Introduction to SCM

What Is Supply Chain Management (SCM)?

 Supply chain management is the management of the
flow of goods and services and includes all processes
that transform raw materials into final products. It
involves the active streamlining of a business's supply-
side activities to maximize customer value and gain a
competitive advantage in the marketplace.

 As per definition : SCM is the management of a

network of all business processes and activities
involving procurement of raw materials, manufacturing
and distribution management of Finished Goods.

 Supply chain management is the handling of the entire

production flow of a good or service — starting from
the raw components all the way to delivering the final
product to the consumer. A company creates a
network of suppliers (“links” in the chain) that move the
product along from the suppliers of raw materials to
those organizations that deal directly with users.
2)bImpact of e-commerce on the logistics industry

Changing customer expectations

These days consumers expect deliveries within one or two days if not the same day.
Precisely for this reason, the logistics companies are adapting to the increasing
delivery pressures to keep up with the customer expectations. Just in time delivery
has replaced the traditional long haul deliveries. This has led to an increasing
preference for single warehouse locations rather than multiple storage facilities.
Freight forwarders are also altering their fleet composition to cope with the demands
of e-commerce. For example, they are now investing in small trucks and trailers that
are more suitable for short and more frequent last-mile deliveries.

Increased focus on last-mile delivery

The online shopping trends have affected another important service area of the
logistics industry namely last-mile delivery. Independent freight forwarders are
ramping up their last-mile delivery to compete with the services of giants like
Amazon. A large number of freight forwarders are changing their fleet composition
to better cope with last-mile logistics.

The increased use of air freight

Air freight is playing a massive role in the rapid growth of e-commerce operations.
Moreover, air cargo is also the most reliable way of moving freight. No matter
which part of the world you want to send your cargo to, delivering it via air freight
will not be an issue. Moving goods by air has become all the more imperative for
faster delivery of the parcels.

As per a statement by IATA, one major problem in the air freight sector is the lack
of cargo capacity. The changes in shopping trends are surely an important factor that
has driven the rising demand for air freight. A vast number of people are now
buying their daily commodities online. E-commerce boom naturally implies quickest
deliveries and hence the increased demand for air freight. Amazon is tackling the
problem of air capacity shortage by acquiring its own freighter planes.

Enhanced reverse logistics

Reverse logistics can refer to all post-sale activities that are done to optimize market
activity. Online shoppers often return and exchange the purchased items for several
reasons which is why the logistics companies are now coming up with effective
reverse logistics solutions. For example, a sound processing and separation
procedure for returned items are now employed to ensure minimal expenses. The e-
commerce retailers expect the logistics companies to come up with cost-effective
return policies as customers don’t pay for the return. Better use of information and
enhanced end-to-end visibility are the keys to effective reverse logistics.

Focus on visibility
End-to-end visibility of shipments is of utmost importance for seamless e-commerce
operations. Most e-commerce retailers update their customers about the shipment
status until it is delivered. Therefore, logistics service providers are now investing in
a robust data sharing system along with effective fleet management and route
optimization technologies. In other words, the logistics companies are reshaping
their traditional strategies to better suit the interests of e-commerce retailers.

Adoption of digitization
The logistics industry has finally opened up to the use of new technologies to be on
a par with the stalwarts in this sector. The use of Big Data solutions in logistics has
become indispensable in the post-pandemic world where a vast section of consumers
are buying their goods online. The use of Big Data is allowing freight forwarders to
collect the required data and analyze it in real-time for better customer service.

Moreover, we are also witnessing a rise in the use of online payment methods via
cards, mobiles, and net banking. Independent freight forwarders who are banking on
the e-commerce sector are also using online platforms for analysis and market
forecasts. These platforms also help to create a better understanding of customer
expectations. Mobile integration is yet another important change brought about by
the rise of e-commerce.

2a) TRENDS IN LOGISTICS AND SCM

Supply Chain Management Automation

Automated systems assist businesses in lowering costs, streamlining processes, increasing

efficiency, improving the visibility of their supply chains, and enabling better decision-making
based on real-time data. To reap these benefits, businesses must invest in cutting-edge
technologies such as AI/ML, robots, and IoT (Internet of Things) to be prepared and
compete in a changing economy. According to a recent Gartner poll, 61% of respondents
believe technology provides a competitive edge. Many identify developing technologies as
significant investment areas, with 20% investing in robots.

