43382873 Supply Chain Management

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SUPPLY CHAIN MANAGEMENT

What is Supply chain management?

A supply chain is the group of components (suppliers, distribution points,

transportation providers) necessary to bring your product from its raw material stateto the end user.

Supply chain management is the term used for controlling and regulating your supplychain.

A simple supply chain model consists of four components:

Supply chain management (SCM) is the oversight of materials, information, and financesas they move in a process from supplier to manufacturer to wholesaler to retailer toconsumer. Supply chain management involves coordinating and integrating theseflows both within and among companies. It is said that the ultimate goal of any effectivesupply chain management system is to reduce inventory (with the assumption thatproducts are available when needed).

Effective supply chain management: Traditionally, marketing, distribution, planning, manufacturing,

and purchasing organizations operated independently along the supply chain. These organizations

Supplier supplies the raw materialsManufacturer produces the productWarehouse or Distribution Center stores and ships the productEnd User receives the product

2

Sources Converters

Retailers

Suppliers Distributors Consumers

Product and Service Flow

Information Flow

Funds Flow


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functioned with their own objectives which were often conflicting. Supply chain management is a

strategy through which such integration can be achieved.

History

The 1980s the term Supply Chain Management (SCM) was developed, to express the need to integrate

the key business processes, from end user through original suppliers.The basic idea behind the SCM isthat companies and corporations involve themselves in a supply chain by exchanging information

regarding market fluctuations, production capabilities.

GOAL OF SUPPLY CHAIN MANAGEMENT

GOAL

To reduce organization in efficiencies

The process of coordinating activities among

SUPPLIER PRODUCTION FACILITIES DISTRIBUTION CENTRES AND CUSTOMERS

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Components of SCM

1. PlanThis is the strategic portion of SCM.A big piece of SCM planning is developing aset of metrics to monitor the supply chain so that it is efficient, costs less and delivers highquality and value to customers.

2. SourceNext, supply chain managers must develop a set of pricing, delivery andpayment processes with suppliers and create metrics for monitoring and improving therelationships. And then, SCM managers can put together processes for managing theirgoods and services inventory, including receiving and verifying shipments, transferringthem to the manufacturing facilities and authorizing supplier payments.

3. MakeThis is the manufacturing step. Supply chain managers schedule the activitiesnecessary for production, testing, packaging and preparation for delivery. This is the mostmetric-intensive portion of the supply chain.

4. DeliverThis is the part that many SCM insiders refer to as logistics, where companiescoordinate the receipt of orders from customers, develop a network of warehouses, pickcarriers to get products to customers and set up an invoicing system to receive payments.

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5. ReturnThis can be a problematic part of the supply chain for many companies. Supplychain planners have to create a responsive and flexible network for receiving defectiveand excess products back from their customers and supporting customers who haveproblems with delivered products.

SUPPLY CHAIN MANAGEMENT FLOWS

It can be divided into three main flows:

The product flow includes the movement of goods from a supplier to a customer,as well as any customer returns or service needs.

The information flow involves transmitting orders and updating the status ofdelivery.

The financial flow consists of credit terms, payment schedules, and consignmentand title ownership arrangements.

Elements of the Supply Chain

A simple supply chain is made up of several elements that are linked by the movementof products along it. The supply chain starts and ends with the customer.

Customer: The customer starts the chain of events when they decide to

purchase a product that has been offered for sale by a company. The customercontacts the sales department of the company, which enters the sales order fora specific quantity to be delivered on a specific date. If the product has to bemanufactured, the sales order will include a requirement that needs to befulfilled by the production facility.

Planning: The planning department will create a production plan to producethe products to fulfill the customers orders. To manufacture the products thecompany will then have to purchase the raw materials needed.

SUPPLY CHAIN MANAGEMENT FLOW

The productflow The informationflow The financesflow

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Purchasing: The purchasing department receives a list of raw materials andservices required by the production department to complete the customersorders. The purchasing department sends purchase orders to selectedsuppliers to deliver the necessary raw materials to the manufacturing site onthe required date.

Inventory: The raw materials are received from the suppliers, checked for

quality and accuracy and moved into the warehouse. The supplier will thensend an invoice to the company for the items they delivered. The raw materialsare stored until they are required by the production department.

