improving effectiveness of logistics management

8/2/2019 Improving Effectiveness of Logistics Management

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supply-chain-management.htm

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Improving Effectiveness of Logistics Management:

1. Logistical Network

2. Information

3. Transportation

4. Sound Inventory Management

5. Warehousing, Materials Handling & Packaging

Thiseconomics-related article is astub. You can help Wikipedia byexpanding it.

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Basic logistic services are measured in terms of

1. Availability

2. operational performance

3. service reliability.

principles of logistic excellence'

1. Link logistics to corporate strategy

2. Organize Comprehensively

3. Use the power of information

4. Emphasize Human resources

5. Form strategic Alliances

6. Focus on financial performance

7. Target optimum service levels

8. Manage details

9. Leveraging of logistics volume

10. Measure and react to performance

What is Supply Chain Management ?Supply Chain Management ,as defined by the world famous,Institute of Supply Management Inc.,USA,is the design and management of seamless , value added process across organizationalboundaries to meet the real needs of the end customer.
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Supply Chain Management encompasses theplanning and management of all activities involvedin sourcing and procurement, conversion, and alllogistics management activities.

Importantly, it also includes coordination andcollaboration with channel partners, which can besuppliers, intermediaries, third-party serviceproviders, and customers.

In essence, supply chain management integratessupply and demand management within andacross companies. Supply Chain Management isan integrating function with primary responsibilityfor linking major business functions and businessprocesses within and across companies into a

cohesive and high-performing business model.It includes all of the logistics management activities noted above, as well as manufacturing operations,and it drives coordination of processes and activities with and across marketing, sales, product design,finance and information technology.The development and integration of people and technological resources are critical to successfulsupplychain integration.As the corporations strive to focus on core competencies and become more flexible,they have reduced their ownership of raw materials sources. These functions are increasingly beingoutsourced to other corporations that can perform the activities better or more cost effectively. The effecthas been to increase the number of companies involved in satisfying consumer demand while reducingthe management control on dailylogistics operations. Less control and more supply chain partners ledto the creation ofSupply Chain management concepts. The purpose of Supply chain management is toimprove trust and collaboration amongsupplychain partners, thus improving inventory visibility andimproving inventory velocity.

Thus the answer to the question "What is Supply Chain Management ?" can be as Supply Chain

Management is the process of planning , implementing and controlling the operations of the supplychain with the purpose of satisfying the customer's requirement as efficiently as possible. Supply Chainspans all movement and storage of raw materials , Work-in-process , inventory and finished goods fromthe point of origin to the point of consumption.
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According to the CSCMP , a professional association, that developed the definition, Supply ChainManagement encompasses the planning and management of all activities involved in sourcing andprocurement, conversion and all logistics management activities. It also includes coordination andcollaboration with channel partners which can be suppliers , intermediaries , third party etc.

Supply Chain management must address the following problems:

Distribution Network Configuration: Number and location of suppliers, production facilities, distributioncenters , warehouses and customers

Distribution strategy:Centralized Vs decentralized , cross docking, direct shipment, pull or pushstrategies, third party logistics

Information:Integrate systems and processes through the supply chain to share valuable information,including demand signals , forecasts, inventory and transportation

Inventory management:Quantity and location of inventory including raw material, work-in-process andfinished goods service providers and customers.

Thus Supply chain management (SCM) can also be described as the oversight of materials,information, and finances as they move in a process from supplier to manufacturer to wholesaler toretailer to consumer. Supply chain management involves coordinating and integrating these flows bothwithin and among companies. It is said that the ultimate goal of any effective supply chain managementsystem is to reduce inventory (with the assumption that products are available when needed). As asolution for successful supply chain management, sophisticated software systems with Web interfacesare competing with Web-based application service providers (ASP) who promise to provide part or all ofthe SCM service for companies who rent their service.

Is Supply Chain Management an Extended Enterprise? Click and Read here....

Supply chain management flows can be divided into three main flows:

The product flow The information flow The finances flow

What is a Supply Chain ?