 Use of Blockchain in Data Handling

The distributed ledger technology offered by blockchain possesses the immense potential to
help transform the supply chain sector. By employing blockchain technology, firms may
securely store and distribute data throughout their entire network. Additionally, organizations
may utilize smart contracts to automate operations and verify compliance of all parties to the
predefined requirements. Blockchain enables businesses to quickly track and trace items
across their supply chain, ensuring that only genuine items are provided to clients. This
eliminates the possibility of pirated products entering the market.

 Longevity of the Supply Chain

Sustainability is an important priority within the supply chain business today as more and
more organizations seek to lower their carbon footprint. Companies must try to establish
sustainable practices that reduce their environmental effect by adopting eco-friendly
packaging materials, green logistics, and renewable energy solutions and using tools like
carbon footprint calculators. This will guarantee that supply chains are flexible and
sustainable even under rapidly shifting market conditions and help businesses stay
competitive in an increasingly environmentally conscious world. As per a Gartner poll, 84%
of supply chain leaders expect to invest in climate adaptation and mitigation initiatives in the
next 18 months.

 Risk Management and Adaptability

In the supply chain business, risk reduction is becoming increasingly crucial. Organizations
today strive to recognize and handle possible risks before they become major issues,
equipping themselves with resilient strategies to deal with unforeseen changes and
interruptions. To do this, businesses must implement solutions that enable them to swiftly
detect and handle possible hazards, deploy predictive analytics systems that detect possible
dangers before they occur, and consistently adjust their plans and operations to changing
conditions.

 Collaborative Planning

Companies must be able to work with their suppliers and partners to swiftly establish
targeted strategies that enable their operations to function smoothly. Collaborative planning
is vital for aligning disparate teams and allowing them to work towards a unified corporate
objective that considers every stakeholder’s demands and ambitions. In the coming year,
businesses should focus on creating collaborative partnerships by leveraging digital tools
such as cloud-based technology and predictive analytics to manage their supply chains
better.

 IoT Monitoring

The importance of IoT tracking in the supply chain sector is rising. Companies can rapidly
and precisely follow the flow of their products throughout the supply chain by using IoT-
enabled devices. This enables them to understand their processes better and promptly
make more informed decisions. This will help guarantee that the operational processes are
effective and flexible even in the face of shifting market conditions.

Over the past several years, most companies have realized that their supply chain and
logistics strategies need to be altered since they are no longer effective. By coordinating
with the major global macro-trends, they will need to step up their efforts to stand out, run
more efficiently, and enhance services in 2023. This will help them drive the industry’s
fundamental change and evolution and improve the supply chain and logistics performance
and resilience for the years to come.
3) a Goals and objectives of scm
OBJECIVES OF SCM
 TO maximize overall value generated

The higher the SCM profitability, the higher is the success for supply chain. The
Supply chain profitability is the difference between the amount paid by the customer
to purchase a product and the cost incurred by an organization to produce and supply
the product to the customer.

 Cost quality improvement

This is another essential objective of SCM. It looks to achieve cost quality balance
and optimization.

 To look for sources of Cost and Revenue

Customer is the only source of revenue. Therefore there should be appropriate

management of the flow of information, product or funds. It is a key to the success
of supply chain.

 Shortening the time to order

SCM aims to reduce the time required for ordering and fulfilling the same.

 Delivery optimization

The SCM aims to meet the demands of the customer for guaranteed delivery of high
quality and low cost with less lead time.

 Demand fulfilment

Managing the demand and supply is a key yet challenging task for a company or
management personnel. Its objective is to fulfil customer demand through efficient
resources
  Flexibility

SCM aims for flexibility. A Well managed supply chain provides flexible planning
and better control mechanism.

 Better Distribution

SCM aims to ensure improved distribution. It can maximize the distribution side
efficiency. Marketer or distributor can achieve optimized level distribution by using
all resources that are available properly.

 Cost Reduction

It’s another objective of SCM to reduce the system wide cost of a company to meet
service level requirement.

GOALS OF SCM
IMPROVING EFFICIENCY

At its most fundamental level, the Supply Chain management objective is to ensure
that inventory is readily available in customer-facing positions to meet demand.
Organizations must strive to match supply and demand on time by making the best
use of cross-chain resources. Partners in the supply chain must collaborate to
maximize resource productivity, standardize processes, avoid duplication of effort,
and reduce inventory levels. These processes will help the firm in reducing waste,
reducing expenses, and increasing supply chain efficiency.

