2003) has regarded lack of coherence between the personal intents
of employees and the organization missions as one of the barriers to
informat ion sharing.
One of the major barriers to information sharing is the failure to recognize
the cultural gap between different stakeholders within an organization.
Working methods, techniques and corporate culture may vary from
organization to organization and this may become a barrier of information
sharing in the supply chain. The information culture within an
organization must be conducive to information management. This means a
culture that secures the support, enthusiasm and co -operation of staff and
management alike.
Low level of technological literacy of some participating individuals and
supply chain members is also treated as another barrier for implementing
information sharing. There may be differences of opinions among
different departments due to differences in their working style. Lack of a
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22 Supply Chain Management and Logistics
22 employees is also a major social barrier for information sharing in the
supply chain.
1.3 Principles of Suppl y Chain Management The concept of the chain is important because e ach link is connected in a
specific direction and order, and the next link cannot be reached without
going through the previous one. Each link adds time and costs, and may
involve labour, parts, and transportation. Every produc t a business carries
may have its own supply chain, though they may use certain suppliers for
multiple products.

Exhibit – Principles of SCM
Source : www.landzmanagement.com
1. Adapt Supply Chain to Cust omer’s Needs :
The businesses and supply chain professionals understand customer‘s
needs. Customers are divided into different groups called ‗segments‘ in
order to understand them better. On the basis of sales volume or
profitability, the primitive way to s egment customer is ABC analys is. It
can also be done by product, trade channel and industry. Anticipating the
customer‘s needs is also very important. Once the needs of the customers
are anticipated, the supply chain should be aligned to cater to the needs .
2. Customize Logistics Net work :
After the segmentation of the customers based on different requirements,
SCM managers have to tailor logistics networks to serve different
segments. The SCM manager has to prioritize the deliveries and make
suitable provi sions to quickly distribute t hose goods that are marked as
urgent.
3. Align Demand Planning Across Supply Chain :
Supply chain professionals are trained to share data with trading partners
in order to avoid the unnecessary stock. The demand data must be use d
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23 Introduction to Supply Chain Management - I 4. Differentiate Products Close to Customers :
Standardization and differentiation are two completely opposite things.
Some cosmetic companies manufacture only 1 SKU that can be sold
throughout Asia instead of 1 SKU per country . Due to the economy of the
sales, standardization can drastically bring down the cost.
5. Outsources Strategically :
Though outsourcing is all the rage, the managers must outsource
strategically. The core expertise should not be outsourced ever. This
princ iple stands the test of time.
6. Develop IT that Support Multi -Level Decision Making :
The IT projects should not be done in isolation and before IT projects, the
business process reengineering should be done. This provides a proper
understanding of process insufficiencies and helps to determine the kind of
innovation needed.
7. Adapt Both Services and Financial Metrics :
The activity -based costing (ABC) is applied to determine the customer‘s
profitability. It is even better to exploit Time Driven Activity Ba sed
Costing in order to under stand changes in activities, process, product and
customers.
1.3.1 SCM strategies :
It‘s no secret that today‘s supply chains have become more complex than
ever, with socioeconomic and market dynamics underscoring
organizations ‘ need to respond to an outsi de-in, demand -driven world. But
companies must now factor in a host of new variables, such as rising
protectionism and nationalism across the political landscape. This is
forcing many to re -examine their business -continuity ris ks and embrace
new sourcing s trategies. Here are six supply -chain strategies designed to
help enterprises thrive in the current environment.
Strategy No. 1: Adopt a demand -driven planning and business
operating model based on real -time demand insights and demand
shaping :
Demand -predi ction capabilities continue to mature as supply chain
management teams utilize ever -more powerful digital tools. Artificial
intelligence technologies and internet of things (IoT) networks have gotten
even better, allowing SCM t eams to take action more quic kly, and
automatically adjust their supply chains based on real -time insights to
match expected demand.
The cloud continues to play a growing role in the new supply chain. More
companies are moving data and apps to the cloud, a llowing the creation of
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24 Supply Chain Management and Logistics
24 driving a new level of predictive capability and planning accuracy not
available just two years ago.
Validating the trend, more companies are seeing their supply -chain
modernization investments bear fruit. Based on our recent research,
companies utilizing the cloud improved delivery performance and
increased revenues by 20% -30% on average. They also cut logistics costs
by 5% -25% and slashed inventories, lowering work ing-capital
requirements by 2 5%-60%. Asset utilization jumped by 30 -35%.
Strategy No. 2: Build an adaptive and agile supply chain with rapid
planning and integrated production :
Agility is still the name of the game this year when it comes to supply -
chain management. In fact, companie s are getting even better at aligning
planning with manufacturing, driving greater operational speed and
flexibility.
Yet a fully integrated solution still seems beyond the reach of some
companies. A 2014 study found that 55% o f businesses have only
―modestly integrated planning across the company.‖ A mere 9% said they
had a ―highly integrated supply -chain planning environment.‖ Companies
still struggle with these issues to this day.
The problem might be the sheer volume of data and analytics required to
properly integrate planning with execution in real time. But this barrier is
now falling, with the introduction of cloud -based platforms that link
financial and materials -planning tasks to business -execution activities
such as pr ocurement, manufacturing, and inventory management — and
do it directly across a common online interface. For the first time,
companies can create a zero -latency plan -to-produce process, allowing
them to act faster and adapt seamlessly to the dynamics of t heir markets.
Strategy No. 3: Optimize product design and management for supply,
manufacturing, and sustainability, to ac celerate profitable
innovation:
The days when companies ran product development and supply -chain
planning as separate functions are co ming to an end. To stay compe titive,
the tradition of ―throwing product designs over the wall‖ to supply chain
planners — the ones who figure out how to source and build the products
— is no longer fast or efficient enough.
Consider the market for mobile p hones, where competition is d riving
manufacturers to develop and launch new models every year. Increasingly
the only way to do this is by merging design teams with supply -chain
planners on a single (usually cloud -based) platform. These new
collaborative sy stems, as well as smart procu rement practices such as
supplier prequalification, can help product developers source the right
components up front, based on factors such as parts availability, quality,
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25 Introduction to Supply Chain Management - I Strategy No. 4: Align your supply chain with business goals by
integrating sales and operations planning with corporate business
planning :
Business risks for companies have risen significantly in the last couple of
years. From Brexit to tariff wars, leaders are facing a growing array of
market uncert ainties. This is why companie s need to integrate their tactical
sales and operations planning (S&OP) programs with their strategic
budget and forecasting efforts. The goal is to create a planning capability
that translates macro business priorities and ris ks into a set of on -the-
groun d execution tasks that are continually updated to reflect changing
market conditions.
Integrating business planning, S&OP, and supply -and-demand planning
improves business agility by creating an efficient closed loop from
plann ing to execution to performan ce management.
Strategy No. 5: Embed sustainabili ty into supply chain operations:
Sustainability in all its forms, both social and environmental, has joined
growth and profitability as a top priority in the C -suite. And for goo d
reason: sustainability and the bottom line are no longer mutually
exclusive. Just this past year, the Business Roundtable released
its Statement on the Purpose of a Corporation , declaring that sustainability
should be a key priority for companies, in addition to generating profits
for shareholders.
Putting a spotlight on sustainability places a ne w focus on supply -chain
pract ices, many of which can have a sizable impact on environmental
health in areas ranging from carbon emissions to industrial waste and
pollution. Today there are myriad strategies companies can use to
optimize their supply chains for sustainability:
● Supply -chain teams can develop long -term targets that improve key
measures of sustainability such as the company‘s carbon footprint,
energy usage, and recycling efforts.
● Teams can deploy new technologies to ensure responsible
environme ntal practices such as optimi zing truck routes to reduce fuel
consumption and carbon emissions across the supply chain.
● Companies can move to a shared data model to provide the end -to-
end visibility and real -time insights needed to optimize supply chains
and ensure they are sustainabl e.
Strategy No. 6: Adopt emerging technologies to ensure a reliable and
predictable supply :
Businesses need a buffer to deal with unexpected shifts in demand, but too
much inventory can raise costs. By improving demand accurac y, new
technology can reduce inventory requirements and speed reaction times,
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26 Supply Chain Management and Logistics
26 With today‘s global trade volatility and ongoing tariff wars, it‘s essential
to make the right decisions about where to sourc e materials, make
products, a nd deliver goods in order to minimize costs and ensure
compliance. What‘s also new is that AI, machine learning, and IoT are no
longer just buzzwords. Today they‘re market -proven technologies that are
streamlining supply chains and driving business agility in companies
worldwide. With these capabilities now being built directly into cloud
solutions, customers can harness their potential right out of the box. This
means you can get started with truly business -changing technologie s
without the need to invest in complex projects or costly, hard -to-find
skillsets.
1.3.2 Organizing :
Organizing includes developing a structure for the people, positions,
departments, and activities within the firm. Managers can arrange the
structural ele ments of the firm to maximize the flow of information and
the efficiency of work processes. They accomplish this by doing the
following:
● Dividing up tasks (division of labor)
● Grouping jobs and employees (departmentalization)
● Assigning authority and respons ibilities (delegation)
A mana ger performs organizing function wi th the help of following
steps:
1. Identification of activities :
All the activities which have to be performed in a concern have to be
identified first. For example, preparation of accounts, making sales, record
keeping, quality control, inventory control, etc. All these activities have to
be grouped and classified into units.
2. Departmentally organizing the activities :
In this step, the manager tries to combine and group similar and related
activities into units or dep artments. This organization of dividing the
whole concern into independent units and departments is called
departmentation.
3. Classifying the authority :
Once the departments are made, the manager likes to classify the powers
and its extent to the manager s. This activity of giving a rank in order to the
managerial positions is called hierarchy. The top management is into
formulation of policies, the middle level management into departmental
supervision and lower level managemen t into supervision of foremen . The
clarification of authority helps in bringing efficiency in the running of a
concern. This helps in achieving efficiency in the running of a concern.
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27 Introduction to Supply Chain Management - I duplication or overlapping of efforts and this helps in bringing smoothness
in a concern‘s working.
4. Coordination between authority and responsibility :
Relationships are established among various groups to enable smooth
interaction toward the achievement of the organizational goal. Each
individual is made aware of his authority and he/she knows whom they
have to take orders from and to whom they are accountable and to whom
they have to report. A clear organizational structure is drawn and all the
employee s are made aware of it.
5. Effective administration :
The organization structure is helpful in defining the jobs positions. The
roles to be performed by different managers are clarified. Specialization is
achieved through division of work. This all leads t o efficient and effective
administration.
6. Growth and diversification :
A company‘s growth is totally dependent on how efficiently and smoothly
a concern works. Efficiency can be brought about by clarifying the role
positions to the managers, coordination between authority and
respon sibility and concentrating on specialization. In addition to this, a
company can diversify if its potential grows. This is possible only when
the organization structure is well - defined. This is possible through a set of
formal structures.
7. Sense of secu rity:
Organizational structure clarifies the job positions. The roles assigned to
every manager are clear. Coordination is possible. Therefore, clarity of
powers helps automatically in increasing mental satisfaction and thereb y a
sense of security in a co ncern. This is very important for job - satisfaction.
8. Scope for new changes :
Where the roles and activities to be performed are clear and every person
gets independence in his working, this provides enough space to a
manager to develop his talents and f lourish his knowledge. A manager
gets ready for taking independent decisions which can be a road or path to
adoption of new techniques of production. This scope for bringing new
changes into the running of an enterprise is poss ible only through a set of
organizational structure.
1.3.3 Coordination :
 Coordination is the function of management which ensures that
different departments and groups work in sync.
 Therefore, there is unity of action among the employees, groups, and
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28 Supply Chain Management and Logistics
28  It also brings harm ony in carrying out the different tasks and activities
to achieve the organization's objectives efficiently.
 Production Network Coordination or Supply Chain Coordination
(PNC / SCC) is a viable way to deal with further develop inventory
network (SC) execut ion.
 The coordination can be accomplished when associated elements
cooperate by sharing assets and data to accomplish normal targets
adjusted to expand client an incentive for the whole SC.
 There are various systems by which the SC individuals can organi ze,
for example contracts, data sharing, data innovation and cooperative
drives.
 To convey regularly and actually, the accomplices are expected to
have great data frameworks and ability to share data.
 To arrange with one anot her the SC individuals are ex pected to have
abilities to successfully carry out coordination components.
Features of coordination :
Coordination is the integration, unification, synchronization of the efforts
of the departments to provide unity of action f or pursuing common goals.
 A force that binds all the other functions of management. It is
relevant for group efforts and not for individual efforts. Coordination
involves an orderly pattern of group efforts. In the case of individual
efforts, since the p erformance of the individual does not affect the
functioning of others, the need for coordination does not arise.
 It is a continuous and dynamic process. Continuous because it is
achieved through the performance of different functions.
 Also, it is dynami c since functions can change according to the stage
of work. Most organizations have some sort of coordination in place.
 However, the management can always make special efforts to
improve it. Coordination emphasizes the unity of efforts.
 This involves fixing the time and manner in which the various
functions are performed in the organization. This allows individuals to
integrate with the overall process.
 A higher degree of coordination happens when the degree of
integration in the performance of vario us functions increases. It i s the
responsibility of every manager in the organization.
 In fact, this is integral to the role of a manager because he
synchronizes the efforts of his subordinates with others.
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29 Introduction to Supply Chain Management - I Types of coordination:
1. Vertical Coordinati on:
Vertical coordination is the coordination between different levels of the
organization to ensure that all levels of organization are in harmony with
the organizational policies and programmes. This is achieved through
delegation of authority by direct ing and by controlling.
2. Horizontal Coordination:
Horizontal coordination is the coordination between departments on the
same level of managerial hierarchy. Coordination between production and
marketing departments at the same level or organizational h ierarchy is an
example of hor izontal coordination. This is achieved by forming cross -
functional teams and self -managed teams.
3. Internal Coordination:
Vertical and horizontal types of coordination, if carried out within an
organization, are called inter nal coordination. Internal co ordination is
achieved through following techniques:
4. External Coordination:
Success or failure of an organization also depends on number of external
forces. No organization can operate in isolation, it has to continuously
interact with dynamic environ mental forces and devise its strategies to
respond to such forces to survive.
1.4 SUMMARY In the 21st century, changes in the business environment have contributed
to the development of supply -chain networks. First, as an outco me of
globalization and the p roliferation of multinational companies, joint
ventures, strategic alliances, and business partnerships, significant success
factors were identified, complementing the earlier " just-in-time", lean
manufacturing , and agile manufacturing practices. Second, technological
chan ges, particularly the dramati c fall in communication costs (a
significant component of transaction costs), have led to changes in
coordination among the members of the supply chain network. The
importance of supply chain management proved crucial in the 20 19-2020
fight against the cor onavirus (COVID -19) pandemic that swept across the
world.
During the pandemic period, governments in countries which had in place
effective domestic supply chain management had enough medical supplies
to support their needs an d enough to donate their surp lus to front -line
health workers in other jurisdictions. The devastating COVID -19 crisis in
US has turned many sectors of the local economy upside down, including
the country‘s storied logistics industry. Some organizations wer e able to
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30 Supply Chain Management and Logistics
30 1.5 EXERCISE A. Fill the blanks :
1. ___ provides a low -cost service for export production. (Pick the right
option)
a) Source facility
b) Offshore facility
c) Contributor facility
d) Outpo st facility
Ans. b) Offshore facility
2. If facilities have lower fixed costs many local facilities can be
established because this reduces ___
a) Fixed costs
b) Exchange rates
c) Transportation costs
d) Taxes
Ans. c) Transp ortation costs
3. The factors su ch as ___, costs, and also the situations of technology
change must be considered while selecting a location. (Pick the right
option)
a) Future demand
b) Cultural independence
c) Taxes
d) Workforce
Ans. a) Future demand
4. A ___ adds details to the m ission.
a) Business strategy
b) Corporate strategy
c) Functional strategy
d) Vision
Ans. b) Corporate strategy
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31 Introduction to Supply Chain Management - I 5. Moving goods from producer to the distributor is called as........
a) Downstream
b) Upstream
c) Horizo ntal stream
d) None of thes e
Ans. a) Downstream
B. True/False:
1. JIT delivery, i.e. frequent deliveries of small shipments, actually
results in an increase in the transportation cost per unit.
Ans. TRUE
2. The materials in the supply chain flow towa rd the end of the chain,
while the information and the dollars move toward the beginning of
the chain.
Ans. FALSE
3. Supply chains are sometimes referred to as value chains because they
reflect the concept that value is added as goods and services progre ss
through the chain.
Ans. TRUE
4. The goal of supply chain management is to synchronize supply and
demand of all of the organizations that are part of the chain.
Ans. TRUE
5. The need for supply chain management increases as globalization
increases.
Ans. TRUE
C. Short Notes :
1. Explain in detail the concept of supply chain management.
2. Define the role of supply chain management in business.
3. Explain the importance of supply chain management.
4. Provide a detailed explanation on the evolution o f SCM.
5. Explain barriers t o SCM.

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32 Supply Chain Management and Logistics
32 D. Answer in brief :
1. Explain the concept of organizing in SCM in detail.
2. Explain in detail the process of SCM in contemporary business
scenario.
3. Explain the concept of organizing with reference to SCM.
4. Explain the features of SCM in detail.
5. Explain the principles of SCM in detail.

*****
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33 2
INTRODUCTION TO SUPPLY CHAIN
MANAGEMENT - II
Unit Structure
2.0 Objectives
2.1 Introduction
2.2 Innovation
2.3 Forecasting
2.4 Supply chain intermediaries
2.5 Summary
2.6 Exercise
2.0 OBJECTIVES 1. Develop a sound understanding of the important role of supply chain
management in today’s business environment.
2. Become familiar with current supply chain management trends
Understand and apply the current supply chain theories, practices and
concepts utilizing case problems and problem -based learni ng
situations.
3. Learn to use and apply computer -based supply chain optimization
tools including the use of selected state of the art supply chain
software suites currently used in business.
4. Develop and utilize critical management skills such as nego tiating,
working effectively within a diverse business environment, ethical
decision making and use of information technology.
2.1 INTRODUCTION Supply chains have existed since ancient times, beginning with the very
first product or service created and sol d. With the advent of
industrialization, SCM became more sophisticated, allowing companies to
do a more efficient job of producing and delivering goods and services.
For example, Henry Ford’s standardization of automobile parts was a
game -changer that allo wed for the mass production of goods to meet the
demands of a growing customer base. Over time, incremental changes
(such as the invention of computers) have brought additional levels of
sophistication to SCM systems. However, for generations, SCM
essentia lly remained a linear, siloed function that was managed by supply
chain specialists.
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34 longer a linear entity. Rather, it’s a complex collection of disparate
networks that can be accessed 24 hours a day. At the center of these
networks are consumers expecting their orders to be fulfilled―when they
want them, the way they want them. Today’s supply chain is broad, deep,
and continually evolving, which means that it must be agile to be
effective. In the past, supply chains met enterprise and customer needs
through a beginning -to-end model that was largely unaffected by change.
Consumers now have multiple choices in how they p urchase products —in
stores, online, and more. They’ve also come to expect increasing levels of
customization. An agile supply chain can deliver on those expectations.
Commonly accepted definitions of supply -chain management include:
 The management of upstr eam and downstream value -added flows of
materials, final goods, and related information among suppliers,
companies, resellers , and final consumers.
 The systematic, strategic coordination of traditio nal business
functions and tactics across all business functions within a particular
company and across businesses within the supply chain, for the
purposes of improving the long -term performance of the individual
companies and the supply chain as a whole.
 The integration of key business processes across the supply chain for
the purpose of creating value for customers and stakeholders.
 According to the Council of Supply Chain Management Professionals
(CSCMP), supply -chain management encompasses the planning and
management of all activities involved in sourcing , procurement,
conversion, and logistics management . It also inc ludes coordination
and collaboration with channel partners , which may be suppliers ,
intermediaries , third -party service providers, or customers . Supply -
chain management integrates supply and demand management within
and across companies. More recently, the loosely coupled, self -
organizing network of businesses that cooperate to provide product
and service offerings has been called the Extended Enterprise .
2.2 INNOVATION  Business innovation is when an organisation introduces new
processes, services, or products to affect positive change in their
business.
 This can include i mproving existing methods or practices, or starting
from scratch. Ultimately the goal is to reinvigorate a business,
creating new value and boosting gro wth and/or productivity.
 Business innovation matters for one simple reason: value.
 In order for your business to thrive, it is crucial to be continually
innovating and improving. munotes.in

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35 Introduction to Supply Chain Management - II  Successful business innovation means finding new revenue
opportunities, op timising existing channels and, ultimately, generating
higher profits.
 It should also give companies an advantage over their competitors.
Innovation can greatly impact supply chain performance. Here are five
aspects of the supply chain that can be innovat ed to meet consumers’
needs and save on costs:
1. Design for Manufacture:
Design the product to make it easy to produce, thereby reducing the costs
of manufacturing.
2. Design for Assembly:
Design the product to minimize the number of components, easing the
assembly process. Often, this results in building subsystems that are easier
to put together.
3. Design for Product Serviceability:
Design the product for ease of assembly, disassembly and component
reuse. These products are often easier to repair, co mpared to products that
are assembled with bigger components, making individual parts more
difficult to access.
4. Design for Six Sigma:
Design the product to eliminate failures, improve consistency and reduce
costs. For example, an appliance manufacturer decides to use one type of
electric cord – instead of a dozen types – across all of its products.
Standardizing parts throughout the supply chain is a good example of
design for Six Sigma.
5. Design for Environment:
Design the product to reduce its envir onmental impact throughout its
lifecycle. This might be accomplished through less packaging, a more
efficient supply chain or by recycling waste along the way.
2.3 FORECASTING  Forecasting is the process of making predictions based on past and
present data. Later these can be compared (resolved) against what
happens.
 For example, a company might estimate their revenue in the next
year, then compare it against the actual results. Prediction is a similar,
but more general term.
 Forecasting might refer to specific formal statistical methods
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36 alternatively to less formal judgmental methods or the process of
prediction and resolution itse lf.
 Usage can differ between areas of application: for example,
in hydrology the terms "forecast" and "forecasting" are sometimes
reserved for estimates of values at certain specific future times, while
the term "prediction" is used for more general estimates, such as the
number of times floods will occur over a long period.
 Risk and uncertainty are central to forecasting and prediction; it is
generally considered good practice to indicate the degree of
uncertainty attaching to forecasts.
 In any case, the data must be up to date in order for the forecast to be
as accurate as possible. In some cases the data used to predict the
variable of interest is itself forecast.
 Data -driven forecasting provides more accurate predictions, but
qualitative data also plays a significant role in su pply chain
forecasting and has proven to be just as effective.
 In many cases, ecommerce brands use a combination of both
quantitative and qualitative forecasting methods to get as close to
accurate predictions as possible.
 However, qualitative forecasti ng methods come in handy when there
is a lack of data. Oftentimes, new businesses or innovative products
rely on qualitative forecasting methods to make predictions.
Here are the most common qualitative forecasting methods used in
ecommerce supply chain fo recasting.
1. Market research :
Market research is a best practice for any business, whether it’s selling a
product or even a service.
For ecommerce sales, market research can be used to predict supply and
demand, and help determine whether or not there i s strong demand for a
product that will support profit goals.
Market research can be executed internally by marketing or sales experts,
or businesses can hire a third -party that specialize in market research.
There are different tactics used, from develop ing stakeholder surveys,
conducting a thorough competitive analysis, or even interviewing experts
in a specific field or industry.
2. Delphi method :
The Delphi method consists of market orientation and judgments within a
small group of experts or advisors , which is then sorted, grouped, and
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37 Introduction to Supply Chain Management - II The opinions of the experts are gathered individually to avoid the
influence of others’ options, which differs from a panel discussion or
focus group. The gathering of opinions is outso urced to a third -party,
which analyzes the opinions and information shared.
Once reviewed closely, the information is then summarized with an
emphasis on different patterns or trends before handing the findings over
to the business to review.
This method has proved effective and dependable for long -term
forecasting.
3. Historical analysis :
Historical analysis uses the sales history of a product having a parallel
relationship with a present product to predict future sales.
It can be utilized to predict the market’s response to a new product or
product line. For instance, if you sell vacuums, you would look at past
performance on your highest selling vacuum models. Then, you would
compare whether or not the features for the new vacuum are similar yet
offer so mething new and improved in terms of settings and options.
Historical data can also be collected by looking at your competition’s
high-selling products and comparing similar products in your line to
determine demand when possible.
4. Panel consensus :
The panel consensus method brings together members of a business across
all levels to establish its forecast. It is an open process that allows all the
participants to express their opinions and predictions based on what they
know.
For example, you could wo rk with your ecommerce customer service team
to identify which products are being returned most often and why, or work
with your sales team to get insights on what customers are as king for.
2.4 SUPPLY CHAIN INTERMEDIARIES Intermediaries or middlemen reference the groups that work between
farmers, processors, distributors and retailers and fulfil a variety of
connecting and facilitating roles. These groups usually take the name of
wholesaler, trader, distributor, importer or broker. Producers Market is
not against intermediaries. In fact, there are many examples out there of
value chains that require intermediary roles to facilitate farmers’ access to
local, regional or diverse mark et channels. Intermediaries in the supply
chain can take risks, provide financing, set up sales, and manage complex
relationships with downstream buyers, distributors, and other stakeholders.