The product flow includes the movement of goods from a supplier to a customer, as well as anycustomer returns or service needs. The information flow involves transmitting orders and updating the

status of delivery. The financial flow consists of credit terms, payment schedules, and consignment andtitle ownership arrangements.

In essence,Supply chain managementintegratessupply and demand management within and acrosscompanies. Some experts distinguish Supply Chain Management withLogisticswhile others consider

the term to be interchangeable.From the point of view of an enterprise, the scope of supply chain management is usually bounded on

the supply side to the supplier's supplier and on the customer side by your customer's customer.
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Every organization, big or small, depends on materials and services from otherorganizations to varying extents. These materials and services are obtained throughexchange of money and the physical arrangement of it all is called MaterialsManagement or even Material Management.

Various materials used as inputs, such asraw materials, consumables & spares, arerequired to be purchased and made

available to the shops / users as & whenneeded to ensure uninterruptedproduction.

Therefore, efficient management of inputmaterials is of paramount importance in abusiness organization for maximizingmaterials productivity, which ultimatelyadds to the profitability of theorganization.

The main concern of any Business management is to maximise the Return on

Investment (ROI). The relationship of various entities here can be expressed as:Profit Sales

ROI = ---------- X -----------------------------------------Sales Current Asset + Fixed Asset

Thus ROI = profit margin + asset turnover rate

A firm's profit margin reflects management's ability to control costs in relations torevenue. The asset turnover rate reflects management's ability to effectively utilize thefirm's productive assets.

Hence a firm can improve ROI in three ways : By reducing cost By getting more sales from available assets or Get Currency converter By some combination of the above

Thus , it is the cost control that holds the key


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In many manufacturing organisations, the cost of materials alone happens to rangefrom 40 % to 60 % of the total expenditure. Obviously, a better management ofmaterial is expected to ensure reduction in overall cost of operation and smoothnessin supply of inputs.

This requires well coordinated approach towards various issues involving decisionmaking with respect to materials.All the materials related activities such as material planning & indenting,purchasesystems&procedure, variety reduction through standardization & rationalization,reducing uncertainties in demand & supply, handling & transportation, inspection,properstorage& issue of materials to the internal customers,inventory management,vendor management & finally disposal of obsolete, surplus & scrap materials etc.taken together is termed asINTEGRATED MATERIALS MANAGEMENT

To carry out these functions efficiently, it is essential to have a very good supplier

base, order booking process & inventory management system as well as expert

MATERIALS MANAGEMENT (MM) professionals.

Materials Management is a key business function that is responsible for co-ordinationof planning, sourcing,purchasing, moving ,storingand controlling materials in an

optimum manner so as to provide a pre-decided service to the customer at a minimumcost.

In its process of managing , materials management has such sub fields as inventorymanagement , value analysis, receiving, stores and management of obsolete , slowmoving and non moving.Materials Management's scope is vast. Its sub functions include Materials planningand control, Purchasing, Stores and Inventory Management besides others. Thevarious activities represent these four functions:

Planning and control Purchasing Value analysis and Physical distribution

The planning and control functionsareinventory management, productionplanning and scheduling.

Purchasing functionsare buying,subcontracting, value analysis and followups.Distribution functions are receiving , packaging, shipping, transportation andstorage,
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making it theIntegrated Materials Management.

We expect business institutes , colleges and universities , worldwide, to make use ofthis site to promote international traineeships for the students

Supply Chain Optimization (Reducing waste)

Reducing waste and non value added tasks within the supply chain is a great way of optimizing the

supply chain.

Firstly, to define waste we will take a look at the seven wastes. This is a well established path in

segregating the types of wastes within an organization- lets have a look how they can be applied to a

supply chain.

1. Overproduction:This may take many forms from typically including producing too much from documentation

from quotations, requisitions, purchase orders. Overproduction can be characterized as

producing too much of a product from one process step to another- with the recipient process

not requiring as much as was provided.

2. Transportation:

Typically characterized by over complex logistics routes and distance between warehouses and

end users.

