MS-55 LOGISTICS AND SUPPLY CHAIN MANAGEMENT

An ISO 9001:2008 Certified Organization

MS-55LOGISTICS AND SUPPLY CHAIN MANAGEMENT

BLOCK-IAN OVERVIEW

UNIT-1INTRODUCTION

© Copyright PCTI Group 2009

LOGISTICSLogistics is the management of the flow of goods, information and

other resources, including energy and people, between the point of origin and the point of consumption in order to meet the requirements of consumers (frequently, and originally, military organizations). Logistics involve the integration of information, transportation, inventory, warehousing, material-handling, and packaging.

The term "logistics" originates from the ancient Greek "λόγος" ("logos"—"ratio, word, calculation, reason, speech, oration").

The Oxford English dictionary defines logistics as: “The branch of military science having to do with procuring, maintaining and transporting material, personnel and facilities." Another dictionary definition is: "The time related positioning of resources." As such, logistics is commonly seen as a branch of engineering which creates "people systems" rather than "machine systems"....


SUPPLY CHAIN MANAGEMENT• Supply chain management (SCM) is the process of planning,

implementing and controlling the operations of the supply chain as efficiently as possible. Supply Chain Management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.

• The definition one American professional association put forward is that Supply Chain Management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, Supply Chain Management integrates supply and demand management within and across companies


LOGISTICS ACTIVITIES• Customer service• Demand forecasting• Distribution communication• Inventory control• Material handling• Order processing• Parts & service support• Plant & warehouse site• Selection• Procurement• Packaging• Return goods handling• Scrap disposal• Traffic & transportation


LOGISTIC ELEMENT• Facility location: determining location, number &

size of facilities needed, allocation demand to facilities

• Transportation: Mode & service selection, carrier routing, vehicle scheduling

• Inventories: finished goods stocking policies, record keeping, supply scheduling, short term sales forecasting

• Customer service: cooperate with marketing in determining needs & wants for service, determining customer response to service.

• Order processing & information flow: sales order procedure, information collection, storage & manipulation, data analysis


LOGISTIC ELEMENTWarehousing & material handling: Space

determination, stock layout, material handling equipment selection, stock storage & retrieval, equipment replacement policies.

Protection packaging: design for- handling, storage, protection.

Product Scheduling: co-operate with product in specifying aggregate production quantities, sequencing & timing of production.


ROLE OF LOGISTICS IN THE ECONOMY

Logistics play a key role in the economy in two significant ways.

FIRST, logistics is of the major expenditures for business. It accounts for around for around 15-20% of GDP.

SECOND, As it support the movement and flow of many economic transactions; it is an important activity in facilitating the sales of virtually all goods & services.


Value Chain Modelfrom Michael E. Porter’s Competitive Advantage

Firm Infrastructure (General Management)Human Resource Management

Technology Development

Procurement

Inbound Logistics

Ops. Outbound Logistics

Sales & Marketing

Service and Support

PRIMARY ACTIVITIES

SUPPORT ACTIVITIES

Custom

er

Value

Cust

omer

Val

ue

Margin

Mar

gin


The goal of these activities is to create value that exceeds the cost of providing the product or service, thus generating a profit margin.

• Inbound logistics include the receiving, warehousing, and inventory control of input materials.

• Operations are the value-creating activities that transform the inputs into the final product.

• Outbound logistics are the activities required to get the finished product to the customer, including warehousing, order fulfillment, etc.

• Marketing & Sales are those activities associated with getting buyers to purchase the product, including channel selection, advertising, pricing, etc.

• Service activities are those that maintain and enhance the product's value including customer support, repair services, etc.

Any or all of these primary activities may be vital in developing a competitive advantage. For example, logistics activities are critical for a provider of distribution services, and service activities may be the key focus for a firm offering on-site maintenance contracts for office equipment.


Support ActivitiesThe primary value chain activities described above are facilitated by support activities. Porter identified four generic categories of support activities, the details of which are industry-specific.

• Procurement - the function of purchasing the raw materials and other inputs used in the value-creating activities.

• Technology Development - includes research and development, process automation, and other technology development used to support the value-chain activities.

• Human Resource Management - the activities associated with recruiting, development, and compensation of employees.

• Firm Infrastructure - includes activities such as finance, legal, quality management, etc.Support activities often are viewed as "overhead", but some firms successfully have used them to develop a competitive advantage, for example, to develop a cost advantage through innovative management of information systems.


SUPPLY CHAIN INTEGRATION

Supply chain integration links a firm with its customers, suppliers & other channel members. It integrates their relationships, activities, functions, processes & locations. The purpose is to improve the effectiveness & efficiency of SC for ultimate consumers.

A model of evolution of SC integrations starts with:

• BASELINEPurchasing<material control<production<sales<distribution


• FUNCTIONAL INTEGRATION

Materials management<manufacturing management<distribution management

• INTERNAL INTEGRATION

Materials management<manufacturing management<distribution management

• EXTERNAL INTEGRATION

Suppliers<internal supply chain<customers


PHYSICAL DISTRIBUTION MANAGEMENT

• Physical distribution management (PDM) is concerned with ensuring the product is in the right place at the right time.

• Physical distribution – Concerned with what happens to outbound goods as they move from the organization to its customers


Components of PDM

1. Order processing

2. Transportation

3. Inventory management

4. Warehousing

5. Materials handling


1. Order processing

• From placement of order till the customer receives the product

3 tasks that happen in a logical sequence– Order entry – by various means– Order handling – Physical goods, finance department– Order delivery – Mode of transport depending on

service level and product nature

Electronic Data interchange – EDI– Electronic data exchange of various business forms

such as order forms, financial reports, delivery notes.


1. Order processing


2. Transportation - Modes

1. Rail – mainly bulky items and large volumes over large distances. Relatively low cost depending on infrastructure

2. Road – Short distances and all categories but smaller weight / volumes. Flexible format and the delivery to the doorstep concept is popular.

3. Air – Expensive but gives fastest form over distance. Ideal for valuable lightweight small bulk goods and perishable goods

4. Pipelines – Effective and efficient after initial startup cost. Draw back is limited goods are suitable.

5. Water – Restricted to international trade in SAF. Lower cost bit relatively high risk. Suitable for big bulk goods were lead times are longer


2. Transportation - Modes


2. Transportation - Factors

1. Cost – Total cost of moving products from one location to another. Includes transport, levies, insurance.

2. Time – Time from when courier is notified to delivery at destination

3. Accessibility – Number of different location that can be reached by specific mode of Transport. Road is most accessible while pipe is least.

4. Capability – Ability to handle different types of goods.

5. Frequency – How often the mode of transport can be used.

6. Reliability – Ability to deliver goods safely and on time



Objective - is to minimize inventory cost

– 2 major issues – When to order inventory (Re-order point)

– How much to order (Economic order quantity)

Re-order point – Reached when an organization's inventory levels reach a certain minimum level. Important concepts to remember.

– Order lead time – time from placing order till receipt of order

– Usage rate – rate at which inventory is being used / sold during a specific time period.

– Safety stock – the amount of stock that is kept to ensure no stock outs.



“Just in time” – Right product arrives, in the right quantities just when they are required

Philosophy that eliminates waste in the manufacturing process– A system that produces the required item at the time and

in the quantities needed.– Inventory control philosophy whose goal it is to maintain

just enough material in just the right place at just the right time to make just the right amount of product.

– A Program that seeks to eliminate non value adding activities from any operation

The basis of JIT is the relationship between supplier and customer.


JIT vs.. Traditional approachJIT

• Ideal Inventory level is one unit

• Faster production than necessary is a waste

• Trade offs is bad. All they do is replace problems

• Safety stock is seen as waste

Conventional

• More is better• Faster production is

better• Scheduling and queuing

is essential production processes.

• Inventory provides safety• Inventory smoothes

production


4. Warehousing

Why do we have Warehouses?– Impossible for manufacturers to produce goods exactly when

required– Bulk production is more economical but bulk needs to be

stored

Functions of Warehouses– Receiving goods – Inventory is money and receiving of goods

needs to be seen as a financial activity– Sorting goods – To ensure appropriate inventory control goods

need to be allocated in predetermined positions– Storage of goods– Filling of orders – Warehouses are responsible for the making

up of order parcels– Dispatching orders – Sending out of Orders to customers


4. Warehousing• Warehousing decisions

– How many are needed?– What types of

Warehouses?– Location of Warehouses

• Types of Warehouses– Private Warehouses

• Long Term commitment• Special handling or unique

products• Need for high level of control


Warehousing

• Trends– New Technology to ensure speed and

accuracy

– Less inventory is kept due to cost of inventory

– Quality of goods is critical due to lower inventory levels

– Service is key aspect


5. Materials handling

Transfer of goods into, around and out of an organization to a transport agency.

