1 – 21st Century Supply Chains

Introduction 21st Century Supply Chains

Supply Chain Management (SCM) maximises profit by integrating three important flows across the supply chain’s boundaries: value (products and materials), information, and funds. Integration or coordination of these three flows increases efficiency and effectiveness for corporate operations. In theory, supply chains can function as cohesive, singularly competitive units, similar to a vast, vertically integrated corporation, without the chain members making major financial expenditures. The primary distinction between vertically integrated organisations and supply chains is that supply chain enterprises are largely free to engage and exit supply network linkages if these arrangements are no longer helpful.

This presents complications since supply chains are typically very dynamic or fluid. Partners might change, and each partner will seek its long-term advantage, which can also generate difficulty in efficiently managing supply chains. While supply chain management may enable firms to reap the benefits of vertical integration, certain conditions must be met to succeed. It also encourages competition among supply chains and partners, allowing supply networks to run more efficiently than many vertically integrated companies.

1.1 Concepts of Supply Chains

Supply Chain Management has traditionally been based on the foundations of Procurement, Operations, and Logistics; however, it goes beyond these traditional notions. Supply Chain Management integrates three essential flows between different stages and beyond company boundaries: information flow, product/material flow, and fund flow.

Supply chain members collaborate as partners “connected” by physical and information flows. This is what distinguishes a successful supply chain. Physical flows entail transforming, moving, and storing things, materials, and money. These flows are plain to see.

Information flows enhance physical flows. Many supply chain partners employ information flows to coordinate their long-term strategies and efficiently control the day-to-day movement of goods and materials in the supply chain. In essence, the supply chain enables the flow of products, services, and information to travel up and down the chain. Integration or coordination of these three flows increases efficiency and effectiveness for corporate operations.

‘Supply Chain Management’ is the active management of supply chain activities to optimise customer value and gain a long-term competitive advantage. It signifies a concerted effort by supply chain organisations to create and operate supply chains most effectively and efficiently. There are numerous sorts of supply chains, and there are two types: basic and extended. A simple supply chain is a group of three or more enterprises directly linked by upstream or downstream flows of products, services, funds, and information from a source to a client.

(a) Traditional Supplier-Buyer Relationship, (b) Basis Supply Chain

An extended supply chain consists of upstream and downstream flows of goods, services, money, and information, as well as suppliers of the immediate supplier and customers of the immediate customer.

A Simplified View of Kalyani Breweries Supply Chain

National Aluminium (NALCO) collects and processes aluminium ore into aluminium metal. The metal is delivered to Supertech Industries in Bangalore and converted into cans. Kalyani Breweries receives cans from Supertech Industries. Supertech Industries is a first-tier supplier in the supply chain because it sells directly to Kalyani Breweries. By the same logic, NALCO is a second-tier supplier. It is a supplier’s supplier.

Other essential ingredients in beer production include barley, hops, yeast, and water. Supertech Industries’ aluminium cans contained the product and were mixed with cartons to create the packaged beverage. Kalyani Breweries then distributes the packaged beverage to UBSN Ltd., the distributor, who sells the finished goods to merchants like DSIDC. Transport carriers provide logistic support, transferring the inputs and outputs along the supply chain.

In the provided example, we can observe that products and information flow in both directions. In other words, supply chain members are buyers and suppliers regarding these flows.

For example, Supertech Industries places an order (information) with Nalco, which then supplies Aluminium (a product) to Supertech Industries.

As a result, Supertech Industries is a customer of Nalco and a supplier of Kalyani Breweries. We can envision a long-term arrangement in which Kalyani Breweries returns empty pallets or containers to its top-tier suppliers. As a result, actual items would travel back up the supply chain. If this occurs, Kalyani Breweries will become a supplier to Supertech Industries. This is in addition to the fact that it is the customer. A company might be a part of several supply networks. This derives from the previous definition.

There is only one source of revenue in any supply chain: the customer. At DSIDC, the supply chain’s only source of positive cash flow is a client purchasing beer. Because separate stages have distinct owners, all other cash flows are money swaps inside the supply chain. When DSIDC pays its supplier, it takes a share of the funds provided by the client and passes that money on to the supplier. All these flows generate supply chain expenses — information, products, or finances.

The needs of the client and the roles of the various phases will determine the best supply chain design. This connection represents a single link in the supply chain. There are many more participants in a typical supply chain than here —Kalyani Breweries has hundreds of suppliers offering barley, hops, yeast, cartons, etc. It also has a vastly expanded network of stores across the country, the number of which is considerably greater.