3. Waiting:

High lead time can be a significant problem within supply chains- causing customer

dissatisfaction and work stop in production environments- reducing lead time can result in both

financial and efficiency benefits.

4. Inventory:

Too much inventory is a common problem for organizations- ensuring the right level of stock is

available to meet requirements is a common supply chain task however overstocking does not

utilize companys cash effectively and requires additional overhead to resource.

5. Motion:

Ensuring supply chain processes are optimized for the business environment can often be

overlooked, poor planning of organizational layouts can be frustrating for the employees and

dramatically reduce efficiency for example ensuring put away locations in warehouse

environments are conveniently located, ensuring that workspaces are designed with ergonomics

in mind.
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6. Over processing:

Reducing process steps to a minimum is required to reduce over-processing which can rear its

head in many forms- complex control and authorizations are common areas for over processing.

7. Defects:

Finally processes that require rework due to defects are a common cause of concern- for

example suppliers requiring more information due to poor technical specifications- incorrect

order quantities, or quality issues for products received in the warehouse are all common forms

of defects. Supply chain improvement plans are often constructed to target all or a mixture of

the above with a view of resources required to deliver the process output.

Such improvement programs are often referred to as lean or leaning and were popularized by

the activities from the Toyota organization. Research by the Canadian logistics industry have

shown that of the wastes typically challenges are met in improving supplier lead time, improving

forecasting and planning to improve stock requirement accuracy (and therefore reduce

inventory) and improve vendor reliability (affecting both lead time and quality of product.)

Concept of Supply Chain Management- a real understanding of what scm is

The first thing one needs to understandis that SCM doesnt replace what wevelearned about management over the last 50 years; it builds upon it.The analogy that a chain is only as strong as its weakest linkholds here as well. Thus the Supply Chain concept remains thesame.Organizations must first be able to provide quality products orservices in a timely, cost-effective manner if they want to tacklebroader supply chain issues.

Therefore, programs such as Total Quality Management, Just-in-Time manufacturing, concurrent product development, andthe like are just as relevant today as they were in the past. Infact, its interesting to note that many of the firms that haveemerged as SCM leaders had already established theirreputations in other areas beforehand.

The second thing to understand about SCM is that it oftenrequires significant changes in the firms organizationalstructure. SCM issues cut across functional areas and evenbusiness entities. Therefore, the responsibility and authority forimplementing SCM must be placed at the highest levels of anorganization.


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Firms that attempt to imbed SCM within a functional unit (suchas purchasing, operations, or logistics) usually have limitedsuccess.

Third, SCM requires firms to put in place information systemsand metrics that focus on performance across the entire supplychain.This is because individual units that seek to maximize theirperformance without regard to the broader impact on the supplychain can cause problems. For example, a manufacturingunits decision to minimize its inventory levels may reducedelivery performance to the end user.

Likewise, a distributors decision to chase highly seasonaldemand may bullwhip its upstream partners, causing

significant cost overruns. Putting in place the informationsystems and metrics needed to make intelligent decisions in theface of such trade-offs presents a significant challenge to supplychain partners.

The organizations that make up thesupply chain are linkedtogether through physical flows and information flows. Physicalflows involve the transformation, movement, and storage ofgoods and materials. They are the most visible piece of thesupply chain. But just as important are information flows.Information flows allow the various supply chain partners to

coordinate their long-term plans, and to control the day-to-dayflow of goods and material up and down the supply chain.

Finally, SCM adds another layer of complexity to a firmsstrategy development efforts. Years ago, firms could succeed bybeing particularly good in one functional area, such asmarketing, finance, or operations. Then firms recognizedthat they had to have sufficient capabilities across multiplefunctional areas in order to survive. Nowadays, muchcompetition occurs between multi-firm supply chains, not justbetween individual firms.

In addition to their debates about functional- and business-level strategies, then, managers must now address how they willpartner with other firms in order to compete.

Some experts distinguish Supply Chain Management withLogistics while others consider the term to be interchangeable.