• Objectives– Lowest cost – Maximum Capacity utilization – Minimum handling of goods– Safety of employees– Provision of quality service


Cost elements of Total logistics cost• Storage cost• Delivery cost• Trucking cost• Inventory cost• Capital cost: cost of physical stock.• Service cost: stock management & insurance cost• Risk cost• System cost: it represents a variety of information

or communication requirements ranging from order processing to load assembly lists.

THANKS……………..



BLOCK-IAN OVERVIEW

UNIT-2PRINCIPLES OF SUPPLY CHAIN

MANAGEMENT


What is Supply chain?

• Consists of all parties involved, directly or indirectly, in fulfilling a customer request

Supplier Manufacturer Distributor Retailer Customer


HOW DOES SCM WORK?

The SCM is viewed as a system that links an enterprise with its customer & suppliers.

SCM is an integrated approach that is highly interactive & complex and requires simultaneous consideration of many trade-offs. SCM is the management of all the business process across a number of supply chains. So, operating an integrated supply chain requires continuous information flows, which in turn helps to create the best product flow.


So, what is SCM?

• Objective is to be able to have the right products in the right quantities (at the right place) at the right moment at minimal cost.


KEY PROCESSES FOR INTEGRATED SCM

• Customer relationship management: This term applied to processes implemented by a company to handle its contact with its customers. CRM is used to support these processes, storing information on current and prospective customers. The rationale behind this approach is to improve services provided directly to customers and to use the information in the system for targeted marketing and sales purposes.

• Customer service management: “Customer service is a series of activities designed to enhance the level of customer satisfaction – that is, the feeling that a product or service has met the customer expectation.”


• Demand Management: It is the art or science of controlling economic demand to avoid a recession. It refers to policies to control consumer demand for environmentally sensitive or harmful goods such as water and energy. Within manufacturing firms the term is used to describe the activities of demand forecasting, planning and order fulfillment.

• “Demand management" — a proven mechanism to take costs out of an organization without further reducing its capacity to execute.


• Customer order fulfillment: It is designed to link every phase of order fulfillment, from capture to invoice and settlement, and with close integration to the demand management and order planning loops. This end-to-end solution can create a single face to the customer across disparate processes, lines of business, geographies, and IT systems.

• Manufacturing Flow Management: It provides a cost effective way for small and mid-size manufacturers to optimize their manufacturing and business systems. The implementation of manufacturing flow strategies can answer the question, “How can we do more with less.”


• Procurement: Procurement is the acquisition of goods and/or services at the best possible total cost of ownership, in the right quantity and quality, at the right time, in the right place and from the right source for the direct benefit or use of corporations, or individuals, generally via a contract.

• Product development & commercialization: It presents a holistic framework for the development of high-technology products. A systems approach is advocated and illustrated in which all of the functional units within a firm interactively contribute to the product realization process.


AREAS LOGISTICS-MARKETING INTERFACE

• Product Design

• Pricing

• Market & Sales forecasts

• Customer service policies

• Number & location of warehouses

• Inventory policies

• Order processing

• Channels of distribution


LOGISTICS MANUFACTURING INTERFACE

Manufacturing & logistic are interrelated so no one can be considered in isolation. Decisions made in these two areas commit the organization to relatively long-lasting cost structures & also determine the manner in which the business competes in its chosen market. To maintain its competitive position in a dynamic industry, the manufacturing & logistics functions must respond positively by considering the manufacturing/ logistics network as a whole.

Refer table 2.1


Customer Service issues at the Logistics Manufacturing interface

• Demand Forecasting: It is the activity of estimating the quantity of a product or service that consumers will purchase. Demand forecasting involves techniques including both informal methods, such as educated guesses, and quantitative methods, such as the use of historical sales data or current data from test markets. Demand forecasting may be used in making pricing decisions, in assessing future capacity requirements, or in making decisions on whether to enter a new market .

• Customer & Supplier oriented system: Organization systems will need to be directly related to the issues of how to bind the customer more tightly to the organization & how effectively integrate suppliers into the overall supply chain with the objective of enhancing customer service.


• Plant Configuration: The location, nature & operating performance of manufacturing facilities, central warehouses impact heavily on both cost structure & service levels. So, in conjunction with other factors, the plant configuration is a major structural input to reducing overall supply chain costs.

• Master Production Scheduling: MPS is a manufacturing plan that quantifies significant processes, parts, and other resources in order to optimize production, to identify bottlenecks, and to anticipate needs and completed goods. Using MPS helps avoid shortages, costly expediting, last minute scheduling, and inefficient allocation of resources. Working with MPS allows to consolidate planned parts, produce master schedules and forecasts for any level of the Bill of Material (BOM) for any type of part.

THANKS…………………..



BLOCK-IAN OVERVIEW

UNIT-3CUSTOMER FOCUS IN SUPPLY

CHAIN MANAGEMENT


CUSTOMER SERVICE

• “Customer service is a series of activities designed to enhance the level of customer satisfaction – that is, the feeling that a product or service has met the customer expectation.”

• Basic customer service is defined in terms of :

i) Availability

ii) Operational performance

iii) Reliability


Customer Focused MarketingThe customer focused marketing is built on

three fundamental concepts:1. The essence of a marketing orientation to

business policy.2. Developing supply chain management

competency as strategic resources to customer service planning

3. The changing nature of most desired SCM practice to accommodate product life cycle requirements.

Rest refer book….


MS-55BLOCK-IIDESIGN & MANAGEMENT OF SCM

UNIT-4

LOGISTICS: INBOUND AND OUTBOUND


LOGISTICS• Logistics is defined as a business planning

framework for the management of material, service, information and capital flows. It includes the increasingly complex information, communication and control systems required in today's business environment.

• .the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements."


Major aspects of Logistics

The two major aspects of logistics are:Transporting & Warehousing.• Transporting: Transport or transportation is the movement of

people and goods from one place to another. The term is derived from the Latin trans ("across") and portare ("to carry"). Industries which have the business of providing transport equipment, transport services or transport are important in most national economies, and are referred to as transport industries.

• The field can be divided into infrastructure, vehicles, and operations. Infrastructure consists of the fixed installations necessary for transport, and may be roads, railways, airways, waterways, canals and pipelines or terminals such as airports, railway stations, bus stations and seaports. Vehicles traveling on the network include automobiles, bicycles, buses, trains, people and aircraft. Operations deal with the way the vehicles are operated, and the procedures set for this purpose including the financing, legalities and policies.


• Warehousing: A warehouse is a commercial building for storage of goods. Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are usually large plain buildings in industrial areas of cities and towns. They come equipped with loading docks to load and unload trucks; or sometimes are loaded directly from railways, airports, or seaports. They also often have cranes and forklifts for moving goods, which are usually placed on ISO standard pallets loaded into pallet racks.

• Some warehouses are completely automated, with no workers working inside. The pallets and product are moved with a system of automated conveyors and automated storage and retrieval machines coordinated by programmable logic controllers and computers running logistics automation software.


Benefits of Inbound and Outbound Logistics

• Gain visibility and control of 100% of transactional activity regardless of direction or freight term policy

• Manage orders, appointments and shipments in a single user interface

• Improve operational efficiency in various areas including consolidation and cross-docking and scheduling

• Identify new opportunities for private fleets including backhaul and store delivery strategies


LOGISTICS MANAGEMENT

• Logistics Management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective, forward, and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers’ requirements.


LOGISTIC MANAGEMENT

These are all technologically feasible projects. But it is not only the technology that determines the result. Political policy, participation and permission procedures, land expropriation, environmental impact studies, costing, budgeting and price control, logistic efficiency and safety. These, as well as many other aspects, have to be taken into account early in the plan development of real estate and infrastructure projects. It requires engineers who master the process. Engineers, who oversee, analyze and predict all aspects of the design and execution of civil engineering projects.


MS-55BLOCK-IIDESIGN & MANAGEMENT OF SCM

UNIT-5

MODELS FOR SCM INTEGRATION


SUPPLY CHAIN STRATEGIESIn a "push" system the consumer does not request the product to be developed; it is "pushed at" the end-user by promotion. An example of this is a perfume product. Women do not request to smell a fragrance they never smelled before; it is simply "pushed" at them, through the right advertisement.