Regardless of the number and variety of suppliers a company uses to meet its needs, the general structure of critical interfaces and control mechanisms must be recognised, irrespective of how extensive and complicated the system is.

Any activity or facility in one supply chain arrangement may also be another component.

Example: Dabur, as previously said, is a component of the supply chain for consumer care products, health products, food products, and home products.

A supplier is often involved in several distinct supply chains, including a wide range of sectors and clients. In the case of a mail-order business like Amazon.com, the corporation keeps a product inventory from which it fills customer orders. The supply chain of a retail store may also include a wholesaler or distributor, the retailer, and the manufacturer. The final consumer is always regarded as a link in the supply chain.

There are various types of supply chains.

For example, a third-party logistics (3PL) provider may be a member of two supply chains, performing logistics between traditionally competitive companies.

The situation at Reliance Communications is an example of a more intricate partnership. Reliance Communications may discover Nokia to be a customer in one supply chain, a partner in another, a supplier in a third, and a competitor in a fourth. This phenomenon of many supply chains also explains the complicated nature of the network formed by multiple supply chains.

The supply chain is highly complex for large firms, such as Dabur, that market a diverse product line to many clients, engage in basic manufacturing and assembly, and procure materials and components on a global scale. However, there is only one source of revenue in any supply chain: the client. Logically, the sources of cost are all flows of information, products, or funds. As a result, effective management of these flows is critical to supply chain performance.

Conceptual Diagram of a Supply Chain

When measuring the supply chain’s success, the links between the manufacturer and the retailer must perform at a desirable level. Even if early parts of the supply chain operate admirably, this isn’t very sensible if the product is unavailable to support retail sales. The end customer is the supply chain’s sole source of revenue, and the linkage is the ultimate litmus test for the supply chain’s success.

The fundamental goal of Supply Chain Management is to maximise supply chain profitability. A more successful supply chain will, consequently, be more profitable. A supply chain’s profitability is defined as the difference between what the customer pays for the final product and the costs incurred by the supply chain in fulfilling the customer’s request.

Hindustan Lever has cut its inventory from roughly 45 days to less than 5 days; Mahindra & Mahindra has decreased its inventory by 20–50 days; and LG has lowered its inventory by around 30 days. These organisations owe a substantial portion of their success to the way they manage their supply chain operations.

1.2 Generalized Supply Chain Model

A line diagram that connects participating firms into a coordinated competitive unit typically depicts the general concept of an integrated supply chain. Figure 1.4 illustrates a typical supply chain. It is a chain of enterprises providing a product or service, each firm fulfilling its functions. Activities begin with a client order and end when a satisfied customer pays for his or her purchase. At each stage, more than one player is usually participating. A manufacturer may obtain materials from multiple suppliers and distribute them to distributors. As a result, the majority of supply chains are genuinely networks.

The organisation generates profits during the process. A typical supply chain may have several steps. The supply chain phases include components and raw materials suppliers, retailers, wholesalers/distributors, manufacturers, and customers.

Most participants in materials management worked as buyers and sellers independently of other enterprises providing the buyer. Supply chain management differs in that its efforts involve individual organisations taking steps to improve the flow of information with their suppliers and to eliminate diversity in business procedures and practices among the firms that comprise the supply chain. In essence, the supply chain concept seeks to increase the efficiency of each player in the chain by coordinating their efforts toward a common goal.

To operate the supply chain, there must be a lot of interaction and trust between organisations. In that regard, it differs significantly from material management.

After completing the component, the component provider sends the material to the material warehouse. The material is delivered to the factory from the material warehouse. After the production activities are completed, the material is transferred to the finished goods warehouse, where it is transferred to the client warehouse upon receipt of an order. The product is transported from the customer warehouse to the retail shop, where the customer purchases it.

This is essentially what the supply chain management philosophy recognises. The supplier does not generate a profit without the retail store, and the store does not exist without the supplier. In either situation, the customer receives no benefit. But what does this imply for the supply chain?

To begin, every product that reaches an end customer is the result of the combined efforts of several businesses. Second, to optimise revenues, firms must pay attention to what is happening outside their “four walls” and manage the complete chain of activities that finally deliver items to the final client. This means that the supply chain philosophy expands the concept of partnerships into a set of beliefs that each business in the supply chain impacts the performance of all other supply chain members, directly and indirectly. It also has an impact on the overall performance of the channel.