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From the point of view of an enterprise, the scope of supply chain management isusually bounded on the supply side to the supplier's supplier and on the customer sideby your customer's customer.

Supply chain management concept is as much a philosophical approach as it is a

body of tools and techniques, and typically requires a great deal of interaction and trustbetween companies to work.

For right now, however, let's talk about three major developments that have broughtSCM to the forefront of managements attention:

The information revolution Increased competition and

globalization Relationship management

Supply chains , no doubt, are expensiveand complicated at times. Yet becausethey leverage the over all efforts ofreaching out to the ultimate customers in acost effective and smooth manner thatthey've real benefit to have one or many.

There could be a situation where asupplier may satisfy the ultimate customerdirectly, for example a vegetable vendorreaching out to his customer by the roadside.

This may not need any supply chain towork but suppose the same suppliermeeting the needs of many customersspread alongthe length and the width of his city , needing vegetable around the same time. Obviously, they may be needing one or many delivery outlets from the supplier, some stocking by

the supplier and thus a small but suitable warehouse by the supplier.

Supply chains exist to overcome the gaps created when suppliers are distance awayfrom the customers. They help in conducting operations that can be done only at adistance from the customers.


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Benefit of supply chain can be understood by a simple imagination of a service thatpasses through various modes, covering various regions to finally reach the ultimatecustomers needing that service in yet another and various locations. It involves movingmaterials in geographically separate locations and meeting usually a mismatched

demand of that material.

For example, let us say that a firm operating from four factories has to supply materialsto eight customers. If all the factories supply to all the customers directly then therewould be in all 32 routes !!

However, if all the materials from the 4 factories are offloaded in a warehouse thatcaters to the need of the 8 customers then only 4 inward and 8 outbound routes , that is4+8 = 12 routes shall be

required.

A well designed supply chain shall provide the following benefits :

Operations can be located in the best locations irrespective of customerslocations

Bigger facilities can be created and hence economies of scale can be thought of Large stocks need not be kept at the producer's end as the same can be kept

with wholesalers near the customers

Retailers carry less stocks as whole sellers provide them the materials wheneverneeded Lead times for retailers are short Uninterrupted availability to customers Transport is simpler and routine

Supply Chain flows and applications

Supply chain management (SCM) is the oversight of materials, information, andfinances as they move in a process from supplier to manufacturer to wholesaler to

retailer to consumer. Supply chain management involves coordinating and integratingthese flows both within and among companies. It is said that the ultimate goal of any

effective supply chain management system is to reduce inventory (with theassumption that products are available when needed).


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As a solution for successful supply chain management, sophisticated softwaresystems with Web interfaces are competing with Web-based application service

providers (ASP) who promise to provide part or all of the SCM service for companies

who rent their service.Supply chain management flows can be divided into three main flows: The product flow

The information flow The finances flow

The product flow includes the movement of goods from a supplier to a customer, aswell as any customer returns or service needs. The information flow involvestransmitting orders and updating the status of delivery. The financial flow consists ofcredit terms, payment schedules, and consignment and title ownership arrangements.

There are two main types of SCM software: planning applications and executionapplications. Planning applications use advanced algorithms to determine the best wayto fill an order. Execution applicationstrack the physical status of goods, the management of materials, and financialinformation involving all parties.

Some SCM applications are based on open data models that support the sharing of

data both inside and outside the enterprise (this is called the extended enterprise, andincludes key suppliers, manufacturers, and end customers of a specific company). Thisshared data may reside in diverse database systems, or data warehouses, at severaldifferent sites and companies.

By sharing this data "upstream" (with a company's suppliers) and "downstream" (with acompany's clients), SCM applications have the potential to improve the time-to-marketof products, reduce costs, and allow all parties in the supply chain to better managecurrent resources and plan for future needs. Increasing numbers of companies areturning to Web sites and Web-based applications as part of the SCM solution. Anumber of major Web sites offer e-procurement marketplaces where manufacturers

can trade and even make auction bids with suppliers.


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Bullwhip Effect - a lesson for scm partners to be fairProcess integration in a supply chain system plays extremely important role for the Supply Chain tobe effective and competitively viable. It implies that the chain partners be fair in respect to informationexchange.