• Applied to that portion of the supply chain where demand uncertainty is relatively small

• Production & distribution decisions are based on long term forecasts

• Based on past orders received from retailer’s warehouse

• Inability to meet changing demand patterns • Large and variable production batches • Unacceptable service levels • Excessive inventories due to the need for large safety

stocks


SUPPLY CHAIN STRATEGIES

In a "pull" system the consumer requests the product and "pulls" it through the delivery channel. An example of this is the car manufacturing company Ford Australia. Ford Australia only produces cars when they have been ordered by the customers.

• Applied to that portion of the supply chain where demand uncertainty is high

• Production and distribution are demand driven • No inventory, response to specific orders • Point of sale (POS) data comes in handy when shared

with supply chain partners • Decrease in lead time • Difficult to implement


PUSH-PULL STRATEGY is a combination of the two strategies - planning and timing your "pull" initiatives with your "push" initiatives. You use persuasive methods directly with your primary audience (pull), while at the same time, you utilize existing or new targeted communications tools (push).

• A good example of "push-pull" would be a college-level pre-professional organization whose members are often "lost in the cracks" before they join the sponsoring professional association. The pre-professional organization can "talk up" and "push" professional membership until their faces turn blue, but once their members leave the fold (graduate), it then becomes the responsibility of the sponsoring association to latch on to them and "pull" them into the professional group.


A new Supply Chain Paradigm

• A shift from a Push System...– Production decisions are based on forecast

• …to a Push-Pull System


Push-Pull Supply Chains

Push-Pull Boundary

PUSH STRATEGY PULL STRATEGY

Low Uncertainty High Uncertainty

The Supply Chain Time Line

CustomersSuppliers


A new Supply Chain Paradigm

• A shift from a Push System...– Production decisions are based on forecast

• …to a Push-Pull System– Initial portion of the supply chain is replenished

based on long-term forecasts• For example, parts inventory may be

replenished based on forecasts– Final supply chain stages based on actual

customer demand.• For example, assembly may based on actual

orders.


Push-Pull Strategies

• The push-pull system takes advantage of the rules of forecasting:– Forecasts are always wrong– The longer the forecast horizon the worst is the

forecast – Aggregate forecasts are more accurate

• The Risk Pooling Concept

• Delayed differentiation is another example– Consider Benetton sweater production


What is the Best Strategy?

Pull Push

Pull

Push

I

Computer

II

IV III

Demand uncertainty

(C.V.)

Delivery costUnit price

L H

H

L

Economies of Scale


Characteristics and Skills

RawMaterial Customers

PullPushLow Uncertainty

Long Lead Times

Cost Minimization

Resource Allocation

High Uncertainty

Short Cycle Times

Service Level

Responsiveness


Locating the Push-Pull Boundary

• The push section:– Uncertainty is relatively low– Economies of scale important– Long lead times– Complex supply chain structures:

• Thus– Management based on forecasts is

appropriate– Focus is on cost minimization– Achieved by effective resource

utilization – supply chain optimization



• The pull section:– High uncertainty– Simple supply chain structure– Short lead times

• Thus– Reacting to realized demand is

important– Focus on service level– Flexible and responsive

approaches



• The push section requires:– Supply chain planning– Long term strategies

• The pull section requires:– Order fulfillment processes– Customer relationship management


Bullwhip Effect DefinedThe bullwhip effect is the uncertainty caused

from distorted information flowing up and down the supply chain.


Who is affected?• Nearly all industries are affected!• Firms that experience large variations in

demand are at risk.• Firms that depend on suppliers upstream

or distributors and retailers downstream may be at risk.


Results of the bullwhip effect

• Excess inventories

• Problems with quality

• Increased raw material costs

• Overtime expenses

• Increased shipping costs


Results of the bullwhip effect - continued.

• Lost customer service

• Lengthened lead time

• Lost sales

• Unnecessary adjusted capacity


Causes of the bullwhip effect

• Un-forecasted sales promotions

• Sales incentives

• Lack of customer confidence

• Customers turning back sales orders

• Freight incentives


Bullwhip effect - an example

Chronology of company “X’s” supply chain problem.

• Company X produces widgets for sale on the open market.

• Customer demand for Company X’s widgets become stagnant

• Retailers offer a sales promotion to boost sales of Company X widgets


Example – continued• Retailers fail to notify manufacturers of

sales promotion• Company X recognizes that demand for

widgets has increased.• Company X increases inventory to allow

for increased manufacturing of widgets.• Company X notifies part suppliers of

increased demand.• Suppliers increase inventory to meet

demand.


Moral of the storyDistorted information along the supply chain

caused inventory levels to increase along the supply chain which may result in increased inventory costs, poor customer service, adjusted capacity and many other problems associated with the bullwhip effect.


Solving the Bullwhip dilemma

• Improve communication along the supply chain. Retailers notifying firms upstream of sales

promotions will help clarify demand signals from consumers

Improved information will improve demand forecasts upstream in the supply chain.


Solving the Bullwhip dilemma - continued

• Improve sources of forecast dataFirms can use data from Point of Sale

computer systems to derive data from forecasting

Firms along the supply chain can use EDI systems to retrieve data on items that are legitimately being purchased by customers


Solving the Bullwhip dilemma - continued

• Work with firms upstream and downstream in the supply chain Create smaller order increments to decrease

time between orders. Order processing will become closer to real-time.

Work to develop consistent pricing of products to avoid demand fluctuations from the sale of inexpensive products.


Summary• Bullwhip effect is caused from distortions in

information along the supply chain• Results of the bullwhip effect can include:

excess inventories, problems with quality, increased costs, overtime expenditures, lost customer service, lost sales and more.


Summary - Continued• Causes of the bullwhip effect may include:

poor forecasting of sales, incorrect information along the supply chain, sales incentives, sales promotions and lack of customer confidence.

• Solutions to the bullwhip effect include: improved information flow between firms along the supply chain, stable pricing, small order increments, focused demand on EDI or POS systems and removal of sales incentives.

THANKS……………..


UNIT-6 STRATEGIC SUPPLY CHAIN MANAGEMENT

Supply chain management (SCM) is the management of a network of interconnected businesses involved in the ultimate provision of product and service packages required by

The imperatives for Supply chain strategy are:Global sourcingGlobal networking & marketingRevolution in global business processCustomer centric management activitiesIntegrated planning system


SUPPLY CHAIN: GROWTH

• Enhanced customer expectation

• Pre-transaction elements

• Transaction elements

• Post-transaction elements

• Pressure for quick response

• Impact of globalization

• Organizational integration


Trends in SCM

• Co-maker Ship

• Third party logistics

• Principle of Postponement

• Enterprise Resource Planning & DRP


Strategic Supply Management Activities

• Environmental monitoring• Integrated supply strategy• Commodity strategy• Data management• Corporate strategic plan• Strategic sourcing• Strategic supply alliances• Supply chain/networks• Social responsibilities• Understand key supply Industry


Developing and Managing the Relationship

• Instituting a Cross-Functional team• Training• Communication system• Trust building• Visits• Specialized Training• Objectives• Monitoring• Supportive


SUPPLY CHAIN RE-ENGINEERING

• Reengineering is radical redesign of an organization's processes, especially its business processes. Rather than organizing a firm into functional specialties (like production, accounting, marketing, etc.) and considering the tasks that each function performs; complete processes from materials acquisition, to production, to marketing and distribution should be considered. The firm should be re-engineered into a series of processes.


POINTS OF LEARNING IN SCM RE-ENGG:

• SCM is not a traditional improvement technique but that which facilitates improvement, not associated with functional reviews that focus internally.

• Transforming a business from inward looking to outward looking.

• Integration being the mainstay between the customers and competition.

• Inquisitiveness throughout the organization will facilitate re-engineering.


UNIT-7 ORGANIZING FOR GLOBAL MARKETS

• World Class Supply Chain Management:

It is a wide term extending over a vast spectrum of correlated developments, which together define a comprehensive change in the prevailing environment of hyper-competition.


Fundamental Objectives

• Reduction of inventory by 50% or even more.• Reduction in manufacturing lead-time by

50% or more.• Introduction of new products at 2 or 3 times

the rate.• 50% of the current design/development lead-

time.• Reduction in costs by 30% or more.• Reduction in support labor by 50% or more.• Improve quality to parts per million.