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38 2.4.1 Types :
There are four commonly known types of intermedi aries, namely
marketing agents, wholesalers, distributors, and retailers.
Marketing Agents :
Marketing agents, sometimes also known as brokers, are private
individuals or firms that facilitate the selling of a product . They usually act
as marketers or representatives on behalf of the sellers and don’t actually
own the product that is being sold. The role of these agents can be better
understood by observing the role of a real estate broker. Such
intermediaries are paid a cut from the transaction, and they act only to
connect the buyer to the seller.
Marketing agents are not only limited to the field of real estate. Their
services are commonly used across the internati onal trade scene,
particularly in travel services. When companies cannot reach the desired
customers directly, they employ a marketing agency to help them make
sales.
Wholesalers :
A wholesaler buys goods in bulk from the producer and then sells them to
retailers in smaller quantities, but these quantities are still quite large for
the individual consumers. The wholesale business works on the simple
principle that bulk buying results in a lower per -unit cost. A wholesaler
buys goods in bulk from a factory at cheaper rates and sells them to
retailers at a higher one, the cost difference constitutes the wholesaler’s
profit. For instance, a wholesaler purchases 5000 units of a product from a
producer at $1 each. A retailer only needs 500 pieces at a time, but th ey’ll
purchase it at $1.25 per unit from the wholesaler.
Wholesalers are fully independent intermediaries purchasing and selling
all kinds of products. They have no associations with particular
companies. However, it’s up to the wholesaler to choose whethe r they deal
in a wide range of products or focus on a specific niche.
A key point about wholesalers is that they buy in bulk and sell in bulk,
only that their selling quantities are lesser than buying quantities. Rarely
do wholesalers sell directly to end consumers unless they require an
unusually large amount of goods.
Distributors :
A distributor works much in the same way as a wholesaler. The only
difference is that while a wholesaler does not have any association with
producers, a distributor aims to pro mote and sell the goods from a specific
producer only.
It could be said the distributor is a hybrid of a wholesaler and a marketing
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39 Introduction to Supply Chain Management - II commission for the sales they make. But their mo de of operation is in
bulk, just like a wholesaler.
Retailers :
The retailer is the last intermediary link in the supply chain that leads up to
the consumer. These are the individuals or firms that customers go to buy
products for day -to-day use. Retailers source large quantities of goods
from wholesalers and sell them to customers in whatever quantity the
average person buys a specific good.
Yet again, the sequence of increasing per -unit costs continues as the
retailer sells each unit at a higher price to t he customers. The retail
business is all about advertising products to the wider population and
making it easier for them to buy conveniently.
2.4.2 Channels of Distribution for Industrial goods :
A distribution channel is a chain of businesses or intermedi aries through
which a goo d or service passes until it reaches the final buyer or the end
consumer. Distribution channels can include wholesalers , retailers ,
distributors, and even the internet.
A distribution channel is a path by which all goods and services must
travel to arrive at the intended consumer. Conversely, it also desc ribes the
pathway payments make from the end consumer to the original vendor.
Distribution channels can be short or long, and depend on the number of
intermediaries required to deliver a product or service.
1. The first channel is the longest because it i ncludes all four: producer,
wholesaler, retailer, and consumer. The wine and adult beverage
industry is a perfect example of this long distribution channel. In this
industry —thanks to laws born out of prohibition —a winery cannot
sell directly to a retailer . It operates in the three -tier system, meaning
the law requires the winery to first sell its product to a wholesaler who
then sells to a retailer. The retailer then sells the prod uct to the end
consumer.
2. The second channel cuts out the wholesaler —where the producer sells
directly to a retailer who sells the product to the end consumer. This
means the second channel contains only one intermediary. Dell, for
example, is large eno ugh to sell its products directly to reputable
retailers such as Best Buy.
3. The third and final channel is a direct -to-consumer model where the
producer sells its product directly to the end consumer. Amazon,
which uses its own platform to sell Kindles to its customers, is an
example of a direct model. This is the shortest distribution channel
possible, cutting out both the wholesaler and the retailer.

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40 4. Manufacturer to industrial customers:
This is a common channel for expensive industrial products like heavy
equipment and machines. There needs to be a close relationship between
the manufacturer and the customer, beca use the product affects the
operations of the buyer. The seller has to participate in many activities like
installation, commissioning, quality control and maintenance jointly with
the buyer. The seller is responsible for many aspects of the operations of
the product long after the product is sold. The nature of the product
requires a continuing relationship between the seller and the buyer. The
large size of the order makes direct selling and distribution economical.
5. Manufacturer to agent to industrial customer:
A company that sells industrial products can employ the services of an
agent who may sell a range of products from several producers on a
commission basis. Such an arrangement spreads selling costs and is
beneficial to companies who do not have t he resources to set up their oThe
arrangement allows the seller to reach a large number of customers
without having to invest in a sales team. But the company does not have
much control over the agent, who does not devote the same amount of
time and attent ion as a company’s dedicated sales team.
6. Manufacturer to distributor to industrial customer:
For less expensive, more frequently purchased products, distributors are
used. The company has both internal and field sales staff. Internal staff
deals with cu stomer and distributor generated enquiries and order placing,
order follow -up and checking inventory levels. Outside sales staff are
proactive. They find new customers, get product specifications, distribute
catalogues and gather market information. They a lso visit distributors to
address their problems and keep them motivated to sell the company’s
products. Distributors enable customers to buy small quantities locally.
7. Manufacturer to agent to distributor to industrial customers:
The manufacturer employ s an agent rather than a dedicated sales force to
serve distributors mainly because it is less expensive to do so. The agent
may sell the goods of several suppliers to an industrial distributor, who
further sells it to the business user. This type of chann el may be required
when business customers require goods rapidly, and when an industrial
distributor can provide storage facilities.
2.4.3 Channels of distribution for consumer goods :
Manufacturers and industrial customers interact extensively during the
buying process, and even afterwards, as most industrial products need to
be routinely serviced. Consumer channels are normally longer because a
large number of geographically dispersed customers have to be reached.
The consumers buy in small quantities. The information needed to arrive
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41 Introduction to Supply Chain Management - II Manufacturers may reach out to consumers either directly, i.e., without
using distribution channels, or by use.
1. Manufacturer to consumer:
Direct marketing includes use of personal selling, direct mail, telephone
selling and internet. Avon cosmetics, Tupperware, Aqua guard and
Amazon.com are examples of companies engaged primarily in direct
marketing. The company contacts customers directly th rough
salespersons, mail, telephone, or internet and makes sales. The products
are sent directly to customers by the manufacturers.
2. Manufacturer to retailer to consume r:
Retailers have grown in size. Growth in retailer size means that it has
become econ omic for manufacturers to supply directly to retailers rather
than through wholesalers. Supermarket chains and corporate retailers
exercise considerable power over manufacturers because of their
enormous buying capabilities. Wal -Mart uses its enormous reta il sales to
pressurize manufacturers to supply products at frequent intervals directly
to their store at concessional prices.
3. Manufacturer to wholesaler to retailer to consumer:
For small retailers with limited order quantities the use of wholesalers
makes economic sense. Wholesalers buy in bulk from producers and sell
smaller quantities to numerous retailers. But large retailers in some
markets have the power to buy directly from manufacturers and thus cut
out the wholesalers. These big retailers are al so able to sell at a cheaper
rate to consumers than retailers who buy from the wholesaler. Wholesalers
dominate where retail oligopolies or monopolies are not dominant.
4. Manufacturer to agent to wholesaler to retailer to consumers:
A company uses this ch annel when it enters foreign markets. It does not
have enough sales to warrant the setting up of a sales and distribution
infrastructure, and therefore, it delegates the task of selling its product to
an agent who does not take title to the goods. The agen t contacts
wholesalers in the foreign market and receives commission on sales.
Companies want to sell to a larger number of customers, and hence are
increasingly using multiple channels to distribute their products. A
company’s product may be found in a co mpany -owned store, an exclusive
store, a multi -brand store and a discount store simultaneously. Companies
have realized that all customers of a product do not buy from the same
retailer.
2.4.4 Channel of distribution at service level :
1. Direct Sales Metho d:
Some of the best examples of distribution channels in marketing are direct
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42 an intermediary. Direct sales involve personal visits, mail order and online
solicitation such as newsle tters and email subscription. It gives you
complete control over how you present your offers and the prices you can
offer to your customers. Direct interaction means direct feedback, which
lets you adjust your marketing strategy accordingly.
2. Virtual Ser vice Distribution :
One of the newest examples of distribution channels in marketing is
offering virtual service. For example, a sales consultant could offer his
services through a combination of phone, email, or video conferences that
would make use of sof tware available on cloud platforms. Remote service
delivery is also available to artists and writers who create content on a
freelance basis. For example, if you’re a website content writer, you can
create content for clients and deliver them on platforms such as Basecamp,
which enable you to post content and maintain milestones without ever
having to speak to your clients. By exclusively distributing your services
online, you can save the costs of owning an office that requires a monthly
rental payment for space.
3. Agents or Referrals :
Using an agent or a referral is one of the best examples that channels of
distribution are different for different products. Let’s say that you make a
living as a marketing guru who attends conferences and training sessions.
However, you may not enjoy the marketing effort it takes to gain
profitable clients. You can take advantage of professional agents whose
job is to find work that matches your talents. These agents would take a
commission off the work you book, and can eve n keep your name relevant
within the industry through marketing. You can also take advantage of
referrals through industry professionals. For example, if you’re a wedding
planner, you could establish a referral program with a wedding
photographer or a wedd ing gown boutique in which you offer cross -
promotions that benefit both your service businesses.
4. Distribution Through Publication :
Many service customers have become used to the proliferation of
publications that provides them with exactly what they nee d. In an on -
demand world, for example, you can deliver your service through a blog
that amplifies and explains various services that you offer, a website that
not only sells your service but also offers written and visual content that
answers questions and concerns related to your service, or an e -book that
customers can order directly online. Keeping in mind that channels of
distribution are different for different products, you may choose to
monetize your publications or offer them as an incentive for you r
customers to buy a service. For example, if you own a customer -
relationship management software company, you may choose to offer a
specialized white paper about customer service marketing that prospects
can download off your website. Once they download t hat white paper, you
could offer a discount for them to purchase your software, or offer a free
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43 Introduction to Supply Chain Management - II 5. Service provider to consumer or industrial customer:
Close relationship between service provider and customer means that
service supply has to b e direct, for instance, healthcare. The service
provider operates several outlets to reach out to the final consumer or to
the industrial buyer. Many service providers such as banks, retail outlets,
service centers operate via this distribution channel.
6. Service provider to agent to consumer or industrial customer:
Agents are used when the service provider is geographically away from
customers and when it is not economical for the provider to establish its
own local sales team. For instance, many financia l institutions are using
this distribution channel to cross sell their services to customers by using a
database of existing or potential customers.
7. Service provider via internet to consumer or industrial customer:
Increasingly, services like music, sof tware solutions and financial
information are being distributed via the internet. This distribution channel
is successful in case of products which can be downloaded. It is a very
useful channel for information products. Nowadays, e -tickets have become
very popular.
2.4.5 Factors for selection of suitable channels :
Various constituents of the marketing mix like promotion etc., are closely
related to the channels of distribution. A wrong choice of distribution
channel ultimately increases the price of the pr oduct. Deciding a proper
channel of distribution is not an easy task. It involves a careful study and
consideration of many factors stated below. Some of the factors to
consider while selecting a channel of distribution are: (1) The Nature of
the Product ( 2) The Nature of the market (3) The Nature of Middlemen (4)
The nature and size of the manufacturing unit (5) Government Regulations
and Policies and (6) Competition.
1) The Nature of the Product:
These factors include physical characteristics of a product and their impact
on the selection of a particular channel of distribution.
Various factors under this category are:
(a) Perishability:
Products which are perishable in nature are distributed by employing a
shorter channel of distribution so that goods cou ld be delivered to the
consumers without delay. Delay in distribution of these products will
deteriorate their quality.
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44 (b) Size and weight of product:
Bulky and heavy products like coal and food grains etc. are directly
distributed to the users involving heavy transportation costs. In order to
minimise these costs a short and direct distribution channel is suitable.
(c) Products with lesser :
Unit value and high turnover are distributed by employing longer channels
of distribution. Household products like utensils, cloth, cosmetics etc. take
a longer time to reach the consumers. On the other hand, products like
jewellery having high product value are directly sold to the consumers by
the jewellers.
(d) Standardisation:
Products of standard size and quality usually take longer by adopting
longer channels of distribution. For example, machine tools and
automobile products which are of standard size reach the consumer
through the wholesalers and retailers. Un -standardised articles take less
time and pass -throu gh shorter channels of distribution.
(e) Technical Nature of Products:
Industrial products which are highly technical in nature are usually
distributed directly to the industrial users and take lesser time and adopt
shorter channels of distribution. In thi s case after sales service and
technical advice is provided by the manufacturer to the consumers.
On the other hand, consumer products of technical nature are usually sold
through wholesalers and retailers. In this manner a longer channel of
distribution i s employed for their sales. After sales services are provided
by the wholesalers and retailers. Examples of such products are
televisions, scooters, refrigerators, etc.
(f) Product Lines:
A manufacturer producing different products in the same lines sells
directly or through retailers and less time is consumed in their distribution.
For example, in automobile rubber products this practice is followed. On
the other hand, a manufacturer dealing only in one item appoints sole
selling agents, wholesalers and re tailers for selling the product. For
example, in the case of ‘Vanaspati Ghee’ , a longer distribution channel is
undertaken.
2) The Nature of the market:
This is another factor influencing the choice of a proper channel of
distribution. In the words of Lazo and Corbin “Marketing managements
select channels on the basis of customer wants -how, where and under what
circumstances. The number of buyers of the product affects the choice of a
f channel of distribution.
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45 Introduction to Supply Chain Management - II Following factors are considered in this rega rd:
(a) Consumer of industrial market:
In the case of industrial markets, the number of buyers is less; a shorter
channel of distribution can be adopted. These buyers usually directly
purchase from the manufacturers. Marketing intermediaries are not needed
in this case.
But in the case of consumer markets, where there are a large number of
buyers, a longer channel of distribution is employed. Distribution process
cannot be effectively carried out without the services of wholesalers and
retailers.
(b) Number of prospective buyers:
If the number of buyers is likely to be more, the distribution channel will
be long. On the other hand, if the number of consumers is expected to be
less, the manufacturer can effectively sell directly to the consumers by
appointing salesmen.
(c) Size of the order:
If the size of the order placed by the customers is big, direct selling can be
undertaken by the manufacturer as in the case of industrial goods. But
where the size of the order is small, middlemen are appointed to distrib ute
the products.
(d) Geographic concentration of market:
Where the customers are concentrated at one particular place or market,
the distribution channel will be short and the manufacturer can directly
supply the goods in that area by opening his own shop s or sales depot. In
cases where buyers are widely scattered, it is very difficult for the
manufacturer to establish a direct link with the consumers, services of
wholesalers and retailers will be used.
(e) Buying habits of customers:
This includes tastes, preferences, likes and dislikes of customers.
Customers also expect certain services like credit and personal attention
and after sales services etc. All these factors greatly influence the choice
of distribution channel.
3) The Nature of Middlemen:
Marke ting intermediaries are vital components in the distribution of
goods. They greatly influence the marketing of goods.

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46 Important factors relating to the selection of a particular middleman
are explained as under:
(a) Cost of distribution of goods:
Cost of distribution through middlemen is one of the main considerations
to be taken into account by the manufacturer. Higher cost of distribution
will result in the increased cost of product. The manufacturer should select
the most economical distribution channe l.
In finalising the channel of distribution, services provided by the
intermediaries must be kept in mind. It may be pointed out that the
manufacturer can select an expensive marketing intermediary because that
may ensure various marketing services which cannot be offered by others.
(b) Availability of desired middlemen:
Sometimes desired middlemen may not be available for the distribution of
goods. They may be busy dealing with competitive products. Under such
circumstances the manufacturer has to make hi s own arrangements by
opening his branches or sales depots to distribute the goods to the
consumers.
(c) Unsuitable marketing policies for middlemen:
The marketing policies of the manufacturer may not be welcomed by the
middlemen the terms and conditions m ay not favour the middlemen. For
example, some wholesalers or retailers would like to act as sole selling
agents for the product in a particular area or region.
(d) Services provided by middlemen:
The manufacturer should select those middlemen who provide various
marketing services viz, storage, credit and packing etc. At the same time
the middlemen should ensure various services to customers.
(e) Ensuring greater volume of sales:
A manufacturer would like to appoint middlemen who assure greater sales
volum e over the long run.
(f) Reputation and financial soundness:
In appointing a middleman, the manufacturer must take into consideration
the financial stability and reputation of the middleman. A financially
sound middleman can provide credit facilities to cu stomers and make
prompt payment to the manufacturer.
4) The nature and size of the manufacturing unit:
The nature and size of the manufacturing unit has a great impact on the
selection of a distribution channel.
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47 Introduction to Supply Chain Management - II The various considerations in this regard ar e as follows:
(A) Manufacturer Reputation and Financial Stability:
Reputed and financially sound manufacturing concerns can easily engage
middlemen as compared to lesser reputed and newly established units.
Usually, a manufacturing unit having a sound fina ncial base can easily
distribute the goods without appointing middlemen by opening their own
sales depots and branches. A financially weaker unit cannot operate
without the help of middlemen.
(B) Ability and Experience of the Undertaking:
Industrial undert akings having ample marketing ability and experience can
effectively manage their distribution activities themselves. They have
lesser dependence on intermediaries. On the other hand, marketing units
possessing lesser marketing ability and experience depen d more on
middlemen for the distribution of goods.
(C) Desire for Control of Channel:
A manufacturer may resort to a shorter distribution channel in order to
exercise effective control over distribution. This is suitable in case of
perishable goods and is helpful in establishing direct link between the
manufacturer and the consumer. The cost of distribution may be more by
adopting such a channel of distribution.
(D) Industrial Conventions:
Industrial conventions followed influence the selection of distribut ion
channel. If a particular mode of distribution is adopted in an industry, the
same will be followed by every manufacturing unit in that industry in
distribution their products.
(E) Services Provided By the Manufacturers:
The selection of marketing inter mediaries is also influenced by various
services provided by the manufacturer. These services include extensive
advertisement for the product, after sales services and facilities of credit.
The manufacturers providing these services can easily avail the se rvices of
reputed retailers and wholesalers.
5) Government Regulations and Policies:
Government policies and regulations also influence the choice of
distribution channels. The Government may impose certain restrictions on
the wholesale trade of a particul ar product and takeover the distribution of
certain products. All these restrictions have a direct impact in selecting the
channel of distribution.
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48 6) Competition:
The nature and extent of competition prevalent in an industry is another
detrimental conside ration in selecting a distribution channel. Different
manufacturers producing similar products may employ the same channels
of distribution.
2.5 SUMMARY A Supply Chain encompasses all activities associated with the flow and
transformation of goods and ser vices from the raw materials stage through
to the end -user, as well as the associated information flows. The
management of supply chain requires effort to integrate the processes in
the supply chain. To obtain a valuable chain with satisfied customers it i s
necessary to have an effective coordination and integration of materials
throughout the supply chain. Simultaneously, attention can be paid to
reduction of costs. Supply chain management (SCM) is the centralized
management of the flow of goods and servic es and includes all processes
that transform raw materials into final products. By managing the supply
chain, companies can cut excess costs and deliver products to the
consumer faster.
2.6 EXERCISE A. Multiple Choice Questions :
1. At ___ level, the decis ions are made with long -term objectives. (Pick
the right option)
a) Performance
b) Strategic
c) Tactical
d) Operational
Ans. b) Strategic
2. ___ modes of transportation suit high quantity shipments. (Pick the
right option)
a) Air transportation
b) Water transportation
c) Rail transportation
d) Intermodal transportation
Ans. b) Water transportation
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49 Introduction to Supply Chain Management - II 3. Which of the following is the cost involved in holding goods in a
warehouse?
a) Facility cost
b) Processing cost
c) Inventory cost
d) Transporta tion cost
Ans. c) Inventory cost
4. Which of the following are true with respect to traffic assignment?
a) Estimating the volume of traffic on a network
b) Estimating the turning movements at intersections
c) Both a) and b)
d) None of the above
Ans. c) Both a) and b)
5. ___ modes of transportation best suit time -sensitive and emergency
shipments. (Pick the right option)
a) Air
b) Truck
c) Pipeline
d) Water transportation
Ans. a) Air
B. True/False :
1. A company's supply chain involves the flow of materials and
information from suppliers, through production, to the end users.
Ans. TRUE
2. In supply chain organizations, functions must operate independently
of each other.
Ans. FALSE
3. CPFR is the use of e -mail between vendors and purchasing t o place
orders.
Ans. FALSE
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50 4. Distribution requirements planning (DRP) is an expanded concept of
MRP which incorporates multinational inventory management.
Ans. FALSE
5. Every business organization is part of at least one supply chain.
Ans. TRUE
C. Sho rt Notes:
1. Explain Principles of SCM which provide better perspective to
business growth.
2. Explain the needs of SCM in contemporary business.
3. Explain channels for distribution of goods at consumer level.
4. Explain channels for distribution of goods at service level.
5. Explain innovation management on SCM.
D. Answer in brief :
1. Explain in detail forecasting in SCM and the need for the same in
business.
2. Explain supply chain intermediaries in SCM in detail.
3. Explain the factors for selecting a suitable channel in a business
scenario.
4. Explain the role of supply chain management to satisfy customer
needs on ontime delivery.
5. Explain the channels of distribution of industrial goods.