For example, a firm XYZ produces cycle chains for the cycle manufacturing firm ABC. Anothercompany PQR produces chain bits for the company XYZ.Let us assume that the actual demand of ABC is not known to XYZ fora month.XYZ also produces the chain bits for other chain manufacturers. So,XYZ , in order to meet the unknown requirement of ABC would like tokeep a higher safety stock or the month.PQR also shall have to keep a higher level of safety stock for meetingthe unknown requirement of XYZ.

This is a cascading effect resulting into higher safety stocks at the end

of both the suppliers in the chain, XYZ and PQR.In this small example, with only two suppliers being in chain, theinventory levels have gone unnecessarily high because of the lack ofinformation on accurate demand of cycles at ABC's end.

Higher inventory is blocking of working capital for the firm that reducesthe operational efficiency.

Just imagine what would be happening under these circumstances ifthe number of chain partners were to be large.

The aggregate inventory would have been much higher. This is

calledBullwhip effect.That is the building up of inventory along the chain as a negativeeffect or loss of opportunity cost resulting from the absence of acoordinated effort , suitable and timely flow of information among thesupply chain partners.In the supply chain, small changes in the consumer demands can leadto large variations in supply orders. This is related to 'Bullwhip effect'.

It is not the change in demand that drives the effect, it is theinterpretation of these changes that are magnified as forecasting andplanning take place. There are collaboration programs betweenretailers and suppliers to utilize actual store data, not forecasts to

replenish facilities and this takes out a lot of the bullwhip impact byhaving the actual consumer demand, not forecasted demand drive theprocess.The problem for Bull Whip effect arises from the part of the channel members when they do notshare data with one another. The problem is with interpretation. Usually a distributor takes feed backfrom the retailers for placing the order backwards in the channel. Now, at any given point of time ifthere is a surge of demand from the retailer for some item, the distributor may get the message thatthere is increase in the demand of it. But in reality may be the reason for demand increase lies with


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some sales promotion part or some other reason except natural demand increase from customer. Butdue to non sharing of this data by retailer with his distributor, the distributor gets a wrong impressionand he places more order backwards. This order magnifies itself as it goes backwards in the channeland by the time reaches the firm it has assumed a gargantuan shape. Now this is known as Bull whipEffect which starts as small and goes to become a large shape.

Thus the main basis of Bull Whip could be found with wrong interpretation by channel members dueto non availability of data amongst themselves. Here customer demand fluctuations shouldn't beblamed as they are bound to have a mind of their own and we have to make our Supply Chain suchthat these variations are easily absorbed. Transparency is required and also regular communicationsamong all the channel members should be their to ensure that Bull Whip problem shouldn't arisebecause ultimately they are going to suffer with huge inventories

Bullwhip is the result of misinterpretation of increase in demand, improper sharing of information.Even if we try to optimize our understanding and interpretation levels, what is more important here isthat SYSTEMS, PROCESS, PROCEDURES delivers RESULTS!! Operators/Members just operate. Itis a natural tendency of human being to estimate increase in demand thus the multiplicity of demandoccur. The system should be transparent enough to let the members have a common dataknowledge, and a common objective.!

After discussing the bullwhip effect, now what steps should be taken to minimize it?

Bringing transparency among all links in the chain would bring down this effect. All the players in thechain should share the information and data with each other. What other measures have provensuccessful in dealing with this problem?

The problem/obstacles which generally lead to BullWhip Effect are of 5 types. If companies are ableto overcome these difficulties then Bull Whip Effect wouldn't be a threat. These are:

1. Incentive Based Obstacles2. Informational Obstacles3. Operational or Lead time Obstacles4. Financial Obstacles

5. Behavioural Obstacles

The incentive based obstacles are generally with the sales people of the company. The incentivesystem is such that salespeople get bonus for all the sales they make to their customer who aregenerally wholesalers or in some case retailers. They are not concerned whether the sales havebeen made to the actual users i.e. common people who are actually going to use it. Thus they dumptheir products on the channel members and generating false sales and giving wrong information forachieving targets.