STRATEGIES FOR WCSCM

WCSCM can be conceptualized under three basic dimensions:

Enrichment of customersRecognition of Company by the

CustomersA Linkage between Suppliers, Company

and Customers.


Global TenderingAdvancedTechnology

LargerCustomer Base

Larger Supplybase

Lower cost

TimelinessSuperiorQuality


Components of WCSCM

• World class supply management

• World class Demand management

• World class Logistics management


MS-55LOGISTICS & SUPPLY CHAIN

MANAGEMENT

• BLOCK-III

• IT ENABLED SCM

• UNIT-8


INTRODUCTION

• Information technology (IT), is "the study, design, development, implementation, support or management of computer-based information systems, particularly software applications and computer hardware." IT deals with the use of electronic computers and computer software to convert, store, protect, process, transmit, and securely retrieve information.

• When computer and communications technologies are combined, the result is information technology, or "infotech". Information Technology (IT) is a general term that describes any technology that helps to produce, manipulate, store, communicate, and/or disseminate information.


IT IN INTEGRATED SUPPLY CHAIN

• Supply chain management is concerned with the flow of products & information b/w supply chain members, who linked together to acquire , purchase, manufacture, assemble, distribute goods & services, from the suppliers to the ultimate end users. After the Information Revolution in 1980, many standard business processes & functions like customer order processing, inventory management, purchasing were altered.

• The cost & availability of information resources allow easy linkages & eliminate information-related time delay in supply chain network.

• The “old” paper type transactions are becoming obsolete.


IMPORTANCE OF INFORMATION IN INTEGRATED BUSINESS

Information is the key to the decision making in Business. Prior to the 1980s, a significant portion of the information used to flow b/w functional areas & SC were paper –based. These paper based transactions & communication were slow, unreliable & error prone. During this period where Conducting business in this manner is ineffective, INFORMATION is overlooked as a critical competitive resource. But when realized the importance of IT in SC, it became the fundamental elements that linked the organizations into a unified & coordinated system.


Factors which impacted the changes• Satisfying, in fact pleasing, customers have

become something of a corporate obsession. Serving the customer in the best, most efficient & effective manner has become critical & information about issues such as product availability, delivery, invoices has become necessary part of the total customer service experience.

• Information is crucial factor in the managers’ abilities to reduce inventory & human resource requirements to a competitive level.

• Information flows play an essential role in the strategic planning for and deployment of resources.


Inter Organizational Information System, IOIS

In SCM, all the members of SC are linked through the ultimate level of integration. These members are continuously supplied with information in real time. Appropriate application of these technologies provides decision makers with timely access to all required information from any location within the SC. So, recognizing the critical importance of information in an integrated supply chain environment, organizations implementing inter-organizational information system.


What Is It?

• information system that connects two or more organizations

• These types of systems play a major role in e-commerce and in supply chain management

• Their major objective is to aid in the efficient processing of transactions


Benefits of IOIS

• Can facilitate relationships within businesses that make the flow of information much easier and smoother

• Can reduce costs of communication• Can extend the possibilities of

coordination• Can improve the quality of information

shared making businesses more efficient and productive


‘5’ Levels of Participation

• Remote I/O node: members participate from a remote location.• Application processing node: in which the member develops &

shares a single application such as an inventory –query or order-processing systems.

• Multi participants exchange node: in which the member develops & shares a n/w inter-linking itself & any number of lower level participants with whom it has an established business relationships.

• Network control node: in which the member develops & shares a n/w with diverse applications that may be used by many different types of lower level participants.

• Integrated n/w node: in which members literally becomes a data-communications/data processing utility that integrates any number of lower level participants & applications in real time.


Information Requirements

Fundamental mistakes made when determining information requirements:

1. Viewing systems as functional instead of cross-functional

2. Interviewing managers individually instead of jointly

3. Not allowing for trial for trial and error in the detail design process

4. Asking the wrong questions during the interview


Information & Technology Applications for SCM

• Electronic Commerce: Electronic commerce , commonly known as e-commerce or eCommerce, consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks. The amount of trade conducted electronically has grown extraordinarily since the spread of the Internet.

• Electronic Data Interchange: EDI is the computer-to-computer exchange of business data in standard formats. In EDI, information is organized according to a specified format set by both parties, allowing a “hands off” computer transaction that requires no human intervention or rekeying on either end. The information contained in an EDI transaction set is, for the most part, the same as on a conventionally printed document.


• Bar Coding & Scanning: A bar code (also barcode) is an optical machine-readable representation of data. Originally, bar codes represented data in the widths (lines) and the spacings of parallel lines and may be referred to as linear or 1D ( 1 dimensional) bar codes or symbologies. But they also come in patterns of squares, dots, hexagons and other geometric patterns within images termed 2D (2 dimensional) matrix codes or symbologies. Barcodes can be read by optical scanners called barcode readers or scanned from an image by special software.


• Data-Warehouse: A data warehouse is a repository of an organization's electronically stored data. Data warehouses are designed to facilitate reporting and analysis. Data warehousing includes business intelligence tools, tools to extract, transform, and load data into the repository, and tools to manage and retrieve metadata.

• Internet: The Internet is a global system of interconnected computer networks. It is a "network of networks" that consists of millions of private and public, academic, business, and government networks of local to global scope that are linked by copper wires, fiber-optic cables, wireless connections, and other technologies.

• Extranet: An extranet is a private network that uses Internet protocols, network connectivity, and possibly the public telecommunication system to securely share part of an organization's information or operations with suppliers, vendors, partners, customers or other businesses. An extranet can be viewed as part of a company's intranet that is extended to users outside the company (e.g.: normally over the Internet).


• Decision Support System: Decision Support Systems (DSS) are a specific class of computerized information system that supports business and organizational decision-making activities. A properly-designed DSS is an interactive software-based system intended to help decision makers compile useful information from raw data, documents, personal knowledge, and/or business models to identify and solve problems and make decisions.


MS-55LOGISTICS & SUPPLY CHAIN MANAGEMENT

BLOCK-III

IT ENABLED SCM

UNIT-9

INTELLIGENCE INFORMATION SYSTEM


Changing Paradigm Of ManufacturingOLD RULES OF MANUFACTURING

1. Produced to forecast.2. Uniform/standardized3. Low on information

content.4. Characterized by a

specific market niche.5. Expected to have large

market life.6. Self-contained.7. Line personnel

shouldn’t challenge current practices.

8. Layout the factory by function.

9. Always keep people busy & equipment humming.

NEW RULES OF MANUFACTURING1. Produced to order.2. Highly variable/customized.3. High information content.4. Characterized by multiple

market niche.5. Expected to have shorter

market life.6. Open ended platform for

upgrades/ information/ services.

7. The person closet to the problem is the world’s best expert.

8. Cellular layout.9. Make only as such as you

need only when you need.


Changing Paradigm Of Manufacturing

OLD RULES OF MANUFACTURING

10. Inventory is an asset.

11. Traditional performance measures such as labor & machine efficiencies, purchase price variance& overhead absorption rates.

12. Quality is inspected at the end of the line.

13. Large lot sizes are better.

NEW RULES OF MANUFACTURING

10. Inventory is liability.

11. Measurements focus on improvement rates in cost, quality, flexibility, value added activities & customer satisfaction.

12. Building Quality in throughout entire process.

13. Reduced lot sizes are better.


What is MRP?

• Computerized Inventory Control

• Production Planning System

• Management Information System

• Manufacturing Control System


When to use MRP?

• Job Shop Production

• Complex Products

• Assemble-to-Order Environments

• Discrete and Dependent Demand Items


What can MRP do?• Reduce Inventory Levels• Reduce Component

Shortages• Improve Shipping

Performance• Improve Customer

Service• Improve Productivity• Simplified and Accurate

Scheduling

• Reduce Purchasing Cost• Improve Production

Schedules• Reduce Manufacturing Cost• Reduce Lead Times• Less Scrap and Rework• Higher Production Quality


What can MRP do?• Improve

Communication• Improve Plant

Efficiency• Reduce Freight

Cost• Reduction in

Excess Inventory

• Reduce Overtime• Improve Supply Schedules• Improve Calculation of

Material Requirements• Improve Competitive

Position


Overview of the MRP System

Product Structure

File

Master Production Schedule

Inventory Master File

Material Requirements

Planning

Manufacturing Orders

Purchase Orders

Various Reports


MRP – The System


• Material requirements planning (MRP): Computer-based information system for ordering and scheduling of dependent demand inventories.