Production: Based on a production plan, the raw materials are movedinventory to the production area. The finished products ordered by thecustomer are manufactured using the raw materials purchased from suppliers.After the items have been completed and tested, they are stored back in thewarehouse prior to delivery to the customer.

Transportation: When the finished product arrives in the warehouse, the

shipping department determines the most efficient method to ship theproducts so that they are delivered on or before the date specified by thecustomer. When the goods are received by the customer, the company willsend an invoice for the delivered products.

Supply Chain Management LEVELS

To ensure that the supply chain is operating as efficient as possible and generating thehighest level of customer satisfaction at the lowest cost, companies have adopted SupplyChain Management processes and associated technology. Supply Chain Management has

three levels of activities that different parts of the company will focus on: strategic;tactical; and operational.

Strategic

Strategic network optimization, including the number, location, and size ofwarehouses, distribution centers, and facilities

Strategic partnership with suppliers, distributors, and customers, creatingcommunication channels for critical information and operational improvements such

as cross docking, direct shipping, and third-party logistics Product lifecycle management, so that new and existing products can be optimally

integrated into the supply chain and capacity management Information Technology infrastructure, to support supply chain operations Where-to-make and what-to-make-or-buy decisions

At this level, company management will be looking to high level strategic decisionsconcerning the whole organization, such as the size and location of manufacturing sites,partnerships with suppliers, products to be manufactured and sales markets.

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Tactical

Sourcing contracts and other purchasing decisions. Production decisions, including contracting, scheduling, and planning process

definition. Inventory decisions, including quantity, location, and quality of inventory. Transportation strategy, including frequency, routes, and contracting. Benchmarking of all operations against competitors and implementation of best

practices throughout the enterprise. Milestone payments Focus on customer demand.

Tactical decisions focus on adopting measures that will produce cost benefits such asusing industry best practices, developing a purchasing strategy with favored suppliers,working with logistics companies to develop cost effect transportation and developing

warehouse strategies to reduce the cost of storing inventory

Operational

Daily production and distribution planning, including all nodes in the supply chain. Production scheduling for each manufacturing facility in the supply chain (minute byminute). Demand planning and forecasting, coordinating the demand forecast of all

customers and sharing the forecast with all suppliers. Sourcing planning, including current inventory and forecast demand, in

collaboration with all suppliers. Inbound operations, including transportation from suppliers and receiving inventory. Production operations, including the consumption of materials and flow of finished

goods. Outbound operations, including all fulfillment activities and transportation to

customers. Order promising, accounting for all constraints in the supply chain, including all

suppliers, manufacturing facilities, distribution centers, and other customers.

Decisions at this level are made each day in businesses that affect how the products movealong the supply chain. Operational decisions involve making schedule changes toproduction, purchasing agreements with suppliers, taking orders from customers andmoving products in the warehouse.

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Benefits of SCM

Companies implementing Supply Chain Management may realize benefits of SCM as:

Reduced inventory

Reduced distribution costs

Reduced time to market

Reduced market risks through effective co-ordination and communication

Improved quality of product/service

Improved inventory management

Increased ability to implement just-in-time delivery

Increase in on-time deliveries

Increased factory responsiveness

Order cycle time reduced

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Increased revenue

Increased visibility of processes

Increased customer service

Create competitive advantage

Supply Chain Management Technology

If a company expects to achieve benefits from their supply chain management process,they will require some level of investment in technology. The backbone for many largecompanies has been the vastly expensive Enterprise Resource Planning (ERP) suites, suchas SAP and Oracle.

Since the wide adoption of Internet technologies, all businesses can take advantage ofWeb-based software and Internet communications. Instant communication betweenvendors and customers allows for timely updates of information, which is key inmanagement of the supply chain.

ISSUES TO SUPPLY CHAIN MANAGEMENT SUCCESSSupply chain success just doesn't happen. It takes focus and effort across the entire company

organization and with outside suppliers and service providers. Logistics touches every part of a

company. So supply chain management must be multidimensional in its approach and scope. And this

takes process, people and technology. This is true whether you are a wholesaler, retailer ormanufacturer. And it is true if you are lean and need to be agile, flexible and collaborative.