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51 MODULE - II
3
PERSPECTIVES OF SUPPLY CHAIN
MANAGEMENT - I
Unit Structure
3.0 Objectives
3.1 Introduction
3.2 Global Perspective
3.3 Summary
3.4 Exercise
3.5 References
3.0 OBJECTIVES 1. To understand the Global Perspective of SCM
2. Understanding measures to e valuate efficien cy in global supply chain
management.
3. Understanding Different approaches in Global SCM
4. To understand global market forces
5. Identifying and understanding the form of network models
3.1 INTRODUCTION In the process of creating supply chains, gl obalization has raised risk while
also providing enormous opportunities. Several supply chains have
discovered that they are unprepared for the elevated risk that has come
along with globalization. Therefore, when planning long -term strategies,
managers mu st take both opp ortunities and uncertainty into consideration
in the global network of supply chains. Managers address risk in this
chapter and identify potential sources for it in global supply chains,
describe the procedures used to assess network design decisions in th e
face of uncertainty and demonstrate how they influence global supply
chain choices.
Because of the unstoppable expansion of global mass media, such as the
Internet, TVs, radios, news media, and movies, our globe has effectively
shrunk int o a small global village, which is one of the causes of the global
market convergence.
Going global makes perfect sense for businesses and their supply chains
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52 profit -making as well as to areas where resources are less expensive to
lower the expenses associated with the entire supply chain.
Interorganizational partnerships at the cutting edge of technology and
market presence in marketplaces that are primarily non -homogeneous can
also be significant forces at work.
3.1.1 Characteristics of Global Supply Chain :

1. Borderless :
The evolution of the supply chain is no longer constrained by national
boundaries in terms o f sourcing, mark eting, manufacturing, and delivery.
The obvious material flows of the globalized supply chain are a very small
part of this phenomenon without borders. In terms of intangible aspects of
global development like brands, services, technical co llaboration, and
funding, it is as strongly manifested. Borders between countries are much
less restrictive now than they always were. It might be argued that
technological advancements, regional and bilateral trade agreements, and
facilitation by internat ional organizati ons like the WTO, WB, GATT,
OECD, OPEC, and so on are to blame for this.
2. Cyber -connected :
The global business environment has evolved into an interconnected one
market through primary and increasingly significant cyber links rather
than a c ollection of num erous indigenous independent local marketplaces.
Because of this, the interconnectedness of our global corporate
environment is essentially "invisible," spontaneous, less under our control,
and unquestionably irreversible. Without cyber tec hnology, which m akes
it possible for huge volumes of data to be sent very fast and reliably,
globally dispersed international supply chains would not be feasible or
even understandable.
3. Deregulated :
Trade restrictions have been eliminated or at least great ly reduced
globa lly. A level playing field on the international stage has been created,
albeit imperfectly, through economic and free -trade zones around the
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53 Perspectives of Supply Chain Management - I forces are made simpler and el iminated through deregulatory measures.
More specifically, it has focused on promoting international trade and the
expansion of the world economy. The European Union, the zone covered
by the North American Free Trade Agreement, the Association of
Southeast Asian Nations, and others are examples of typical deregulated
zones. Deregulation moves society closer to a laissez -faire and free market
economy by reducing the amount of government control over how
business is conducted.
4. Environmental Concerns :
Concerns about the damag ing effects of business and economic
development on the environment have grown over the past ten years. The
evolution of today's global supply chain is significantly influenced by the
global drive for greener and more environmentally friend ly corporate
practices. Additionally, this is influenced by the decisions made by
legislators and regulatory bodies like the Environmental Protection
Agency (EPA). Leading economies' governments are getting more active
in promoting green business practices and formalizing more legislation
and regulation to impose on businesses in the future. One important
performance indicator of the sustainability of many international supply
chains is the carbon footprint.
5. Social Responsibility :
Additionally, there is a b roader socio eco nomic consequence. Fairtrade
and business ethics are increasingly being used as benchmarks for
measuring a company's social responsibility and as deciding elements in
business decisions. The consumer's perception of a company's brand is
shattered by social pressure. A sizable portion of consumers has started
basing their purchases on the supply chain's moral standards and social
responsibilities. Another crucial business environmental issue that can
make or fail a corporation is global corpo rate citizenship and social
responsibility.
6. Socio -cultural Factor :
“Culture plays an integral part in the decision -making process of
operations and supply chain managers”. Strategic decisions are not always
based on economic factors, according to the Behav ioral Theory of the
Firm approach, an economics -based concept for understanding the
motives of a corporation. Instead, strategic decisions are dependent on
managers' and decision -makers levels of aspiration. The research of
Weingarten and Durach strengthen s and expands th is behavioral theory
and includes national culture as an additional external force.
7. Landscape and Reachability :
There doesn't appear to be a barrier due to time or location between
providers and customers. Geographical restrictions still ex ist for some
businesses, limiting their supply chain options and decisions. For instance,
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54 country could be unable to combine its supply chain with the supply
networks of companies in the US. Since there is currently a trade war
between China and the US, the same holds for businesses based in China.
The most recent example of how geographic location might affect a
decision to integrate supply chains comes from Huawei.
8. Legal Environment :
Legal and contract ual risks frequently originate from disagreements about
the terms of a contract, different interpretations of those terms, or
noncompliance with those terms. Use or abuse of intellectual property can
also be seen as a legal risk, especially when the prospe ct of patent
infringement exists. In this category, lawbreaking and civil lawsuits are
also acceptable.
Instilling a zero -tolerance mentality toward any illegal action and
educating employees and management at all levels about the law are w ise
strategies f or avoiding legal liability.
3.2 GLOBAL PERSPECTIVE According to Slack and Lewis (2011), global supply entails the
identification, evaluation, negotiation, and configuration of resources
across multiple geographies. Companies are increasing ly looking for
suppliers in outlying areas. According to these authors, working with
suppliers from low -cost countries has enabled many companies to save
anywhere from 10% to 35% on costs. Given this scenario, global supply
chain management (GSCM) is a maj or focus for man y businesses and
business schools today (MENTZER et al., 2007a).
Today's global supply chain practices face several issues that are directly
related to market instability, economic downturns, and uncertain
repossession phases. These issues can either negat ively or positively affect
how businesses manage their distribution systems, manufacturing systems,
invoicing processes, and resource acquisition processes. Enterprises must
improve their supply chain strategy to stay competitive in this ch allenging
busine ss environment because of the multiple elements that are emerging
(Swartz, 2013).
3.2.1 Measuring the Value and Effectiveness of the Global Supply
Chain Network :
The whole discussion is related to the problem of designing and
implementing l ogistics -oriente d performance measurement and control
systems in the context of global supply chain management. Management
and decision -makers can determine the effectiveness and potential of
management initiatives with the use of performance measurement, which
also helps them grasp the situation. Performance measuring also aids in
focusing management efforts, updating corporate objectives, and re -
engineering business procedures. The continual enhancement of SCM
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55 Perspectives of Supply Chain Management - I section will discuss the fundamental conceptual, instrumental, and
application -related ideas of these control systems
1. Conceptual Aspects :
If a logistics performance describes the execution of a logistics process, it
is considered proc ess type related . It is directly concerned with the
execution of transport, handling, storing, order processing, packaging, or
signing process. When referring to the capacity throughput, intensity,
number of process items, place, duration, and date of proc ess execution,
the demand for such a logistics performance can be captured in greater
detail. An output - or results -oriented analysis of logistics performance
focuses on the performed change of an object's time - or space -related
characteristics. This could be a fulfilled delivery of a specific number of
products to a specific customer. Finally, logistics performance is the
outcome - or effect -related if it refers to the impact or benefit of a
completed process on the customer. It thus concerns the delivery s ervice,
an impor tant component of the marketing mix, and consists of at least the
four components listed below.
A. Delivery time :
The time it takes between receiving a customer order and receiving the
goods.
B. Delivery dependability :
The ability to meet agree d-upon delivery dates.
C. Delivery constitution :
A constitution that specifies how far the delivery itself is a cause for
complaint. It is determined by the accuracy of delivery in terms of type
and quantity, as well as the state of delivery, which is determ ined by the
extent to which the packing performs its security function.
D. Flexibility of delivery :
The ability to describe the extent to which the order processing system can
meet specific customer demands.

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56 Goals and functions of performance measurement :
Performance meas urement in global supply chains aims to support
problem -solving and decision -making processes by providing empirical
information about supply chain processes. It simplifies and refines the
communication of information about supply chain per formance between
people who are interested in the supply chain's value creation because it
can make its processes and effects visible from various perspectives and
provides the terms and results of measuring. As a result, it provides a
foundation for asses sing the consequ ences of supply chain decisions and
their premises. It supports global supply chain planning, coordination,
organisation, and control by constructing a transparent picture using
relevant performance dimensions. The following functions can b e
distinguished in greater detail.
a. Provision of information and transparency
b. Support of monitoring and attention directing
c. Problem recognition and early warning
d. Analysis of cause -and-effect relationships
e. Support of control activities
f. Support of research an d development ac tivities
g. The basis is for the performance evaluation of managers and
employees.
2. Instrumental Framework :
This fundamental concept can also be applied to performance
measurement in the global supply chain, as demonstrated by Kaplan and
Norto n's balanced sco recard concept. The balanced scorecard is balanced
in the manner that it combines multiple perspectives, dimensions, and
measures into a single tool. Strategic and operational aspects can be
balanced, as internal and external, financial and non-financial, cooperative
and competitive, and integrated and non -integrated ones. The balanced
scorecard approach to designing a performance measurement system
corresponds to the critical success factor approach in essence.
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57 Perspectives of Supply Chain Management - I 3. Usage -Related Aspects :
The ability to use p erformance measures for management purposes is
largely dependent on the user's thorough understanding of the process for
which the measurement system must be designed. The measurement
system can be used to operationalize and control critica l success factor s in
a well -known process, or it can be used to investigate new, poorly
understood problems. SIMONS distinguishes between a diagnostic and
interactive use of performance measurement systems.
a. Diagnostic Use of Measures :
Diagnostic control s ystems are forma l information systems that allow
managers and employees to ensure that the goals that have been translated
from strategy into concrete performance objectives are met. Diagnostic
use of performance measurement systems in global supply chains is used
to moni tor the efficiency and effectiveness of supply chain processes by
comparing actual values to defined standards and taking standardized
corrective action in the event of deviations from the predetermined course.
This type of use, however, re quires a thoroug h understanding of the
process as well as the relevant data, alternatives, and cause -and-effect
relationships of the problem. If one of these parameters is unclear or
missing, using rigid, predetermined rules and programmes to answer a
deviation is decepti ve. In such cases, management lacks the necessary
knowledge about how to improve performance and questions whether the
previously defined measures and objectives can still be used. The mode of
use must then be changed from exploitative diag nostic use to mo re
explorative interactive use.
b. Interactive Use of Measures :
In contrast to diagnostic control systems, interactive information systems
are those formal information systems used by managers and employees to
deal with new, unique, and compl ex situations. T he interactive use of
performance measurement systems in global supply chains allows for an
examination of the status quo and its underlying assumptions.
Furthermore, new possible developments and action plans utilizing the
measures to enga ge in a creative dialogue between managers and
employees must be investigated.
This interactive use does not necessitate the addition of new performance
metrics. Rather, the system should be highly flexible, allowing users to
question the situation's data , premises, and action plans, as well as create
new scenarios about possible cause -and-effect relationships and new
courses of action. Employees' active participation can not only enrich the
required information base but also improve their motivation.

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58 Diagnostic Use Interactive Use Process-type Routine process: Existence of sufficient problem-solving - knowledge Innovative process: Incomplete or unknown problem-solving-knowledge Process-planning Analytical:Translating strategies into action, i.e. goals and measures Creative, dialogue-oriented: Search for new goals and action-concepts Process-coordination Formal and standardised Informal, self-coordinating Process-control Measurement of actual values, comparison with standards and initiation of corrective action Trigger debates between management and employees, support learning processes. Source : Diagnostic and interactive use of performance measurement
systems in global supply hains (SIMONS1995, p.124)
3.2.2 Method and Criteria for Developing an Integra ted Performance
Measurement System :
Supply chain processes are created along the entire value chain, from
suppliers, logistics service providers, and manufacturers to retailers and
consumers. The division of labour within and between these supply chain
network members cre ates functional and organisational interfaces that
organizationally separate interdependent operational and logistical
activities.
The development process of a meaningful performance measurement
system can be described by the following step s:
a. Problem recog nition
b. Goal setting for the performance measurement system
c. Determination of the supply chain processor, respectively the object
of measurement
d. Deduction of performance perspectives, dimensions and measures
from the strategy (top -down) and t he operational p rocesses (bottom -
up)
e. Formulation of hypotheses about cause -and-effect -relationships to
select and assemble the relevant performance measures
f. Determination of the measuring modalities (techniques, periodicity,
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59 Perspectives of Supply Chain Management - I h. Continuous examination of the validity and further development or
reconstruction of the performance measurement system.
These steps should be guided by some normative criteria that can assist the
manager or emplo yee in building the performance measurement system as
well as evaluating its current state and potential alternatives. The
following section will compile these requirements.
3.2.3 Criteria for an Active Management of Performance
Measurement Systems :
The si ngle performance measures are the foundation of any global supply
chain performance measurement system. The problem is not so much the
creation of new metrics as it is the fact that theory and practice have
already produced many of them. Rather, active man agement of
perfo rmance measurement systems should attempt to evaluate and
consistently arrange the measures, keeping in mind that organizations
frequently have a large amount of data and information for these purposes.
The criteria in the table can be help ful to evaluate the quality of supply
chain performance metrics. Criterion Explanation Behavioural Soundness The metric minimises incentives for counter-productive acts such as programme-playing and is presented in a useful form. Compatibility The metricis compatible with the existing information, material, cash flows and systems in the organisation. Economy The benefits of using the metric outweigh the cost of data collection, analysis, and reporting. Integration The metric includes all relevant aspects of the process and promotes coordination across functions and divisions. Level of detail The metric provides a sufficient degree of granularity or aggregation for the user. Robustness The metric is interpreted similarly by the users, is comparable across time, location, and organisations, and isrepeatable. Usefulness The metricis readily understandable by the decision maker and provides a guide for action to be taken. Validity The metric accurately captures the events and activities being measured and controls for any exogenous factors. Source : Criteria for the qualities of supply chain performance metrics
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60 3.2.4. Factors and Forces Affecting Global Supply Chain
Management :
When discussing the globalization process, the most f requently mentio ned
market factor is the homogenization of customer needs. As a result,
dispersed production facilities that consider a variety of regional
differences are no longer required and are being replaced by fewer and
larger production sites that take advantage o f economies of scale.
A. Political and Legal Forces :
Political systems research is extensive and complex. A political system is
a country's system of politics and government. It oversees a
comprehensive set of rules, regulations, institutions , and attitudes. The
philosophy of each political system on individual and group rights, as well
as the role of government, is a key differentiator. The philosophy of each
political system influences the policies that govern the local economy and
business environment. Gov ernments intervene in international trade to
protect their country's economy and industry, as well as to promote and
preserve their social, cultural, political, and economic structures and
philosophies. Tariffs, subsidies, import quotas and VER, currency
controls, local content requirements, antidumping rules, export financing,
free-trade zones, and administrative policies are some of the key policy
areas in which governments can create rules and regulations to control and
manage the trade.

Governments ha ve several key policy areas that can be used to create rules
and regulations to control and manage the trade.
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61 Perspectives of Supply Chain Management - I a. Tariffs :
Tariffs are taxes levied on imported goods. Tariffs are classified into two
types: specific tariffs, which are levied as a flat fee, and ad valorem tariffs,
which are calculated as a percentage of the value. Many governments
continue to levy ad valorem tariffs to regulate imports and raise revenue.
b. Subsidies :
A subsidy is a government payment made to a producer. Subsidies ca n
take the form of tax breaks or low -interest loans, both of which are
common. Subsidies can also take the form of cash grants or government -
equity participation, which are less common because they necessitate the
use of government resources directly.
c. Free Trade Agreement s:
Many countries establish free -trade zones in specific geographic areas.
Tariffs, taxes, customs, procedures, and restrictions are reduced in these
areas to encourage trade with other countries.
d. Trade Protection Mechanism :
Many countries still require th at a certain percentage of a product or item
be manufactured or "assembled" in their country. To conduct business in
some countries, a local firm must be used as the domestic partner.
B. Cost -Related Factors :
Doing business abroad necessitates several differe nt cost considerations
than doing business at home. Aside from obvious costs like shipping and
monitoring technology for its logistical operations, the company must also
pay for costs associated with its marketing, finance, and economic
divisions.
a. A Locati onal Decision :
The location of a facility has a significant impact on various types of costs.
Direct, indirect, fixed, and variable costs are all included. The organisation
strives to provide its customers with products at the lowest possib le cost.
As a re sult, industrialists are taking a strategic and logical approach to
selecting the best location.
b. Cost of Labour :
As the economy begins to improve, increased demand will put additional
strain on already stressed industries. Customers expect their local
supermarket to have what they need in stock, but shelves will be empty
more frequently. Suppliers will struggle to keep up with rising consumer
product demand.

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62 3.2.5 Global Market Forces :
Market Forces :
The rise and success of multinational cor porations have a lready been
mentioned. It is obvious that these companies, in the role of customers, are
also globally present. The coordinated or even centralized purchase of
materials or services for decentralized use is a characteristic of the global
customer. Consider the global advertising industry. Most of their clients
are expanding internationally and focus their advertising budgets on one or
two globally present agencies. This pattern can also be seen in logistical
service providers. Companies pref er dealing with fewer partners as
logistics activities are increasingly outsourced. As a result, globally
present logistics service providers have preferred partners of globally
operating businesses. The globalization of customers is mirrored by the
global ization of chann els on the distribution side.
a. Competitive Forces :
The competitive environment is defined as the level of competition that a
company faces. The Merriam -Webster dictionary defines business
competition as "active demand by two or more organism s or kinds of
organisms for some environmental resource in short supply." Competition
in supply chain management refers to the match between demand and
supply in a competitive environment.
b. Demand Pattern :
Demand pattern analysis is a new area of supply cha in management
(SCM) that analyses customer and demand data to better predict demand
across multiple time horizons in a demand -driven value network.
c. Global Channel :
Top-performing supply chains share three characteristics. First off, they
are quick to resp ond to sudden ch anges in demand or supply. Second, as
market structures and environmental conditions change, they adapt. Third,
they align the interests of all supply -chain network members to optimize
performance.
d. Socio -Cultural Factors :
When developing an d implementing a company's marketing strategy,
social and cultural factors must be considered. These frequently linked but
somewhat disparate factors have varying effects on consumer and buyer
decisions. Customs, lifestyles, and values that define a societ y are
examples o f sociocultural factors. Aesthetics, education, language, law
and politics, religion, social organizations, technology and material
culture, values and attitudes are all examples of cultural aspects.

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63 Perspectives of Supply Chain Management - I e. Technological Factors :
The application o f information te chnology in supply chain management
improves visibility and accountability. To improve overall production
efficiency, a manufacturing company must have a clear view of the current
stage of in -production products, anticipate any potential pr oblems or
delays , and be able to align production schedules accordingly.

3.2.6 Types of Global Supply Chain :
The truth is that every supply chain management philosophy involves
aspects of responsiveness and efficiency. And when you think about it,
that m akes sense. Your supply chain won't be able to respond to a
disturbance if it is exceedingly efficient. On the other side, the supply
chain won't be very effective at producing a lot of volume if all it does is
respond to individual or tiny requests.


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64 The Continuous Flow Model :
The continuous flow approach is centered on productivity. It provides
stability in settings with high traffic. The firms who consistently provide
the same product with little design variation or adjustment are best suited
for this t raditional model . This type is excellent for manufacturing
commodities. Low product prices indicate its high level of efficacy. Prices
of raw materials serve as the foundation for manufacturing margins.
The Fast Chain Model :
The responsiveness of the fas t chain concept is designed in. It's perfect for
producers who often alter their product lineup. This style works best for
trending goods with brief shelf lives. The manufacturer that can flood the
market in this instance before the trend cycle is over is the winner.
The Efficient Chain Model :
In highly competitive businesses where end -to-end efficiency is the
ultimate goal, the efficient chain model is appropriate. To adequately
burden and sweat machinery assets, this approach primarily relies on
producti on predictions.
The cost of raw materials and commodities has a significant role in the
efficient model. Capacity issues are a problem for efficient chains in the
post-pandemic era. Labor shortages, material shortages, and delays are the
main causes of thi s.
The Agile Mod el:
The agile model is excellent for producers who deal in specialized items.
This model has been precisely adjusted for production in small batches.
Less automation and more skill are needed for that. And because of that
extra value, compa nies utilizing t his model may charge more for their
products.
Businesses using an agile methodology can increase volume. But once the
volume reaches a certain point, they frequently lose their competitive
edge. Agile firms blast efficient -chain -model enter prises out of th e water
in terms of pricing at bigger volumes.
The Custom Configured Model :
The goal of the custom configuration model is to offer unique setups for
production and assembly. This preparation period typically starts at the
beginning of a mor e drawn -out prod uction and assembly run process. For
instance, some limited -production models or prototypes fall within
custom -configured manufacturing.

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65 Perspectives of Supply Chain Management - I The Flexible Model :
To achieve the best of all worlds, the flexible model. It can respond to
peaks in volume demand. B usinesses with flexible models, on the other
hand, can adapt to and withstand periods of low or no demand. This
design resembles a light switch.
3.2.7 forms of network in global supply chain
The supply chain network design determines its physical arrangem ent,
design, structural layout, and infrastructure. The major decisions to be
made here include the number, location, and size of manufacturing plants
and warehouses, as well as the assignment of retail outlets to warehouses,
among other things. Other majo r sourcing decisions are also made during
this stage. The basic time horizon for planning is a few years.
Many important decisions encompassing long -term location, capacity,
technology, and supplier selection must be made while considerin g the
likely uncer tainties present in market development, as well as changing
economic and legal conditions. The development of multi -stage stochastic
optimization methods required for decision support under demand, freight
rate, and exchange rate uncertai nty is the primary focus of supply chain
network design. In this section, we will go over various strategies for
studying uncertainty and scenario modelling.
A. Warehouse Location :
Companies that expand their branches into new locations require new
storage fa cilities. The comp any is dealing with a warehouse location issue.
Within the set of possible locations, the one with the lowest fixed and
operational costs while meeting the required demand is chosen.
B. Traffic Network Design :
Cities' traffic is becoming mor e congested as the ir populations grow.
Because of increased transportation demand, traffic networks must be
expanded. Because budgets are usually limited, the main issue is deciding
which projects should be built to improve traffic flow within a traffic
network.
C. Reshoring :
This phenomenon has recently emerged as a result of rising costs and
other factors. It is the process of returning outsourced products and
services to the point where they were originally shipped. It describes the
process of returning som e or all productio n to its original location.
Network Models :
Supply chain networks exhibit various models that aid in understanding
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66 scenario modelling. As shown below, there are six distin ct supply chain
network models.