• Dependent demand: Demand for items that are subassemblies or component parts to be used in production of finished goods.

Material Resource Planning


MRP Inputs MRP Processing MRP Outputs

Masterschedule

Bill ofmaterials

Inventoryrecords

MRP computerprograms

Changes

Order releases

Planned-orderschedules

Exception reports

Planning reports

Performance-controlreports

Inventorytransaction

Primaryreports

Secondaryreports

MRP computer Program


• Master Production Schedule• Time-phased plan specifying timing and quantity of

production for each end item.• Material Requirement Planning Process

Product Structure

Tree

Lead Times

MRP Inputs


Master Schedule

Master schedule: One of three primary inputs in MRP; states which end items are to be produced, when these are needed, and in what quantities.

Cumulative lead time: The sum of the lead times that sequential phases of a process require, from ordering of parts or raw materials to completion of final assembly.


Planning Horizon

1 2 3 4 5 6 7 8 9 10

Procurement

Fabrication

Subassembly

Assembly


Bill-of-MaterialsBill of materials: One of the three primary

inputs of MRP; a listing of all of the raw materials, parts, subassemblies, and assemblies needed to produce one unit of a product.

Product structure tree: Visual depiction of the requirements in a bill of materials, where all components are listed by levels.


Assembly Time Chart

1 2 3 4 5 6 7 8 9 10 11

Procurement ofraw material D

Procurement ofraw material F

Procurement ofpart C

Procurement ofpart H

Procurement ofraw material I

Fabricationof part G

Fabricationof part E

Subassembly A

Subassembly B

Final assemblyand inspection


MRP Processing

• Gross requirements

• Schedule receipts

• Projected on hand

• Net requirements

• Planned-order receipts

• Planned-order releases


MRP Outputs

• Planned orders - schedule indicating the amount and timing of future orders.

• Order releases - Authorization for the execution of planned orders.

• Changes - revisions of due dates or order quantities, or cancellations of orders.


MRP Secondary Reports

• Performance-control reports

• Planning reports

• Exception reports


Other Considerations

• Safety Stock• Lot sizing

– Lot-for-lot ordering– Economic order quantity– Fixed-period ordering– Part-period model


Capacity PlanningCapacity requirements planning: The

process of determining short-range capacity requirements.

Load reports: Department or work center reports that compare known and expected future capacity requirements with projected capacity availability.

Time fences: Series of time intervals during which order changes are allowed or restricted.


MRP Planning

Develop a tentativemaster production

schedule

Develop a tentativemaster production

schedule

Use MRP tosimulate material

requirements

Use MRP tosimulate material

requirements

Convert materialrequirements to

resource requirements

Firm up a portionof the MPS

Is shopcapacity

adequate?

Cancapacity be

changed to meetrequirements

Revise tentativemaster production

schedule

Changecapacity

Yes

No

Yes

No


Benefits of MRP

• Low levels of in-process inventories

• Ability to track material requirements

• Ability to evaluate capacity requirements

• Means of allocating production time


Requirements of MRP

• Computer and necessary software

• Accurate and up-to-date– Master schedules– Bills of materials– Inventory records

• Integrity of data


Manufacturing Resource Planning (MRP II)

• Goal: Plan and monitor all resources of a manufacturing firm (closed loop):– manufacturing– marketing– finance– engineering– purchasing

• Simulate the manufacturing system


MarketDemand

Productionplan

Problems?

Rough-cutcapacity planning

Yes No YesNo

Finance

Marketing

Manufacturing

Adjustproduction plan

Masterproduction schedule

MRP

Capacityplanning

Problems?Requirements

schedules

Ad

just

mas

ter

sch

edu

le

MRP II


MPR II Implementation Problems• Lack of top management commitment• Lack of MRP II education for the users of

the system• Inaccurate data• Poorly managed MPS• Over-sophistication/Addition of fancy

options• Lack of user control• Time consuming implementation process

delayed payback• Behavioral problems


BENEFITS OF MRP II

• Excellent Planning Capabilities

• Centralization and Coordination

• Simulation Capability

• Standard Requirements for Manufacturing Systems Provided

• Greater Discipline


BENEFITS OF MRP II

• Greater Transparency

• Better Cash Flow Planning

• Increase Responsiveness to Customers Needs

• Improved Communication with Customers

• Reduction in Cost of Money Investment and Space


Suppliers Procure Assemble Sales Customers

Material Flow

Fund Flow

Fund Outflow Information Flow Fund Inflow

Material Inflow Information Flow Material Outflow

ENTERPRISE RESOURCES PLANNING (ERP)


ENTERPRISE RESOURCES PLANNING (ERP)

• An accounting-oriented information system for identifying and planning the enterprise wide resources needed to take, make, ship, and account for customer orders (APICS Dictionary).


ENTERPRISE RESOURCES PLAN (ERP)

• Include function of finance, distribution, and human resource management

• Handle global business needs of an integrated and networked enterprise

• ERP is not confined within the corporation. It communicate with suppliers and customers.


ERP II Collaboration Gartner

MRPIntegration of

Information

Material / Finance

MRP IIInternal

Supply / Manufacturing / DemandInformation

ERPSupply Chain

APICS(1965)

(1980)

(1990)

(2004)


Enterprise Resource Planning (ERP)

Organizes and manages a Organizes and manages a company’s business processes by company’s business processes by sharing information across sharing information across functional areasfunctional areas

Connects with supply-chain and Connects with supply-chain and customer management customer management applicationsapplications


ERP Modules

Figure 12.1Figure 12.1


ERP’s Central Database

Finance & Accounting

Sales &

Marketing

Human Resources

Production & Materials

ManagementERP Data

Repository

Figure 12.2Figure 12.2


ERP Implementation First step is to analyze business First step is to analyze business

processesprocesses Which processes have the biggest Which processes have the biggest

impact on customer relations?impact on customer relations? Which process would benefit the most Which process would benefit the most

from integration?from integration? Which processes should be Which processes should be

standardized?standardized? Use of Internet portals can aid Use of Internet portals can aid

implementationimplementation


What is ERP?

DistributionPlanning

ManufacturingPlanning

CorporateAccounting

Sales & MarketingAutomation

New Product & ProcessDevelopment

ManufacturingProcess

Automation

HumanResources

CorporateManagement& Strategy

• One Database• One Application• One User Interface


What is DRP?

• DRP provides the basis for integrating supply chain inventory information and physical distribution activities with the Manufacturing Planning and Control system.


What is DRP?

• Managing the flow of materials between firms, warehouses, distribution centers.

• DRP helps manage these material flows. Just like MRP did in Manufacturing.

• Links firms in the supply chain by providing planning records that carry demand information from receiving points to supply points and vice versa.


DRP and the Marketplace

• DRP starts in the marketplace. Some firms gather information on inventory levels and product usage from customers.

• This knowledge of their customer requirements provides firms the opportunity to make-to-knowledge.

• This is specially true when they have vendor managed inventories.


DRP and the Logistics System

DistributionRequirements Planning

DemandManagement

MasterProduction Scheduling

MaterialRequirements Planning

Logistics System Modules

VehicleCapacity Planning

VehicleLoading

VehicleDispatching

WarehouseReceipt Planning


DRP Purposes:

• DRP enables the firm to capture data, including local demand conditions, for modifying the forecast and to report current inventory positions.

• DRP provides data for managing the distribution facility and the database for consistent communications with the customers and the rest of the company.


DRP & Demand Management

• Demand management is the connection between mfg. and the marketplace.

• Plans derived from the DRP information and shipping requirements are the basis for managing the logistics system.

• Continually adjusts changes in the demand, sending inventories from central warehouse to distribution centers where they are needed.


DRP & Demand Management (Cont)

• DRP is connected to the logistics system– By helping determine vehicle capacity

planning.– Helping loading.– Developing vehicle dispatching.– Determining warehouse capacity.– Provides the data to accurately say when

availability will be improved and delivery can be expected.


DRP and MPS• DRP greatest payoff is from integrating

records and information.• Crossing the area of inter-firm MPC systems

means negotiating with supply chain partners for sharing costs and benefits.

• DRP permits evaluation of current conditions to determine if mfg. priorities need to revised.

• Provides the master scheduler better info to match mfg output with shipment needs.


Safety Stock and DRP

• When there is more uncertainty in terms of timing, then it may be better to use safety lead time.