Supply chains can be long and complex, stretching between different countries. A firm may have many

customers, each with different order and shipment requirements and destinations.

PROCESS. Process means a practice, a series of actions, done for a specific purpose, such as satisfying

customers.

Supply chain process is a flow of activities with the goal of meeting the requirements of a customer. It

includes all internal functions, logistics, distribution, sourcing, customer service, sales, manufacturing

and accounting. It includes external companies. The series flows backward--from delivering eachcustomer order each order as demanded back through the performance of suppliers to provide needed

finished products, components, parts and assemblies.

PEOPLE. People make organizations and are important to supply chain success. They need to havefunctional expertise and skills. They need to know how to manage and operate warehouses, inventory,

transportation, purchasing. They need both a tactical view for everyday business and a strategic vision of

where and how their function fits in the supply chain and how to make it better.

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TECHNOLOGY. Supply chain management is sometimes define, or incorrectly defined, in terms of

technology. Process can be defined as technology, with an overemphasis on hardware and software, andnot on the purpose of the process.

CONCLUSION. Supply chain success involves process, people and technology. It gives definition

to the company purpose. It enables all participants to know what is required. This in turn

provides agility to handle exceptions and to adapt to changes.

Having those three elements is important to having metrics, ones that are useful across the

organization. All three working together in a company provides coordinated, unified effort to use

supply chain management as a driving force in customer satisfaction and in having competitive

advantage, with service and productivity.

Over view of SCM

PEPSI COLA MULTAN

Pepsi Multan was incorporated in 1963 but it started its production in 1967. Allah Nawaz Khan

Tareen (Ret. DIG) got license of 7-UP. But in 1973, it became Pepsi Cola franchise. Now a day MD

of Pepsi Cola Multan is Alamgeer Khan Tareen son of Allah Nawaz Khan Tareen. At start Pepsi

Multan was having only one production plant made by Netherlands. and was only producing 7-Up

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because it was the only brand produced by Parent Company. In 1973, PEPSI acquired 7-Up in

Canada so the Multan franchise started producing PEPSI and Marinda along with 7-Up &

became PEPSI franchise.

PRODUCTS

PEPSI COLA

Pepsi cola is their most successful brand with most of the market share .In Pepsi they are producingfollowing brands

175 ml

250 ml

1000 ml

1500 ml

7-UP

7-Up is also popular in old age group of people. 7-Up is a lemon lime drink. In 7-Up they are producing

following brands

175 ml

250 ml

1000 ml

1500 ml

MIRINDA

Mirinda is the most popular drink in teenagers. In Mirinda they are producing following brands

250 ml

1000 ml

1500 ml

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MOUNTAIN DEW

Pepsi cola has recently launched a new product in Pakistan known as Mountain Dew which is now adays most popular cold drink amongst adult group. In Mountain Dew they are producing only one brand

250 ml bottle.

PEPSI INGREDIENTS:-

Water

At least 86% of soft drink is purified water. In the case of diet soft drinks water comprises around

96%.

Sweeteners

Such as sugar (sucrose from sugar cane) or non-nutritive sweeteners. Sugar is used in Pepsi, 7UP,Mountain Dew and Mirinda. The most popular and most widely non-nutritive sweetener used is

Aspartame.

Flavours

Pepsi uses flavors to develop characteristic tastes associated with our beverages. These come from avariety of sources; natural, artificial and nature identical. They are usually derived from a number of

ingredients used in special combinations.

Carbon Dioxide

Effervescence gives soft drinks their special bubbly appeal and is added

During production by injecting C02 into the product on the way to the filler.

Colors

Colors are added to Pepsi Cola products to enhance the esthetic appeal and appearance of products

whether they are the typical brown of our colas or the yellows of Mountain Dew.

These may be both natural and artificial.