IMPROVING QUALITY

Reducing waste is not the only aim of supply chain management. Ensuring that the
product and the customer experience are as positive and as effective as they can be
is yet another significant goal.

INCREASE FLEXIBILITY

Another critical reason to invest in supply chain management capabilities is the

capability to adjust to change. The current business environment is volatile, with
numerous factors influencing how organizations run and survive. Supply chain
management can assist businesses in adapting to the challenges of globalization,
economic instability, and rising consumer expectations, among other concerns.

IMPROVING STABILITY

Supply chain management is also about improving and maintaining the overall
stability of the supply chain. Companies can make an effort to forge and keep strong
relationships with their suppliers and distributors to ensure that business will
continue to run smoothly.

MONITOR FINANCIAL SUCCESS

One of the most obvious goals of supply chain management is to contribute to the
organization’s financial performance. Historically, cost-cutting strategies have
focused on streamlining stock levels to reduce inventory carrying costs, automating
fulfillment operations to reduce labor costs, and consolidating orders to reduce
freight costs.
12 marks
10) A) Drivers and challenges in SCM:
Five supply chain drivers, Production, Inventory, Location, Transportation,
and Information, influence the performance of the supply chain. Companies can
develop and manage these drivers to emphasize the ideal balance between
responsiveness and efficiency, depending on your business and financial
requirements.

Responsiveness to customer demands and expectations drives continuous innovation

in products and how customers are served. Prioritizing responsiveness enables
companies to accommodate unexpected fluctuations in the market and changes in
customer preferences successfully.
Divers of scm:

 Production
 To achieve a responsive supply chain, ensure your factories
have excess capacity and use flexible manufacturing techniques to
produce a wide range of items. Flexibility allows production to pivot to
meet fluctuations in consumer demand quickly. Additionally, having
multiple, smaller production facilities close to distribution centers and
customer hubs increases consumer demand responsiveness by
decreasing delivery time.

Alternatively, having production facilities with little excess capacity

and optimized for producing a limited range of items increases
efficiency. Centralizing production in large central plants for better
economies of scale furthers efficiency, though delivery times may be
longer for some customers.
 Inventory
 When it comes to inventory as a driver, optimizing responsiveness
often dictates stocking higher product levels and at more warehouse
locations. Efficient inventory allows for unexpected fluctuations in
demand that can be met promptly. However, this approach incurs
higher storage costs and must be weighed against the benefit of
widespread availability.

Efficiency in inventory management calls for reducing inventory levels

of all items, especially those that do not sell frequently. Also, stocking
inventory in only a few central distribution centers achieves economies
of scale and cost savings.

 Location
 Prioritizing responsiveness for the location driver often involves
maximizing convenience by establishing many locations near customer
groups. For example, fast-food chains use location to be very
responsive to their customers by opening many stores in high-volume
markets. Many sites allow them to respond quickly to consumer
demand but increase operating costs by operating many stores.

Efficiency is achieved by operating from a select few locations and

centralizing activities. An example of efficiency in location would be
how e-commerce retailers serve global markets from only a few central
locations, performing a wide range of activities. While this allows
each site to be more efficient, it also makes them susceptible to
disruptions, as seen with the coronavirus outbreak.
 Transportation
 Faster modes of transportation, such as air freight–while often more
expensive–allow for shorter delivery times and greater response
flexibility. FedEx and UPS are two companies that provide high levels
of responsiveness in last-mile delivery by using transportation to
deliver products often within 48 hours.

Efficiency in transportation is emphasized by moving products in

larger batches, less often, by bulk carriers such as ships or railroads.
This type of transportation is more efficient when products originate
from a centralized distribution center instead of multiple separate
locations.

 Information
 Information’s power as a driver is growing as the technology for
collecting and sharing information becomes more widespread, easier to
use, and more affordable. Software with analytics uses internal and
external data to make decisions that enhance the performance of supply
chain drivers. Your supply chain should collect and share accurate and
timely data generated by the previous four drivers in operation for
ultimate effectiveness.

