Supply Chain Management – an Introduction

The principle of ‘Survival of the fittest’ remains valid in the present global economy characterized by the presence of ever changing business environment. Every modern company needs to struggle for the existence & growth under such a competitive environment. One surest way to achieve this is to offer best quality of product at reasonable rate, which suits well to the requirements of target customer. To impart a feeling of delight in the minds of consumers and provide quality product at reasonable price manufacturer has to bring shift in his emphasis from mere cost ascertainment to cost reduction to reduce cost of production. Thus, cost reduction is the main managerial mantra as once quoted by well-known strategist Michael.E.Porter in his landmark book “Competitive Strategy”. There are number of strategic cost management techniques available like Supply Chain Management (SCM) , Business Process Re-engineering (Value Re-engineering), Total Productive Maintenance to reduce cost. Of these Supply Chain Management is prominent tool to reduce cost. In this backdrop the present paper aims to highlight the conceptual framework of SCM, Modus Operandi and its relevance for corporate world in the new millennium.Supply Chain Management has become a very powerful technique as it increases the responsiveness to the changing business conditions and enhances the competitiveness of the organization. In today’s intense competition, and increasingly global economy, to survive and grow, organization must enhance their market responsiveness and become cost competitive. The supply Chain framework is a method of breaking down the linked set of value creating activities from basic raw material/component supplier to the supply of the end product to customer/consumer.A supply chain is a business process that links manufacturers, retailers, customers and suppliers in the form of a chain to, develop and deliver products as a single virtual organization of pooled skills and resources. Supply chain management is process of synchronizing the flow of physical goods and associated information from the production line of low level component suppliers to the end consumer, resulting in the provision of early notice of demand fluctuations and synchronization of business processes among all the co-operating organizations in this supply chain.Definition:Definitions from well-respected references have varied during the past decade. For example, Supply Chain Yearbook 2000 described SCM as, “A chain of processes that facilitates business activities between trading partners, from the purchase of raw goods and materials for manufacturing to delivery of a finished product to an end user.” APICS-The Performance Advantage, offered this definition in January 1999: “The global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution and cash.”This is a little change from the 1997 definition, Logistics Management offered, describing SCM as, “The delivery of enhanced customer and economic value through synchronized management of the flow of physical goods and associated information from sourcing to consumption.” The definition evolution continues as European Logistics Association, in 1995 suggested SCM was, “The organization, planning, control and execution of the goods flow from development and purchasing through production and distribution to the final customer in order to satisfy the requirements of the market at minimum cost and minimum capital use.”One of the first to pinpoint an accurate description of SCM, International Journal of Logistics Management, in 1990, called it, “An integrative philosophy to manage the total flow of a distribution channel from the supplier to the ultimate user.”Several themes appear consistent among most definitions of SCM:o The scope extends from sources of supply to final customerso In addition to products and services, information and financial flows are includedo The objective is to satisfy customer demand at the lowest possible costo A global and integrative approach is needed to manage the processCost Reduction & SCMThere are number of cost reduction techniques available for management to reduce cost which ranges from Man Power Reduction , Strict supervision , compromise with quality , Overtime work etc . But cost reduction at the cost of quality is mere waste strategy. SCM aims at cost reduction without affecting quality. SCM strategy is to reduce cost by eliminating all non value added activities in the flow of goods from Raw material supplier to End consumer. The Objective of SCM is to increase the competitive advantage of the channel as a whole. The means to accomplish this objective is through creating customer value superior to the competitot’s value offering and ,thus, to enhance customer satisfaction , either through improving efficiency (lower cost) or effectiveness (added values at the same cost).Decisions in supply chain management:1Decisions for supply chain management can be classified into two broad categories – strategic and operational. As the term implies, strategic decisions are made typically over a longer time horizon. These are closely linked to the corporate strategy and guide supply chain policies from a design perspective. On the other hand, operational decisions are short term, and focus on activities over a day-today basis. The effort in these types of decisions is to effectively and efficiently manage the product flow in the ” strategically” planned supply chain.Four major decision areas on supply chain management are:(1) Location(2) Production(3) Inventory(4) Transportation (distribution)And there are both strategic and operational elements in each of these decision areas.Location decisions: The geographic placement of production facilities, stocking points, and sourcing points is the natural first step in creating a supply chain. The location of facilities involves a commitment of resources to a long-term plan. Once the size, number, and location of these are determined, so are the possible paths by which the product flows through to the final customer. Although location decisions are primarily strategic, they also have implications on an operational level.Production decisions: The strategic decisions include what product to produce, and which plant to produce them in, allocation of suppliers to plants, plants to Distribution Channel’s(DC), and DC’s to customers markets. These decisions have a big impact on the revenues, costs and customers service level of the firm. These decisions include