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Understanding the Supply Chain of PepsiThe objective of every supply chain should be tomaximize the overall value generated. The value of asupply chain generates is the difference between what thefinal product is worth to the customer and the costs the

supply chain incurs in filling the customers request. (Chopra,Meindl2006)Supply Chain Strategy or Design:

During this phase a company decides how to structure the supplychain over the next several years. The company makes longterm decisions in regards to location and capacitiesof production and warehousing facilities, the products to be

manufactured or stored at various locations, the modes oftransportation to be made, information systems and so on.The company has to provide and manage transport for the delivery ofproducts as well as the arrangement of third party services for theprocurement of products. The shipping department handles orders andthe transport department decides the vehicles for safe delivery.Material planning and sourcing is carried out as well. Sources ofsupply of raw material both local and foreign are identified andterms and conditions are negotiated. Capacity planning is also

done at this stage. Sales forecasting and production planning dependsupon the capacity of the organization with respect to:

1. Production (180,000 converted 250 ML crates per day).

2. Storage: Raw and packing (80,000 Sq Ft)3.Storage:Supply Chain Planning

As the above configurations have been set, planning must be

done wi thin the above sta ted constraints. The goal of planningis to maximize the supply chain surplus. Planningestablishes parameters within which a supply chain will function overa period of time. Companies start the planning phase with a forecastfor the coming year of demand. Pepsi carries out sales forecasting forlocal demand as well as for export purposes to countries such as

Afghanistan. The annual sales target is conveyed to the supply chain

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department ofHaideri Beverages. Planning is carried out on amonthly, weekly and daily basis at Haideri..

Supply Chain Operation:

Company makes decision regarding individual customerorders. The goal of supply chain operations is to handle incomingcustomer orders in the best possible manner. During this phase,f irmsallocate inventory or production to individual orders, set a date that anorder is to be filled ,generate pick lists at a warehouse, allocate toshipping, set delivery and so on. There is less uncertainty aboutdemand. At Haidri, the production, sales and supply chaindepartments get together to decide the inventory usually on aweekly basis.

Process views of a supply chain:

Cycle View of Supply Chain:

1

. Cu st om er O rd er C yc le

Customer arrival

Customer order entry

Customer order fulfilment

Customer order receiving

2

. R ep le ni sh me nt C yc le

Retail order trigger

Retail order entry

Retail order fulfilment

Retail order receiving

3 Manufacturing Cyc le

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Order arrival

Production scheduling

Manufacturing and Shipping

Receiving

4

. Procurement Cycle

Supplier / Manufacturer interface

Push/Pull View of Supply Chain:With push process execution is initiated in anticipation to a customer

order. Pepsi has a seasonal demand. Just in time concept is applicablein non-seasonal period and not applicable in seasonal period. Allprocesses that are part of the procurement cycle, manufacturing cycle,replenishment cycle, and customer order cycle are push processes

.Pull Process:

Execution is initiated in response to a customer order

(increased responsiveness)

Push Process: Execution is initiated in anticipation to a customer

order (increased efficiency)

Push-Pull Boundary: Which processes are of each type

Push Systems MRP supported

Pull Systems Require fast information transmission and sharing

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Customer

Order

Replenishmen

t

Manufacturi

ng

Procurement

Pull

Push

Customer arrival

Customer order entryCustomer order fulfilment

Customer order receivingCCC

Retail order trigger

Retail order entry

Retail order fulfillment

Retail order receivingRRR

Order arrival from distributors

Production schedulingManufacturing and Shipping

Receiving (distributors, retailers,

customersc

Cycles


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Pepsi Sales order and processing:

The Shipping Manager receives sales order from Sales Team,distributors through telephone, fax & email one day before dispatch.The sales are made to base distributors on advance paymentagainst orders then shipping manager plans according to thedemand of distributors on daily basis

Marketing and Sales Strategies:PepsiCo has developed the national marketing, promotion andadvertising programs that support its many brands and brand image;oversees the quality of the products; develops new products andpackaging, and coordinates selling efforts

Supply Chain Strategy

Step 1:The Customer and Supply Chain Uncertaintya)Identifying customer needs:Haidri needs to understand the customer needs for each targetedsegment and the uncertainty the supply chain faces in satisfyingthese needs.As Haidri deals with beverages, which are a fast

moving consumer good, it knows the requirements of consumers.Pepsi is considered as a drink which is refreshing during summer,and taken regularly during winter, with demand hikin garoundfestivals such as Eid and occasions such as weddings. Haidricaters to both cities and rural areas. It understands the needs ofboth. As demand for beverages is seasonal, the quantity of productneeded for each lot is taken care of with past demand in mind.