1. Producer Storage with Direct Shipping :
In this model, goods are transported directly from the manufacturer's
starting point to the end customer's destination point, bypassing the
retailer. The retailer accepts the order an d initiates the de livery request.
This is also known as drop -shipping because the product is delivered
directly from the manufacturer's location to the customer's location.
2. Producer storage with direct shipping and in -transit merge (cross -
docking) :
It is l ike pure drop -shipping or moving, but the difference is that pieces of
the order come from various locations and are merged into one so that the
customer receives a single delivery.
3. Distributor storage with package carrier delivery :
When inventory is not o wned by the manufa cturers at the plants, but rather
by merchants/retailers in intermediate warehouses, package carriers are
used to ship goods from the intermediate location to the final customer.
4. Distributor storage with last -mile delivery :
When a merchan t/retailer deliver s the goods ordered by the customer to
the customer's home rather than using a package carrier, this type occurs. munotes.in

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67 Perspectives of Supply Chain Management - I 5. Producer or distributor storage with customer pickup :
The inventory is stored at the manufacturer's or producer's warehous e, but
customers p lace their orders online or by phone and then come to pick -up
points designated for collecting their orders.
6. Retail Storage with Customer Pickup :
This is mostly used when inventory is kept locally at retail stores;
customers walk into the store or order so mething online or over the phone
and pick it up at the store.
Customers' preferences are used to make distribution system decisions.
This, in turn, affects the demand for the product or products as well as the
cost of the distribution arr angement.
3.3 SUMM ARY Individual companies no longer compete as autonomous entities in today's
globally competitive environment, but as supply -chain networks. It is
increasingly suppliers -brand -company versus suppliers -brand -company
rather than brand versu s brand or company versus a company. In this new
competitive world, the ability of management to integrate the company's
intricate network of business relationships is increasingly important.
Supply -chain management (SCM) allows you to capitalize on the sy nergy
of intra - and inter -company integration and management. SCM is
concerned with total business -process excellence and represents a new
way of managing business and relationships with other supply chain
members.
Raw material suppliers define one end of the supply chain i n the
traditional supply chain model. They were linked to manufacturers and
distributors, who in turn were linked to retailers and end users. Although
the customer is the source of profits in this "push" model, they are only
one part of t he equation. Custo mers, retailers, distributors, and
manufacturers were all involved in the order and promotion process,
which took time.
3.4 EXERCISE 1. Fill in the blanks :
a. At ___ level, the decisions are made with long -term objectives.
(Performance , Strategic, Tacti cal, Operational)
b. The initial stage of the supply chain process is the ……………
(Sourcing stage, Organizing Stage, Planning Stage, Directing Stage)
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68 c. In supply chain Management, after planning the next steps
involves…………
(Developing , Building a stron g relationship, Sourcing, All the above)
d. …………….. is the primary activity in the supply chain
(Demand Management, Supply Planning, Analytic workbench, all the
above)
Answers : (1-B, 2- C, 3-D, 4-D)
2. True or False :
a. Mass transportation is expensive than transporting goods in small
quantities.
b. Trip-related cost and quantity -related costs remain the same with all
carriers.
c. Higher service levels and fast delivery cost more.
d. All-or-none assignment model deals with different paths for every O -
D pair
e. As the deg ree of inventory aggregation increases, the cost of
transportation goes up
Answers : (a- False, b -False, c -True, d -False, e - True)
3. Write short notes:
a. Global Supply chain
b. Factors affecting Global Networks
c. Characteristics of efficient ne twork
d. Quality cont rol
e. Global Market Forces
4. Answer in brief :
a. Explain the concept of global supply chain management
b. Explain the methods of measuring the efficiency and value of supply
chain networks.
c. Write a brief note on forms of supply chain networks
3.5 REFERENCES  Dubey, R., Singh, T., & Tiwari, S. (2012). Supply Chain Innovation is
a Key to Superior Firm Performance an Insight from Indian Cement munotes.in

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69 Perspectives of Supply Chain Management - I Manufacturing. International Journal of Innovation Science, 4(4), pp.
217-230.
 Eng, T. Y. (2004), "The rol e of e -marketplace s in supply chain
management", International Marketing Management, Volume 33, pp.
97-105.
 Feller, A., Shunk, D., &Callarman, T. (2006). Value chains versus
supply chains. BP Trends, March, pp. 1 -7.
 Giunipero C L. ET. al (2005), “A longitu dinal examination of JIT
purchasing practices”, The International Journal of Logistics
Management, Vol. 16 No. 1, pp. 51 -70.
 Giunipero.L. &KetchenJr.D. (2004), “The intersection of strategic
management and supply chain management", Industrial Marketing
Management, 33, pp. 5 1– 56.
 Gunasekaran A. & McGaughey R. E. (2003) TQM Magazine Volume
15 · Number 6 pp. 361 -363
 Halldorsson, A. (2002), “Third party logistics: a means to configure
logistics resources and competencies”, PhD Series No. 25.2002,
Copenhagen Bu siness School, Fre deriksberg
 Lee, H. L., & Billington, C. (1993). Material management in
decentralized supply chains. Operations research, 41(5), 835 -847.
 Hoejmose, S., Brammer, S. and Millington, A. (2012), “Green supply
chain management: The role of trus t and top manageme nt in B2B and
B2C markets”, Industrial Marketing Management, Volume 41, pp.
609-620
*****
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70 4
PERSPECTIVE OF SUPPLY CHAIN
MANAGEMENT - II
Unit Structure
4.0 Objectives
4.1 Introduction
4.2 Indian Perspective
4.3 Customer Perspective
4.4 Summary
4.5 Exercise
4.6 References
4.0 OBJECTIVES 1. To understand the Indian Perspectives of Supply chai n Management
2. To understand the methods and factors for measuring and analyzing
the value and efficiency of the Indian Supply chain Mechanism
3. To understand the Economic Effects of the Supply chain
4. To identify customer Values affecting the Supply chain
5. To me asure the role of customers in improving the supply chain
networks
4.1 INTRODUCTION The Supply Chain Management concept is founded on two fundamental
ideas. The first is that almost every product that reaches an end user is the
result of the combined eff orts of multiple organizations. The supply chain
is the collective name for these organizations. The second idea is that,
while supply chains have been around for a long time, most organizations
have only focused on what happens within their "four walls." Few
businesses comprehended, let alone managed, the entire chain of events
that resulted in the delivery of products to the final customer. As a result,
supply chains became disjointed and frequently ineffective.
According to Aswathappa (2008), nearly all business enterprises, large
and small, are motivated to conduct global operations. This may entail
acquiring raw materials from foreign suppliers, assembling products from
components manufactured in various countries, or selling goods or
services to custom ers in other countries. One of the most significant trends
in the late twentieth century was the reduction of barriers to facilitate the
free movement of goods and services across national borders.
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71 Perspective of Supply Chain Management - II Domestic logistics entails tracking and coordinating the flow of goods and
services from their origin to the customer's destination within the same
country. All production and transportation occur within a single set of
national borders when managing domestic supply lines (McDunnigan,
2017).
When it comes to SCM, performance measurements are becoming
increasingly important. Neely (1999) identifies seven reasons for the
growing interest in performance measurements.
a. The changing nature of work. The cost of direct labour related to the
cost of material has dropped rapidly since the 1950s
b. Increased competition
c. Specific improvements initiatives ex JIT, TQM, BQR (Business
process reengineering)
d. National and international quality awards
e. Changing orga nizational roles changing from control to empowering
employees by management by objectives
f. Changing external demands. Firms in the public sector must present
information about their performance.
g. The power of information technology
4.2 INDIAN PERSPECTIVE India's supply chain and logistics practices demonstrate the still -limited
visibility. Companies share information only when it is necessary because
they are realistic about the benefits and hazards of doing so. Our study
shows that their company objectives and supply chain objectives are
related. However, most of them were affected by some aberrations and
scale/scope inefficiencies. The Indian government must take action to
upgrade the infrastructure so that different supply chains can operate more
effectiv ely. To perform at their best, businesses and their supply chains
must closely integrate themselves into a network, carefully manage the
complexity that results, align their business strategy with logistics and
supply chain operations, and use information and communication
technology to streamline processes and introduce operational innovation.
4.2.1 Measuring and Analyzing the Values and Efficiency of Domestic
Supply Chain Networks :
While many organizations are using Lean Six Sigma, Strategy
Deployment, an d Balanced Scorecards to achieve Operational Excellence,
at least in terms of their Supply Chain, and are reaping the benefits of
faster response times, lower inventory levels, and lower costs, others are
still considering where to begin. The absence of a thorough and organized
method for measuring the performance of the supply chain is one of the
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72 connection between possible Lean Six Sigma initiatives and the
overarching aims and objec tives of the firm.
While ensuring that customer service goals are being met, an organisation
can optimize its inventory investment and achieve a positive impact on its
cash flow and overall profitability by utilizing an effective Sales &
Operations Planni ng Process and Lean Six Sigma techniques like Value
Stream Mapping, Quick Changeover, and Kanban Systems.
Methods of Measuring The Value and Efficiency of Supply Chain
Networks :
Three methods for measuring performance in the industry are the balanced
score card, the SCOR model, and benchmarking. These methods are also
frequently debated in academia.

a. Balanced Scorecard :
The Balanced Scorecard is a framework for measuring organisational
performance. The scorecard contains both financial and non -financial
information. There is no general agreement on what measurements should
be included in the scorecard. The measurement criteria differ between
companies and even within the same company. Kaplan and Norton (1996)
defined four broad categories.
 Financial measures
 Customer -related measures
 Internal performance
 Learning
Financial indicators emphasise economic value added and return on
investment. Customer satisfaction and market share are two customer -
related metrics. Internal performance metrics include quality, response
time, and cost. Learning encompasses aspects of employment such as skill
development, retention, and information technology.
b. SCOR Model :
The SCOR model was created by the Supply Chain Council. SCOR stands
for Supply Chain Operations Reference, and the model is a reference
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73 Perspective of Supply Chain Management - II  Provide a standard language for SCM that can be used cross -industry
 Facilitate external benchmarking
 Establish a basis for analysing Supply chains
 Compare the current Supply chain with the targe t for the future
According to Christopher, the goal of SCOR is to provide a standard way
to measure supply chain performance and to use common metrics to
benchmark against other organisations (1998).
The SCOR model is based on four management processes :
 Plan: balances Supply and demand
 Source: procurement of products and services
 Make: transforming products and services into finished goods
 Delivery: delivery of products and services.

A process is made up of process elements, which are made up of tasks.
Tasks are a collection of activities. The activities are standardised to allow
for comparisons between supply chains. There are 12 performance metrics
in the SCOR model. Understanding customer behaviours and designing
and sustaining a supply chain tailore d to deliver value to each customer
segment is the most effective way to develop a close customer
relationship.
c. Benchmarking :
According to Camp, a formal definition of benchmarking is "a systematic
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74 knowledge to achieve superior performance" (1989). Benchmarking is the
process of comparing one's performance to best practices. It is critical to
have common metrics that can be used to compare companies. Splendolini
defines benchmarking as having five primary goals (1992)
 Strategy: planning for short and long term
 Forecasting: predict trends
 Innovative ideas: stimulate new thoughts
 Process comparisons
 Setting objectives and targets: base them on best practice

Benchmarking can be used both inte rnally and externally within a
company. Internal benchmarking can be used to compare different
departments, but it can also be used to examine how one department has
changed over time. External benchmarking can be used to compare one's
own company to compe titors or high -performing companies.
Measurement of Supply Chain Excellence :
According to Keebler, supply chain excellence necessitates that supply
chain actors understand how to perform performance measurements
(1999). What is the purpose of performance evaluations? There are several
reasons for this, and they differ between companies. Parker (2000)
identified the following reasons for measuring organisational performance.
 Identify success
 Identify whether the organisation understand its processes
 Ident ify whether the company are meeting customer requirements
 Identify bottlenecks and where improvements are necessary
 Ensure decisions are based on facts
 Show if planned improvements happened
According to Geanuracos and Meiklejohn (1993), most business pe ople
are influenced by the manufacturing environment rather than service -
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75 Perspective of Supply Chain Management - II performance. Companies are classified into different groups based on their
ITO improvements over time. According to Schonb erger, some companies
are doing well despite unimpressive ITO trends (1996).
4.2.2 Economic Effects of Supply Chain Management :
Supply chain experts roll up their sleeves and get to work, whether dealing
with day -to-day product flows or dealing with an une xpected natural
disaster. They diagnose issues, devise creative solutions to avoid
disruptions, and figure out how to get essential products to people in need
as quickly as possible.
Over the last 100 years, increased global trade has resulted in significa nt
growth in global GDP. Supply chains have become major enablers of
global trade, and they connect the entire world. Any disruption in any part
of the world has resulted in supply chain disruptions and economic
recessions.

1. Foundation for Economic Growth :
Societies with highly developed supply chain infrastructure including an
extensive train network, contemporary interstate highway systems, and
several modern ports and airports can interchange various items between
producers and consumers rapidly and aff ordably. Thus, the economy
expands. A lack of or a very underdeveloped supply chain infrastructure is
the one thing that many developing countries have in common.
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76 2. Improves Standard of Living :
Societies with highly developed supply chain infrastructure inc luding an
extensive train network, contemporary interstate highway systems, and
several modern ports and airports can interchange various items between
producers and consumers rapidly and affordably. Consumers can afford to
purchase more goods as a result, enhancing the level of living in society.
3. Job Creation :
All a society's supply networks are designed and managed by supply chain
experts, who also oversee logistics data management, warehousing,
inventory control, and packaging. As a result, the supply ch ain industry
has many positions. For instance, in the United States, logistics
expenditures made up 9.9% of all purchases of products and services in
2006.
4. Increases Profit Leverage :
Supply chain managers are valued by businesses because they help control
and reduce supply chain costs. This can lead to significant increases in
firm profits. For example, U.S. consumers consume 2.7 billion packages
of cereal per year, so lowering U.S. cereal supply chain costs by just one
cent per cereal box would result in a $13 million savings industry -wide as
13 billion boxes of cereal flowed through the improved supply chain over
five years.
5. Increase in GDP :
According to a report released in collaboration with CII, India's supply
chain and logistics costs currently account for 14% of the country's GDP,
totaling $400 billion, compared to the global average of around 8%. There
is a $180 billion competitiveness gap in the sector, which is expected to
grow to $500 billion by 2030 if supply chain inefficiencies are not
addressed . The World Bank Logistics Index, for example, ranked India
44th, far behind the United States at 14 and China at 26. Other countries in
the region, including Thailand and Vietnam, have high logistics costs as
well.
6. Increases Cash Flow :
The implementation of the Goods and Services Tax (GST), the
liberalization of foreign direct investment (FDI) rules, and increased
government spending have all contributed to the sector's growth.
India's desire to become a global manufacturing powerhouse, as well as
the gove rnment's emphasis on 'Make in India,' necessitate nationwide
supply chain reform, prompting a slew of federal and state -based schemes
and investment incentives.
In this article, we will look at India's supply chain ecosystem and how new
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77 Perspective of Supply Chain Management - II government entities and private ventures are attempting to introduce
critical efficiencies to transform the status quo.
7. Helps in Capital Creation :
Countries require capital goods to replace older ones used in th e
production of goods and services. Production falls if a country is unable to
replace capital goods as they reach the end of their useful lives. In general,
the higher an economy's capital formation, the faster it can grow its
aggregate income. SCM helps in the creation of infrastructure and thus the
creation of wealth.
8. Helps to prote ct humans from climate Extremes:
Humans rely on an energy supply chain to deliver electrical energy to
homes and businesses for lighting, heating, cooling, and heating. A
logistical failure (such as a power outage) can quickly lead to a threat to
human life. For example, during a massive East Coast ice storm in January
1998, 80,000 miles of electrical power lines collapsed, leaving 3,200,000
Montreal, Quebec residents without p ower. Thirty people died because
ofthe extreme cold, and 25% of all Quebec residents left their homes to
seek heated shelter. Furthermore, the economic costs included $3 billion in
lost business, $1 billion in property damage, and $1 billion in government
expenditures.
4.3 CUSTOMER PERSPECTIVE Today Customers have more options than ever and offering outstanding
items to customers is getting more and more crucial. Your company needs
to stand apart if it wants to succeed. If you have the appropriate customer
strategy, looking upstream to the global supply chain can be a significant
win for businesses wanting to become more competitive and customer
centric. Starting from the perspective of the final consumer is the most
crucial step in creating a customer -centr ic supply chain. When we say,
"from the outside, in," we mean exactly that. The "outside" is how your
goods and services interact with and are perceived by your target market,
including their cost, accessibility, usefulness, quality, and other attributes.
The different rules and procedures your supply chain needs to follow to
fulfil that commitment and give your customers impactful, satisfying
experiences make up the "interior."
It is difficult to create a supply chain that is really customer centric. All
stakeholders involved in the supply chain, from suppliers and
manufacturers to logistics service providers, must buy in, including your
business. Companies must instill new ways of thinking in both your
company and outside parties. To fulfil the needs of th e customer and go
above and beyond their expectations, everything must be redesigned. If
you do it well, you'll build a strong competitive advantage and fantastic
customer advocacy.
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78 4.3.1 Customer Value :
Suppliers, manufacturers, distributors, and custome rs are the four main
players in the supply chain. Understanding the relationship between the
groups and attempting to optimise this relationship is thus a major issue in
businesses. The most difficult and critical issue in supply chain
management is managi ng the relationships between the four main
characters because they have a huge impact on all aspects of the supply
chain and its function level.
Many companies supply chains are the result of poor communication of
expectations and behaviours that occur bet ween chain characters.
Furthermore, effective relationship management is required in the supply
chain to ensure that suppliers and customers collaborate in a coordinated,
integrated manner while adhering to partnership principles,
communication, informatio n, and dialogue. Customers and suppliers
should share the same goals and have mutual trust (Rajabzadeh, Khadivar,
Kazemi, 2007).
According to conducted research by Brian Fynes, Chris Voss, and Sean de
Burca (2005) various value dimensions of customers with in the supply
chain is:
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79 Perspective of Supply Chain Management - II 1. Communication :
is defined as the formal and informal exchange of vital information
between partners. Communication is critical to the success of partners.
The rise of the global pandemic has forced many supply chain teams to
recon figure their operations due to staff shortages and shipment delays,
putting pressure on supply chain managers. As a result, communication in
supply chain management has never been more important.
2. Cooperation :
is defined as the relationship between two comp anies to achieve the
ultimate goals and shift from isolation to partnership. The exchange of
information on product production, processing, and analysis can reduce
production costs and improve the innovation of new product processes.
3. Commitment :
The desire to sustain mutually beneficial relationships might be
characterised as commitment. As a result, the organization's strategy
should be customer -focused, long -term, and based on reciprocal
advantages to building commitment.
4. Trust :
The desire to sustain mutu ally beneficial relationships might be
characterised as commitment. As a result, the organization's strategy
should be customer -focused, long -term, and based on reciprocal
advantages to building commitment.
5. Conformity :
The term "conformity of suppliers rel ationship" refers to how well
consumers and suppliers can match each other's skills and basic needs.
Investments in products, processes and human resources lead to
conformity.
6. Dependence :
Dependency is the desire of the partners to keep the connection goin g to
attain the desired outcomes. Dependence between two businesses is a
function of the value of transactions between them and the advantage they
derive from each other's collaboration.
4.3.2 Role of Customers in Strengthening Supply Chain Management :
Other than these factors/values the following are the factors which affect
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80

1. Reliability :
One of the most crucial aspects of how supply networks operate is
reliability because it significantly affects the completeness and quality of
delivered parties, the time it takes for the logistics cycle to complete, and
the logistics expenses associated with supply chains.
2. Quality :
Keeping a competitive edge in the market and lowering operating
expenses depend on quality management in the supply chain. Without
quality control, waste increases more than is acceptable. Examining the
elements of quality management systems will assist your business in
preventing and responding to supply chain problems.
3. Safety :
The component of supply chain management known as supply chain
security focuses on the risk management of third -party vendors, suppliers,
logistics, and transportation. Its objective is to recognise, assess, and
lessen the risks associated with cooperating with other businesses in a
supply chain .
4. Efficiency :
The internal procedures of the supply chain are the focus of supply chain
efficiency. It has to do with making the optimum use of the available
resources financial, human, physical, etc.to meet consumer demands
efficiently. In many cases, tec hnology can be crucial to improving supply
chains.

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81 Perspective of Supply Chain Management - II 5. Technology :
It is simpler to review data, get insights (on issues like customer demand,
storage/transportation constraints, and supplier lead times), and make
decisions that have both direct and indirect effects on the functioning of
the supply chain thanks to supply chain technology.
6. Visual Impact :
The ability to track various products and/or shipments in transit provides a
comprehensive picture of the inventory and activities. Through the
management of goods in motion, proactive status updates, minimising
disruptions, and risk mitigation help shippers enhance customer service
and cost controls.
4.3.3 Methods of Improving Supply Chain Networks :
Supply networks are being stressed by rising globalisation an d changing
customer expectations. To control and reduce risks, you must continually
reinvent the supply chain.
You can access the supplier chains' development and income by putting
the appropriate tactics into place. Additionally, it enables you to take
advantage of fresher chances, like utilising truck scales to enhance the
supply chain.
1. Optimization of Company -Owned Inventory :
Holding and maintaining merchandise comes at a significant expense.
Nearly 60% of the cost of an item that is kept in inventory fo r a year may
be made up of inventory holding charges. Plan and estimate demand to
maximise company -owned inventories. Utilizing truck scales for efficient
management is yet another strategy for optimising inventories. The scales
provide precise measurement s that can be used to calculate how much
inventory should be kept on hand.
2. Improvement in Distribution Network
There are two ways to strengthen the distribution network:
a. The cluster approach: grouping together comparable texts, graphs, and
charts. This mak es it easier to observe the procedures for every given
business function.
b. A holistic approach: In this strategy, the critical elements of the
distribution network are examined. It also emphasises comprehending
how the parts cooperate.
3. Making a Supply Chain Council:
Establish a governing body that provides a precise plan for functioning
and effectiveness. The council's purpose is to provide guidance and
coordinate the supply chain strategy with the main objectives of the
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82 Additionally, it enhances inter -functional collaboration inside the
company. It provides leaders with chances to implement efficient supply
chain management in the next projects.
4. Use of Technology :
Technology can be use d to e nhance the supply chain. Examine all the
mechanisms in place that are resulting in subpar outcomes. Identify the
processes that could be improved using technology. The supply chain can
be streamlined, visible, and accessible with the use of the prope r
technologies, such as industrial scales.
5. Building Healthy Supplier’s Relationship :
The success of the supply chain is influenced by the connection with the
provider. Even after the deals are closed, continue to cultivate, and
maintain supplier relationsh ips. P ut your efforts into developing plans to
keep solid supplier relationships. Set objectives for sustaining value,
tracking performance, and preventing disagreement.
6. Reviewing Process Regularly :
To maintain efficacy and compliance, the supply chain cou ncil m ust
examine rules and processes. Additionally, it helps to streamline
processes, prevent supply chain bottlenecks, and reduce the likelihood of
fraud and theft. Regular assessments assist in recognizing various risk
factors and calculating their fina ncial impact.
7. Establishing Green Initiative
Reduce the supply chain's carbon footprint as much as possible. Supply
chains and logistics must evolve to be environmentally and socially
conscious. When selecting your suppliers, take the environment into
accou nt. Ha ving a quantifiable framework of sustainable practices and
policies.
Case 1 - Intel’s Case Study on SCM :
Intel, one of the biggest producers of computer chips worldwide, requires
little introduction. However, after releasing its inexpensive "Atom" chi p
onto the market, the company found that it was necessary to dramatically
cut supply chain expenses. For units selling for $100, supply chain costs of
roughly $5.50 per chip were manageable, but the cost of the new chip was
only a quarter of that, at abou t $20.
The Challenge of Supply Chain Cost Reduction: Intel sought to find a way
to lower the Atom chip's supply chain expenses, but it only had one lever
available: inventory. Intel was unable to compromise on service because
the chip had to function. Addi tional ly, there was no method to lower duty
costs because each Atom product was a single component. With a high
value -to-weight ratio and little packaging, Intel had already reduced the
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83 Perspective of Supply Chain Management - II The only choice left was to attempt to lower inventory levels, which had
previously been kept relatively high to support a nine -week order cycle.
Reducing this cycle time and consequently, inventory was the only option
Intel could find to lower supply chain costs.
The Road to Cost Reduction: Intel decided to test make -to-order, which
was regarded as an unusual supply chain strategy for the semiconductor
industry. The business started with a test project using a Malaysian
manufacturer. They incrementally reduc ed ord er cycle time by seeking to
identify and eliminate supply chain inefficiencies through an iterative
method. Additional endeavors for improvement included:
A. Reducing the chip assembly test window from a five -day to a twice -
weekly, two -day method
B. Establ ishing an official S&OP planning procedure
C. Where practicable, switching to a vendor -managed inventory model
Supply Chain Cost Management Results:
Intel eventually reduced the order cycle time for the Atom processor from
nine weeks to just two with their i ncreme ntal approach to cycle time
improvement. The company reduced supply chain costs by more than $4
per unit for the $20 Atom processor as a result, which is significantly
better than the initial rate of $5.50.
Case 2 -Starbucks :
The coffee shop behemoth Starbu cks is pretty much a household name,
but like many of the most popular global businesses, it has experienced
supply chain problems. In fact, Starbucks’ leadership started to seriously
question the company's ability to serve its 16,700 stores in 2007 and 20 08.
Sales were declining, as they were in most commercial sectors at the time.
But at the same time, supply chain expenses increased by almost $75
million.
Challenges in Supply Chain Cost Reduction: When the supply chain
executive team started lookin g into the rising costs and performance
problems in the supply chain, they discovered that the service was in fact
falling short of expectations. The findings revealed the following issues:
 Less than 50% of delivery to outlets were timely
 Several poor outs ourcin g decisions had led to excessive 3PL expenses
 The supply chain had become unduly complex because, like those of
many large international organizations, it had developed rather than
expanded by design.
The Road to Cost Reduction: To improve performanc e and lower supply
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84  restructure your supply chain
 Reduce your serving costs.
 Create the foundation for supply chain competence in the future.
Starbucks separated all their sup ply ch ain operations into the "plan,"
"make," and "deliver" sections to achieve these goals. Four U.S. factories
are now operational because of the opening of a new production facility.
The corporation then started the process of severing relationships wit h all
but its top 3PLs. Once the service level agreements were extended, it
started using a weekly scorecard system to manage the remaining partners.
Results of Supply Chain Cost Management:
According to Peter Gibbons, then Executive Vice President of Glo bal
Supply Chain Operations, by the time Starbucks had finished its
transformation programme in 2009 and 2010, it had saved more than $500
million, a large portion of which came from the supply chain.
4.4 SUMMARY It is surprising that the mainstream perce ption of service supply chain
management is mostly based on the perspective of the company given the
significant role that customers play in services. In this conceptual study,
we examine how service supply chains are conceptualised and managed
from the vi ewpoin t of the consumer, that is, how a customer manages,
organizes, and integrates service provision to produce value. Our analysis,
worldview, limits, hierarchies, and control mechanisms are all based on a
system thinking perspective, namely Checkland's charac terization of
systems (1981). This viewpoint has led us to identify eight characteristics
of service supply chains and four potential areas for future research.
Therefore, suppliers play a varied function in these various industries,
which suggests t hat su pplier resources would have a different impact on
manufacturing enterprises and service organizations. According to Maull
et al. (2012), one of the key distinctions between the supply chain logic of
a manufacturer and a service provider is the promin ence g iven to the client
in the latter's supply chain. By adopting such a customer -centric
viewpoint, the company seeks to develop opportunities and value in
conjunction with the client to increase value for both parties.
Prevailing in the struggle for sup plier resources While it has already been
suggested in the present literature that SCM procedures for service
organizations differ from those for manufacturing firms, our findings show
that the significance of preferential resource allocation is also suppo rted
by this. These results appear to support the notion that, in order to boost
their competitiveness, manufacturing companies are more likely to rely on
supplier resources, whereas service companies depend on other sources,
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85 Perspective of Supply Chain Management - II 4.5 EXERCIS E 1. Answer the following questions :
a. Quality is defined by the customer as" is………………
A. An unrealistic definition of qua lity
B. A user-based definition of quality
C. A manufactur ing-based definition of quality
D. A prod uct-based definition of quality
b. The sup ply chain management philosophy emerged in which decade?
A. 1960
B. 1970
C. 1980
D. 1990
c. Which of the following are not key attributes of supply chain
management?
A. Inventory Control
B. Leveraging Technology
C. Customer Power
D. all are Key Att ribute s
d. Positive, long -term relationships between supply chain participants
refer to……..
A. Competitors
B. Tailored Logistic s
C. Partners hips
D. Supply Chain Management
e. Process improvement technique that sorts the "vital few" from the
"trivial many" is…
A. Taguchi analysis
B. Pareto analysis
C. benchmarking
D. Yamaguchi analysis
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86 2. True or False :
a. Quality is defined by customer is “a user -based definition of quality”
b. The supply chain management philosophy occurred in the 1 980s .
c. Positive long -term relationship between supply chain participants
refers to partnership.
d. LEAN principal stress on reducing waste
e. Operations function employs more people than any other functional
area.
Answers : (a-True, b -True, c -False, d -True, e-True )
3. Write Short Notes :
a. Customers perspective of SCM
b. Balance Scorecard
c. Quality
d. Customer Loyalty and Relationship
e. Reliability
4. Answer in Brief :
1. Explain methods of Measuring the efficiency of domestic Supply
Chain Networks
2. Write a brief note on the E conomi c impact of SCM.
3. Explain in brief the factors affecting supply chain networks.
4.6 REFERENCES  Andersson, D. and Norrman, A. (2002), “Procurement of logistics
services – a minute’s work or a multi -year project?”, European
Journal of Purchasing and Su pply M anagement, Vol. 8 No. 1, pp. 3 -
14
 Ballou, H.R. (2007), "The evolution and future of logistics and supply
chain management", European Business Review, Vol. 19, No. 4, pp.
332 - 348.
 Boas, J., Carvalho, J. and Henrique, N. (2014), “Logistics and Supply
Chain Management: An Area with a Strategic Service Perspective”,
American Journal of Industrial and Business Management, Vol.4,
No.1, pp 24 -30. munotes.in