• When the uncertainty is in quantity then safety stock may be better.

• Carry safety stock where there is uncertainty (near the customer) or where there is some element of independent demand


Management Issues with DRP

• Data integrity and completeness

• Organizational support

• Problem solving


Managing Variations in the Plan

• Methods to stabilize the shipping plan– Firm planned order method

• Firms orders out a number of periods in the future

– Error feedback method• Assumes forecasts are unbiased or

accurate on average• Any unsold forecast in one period is

added to sales in subsequent period


Data Integrity and completeness

• A key issue is the use of aggregate forecasts which are later on broken down into detailed forecasts.

• Forecast errors should be avoided especially biased errors.

• Management programs should be established to monitor the process.

• Inventory accuracy depends on transaction process routines and discipline.


ERP Vs. SCP (supply chain planning)ERP key processes

1. Sales & Distribution• Order entry• Delivery scheduling2. Business planning• Demand forecasting• Planning of production &

capacity• Detailed routing3. Production planning• Master production

schedule• Material requirement

planning

SCM key processes1. Customer relationship

management.2. Customer service

management.3. Demand management.4. Order fulfillment.5. Manufacturing flow

management.6. Procurement.7. Product development &

commercialization.8. Reverse logistics.


BLOCK-IVCOST AND PERFORMANCE MEASUREMENT IN SCM

UNIT-11

COST ANALYSES AND MEASUREMENT


INTRODUCTIONMany times it happens that even if a company has

good products, it offers good services, it has plethora of satisfied customers, having good productivity & growth levels, then also it FAILS to achieve a good profitability level.

The MAIN reason is the lack of knowledge of possible losses. It is here that one finds the need for determining the “true” cost for a product. Total cost for a cost object is determined by the direct cost (like labor, material, transportation etc.) and the overhead cost.


COST DRIVERS

• Any factor which causes a change in the cost . A Cost Driver is any activity that causes a cost to be incurred. In traditional costing the cost driver to allocate indirect cost to cost objects was volume of output. With the change in business structures, technology and thereby cost structures it was found that the volume of output was not the only cost driver.

• Some examples of indirect costs and their drivers are: maintenance costs are indirect costs and the possible driver of this cost may be the number of machine hours; or, handling raw-material cost is another indirect cost that may be driven by the number of orders received; or, inspection costs that are driven by the number of inspections or the hours of inspection or production runs.


Categories Of Cost Drivers

Two categories: Structural cost drivers that are derived from the business strategic choices about its underlying economic structure such as scale and scope of operations, complexity of products, use of technology, etc and Executional cost drivers that are derived from the execution of the business activities such as capacity utilization, plant layout, work-force involvement, etc.


ABC Definition• Activity-Based Costing (ABC) is a

methodology that measures the cost and performance of resources, activities and cost objects. Cost objects consume activities, and activities consume resources.

Resources Activities Cost Objects


Activities: Types

• Unit level: Performed each time a unit is produced

• Batch level: Performed each time a batch is

produced

• Product level: Performed to support production of different type of product

• Customer Level: Performed to support servicing customers

• Facility level:Residuary head


Define activity drivers

• The linkage between activities and cost objects, such as products, customers,, is accomplished by using activity drivers.

• An activity driver is a quantitative measure of the output of an activity.

• The selection of an activity driver reflects a subjective trade-off between accuracy and cost of measurement.


Building an ABC Model

IdentifyResources

IdentifyActivities

IdentifyCost Objects

DefineResource

Drivers

DefineActivityDrivers

EnterResource

Costs

EnterResourceDriver Qty.

EnterActivity

Driver Qty.

CalculateCosts


ABC: Where to Use?

• High Overheads

• Product Diversity or Multiple Products

• Customer Diversity

• Service Diversity

• Stiff Competition


CUSTOMER PROFITABILITY ANALYSIS

Over the last ten years, strategic cost management and activity-based costing (ABC) have created a framework for companies to more closely examine the drivers (or causes) of their costs in order to improve management decisions and corporate profitability. Companies initially focused on product profitability are now using ABC and other models to further examine the profitability of distribution channels and customers. Simultaneously, many companies are exploring the drivers of profit and success through the use of the balanced scorecard. Whichever model is used initially, determining customer profitability requires a clearer understanding of the causes of the revenues and the costs. This guideline provides details of company experiences in examining the causal relationships between the drivers of customer satisfaction and customer revenues as well as in measuring the profitability and costs of servicing existing customers.


Companies are attempting to better understand and satisfy present and future customer demands. However, the goal is to increase customer satisfaction profitably.

Essential components of improved customer profitability include:

• the analysis of the cost of customer service through ABC

• the measurement of the lifetime value of a customer• the development of long-term customer

relationships for increased revenues and profits.


BLOCK-IVCOST AND PERFORMANCE MEASUREMENT IN SCM

UNIT-12

BEST PRACTICES & BENCHMARKINH IN SCM


BENCHMARKING

Benchmarking is the process of comparing the cost, time or quality of what one organization does against what another organization does. The result is often a business case for making changes in order to make improvements.

Also referred to as "best practice benchmarking" or "process benchmarking", it is a process used in management and particularly strategic management, in which organizations evaluate various aspects of their processes in relation to best practice, usually within their own sector. This then allows organizations to develop plans on how to make improvements or adopt best practice, usually with the aim of increasing some aspect of performance.


IMPORTANCE OF BENCHMARKING

Benchmarking is a powerful management tool because it overcomes "paradigm blindness." Paradigm Blindness can be summed up as the mode of thinking, "The way we do it is the best because this is the way we've always done it." Benchmarking opens organizations to new methods, ideas and tools to improve their effectiveness. It helps crack through resistance to change by demonstrating other methods of solving problems than the one currently employed, and demonstrating that they work, because they are being used by others.


Types of Benchmarking• Process benchmarking - the initiating firm focuses its

observation and investigation of business processes with a goal of identifying and observing the best practices from one or more benchmark firms. Activity analysis will be required where the objective is to benchmark cost and efficiency; increasingly applied to back-office processes where outsourcing may be a consideration.

• Financial benchmarking - performing a financial analysis and comparing the results in an effort to assess your overall competitiveness.

• Performance benchmarking - allows the initiator firm to assess their competitive position by comparing products and services with those of target firms.


• Product benchmarking - the process of designing new products or upgrades to current ones. This process can sometimes involve reverse engineering which is taking apart competitors products to find strengths and weaknesses.

• Strategic benchmarking - involves observing how others compete. This type is usually not industry specific meaning it is best to look at other industries.

• Functional benchmarking - a company will focus its benchmarking on a single function in order to improve the operation of that particular function. Complex functions such as Human Resources, Finance and Accounting and Information and Communication Technology are unlikely to be directly comparable in cost and efficiency terms and may need to be disaggregated into processes to make valid comparison.


METHODOLOGY FOR BENCHMARKING

A systematic approach based on Deming’s PDCA cycle.

STEP 1: Prioritize what to benchmark

STEP 2: Identify comparable companies- which organizations have similar requirements for

operational processes.

STEP 3: Data and Information collection

STEP 4: Determine current performance gap

STEP 5: Project future performance levels

STEP 6: Communicate findings and gain acceptance

STEP 7: establish functional goals.


METHODOLOGY FOR BENCHMARKING

STEP 8: Develop action plans

STEP 9: Implement and monitor

STEP 10: Recalibrate benchmarks


CHANGE MANAGEMENT

Change Management is a structured approach to transitioning individuals, teams, and organizations from a current state to a desired future state. The current definition of Change Management includes both organizational change management processes and individual change management models, which together are used to manage the people side of change.


Distinct Phases of Benchmarking

PHASE 1: PLANNING

Identify what to benchmark, determining how the data collection activities are to be performed.

PHASE 2: ANALYSIS

Analyzing internal levels of performance & comparing these with the target organization’s performance.

PHASE 3: INTEGRATION

Communicating benchmark findings to achieve new & lasting levels of performance.

PHASE 4: ACTION

Managing change & developing specific action plans.


CHALLENGES FACED IN IMPLEMENTATION OF BENCHMARKING

• The existing organizational culture.• Incorrect application of the technique.• The nature of the process.• Benchmarking applications ay be limited

by the management culture.• It may lead to culture of imitation instead

of innovation.• Culture to adopt rather than adapt,

achieve parity rather than superiority.THANKS……….