This philosophy recognises that supply chain management aims to increase customer value and satisfaction. It directs supply chain members to develop innovative solutions to create one-of-a-kind, personalised sources of customer value.

The SCM philosophy motivates supply chain members to be customer-focused. To accomplish this, you must integrate intra-firm and inter-firm operational and strategic capabilities into a cohesive, compelling marketplace force. As a result, according to the SCM philosophy, the boundaries of SCM cover logistics and all other tasks inside a firm and within a supply chain that provide customer value and satisfaction.

This is a direct result of Forrester’s early ideas. Forrester noticed the interwoven nature of organisational relationships and suggested that they influence the performance of different activities. “Management must better comprehend the interrelationships between distinct corporate operations, as well as between the organisation and its markets and industry,” he stated. The ‘Forrester Effect’ exemplifies the phenomenon he identified. It demonstrates the impact of order information flow on production and distribution performance for each supply chain member and the overall supply chain system.

Firms that adopt a supply chain management philosophy must build management practices that allow them to perform or conduct business under this philosophy. A lot of tasks are required to execute an SCM philosophy successfully. Previous research has revealed that various activities are required to execute an SCM concept successfully.

The key SCM activities are as follows:

1. Integrated behaviour and process integration
2. Mutual information sharing
3. Mutual risk and reward sharing in the channel
4. Co-operation
5. Collaboration and goal-sharing

To be completely effective in today’s competitive climate, businesses must display integrated behaviour with supply chain partners such as suppliers, carriers, and manufacturers to dynamically adapt to end-customer needs. Customer Relationship Management (CRM) and Demand Planning have improved today’s organisations’ ability to manage and integrate customers’ expectations across the whole value chain. When combined with tried-and-true business strategies and processes, these tools generate a consistent picture of demand, which can then be used to integrate behaviour and drive all subsequent planning and operations, assisting in the integration of processes. As a result, the organisation is more agile and capable of quickly recognising and responding to market developments.

Information sharing occurs as a result of integrated behaviour and process integration. It refers to the willingness to make strategic and tactical data available to other supply chain members. The open sharing of information such as inventory levels, predictions, sales promotion methods, and marketing strategies minimises uncertainty among supplier partners and improves performance.

Effective SCM also necessitates supply chain partners sharing channel risks and profits to gain a competitive edge.

According to numerous experts, risk and reward sharing is vital for long-term attention and collaboration among the supply chain stakeholders. Sharing risk and reward is a very challenging task. Though theoretically viable, no organisation wants to give up its revenues and earnings. Therefore, it becomes tough unless you can sell the benefits to the organisation.

Effective SCM necessitates cooperation among channel members. Cooperation begins with collaborative planning and ends with collaborative control actions to evaluate the performance of supply chain participants. It occurs at multiple management levels and involves cross-functional coordination among channel members.

Getting individuals to cooperate is the most challenging aspect of supply chain management, even if it improves mutual outcomes. People are generally worried about them and want to pursue their parochial goals. Cooperation reduces firms’ flexibility to act in their interests while doing similar or complementary operations.

A supply chain succeeds when all its participants share the same purpose and focus on providing customers. Establishing a common aim and focus among supply chain members indicates they are working toward policy integration. The majority of businesses go through four stages of policy implementation:

Stage 1:  This represents the most basic situation. At this point, the supply chain results from the individual company’s scattered operations. Tiered inventories, independent and incompatible control systems and methods, and functional segmentation set it apart from other systems because they are based on classical ideas.

Stage 2: The beginning of internal integration. It emphasizes cost-cutting rather than performance enhancement. It distinguishes itself by focusing on internal trade-offs and reactive client service.

Stage 3: The company has achieved internal corporate integration. Its distinguishing characteristics are complete visibility of purchases through distribution, medium-term planning, tactical focus, efficiency, extensive use of technological assistance for links, and a persistent reactive approach to clients.

Stage 4: It has a strategic focus at this stage. The firm accomplishes supply chain integration by broadening the scope of integration to include suppliers and customers.

All businesses follow these four stages. Finally, supply chain participants’ efforts to create comparable cultures and management strategies enable policy integration. Collaboration occurs when two or more independent organisations work together to plan and execute supply chain operations more successfully than acting alone. This task is difficult, necessitating a concerted effort by cross-functional teams, in-plant supplier workers, and third-party service providers.