While the cost of the first four supply chain drivers continues to rise,
market-leading supply chain solutions enable companies to make the
best use of information to increase their internal responsiveness and
efficiency through collaboration and end-to-end visibility. Scenarios
prepare supply chain managers to respond quickly and make strategic,
well-informed decisions based on key supply chain drivers when
situations and disruptions like the COVID-19 pandemic arise.
 Top Challenges in Supply Chain Management
1. Customer Service - One of the most important driving force of the
supply chain is customers, as the main goal of the supply chain is to
deliver the right quantity of a product in time. Now, customer demand is
becoming extremely specific as they expect to be able to customize their
orders. In addition, it is important for your customers to know when they
will receive their products and should be notified if or when a delay is
expected. As such, supply chain managers benefit from advanced
planning and scheduling systems that are able to identify possible issues
such as resource capacity or material bottlenecks, to prevent delays from
occurring or to notify customers in advance.
2. Cost Control - Operating costs are affected by rising fuel and freight
costs, technological advances, labor costs, and other regulatory
requirements. High supply chain visibility is important to identify any
areas that are not being utilized to their full potential. Increasing the
efficiency of your system and eliminating wasteful steps will ensure that
your production output is maximized. Any unnecessary and costly steps
will be eliminated, which will further reduce the overall production costs.
3. Finding Qualified Personnel - In certain parts of the world, it is
becoming increasingly difficult to find qualified personnel to perform the
necessary operations. Sometimes, it can be more beneficial for your
company to invest in your current employees with training. In addition,
having a performance tracking system can allow you to schedule
employees on different production lines or during different times of the
day based on when they are more productive.
4. Unexpected Delays - In uncertain times, you may encounter delays in the
delivery of materials. To resolve this challenge, it can be helpful to have a
planning and scheduling software that tells you when you need to have a
certain material and add a buffer to ensure that you would get it in time,
even if there are delays. In addition, these softwares can help you
maintain buffer stocks by ordering additional supplies when the stock
levels are getting low.
5. Rapidly Changing Markets - In order to maintain the efficiency of
production, it is important to periodically re-assess and re-design your
production plan. These adjustments will reflect changes in the market as
new products and technologies are emerging. Having a planning and
scheduling system that allows you to see the effects of those changes
without disrupting your current schedule can help you make the best
decisions in response to those changes.

These are the drivers and challenges in SCM.

10)B) DEMAND CHAIN MANAGEMENT:

Demand chain management (DCM) is the management of relationships between
suppliers and customers to deliver the best value to the customer at the least cost to
the demand chain as a whole. Demand chain management is similar to supply chain
management but with special regard to the customers. Demand chain management
software tools bridge the gap between the customer relationship management and
the supply chain management. The organization's supply chain processes are
managed to deliver best value according to the demand of the customers.

1. Demand-Driven Supply Network

A Demand-driven supply network (DDSN) is one method of supply chain

management which involves building supply chains in response to demand signals.
The main force of DDSN is that it is driven by customers demand. In comparison
with the traditional supply chain, DDSN uses the pull technique. It gives DDSN
market opportunities to share more information and to collaborate with others in the
supply chain.

DDSN uses a capability model that consist of four levels. The first level is Reacting,
the second level is Anticipating, the third level is Collaborating and the last level
is Orchestrating. The first two levels focus on the internal supply chain while the
last two levels concentrate on external relations throughout the Extended Enterprise.
[1]

In a Demand-driven chain, a customer activates the flow by ordering from the

retailer, who reorders from the wholesaler, who reorders from the manufacturer,
who reorders raw materials from suppliers. Orders flow backward, up the chain, in
this structure. [2]

Many companies are trying to shift from a build-to-forecast to a build-to-order

discipline. The property of being demand-driven is one of degree: Being "0 percent"
demand-driven means all production/inventory decisions are based on forecasts, and
so, all products available for sale to the end user is there by virtue of a forecast. This
could be the case of fashion goods, where the designer may not know how buyers
will react to a new design, or the beverage industry, where products are produced
based on a given forecast. A "100 percent" demand-driven is one in which the order
is received before production begins. The commercial aircraft industry match to this
description. In most cases, no production occurs until the order is received.[3]

1.1. Competitive Advantages

To create sustainable competitive advantages with DDSN, companies have to do

deal with three conditions: Alignment (create shared incentives), Agility (respond
quickly to short-term change) and Adaptability (adjust design of the supply chain).[4]

1.2. Misconceptions

There are five commonly made misconceptions of demand driven (DDSN):[5]

1. Companies might think they are demand driven because they have a good
forecast of their company.
2. They have implemented lean manufacturing.
3. They have great data on all their customers.
4. They think it is a technology project and the corporate forecast is a demand
visibility signal.
5. They have a better view of customers demand.