Operational Obstacles means the amount of lead time for the material from supplier to Lead Firm andthe amount of time for the product to reach the market from the firm. Thus higher the lead time, theBull Whip would go on increasing. Thus there is a need for lowering that.

Behavioural obstacles are with the company management who are only thinking of attaining localoptimisation instead of going for the whole supply chain which will ultimately going to benefit all. Butthis mentality is not so easy to achieve wherein all are working to achieve some common objectivebut instead all the trying to increase its profitability over the expense of other partners

Finally, there is financial obstacle where we talk about pricing. The pricing decision of the firm shouldbe used only by the finance deptt. and not by the marketing deptt. The pricing should be such itshould take care of all the costing and profits. No company should try to use low pricing method asmeans to market their products. They should try to increase their profits by lowering their costs ofvarious operations which comes under supply chain management. Like if two modes of


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transportation are present for taking from A to B, and takes 1hr & 3 hrs respectively, with same costthen everyone would go for the faster one. Thus in the same way customer want the best with thesame price as available in the market. Higher the satisfaction he gets the better the result

One can find out the solutions only when considering the actual obstacles, very well brought out byhim.

Adding to these points are : A company/Product manufacturer should not only focus on themanufacturing and then product delivery part to the immediate customer (distributors, retailers) butshould also keep in mind that whether the product has reached the customer or the end user or not.This requires integration. The good example here is HUL. HUL has the system in which itcollaborates the different partners of the supply chain, the distributors, retailers etc. They have a bigsystem. Although maintaining such a collaboration isn't easy but the approach is right and resultsbenefit for the organization.The other aspect is to have global objectives rather than local ones or at the individual partner level.

Another prospective ,to add, of Supply Chain, which is very much helpful to minimize Bullwhip effectand many organizations are using it. There are 2 types of Supply Chains:

1) Push types Supply chain (It is a forecast based Supply Chain where each activity takes place inadvance assuming that customer will have this much of requirement in future ) and

2) Pull types Supply Chain (It is a demand driven Supply Chain where each activity will take placeafter receiving of actual customer order).If an organization using Pull types supply chain then bullwhip effect will be minimal as each andevery order will be placed on the actual customer demand not as per the forecast. The Key successof Pull System depends on the sharing of actual demand data at each level.Dell computer is the best example of Pull system where actual customer demand data shared amongthe suppliers on real time basis and by using such method Dell is capable to deliver all its order tothe customers on time with zero inventory level.

Surely the sharing of data would only go so far to minimize or mitigatethe issues arising from the Bull Whip effect? While is it nice to knowwhat the 'actual consumption rate' is for any given product, many

companies still rely upon ERP systems to plan, replenish, & reserveinventory for the channel. Just 'knowing' is not enough for many ofthese ERP systems, I see more of a need to actually book &physically reserve inventory for a channel to consume stock at theDC.

Without doing this companies would run the risk of order queue-jumpers where the DC stocks are taken by one customer ahead ofanother. Despite having knowledge, presumably via VMI or anotherinitiative, of one customers stocks & consumption rates, it is next toimpossible to avoid inventory being sent to another party who simplyorders product on the day.

The dilemma of course to to ensure there is an appropriatemechanism for securing inventory for any VMI enabled customer in aneffort to manage the Bullwhip event.

How can a company reserve inventory in a lean & optimal mannerwithout running a risk of stock out for the non-VMI channels? Whocan say "sorry that inventory is reserved..." while only relying upon'knowledge' alone?


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The most effective means of mitigating Bullwhip is via channelawareness & customer education.

This is where Toyota's efforts to educate their competitors, channelpartners, and general industry as being a pioneering process toremoving Bullwhip events from global supply chains.

If this off take rate at each channel partner is known to all the otherpartners then the preceding supplier can supply goods at the sametime as well make a proper interpretation the nature of the off take. Ifthis is followed backwards in the same fashion then it would surelyhelp to mitigate the BULLWHIP effect through such ContinuousReplenishment.