Firms that have progressed to Stage 4 form a series of partnerships. Successful partnerships strive to integrate supply chain policies to reduce redundancy and overlap while also pursuing a level of cooperation that allows members to be more effective at lower cost levels. To encourage increased collaboration, the organisation should choose a modest number of partners. When these partners create and sustain long-term relationships, the relationship’s time horizon goes beyond the contract’s life – possibly indefinitely – and you have a successful SCM.

Supply Chain Management spreads the supply chain philosophy to all chain participants. By integrating behaviour and processes, sharing information, planning together, sharing risks and rewards, cooperating, goal-sharing, and partnering, supply chain operations can be optimised, and the profitability of all chain members increases.

Dell and Wal-Mart, for example, were early adopters of the Supply Chain management concept.

They represent some of the most successful examples of supply chain management. What’s noteworthy is that they’ve built world-class supply chains by attacking the ‘Forrester Effect’ from several angles. Dell pioneered the build-to-order (‘pull’) cycle, lowering forecasting-based demand uncertainty, and Wal-Mart pioneered the use of information flow to minimise demand uncertainty.

Dell Computers manufactures to order, meaning a customer order triggers production at Dell. Dell’s supply chain is devoid of retailers, wholesalers, or distributors. While other computer makers must maintain a month’s inventory, Dell keeps a few days’ worth on hand. Every two hours, it plans orders and alerts suppliers, allowing it to make and deliver exactly what its consumers desire. Many components are supplied to Dell and dispatched to the consumer within a few hours of being assembled.

Wal-Mart’s success is based on new technologies mixed with new business models. It has harnessed the power of information flow to build a worldwide supply chain meticulously engineered down to the last atom of efficiency. Automated replenishment and the seamless running of the Wal-Mart supply chain depend on reliable connectivity between the stores, the centralised database, and the distribution centres. The Wal-Mart network connects over 2,400 shops, 100 distribution centres, and 950,000 Wal-Mart employees globally.

The ability of supply chains to deliver superior cost, quality, delivery, and technology performance determines their success. These and the process linkages between the members are crucial components of a successful supply chain.

Finally, it is critical to recognise that to operate a supply chain properly, you must first comprehend intra-organizational and inter-organizational supply chain operations. When organisations fail to keep this in mind or take too long to evolve inter-organizational processes, it is usually too late for the supply chain to succeed. In SCM, there are more failures than triumphs.

SCM is in charge of integrating three major flows between different phases and across company boundaries:

Product/Materials: This is the supply chain’s most apparent and evident component. The flow manifests itself physically in the form of goods and services. This is also known as the ‘value flow.’ Flows of goods and services follow a similar pattern. Raw materials (including material being transported), work in process, finished goods, spares, and reverse flows owing to returns, rework, or recycling of commodities are examples of goods flows. The flows from the vendor to the customer are referred to as ‘upstream,’ while the flows from the customer to the vendor are referred to as ‘downstream.’

Flow of information: Information flows enable supply chain participants to coordinate long-term objectives while controlling the day-to-day flow of goods and materials into the supply chain. It comprises flows from the vendor to the customer and from the customer to the seller. Essential components of the downstream flow of information include capacity estimates for plans, inventories available, dispatch advice, stock transfer notes, quality assurance reports, guarantees, and so on. Inputs for projections, marketing plans, dispatch plans, production plans, procurement amount and timing, orders from consumers and dealers, quality feedback, and warranties are upstream information flow components.

Funds: This is the commercial component of the supply chain, and it runs in the opposite direction of the value flow. It reflects the money spent in the supply chain to transfer title and service delivery. Credit periods/advances for payments from customers/dealers and vendors are also cash flow characteristics. The cash flow determines how many participants in the supply chain finance the value flow.

1.3 Value Chain

Physical distribution, manufacturing support, and procurement all overlap within a typical organisation to enable integrated management of materials, semi-finished components, and products moving between locations, supply sources, and customers. When each is viewed as an intrinsic component of the broader value-adding process, there is potential to capitalise on its unique characteristics while facilitating the overall process.

A supply chain’s product/material flow concerns acquiring, moving, and storing raw materials and completed goods. For a large factory, these processes could include thousands of components, raw materials, and parts and their movements, culminating in the delivery of products to an industrial user, retailer, wholesaler, dealer, or other customer.