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Consumers generally require a small response time, high servicelevel, reasonable price and some variety (for exampleHealth conscious people favor diet versions of sodas).

b) Demand uncertainty and implied demand uncertainty:Demand for Pepsi varies by product. For example there is agreater demand for Pepsi ascompared to Mirinda Apple,which is new. Hence, Pepsi has a low demand uncertainty ascompared to Mirinda Apple. The product Pepsi is approaching itsmaturity stage in the PLC whereas Mirinda Apple is in theintroductory stage. Pepsis implied demand uncertainty varies with theproduct type as well as the customer needs. Due to decreased leadtime (the customer may purchase its competitors product if Pepsiis not available at that time), need for greater variety and higherlevel of service, implied demand uncertainty increases. This is truefor cities where unmet demand by Pepsi is met by Coca Cola, andother such competitors. Su pp ly un ce rt ai nt y is al so af fe ct ed bynew products. New products have higher supply uncertainty.

c) Uncertainty for the capability of the supply chain:

After determining the demand uncertainty it is important totake a look at the uncertainty resulting form the supply chain.Pepsi is not a new product and its market is going towardsmaturation. The company does not have many difficulties in deliveringa product and has a fixed delivery schedule (on daily basis).Pepsi hence has a predictable supply and some.what

uncertain demand depending on market conditions.The efficiency and responsiveness varies according to theconsumer needs, implied demand uncertainty, product type andmarket segments. In remote areas the company focuses on beingsomewhat efficient as other modes of transportation couldturn the product to be highly expensive

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Pepsi is more inclined towards being somewhat efficient. In cities,the company focuses its attention on being highly responsive asPepsi has to meet short lead time, meet a high service level ,handle a large variety of products and respond to wideranges of quantity demanded especially at the

retail stage

Framework for Structuring Drivers:Figure

The framework is based on a motive to create strategic fitbetween the competitive and supply chain strategy. PepsiCompetitive strategy stands to provide a large variety of productsvery quickly; simultaneously the supply chain strategy stands tomaterialize the availability of that variety of products. Pepsimainly follows a responsive supply chain strategy. Alignmentof Pepsis business strategy to a corresponding supply chainstrategy is achieved through proper deployment of supply chain

drivers. Pepsi has to deal with different set of market segmentss imul taneously . Most o f the t ime the approach needs tobe res pon siv e e noug h t o g row substantially to be able tocompete with uncertain demand, while in many areasdemand is certain and very much predictable, so there it incorporatesan efficient supply chain strategy.

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The Inventory Driver:Haidri has established a comprehensive plan to ensure thesufficient inventory levels to keep up with the market demandeffectively. For this purpose the main inventory storagehas been established within the main plant area Kahuta

road, Rawalpindi. It has the storage capacity of 120,000 SqFt and the area is being utilized both horizontally andvertically. The shipping department is in charge for storage andsubsequent displacement of the product orders. The inventorycapacity is being util ized and maintained in coordination withthe production department and is based on the term productionestimates. Apart from the main storage house, Haidri hasestablished more than 10 storage facilities nearer to themarket in Rawalpindi and Islamabad. Increasing inventorymakes the supply more responsive to the customers. At HaidriBeverages, managers bear a high inventory cost to ensuremaximum levels of inventory and to reduce the production andtransportation costs.

The Transportation Driver:Transportation driver has a large impact on the

responsiveness of the bus iness . Fas ter transportation of theproducts allows Haidri to maintain sufficient levels of stock on theshelves. Haidris transportation network is the collection of routes,modes and locations along which the product can be shipped. With thehelp of several distributors the product is being supplied to the market.There are multiple supply and demand points within the twincities which cater to the market demand. Haidri decides andselects different modes of transportation having different

Characteristics with respect to the speed and size of shipment.The transportation network has been designed with a view to ensureresponsiveness and boost the availability of the product. ForHaidriusing fast mode of transport increases responsiveness as well as thetransportation cost but lowers the inventory holding cost.

