Post on 23-Oct-2014
Logistics & Supply Chain Management
K.S.Srinivasa murty 12th February 2005
IM5M/KSSM2
Agenda
• Review the role and relevance of Supply Chain Management and its historical evolution.
• Importance of strategic fit between the product market scope / product type and Supply Chain Management and steps to achieve it.
• Role of Logistics Service Providers
• Brief over view of an Indian Case
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Success in business today is all about
‘Delighting’ the customer and growing
profitably
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• Enhancing Customer Satisfaction.
• Reducing Working Capital
• Ensuring cost-effectiveness
• Improving competitiveness, being ahead of competition
So, The Thrust Is On...
To be ahead of competition we need to be
*Fast *Economical *Dependable
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The Traditional Vision of Supply Chain Constrained Itself to the Boundaries of an
Organization
Purchase
Production
Inventory /Warehousing
Transportation
SOURCESOURCE MAKEMAKE MOVEMOVE STORESTORE SELLSELL
This approach was however inward looking
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An Evolved Definition of the Supply Chain Web Emerged in the Last Decade
Collaboration and Quick Response ( QR)Collaboration and Quick Response ( QR)
•Collaboration with partners
•Rapid Response
•Information visibility
•Shortened product life cycles
•Time to market (SPEED)
•Product variety proliferation
New ResponsesKey Challenges
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A Supply Chain means more than physical flow of goods
Physical FlowPhysical Flow
Fiscal FlowFiscal Flow
Information FlowInformation Flow
Supply chain has 2 critical functions
Physical function Market Mediation Function
Ensure that the variety/ supplies match what customer wants to buy.
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Supply Chain Excellence Supports the Realization of the Strategic
Objectives of a Business, Through…..
• Reduced Costs (C)
• Shorter Lead Time (T)
• Best Quality (Q)
• Flexibility (F)
• Enhanced Service (S)
• Better Product availability
& reliability (R)
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Strategic Fit Is Critical
• A company must ensure that its supply chain capabilities support its ability to to satisfy the targeted customer segments.
• Depending on the market segments targeted, the company will focus on either
– Functional Products, or– Innovative products.
The supply chain design would vary depending
on the nature of the product / market segment.
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Comparison Of Efficient And Responsive Supply Chains
Efficient supply chain Responsive supplychain
Primary goal Supply demand atlowest cost
Respond quickly todemand
Product designstrategy
Maximizeperformance atminimum productcost
Create modularity toallow postponement ofproduct differentiation
Pricingstrategy
Lower margin / priceis prime customerdriver
Higher margins / pricenot prime customerdriver
Manufacturingstrategy
Lower costs throughhigh utilization
Maintain capacityflexibility to meetunexpected demand
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Comparison Of Efficient And Responsive Supply Chains
Efficient supplychain
Responsive supplychain
Inventorystrategy
Minimize to lowercost
Maintain bufferinventory to meetunexpected demand
Lead timestrategy
Reduce, but not atthe expense of cost
Aggressively reduceeven if the costs aresignificant
Supplierstrategy
Select based oncost and quality
Select based onspeed, flexibility andquality
Transportationstrategy
Greater reliance onlow cost modes
Greater reliance onresponsive modes
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Strategic Fit
Mature
Effective supply Chain
Responsive supply chain
Functionalproducts
Innovative products
Match
Mismatch
Mismatch
Match
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Efficient Supply Chain
Strategic Fit : Establish the differentiators for each class of
products.
Invest / Divest
Future Products
Responsive Supply Chain
Mature Star Performers
Service/ Responsiveness Focus
Cost
Focus
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Some Illustrative Conversion(manufacturing) Policies
Could Be...
Invest / Divest
• Opportunistic capacity
Mature Products
• Dedicated lines• Large Batch Sizes• Large inventories
Future Products
• Small batch sizes• Large capacities that
are product substitutable
Stars
• High speed dedicated lines
• Focus on non-service cost drivers
• Inventory as decoupler
Service/ Responsiveness Focus
Cost
Focus
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An Illustration of Strategic Fit : The Dell Experience
In 1994, a struggling second-tier PC maker; manufactured to inventory.
Implemented a new business model
Converted operations to a build-to-order process Eliminated inventories through a just-in-time system Sold its products directly to consumers
Results were spectacular
Went far beyond the simple pursuit of efficiency and asset productivity
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An Illustration of Strategic Fit : The Dell Experience
• Other strategies like product development strategy
– Dells’ new product development strategy emphasized designing products that are easily customizable, which may include designing common platforms across several products and using common components.