The SCM Value Chain System

One of the key characteristics of the modern industrial system is the use of specialised services, the incorporation of proprietary items into products, and the development of ancillaries to support their products and services. Rarely does a single company perform all activities from product design to component production to final assembly and delivery to the end user. Typically, roles are specialised, and various organisations are engaged in the final product’s creation. As a result, all businesses involved in delivering a product or service to the final consumer are components of the supply chain’s value chain system.

The value generated by a supply chain is the difference between what the final product is worth to the customer and the work expended by the supply chain in fulfilling the customer’s request. As a result, supply chain profitability is based on the flows between and among stages in a supply chain, as opposed to the traditional evaluation of organisational success in terms of profits at individual stages. The items’ final price should cover all costs, including a profit split for each chain participant.

There is only a particular profit margin accessible within the entire value system. This is the difference between the client’s final price and the sum of all costs spent on manufacturing and delivering the product/service (e.g., raw material, energy, etc). (e.g., raw material, energy, etc.). To a significant part, the structure of the value system will decide how this margin is distributed among the various constituents of the value system.

Suppliers, manufacturers, distributors, customers, and others are some examples.

Each value chain member will use their position in the value chain, market position, and negotiation ability to obtain a larger share of this margin. A successful value chain is formed when each member believes that the relationship provides value to them. An organization’s ability to influence the performance of other firms in the value chain is frequently a core skill and source of competitive advantage. Many organisations have supplementary development, dealer and distributor training, and other specialised roles.

When assessing an organization’s strategic capabilities, examining them within the organization is insufficient. We must investigate the relationships. The supply-and-distribution chain generates a large portion of the value. Any strategic capability analysis must be assessed holistically, considering the entire value chain.

For example, a value chain analysis may reveal that some links are crucial to the organization’s competitive advantage, others may have substitutes, and others may be deleted.

As a result, the value chain analysis should encompass the entire value system in which the firm operates. A value chain is one of the most common ways organisations can improve technological competence. Diffusion is the process by which knowledge spreads among value chain members. As a result, both the giver and the receiver of the knowledge gain new skills. The traditional structure of Japanese industry exemplifies this. Units attached to the mother unit collaborated to enhance efficiency, teach and learn from one another new and better ways to complete jobs and assist one another in lowering expenses. As a result, they can obtain a more significant total margin, which benefits all system members.

1.3.1 Value Chains Analysis 

Conceptually, value chain analysis is not a strenuous exercise. However, depending on the nature of the product, the links, the primary processes involved, and so on, it is frequently a complex exercise that necessitates a vast quantity of information and data processing capacity for the study. On the other hand, many notions of splitting up functions into activities and attributing expenses to them are now standard cost accounting practices, making the process easier. It becomes routine after the essential information is gathered and the links are built. A typical value chain analysis consists of the following steps:

• Examine your value chain. Identify the primary and secondary activities. Each activity category must be broken up into its essential components, and costs should be allocated to each element.
• Customer value chain analysis: investigate how our product fits into the customer’s value chain.
• Identify activities that distinguish the firm and potential cost advantages over competitors.
• Determine the potential value added for the customer. How can our product add value to the customer’s value chain (for example, lower costs or higher performance)? Where does the customer see such potential?
• The final step is discovering the actions that give you a distinct advantage over your competitors. These are the organization’s competencies or core competencies.

A strong and supportive value chain operates similarly to the traditional Japanese system, with members considering the benefits of the entire chain. Collaboration is conceivable and frequently seen in such value chains, where members work together to increase productivity, reduce stocks at various levels, or enhance processes. The benefits accrue to all members.

1.4 Supply Chain Effectiveness

The ability of the supply chain to align with its partners, whether they be service providers, employees, suppliers, or distributors, determines its effectiveness and value. Processes and systems must be aligned with common business objectives. It comprises company activity evaluations that help you optimise strategic and operational processes. Some well-established managerial characteristics that set a supply chain apart determine its efficacy. These characteristics include the following:

1.4.1 Strategy

It all starts with a plan. Firms with the best supply chains have a corporate strategy that drives planning, tactical design, milestones, and other strategy creation and implementation phases. This is the foundation around which the supply chain organisation is built. Firms should be able to organise tactical operations and prioritise suppliers, customers, and goods using a supply chain management approach.