As described , transparency and education over the whole supply chain is one way, but it does notdepend on your company only, and therefore it will be a long way to optimize.

Another way to avoid the propagation of this effect is :

you have to work on your lead time reduction. When you will be fast enough to react to yourcustomers changes in the time they require, you won't need any more forecast. The effect won't bepropagated to your suppliers, and the bullwhip effect will not last.When anyone in the loop achieved this point, demand changes will not create some bullwhip effect .It can happen when the supplier does not have enough visibility on final consumer demands andforecasts began to overreact following the interpretation that is the situation at the moment "t". morecollaboration from end to end supply chain is necessary in a win - win logic.

There is a great game that points up how supply chains respond to forecasted and unforecasteddemand called the beer game. Players assume certain critical roles in the supply chain, are set upwith initial inventory, and then you play and watch the fun. Its unbelievable what happens betweenplayers with very little end user demand swings

The Beer Distribution Game:http://www.beergame.lim.ethz.ch/Supply chain simulation game ...explains inefficiencies of supply chains known as the bullwhipeffect.

We have played this game during our sessions of world class manufacturing and the result of whichis we called the BULLWHIP effect. The results show that it is not fully the fault of the people whooperate different processes in a supply chain, but the problem is the system. "An average person canperform well in an Efficient supply chain, but even a efficient person would not be able to perform sowell in an average system" Systems deliver result, operators just operate. I am trying to conclude isthat the dynamics of any supply chain lies in its structure.

1) I always compare it to a traffic phenomenous - Traffic jam : a small car movement on the road cancause big waves of cars slowing down a few kilometers behind ...

2) I did also run the Beer game a couple of times and it's a super business case. It 's not easy tomanage, but results are great.

Process integration therefore is the need of the hour for the Supply chain partners for benefit sharingthrough:

reduced costs in inventory holding utilizing opportunity cost in better product design and
http://www.beergame.lim.ethz.ch/http://www.beergame.lim.ethz.ch/http://www.beergame.lim.ethz.ch/http://www.beergame.lim.ethz.ch/


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manufacturing and earning more profit

Benefits of Supply Chain - benefits of scm drive its huge importance

Supply chains , no doubt, are expensiveand complicated at times. Yet becausethey leverage the over all efforts ofreaching out to the ultimate customers in acost effective and smooth manner thatthey've real benefit to have one or many.

There could be a situation where a

supplier may satisfy the ultimate customerdirectly, for example a vegetable vendorreaching out to his customer by the roadside.

This may not need any supply chain towork but suppose the same suppliermeeting the needs of many customersspread along

the length and the width of his city , needing vegetable around the same time.Obviously , they may be needing one or many delivery outlets from the supplier, some

stocking by the supplier and thus a small but suitable warehouse by the supplier.

Supply chains exist to overcome the gaps created when suppliers are distance awayfrom the customers. They help in conducting operations that can be done only at adistance from the customers.

Benefit of supply chain can be understood by a simple imagination of a service thatpasses through various modes, covering various regions to finally reach the ultimate


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customers needing that service in yet another and various locations. It involves movingmaterials in geographically separate locations and meeting usually a mismatcheddemand of that material.

For example, let us say that a firm operating from four factories has to supply materialsto eight customers. If all the factories supply to all the customers directly then therewould be in all 32 routes !!

However, if all the materials from the 4 factories are offloaded in a warehouse thatcaters to the need of the 8 customers then only 4 inward and 8 outbound routes , thatis 4+8 = 12 routes shall berequired.

A well designed supply chain shall provide the following benefits :

Operations can be located in the best locations irrespective of customerslocations

Bigger facilities can be created and hence economies of scale can be thought of Large stocks need not be kept at the producer's end as the same can be kept

with wholesalers near the customers Retailers carry less stocks as whole sellers provide them the materials

whenever needed Lead times for retailers are short

Uninterrupted availability to customers

Transport is simpler and routine

improving effectiveness of logistics management

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