1. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 -
6510(Online), Volume 4, Issue 3, May- June (2013)
8
AN EFFECTIVE WAY TO OPTIMIZE KEY PERFORMANCE
FACTORS OF SUPPLY CHAIN MANAGEMENT (SCM)
C. P. Aruna Kumari 1
, Dr. Y. Vijaya Kumar2
1
Research Scholar, JAIN University, Bangalore – 560 001
2
Prof. & Head, Dept. of Mechanical Engg, M V J College of Engg, Bangalore – 560067,
ABSTRACT
Supply Chain management has become a matter of survival for corporate to face the
competition and companies are exploiting various result oriented techniques to discover
optimum routes to reduce the costs on non value added activity i.e. transporting goods from
one point to another point in right time. Today the organizations are working very hard to
supply right product in right time to the customers, by taking the help of researchers with
scientific techniques. Even though Supply Chain is broadly divided into outward and inward
supply chain and initially for years, researchers have concentrated mainly on the
manufacturing rather on supply chain. But recently there has been increasing attention on the
performance, design and analysis of the supply chain. In today’s competitive scenario,
managing supply chain has become complicated mainly to monitor thousand’s of external
data points and made the organizations prepared to react quickly and automatically across the
entire supply chain. Effective managing of supply chain speeds time to market reduces
inventory levels and lower’s overall costs. This research paper focuses on optimizing
performance of outward Supply Chain by optimizing the critical parameters which influences
the performance.
Keywords: Key Performance Factors, Lagrangean Method, Supply Chain, Effectiveness
1.0 INTRODUCTION
“A supply chain is the process of moving goods based on the customer order, through
the raw materials stage, supply, production and distribution of products to the customer”
"A set of processes and sub-processes which attempt to implement and optimize the
functions, connected entities, and interacting elements of a supply chain"
INTERNATIONAL JOURNAL OF MANAGEMENT (IJM)
ISSN 0976-6502 (Print)
ISSN 0976-6510 (Online)
Volume 4, Issue 3, (May - June 2013), pp. 08-13
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2. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 -
6510(Online), Volume 4, Issue 3, May- June (2013)
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A recent global survey done by ‘Deloytte & Touche’ showed that more than 66% of
respondence indicated electronic links has tools to enhance supply chain relationships. In the
available scanty literature, wide arrays of technological tools are available to optimize the
supply chains. The right supply chain modeling tool can help to squeeze cost and inventory
out of the supply chain while improving service to customers. Modeling tools that can help to
optimize supply chains have been around for years. But recently they’re getting increased
attention because of their lower cost and greater capability, coupled with companies’ quests
for improved supply chain performance. A variety of modeling tools are available today. The
right type of model for optimizing the supply chain begins with understanding the
environment in which an organization works and how often there is a need to change the
supply chain. Dynamic environments have products with short life cycles, or use segmented
customer fulfillment with multiple service levels, lead times and fulfillment methods require
more frequent supply chain reconfiguring.
Benita M. Beamon1
in the paper explained the supply chain management has an
important role to play in moving goods more quickly to their destination. SCM is a
management process that deals with inbound and outbound flows, from the perspective of the
focal organization, its suppliers, and its customers. A supply chain is comprised of two basic,
integrated processes: (1) The Production planning and inventory Control process (2) the
Distribution and logistics process.
These processes interact with one another to produce an integrated supply chain. The
design and management of these processes determine the extent to which the supply chain
works as a unit to meet required performance objectives. Some of the consequences of supply
chain integration result in Reduced inventory at all sites of the supply chain, reduced cost,
faster processing speeds, reduced lead times, reduced warehouse costs, reduced obsolescence,
greater responsiveness to customer changes, electronic links to suppliers and customers,
continuous flow of products and information, speeding up the development cycle.
2.0 LITERATURE REVIEW
The importance of performance measurement in the context of SCM cannot be
overstated. Timely and accurate assessment of overall system and individual system
component performance is paramount. An effective performance measurement system

3. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 -
6510(Online), Volume 4, Issue 3, May- June (2013)
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provides the basis to understand the system, influences behavior throughout the system, and
provides information regarding the results of system efforts to supply chain members and
outside stakeholders. In effect, performance measurement is the glue that holds the complex
value-creating system together, directing strategic formulation as well as playing a major role
in monitoring the implementation of that strategy. In addition, research findings suggest that
measuring supply chain performance in and of itself leads to improvements in overall
performance.
Despite its importance, supply chain performance often was measured in
oversimplified and sometimes counterproductive (cost-reduction-based) terms. Lack of an
appropriate performance measurement system has been cited as a major obstacle to effective
supply chain management.
In today’s competitive scenario, supply chain management has assumed broader
dimension with the coming of the technology. Today it is seen that SCM is a planning and
control of the flow of goods and material from the original supplier through multiple
production and logistic operations to the ultimate consumer. Hence to meet the expectations,
SCM today embraces multiple technologies like ERP, advanced planning and scheduling
systems, E-commerce and logistics, execution system supported by business intelligence
tools. The ultimate objective is to meet customer demand effectively and efficiently.
3.0 METHODOLOGY
After thorough literature review and discussions with the concerned researchers, the
following steps are identified to continue the research work. An attempt has been made in this
work to inculcate analytical techniques along with modeling the SCM problem.
3.1 AREA OF STUDY
Even though the Supply Chain Management has been broadly classified into two parts
like Inward and outward, a small contribution is made towards optimizing the outward supply
chain performance, since the outward has lot of constraints and uncertainties compared to the
inward supply chain where everything is in the hands of the organization. The present work
focuses on optimizing performance of outward Supply Chain by optimizing the critical
parameters which influences the performance. The researcher has made an attempt to
optimize the performance of the supply chain by taking a chain with 5 points by identifying
the nearest route to deliver the goods with the help of OR Technique.
3.2 PROBLEM IDENTIFICATION
The problem is identified and all the parameters which have influence on performance
of supply chain either through the literature survey or by collecting the information from the
corporate are collected. In this case the objective of the problem and the constraints are
identified. The secondary data may be required for identifying the problem. This may involve
the following:
Diagnosis of the problem from its symptoms if not obvious (i.e. what is the
problem)
Delineation of the sub problem to be studied. Often we have to ignore parts of
the entire problem.
Establishment of objective, limitations and requirements.

4. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 -
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3.3 PROBLEM FORMULATION
The problem can be modeled in different ways, and the selection of an appropriate
model may be crucial to the success of the problem. In addition to algorithmic considerations
for solving the model, the availability and accuracy of the real-world data that is required as
input to the model also must be considered. Note that the "data barrier" can appear here,
particularly if people are trying to block the project. Often data can be collected / estimated,
particularly if the potential benefits from the project are large enough. In this case a clear
formulation is expected, where the objective function and the constraints are identified. An
attempt also will be made to explore the various techniques to solve the same. In this
Research, an attempt has been made to minimize the total Supply chain model cost
(Outbound) for the given constraints. The costs like Transportation, Carrying, Ordering and
Information Costs are the constraints in the problem, which will be minimized without
disturbing the supply chain. After formulating the problem with the objective function and
constraints, the same may be solved using the Lagrangian Method for getting initial solution.
After reviewing the solution, the fine tuning of the solution will be done to suit the
organization needs. The initial Supply chain model is as follows:
Total Supply Chain Cost = Order handling costs +Inventory costs + Warehousing costs +
Transport costs + Information costs
Equation
Objective Function: Minimize Z = α + β1(Tc) + β2(Op) + β3(Vc) + β4(Wc) + β5(Ic) +e
Where α = constant
Tc = Transportation cost = No. of units x Transport cost per unit
Op = Order Processing cost = No. of orders x Order cost per order
Vc = Inventory carrying cost= No. of Units x Storing cost Per unit
Wc = Warehousing cost= No. of Units x Warehouse cost per unit
Ic = Information Cost= Cost spent on collection of Information
β1, β2, β3, β4, β5, are the associated output elasticities and e represents the error term.
Since the numbers of variables are more than the number of constraints, the problem
becomes complex that to without assuming zero for any variable makes still complex, hence
the Lagrangean Method is the only mathematical technique is used for solving by using
MATLAB for the initial solution. Operation Research technique is used for fine tuning the
solution to meet the expectations of the organization.
3.4 MODEL VALIDATION
Model validation involves running the algorithm for the model in order to ensure:
Input data is free from errors.
Results from the algorithm seem reasonable (or if they are surprising we can at
least understand why they are surprising). Sometimes we feed the algorithm
historical input data (if it is available and is relevant) and compare the output
with the historical result.

5. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 -
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3.5 SOLUTION OF THE MODEL
Specially developed algorithms, can be used to solve the model. In practice, a
"solution" often involves very many solutions under varying assumptions to establish
sensitivity.
3.6 IMPLEMENTATION
This phase may involve the implementation of the results of the study or the
implementation of the algorithm for solving the model as an operational tool. In the first
instance, detailed instructions on what has to be done (including time schedules) to
implement the results must be issued. In the second instance, operating manuals are used as
one of the algorithm and an operational tool. Hence form above steps; we can conclude that
the first step, understands a model, the assumptions made to represent the system
mathematically or in a simulation. The next step can be to understand the uncertainty and
variability used to build the model.
4.0 CONCLUSION
Supply chain performance measurement is vital for a company in order to survive in
today’s competitive business environment. Supply chain performance measurement should be
a business-critical process, driven by metrics and supported by business intelligence. With
increasing competition and changing market forces, tapping into this critical asset is essential
in sustaining competitive advantage in the global space. The models and methods used to
accurately study the systems are, expectedly, complex. However, if supply chain systems
could be classified on the bases of specific characteristics, such as uncertainty or volume of
demand, number of echelons, or number of items produced, there may be rule-of-thumb
techniques that suggest operational characteristics that may achieve a certain objective (or set
of objectives). Based on review of literature we can concentrate on particular characteristics
like uncertainty, risk or certainty of supply chain and we can device a model for optimization
of key factor in that area.
5.0 REFERENCES
1. Benita M. Beamon, titled “Supply Chain Design and Analysis: Models and Methods”
International Journal of Production Economics (1998), Vol. 55, No. 3, pp. 281-294
2. M.P Shyam, titled, “Heuristic modelling approach for inbound and outbound logistics
system of an automobile supply chain network” International Journal of Social
Sciences and Humanities, Vol. 1, June 2012, pp.1-7.
3. Rohit kumar Mishra, titled, “Measuring Supply Chain Efficiency: A DEA Approach”
Journal of Operations and Supply Chain Management, Volume 5, Number1, Jan – Jun
2012, 45 – 69.
4. A.D. Sarode, V.K.Sunnapwar, P.M.Khodke, titled, “A Literature Review for
Identification of Performance Measures for Establishing a Framework for
Performance Measurement in Supply Chains”, The International Journal of Applied
Management and Technology, Vol 6, Num 3.
5. Hai Lu & Yirong Su, titled, “An approach towards overall supply chain efficiency”
School of Economics and Commercial Law, December 2002.

6. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 -
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6. Rui Fernandes, Joaquim B. Gouveia, Carlos Pinho, titled, “Overstock – A Real
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