If supply chain members understand that the process crosses their company and extends outside, strategy establishes the foundation for supply chain execution. The plan must involve moving products and information from suppliers to store shelves or client warehouses. The supply chain must adapt if the company’s strategy necessitates a dramatic shift in markets, goods, or customers.

The approach is long-term and growth-oriented. The strategy must be dynamic and account for organisational resistance to change. That means the supply chain strategy must be agile and capable of recognising, incorporating, and adapting to drive the necessary changes.

1.4.2 Metrics

The correct measures are more important than the right results. The maze of supply chain initiatives frequently causes performance management to become lost. Firms are launching a slew of new projects in SCM, including RFID, Six-sigma Quality, Lean Manufacturing, Outsourcing, Vendor-managed Inventory (VMI), Collaborative Planning, Forecasting, and Replenishment (CPFR), Spend Management, and Regulatory Compliance. These initiatives promise to improve transaction speed, streamline processes, optimise throughput, and reduce risk. However, the efficiency of these activities should be evaluated for overall performance goals.

Financial metrics are ineffective for evaluating, directing, and managing supply chains. Orders (whether they are delivered complete, on time, and accurately), lead times, reliability, inventory levels, potential out-of-stock issues, and logistics expenses are essential performance metrics. The metrics for these must be correct.

1.4.3 Technology

Technology facilitates the process. Over the last two decades, corporations have invested trillions of dollars in supply chain management software and systems. Historically, their emphasis has been on enhancing transaction processing, streamlining operations, and optimising throughput — in other words, increasing efficiency. Few, if any, companies have invested in supply chain effectiveness and the capacity to plan proactively and discover exceptions before they become costly problems.

Technology is critical for supply chain execution because it provides visibility of event management, exception management, and the complete supply chain, from purchase to delivery orders. It also serves as a collaborative tool.

1.4.4 Performance of Suppliers

Success in the supply chain depends on the suppliers’ performance. Supplier performance, or lack thereof, can significantly impact sales, inventory, and profitability. Companies and their supply chains must exert control over their suppliers and obtain insight into operational challenges through interactions by identifying root causes and comprehending the consequences of various actions. Aligning performance with demand planning is crucial. They should not allow suppliers to control their business because this will result in significant fluctuation in performance.

1.4.5 Collaboration and Integration

The supply chain process necessitates interaction with suppliers and customers within the firm and outside. Operations managers frequently make decisions concerning demand, supply, manufacturing, fulfilment, and distribution without fully comprehending the implications for performance targets. As a result, there may be gaps and blind spots in the supply chain, which can considerably impede results. Collaboration with significant supply chain actors is critical to bringing additional emphasis and resources to the supply chain.

1.4.6 Risk Reduction

A supply chain is effective if the complete supply chain, including suppliers, logistics service providers, ports, and other possible hazards that could disrupt the company’s supply chain, can be reviewed and corrective action taken.

All of these elements are crucial to the functioning of the supply chain. Ultimately, the supply chain must be agile and sensitive to better respond to changing market conditions and, to some extent, influence those forces.

1.5 Financial Intelligence

Few executives question the value of implementing time-based techniques in supply chain management. A valid question is, “How fast is quick enough?” Speed, for the sake of speed, has little, if any, enduring value. The answer to how fast is desirable can be found in the financial impact. The value creation process mandates that more rapid, flexible, and precise ways of serving clients are justified as long as they can be given competitive pricing. The ability to handle financially advantageous working arrangements promptly is a third element driving competitive supply chain strategy.

The financial benefits of prompt action are self-evident. The fast delivery means less inventory and fewer distribution facilities. More rapid delivery to clients necessitates less operating capital to sustain supply chain activities. Cash-to-cash conversion, dwell time depreciation, and cash spin are three facets of financial savvy.

1.5.1 Cash-to-Cash Conversion 

Cash-to-cash conversion refers to the time necessary to convert raw material or inventory purchases into sales income. Cash conversion is generally connected to inventory turn: the faster the cash conversion, the higher the inventory turn. A supply chain design aims to shorten and regulate order receipt-to-delivery time to accelerate inventory turns.

Benefits connected to cash-to-cash conversion have traditionally been enjoyed at the expense of company partners in traditional business arrangements. Given regular purchase discounts and invoicing methods, arms can quickly sell items while qualifying for prompt payment reductions.

