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Unit 6: Supply Chain Management

Main need of SCM is to optimize the overall performance of the entire network of the supply- Notes
chain. The word “entire” is very important here. With experience in enterprise-research, we
have realized that despite each factory, distribution centre and other elements of supply-chain
operating at the best levels, the supply-chain as a whole may operate sub-optimally. Let us
examine this issue.
All the constituents of supply-chain have their own short-term and long-term needs. Their
operating decisions are based on these needs. It is very common that the decisions of the
constituents may not be aligned to the overall strategic goal of the entire supply chain.

Example: The optimal strategy for the logistics may be bulk shipments, one-time order,
selection of nearest vendor/supplier, etc.
In many situations, when entire chain performance is considered, these individual strategies fail
to deliver the best. It is, therefore, an integrated-holistic view of supply-chain, which is essential.
Many situations force management to go for incurring more than the double cost in order to
build up inventories to support some increase in customer’s service.
Companies in any supply chain must make decisions individually and collectively regarding
their actions in five areas:

Production

What products does the market want? How much of which products should be produced and by
when? This activity includes the creation of master production schedules that take into account
plant capacities, workload balancing, quality control, and equipment maintenance.

Inventory

What inventory should be stocked at each stage in a supply chain? How much inventory should
be held as raw materials, semi finished, or finished goods? The primary purpose of inventory is
to act as a buffer against uncertainty in the supply chain. However, holding inventory can be
expensive, so what are the optimal inventory levels and reorder points?

Location

Where should facilities for production and inventory storage be located? Where are the most
cost efficient locations for production and for storage of inventory? Should existing facilities be
used or new ones built? Once these decisions are made they determine the possible paths
available for product to flow through for delivery to the final consumer.

Transportation

How should inventory be moved from one supply chain location to another? Air freight and
truck delivery are generally fast and reliable but they are expensive. Shipping by sea or rail is
much less expensive but usually involves longer transit times and more uncertainty. This
uncertainty must be compensated for by stocking higher levels of inventory. When is it better to
use which mode of transportation?

Information

How much data should be collected and how much information should be shared? Timely and
accurate information holds the promise of better coordination and better decision making. With

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