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87 Perspective of Supply Chain Management - II  Chang, H. H., Tsai, Y. C., & Hsu, C. H. (2013). E -procurement and
supply chain performance. Supply Chain Manag ement: An
International Journal, 18(1), pp 34 -51
 Chen, I. J., & Paulraj, A. (2004). Understanding supply chain
management: critical research and a theoretical framework.
International Journal of Production Research, 42(1), 131 -163.
 Croxton, K.L., Lambert, D.M., Garcia -Dastugue, S.J. and Rogers,
D.S., 2002, “The demand management process”, International Journal
of Logistics Management 13, pp. 51 –66.
 Dubey, R., & Samar Ali, S. (2013). An exploratory study on logistics
competency and firm performance. Internat ional Journal of Logistics
Systems and Management, 14(2), pp. 179 -199.

*****

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88 MODULE - III
5
INTRODUCTION TO LOGISTICS - I
Unit Structure
5.0 Objectives
5.1 Introduction
5.2 Logistics Management
5.3 Bullwhip Effect
5.4 Summary
5.5 Exercise
5.0 OBJECTIVES 1. To understand the Process of Logistics Management
2. Understanding Competitive advantage and Changing logistics
environment
3. Understanding Different approaches in Inventory control
4. To understand reverse logistics
5. Identifying and understanding the Bullwhip effect
5.1 INTRODUCTION In today's competitive world companies are working hard to achieve a
competitive advantage. Competitive advantage can be achieved by
attaining cost leadership and differentiation. Inventory (Raw material,
semi -finished product and finished product) are a major concern for every
organization as it is many times considered dead stock where the
company's working capital is stuck. A robust mechanism of maintaining
inventories helps the organization in the effective management of its
working capital and inventory.
Logistics management plays an important role in mana ging and
maintaining the inventory of the organization and its timely availability in
the production plant and customer market.
5.2 LOGISTICS MANAGEMENT Logistics management is a component of supply chain management that is
used to meet customer demands, through the effective planning,
management, and execution of the efficient movement and storage of
relevant information, goods, and services from point of origin to point of
destination. Companies may save costs and provide better customer
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89 Introduction to Logistics - I gathering raw materials through the last phase of transporting items to the
destination, the logistics management process. Logistics management
makes process strategy, planning, and execution easier by adhering to
customer needs and industry standards.
5.2.1 Concept :
Logistics is concerned with getting the products and services where they
are needed and when they are desired. Logistics is a planning function.
Logistics helps in materials management whi ch is concerned with
arranging tasks related to the flow of materials from the purchase of raw
materials from a supplier and micro supplier to the store and their
movement from store to plant and distribution of finished goods to
customers and its return b ack from customer to the company (Reverse
Logistics).
Definition of Logistics:
Logistics is an important element in business functions concerned with the
movement and maintenance of products and services. Logistics is defined
as-
"Logistics is a process of anticipating customer needs and wants, acquiring
the material necessary inputs to meet these needs and wants to fulfil the
customer request."
“Logistics is the process of planning, implementation and controlling the
efficient, effective flow and storage o f goods and services.”
Thus, logistics is a movement of goods and services from the point of
origin (Suppliers) to the point of destination (Customers) to satisfy
customers and thereby earn profit.
Definition of Logistics management:
“Logistics management is the process of planning, implementing and
controlling flow of goods and services and its related information from the
point of origin to the point of consumption as per customer requirement.”
Logistics management is thus concerned with the issue of ens uring the
flow of goods where they are needed and when they are needed in
required quantities.
For Reference :
Types of Logistics:
Logistics is divided into four main sub categories:
1. Business logistics: helps in planning, implementation and control of
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90 2. Military logistics: helps in the operational capability of military
forces and their equipment
3. Event logistics: helps in organizing, scheduling and deploying the
resources for the event to take pla ce.
4. Service logistics: helps in the management of facilities, personnel and
materials to support and sustain service requirements.
Functions of logistics:
1. Management of information and order processing
2. Control of inventory (Raw material, semi -finished products and
finished products)
3. Transportation (Movement of raw material, semi -finished products in
plant and finished product)
4. Warehousing
5. Inventory handling
6. Packaging of raw materials and finished products.
Scope of logistics:
1. Inbound logistics: making available raw material for production at
the right time
2. Outbound logistics: Making finished goods available to customers at
a place and time convenient to them.
3. Reverse logistics: Backward movement of finished goods to th e
company (Cancellation of an order, return of goods, handing over
used goods for safe and environmentally friendly disposal)
5.2.2 Logistics process:
Logistics is the movement and maintenance of inventory from the place of
destination to the place of cons umption. Effective logistics management in
an organization ensures smooth production and availability of products
and services at minimum cost and wastages. The organization has to
ensure that an efficient logistics process is in place.


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91 Introduction to Logistics - I The logistics p rocess includes:

a. Input stage:
The input stage is the starting point for logistics management where the
production department, with the help of the sales department, forecasts the
sales. Forecasting helps in inventory planning and subsequent ordering
and reordering.
Once the order is received and processed, the process of acquiring
resources to complete the order starts. The production department sends
the requisitions to the store department which is responsible for storing
and maintaining the raw mate rials.
On receipt of requisition of raw material, the store department verifies
their stock and forwards the inventory to the production department if it is
available with them. If the said inventory is not available then they start
the process of procurin g raw material by issuing tenders/ orders to
suppliers.
Suppliers at their level, start manufacturing raw material or procuring the
same from a micro -supplier. Once the raw material is ready, it is
transported to the store department of the company.
The s tore department on receipt of inventory manages its internal
movement and then dispatches the same to the store department (by using
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92 or weighted average as per the order received). The store department is
also concerned with maintaining the quality of stock and checking on any
wastages or spoilage of raw material.

b. Plant Management:
On the receipt of raw material and other resources for production, the
production department sta rts manufacturing the product. The raw material
is put into production which passes through various processes. It is
important at this stage that quality of production is ensured and also
wastages are reduced. It is quite likely that there may remain semi -finished
material at the various processes of production which needs to be handled
and stored properly.
The finished product is transported to the warehouse for packing, labeling
and storage.
c. Warehousing stage:
Finished products are stored in the ware house. In the warehouse, packing,
packaging and labeling of the product are done. The company has to
ensure that the finished goods are maintained properly as per the storage
requirement which will help in maintaining quality and weight and
reduction of th eir wastages.
In the warehouse, the product is packaged as per the standing instruction
of the customer in their customer order. From the warehouse, the product
starts its final journey toward the customer where goods and services will
reach them as per t heir convenience and location. This stage needs to be
monitored as goods are handled and moved and change hands in
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93 Introduction to Logistics - I d. Reverse logistics:
In this, there are various conditions such as -
i. Customers may cancel the order and the company wil l have to arrange
for the movement of goods back to its terminal.
ii. Goods reach the customer, but as per the return back policy, they may
be returned back due to non -specification or quality.
iii. After the use, the customer returns the used product to the company
for its safe disposal.
In all the above cases, the company has to arrange for the return back
mechanism of goods so that their quality and cost is not hampered.
Cost leadership and differentiation can be achieved when the company
puts a lot of effort into designing and maintaining its logistics process as
per the changing environment and regulatory framework.
5.2.3 Competitive advantage and Three C’s:
Martin Christopher in his book ‘Logistics and Supply Chain Management
has proposed 3 C’s of l ogistics which will help the company in achieving
a competitive advantage.

The customer is the prime mover in the market. Goods and services need
to be produced and supplied as per the need and want of the customer. The
success of the business will depen d on satisfied and loyal customers. A
company needs to provide value to the customer.
The company should be sensitised about their customers and employees
and aware of the changes in the market and strategies of their competitors.
It is important to unders tand customer and company needs as this will
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94 keep on adding value to their product and services to remain ahead of its
competitors.
On the other hand, competitors too, will try to add value to their offerings
to remain in the market and also achieve market leadership. (Example:
Patanjali and Dabur Honey; Complan and Horlicks; Jio and Airtel).
The company should try to position/ differentiate its product from its
competitors. Logistics helps the company in achieving a competitive
advantage by achieving cost leadership and differentiation. Dominos in
India has achieved differentiation by providing its pizzas to the customers
in 30 minutes.
The company should strive in differentiating its elf from its competitors on
one side and operating at a lower cost on the other side. In today's market,
the company can achieve profit and wealth by achieving any one or both
of the above factors. (Cost advantage and differentiation/ Value).
Cost advanta ge can be achieved by :
● Better utilization of transport by proper re -ordering and other
measures - lower transportation cost
● Saving on operating cost
● Saving in storage, packaging
● Better management of order processing
● Inventory management
● Use of ICT and artif icial intelligence
● Managing idle time etc
The savings in the above is normally passed to customers or are absorbed
against rising prices of inputs by refraining from transfer to such rise to
customer.
Differentiation/Value can be created by :
● Robust deliver y
● Efficient and effortless after -sale service
● Financial aid
● Technical back up
● Product use and its supplementary use etc.
Competitive advantage = Cost advantage + Differentiation (Value
creation) + Better management of Competition.
Martin Christopher has su ggested better management of customers and
competitors for ensuring competitive advantage through his 3C Model. In munotes.in

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95 Introduction to Logistics - I the absence of such management companies lose out on competition and
may cease to exist.
Business and competition are witnessing dynamic cha nges. Globalization
supported by liberalized business policy has led to an emerging new way
of business with the help of technology. International business, economic
and political impact has a deep impact on the movement of goods
internationally.
Covid -19, Ukraine - Russia war and involvement of other countries in
regulating trade and movement of goods (USA and EU nations controlling
the trade of Russia), increasing prices crude and petroleum products,
difficulty in procuring inputs (Car companies finding d ifficulty in
accessing chips), the expansionary policy of certain countries by trying to
achieve control over various trade routes has impacted logistics.
5.2.4 Changing Logistics Environment :
Business and its environment are dynamic in nature. With the ch anging
nature of the environment and business, there is a need to have a change
absorbing logistics system in place. Logistics managers must be equipped
with skills and information for making modifications to the logistics
system to be ahead of their compe titors.
Changing business environments has a direct impact on the market,
competition, changes in technology and governance framework and
regulations. Logistics managers should change their logistics approach by
including these impacts. Challenges of chan ging logistics environment -
1. Dynamic customer service demand:
Young customers, disposable income, nuclear family etc are some of the
demographic environmental changes that have led to the demand for the
innovative product in a short time and place. In -time delivery, good after -
sale service, home delivery etc is the need of the hour. It has now a
challenge for a logistics manager to provide all these customers with no or
negligible cost.
2. Time constraint:
Time has become the key issue in logistics manage ment. Small product
life cycle, zero inventory/ Just in time delivery, less product loyalty and
minimum transport/ delivery time is the challenge in logistics.
For example, Goli Vada Pav has tied up with one foreign company to
deliver Goli (Stuff used in preparing Vada Pav) as this Goli has to reach
their outlets across the country every day before 11 am from their central
kitchen situated in the Thane district.
3. Globalization:
Globalization has resulted in tough competition at home and in the
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96 competitive cost advantage. Growing competition has made it compulsory
for the company to look into their logistics system as the availability of
products and services on time and place at a customer's convenience is
needed. Many companies fail because they are not able to provide
products or after -sale services on time.
4. Organizational integration:
In a global competitive structure, organizations are integrating their
functions to gain an advantage. Material management, sales management
and production management work in integration to achieve minimum
inventory and regular supply of goods and services. The company looks
into customer satisfaction as the prime mover and concentrates on
providing goods a nd services with a minimum waiting period.
5. Technological revolution:
Continuous technology change has brought a change in doing business.
Innovative machines have resulted in large -scale production, and Artificial
Intelligence (AI) and CRM initiatives have made marketing
comprehensive and customized. All of these have impacted the movement
and maintenance of products and brought challenges to logistics.
6. Transportation:
The traditional method of transportation still dominates the logistics in the
international market. New and quick transportation services supported by
technology -driven management and control of the movement of goods and
services have emerged as a challenge for companies and logistics
providers.
9. Products with special transport/ stora ge requirements:
Many products require shorter delivery life, shelf life and specific nature
of transportation. A large volume of such products moves internationally
which requires special care and logistics inputs. The movement of such
materials is anothe r challenge for logistics managers.
Changing time has made business complex. Competitive advantage can be
achieved if the company can control its cost and create successfully value
differentiation. Logistics is challenging in such a business environment
and needs changes as per the changing market and regulatory framework.
Reference :
Strategies to cope with challenges in changing logistics environment :
1. Cost reduction: it aims at minimizing variable costs and managing
warehouse and transportation costs.
2. Capital reduction strategy: It aims at minimizing investment level
which will result in higher returns on logistical assets. Strategies
adopted under this can be shipped directly to the customers without
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97 Introduction to Logistics - I 3. Service improvement strategies
4. Proactive
5.2.5 Reverse logistics:
Logistics is a supply of goods from the point of origin to the point of
destination. The customer is the point of the destination. Customer
awareness needs for customi zation, online shopping and delivery apps has
opened up a new branch in logistics - Reverse logistics .
The growing concern of customers towards the environment, government
regulation relating to the recycling of products and waste disposal, and
cut-throat c ompetition have resulted in companies adopting reverse
logistics.
Definition:
Reverse logistics can be defined as :
"Reverse logistics is the process of moving goods from the place of use to
the place of manufacture to reprocess, refill, repairs or product disposal."
Scope of reverse logistics are :
Refilling:
Industries such as LPG, soft drinks, oils etc are involved in getting back
packages back so that the same can be used for refilling the product again
and supplying the same to the customers etc.
Repai rs and Refurbishing:
Service industry is engaged in this more often. Consumer durables such as
television, washing machine, fan etc and industrial products require
repairs and refurbishing from time to time.
Product recall:
Many companies such as mobile, and auto manufacturing may have to
recall the products due to faulty parts which affect the performance of the
product. Product recall helps in fixing the problem and product recovery.
Recycling and waste disposal:
As a part of social responsibility and environmental sensitize, the
company offers its customers to handover them unused products for
environmentally friendly disposal. Companies such as mobile, packaged
drinking water and soft drink, laptops and other electronic companies ask
their customers f or used products. This helps in the waste disposal of
products and provides a platform for the company for marketing its
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98 Remanufacturing:
Companies may ask their customers and industrial user for the used
product which they can put for remanufact uring products.
5.2.6 Components of Reverse logistics:
Reverse logistics have the following components :
Product location:
The company needs to identify the location of the product which needs to
be called back. Product location can be identified by trackin g the same in
the distribution network if it is not yet delivered to customers. If the
product is delivered then the sales record or customer request may be the
base to trace the product.
Product collection system:
The company has to design the product col lection system. It is a system
through which products will be collected from the customers and will be
brought back to the base from where the further movement of the product
will be undertaken.
Product recycling:
In this, if the product is meant for recy cling, then the plant/ mechanism for
safe recycling/ disposal needs to be in place.
Documentation system:
Proper documentation needs to be maintained as reverse logistics may
attract legal formalities as goods are taken back and need to be replaced
either with the other product or refunded amount. Documentation can also
be used as a marketing tool by the company and show their corporate
social responsibility and concern for the environment.
5.2.7 Importance of Inventory Control:
Inventory/ Stock is an impor tant element in a company's operation
management. A large amount of investment is engaged in inventory. Idle
inventory is a dead asset for the company and it affects the working capital
management of the company. It is important to control the inventory in the
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99 Introduction to Logistics - I

Inventories are essential for the company as it helps in regular availability,
take advantage of large -scale production, maintain service stocks, buffers
etc. However, if stoc k is not managed properly it may lead to a financial
burden on the company.
The importance of inventory control is :
1. Lower investment:
Optimal inventory ensures that there is no high inventory. High inventory
blocks the investment and has financial impli cations such as warehousing
costs, maintenance costs etc.
With an optimal inventory, the level company can achieve lower
investment which results in a higher return on investment.
2. Timely availability of product:
Inventory management reduces the risk of production stoppages and
results in a continuous flow of products to the customer. Good inventory
management helps in continuous production by providing timely raw
material in the plant and the availability of finished goods to the
customers.
3. Taking a dvantage of economies of scale:
In large -scale production, fixed cost remains the same and there is an
increase in variable cost only with the increase in production. With fixed
costs remaining the same, the total cost comes down and thereby cost of
produc tion comes down. This cost -saving in production can be passed on
to the customers and help the company in achieving a cost advantage.
Good inventory management helps in taking advantage of economies of
scale.