Example: Terms of sale that give a 2% discount on a net 10-day payment (2 percent no 10) imply that a prompt payment discount is achieved if the invoice is paid within 10 days after delivery. For example, if the invoice is $1000, a payment received within 10 days will result in a $20 discount. If the company sells the product for cash before the invoice payment date, it effectively has free inventory. It may even earn interest by investing funds until the payment date arrives.

Cash-to-cash conversion benefits can be shared in response-based systems by optimising inventory transfer velocity across the supply chain. This capacity to manage inventory velocity from origin to destination offers the potential to generate greater efficiency than a single firm could achieve. Coordinated operations may need a designated firm in the supply chain as the primary inventory stocking location.

As a result of this approach, member enterprises must share inventory risk and reward. Supply chain members frequently substitute dead net prices for discounts to support such arrangements. The term “dead net pricing” refers to including all discounts and allowances in the selling price. Thus, incentives for prompt payment are replaced with explicit performance guarantees at a set net price. Following physical receipt verification, invoice payment is based on the negotiated net price. Payment is often made in Electronic Funds Transfer (EFT), simplifying the transfer of physical items and currency across supply chain participants. Managing supply chain logistics as a constantly synchronised operation reduces dwell time.

1.5.2 Dwell Time Minimization

Traditional distribution arrangements often feature independent company entities only loosely linked on a transaction-by-transaction basis. A transaction view sees conventional business activities as discrete transactions buffered by inventory. A supply chain, on the other hand, can work as a synchronised sequence of linked business units. The willingness to shift inventory as needed, taking advantage of as much collaboration and information as feasible, is at the heart of supply chain operating leverage. Such partnerships and information can be directed at ensuring the continuous flow and velocity of merchandise moving across the supply chain. The possibility of such synchronisation is a significant advantage of supply chain connectivity. Dwell time is an essential indicator of supply chain productivity.

Dwell time is the ratio of an asset’s idle time to the time required to complete its defined supply chain mission.

Dwell time, for example, is the ratio of the time a unit of inventory is in storage to the time it is moving or otherwise contributing to achieving a supply chain’s objectives.

Firms participating in a supply chain must be willing to eliminate duplicate and non-value-added activities to reduce dwell time.

For instance, if three distinct businesses conduct identical activities as a product moves through a supply chain, dwell periods will build.

Designating a specialised firm to undertake and be accountable for value-added work can help to reduce overall dwell time. Similarly, prompt arrival and continuous inventory flow among supply chain partners reduce stay. Dwell time is reduced when a product travels from a supplier through a retailer’s cross-dock sortation process without stopping or being diverted to warehouse storage. The opportunity to facilitate investment in inventory and related assets is a side advantage of reducing dwell time and the accompanying logistical costs.

1.5.3 Cash Spin

Cash spin, sometimes free cash spin, is a popular concept for discussing the potential benefits of decreasing assets across a supply chain. The idea is to lower the overall assets dedicated to supply chain performance. Thus, a dollar of inventory or warehouse rent saved due to a re-engineered supply chain arrangement represents cash available for redeployment. Such free capital can be re-invested in ventures that would have been considered too risky. The supply chain is not the only place where cash spin opportunities exist. The ability to generate cash relates to all aspects of a business. The opportunity for enterprises to collaborate is what makes the promise of supply chain cash spin so appealing. The advantages of quick cash-to-cash conversion, reduced stay time, and cash spin all contribute to the financial attractiveness of effective collaboration. Another critical element driving supply chain management expansion is the increasing engagement of most enterprises in international operations. Global expansion results from two essential opportunities: market expansion and operational efficiency.

1.6 Logistics in the 21st Century

The evolving corporate strategies of the twenty-first century drive enterprise logistics management. Implementing the relationship logistics model in the logistics management process provides organisations with increased speed, flexibility, and efficiency in their logistics functions.

Digital technologies in the twenty-first century enable the development of new economic models. The gradual reduction of production costs influences demand and supply balances. Cost reduction leads to an increase in supply. Latest marketing and distribution methods are required to accommodate the demand. Faster product and service flow is accomplished due to excellent logistics management. Payment methods are shifting to the electronic environment in economies dependent on digital technologies. In the digital age, reaching millions of individuals simultaneously is feasible. The development of the digital economy allows for faster and more efficient information interchange, improving the logistics process’s quality.