MS055 LOGISTICS & SUPPLY CHAIN MANAGEMENT

UNIT-13

PERFORMANCE MEASUREMENT & EVALUATION

OF SCM


PERFORMANCE MEASUREMENT

Performance measurement is the use of statistical evidence to determine progress toward specific defined organizational objectives. There are many types of measurements. How well each company performs is dependent on the strategic plan. Some of the measurements include basic financial ratios such as debt-to-equity ratio and if the levels are an issue with creditworthiness. he traditional control-oriented performance measurement system in the industrial era is losing its relevance in today’s fast changing environment where organizations are re-shaped into flat multi-functional hierarchies. Performance measurement will get tougher with globalization and increasing complexity of organization's business models, teams’ roles and responsibilities.


NEED FOR SUPPLY CHAIN PERFORMANCE MEASURES

In today’s competitive environment, supply chain need continuous improvements. To achieve this goal, performance measurement & improvement are needed, which inhibit chain-wide improvement.Factors that contribute to management’s need for new types of measures:

• The lack of measures that capture performance across the entire supply chain.

• The requirement to go beyond internal metrics & take a supply chain perspective.

• The need to determine the interrelationship between corporate and supply chain performance.


• The complexity of Supply Chain management.• The requirement to align activities and share joint

performance measurement information to implement strategy that achieves supply chain objectives.

• The desire to expand the “line of sight” within the supply chain.

• The requirement to Allocate benefits and burdens resulting from functional shifts within the supply chain.

• The need to differentiate the supply chain to obtain a competitive advantage.

• The goal of encouraging cooperative behavior across corporate functions & across firms in the supply chain.


MEASUREMENT SYSTEMSManagement veterans argue that measurement is a key

to continuous improvement. “ you can’t manage what you don’t measure” and “anything that gets measured gets done.”

Characteristics of effective Measurement System:

1. Inclusiveness- measurement of all pertinent aspects.

2. Universality- allow for comparison under various operating conditions.

3. Measurability- data required are measurable.

4. Consistency- measures consistent with organization goals.


Supply Chain Balanced Scorecard

In 1993, Robert S. Kaplan and David P. Norton began publicizing the Balanced Scorecard through a series of journal articles. In 1996, they published the book The Balanced Scorecard.

The Balanced Scorecard (BSC) is a performance management tool which began as a concept for measuring whether the smaller-scale operational activities of a company are aligned with its larger-scale objectives in terms of vision and strategy.

By focusing not only on financial outcomes but also on the operational, marketing and developmental inputs to these, the Balanced Scorecard helps provide a more comprehensive view of a business, which in turn helps organizations act in their best long-term interests.


The early versions of the Balanced Scorecard helped organizations achieve a degree of "balance" in selection of performance measures. In practice, early Scorecards achieved this balance by encouraging managers to select measures from three additional categories or perspectives: "Customer," "Internal Business Processes" and "Learning and Growth."

• Implementing Balanced Scorecards typically includes four processes:

1.Translating the vision into operational goals;2.Communicating the vision and link it to individual

performance;3.Business planning;4.Feedback and learning, and adjusting the strategy

accordingly.


The ‘4’ perspectives of Balance score cards

Four general perspectives have been proposed by the Balanced Scorecard:

• Financial Perspective;

• Customer Perspective;

• Internal process Perspective;

• Innovation & Learning Perspective.

Refer figure 13.2 on page number 29.


Hierarchy based management system

• Under hierarchical framework, measures are classified into Strategic, tactical & operational levels of management. This is done to assign them where they can be best dealt with by the appropriate management level, and fair decisions can be made.

• It ties together the hierarchical view of supply chain performance measurement & maps the performance measure specific to organization goal.A clear guideline can’t be made in such a system to put the measures into different levels that can lead to low levels of conflicts among the supply chain partners.


Function Based Measurement System

Sales & mktg functions

Custom-er order

Process order

Ship customer

order

Inven-tory file

Customer order status

Inventory available

Credit check

Production Schedule

Purchasing

Back order

Production Shipping Documentation

Accounting

Invoice

Warehouse Withdrawal

Transporting schedule


“6” perspectives of SCM by Otto & Kotzab 2002PERSPECTIVE PURPOSE OF SCM PERFORMANCE

MEASURES

System dynamics Managing the trade offs along the complete supply chain

Capacity utilization ,inventory level, stock-outs etc.time to adapt change in demand.

Operation research Calculating optimal solutions with a given set of degree of

freedom

Logistics cost per unit, service level, time to deliver

Logistics Integrating generic processes sequentially, vertically &

horizontally

Integration, lead time, order cycle time, flexibility

Marketing Segmenting products & markets & combine both using the right distribution channel

Customer satisfaction, distribution cost per unit,

market share, channel cost

Organization Determining & mastering the need to coordinate & manage

relationship

Transaction cost, density of relationship

Strategy Merging competencies & relocating into the deepest segment of the profit pool

ROI, time to market


Return

Level

Description Schematic Comments

Top Level(Process Types)

Level 1 defines the scope and content for the Supply chain Operations Reference-model. Here basis of competition performance targets are set.Source Make Deliver

Plan1

#

Configuration Level (Process

Categories)

A company’s supply chain can be “configured-to-order” at Level 2 from the core “process categories.” Companies implement their operations strategy through the configuration they choose for their supply chain.

2

Process Element Level (Decompose

Processes)

Level 3 defines a company’s ability to compete successfully in its chosen markets, and consists of:Process element definitionsProcess element information inputs, and outputsProcess performance metricsBest practices, where applicableSystem capabilities required to support best practicesSystems/tools

3

P1.1Identify, Prioritize, and Aggregate

Supply-Chain Requirements

P1.2Identify, Assess, and Aggregate


P1.3Balance Production Resources with


P1.4Establish andCommunicate

Supply-Chain Plans

Implementation Level (Decompose Process Elements)

4

Not in Scope

Return

SCOR MODEL

Companies implement specific supply-chain management practices at this level. Level 4 defines practices to achieve competitive advantage and to adapt to changing business conditions.

Su

pp

ly C

hai

n O

per

ati

on

s R

efer

ence

M

od

el


SCOR Level 1SCOR Level 1Operations Operations

StrategyStrategy

Analyze Basisof

Competition

1

SCOR Level 2SCOR Level 2Configure

Supply-Chain

2Intra-Intra-

CompanyCompanyConfigurationConfiguration

Inter-Inter-CompanyCompany

ConfigurationConfiguration

SCOR Level 3SCOR Level 3AlignPerformance

Levels, Practices, and Systems

AlignPerformance

Levels, Practices, and Systems

3

SCOR Level 4SCOR Level 4Implement

Supply-Chain Processes and

Systems

ImplementSupply-Chain

Processes and Systems

4Intra-CompanyIntra-CompanySupply-ChainSupply-ChainImprovementsImprovements

Inter-CompanyInter-CompanySupply-ChainSupply-ChainImprovementsImprovements

Intra-Company Intra-Company Process, Practice, Process, Practice,

and System and System Configuration Configuration

ElementsElements

Inter-Company Inter-Company Process, Practice, Process, Practice,

and System and System Configuration Configuration

ElementsElements

SCOR Methodology: Applied in Four StepsSCOR Methodology: Applied in Four Steps


Limitations to SCOR model

• It does not apply to the following processes– Sales and marketing– R&D– Product development– Post delivery customer supportIt also assumes– training– Quality– IT


Dimension Based Measurement System

This system suggests that any Supply chain can be measured on Three Key Dimensions:

1. Service:- The basic premise for service metrics is to measure how well the company is serving (or not serving) its customers.

2. Assets:- The major asset involved in supply chains is inventory throughout the chain.

3. Speed:- Lowering lead-time and inventory levels.


Interface Based Measurement SystemInterface based measurement system looks at the supply chain as a series of different links & to optimize the total supply chain a win-win approach is required at all linkages. Its framework consists of following steps:

• Map the supply chain from point-of-origin to point-of-consumption to identify where key linkages exist.

• Use the customer relationship management & supplier relationship management processes to analyze each link ( customer supplier pair) & determine where additional value can be created for the supply chain.

• Develop customer & supplier profit & loss (P & L) statements to assess the effect of the relationship on profitability & shareholder value of the two firms.

• Realign supply chain processes & activities to achieve performance objectives.

• Establish non-financial performance measures that align individual behavior with supply chain process objectives & financial goals.

• Replicate steps at each link in the supply chain.