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100 4. Reduction in stock out chances:
Stock out in the plant and retail outlets can be checked with proper
inventory management. Stock -out results in idle time. Idle time is a
situation where other resources in the plant have to wait for the arrival of
raw material/ shortage of raw material due to poor management. Idle time
leads to financial loss for the company.
Stock out in the store results in the defection of customers. Stock out
damages the reputation of the company and results in losing out to the
competitor's product due to low brand loyalty.
5. Reduction of risk of expiry of unsold stock:
High inventory may result in the expiry of the product/ raw material if it is
not put into use in a certain specified time. Products like dairy, poultry,
and vaccines result in the expiry of such products which will bring
financial loss to the company.
For example, in the month of June 2022, Serum Institute was at risk of
losing out on more than 200 million covid -19 vaccines doses due expiry
date as there was no procurement of vaccines from the government and
private hospitals.
6. Helps in ensuring uninterrupted supply in the international
market:
Good inventory management helps in making a good environment in the
international market. Cutthroat competition is present in the global market
and the company cannot a fford to lose out market due to stock out.
7. Reduction in inventory management cost:
Inventory management involves the cost of carrying and packaging.
Recovering this cost will be difficult if the inventory is overstocked. If an
inventory is stocked then the carrying cost per unit will increase as the
transportation will not be fully utilized.
8. Lower inventory storage cost:
Large inventory requires huge space for storage. Goods are stored in a
warehouse, and raw materials are stored. The company has to a rrange for
storage by either owning their private warehouse or taking the services of
public/government -owned warehouses. Public warehouses are fewer,
hence owning a warehouse or procuring a private warehouse will increase
the cost.
Good inventory manageme nt will help the organization in lowering its
inventory storage cost.
Inventory control is important as it helps manage cost, finance and quality
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101 Introduction to Logistics - I 5.3 BULLWHIP EFFECT The bullwhip effect was seen at the start of Covid -19. The beginning of
the pandemic has seen unprecedented demand for food, medicine,
sanitiser, medical supply, ventilators etc, this has resulted in extra demand
at the supply chain level in anticipation of additional demand.
At all levels from customers to dealers, distributors , and raw material
suppliers started keeping extra stock. The same was seen when for the first
time vaccines were developed and introduced, all the countries tried
buying maximum vaccines for their population. This impact is the
bullwhip effect.
Concept:
Bull-whip effect in the supply chain is a term used to describe how a small
change/ fluctuation in the demand at the retail level can bring larger
fluctuations in the supply chain - wholesale, distributor, manufacturer and
raw material level.
The concept was first introduced by Jay Forrester and hence it is also
called the Forrester effect.
The bullwhip effect is the result of demand forecasts yield supply chain
inefficiencies in supply chain management. It is observed that a change of
5 per cent in deman d at the point of sale results in an up to 40 per cent
increase in the demand at the supply chain level.
Product demanded in the market by the customers is not stable. It keeps on
fluctuating depending on various reasons. These fluctuations need to be
forecasted by the members of the supply chain. This forecasting is
normally not perfect which results in higher demand for the product at
various supply chain levels due to safety/ buffer stock which all supply
chain members keep
The bullwhip effect is the r esult of:
1. Manufacturing delays which result in lead time issues
2. Communication gap between the participants of supply chain
members
3. Over or under reactions to the demand expectations.
4. Sales promotion, discounts, etc
5. Poor forecasting reg arding demand.
6. Disorganization
7. Free return policies
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102 9. Price variations
10. Misuse of base stock policies
11. Wrong feedback and time delays
12. Panic ordering by customers
13. Trade promotion and forward buying
Consequenc es of Bullwhip effect:
The bullwhip effect has the following consequences
 Greater safety stocks at the supply chain level
 Excessive inventory
 Low utilization of the distribution channel
 Stock -outs
 Poor customer services
 Negative impact on employment
Reduci ng the impact of the bullwhip effect :
The following methods can be used to reduce the impact of uncertainty
and lead time :
1. Vendor Managed Inventory (VMI)
2. Just in Time (JIT)
3. Demand -driven Material Requirement Planning (MRP)
4. Strategic partne rship with members of the supply chain
5. Reducing minimum batch sizes
6. Restriction in returns and order cancellations (Ex. Higher cancellation
charges, returns with the condition of time)
7. Information sharing for removing miscommunication.
5.4 SUMM ARY Logistics management plays an important role in managing and
maintaining the inventory of the organization and its timely availability in
the production plant and customer market. Logistics is the movement and
maintenance of inventory from the place of destination to the place of
consumption. Effective logistics management in an organization ensures
smooth production and availability of products and services at minimum
cost and wastages. The organization has to ensure that an efficient
logistics process is in place. It involves four stages - Input, Plant munotes.in

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103 Introduction to Logistics - I Management, Warehousing, Backward etc. Martin Christopher has
suggested better management of customers and competitors for ensuring
competitive advantage through his 3C Model - Company, Customer,
Competito r. In the absence of such management companies lose out on
competition and may cease to exist.
Business and competition are witnessing dynamic changes. Globalization
supported by liberalized business policy has led to an emerging new way
of business with the help of technology. International business, economic
and political impact has a deep impact on the movement of goods
internationally. Logistics environment is highly dynamic. Reverse
logistics is the process of moving goods from the place of use to th e place
of manufacture to reprocess, refill, repairs or product disposal. Inventory/
Stock is an important element in a company's operation management. A
large amount of investment is engaged in inventory. Idle inventory is a
dead asset for the company and it affects the working capital management
of the company. Bull -whip effect in the supply chain is a term used to
describe how a small change/ fluctuation in the demand at the retail level
can bring larger fluctuations in the supply chain - wholesale, distr ibutor,
manufacturer and raw material level. The concept was first introduced by
Jay Forrester and hence it is also called as Forrester effect. The bullwhip
effect is the result of demand forecasts yield supply chain inefficiencies in
supply chain manageme nt.
5.5 EXERCISE Fill in the blanks :
1. The ____ collaboration has become a critical area of SCM.
2. ____ aims at maximizing the revenue from movement of goods while
minimizing associated cost.
3. ___ defines logistics as planning, implementing and controlling the
physical flows of material from point of origin to point of
consumption.
4. Logistics involves flow of ___ in the supply chain.
5. The primary objective of logistics management is to achieve a target
level of ___at lowest cost.
Answers:
1. Retailing, Carrier
2. Philip Kotler
3. goods and services
4. Customer service
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104 True or False :
1. Water Transport is the costliest means of transport.
2. One must outsource to only reduce cost.
3. The concept of supply chain has been developed from logistics.
4. The Forrester effect i s known as the BullWhip effect.
5. Private warehouses are operated by third parties.
Answers:
True: 4
False: 1, 2, 3,5
Shorts Notes :
1. Reverse logistics
2. Bull whip effect
3. Three C’s
4. Advantages of Inventory control
5. Process of logistics management
Answer in Bri ef:
1. Define logistic management. Explain its process.
2. Write a note on 3Cs
3. ‘Company can achieve competitive advantage with the help of 3Cs’.
Elaborate
4. Discuss on changing the logistical environment.
5. Write a note on reverse logistics
6. What are the advantages of inventory control?
7. Write a note on the Bull -Whip effect.

*****
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105 6
INTRODUCTION TO LOGISTICS - II
Unit Structure
6.0 Objectives
6.1 Introduction
6.2 Transportation and Warehousing
6.3 Packaging and material management
6.4 Summary
6.5 Exercise
6.6 References
6.0 OBJECTIVES 1. To understand the Transport functions, Infrastr ucture
2. Understanding Warehouse functions and operations
3. Understanding Different Packaging - Consumer and Industrial goods
and its importance
4. To understand factors influencing material planning
5. Identifying and understanding preservation, safety and measures of
material handling
6.1 INTRODUCTION The transportation system is the backbone of logistics and supply chain
management. Transportation helps in the movement of raw material from
supplier to the company and also the internal movement of raw material
and semi -finished products in the plant and the journey of the finished
product to the customers. Transportation helps in the movement of
products and storage of products while in transit.
There are various modes of transporting the raw material and products
such as water, rail, air, pipeline, ropeway and road. Transportation has
seen a vast improvement over the period because of technological
development. Today cargos are transported from one place to another
where real tracking with the help of GPS is possib le. Modes of
transportation have also improved in terms of speed and carrying capacity.
Transportation creates time and place utility. The movement of raw
materials and products adds value to the products which create place
utility. Speed and consistency i n the movement of raw materials and
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106 Nature of goods, access to carriers, price of transport, transit time, and
safety are some of the characteristics which affect the selection of mode of
transportation.
a. Transportation and war ehousing :
Transportation and warehousing are important and correlated part of
logistics management. Moving things around physically is transportation.
Storage and warehouse decisions can have a direct impact on logistics and
transportation. Consider the n umber of warehouses required, their
location, size, and the amount of merchandise that should be stored in
each. Also The location of the plant and the warehouse site can change
how the warehouse and the client relate to time and place. Often, the
location of plants and warehouses is influenced significantly by
transportation costs.
6.2.1 Transport functions:
Transportation is an aid to the trade element of business. It helps in the
movement of raw material and finished products from the place of origin
to the customer. Functions of transport are -
1. Movement of goods:
The transfer of goods from one place to another is the basic function of
transport. Transport helps in the movement of raw materials; semi -finished
goods and finished goods. The movement of raw m aterials and goods
helps in the continuous production and availability of goods to the
customers.
2. Economic utility:
Transport creates economic utility. Transport aids various other sectors
and thereby keeps the economy robust. Transport creates utility to various
other industries such as automobiles, insurance, banks etc.
3. Storage of product in transit:
Goods in transit are stored in the vehicle/vessels in which they are
transported. These vessels act as storing places for the goods while they
are traveling to their final destinations.
4. Geographical specialization:
Transportation helps in achieving geographical specialization. Transport
companies can specialize in transportation region -wise this helps in
transportation of specific products.
5. Safety of goods:
Safety of goods is a primary function of transport. A good transport
system helps in the safe movement of goods in quick time with less/ nil
wastages or spoilage. Transport helps in reaching the goods to the
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107 Introduction to Logistics - II 6. Helps in achieving economies of scale:
Good transport ensures that goods reach distributors, agents, wholesalers,
and retailers in a quick time. At the international level, goods reach the
international market in real -time. This helps t he manufacturer to
concentrate on producing the goods on a large scale and enjoy economies
of scale.
7. Discourage monopoly:
A monopoly is a state where there is one seller in the market. This
situation may arise if goods of competitors are not available in the market.
Transport helps in the movement of goods from one part to another part
and thereby ensuring that products of various manufacturers are available
in the market. This function of transport will discourage forming a
monopoly in the market.
8. Benefit to customers:
Customers can get the product at the right time, place and in the right
condition due to transportation. Goods are offered at a reasonable price to
the customer with customized delivery. During Covid -19, transportation
played an important ro le in supplying medical emergencies such as
oxygen, PPE kits, gloves, ventilators and goods to the customers.
9. Creation of employment:
Transportation creates direct and indirect employment. Direct employment
in the form of the transport agency, drivers etc are created while indirect
employment is created in the automobile industry, insurance, banking,
construction etc
10. Helps in the generation of national income:
Transportation helps in creating national income and GDP. The GDP
contribution of transportation in India is above 4 percent. The majority of
this comes from road transport. Transportation through this national
income and GDP contribution helps in the economic development of the
country.
6.2.2 Participants in transportation decision:
Participants in t ransportation decisions depend on the nature of the
business. Participants involved in local and national level trade are simple
and restricted to consignors, consignees and Carrier companies.
Participants in transportation trade involving imports and exp orts are
complex. Shipper, consignee, Carrier Company, government, the general
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108

Shipper:
A shipper is normally the businessman who manufactures the product and
wants to dispatch his product to the customer (In dustrial or Customer). He
generally decides the mode of transport as per the nature of goods, the
price involved in transportation, time engaged in transportation, a specific
requisition from the customer if any etc.
Consignee:
Consignee is the recipient of the product. He receives the delivery of the
goods by showing invoices and other documents. In the case of export/
Import, he needs to present additional documents to the port authority for
getting the goods unloaded on the port and later get clearance for receiving
the delivery of the product.
Carrier:
A carrier is the transportation company involved in the transportation of
goods from the manufacturer to the customer. Carrier companies are
engaged in the transportation and booking of cargo. Carrier C ompanies
have their branches/franchising/agents through whom the booking vessels/
transportation can be booked.
Government:
Quality roads and speedy and hassle -free transportation are the basic
criteria for any country's road to economic development and p rogress.
Building and maintaining roads, ports, and airports add to the economic
prosperity of the country. Government receives taxes and other income
sources from transportation.

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109 Introduction to Logistics - II General public:
General public demands customized delivery and goods all over the world
or in any part of the country. The demand of the general public can be met
with the help of transportation.
Participants in transportation help in deciding the mode of transportation
of products. In today’s modern world, transportation and i ts decisions are
dynamic and complex.
6.2.3 Transport infrastructure:
Forms of transportation:
Transportation plays an important role in supply chain management.
Various forms of transportation are -

1. Animal -based transportation:
Animals are used even i n today's world which was earlier dominated at the
start of the human age. Goods are carried on the pack for carrying goods.
Bullock carts, pack -on horses and donkeys are some examples
2. Air transport:
Air transport is the fastest mode of transport. Peris hable, hardware and
software products are normally transported by air. The development in the
aviation sector supported by new airports has helped air transportation.
Advantages: Quickest mode, Suitable for long -distance and less bulky
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Supply Chain Management and Logistics
110 Disadvantag es: Costlier, not suitable for a short distance and heavy bulky
products.
3. Man -Powered:
Human beings have the sharpest brain; advanced technology has resulted
in the creation of super machines. These machines are cost -saving and
help in transportation. V ehicles such as bicycles, inline skates, skiing, and
drones are examples of man -made transportation.
4. Land/ Road:
Land transport is one of the most used modes of transport. The
development of roads, highways and advanced carriers has helped in the
moveme nt of goods through roads. Road transport is the second fastest
mode of transport. It is the transport which helps in providing the goods at
the doorsteps. Semi -bulky products can be carried easily through road
transport.
Advantages: flexible mode of trans port, suitable for short and medium
distances, door -to-door service, speedy
Disadvantage: Not suitable for long -distance, low capacity, accident -
prone, depends on road condition.
5. Water:
Water transport is the oldest and cheapest mode of transport. Water
transport dominates the international market. Water transport helps in
carrying bulky products.
Advantages: dominant in international trade, less costly, suitable for long -
distance and large volumes.
Disadvantages: Not flexible and suitable for a short di stance, involvement
of risk.
6. Other Modes:
1. Pipelines:
The pipeline is used to transport petroleum and gas. Pipelines are fixed
and product flows through them. Only liquefied products in gaseous form
can be transported through the pipeline. It is a sl ow, rigid and terminal -to-
terminal service.
Advantages: lower transit losses, safe, reliable, cheap, lower operating
and maintenance costs.
Disadvantages: Only liquid and gas forms of goods can be transported,
limited area, rigid.

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111 Introduction to Logistics - II 2. Ropeway:
The ropeway is used where traditional transport mode cannot be used due
to difficult terrain and other factors.
Advantages: Short distance, lower capital cost, ideal for hilly areas and
difficult terrain.
Disadvantages: Limited scope, slowest mode of transport, limit ed
capacity.
3. Drone:
The drone is one of the latest technology -driven modes of transport. The
drone is recently used in supplying vaccines in difficult terrain in India. A
drone is used to carry light transport products to a small range.
WAREHOUSING :
Warehousing is one of the important elements in logistics and supply
chain management.
Reference :
Classification of Carriers :
1. Common carriers: it is a company that helps in the transportation of
goods from one person to another and is responsible for in-transit
damage of goods. Example: Truck, tempo etc
2. Contract Carriers: These carriers do not serve the general public.
Contract carriers are shippers who have a specific contract with the
company to transport their product and hence they are called c ontract
carriers.
3. Private Carriers: Companies having a transportation wing which
transports the product from one place to another are called private
carriers. They do not transport any other company's products.
4. Specialized Carriers: These carriers transport specialized products in
specialized vehicles. For example, a product requiring a freezer will
be transported in a vehicle which is freezing service enabled.
Warehousing is generally related to storing finished products of the
company after being manufactured, however, it can be used to store the
raw material depending on the nature of the product. Goods produced are
normally not sent for distribution, they are kept in the warehouse before it
starts its final journey toward customers.
Warehousing is a location with adequate facilities where a large volume of
shipments are received from the company plant which are then broken into
a particular order and transported to the customer (Local, National or
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112 Warehousing is used for pro duct mixing and cross -docking (movement
from receiving dock to shipping dock, to eliminate storage expenses). It
works as a cushion against contingencies of delays in transport,
distributor's stock puts etc. Warehousing is concerned with smooth
operation a nd order filling.
6.2.4 Warehouse functions:
Warehouses play an important role in storing the raw material and finished
products thereby helping in smooth company operation.Warehousing
primarily plays three important functions - material storage, material
handling and information handling function.
a. Material storage function:
Storing material (raw material and finished product) is the primary
function of warehousing. It helps in transporting the goods to the
customer. As a storage function, warehousing he lps in-
1. Hold:
Warehousing keeps the goods ready for delivery. As per the customer
order/ demand, warehousing ensures smooth movement of the goods to
the customers. The material handling function of warehousing has to be
taken care of as the warehouse re ceives and dispatches goods frequently
from different assemblies, the mix of products, product characteristics and
expiry dates.
2. Consolidation:
It is advisable to collect the goods at one place and then dispatch them to
the destination as it saves time and cost. In export and import, goods from
small vendors can be collected at a central place (warehouse) and then the
final delivery can be planned. This will help in saving the freight. Thus,
warehousing helps in the consolidation of raw materials and fin ished
products which helps in saving time and cost.
3. Break Bulk:
Warehousing can be used in breaking the bulk consignment into small as
per the order or customer customization. For example, bulk cargo of oil,
minerals etc is broken into small consignment s as per the order/region -
wise distribution.
4. Cross -Docking:
Here, goods are brought into the warehouse, not for storage purposes.
Goods are brought from one source into the warehouse where they are
further loaded into trucks in small quantities so tha t they can be further
delivered to the customers. Warehouse use time here is very small as
goods are transferred from bulk into small quantities in the trucks for
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113 Introduction to Logistics - II 5. Product Mixing:
Companies having multiple products or product lines use warehouses for
mixing their product before they are delivered to the market. A common
mixing point (warehouse) serves in assembling the orders and then
dispatching them to the customer in a larger size which saves on time,
packing and transportation co sts.
For example, Company may assemble toothbrushes and toothpaste from
its different plants and pack them into a combo pack of toothpaste and
toothbrush.
6. Postponement:
Uncertainty in demand, market mood, and national and international
environments may require a company to withhold the final production.
Raw material and other inventories can be stored during this period when
a company decides to postpone its production.
Example: During covid -19, many vaccine producers kept their regular
vaccine productio n on hold to push covid -19 vaccines. Inventories of such
regular vaccines require storage which can be stored in the warehouse.
7. Packing:
Warehousing performs the function of packing and repacking the
materials. Goods are packed as per customer order or customer
customization in the warehouse from the bigger lots of goods stored in the
warehouse.
b. Material Handling Function:
Material handling functions of the warehouse are -
1. Loading and unloading:
Materials are loaded and unloaded in the warehouse. Ma terials packed are
loaded in the truck for their dispatch to the customers. Loading and
unloading the material without goods being damaged is one of the
functions of warehousing.
2. Material movement:
Goods and raw materials are internally moved in the war ehouse manually
or with the help of a material handling machine after they reach from plant
and suppliers. They are stored in the warehouse as per their usage needs.
For example, Liquors are stored in a wooden barrel in different locations
in the warehous e depending on their usage or storage time
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114 3. Order filling:
Warehousing helps in the collection of material from different lots/
vendors/ locations as the order. This movement of goods for order filling
is done either manually or with the help of robots.
c. Information Handling Function:
The flow of information is important for all businesses. Warehousing
helps in providing information to the company and members in the supply
chain regarding the availability of goods, their expiry date, dispatch
schedule etc. Company and chain of distribution require information about
inward goods, an inspection of goods, stock -outs, data of goods moving
out, excess stock, consignment tracking etc.
6.2.5 Warehouse operations:
Warehouse operation is concerned with satisfyin g the needs and wants of
customers by utilizing the space, equipment and workforce in the
warehouse effectively. The main aim of warehouse operation is to keep
goods protected and accessible. Software such as WMS, WES, CRM etc is
used for effective warehou se operations.
Warehouse operation consists of the following :
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115 Introduction to Logistics - II 1. Receiving goods:
Receiving raw materials from different supply points and finished goods
from different points is an important function of operation management.
Goods are accumulated in the w arehouse so that they can be supplied to
the plant or chain of distribution without any delays.
2. Cross -docking of goods:
In cross -docking, goods are brought into the warehouse for being sorted so
that they can be dispatched to specific areas/ Customers. He re, the goods
are stored in the warehouse for a very short period.
For example, Online retailers, after receiving the order, dispatches the
goods from their central warehouse to the district/ regional warehouse
where these goods are sorted and dispatched immediately to the address of
the customer.
3. Organizing and storing inventory:
Storing the goods safely is an important function of warehouse operation.
Seasonal foods, grains, perishable products etc. need to be stored properly.
It is also important that documents of the arrival of goods are maintained
so that their proper move -out can be fixed.
4. Asset tracking solutions:
Technology has boosted warehouse operation management. With the help
of technology, goods and their arrival, movement and location can be
tracked easily. Various software helps in warehouse operations and
tracking of goods. Barcodes can be used for tracking goods.
5. Warehouse Management System:
A warehouse management system helps in warehouse operations.
Software such as WMS helps in the effe ctive management of warehouse
operations.
6. Selection of picking routes:
The selection of picking routes and updating them is an important element
of warehouse operation.
7. Sorting and packing:
Sorting the goods received based on their quality, arrival cost etc helps in
effective warehouse operations. Goods are packed in the warehouse.
Packing is challenging especially if goods are moving out of the country
as the destination country or the client may ask for specific packaging.
Warehouse operation helps in s orting and packing of goods in the
warehouse.
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116 8. Developing racking designs:
Proper storage capacity utilization in the warehouse is the key element in
warehouse operation.
Minimizing of cost of the warehouse can be achieved with proper zoning
and layout o f the warehouse with the help of effective racking designs.
6.3 PACKAGING AND MATERIAL MANAGEMENT One of the five interconnected logistics functions is the packing and
management of materials. The transportation of items into and out of each
facility as we ll as inside the storage area are all aspects of material
handling. It involves moving the proper stuff to the proper location at the
proper time in the proper manner. During the manufacturing, distribution,
and disposal processes, materials, products, and packaged goods are
moved, stored, controlled, and protected. The protection of materials and
products for distribution and movement is a key component of packaging,
an important component of materials handling. It protects, facilitates
transportation, and transmits product information, among other things.
6.3.1 Consumer and Industrial Goods Packaging :
A - Packaging and Materials Handling:
Packaging and material handling are important functions in logistic and
supply chain management. Packaging helps in eas ing the movement and
transportation of goods. It also adds appeal and provides important
information. Material handling is important as if not taken care of will
lead to an increase in cost due to wastage, damage or spoilage of the
product.
B - Consumer g oods and industrial goods:
Consumer goods are manufactured in the plant and are meant for the
consumption of the final customer. Example - soap, biscuits etc.
Consumers buy these goods from the market to satisfy their needs and
wants.
Industrial goods are b ought by industries that aid in manufacturing
consumer goods. Example: machinery, packaging material etc.
A brief distinction between consumer goods and industrial goods : Particular Industrial goods Consumer goods Nature Goods used for the production of consumer goods. Consumer goods are the final goods which are sold to the consumer for their use. Example Machinery, raw material, packaging material etc Soaps, laptops etc munotes.in