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Supply Chain Excellence…
Supplier network
DELL FACTORY (Ireland)
Web site
Call center
1
1
1
11. The customer orders via Dell’s
web site or by calling Dell’s call center
2. DELL relays the order to its network of suppliers, specifying number and types of hard-drives, motherboards, modems, …, that are needed and when
2
3
3. Suppliers ship all required goods back to Dell’s assembly line.
At all times, suppliers have real-time
access to information about Dell’s orders, which enables them to ensure their production line is moving smoothly.
44. Dell assembles all parts within a few
hours
Customer network
5
5. Dell ships the custom-built PC to the customer. At all times customers can track the progress of their order via Dell’s web site
Sells $15m worth of computers from its website each Sells $15m worth of computers from its website each dayday
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Supply Chain Excellence…
“Its not just that we sell direct, it’s also our
ability to forecast demand - It’s both the design
of the product and the way the information from
the customer flows all the way through
manufacturing to our suppliers.”
- Michael Dell (Source: HBR, March/April 1998)
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Avoiding the vicious spiral of Supply Chain inefficiency will require
• Partner Collaboration ( information sharing w.r.t demand patterns, pipe line inventory)• Tracking demand variability through more effective forecasting and demand
communication• Synchronisation at all points of commit in a supply chain
BuyBuy MakeMake MoveMove SellSell
SuppliersSuppliers FactoriesFactories Depots/CFA’sDepots/CFA’s DistributorsDistributors Retailers/customer’sRetailers/
customer’s
Partner Collaboration is crucial to supply chain successPartner Collaboration is crucial to supply chain success
Use of Technology can catalyse and transform the supply chains
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Logistics Service Providers
• A 3PL ( logistics provider) is a company which has expertise in logistics management ( transportation, warehousing, inventory management, distribution, customer support and service).
• They are in the business of supplying / coordinating the logistics function across multiple links in the supply chain.
• They would have invested in technology that would allow them to manage information on consignment movement, billing, auditing and payment efficiently.
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Logistics Service Providers
• The use of such service providers can help a company to focus on its core business activities / core competencies and simultaneously benefit from the best practices of service providers to increase efficiency and flexibility of its supply chain.
• Success in 3PL arrangements would need a strategic alliance and a long-term commitment as it involves multiple functions / processes in the supply chain - like the design and operation of in-bound and outbound logistics, inventory management, customer service - on time delivery etc.
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Logistics Service Providers
• Asset owning 3PL :– Advantages : Economies of scope and scale due to the
infrastructure and systems in place and large customer base and human resources
– Disadvantages : They may tend to favor their own divisions in awarding work, be somewhat bureaucratic and longer decision making cycles.
• Non asset owning 3PL: – Advantages : More flexible and able to tailor services and the
freedom to size and match providers. They may also have low overhead cost and specialized industry expertise.
– Disadvantages : Limited resources and lower bargaining power.
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Outsourcing in SC: 3 PL and 4 PL
Warehousing Transportation Delivery Inventory control
Special Handling Requirement
Cost Control
Customer Service
Supply Chain Optimization
Value added Service
Change Management
+
Activities carried out by a traditional distributor
Activities carried out by 3 PL
+ + Activities carried out by 4 PL
SERVICES
Supply Chain Planning, Forecasting
Managing Upstream & Downstream Players
Workflow Management
Warehouse Management
Inventory Management
Transaction Management
Information Technology Management
Reverse Logistics Management
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3PL Successes – KPI Gains*
Reduced Inventory HoldingReduced Inventory Holding 10-20d10-20d 7-12d7-12d
Improved Lead TimeImproved Lead Time 48-24h48-24h 24-6h24-6h
Inventory AccuracyInventory Accuracy 80-90%80-90% 95-99%95-99%
ProductProduct AvailabilityAvailability 90-95%90-95% 95-99%95-99%
Picking AccuracyPicking Accuracy 98%98%99.5%99.5%
Pick/Pack Throughput per EmpPick/Pack Throughput per Emp 150-157150-157 225-250 225-250 OM/MA, OM/MA,
hh
Overall Throughput per EmpOverall Throughput per Emp 75-10075-100 125-150 125-150 OM/MA, OM/MA,
hh
Space UtilizationSpace Utilization 100%100% 70-70-80%80%
Reduced Damaged ProductsReduced Damaged Products 1-2%1-2% 0.1-0.5%0.1-0.5%
In-sourcedBaselines
OutsourcedResults
A Selection of Indicators
•Actual results from a 3PL outsourced program for an international beverage brand leader, August 2001, Malaysia
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Supply Chain Efficiencies in India
Performance Indicators All India Average(2000)
Cash to Cash Cycle Time 116.49 Days
Inventory Turnover 22.70 For FinishedGoods10.09 For Raw Material
Total Supply Chain ManagementCosts
26.4% of Gross Sales
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Some Best in Class and Median Performances in Supply Chain Management
• Cash - to - cash cycle time ( the number of days between paying for raw materials and getting paid for product)
– Best in class ..Best in class .. 30 days or less30 days or less– Median ..Median ..100 days100 days
• Delivery performance to request ( the % of orders fulfilled on or before customer’s request date)
– Best in class ..Best in class ..94%94%– Median …Median …69 to 81%69 to 81%
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Summary - Recap•In a business environment that requires more responsiveness and focus on the bottom line, supply chain performance management is vital to competitive advantage and sustainable business Improvement.