the construction of the master production schedules, scheduling production on machines, and equipment maintenance. Other considerations include workload balancing, and quality control measures at a production facility.Inventory decisions: These refer to means by which inventories are managed. Inventories exist at every stage of the supply chain as either raw material, semi-finished or finished goods. They can also be in process between Locations. Their primary purpose to buffer against any uncertainty that might exist in the supply chain. Since holding of inventories can cost anywhere between 20 to 40 percent of their value, their efficient management is critical in supply chain operations. It is strategic in the sense that top management sets goals.Transport decisions: The mode choice aspect of these decisions are the more strategic ones. These are closely linked to the inventory decisions, since the best choice of mode is often found by trading-off the cost of using the particular mode of transport with the indirect cost of inventory associated with that mode. Customer service levels, and geographic location play vital roles in such decisions. Since transportation is more than 30 percent of the logistics costs, operating efficiently makes good economic sense. Shipment sizes (consolidated bulk shipments versus Lot-for-Lot), routing and scheduling of equipment are key in effective management of the firm’s transport strategy.Why Supply Chain.The importance and need of SCM will increase in the future. Customers will demand faster, timelier delivery of orders. Manufacturing will expect greater knowledge of order requirements to better plan its operations and procurement processes. Similar expectations apply to external entities. This need for increased coordination among customers, suppliers and service providers dictates greater visibility and collaboration throughout the supply chain.Dynamic business environment characterized with Time-based competition, Synchronization with other corporate functions, Service customized to specific markets and customers, Increased consolidation of suppliers and service providers, Further privatization and deregulation, Continued emphasis on outsourcing, Development of performance measures encompassing supply chain partners, Increased collaboration between supply chain partners, and Electronic commerce to enable communications throughout the supply chain will increase the need of of supply chain.Evolution of Supply Chain Management:Span of ResponsibilityEarlier: The components of SCM traditionally were viewed as “functional silos” and typically included outbound transport-tation (i.e., customer delivery); field warehousing and finished goods inventory management.Present: Today’s SCM executive generally has a much broader range of responsibilities. that the majority of these executives have respon-sibility for transportation, ware-housing, inventory management , customer service , purchasing / sourcing, demand planning, production planning/scheduling and international logistics.2.Organizational Position:Earlier: SCM traditionally was viewed as a cost center, adding little or no tangible value to bottom line results. Individuals responsible for SCM were typically at the manager level, reporting to directors or vice presidents responsible for operations, marketing or other functional areas.Present: SCM executives are now well positioned. Executives in charge of marketing / sales, manufacturing and other departments are now generally peers rather than reporting officials. In recent survey it is observed that In U.S. companies, 52 percent of SCM executives report to an Executive Vice President or COO/CEO. In Asia, this percentage was slightly lower (48 percent); in Europe this percentage was only 31 percent.3. Education and TrainingEarlier: Historically, relatively few universities offered SCM education. In these institutions, the academicians who taught SCM coursework were usually housed within a larger department, e.g., Operations or Marketing. Some schools offered continuing education and seminars in SCM, but these forums generally focused on a specific aspect of SCM, such as carrier negotiations, inventory management techniques, warehousing and material handling systems and international tradePresent: Today, there are numerous, well-recognized universities–in the U.S. and abroad–offering degrees at all levels in the field of SCM. A recent CLM listing identified nearly 50 institutions with SCM-related curricula. Continuing education seminars and workshops with SCM themes abound.4. Contributions to Corporate PerformanceEarlier: Historically viewed as a cost center, SCM contributions at the corporate level were judged to be minimal. Since reporting systems focused on managing operational-level activities, any strategic value associated with SCM was difficult to quantify.Present: Leading-edge manufacturers report SCM costs between 4 percent and 5 percent of sales, compared to the industry average of 7 percent to 10 percent Successful SCM can improve delivery performance by 25%, reduce inventory levels by as much as one-half and enhance overall productivity by at least 15 percent.To conclude, In this dynamic market place, the equations are kept changing very fast with the leaders of yesterday being displaced by the fast-paced and agile new entrants. Intense competition, demanding customers, shrinking product life cycles, rapid advances in technology- all these factors are fast changing the competitive dynamics in global environment. This volatile business environment is making it harder than ever for marketers compete effectively. The traditional approaches are too slow to keep pace with the evolving global complexity. These developments are putting pressure on business community to look at the each and every components of business like procurement, logistics, marketing etc. Effective linking of functions of these processes puts companies in strategic position. Every link in SCM can add up to a competitive advantage. Time was when companies looked at their supply chains as a means of focusing on their own core competencies, of leveraging those of vendors, of lowering their costs, and of becoming more responsive to customers. Those goals won’t be swept away by the supply chain in the new millennium. But they will be superseded by a singly super-objective: competing on the basis of how well companies’ manage their supply-chain.References:1 An Introduction to Supply Chain Management by Ram Ganeshan and Terry P Harrison accessed at