An important component of DDSN is DDM ("real-time" demand driven

manufacturing). DDM gives customers the opportunity to say what they want, where
and when.

2. Demand-Driven Execution

Demand chain management is the same as supply chain management, but with
emphasis on consumer pull vs. supplier push. [6] The demand chain begins with
customers, then funnels through any resellers, distributors, and other business
partners who help sell the company's products and services. The demand chain
includes both direct and indirect sales forces. [7] Customers demand is hard to detect
because out of stock situations (OOS) falsify data collected from POS-Terminals.
According to studies of Corsten/Gruen (2002, 2008)[8] the OOS-rate is about 8%. For
products under sales promotion OOS rates up to 30% exist. Reliable information
about demand is necessary for DCM therefore lowering OOS is a main factor for
successful DCM.

Corsten and Gruen describe key factors for lowering OOS-rates:

 data accuracy
 forecast and order accuracy
 order quantity
 replenishment
 Capacity (time supply)
 Capacity (Packout) and Planogram Compliance
 Shelf Replenishment

Implementation of system supported processes leads to the new technology Extreme

Transaction Processing described by Gartner Research. [9] This technology allows to
process the huge amount of data (POS, RFID) in real time providing information for
store managers, shelve managers and the supply chain.

According to studies of Ayers, in order to find appropriate methods which fitting

different kinds of companies, the first thing companies should do is to assess their
progress toward achieving world-class levels of supply chain management. In order
to raise demand-driven levels, companies need to undertake a systematic effort that
has three elements:

1. Shortening process lead-time: Overall lead-time is composed of individual

cycle-times for multiple processes. This step involves shortening the cycle-
time at each step in the critical path processes from the point of purchase to
the start of production for the entire supply chain.
2. Adopting flow model economics: Flow model economics encompass low-cost
ways to vary mix and volume. Lean manufacturing is a discipline that has the
same goals as flow economics.
3. Replacing forecasts with demand: This step requires efficient sharing of
information up and down the chain. An ideal is for all partners to have access
to the level of real-time sales as well as the business rules to react.
[10]
3. Demand Driven Supply Chain Assessment

Companies must have an appropriate performance measurement system to be

applied on a regular basis to identify areas to be improved in order to establish a
sustainable continuous improvement process. According to Dale and Ritchie, to use
self-assessment process is very important. The self-assessment will allow
organizations to discern its strengths and gaps, and define improvement actions
linked to the business planning process. There are some necessary criteria for a
successful self-assessment process:

 Gaining commitment and support from all levels of staff

 Action being taken from the previous self-assessment
 Incorporation of self-assessment into the business planning process
 Not allowing the process to be "added on" to employees existing workload
 Developing a framework for performance monitoring

11)B) SUPPLY CHAIN MODELS

What Is Supply Chain Modeling?

Supply chain modeling is designing and analyzing a supply chain to identify
potential improvements. A supply chain model can be used to simulate different
scenarios to determine the most efficient or practical course of action.

There are many supply chain models, including static, dynamic, and Monte Carlo
simulation models. The most appropriate model for a particular situation depends on
the certain goals and constraints of the business.

Some of the benefits of supply chain modelling include:

 Reduced costs
 Increased efficiency
 Improved customer satisfaction

Types of Supply Chain Models

supply chain is defined as a system of facilities and distribution options that receives
goods from suppliers and delivers products to customers. The main objective of supply
chain management (SCM) is to minimize the total cost of ownership while maximizing the
customer service level.
 1. The Continuous Model
A continuous model is a supply chain built for continued, scheduled delivery of
goods. This model ensures a continued, steady cadence of products and resources. It
only exists in an environment with supply and demand stability, typically with
mature supply chains for established brands, and requires minimal variation in the
customer demand profile. PepsiCo is a well-known example of a continuous supply
chain model. The company’s family of drinks and foods maintains a large customer
base with little to no variety in demand no matter the season or market conditions.
PepsiCo has set up the logistics of its delivery system to continuously receive
ingredients to produce its food and beverages, and likewise continuously restock
vendors.

2. The Fast Model

The Fast Model is a supply chain model designed to help businesses make decisions
quickly. This model is based on the principle that the faster a business can make
decisions, the better off it will be. The Fast Model is designed to help companies to
make decisions about inventory, production, and other aspects of their operations.