•Set in place SCM performance measurement matrices consistent with your strategic business goals
•Identify performance exceptions, understand issues and alternatives, act on high impact problems and opportunities and continuously validate actions relative to objectives and results.
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•By adopting such systems, companies have
increased responsiveness and customer
service, reduced inventory and procurement
costs and improved the utilization of production
and distribution assets. The benefits are
compelling & the path to success has been
validated.
•The time to act on supply chain performance
management is now.
Summary - Recap
Integrated Supply Chain Management
An Indian Case
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Supply Chain Strategy• Better customer service
– Daily Replenishment between Depots & factories
– Buffer Depots for “B” category SKUs– Reduced Response time / Fill rate
• Manufacturing Flexibility– Buffer Depots for “B” category SKUs
• Significant Reduction in Total Supply Chain Cost– Improved working capital management– Improved Fixed asset productivity– Driving down costs of materials - “win - win” for
strategic partners.
Leverage IT capabilities for on line data transfer / access and effective MIS
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Fact. 1 Fact.2
DC 1 DC 2 DC 3
Fact. 1 Fact.2
DC 1 DC 2 DC 3
Buffer Depot
Pre-Buffer
CentralisedProduction &
DespatchPlanning
Fortnightlyservice
3 wk. stock at JITs
DailyReplenishment.
DecentralisedDespatch Planning
5 days stock at JITs
Improved Servicing of “B” Category SKUs
Centralised Production Planning
Post-Buffer
Distributioncenters
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Supply Chain Strategy
• Manufacturing Focus on :
– Flexibility: A shift in focus from Production orientation to plan compliance• Reduced change over times dramatically to
enhance response time.
• Increased regionalized servicing of demand
– Quantum improvement in productivity through• Rationalization, restructuring, debottlenecking
and TPM
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Quest For Further Improvements
• Business drivers
• NPS Growth
• Profitability
Focus on supply chain to directly impact
the above
• IT enablers
• Availability of next generation IT Tools
• Improved Communication Infrastructure
• Advent of eCommerce
An End to End Supply Chain Solution
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Project Leap
An integrated Supply Chain System for Continuous Replenishment of RSs stocks
RS’s stock(Agreed norm)
Receipt of Goods from Depot/
Factory
(Replenishment)
Despatch to Trade
(Secondary Sale)
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Continuous replenishment Across the Extended Supply Chain
FactoryFactory BufferBuffer JIT DepotJIT Depot
FactoryFactory BufferBuffer JIT DepotJIT Depot RSRSSupplierSupplier
RS ( Redistribution Stockist) Connectivity
RS Connectivity : Objectives
• Main Objectives
– Facilitate replenishment based
primary sales
– Information and analysis of
secondary sales
• Secondary Objective
– Interactive communication with the
RS
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Continuous Replenishment System For RS
C & FAC & FA
RSRS
Automated Primary SalesAutomated Primary Sales
Stock Norms, Promotions
HLL RS NetHLL RS NetHLL RS NetHLL RS Net
Sales, StockSales, StockSales, StockSales, Stock
Sales systemSales system
Suggested order
Confirmed order
Confirmed RS Orders
Stocks
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Replenishment Planning
JIT Depot Buffer Depot
Factory
RSs
Central DSS
Direct Despatch Info.
Despatch Info
Orders
Stock,Receipt,Sale Despatch Plan
D
A
I
L
Y
Order Servicing
Order Servicing
Dispatches
Dispatches
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Back-end Supply Chain : Process Areas
• Operations Planner
• Source Network Optimizer
• Supply Chain Planner
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BACK - END PLANNING SYSTEM
JIT DepotBuffer
Factory
Supplier
Central DSSW
E
E
K
L
Y
D
A
I
L
Y
Activities
Annual Plan
Costs
Capacities
MRP
Operations Plan
Optimised Network
Weekly Production Plan
Central Purchase
ReplenishmentReplenishment
Exception Handling
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Logistics Management is a key part of Supply
Chain Management. The design and operation
of the Logistics impacts both costs and
responsiveness. Logistics Management
achieves efficiency and effectiveness through
a focus on - optimizing the network design,
improving demand forecasting , reducing the
cash to cash cycle time and leveraging IT for
information transparency all across the supply
chain.