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Influences of The Forrester Effect And The Bullwhip Effect On Supply Chain Management

A supply chain management is the broad concept which includes the management of the entire supply chain from the supplier of raw materials through the manufacturer, wholesaler, and retailer to the end consumer. However, certain dynamics exist among firms in the supply chain thereby causing inaccuracies and volatility of orders from the retailer to the primary suppliers and that these cause for operations, say, readjustments further upstream in the supply chain. The Forrester effect and the bullwhip effect influence the supply chain directly or indirectly through the components in the supply chain like manufacturers, suppliers, wholesalers, distributors, retailers, and customers in many ways.Bullwhip effect, also known as Forrester effect occurs when the demand order changes in the supply chain are amplified as they moved up the supply chain. It is termed as bullwhip effect because of the large magnitude of disturbances in the chain caused by a small disturbance at one end of the chain.Thus, in a typical supply chain for a consumer product, with less sales variation, there seem to be a pronounced variability in the retailers’ orders to the wholesalers.Considerably, four major causes of the bullwhip effect have been identified. These are:1. Demand forecast updating: this is the readjustment of demand forecasts by upstream managers as a result of future product demand signal. Forecasting is usually based on the order history from a company’s immediate customers.Traditionally,every company in a supply chain usually prepares product forecasting for its production scheduling, capacity planning, inventory control and material requirement planning. It is contended that the signal from demand forecasting is a major contributor to the bullwhip effect. For example, if a manager uses, say, exponential smoothing (future forecast is always updated as demand increases) the order sent to the supplier reflects the amount needed to replenish the stocks to meet the requirements for future demands and safety stocks which might be considered necessary.2. Order batching: Companies place orders with upstream organisations in a supply chain, using some inventory monitoring or control. As demand comes in, inventory is depleted but the company may not immediately place an order with the supplier. It often batches or accumulates demands before issuing an order. Sometimes the supplier cannot handle frequent order processing because of the substantial time and cost involved so instead of ordering frequently, companies may order weekly or fortnightly.This leads to two forms of order batching; periodic and pushing ordering. Many manufacturers place purchase orders with suppliers when they run their materials requirement planning (MRP) systems monthly; resulting in monthly ordering with suppliers. This is a periodic ordering. As an illustration, for a company that places orders once a month from its suppliers, the supplier faces a highly erratic stream of orders. Demands go up at one time during the month, followed by no demands for the rest of the month. This periodic ordering amplifies distortions and disruptions and contributes to the bullwhip effect. A similar effect becomes prevalent in push ordering phenomenon.Here, a company experiences regular surge in demand. As a result, customers ‘push’ orders on the company periodically. Although the periodic surges in demand by some customers would be insignificant suppose all ordering are not made at the same time, however, it does not happen that way. The orders are more likely to overlap and cause the bullwhip effect to be felt most.3. Price Fluctuations: Because of attractive offers like ‘buy one get one free’(BOGOF),price and quantity discounts, rebates and so on usually provided by manufacturers to distributors in the grocery industry, items are bought in advance of what is actually needed. This is referred to as ‘forward-buying’ which is known to account for about $75bn to $100bn of inventory in the grocery industry in the United States. The result is that customers buy in bigger quantities that do not reflect their immediate needs with the view to stock for future use.Thus,these special price schemes, lead to speculative buying which is considered as costly to the supply chain. For example, Kotler reports that trade deals and consumer promotion constitute 47% and 28% of distributors and manufacturers respectively of their total promotion budgets. Considering a situation when a product’s price is pegged low through the price schemes, more would be bought by the customer than actually needed. As the price returns to normal, the customer stops buying in order to use up its inventory. This triggers an irregular buying pattern of the customer which does not reflect its consumption pattern, and the variation of the buying quantities is much bigger than the variation of the consumption rate leading to the bullwhip effect or Forrester effect. Such a practice was called “the dumbest marketing ploy ever”.4. Rationing and short gaming: rationing usually becomes the norm when demands exceed supply. Manufacturers allocate the amount in proportion to the amount ordered. During rationing customers exaggerate their real needs when they order for fear that the orders might be in short supply.Customers’ overreaction in anticipation of shortages results when organisations and individuals make sound, rational economic decisions and ‘game’ the potential rationing. The effect of this gaming is that little information is given to the supplier on the product’s real demand by the customers’ orders. The gaming practice is very common. Increases in orders are made not because of an increase in consumption but due to anticipation.Actually, the bullwhip or the Forrester effect is not just an economic error. Its influence on a company’s supply chain management could be felt as well in a positive way. Thus, these four major causes of bullwhip effect somewhat influence or affect the supply chain management in number of ways:- Conflict between supply chain players. This is brought about as a result of no coordination amongst individual demand forecasts based on each supply chain player’s sales history or strategy.- Large demand and supply fluctuations result in the need for high inventories to prevent stock outs. Because of the fluctuations in the supply chain, companies try to keep more stock than needed in order to avoid stock out and its attendant problems like loss of profit, customers and market share in some situations.- There is poor customer service as all demand might not be met. Customers are upset when their demands are not met especially from the suppliers they seem to rely on .This is as a result of the bullwhip effect.- Production scheduling and capacity planning becomes difficult due to large order swings. Because of the large distortions in demand due to bullwhip effect, capacity planning-the task of setting effective capacity of the operation in order that it can stand any demands placed on it-and production scheduling which is a detailed timetable in planning showing at what time or date jobs should start and when they should end to ensure that customers demand is met, are largely affected. This is known to usually affect several other performance indicators like costs, say due to under-utilization of capacity; revenues, working capital due to building up finished goods inventory prior to demand; quality by hiring temporary staff; speed could also be enhanced by surplus provision; dependability of supply will also be affected due to any unexpected disruptions; and flexibility will also be enhanced due to surplus capacity.- Extra plant expansion to meet peak demand. Another influence on the supply chain brought about by the Forrester effect or the bullwhip effect is to look for an additional plant capacity or expansion to cater for demand either as a result of low stock or increased demand which were distorted as the bullwhip effect struck. The implication is it can lead to large distortions and high costs.- High costs for corrections-large unexpected orders or supply problems necessitate expedited shipments and overtime. This might also affect the planning of the company’s transport and logistics in terms of additional handling and administrative costs though there will be some benefits, the supply chain is affected.- Other influences are the following: collaboration, direct sales, smaller order batches or more frequent re-supply, unexpected shortages in inventory, price fluctuation, demand behaviour, stock market trading, information-sharing and profit variation.Notwithstanding these,there are some possible ways and means to minimise or reduce the bullwhip effect.
The various initiatives for possible solution to the bullwhip effect are based on the underlying coordination mechanism. These mechanisms are namely, information sharing,;by this demand information at a downstream site is relayed upstream in time for processing; channel alignment, this is the coordination of pricing, transportation, inventory planning, and ownership between the upstream and downstream sites in a supply chain; and operational efficiency, are the activities that are pursued to improve performance like reduced costs and lead-time.In the light of these three mechanisms, some of the critical areas that can be looked at to reduce the impact of variability on the supply chain include aligning incentives to overall supply chain performance objectives; developing trust and contractual agreements between supply chain partners; approach such as delayed differentiation, designing for commonality; direct sales, vendor managed inventory, continuous replenishment; multi-echelon inventory control policies; lead time reduction through operational efficiency and design; lot size reduction using efficient transportation and distribution systems; price stabilization and uniform pricing.First and foremost understanding the causes of the bullwhip effect can help managers to find strategies to combat or curb it. Companies must make concerted efforts through various means available in their supply chain management in order to deal with these inconsistencies.

