Supply Chain: What is it? by ukkachru

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									Supply Chain Management

Supply Chain Basics

Prof. Upendra Kachru

In 1958, J. Forrester noticed that when information between parties that do business is insufficient there are strong fluctuations in order volume, even when there is relatively stable demand. Customer demand makes the retailer place an order on the wholesaler. The wholesaler adds a margin and orders on the manufacturer and the manufacturer places orders on its suppliers. As each firm in the distribution network has incomplete information about the needs of others, therefore it responds with a disproportional increase in inventory levels.

Prof. Upendra Kachru

Operations Management

The Forrester or Bullwhip Effect
The result is:
 Too Much Stock: This results in increase in costs;
• loss of productivity due to existing inventory; • high opportunity cost; and • stockpiling of unsold stock, etc.,

 Or Too Little Stock: This results in the firm’s inability to cope with demand which results in:
• loss of customers; • delays and halts in production; and • loss of discounts for bulk buying, etc.

As the parties start to share information, the adverse impacts are reduced. This was the basis on which Supply Chain management was born.
Prof. Upendra Kachru

Operations Management

This is a supply network. In this network there are vendors (points of value addition) and customers (points of consumption).

Is this a supply chain?

Prof. Upendra Kachru

Operations Management

The word ‘supply’ means the act of providing something useful or the act of giving something that is required or desired. The word ‘chain’ implies a series of things or activities that are linked together or are dependant on each other. When put together, the two words form the term ‘supply chain’ which refers to the system or chain of activities from a business to a customer and vice versa. This term was first used by Keith and Weber in 1982 to denote a new way to look at a network of supply relationships.
Prof. Upendra Kachru

SUPPLY CHAIN

Operations Management

A supply chain must have at least a set of three or more companies linked by one or more of the upstream or downstream flows of products, funds, or information.

Prof. Upendra Kachru

Operations Management

Again, even if there are three or more sets of companies involved, it may still not be a supply chain. In order to qualify as a supply chain there has to be flow of at least one of the three:
•Goods or Services, •Information, and •Funds

These flow must take place from a source to a customer. This is the basic requirement in a supply chain.
Prof. Upendra Kachru

Operations Management

Let us understand, better, the flows that take place across the supply chain: • Flow of Goods and Services
• Flow of Information • Flow of Funds

SUPPLY CHAIN FLOWS

The flow of goods/ inventory is in forward direction The direction of money flow is in the backward direction. The flow of information is in both directions in a supply chain.
Prof. Upendra Kachru

Information

SUPPLIER

SELLER

BUYER

Products

Funds

Operations Management

Goods and services provide the value flows in a supply chain. Consider the example of Kalyani Breweries. Here, goods flow would consist of raw materials such as barley, hops, yeast, water, etc. It would also include aluminum ore extracted and converted into metal by NALCO, and cans from Supertech Industries, and the final product, canned beer. It will also include a reverse flow if the empty cans are returned for recycling.
Prof. Upendra Kachru

Operations Management

Information flows from the vendor to the customer and also from the customer to the vendor. In case of the Kalyani Breweries, for example, the information could flow to the customer in the form of advertising, quality assurances, stock availability details, etc. The information could flow from the customer to the vendor in the form of orders, and feedback.

Prof. Upendra Kachru

Operations Management

The financial flow involved in the supply chain occurs in the opposite direction. The only source of money is the customer. This money is paid in return for delivery of goods or services and moves through all stages in the supply chain. When the supplier of raw material delivers these to the Brewery, he gets paid for the delivery. This is fund flow. Similarly, when the dealer pays some advance for the stock he has ordered, money exchanges hands.
Prof. Upendra Kachru

Operations Management

Supply Chain
That means, if there are only two organizations involved, it will not be a supply chain.

SUPPLIER

SELLER

BUYER

Products

Funds

Information

Prof. Upendra Kachru

Operations Management

In traditional Materials Management and Logistics, the interaction between parties is across a single interface.