3. The Inventory Model

In business, the term “supply chain” is about transforming raw materials into
finished goods and then getting those finished goods into the hands of the customer.
The supply chain encompasses everything from the sourcing of raw materials to the
manufacturing of products to the distribution and delivery of those products.

There are various inventory supply chain models that businesses can use, depending
on their specific needs and goals. The three most common types of supply chain
models are make-to-stock (MTS), make-to-order (MTO), and assemble-to-order
(ATO).

The make-to-stock (MTS) model is the most common type of supply chain. In this
model, finished goods are manufactured and stocked in anticipation of customer
demand. When a customer orders, the finished product is simply pulled off the shelf
and shipped out. This type of model is often used for fast-moving consumer goods
(FMCG) like food and beverages, where customer demand is relatively easy to
predict.

The make-to-order (MTO) model is similar to MTS, but businesses only stock raw
materials or components instead of finished stocking goods. When a customer places
an order, the necessary components are pulled from inventory and assembled into a
finished product before being shipped out. This type of model is often used for
customized products or products with a long lead time, like furniture or big-ticket
items.

4. The Efficient Model

The efficient chain model is best for businesses that are in highly competitive
environments and must strive for high efficiency in their delivery logistics to retain a
competitive advantage. This model prioritizes proper inventory management and
maximizing output from production equipment and labor. General Mills uses an
efficient chain model as it develops products relatively similar to its competitors and
sells to the exact same audience as the competition. With tight competition and thin
margins in the breakfast cereal market, General Mills knows that a lot of its profit
will be found in reducing costs along the supply chain while ensuring vendors can
keep their products in stock.

5. The Agile Model

There are four components a supply chain must have to be considered an agile
model: virtual integration, process alignment, a network base and market sensitivity.
Virtual integration requires the business to track market demand changes in real
time. Process alignment is about sharing supply chain responsibilities across the
business. This is achieved by keeping a co-managed inventory, utilizing
collaborative product design and running all parts of the supply chain in sync with
each other. Network-based means that an equal contribution is made by every actor
in the supply chain. The market sensitivity component changes the rate of
production immediately with any changes in demand. This model is a great fit for
businesses that exist in markets with a high degree of demand variation. Such is the
case for fashion company ZARA. ZARA exhibits agility by keeping its designers
vigilant in the spotting of new trends. As soon as ZARA’s designers identify a
potential trend, they immediately draw up sketches and order new materials.

6. The Custom-Configured

A custom-configured supply chain model is designed specifically for a company’s

individual needs. This type of model takes into account the specific products,
services, and materials that a company uses, as well as the unique way in which its
supply chain operates. Custom-configured models are often used by companies with
very complex or unique supply chains, such as the automotive or aerospace
industries.

There are several benefits to using a custom-configured supply chain model:

 1. It ensures that a company’s supply chain is optimized specifically for its
products and processes.
2. It allows a company to take into account changes in its business environment,
such as new legislation or market conditions.
3. Custom-configured models can be adapted over time to reflect changes in a
company’s business model or operations.

The downside of custom-configured models is that they can be very expensive and
time-consuming to develop. In addition, they require close collaboration between the
modeling team and the company’s decision-makers to succeed.

7. The Flexible Model

The Flexible Model is a type of supply chain model designed to adapt to changing
conditions. This model focuses on flexibility in all aspects of the supply chain, from
manufacturing to distribution. The Flexible Model aims to provide a greater level of
customer service while still being able to respond quickly to changes in demand.

Many businesses use the Flexible Model as their primary supply chain model. The
Flexible Model allows businesses to keep inventory levels low, which can reduce
costs and increase profits. This model is especially popular in industries where
demand can change rapidly, such as the fashion industry.

The biggest advantage of the Flexible Model is its ability to adapt to changing
conditions. This flexibility can help businesses avoid stockouts and disruptions in
the supply chain. The Flexible Model can also help companies to save money by
reducing the need for safety stock.

There are some challenges associated with using the Flexible Model as your primary
supply chain model:

1. This model requires close coordination between all supply chain members.
This can be difficult to achieve, especially if your suppliers are worldwide.
2. This model can be expensive to implement since it requires more resources
and infrastructure than other models.
3. The Flexible Model may not be suitable for all types of products or
businesses; for example, it may not work well for products with long lead
times or high levels of customization.
12)b)REPLISHMENT POLICY:

The two processes of replenishment and inventory are closely related. The
inventory planning process establishes the optimal inventory levels that
must be maintained to meet expected service levels for demand
fulfillment. What does that exactly mean? To understand we need to
explore the replenishment (or re-ordering) process. In doing so, we will
also establish the decision parameters an inventory planning process
provides for the replenishment to work at its most optimal levels.