New advancements in the Internet sector impact market structure, consumer preferences, and competition in the corporate world. As corporate organisational structures grow simpler, their logistics systems become more elastic and faster. Organizational systems that operate 7 days a week, 24 hours a day, are becoming more common. Markets are becoming more global and personal. Customers want to acquire superior quality at a lesser price now that they are more educated about the advancements. Everything is done “just in time” in a digital environment. “Just in time” advertising, “just in time” communication, and “just in time” delivery are becoming commonplace notions among marketing executives. Digital technologies, in some ways, contact millions of individuals simultaneously. As a result of the growing importance of customers, businesses are focusing on the concept of customer-oriented marketing.

1.6.1 Information Technology and Logistics Management  in the 21st Century

The advancement of digital technology has permitted the removal of barriers in global trade, and growing competition has necessitated the delivery of the appropriate goods to the consumer at the right time, at the best price, and the lowest possible cost. Distribution and logistics are equally crucial to the product’s high-quality standards. It has been agreed that providing the most appropriate and quickest distribution that takes a product from its manufacturing line and delivers it to the customer’s shelf is just as vital as the method of generating that product. In the face of rising competition, corporations have identified logistics as the most effective competitive aspect.

In the digital marketing idea of the twenty-first century, logistics quality can surpass the product itself in corporate competitiveness. Producer corporations now emphasise the timely and successful fulfilment of logistical services as they do on the product and new production techniques. Customers’ orders must be the physical distribution subsystem’s starting point in logistics management. Compared to traditional marketing tasks such as acquiring orders, analysing and classifying them, logistics information systems increase the productivity of logistical activities and provide a time-saving benefit. The cost of reaching a larger body of customers through a logistics system is much lower than that of reaching a larger body of customers through other traditional methods by utilising the customer base developed for future marketing initiatives. Orders collected through order forms on internet websites filled out by customers lead to the sales process being carried out primarily online. Instead of a distribution structure in a standard purchase process, a new distribution strategy must be devised to allow a vast customer body to be reached concurrently and include new mediator types.

New logistics systems are less expensive and work faster than old systems in processing large-scale orders for buyers using logistics information technology. Incorporating enterprise information, such as buyer orders, into physical distribution actions suitable for buyer demand will provide firms with a competitive edge.

Another issue to emphasise when using information technology in logistics management is developing an acceptable and optimal transportation system and selecting transportation tools within that system based on their competitive advantages.

Still, companies that need to find the right balance between inventory, sales, production, and raw material resources can find the best stock levels by planning their inventories to consider costs, demand, product features, and competition based on quantity and variety. Warehousing is another sector regarded as a starting point for logistics initiatives. This should be done in tandem with high-tech distribution processes involving the storage of items both inside and outside the firm via computer communication networks. While developing warehousing policies and strategies, selecting a storage location that combines new technologies and firm infrastructure in an e-business environment should be planned to have the lowest cost and highest efficiency to create a competitive advantage over competitors.

REVIEW QUESTIONS:

1. What are the fundamental concepts of Supply Chain Management, and why are they essential in modern business operations?
2. Can you discuss the traditional supplier-buyer relationship and its significance in supply chain dynamics?
3. Can you explain the simplified view of Kalyani Breweries’ supply chain for better understanding?
4. What is the primary objective of Supply Chain Management, and how does it contribute to organizational success?
5. Could you elaborate on the statement “A typical supply chain may involve a variety of stages,” highlighting the complexity and diversity of supply chain processes?
6. What are the various stages of a typical supply chain, and how do they contribute to the overall value-creation process?
7. How does the philosophy of Supply Chain Management drive supply chain members to adopt a customer-oriented approach in their operations?
8. What are the primary activities within Supply Chain Management, and how do they contribute to optimizing supply chain performance?
9. Can you briefly explain the SCM value chain system, outlining its components and functions?
10. Clarify “Value chain analysis is not a very difficult exercise conceptually,” and explain its significance in strategic decision-making within supply chain management.
11. What are the identified management traits that distinguish supply chain professionals from others in the field?
12. Discuss the concept of financial sophistication within supply chain management and its implications for organizational success.
13. Define and provide examples of cash-to-cash conversion, dwell time minimization, and cash spin, highlighting their importance in supply chain finance and operations. How do supply chain strategy and structure impact each of these financial metrics?
14. Provide a discussion supported by evidence on the argument: “Supply chain arrangements may reduce consumer value.”
15. Explain the role of Information Technology and Logistics Management in the 21st Century supply chain landscape, highlighting their impact on efficiency, visibility, and innovation.