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The Information Driver

Connects all the supply chain stages effectively allowing them tocoordinate and maximize total supply chain profitability. It is also

crucial to the daily operations of each stage in the supply chain.The unit manager utilizes the production scheduling system thatis based on information on demand to create a schedule thatallows Haidri Beverages to produce the right amount of product.The warehouse in charge uses this information to create visibilityof the warehouses inventory items. Information sharing helpsthis firm improve its responsiveness with in the market. It helpsto accurately forecast demand and realize frequency of updates,measurements of the effects of seasonal factors influencing theproduction, measurements of variances from the plan and the ratio ofdemand variability to order variability. Timely and accurateinformation enables the distribution managers to fix potential stock outor oversupply problems.

The Facility Driver

In order to ensure the responsive strategy implementation,

the role of facilit ies is of prime importance in the supplychain ofHaidri Beverages. Pepsi has established a flexibleand a product-focused production facility in order to respondeffectively to the variability in demand. The storage faciliti es aredesigned in order to provide maximum possible capacity forthe inventory. The large amount of excess capacity allows thefacility to be very flexible and to respond to wide surges indemands placed on it. In alignment with the responsive supply

chain strategy the facilities have been geographically located close tothe market.

Distribution ChannelsDirect distribution:

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Delivery of post mix cylinders & handling of key accounts: Thekey accounts are different wholesalers, restaurants and hotelslike Pizza Hut, KFC, and which serve as a place for key sale. Theseare known as national key accounts and are very important in terms ofcompetition.

Indirect distribution:

Through Base market distributors

Through Outstation distributors Before delivering the product somecertain guiding principles are followed for the assessmentof distributors capability by Haidri:

Applicant must have 20 to 25 vehicles (depending on the area

Applicant must have 20,000 cases of empty bottles.

Applicant must deposit Rs.1, 000,000 as a security. Haidri uses lightand heavy vehicles for safe delivery of goods to the distributorsfor timely delivery. It follows the just in time concept which isapplicable in Non-seasonal period and not applicable in the seasonalperiod.

Design Options for Distribution Network:

Distributor Storage with Carrier Delivery:In Pepsi inventory is not held by the manufacturers at thefactories but is held by distributors/retailers in intermediatewarehouses and package carriers are used to transport the productsfrom the intermediate location to the final customer. This requiresdistributor storage to keep high levels of inventory becausedistributor/retailer aggregates demand uncertainty to a lower level

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than the manufacturer. Transportation costs for Pepsi are somewhatlower because an economic mode of t ransporta ti on (e. g .t ruck load) can be employed for inbound sh ipments to thewarehouse, which is closer to the customer. Facility cost is highbecause of a loss of aggregation and often end up with higher

processing costs. The information structure needed is not thatcomplex. The distribution warehouse serves as a buffer betweenmanufacturer and customer. Real time visibility betweencustomers and warehouse is needed whereas as visibilitybetween customer and manufac turer is not requi red.Res pon se t im e i s a lso red uce d. Cus tom er convenience ishigh and order visibility with manufacturer storage becomeseasier. Distributor storage is well suited for medium to fastmoving goods and it can also handle higher level of variety thanretail stores.

Value of Distribution System:There are basically two components of distribution:

StorageThe storage facilities of Haidiri Beveragesare designed in order toboost the timely availability of the product. For this purpose the

distributors are fully equipped with facilities that are needed to ensureintensive supply of the product. The storage facilit ies aredesigned to con ta in the maximum possible inventory items that areneeded at any given time. Haidiri Beverages has establishedseveral storage units nearer to the market in order to boostavailability. Transportation conducts inventory movement from point topoint in supply chain ofHaideri Beverages. It incorporates acombination of modes and routes at different stages.

Transportation choices have a large impact on theresponsiveness strategy of the business.Haidiri has severalcontracts with several distributors with multiple transport facility thatensure the maximum possible transport of inventory within a shortperiod of time. The distribution does not work between speci f i csupply cha in components but i t per forms a bas ic funct ionof integration amongst all supply chain components.

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43382873 Supply Chain Management

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