 Replenishment or Reordering
Reordering or replenishment process needs to define review period for
reordering, and an ordering quantity. Then it needs the inventory
parameters to determine whether an order for replenishment should be
placed at the time of review or not. Based on how the review period and
order quantities are defined, there are a few options to drive the
reordering.

These terms refer to the frequency of review to determine when orders

must be placed for replenishment.

In the continuous review process, the inventory levels are continuously

reviewed, and as soon as the stocks fall below a pre-determined level
(usually called, reorder point, or reorder level), replenishment order is
placed. As more and more companies start using sophisticated IT systems
to track their inventories in real-time, the continuous review method
becomes a viable and optimal way to plan for replenishment.

Under periodic review, the inventory levels are reviewed at a set

frequency. At the time of review, if the stock levels are below the pre-
determined level, then an order for replenishment is placed, otherwise it is
ignored till the next cycle. This method provides a viable process
alternative to the continuous review by segmenting the merchandise into
review buckets. This makes it easier to manage when the process is
manual, or the number of items involved is extremely large, or when
constraints on ordering-day exist.
  Order Quantity and Order up-to Level
These terms refer to the process that is used to determine how much is
ordered when a replenishment order is placed.

In the first process, the “order quantity” is fixed. If the review determines
that an order should be placed, then the order for a pre-defined quantity
for that item-location combination is placed for replenishment. The order
quantity for all replenishment orders is fixed in this method, though order
day may vary or may be fixed depending on the review method.

The second process defines a pre-determined “order up-to level” instead.

The actual order quantity is determined as the difference between the on-
hand stock on the review day, and the pre-determined “order up-to level”.
The order quantity in this process will differ from one order to another
depending on the on-hand quantity on the day of the review.

Between these two sets of parameters, four basic reordering process

options become available.

 Options for Re-ordering Process

Based on the above two parameters, the reordering process can be
deployed in the four basic ways. The diagrams below depict these
variations of the process.

Four inventory replenishment strategies

 Reorder point strategy

If you use the reorder point strategy, you select a stock level that signals
when it’s time to reorder inventory. For instance, if you stock 1,000
pillows, you may set your reorder point to when 200 pillows remain in
your inventory.

Now that you have your minimum, you need to set a maximum inventory
level to prevent overstock. Inventory levels are continuously reviewed to
trigger replenishment (either re-ordering or re-stocking) when inventory
falls below the minimum threshold.

When determining how much to reorder, take your minimum (200) and
subtract it from your max (1,000), which results in an order quantity of
800 pillows.

You’ll need a robust IT system to be able to continuously monitor your

inventory in real-time.

 Periodic strategy
With the periodic strategy, inventory is replenished at specific intervals.
For example, every three months, you look at the levels to see if they
need replenishing. If the inventory levels are still fine, then you don’t
reorder anything.

Even if your inventory runs out before that point, using a periodic
strategy, you would not re-order until the cycle ends. Replenishment
orders are placed only at the pre-determined review points.

 Top-off strategy
The top-off replenishment strategy, also known as lean time
replenishment, takes advantage of times when picking operations are slow
to bring stock to acceptable levels in forward pick locations. During these
down times, each fixed picking location is filled to capacity using
minimum and maximum thresholds similar to the min/max replenishment
strategy.

The top-off replenishment strategy works well for businesses that have
short picking windows, such as those with high-demand, high-velocity
SKUs. By taking advantage of slow demand periods to top off inventory
levels in forward pick locations, this strategy helps to improve efficiency
during peak periods.
  Demand strategy
Many businesses use the demand strategy for inventory replenishment.
It’s simple and straightforward: replenishment is based on demand.
Restocking or reordering is limited only to what’s needed to fill orders.

This, too, requires careful planning to ensure you’re prepared for future
demand fluctuations.

You’ll need to have a safety stock to make your business agile enough to
meet these changes in demand. Safety stock is a stock buffer that allows
your business to adapt to random fluctuations in supply and demand,
lowering the risk of stockouts if there’s a sudden spike in demand.

Reference book:
https://base-logistique-services.com/storage/app/media/
Chopra_Meindl_SCM.pdf