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117 Introduction to Logistics - II Demand Demand for industrial goods depends upon the demand for consumer goods Demand for consumer goods depends on the buyer's needs, inflation, market mood etc. Buyers and volume Industrial goods are bought by limited buyers and their volume is low A large volume of goods bought by customers which are large in number. Elasticity of demand The demand for Industrial goods is elastic. Demand for consumer goods is elastic. Price The price of industrial goods is high. The price of consumer goods is relatively very less.
Packaging:
Packaging is an important element of logistics and supp ly chain
management carrying marketing tool value. It aids in the movement of
goods from the warehouse to the final consumer in convenient carrying
options with the protection of goods. The primary function of packaging is
to prevent the goods from damagin g during transportation, storage and
goods handling. Packaging needs to adhere to the rule of the land.
6.3.2 The importance of packaging:
1. Protection of goods:
The primary function of packaging is to protect the goods from damage
and spoilage while transp ortation, handling and storing. Goods are packed
for transportation and consumer. (Packing is usually used for logistical
movement while the packaging is the cover in which goods finally reach
the customer)
2. Helps in storage:
Goods are safe to store when th ey are kept in covers/ containers.
Packaging helps in storing the goods in the warehouse, in transit, store.
3. Provide information to customers:
The packaging carries necessary information (Statutory and Marketing
appeal) that helps customers in selecting t he product. Different products
require different types of packaging and information. Example - Medicine,
FMCG, and electrical products need different packaging and carry
different information.
4. Improves appeal of the product:
Quality packaging adds to the q uality of the product. Good packaging
command a premium price in the market. Good packaging with an after -
use appeal to the product.
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118 5. Helps in buying decisions of customers:
Goods with quality packaging create a positive perception about the
good's quality and trigger demand in the market for the same. Good
packaging helps consumers in their buying decisions.
6. Ease in transportation:
Good packaging helps in ease of transportation. Goods can be moved from
one place to another with ease if they are packaged pr operly.
Example: Soft drink and mineral water bottles are clubbed in plastic
packing of 12 (for one -litre packs) so that they can be transported and
handled with ease while their movement from warehouse to retailers and
customers.
7. Helps in meeting governm ent regulations:
There are various local, regional and international regulations relating to
the packaging of goods. Recently, from 1st July-2022, a ban was imposed
on single -use plastic. Different kinds of plastics are allowed/disallowed
for packaging in dustrial and consumer goods. Necessary information as
per the government regulations should be printed on the packaging before
goods start their journey toward the final customer.
6.3.3 Factors influencing Material Planning :
Material handling is an importa nt element of production and material
management. Material management is an art and science consisting of
moving, packaging and storing materials. Material handling creates time
and place utility and helps in achieving cost management. Material
management helps in the movement of material (external and internal
movement) for storage. Material handling is one of the criteria that an
organization uses for plant layout. It is estimated that around 50 per cent
of the production cycle time of goods is used in ha ndling materials. A
good material handling system reduces material handling cost and
manufacturing cycle time. Improved working conditions, safety in
movement of materials, better quality, increased storage capacity, and
higher productivity are some of the importance of a good material
handling system in the organization.
Factors influencing material planning:
Material planning depends on the various factors -
1. Global price trends:
Material planning depends on international price trends. Prices of the
inputs in the international market decide the material planning by the
companies. Non -availability of micro -chips in car manufacturing leads to
stress on the material planning of the organization.
Example: Russia - Ukraine war has put pressure on the supply of inp uts of
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119 Introduction to Logistics - II 2. Business cycle:
The business cycle helps in planning the material turnover. A longer and
shorter business cycle requires proper planning of materials as it should
not hamper the supply and production of products in the plant.
3. Country’s Foreign Trade Policy (FTP):
A country's foreign trade policy has an impact on material planning.
Government policies such as encouraging home production and utilization
may require material planning.
Example: Government of India’s pet project Make in India, Atmanirbhar
Bharat, Local is vocal etc. has its impact on material planning.
Accordingly, the Government policy of discouraging imports from certain
countries also impacts material planning if material s are imported from the
said country.
4. Government and RBI credit policy:
The government's credit policy through RBI has an impact on material
planning and its subsequent payment for import and storing. Recently,
RBI has increased the repo rate and reverse repo rate to control the
inflation in the country. Such measures along with foreign trade policy and
payment measures impact material planning.
5. Plant capacity utilization:
Management's vision for utilization of the plant will decide the material
planning. If management decides to expedite the production, then more
material will be required and so.
Example: During covid, many pharma companies extended the use of their
plant capacity for providing medical emergencies and exploring the
market led to more mater ials and its subsequent planning.
6. Production plan:
The production plan of the organization has a direct impact on the
requirement of the material which led to material planning.
7. Inventory management:
The inventory management concept of the company decide s the material
planning. Companies adopting the Just In Time (JIT) inventory system
will have different material planning systems as compared to companies
adopting other inventory systems.
8. Lead time:
Lead time is the time taken to complete the material pr ocess right from the
start to the end. Longer and shorter lead times demand different material
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120 9. Rejection rates:
Lower rejection rates will bring down the material requirement and
similarly higher rejection rates will lead to more frequent production and
thereby more demand for the material. Lead time is one of the factors that
will influence material planning.
10. Working capital:
The availability of satisfactory working capital influences material
planning. Organizations having less flexibility in working capital will have
to plan their material differently as compared to the organizations sitting
with comfortable working capital. Less working capital restricts the
procurement of material and commands planning accordingly to ensu re
smooth and continuous production.
11. Seasonality of products:
Seasonality of products has a direct impact on material planning. Materials
that are available throughout the year require different planning whereas
seasonal products such as fruits, vegetable s etc. need different planning.
Seasonal material needs to be procured and stored so that the same can be
used and supplied in the market throughout the year.
6.3.4 Preservation, safety and measures of material handling :
Problems of preservation and measu res for material handling can be
effectively tackled by applying principles for materials handling.
Principles for material handling are -
1. Principle of planning:
Planned material procurement, transportation, storing and handling
process will ensure there is no wastage and damage to the quality and
quantity of material.
2. Principle of standardization:
A standardized policy should be in place regarding movement, storage,
material handling equipment and software. Standardization will help in the
smooth operation of material handling and thereby helps in the
preservation and handling of material.
3. Principle of systems:
Material handling management is not possible in isolation. Material
handling needs to be integrated into other areas of the supply chain and
logistic s such as suppliers, material ordering, production, packaging,
warehousing, returns etc. Effective and cost -managed integrated material
handling will ensure better material preservation.

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121 Introduction to Logistics - II 4. Principle of work:
Preservation and material handling can be effec tively achieved by
reducing material handling work without impacting productivity.
5. Principle of ergonomics:
Planning of material handling should be undertaken after considering the
employee's capabilities and their limitations. This will help in the safe a nd
effective handling of materials.
6. Principle of unit size:
Unit-size of loads should be carefully undertaken so that it aids in material
handling. This unit size will help in material preservation and handling.
7. Principle of utilization:
Effective material handling is possible when there is an effective use of
space, workforce and equipment.
8. Principle of automation:
Mechanized operation of material handling will ensure accurate data,
decrease operating cost, and less man and unsafe handling. Automation
will bring consistency and standardization in material handling.
9. Principle of the environment:
Environmental impact, energy conservation, and recycling are the norms
of modern business. Material handling will help in achieving green
handling which will bring down the cost and protect the environment
leading to sustainable development.
10. Principle of life -cycle:
A better understanding of the material life cycle will help in better
material handling and its preservation.
6.4 SUMMARY Transportation helps in the m ovement of raw material from supplier to the
company and also the internal movement of raw material and semi -
finished products in the plant and the journey of the finished product to the
customers. Transportation helps in the movement of products and stora ge
of products while in transit. Transportation creates time and place utility.
The movement of raw materials and products adds value to the products
which create place utility. Speed and consistency in the movement of raw
materials and products create tim e utility. Participants in transportation
decisions depend on the nature of the business. Participants involved in
local and national level trade are simple and restricted to consignors,
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122 Participants in transportation tra de involving imports and exports are
complex. Shipper, consignee, Carrier Company, government, the general
public, regional groupings etc are involved. Warehouses play an important
role in storing the raw material and finished products thereby helping in
smooth company operation.Warehousing primarily plays three important
functions - material storage, material handling and information handling
function. Packaging and material handling are important functions in
logistic and supply chain management. Packaging helps in easing the
movement and transportation of goods. It also adds appeal and provides
important information. Material handling is important as if not taken care
of will lead to an increase in cost due to wastage, damage or spoilage of
the product. C onsumer goods are manufactured in the plant and are meant
for the consumption of the final customer. Example - soap, biscuits etc.
Consumers buy these goods from the market to satisfy their needs and
wants.Industrial goods are bought by industries that aid in manufacturing
consumer goods. Example: machinery, packaging material etc. Material
handling is one of the criteria that an organization uses for plant layout. It
is estimated that around 50 per cent of the production cycle time of goods
is used in handl ing materials. A good material handling system reduces
material handling cost and manufacturing cycle time. Improved working
conditions, safety in movement of materials, better quality, increased
storage capacity, and higher productivity are some of the im portance of a
good material handling system in the organization.
6.5 EXERCISE Fill in the blanks :
1. _____ is not one of the C’s of Supply Chain.
(Customer service, Communication, Control, Conversation)
2. Bullwhip effects undertake ___ forecasts.
(Demand, Supp ly, Production, Service)
3. Reverse logistics is required because ___
(Goods are unsold, Goods are defective, goods are reusable, all of the
above)
4. ___ is the first stage in the logistics process.
(Input, Plant Management , Warehousing, Backward)
5. JIT reduces _ ___ cost.
(Inventory carrying, warehousing, Material handling, Packaging)
Answers:
1. Control munotes.in

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123 Introduction to Logistics - II 2. Demand
3. All of the a bove
4. Input
5. Inventory Carrying
Match the Column : A B 1. Inventory Management a. Warehousing 2. Warehouse b. Productivity and performance 3. Physical Distribution c. Transport and Storage 4. Logistics d. Store function 5. Grading e. Minimise working capital in stock
Answers: (1-e, 2-d, 3-c, 4-b, 5-a)
Shorts Notes :
1. Write a note on warehousing.
2. Functions of warehousing.
3. Write a note on warehouse operations.
4. Consumer and Industrial goods
5. Packaging and its importance
Answer in brief:
1. Discuss various functions of transportation.
2. Explain different participants in transportation decisions
3. What are the different forms of tran sportations?
4. What are the factors influencing material planning?
5. What are the various preservation, safety and measures of material
handlings?
6.6 REFERENCES  Abdinnour -Helm, S. (1999), ‘Network Design in Supply Chain
Management’, International Jour nal of Agile Management System,
1(2): 99 –106.
 Agarwal, A., and R. Shankar (2003), ‘Online Trust Building in E -
enabled Supply Chain’, Supply Chain Management: An International
Journal, 8(4): 324 –34. munotes.in

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124  Albertson, T. (2007), The Gods of Business: The Intersecti on of Faith
and the Marketplace, Los Angeles, CA: Trinity Alumni Press.
 Alvarado, U., and H. Kotzab (2001), ‘Supply Chain Management —
The Integration of Logistics in Marketing’, Industrial Marketing
Management, 30, 183 –198.

*****
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125 MODULE - IV
7
DESIGN OF SCM LOGISTICS AND USE OF
INTERNET - I
Unit Structure
7.0 Objectives
7.1 Introduction
7.2 SCM Plan
7.3 Use of Internet in SCM
7.4 Summary
7.5 Exercise
7.0 OBJECTIVES 1. To understand the Demand planning, Production and assembly steps
2. Understanding sourcing of procurement and Sales returns in SCM
3. Understanding E Market, E Procurement and E Logistics, E -
Fulfillment
7.1 INTRODUCTION SCM consists of integration of planning and execution of all activities
required to optimize the flow of materials, information and financial
capital in the areas that includes demand planning, Sourcing of
Procurement, Production or Assembly, Delivery and Return of Excess or
defective products.
7.1.1 Demand planning :
Demand Planning is a step in supply chain management that ensures
products can be delivered on time and that consumers are satisfied at all
times. A successful demand planning strategy can increase the accuracy of
revenue predictions, match inventory levels to demand peaks and troughs,
and increa se the profitability of a specific channel or product. The Labouré
force, natural disasters, weather patterns, current events, and other
influences are some of the external and internal factors that demand
planners keep an eye on. The best method to create an accurate prediction
and assure integration with the supply forecast to effectively fulfill
customer demand is to collect data from all available sources.

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126 7.1.2 Importance of demand planning :
1) Facing Changing environment :
Demand plans must adapt to th e market's shifting dynamics as it might
change in an instant.
2) Managing stocks :
Companies risk experiencing stock -outs, disgruntled consumers,
warehouses full of idle inventory.
3) Proactive step:
In a perfect world, demand planners would be proactive rath er than
reactive, and they would base their judgments on near -real-time market
data rather than just historical data.
4) Preventing losses :
Without sound demand planning and forecasting, losses will occur and
Disgruntled finance managers, and millions of do llars in wasted capital if
demand plans can't be altered swiftly.
5) Improving SCM :
Demand plans helps to improvise order configuration in the right form
along with customer satisfaction which aligns upstream and downstream
processes in SCM.
7.1.3 Production or Assembly steps :
Production and assembly steps are guided by manufacturing flow
procedures while applying factors of production to transform raw
materials into finished goods.
In order to accomplish the following, manufacturing process flow
management c harts and tracks the flow of production processes at various
production stages.
● To cut waste and reduce production downtime, pinpoint the
production process's bottlenecks.
● By eliminating recurring bottlenecks or operational flaws, improve
the production pr ocess.
● To reduce flaws or errors in order to achieve significant cost savings.
The following are the process flows:
1. Product Characteristics :
Decides on the product's aesthetic and functional traits in order to
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127 Design of SCM Logistics and Use of Internet - I Its appearance, thickness, colour, and other aesthetic qualities are only a
few examples.
2. Performance characteristics :
It includes their levels of performance as they are put through various
testing processes under varied circumstances. attributes like how quickly
or slowly it moves, how well it holds up under pressure, etc.
3. Develops technological requirements :
By describing the characteristics of its many sections and components,
technical specifications of the product are provided.
4. Selecting the ap propriate production procedures to be used in
production:
Performs job production if the production is carried out in accordance
with the purchase order's tailored specifications from the customer. This
type of production method involves the mass productio n of identical
items, or the parts and components thereof.
Performs batch production if the production calls for the batch
production of a certain group of components. The manufacturer of heavy
equipment's engine parts frequently uses batch production.
On Monday, Engine Part No. 1 is created by Machine A.
Engine Part No. 2 is produced by Machine B on Tuesday, and so forth.
Performs flow production if there is constant demand for the product.
Without waiting for the entire batch to be finished, a unit is mad e at one
stage of manufacturing and then moves on to the next. It entails a
continuous manufacturing process that creates parts and subassemblies
from one production stage to the next until it is finished. This method of
production is used in the auto indu stry. The success of this production
process depends on the accuracy of the sales prediction; otherwise,
finished goods may be overstocked.
Describes its technical components , including its mechanical, electrical,
chemical, and other components.
Outlines t he resources required to begin the production process and the
resources that can be used as backup if necessary.
Creates a list of the raw materials, industrial supplies, engineering
materials, tools, and machinery needed to produce a bill of materials.
Subjecting the production resources to be used to various testing
techniques, Chemical supplies are tested in laboratories., Engineering tests
mechanical components to determine their durability, etc.,Electrical
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128 Checking workstations for each stage of production , setting up
machinery, tools, and equipment, and making operating manuals available
so that personnel can refer to them.
● Checking the chemical, mechanical, electrical, and computer -related
confi gurations or settings of these equipment is necessary for
production set -up so that they are prepared to begin the manufacturing
process.
● loads raw materials into machinery and equipment under each step of
production to begin the production process, which eventually
transforms them into final goods.
● uses inputs, such as supplies and materials, at each stage of
production in accordance with the production manual.
● checks each output's quality and quantity by confirming its
specifications at each stage of manu facturing.
● During each stage of the production process, damages, variances, and
equipment malfunctions are reported.
Implement corrective actions , such as putting backup equipment
underneath each stage of production, in the event of operational errors,
equipment damage, etc.
In this stage it keeps checks on output quantity and quality at the latter end
of the production process.

https://www.process.st/checklist/supply -chain-management -procedures -3/
7.1.4 Sourcing of Procurement :
The sourcing function is in charge of every step in the purchasing process,
from finding possible suppliers to negotiating and awarding contracts and
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129 Design of SCM Logistics and Use of Internet - I need for a purchase is determined inside the company, the purchasing
process can start.
The sourcing function's responsibilities include choosing the right
suppliers, negotiating deals, and managing the acquisition process. Fi rst,
sourcing must determine whether the requirement can be satisfied by
current suppliers or if new suppliers need to be found. In general, sourcing
keeps a list of acceptable suppliers for continuing purchases, but it also
assesses vendors for brand -new requirements as they arise.
In order to select a supplier, one must first identify possible partners and
then approach them with a request for quotes (RFQ), request for proposals
(RFP), or request or invitation to bid (ITB) (RFB). It is crucial that the
sourcing function manage the supplier base and that decisions about
supplier management and selection be made through this function.
Companies frequently engage in "maverick buying," a practise where
internal users try to purchase items directly from supplie rs without using
the sourcing department. It is permissible for such actions to take place on
occasion, such as when a waiter leaves the restaurant to get bread or a
secretary buys paper. However, doing this frequently should be avoided
because it sidestep s sourcing and undermines all the advantages sourcing
offers the company, such as economies of scale when working with a
sizable supply base.
Process/Steps of sourcing :
1) Analysing Organisational needs :
The sourcing team must first decide what items and serv ices the
organisation needs to buy, as well as the specifications for those products.
Employees must also define the categories of spending and assess their
spending patterns. For example, are you purchasing office supplies like
coffee and snacks or softwa re or maintenance services?
Who makes use of these products or services? What volume is used? The
supply chain includes who?
2) Market Research :
Following the identification of internal requirements, the sourcing
specialists look for suppliers, examine market offerings, and assess market
risks and opportunities.
Additionally, they analyse the cost elements of the product, including
labour, raw material, and transportation costs.
3) Strategic planning for sourcing :
The third phase is selecting the best strategy, w hich involves identifying
where to purchase the required commodities in order to reduce costs and
guarantee supply chain stability. A company develops a set of
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130 4) Supplier formalities and proposals :
Employees then begin the process of requesting bids and assessing
vendors. A company may issue a request for quotes (RFQ) or a request for
proposals to prospective suppliers (RFP).
Both are business documents that describe a project and request bids in
order to eva luate the suitability of each vendor to accomplish it.
A request for proposal typically includes project specifics, cost analysis,
product specs, and delivery terms and is more intricate than a request for a
quote.
5) Negotiations :
A sourcing team examines re sponses to vendor quotes, seeks clarifications
as necessary, and then starts negotiations with suppliers who have been
shortlisted for cheaper prices, better payment terms, benefits, etc.
After the negotiations are through, a responsible person selects the best
suppliers based on factors including quality and pricing, reputation,
market recognition, and potential risks.
6) Coordination with suppliers :
The implementation procedure started after notifying the chosen vendor. A
contract is signed by a customer and a vendor.
The sourcing team must also create a communication strategy and a way
to evaluate the performance of suppliers.
7) Follow ups and performance analysis :
After making the purchase, the process moves on to its conclusion. The
sourcing team benchmarks the state of the expenditure category and
evaluates the performance of the suppliers using KPIs that have been
developed.
7.1.5 Sales returns for defective or excess products :
Sales return popularly called Reverse logistics, a sort of supply chain
managem ent that transfers items from buyers back to sellers or
manufacturers, is what it is commonly known as Reverse logistics are
needed for procedures like returns or recycling after a customer receives a
product.
Sales return begin at the customer and work th eir way backward through
the supply chain to the producer or the distributor. Reverse logistics can
also refer to procedures where the customer is in charge of the product's
final disposal, such as recycling, refurbishing, or resale.
When items return from their destination back via the supply chain to the
seller and maybe back to the suppliers, organisations use reverse logistics.
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131 Design of SCM Logistics and Use of Internet - I are worth roughly a trillion dollars globally every year and have increased
in frequency with the rise of ecommerce.
Recovering value and encouraging consumer repurchase are the goals of
reverse logistics. Compared to at least 30% of things ordered online, less
than 10% of in -store sales are returned.
Good sales return Process the Return in 5 Easy Steps
a. Process returns :
When a customer indicates they want to return a goods, the return process
begins. This step should specify the product's condition and include a
return authorisation. Additionally, this proc edure entails planning return
shipments, approving reimbursements, and exchanging defective items.
b. Handle returns :
Once a returned item has been delivered to your site or a centralised
processing facility, examine it to establish the type of return it fall s under.
c. Move the returns along :
By delivering fixable things to the repair department, you can cut down on
your daily trash.
d. Repair :
Move the returned item/equipment to the repair area after examining it and
determining whether it can be fixed. If possibl e, sell any pieces that can be
sold.
e. Recycle :
Send any products or parts that you can't repair, repurpose, or sell to the
local recycling facility.
7.3 USE OF INTERNET IN SCM The development of the Internet and electronic communication has made
it possible for businesses to respond to their clients more quickly. The
marketplace itself is evolving, though, as a result of the application of the
same technical improvements in business -to-business supply chain
management. A shift from controlling individual ope rations to integrating
activities into the primary supply chain process is necessary for effective
supply chain management. A seamless chain that runs smoothly benefits
the entire value chain by accelerating communication between consumers
and their suppli ers, enhancing service quality, and cutting costs. The
benefits outweigh the effort required to acquire the end product.
7.3.1 E Market :
The use of an electronic medium to sell the goods is referred to as the
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132 time, it relates to the online selling of goods, but the term E market
includes online purchase methods as well (for B -To-B).
Cyber Consumers are customers who make purchases online.
E-Market includes more than just online sales; i t also includes things like:
Online estimate preparation User consultation Provision of an electronic
catalog Access plan to point of sales, Online payment; real -time
management of product availability (stock); Delivery tracking and post -
purchase support
When the online store is connected to the company's manufacturing
system, the electronic market occasionally makes it possible to create
products that are highly customised.
7.3.2 Different E -Markets includes :
A business -to-business relationship based on th e use of a numerical
support for information transmission is referred to as B to B (Business To
Business; also written B2B).
B2C (Business to Consumer) refers to a relationship between a business
and the general public (individuals). This is known as elect ronic
commerce, which is defined as any potential interaction between a
business and its customers, from requesting an estimate to providing after -
sales assistance, and is not just sales;
7.3.3 Role of E Marketplaces :
It is now widely acknowledged that new technologies, particularly access
to the Internet, tend to change communication between the various players
in the professional world, particularly:
● Relationships between the enterprise and its clients;
● The internal operations of the enterprise, includi ng enterprise
employee relationships;
● Relationships between the enterprise with its various partners and
suppliers.
The integration of tools based on information and communication
technology (often referred to as business software) within the organisation
is what is referred to as "e -Business" in order to enhance its functionality
and produce value for the company, its clients, and its partners.E -Business
now encompasses traditional businesses as well as virtual ones (sometimes
known as "click and mortar") whose entire operation is located online
(called brick and mortar).
In reality, the word e -Commerce, also known as electronic commerce,
which is frequently used interchangeably with the term e -Business, only
refers to the use of an electronic platform for business transactions
between an organisation and individuals. This document's goal is to list
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133 Design of SCM Logistics and Use of Internet - I models based on information and communication technologies) and the
acronyms that go alo ng with them.
7.3.4 Characteristics of E Market :
A firm can be thought of as an organisation that offers clients goods or
services while utilising the goods or services of partners in a dynamic
environment. A set of interdependent functions that are often divided into
three categories can be used to represent the operation of an enterprise:
Performance functions, or the creation of goods or services, serve as the
organization's fundamental business. They concern production, stock -
management, and purchasing (purchasing function) activities;
The management functions, which include all strategic functions of the
organization's management; they include the general management of the
organisation, the management of human resources (HR), as well as the
management o f finances and accounting;
The support functions assist the performance functions to guarantee the
enterprise's smooth operation. Support activities include all sales -related
operations (which, in some situations, are a component of the
organization's main business) as well as all organizationally -internal tasks,
such managing technology infrastructures (IT, Information Technology
function).
Businesses are typically defined by the kinds of business ties they
maintain. Therefore, specific names exist to desc ribe this kind of
relationship:
1. A business -to-business relationship based on the use of a numerical
support for information transmission is referred to as B to B (Business
To Business; also written B2B).
2. B to C (Business to Consumer, also written as B2C) r efers to a
relationship between a business and the general public (individuals).
This is known as electronic commerce, which is defined as any
potential interaction between a business and its customers, from
requesting an estimate to providing after -sales assistance, and is not
just sales;
3. Business to Administration, or B to A, refers to a connection based on
numerical exchange mechanisms between an organisation and the
public sector (tax administration, etc). ( tele procedures , electronic
forms, etc.).
4. As an extension of these ideas, the term B to E (Business to
Employees, also written B2E) has also come to be used to describe
the relationship between an organisation and its employees,
particularly through the provision of forms targeted at them for
mana ging their careers, vacations, or relationships with company
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134 7.3.5 E Procurement :
The practice of requesting, ordering, and buying goods and services online
is known as electronic procurement, often referred to as e -procurement or
supplier exch ange. It involves business to business transactions.
E-procurement, in contrast to e -commerce, relies on a supplier's closed
system and is only accessible to registered users. Through bids, purchase
orders, and invoices, electronic procurement streamlines communications
between customers and selected suppliers.
E-procurement began in the 1980s once Electronic Data Interchange
developed (EDI). A decade later, EDI advancements made it possible for
businesses to create online vendor catalogs. E -procurement now includes
everything from contract management to electronic orders and payments
to supplier evaluation and selection.
E-procurement links suppliers and customers through a web interface or
another type of networked technology. The policies governing the e -
procurement of materials for the firm are often established by the chief
procurement officer or the procurement department.
Utilizing an electronic procurement system's optimum pricing and timing
for purchasing goods or services is its main objective. It's crucial for firms
to build relationships with suppliers if they want to achieve this goal. This
makes it possible for procurement staff to bargain deals with suppliers.
Within the e -procurement platform, they can also establish rules or
restrictions regar ding budgets and spending.
How does E Procurement work?
E-procurement does away with the need to manually complete time -
consuming procurement -related processes including eAuctions and
eTenders, exchanging supplier contracts, and completing questionnaires
for supplier onboarding. Through the use of a centralised platform, the
process connects multiple entities and processes. One of the most crucial
elements of e -procurement is vendor/supplier management. Supplier
relationship management and supplier informat ion management are also
included.
Among e -other procurement's essential elements are the following:
E-sourcing involves defining needs and screening prospective suppliers;
E-tendering entails requests for information, proposals, and quotes;
E-auctioning in volves assessing vendors, contract administration, and
negotiation;
E-ordering and payment involves issuing requisitions and purchase orders
and receiving requested goods; and
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135 Design of SCM Logistics and Use of Internet - I 7.3.6 Be nefits of E Procurement :
The procurement process is made more automated through e -procurement.
Delivery times are slashed and procurement cycles are shortened thanks to
centralised transaction tracking, streamlined reporting, and contract
compliance.
Autom ated solutions and integrated monitoring tools decrease the
administrative burden on procurement teams, enhance performance, boost
workflow effectiveness, and generate cost savings. They also aid in
reducing maverick expenditure, which is when employees ma ke purchases
"off contract," or outside the restrictions outlined in negotiated and
binding contracts.
With e -procurement, businesses can choose from a wider range of goods
and services to suit their own requirements. Inventory quantity and prices
can be m anag ed by being able to locate products from customers' chosen
suppliers or vendors rapidly.
The procurement department can shift resources to higher value
operations, such contract negotiations, because it no longer needs to
perform manual, repetitive, or low-value duties.
Additionally, e -procurement improves reporting on metrics and trends in
procurement and raises the visibility of corporate procurement spending.
Since all information is centralised, stakeholders or firm management may
quickly access it to facilitate decision -making. As a result, it improves
process accountability and transparency and gives the procurement
function better control.
7.3.7 Logistics :
By sharing data, knowledge, and information with supply chain partners,
e-Logistics is a dyn amic combination of communication, computing, and
collaboration technologies that alter core logistical operations to be
customer centric. Delivering the right products in the right amounts to the
appropriate Customer at the proper location and time is E -Logistics'
ultimate goal.
Processes Involved E -Logistics (B2c) :
1. Method of payment:
At the moment of ordering: credit card, electronic check (such as PayPal),
In the case of electronic payments, a system of payment verification is
required prior to shippi ng: COD
2. Check product availability :
If at all feasible, notify the customer of availability before accepting the
order. Inform the customer of the delay if the product is out of stock or
will take some time to make.
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136 3. Arrange shipments :
It has to be a swift and unavoidable Physical product - choose the best
delivery method for quality of service - is the biggest activity for e -
logistics in terms of work, energy, money, etc.
4. Insurance :
Customers must have access to this option due to the possibilit y of product
loss or damage during shipping.
5. Replenishment :
This phase is an overview. It should be reviewing every component of a
location's physical inventory and placing new orders as necessary: non-
products include shipping supplies, spare parts fo r running machinery, and
goods used in the shipping process (such as scanners, bags, carts, etc.).
Products include items on store shelves or materials used to make
products.
6. Contact with customers :
The consumer needs to be as well -informed as feasible while dealing with
an unseen procedure (back -door activities). The following are the most
typical forms of communication: order confirmation, payment success,
shipping confirmation, tracking details, and any issues encountered during
the process.
7. Retur ns:
Reverse logistics refers to the flow of products from the customer back to
the seller. Customers may return or exchange products for the following
reasons: damaged, doesn't work, doesn't like it, etc. wrong type, colour, or
product
7.3.8 Benefits of E-Logistics :
Support for Real -Time Decisions
Connections between Shipper, Receiver, and Fulfillment Provider
Performance Evaluation
Matching capacity and load
Alerts Based on Exceptions
Transportation Improvement
Wireless Track and Trace Updates
Transportati on Paperwork