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Small Business Finance the Smart Way

Are you a small business owner? If you are, you’ll know that running a small business is one of the most difficult things you’ll ever do in your life. You’re the company’s spokesperson, owner, founder, advertiser and investor. You are its inspiration. It is your livelihood and your passion. And like all passions it is all consuming.

It has you crunching numbers when you should be sleeping. It has you sketching out ideas on napkins in restaurants when you should be eating. But like any love affair the irritations are worth it. You know that almost nothing in your life can match the highs that your business gives you. So stick with it! Give your business all your heart and soul. But be sensible when it comes to your cash.

Business Finance.

Starting your business can be incredibly costly. Buying the machinery, renting the premises, purchasing the advertising space… well you get the picture, you’ve been there. You are also probably aware that the cost of kicking your business into life is so high it can affect your businesses ability to grow later on down the line.

You’ve established yourself as a great business; you know you have the ability to expand and to grow. But you just don’t have the cash to do it. But what is the best way to get that much needed cash injection? You don’t want to be taken for a ride. This is why you need to know about business finance.

Small Business Cost.

The first thing to do when you start investigating small business finance is to look carefully at what you want to achieve. Having clear goals is one of the basic rules of success in business. If you are going to borrow money to support your business you must have a clear aim in mind. That way you can easily track the success of any investment and see how much, making your small business grow will cost. So, determine what you want. Are you purchasing assets, such as land or machinery, or stock? Or are you looking to improve your market position through advertising, or expand into new markets? Whatever you’re doing be clear about your goals.

Small Business Finance.

There are two types of small business finance available to you. The first is the more traditional and common form, known as ‘debt finance’. This involves your company lending money from a financial institution, usually your bank. There are up sides to this deal, you get your cash and you keep all your business. You do have to pay more back than you borrowed in the first place, with the onus on you to repay as soon as possible.

However, if you have clearly identified a use for your money this should present no problem to you and allow you to expand quickly. This is why it is the route taken by the majority of small businesses. If you fail to pay back the money you have borrowed however the consequences are severe, as part of the agreement will involve collateral. Often, this could be your house.

A less common option is that of ‘equity finance’. Ever seen the TV show Dragon’s Den? Then you’ll know what I’m talking about. Equity finance is when an investor gives you the cash you need and in return you give him a share, or a stake of your business. As the investor has no assurances, unlike the bank, he or she requires a much greater pay off if things go well. They want some of those profits! However if things don’t work out, you won’t be sleeping in the streets!

Your Future.

So there are plenty of ways you can offset your small business cost. Small business finance is easy to get if you pitch correctly and your business is heading in the right direction. Whichever mode of business finance you choose make sure you keep following the dream and your passion might end up making you millions.

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