In Supply Chain Management the interaction between parties is across more than one interface.

Prof. Upendra Kachru

Operations Management

Supply Chain Structure

In the supply chain discussed earlier let us look the relationships between organizations.
 First the beer needs to be brewed. It is brewed by Kalyani Breweries.  The beer needs cans for containment. The cans are supplied by Supertech Industries.  But to make the cans, Supertech needs aluminum metal. They get the metal from NALCO, who mine the ore and then smelt it.

Prof. Upendra Kachru

Operations Management

Supply Chain Structure

Though Supertech and NALCO are part of the supply chain, their structural relationship with Kalyani Breweries are different. These variations in the structural relationship are described as tiers.
Supertech supplies directly to Kalyani Breweries, it is a first-tier supplier in the supply chain. Using the same logic, NALCO is a second-tier supplier. It does not directly supply to Kalyani, it is the supplier of a supplier.
Prof. Upendra Kachru

Operations Management

Supply Chain Structure

Kalyani Breweries cans (packages) the beer and sells it to USBN Ltd., the distributor, who is again in a first tier relationship with Kalyani Breweries. USBN Ltd., in turn, sells the canned beer to retailers like DSIDC Ltd. DSIDC Ltd. has a second tier relationship in the supply chain with Kalyani Breweries, as Kalyani Breweries does not supply directly to DSIDC Ltd. These are all different tiers in the supply chain.
Prof. Upendra Kachru

Operations Management

Supply Chain Structure
Another way to look at the relationships between different organizations within a supply chain is based on how the product or service flows between the members of the supply chain. DSIDC Ltd. is the last link in the supply chain. All its physical transactions will move backwards. So retail organizations, like DSIDC Ltd., only have backward linkages.

Prof. Upendra Kachru

Operations Management

Supply Chain Structure
At the other end, you have a supplier of raw materials. In this case NALCO. NALCO has no backward linkages for its physical transactions. All its linkages will be forward linkages. So raw material suppliers, like NALCO, only have forward linkages.

Prof. Upendra Kachru

Operations Management

Supply Chain Structure

Supply chains have both buyers and suppliers as an integral part i.e. their physical transactions have both forward as well as backward linkages.
SUPPLIER SELLER BUYER

Products

Funds

Information

Prof. Upendra Kachru

Operations Management

These activities can be downstream, upstream or both. Upstream and downstream is generally used in the case of goods.
 ‘Upstream’ means a forward linkage i.e. the firm is a supplier to the supply chain. By, ‘buy side’, we mean that the demand is generated by organizations that are upstream.  Similarly ‘downstream’ is a backward linkage i.e. the firm is a seller to the supply chain. By ‘sell-side’, we mean that a downstream linkage reacts to the demand that is generated by the ‘upstream linkage’.

Prof. Upendra Kachru

Operations Management

The definition of a basic supply chain is: A set of three or more companies directly linked by one or more of the upstream or downstream flows of products, services, finances and information from a source to a customer

SUPPLIER

SELLER

BUYER

Products

Funds

Information

Prof. Upendra Kachru

Operations Management

An extended supply chain is: Suppliers of the immediate supplier and customers of the immediate customer, all linked by one or more of the upstream and downstream flows of products, services, finances, and information.

Prof. Upendra Kachru

Operations Management

A basic supply chain is when all the structural relationships are first tier relationships.
SUPPLIER SELLER SUPPLIER BUYER BUYER

Products

Funds

Information

An extended supply chain is when there is more than one tier in the supply chain, such as the ‘Kalyani Breweries’ Supply chain.
Prof. Upendra Kachru

Operations Management

Supply chain management (SCM) represents one of the most significant paradigm shifts of modern business management by recognizing that individual businesses no longer compete as solely autonomous entities, but rather as supply chains i.e. they can do it better collectively.

Supply Chain Management - A Paradigm Shift
Prof. Upendra Kachru

Operations Management

Supply Chain Management


								
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