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137 Design of SCM Logistics and Use of Internet - I 7.3.9 E -fulfillment :
E-fulfillment is a mixture of the phrase’s "ecommerce" and "fulfillment,"
which are two separate words. Simply put, fulfillment is the process of
assembling and sending a customer's order. The orders of consumers are
filled in Amazon fulfillment facilities throughout the globe and delivered
to them promptly.
The aspect of online stores where products are delivered to clients is called
eCommerce fulfillment. E -fulfillment procedures cover a wide range of
activities. eComme rce fulfillment involves placing products on the shelves
of fulfillment centers. Order fulfillment includes order picking and
packing. Third -party logistics operations include shipping schedules and
procedures.
In actuality, eCommerce fulfillment has been a crucial component of your
company from the beginning. You were your own fulfillment provider
when you were filling boxes in your garage. Given the expansion of your
company, you might need to outsource to a 3PL.
Fulfillment process :
Picking and packing orders are only one of the fulfillment processes. The
top eCommerce fulfillment companies will support the smooth operation
of your online retail firm.
Consider the third -party eCommerce fulfillment company as an addition to
your company. Your firm becomes more agile if you outsource
fulfillment. As your company's demands vary, you can increase and
decrease the size of your warehouse. By outsourcing, you can reduce costs
and risks.
The e -fulfillment process consists of the following four fundamental
parts:
1. Integration of an online store and fulfillment facility :
It involves all the transactions and systems of online processes to be
integrated properly for smooth functioning.
2. Receiving and managing inventories :
Inventories need to be received at the right tim e, right place and in the
right order and to be effectively controlled and managed.
3. Order Completion :
Orders need to be executed in order to have customer satisfaction and time
management and other order based techniques need to be followed.
4. Processing of returns :
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138 7.4 SUMMARY Demand Planning is a step in supply chain management that ensures
products can be delivered on time and that consumers are sa tisfied at all
times. A successful demand planning strategy can increase the accuracy of
revenue predictions, match inventory levels to demand peaks and troughs,
and increase the profitability of a specific channel or product. Production
and assembly steps are guided by manufacturing flow procedures while
applying factors of production to transform raw materials into finished
goods.
The sourcing function's responsibilities include choosing the right
suppliers, negotiating deals, and managing the acquisitio n process. First,
sourcing must determine whether the requirement can be satisfied by
current suppliers or if new suppliers need to be found. In general, sourcing
keeps a list of acceptable suppliers for continuing purchases, but it also
assesses vendors f or brand -new requirements as they arise. Sales return
popularly called Reverse logistics, a sort of supply chain management that
transfers items from buyers back to sellers or manufacturers, is what it is
commonly known as. Reverse logistics are needed for procedures like
returns or recycling after a customer receives a product. Sales return begin
at the customer and work their way backward through the supply chain to
the producer or the distributor. Reverse logistics can also refer to
procedures where the customer is in charge of the product's final disposal,
such as recycling, refurbishing, or resale. The use of an electronic medium
to sell the goods is referred to as the "Electronic market" (also known as
the "e -market"). The majority of the time, it rela tes to the online selling of
goods, but the term E market includes online purchase methods as well
(for B -To-B). The practice of requesting, ordering, and buying goods and
services online is known as electronic procurement, often referred to as e -
procureme nt or supplier exchange. It involves business to business
transactions.
E-procurement, in contrast to e -commerce, relies on a supplier's closed
system and is only accessible to registered users. Through bids, purchase
orders, and invoices, electronic procu rement streamlines communications
between customers and selected suppliers. e -Logistics is a dynamic
combination of communication, computing, and collaboration
technologies that alter core logistical operations to be customer centric.
Delivering the right products in the right amounts to the appropriate
Customer at the proper location and time is E -Logistics' ultimate goal. E -
fulfillment is a mixture of the phrases "ecommerce" and "fulfillment,"
which are two separate words. Simply put, fulfillment is the p rocess of
assembling and sending a customer's order. The orders of consumers are
filled in Amazon fulfillment facilities throughout the globe and delivered
to them promptly.

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139 Design of SCM Logistics and Use of Internet - I 7.5 EXERCISE Fill in the blanks :
1. ___ covers sale and purchase activities between two entities .
(E Market, E Logistics, E Procurement, E Fulfillment)
2. Single source procurement involves ___ suppliers.
(Selected, Two, Sole, Mixed)
3. ____ is the electronic integration of processes for managing activities
efficiently.
(E Market, E Logistic s, E Procurement, E Fulfillment)
4. The purpose of Supply chain management is ____ .
(Increase Production, Decrearse supply, Quality Product, Integrating
supply and demand)
5. The use of an electronic medium to sel l the goods is referred to ___.
(E Market, E Logi stics, E Procurement, E Fulfillment)
Answers :
1. E Procurement
2. Selected
3. E Fulfillment
4. Integrating supply and demand
5. E Market)
True or False :
1. E Procurement does not provide the latest product information and
price online.
2. B2B supply chain has ma jorly shifted to the Internet.
3. Single source purchasing refers to purchases from one selected
supplier.
4. E Logistics is the logistics process that governs everything related to
E Markets.
5. E fulfillment is electronic integration.
Answers:
True - 2, 3, 4, 5
False- 1 munotes.in

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140 Shorts Notes:
1. Demand Planning
2. E Logistics benefits
3. E Procurement process
4. E Market
5. E Fulfillment.
Questions for Exercise:
1. What is Demand planning in SCM?
2. Write a note on Sourcing of Procurement
3. Explain E logistics and E markets in detail
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141 8
DESIGN OF SCM LOGISTICS AND USE OF
INTERNET - II
Unit Structure
8.0 Objectives
8.1 Introduction
8.2 Operative System in SCM
8.3 Inventory control
8.4 Summary
8.5 Exercise
8.6 References
8.0 OBJECTIVES 1. To understand ERP
2. To identify importance and role o f Inventory Control
3. To appraise Markov Chains application in SCM
4. To appraise Pareoto’s Law of Inventory
8.1 INTRODUCTION Supply chain management systems (SCMS) are created to coordinate all
or a large portion of the product movement. Enterprise resource planning
(ERP) software features that optimise internal tasks and procedures are
occasionally incorporated into SCM systems. These features are pertinent
to the operations management industry. Conversely, SCM tools are
frequently included in ERP suites, an d their capability can be increased by
integrating SCM add -ons that are compatible.
8.1.1 Enterprise resource planning :
Enterprise resource planning (ERP) integrates internal and external
management information across an entire organisation, embracing
finance/accounting, manufacturing, sales and service, etc.
• ERP systems automate this activity with an integrated software
application. Its purpose is to facilitate the flow of information
between all business functions inside the boundaries of the
organizat ion and manage the connections to outside stakeholders.
• ERP systems can run on a variety of hardware and network
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142 • The functional areas of ERP include finance or accounting, cash
management , budgeting
Manufacturing, scheduling, capacity, workflow management, quality
control, cost management, manufacturing process, product lifecycle
management, supply chain management order to cash, inventory, order
entry, purchasing, supply chain planning, supplier scheduling, inspection
of goods, claim processing, commissions, project management, costing,
billing, time and expense, performance units, activity management,
customer relationship management, sales and marketing, commissions,
service, custom er contact, call center support, data services, self –service
interfaces for customers, suppliers and employees
The goal of ERP, also known as Integrated Management Software (PGI),
is to entralize all business operations (including so -called vertical
activities like production and procurement as well as horizontal activities
like marketing, sales, and human resource management) around a single
information system.
In order to enable cross -service communication and information flow,
integrated management sof tware typically offers groupware and workflow
features. The name of the MRP (Manufacturing Resource Planning)
approach, which was employed in the 1970s to manage the planning of
industrial output, is where the term “ERP” originates.
8.1.2 Implementation of ERP :
1. Software System :
ERP is much more than simply software; it's a real project that calls for
thorough integration of a software tool within an organisation and a
particular structure, which entails high engineering expenditures.
However, its adoption i n an organisation necessitates considerable
adjustments to the working practices of a sizable portion of the workforce.
Therefore, it is estimated that less than 20% of the entire cost of putting
such a system in place goes toward the cost of the software tool.
2. Application :
The goal of EAI (Enterprise Application Integration) is to ensure
communication between the various applications that make up the
company's information system, including those of customers, partners, or
suppliers. EAI also organises the flow of information between
heterogeneous applications.
Therefore, designing an architecture through which the various
applications can communicate with one another is the first step in an EAI
project. As a result, this calls for the creation of connectors (middleware),
which enable the interaction of programmes using various communication
protocols (generally proprietary).
However, the EAI project extends beyond application compatibility; it
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143 Design of SCM Logistics and Use of Internet - II more modular alternative to ERP. However, EAI still has limitations due
to the rigidity of the legacy, as it is required to adapt the middleware in the
event that the applications undergo substantial modifications.
8.1.3 Markov Chain :
A Markov chain is a mathematical mechanism that changes states within a
limited range of potential states. It is a collection of potential outcomes
and probabilities for a variable, where the condition or state of the
variable's future depends heavily on the state of the variable's current
situation.
A Markov chain is often referred to as a Markov process or a discrete time
Markov chain (DTMC).
Markov chains are typically used to forecast an object's or variable's future
state based on its previous state. It uses probabil istic methods to forecast
the upcoming condition. Directed graphs, which outline the present and
past states as well as the likelihood of changing between them, are used to
illustrate Markov chains.
A supply chain is conceptualised as a network of intercon nected entities
(parts) that play the parts of suppliers and customers. The concept is to
view chains from a global perspective, where individual portions operate
in diverse regions. These regions need not just be geographically unique;
they could also, fo r example, be distinct from one another in terms of
economy, politics, or culture. In order to estimate the type of potential
disruptions, the likelihood of their occurring, or the amount of time needed
to mitigate the effects of such unforeseen events, in dividual locations
might be examined in terms of their entrepreneurial environment. The
supply chains under consideration are capacity -neutral, and a link in the
chain that comes after a previous link can process.
Markov Chain, being a model describing a s equence of possible events
based on mathematical algorithm which transit from one state to another.
Its application in SCM can be analysed in the areas given below:
1. Outlining the structure of the supply chain (assigning supplies chain
connects to sepa rate layers).
2. Entering input parameters for each supply link chain.
3. Defining the highest level of performance that the supply chain and
the greatest quantity of the whole amount of the budget.
4. Choosing an allocation strategy.
5. Determining th e odds of transition between full states of operation
and disruption for the supply chain links.
6. Produce every conceivable supply chain condition.
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144 8. Supply chain stationary vector calcul ation state -specific odds of
occurrence.
9. Measuring supply chain efficiency in a specific, proven allocation
scheme
8.3 INVENTORY CONTROL Inventory control refers to all the procedures and systems in place for
maximising the use of that inventory, inclu ding purchasing, shipping,
receiving, storing, and reordering. Inventory refers to the raw materials,
work -in-progress goods, and finished products that represent the primary
source of revenue for any business.
Any business' supply chain includes every ste p of the process, from
obtaining materials from a supplier to shipping a finished product to the
client. The majority of business owners don't participate in their suppliers'
and carriers' daily activities. Businesses should first concentrate on
inventory control in order to maintain efficiency throughout the supply
chain process.
Any business that sells products has one of the highest capital
expenditures: inventory. This sort of company's balance sheet is likely to
show that inventory consumes a significa nt amount of working capital and
makes up a sizable component of current assets.
Controlling inventory helps businesses avoid the significant expenses
associated with overbuying inventory and the stress of operating without
it. Even though certain business es that use just -in-time ordering may have
incredibly low inventories, almost every industry needs some sort of
inventory, which is best controlled through inventory control systems.
A corporation may discover new cash available for growth or profits if it
can reduce inventory. A corporation may have better sales and once again
higher profits if it needs to carry more inventory and strict inventory
control procedures increase inventory levels. Inventory control is a
surefire approach to reduce costs and man age any kind of product in your
warehouse, stock room, supply room, or storefront.
8.3.1 Importance of Inventory control :
1) Prevents Dead stock, spoilage :
It prevents buffer stock, dead stock and spoilage so it eliminates loss
making risks in SCM process
2) Man aging Extra storage expenses :
The Extra efforts and expenditure involving space utilisation can be
managed effectively if inventory control is given importance in SCM
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145 Design of SCM Logistics and Use of Internet - II 3) Cost -efficiency :
Because of Prevention of losses and management of stock evils like dead
stock it saves cost.
4) Managing sales :
Sales and sales return both can be supervised in proper order if inventory
control techniques are applied.
5) Prevents from losing loyal clients :
Customers turn loyal if the order is timely managed and executed properly
which is a resultant factor of effective Inventory control.
6) Reducing surplus stock :
The surplus or excess stock is managed and controlled and it leads to
minimization of expenses and wastages.
7) Inventory tracking :
Inventory tracking is possible because of Inventory control systems
adopted through well balanced techniques like AMC, Economic Order
quantity etc.
8) Warehouse management :
Warehousing functions and operations are the main element of inventory
control.
8.3.2 Pareto’ s law of Inventory :
Vilfredo Paret o, an economist from Italy who investigated land ownership
in the early 20th century and discovered that roughly 20% of the
population possessed title to approximately 80% of the property, is
remembered by the law's name. According to legend, he further de veloped
the hypothesis after realising that in his garden, 20% of the pea pods
produced 80% of the peas. Pareto's law is frequently referred to as the
"80/20" rule for this reason. Despite this, there is nothing "magical" about
the 80% number. However, whi le some corporate systems do exhibit an
80/20 link, others do not. However, the main idea is still valid: A small
number of factors will produce the majority of the outcomes. Inventory
management uses the categorising method known as ABC analysis.
The meth od is based on the Pareto principle, sometimes known as the
80/20 rule, which claims that 20% of causes account for 80% of
consequences, indicating an unequal relationship between inputs and
outputs.
By applying this theory to inventory control, we discove r that the majority
(80%) of the overall consumption value is made up of a limited variety
(20%) of stock -keeping units (or sales revenue in case you need to apply
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146 Knowing which SKUs make up the majority of your business al lows you
to prioritise the goods before settling on service levels and safety stocks,
deciding on price with suppliers, or allocating staff to jobs like inventory
reviews.

Source: https://manufacturing -software -blog.mrpeasy.com/wp -
content/uploads/2020/09/abc -pareto -curve.png
According to the Pareto principle, 20% of your SKUs account for 80% of
the total consumption value of your inventory.
How to carry out an ABC evaluation
SKUs are divided into three groups based on the ABC analysis:
Items in the A class are scarce (around 20 percent), but they have the
highest consumption values (ca. 80 percent altogether).
Although C class items are plentiful (approximately 50%), they have a low
consumption value (ca. 5 percent altogether).
Between the two aforementioned groups are B class items (making up
about 30 percent of the items with around 15 percent of the consumption
value).
It is strongly advised to measure an SKU's worth using its consumption
value or revenue generated rather than its number because quantity is
frequently a poor predictor of business value. Only when physically
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147 Design of SCM Logistics and Use of Internet - II The cost per unit of an item can be multiplied by the quantity utilised over
a predetermined time period, preferably a year, to get the item's
consumption value.
Pareto’s Law application to SCM
The following points highlights Pareto’s Law to SCM:
1. Reviewing the Invento ry:
Businesses that keep goods in stock to sell to clients frequently see a
Pareto distribution in the value of that stock. For instance, a business may
find that 20% of the items in its inventory represent 80% of the entire
value of inventory. Inventory m anagement takes time and money. A
corporation can maximise its return on investment by concentrating its
inventory control efforts on those specific goods after realising that a
small number of things account for the vast majority of inventory value.
2. ABC E valuation :
The ABC analysis inventory control method expands on Pareto's law. In
an ABC analysis, a business looks through its inventory and divides
everything into three groups, referred to as "A" things, "B" items, and "C"
products. The usual breakdown m ight appear as follows: Inventory type
"A" contains 20% of products and has an 80% value, whereas inventory
type "B" contains 30% of products and has a 15% value. 50% of items,
5% of value is the "C" incentive. Again, the figures for a certain
organisation might be different, but managers ought to be able to spot a
similar kind of pattern.
3. Control Techniques :
A business can create an inventory -control strategy that concentrates effort
where it will have the biggest impact once it has completed its ABC
analy sis. Items in "A" inventory are tightly controlled, which means the
company closely monitors how much inventory it has on hand, closely
monitors current demand and demand projections, and carefully plans its
ordering to avoid running out of stock or having too much excess
inventory that could become obsolete. Although the corporation pays
special attention to items in "B" inventory as well, it does not frequently
examine its ordering policy. The corporation can order things in "C"
inventory in large quantit ies and with minimum oversight because they are
the least expensive. The most important thing is that the company does
this.
8.4 SUMMARY Enterprise resource planning (ERP) integrates internal and external
management information across an entire organisatio n, embracing
finance/accounting, manufacturing, sales and service, etc. ERP systems
automate this activity with an integrated software application. Its purpose
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148 inside the boundaries of the organization and manage the connections to
outside stakeholders.
A Markov chain is a mathematical mechanism that changes states within a
limited range of potential states. It is a collection of potential outcomes
and probabilities for a variable, wher e the condition or state of the
variable's future depends heavily on the state of the variable's current
situation.
A Markov chain is often referred to as a Markov process or a discrete time
Markov chain (DTMC).
Inventory control refers to all the procedur es and systems in place for
maximising the use of that inventory, including purchasing, shipping,
receiving, storing, and reordering. Inventory refers to the raw materials,
work -in-progress goods, and finished products that represent the primary
source of revenue for any business.
Any business' supply chain includes every step of the process, from
obtaining materials from a supplier to shipping a finished product to the
client. The majority of business owners don't participate in their suppliers'
and carrie rs' daily activities. Businesses should first concentrate on
inventory control in order to maintain efficiency throughout the supply
chain process.
Vilfredo Pareto, an economist from Italy who investigated land ownership
in the early 20th century and disco vered that roughly 20% of the
population possessed title to approximately 80% of the property, is
remembered by the law's name. According to legend, he further developed
the hypothesis after realising that in his garden, 20% of the pea pods
produced 80% of the peas. Pareto's law is frequently referred to as the
"80/20" rule for this reason. By applying this theory to inventory control,
we discover that the majority (80%) of the overall consumption value is
made up of a limited variety (20%) of stock -keeping units (or sales
revenue in case you need to apply the analysis to final products).
8.5 EXERCISE Fill in the blanks :
a. ERP system is the heart of ____.
(Customers. Shareholders, Database, Information)
b. ___ was the Founder of Pareto's Law.
(Philip Kotler, H enry Fayol, Vilfredo pareto, John Coyle)
c. ERP help streamlining business ___.
(Strategies, Activities, Processes, Operations)
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149 Design of SCM Logistics and Use of Internet - II d. Pareto law is called ___.
(80-20 rule, Just in time, BullWhip, FSN analysis)
e. A ___ is a mathematical system that experiences tran sition from one
state to another.
(Markov Chain, ERP, Pareto Law, SCOR)
Answers:
1. Information
2. Vilfredo Pareto
3. Processes
4. 80 -20 rule
5. Markov Chain
Match the Column : A B 1. ERP a. Integrated Network 2. ABC Analysis b. Demand Forecasting 3. Markov Chain c. Pareto Law 4. Safety stock d. Machines 5. Inventory e. Mathematics
Answers : 1-a, 2-c, 3-e, 4-b, 5-d
Shorts Notes :
1. Markov Chain
2. Pareto Law
3. ERP elements
4. Inventory Control - Importance
Questions for Exercise :
1. What is ERP? What are its Elements?
2. Write a note on Importa nce of Inventory Control
3. Write a note on Pareto’s Law.
8.6 REFERENCE  Bowersox, D. (1969) Physical distribution development, current
status, and potential, Journal of Marketing, vol. 33, 63 –70 munotes.in

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150  Chopra, S., &Meindl, P. (2007). Supply chain management. Strateg y,
planning & operation. In Das summa summarum des
management (pp. 265 -275). Gabler.
 Chopra, S., & Sodhi, M. S. (2004). Supply -chain breakdown. MIT
Sloan management review, 46(1), 53 -61.

*****











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