Total Cost of Ownership• The trickiest part of TCO is what and how you include

the non-price costs into the analysis, which will ultimately determine the success of TCO. There is some science, and some art, in doing TCO well. First of all, keep in mind that TCO is not a standalone concept – it should be an integrated part of a rigorous strategic sourcing and negotiations management process. And that means that you’ve identified – and are involving – a diverse set of cross-functional talent in your initiative – as team members, and as project stakeholders. This is important not just to collect the best ideas, but also to build buy-in to the team’s findings and thought process.


There are three ideas that support all of these procurement valuation constructs of TCO:

First, cost must be examined from a long term

Perspective & should include elements other than initial purchase price.

Second, supply managers must consider the impact of other business functions on the valuation of a specific purchase.

Third, to value a purchase situation accurately, a supply manager must understand, and measure, the cost impact of all the activities associated with the purchase.


BLOCK-VDISTRIBUTION NETWORK PLANNING

UNIT-14

TRANSPORTATION MIX


TRANSPORTATION

Transport or transportation is the movement of people and goods from one place to another. The term is derived from the Latin trans ("across") and portare ("to carry").

Considerations influencing Transportation:

1. Customer communications:

2. Market Coverage

3. Sourcing decisions

4. Manufacturing operations

5. Pricing decisions

6. Customer Service decisions


Warehousing

• A warehouse is a commercial building for storage of goods. Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are usually large plain buildings in industrial areas of cities and towns. They come equipped with loading docks to load and unload trucks; or sometimes are loaded directly from railways, airports, or seaports. They also often have cranes and forklifts for moving goods, which are usually placed on ISO standard pallets loaded into pallet racks.

• Some warehouses are completely automated, with no workers working inside.


Factors influencing warehousing decisions are:

1. Type of distribution

2. Value of the firm

3. Quantity & potential

4. Competitiveness

5. Economic conditions

Warehousing performs variety of roles:

1. Material handling

2. Storage

3. Transfer of Information


Tools & Techniques of Reducing Costs

• Negotiating routes band rates

• Selecting route & fleet

• Evaluation of the carrier performance

• Analyze transport cost & services

• Operating company owned means of freight & transportation

• Filing loss and damage claims

• Auditing freight bills

Read Table 14.1 on page 10.


Transportation Cost

• Costs and benefits have a mirror image relationship: a cost can be defined as a reduction in benefits and a benefit can be defined as a reduction in costs. Transportation benefits are often measured in terms reduced transportation costs. For example, congestion reduction benefits consist of reductions in travel time and vehicle operating costs. Calculating costs is therefore the basis for calculating benefits. Economists have developed estimates of many transportation costs for use in economic analysis, including vehicle expenses, travel time costs, road and parking facility costs, crash costs and environmental costs.


Channelisation- multi modal Transport Operations

The choice of transport mode is not only a choice b/w type of transport, but b/w a system or a process of transportation, b/w manufacturer or seller & customer or buyer. It involves separate sectors i.e. b/w production line to go downs, material handling interfaces at each terminal facility & the documentation process to support the product. Each of the sector would require separate transport mode, to be precise.


Manufacturers

Capital Goods Expendable/ Perishable goods

Consumer Durables

•Generators•Transformers•Heavy Equipments

•Food products•Bread•Eatables•Confectionaries

TV, Fridge, Music system,Washing machine, household, appliances

Commodity Market

Wholesaler

Retailer

CONSUMERS/END USERS

Retailer

Regional godown

Central warehouse


Method of Selection

SYSTEMATIC SELECTION

Identification of factors

Measure &Monitor costs

Categorizing & identification of potential risks

DeterminingDistribution networks

Matrix analysisTo selection

STAGE 1 STAGE 2 STAGE 3 STAGE 4

STAGE 5


Transportation Decision

DECISION FRAMEWORK

NUMBER & SIZE OF

DEPOTS TO INCLUDE

MOVEMENT OF RAW MATERIALS

CHOICE OF OPERTAIONAL NEEDS

AS REGRADSEQUIPMENTS TO

MAX UTILISATION& MINIMISE

COSTS

CHOICE OF TRANSPORT

MODE COINCIDENTAL

TO EACH POTENTIAL

MOVEMENT INDISTANCE TRAVELED

THE CHOICE OFEQUIPMENT

SPECIFICATIONSON TYPE OFTRANSPORTDEFINED BY

PRODUCTCHARACTERISTICS

CHOICE OFFINANCIAL

OPTIONSAVAILABLE


FLEET SIZING & CONFIGURATION

Fleet sizing objective is to employ through ownership, hire, lease & or rental the fewest possible trucks to manage the company’s load profile/shipping requirements. In fleet sizing, increased availability yields fewer lost sales, shorter customer cycle times, improved customer service but higher fleet cost.


Fleet Size can be regulated & minimized by:• Utilizing standard size pallets & transport containers.• Vigorously monitoring fleet utilization levels annually.• Maintaining total fleet visibility, including loading times,

unloading, transit times & maintenance times.• Choosing low use periods to conduct routine

maintenance.• Utilizing alternative coverage means during super

peak periods to avoid carrying the burden of an oversized fleet.


Routing & Re- scheduling

India is one of the best examples of routing & re-scheduling, wherein such activities are optioned in the shortest possible time. Roadblocks, damages to bridges & roads, owing to natural calamities are the major reasons for such re-scheduling. Everything doesn’t happen as planned & therefore every company should gear for alternative arrangements.

The CONSTRAINTS in routing are:• Customer requirements & time available.• Maximum route time.• Vehicle capacity.• Infrastructure constraints.• Start & stop points enroute.• Balancing of the route for the driver, to minimize

overtaxing.


Futuristic Direction in Transportation

• Carrier relationship management• Corporate traffic councils• Training & certifications• Driver quality• Joint procurement• Logistics compliance & security offers.

THANKS………



UNIT-15

LOCATION STRATEGY


LOCATION STRATEGY• New production systems and technologies are

forcing firms to use new criteria for locating a network of smaller, flexible, interdependent plants. Traditional plant location criteria emphasize cost-based variables such as scale economies, transportation cost, and factor cost advantages, as well as plant mission within the business .

• We categorize plants along two dimensions: whether the plant is domestic or foreign relative to the headquarters country, and whether the plant is independent or integrated with other plants in the firm.


• A three-stage comparison of the determinants of plant location for the four categories of plants. First, we compare the determinants of plant location for integrated plants to those for independent plants. Likewise, we compare the determinants of plant location for foreign plants to domestic plants. Second, we further examine these determinants of plant location for integrated and independent plants to determine whether they differ if the setting is domestic or foreign. Similarly, we also examine whether the determinants of plant location for foreign and domestic plants differ according to whether the plants are integrated or independent. Third, we examine whether the managers' ranking of the importance of determinants of plant location differs between the four basic types as well as whether they are changing over time in a manner that is consistent with the popular literature on changes in global manufacturing.


OBJECTIVE: the main objective of location decisions is to position each element of the production distribution system with respect to the overall system. A manufacturing plant must be strategically positioned between its suppliers & customers.

Organizations involved in location decisions due to:• Expansion of existing facilities• Addition of new facilities• Closing down the plant at one location & moving to

another.


Steps in Location Planning:

1. Determine the criteria to evaluate location alternatives.

2. Identify relevant location factors

3. Develop location alternatives

a) Identify the general region

b) Identify a small number of community site alternatives

4. Evaluate the alternatives and make a selection.


Distribution ProblemDistribution problem is concerned with the allocation of goods flow to minimize overall distribution cost. It is basically a three tired system in which goods start from the plant; flow to warehouse & ultimately to outlets. WAREHOUSING plays a crucial role in the total distribution system. Warehouses & distribution centers play important intermediaries b/w plants & retail stores.In the absence of any warehouse, shipments of goods would have to be made directly from the plant to the retail stores. If the plant is located far from the raw material sources, inbound transportation costs would be high & delivery times would be high, thereby increasing the chances of material shortages.


For WAREHOUSE LOCATION and RETAIL FACILITY LOCATION

Read in detail from the book.

THANKS………………



UNIT-16

LOGISTICS & SCM ENVIRONMENT


Preventing Litigation

The basic relationship between the supply manager and the buyer is like an agent for his/her firm, and legally this is defined & governed by the law of agency. A purchase represents formation of a purchase contract b/w buyer and the seller, and any dispute resulting from this may enter the realm of dispute resolution governed by the laws of contract, and can be categorized as under:

• Negotiation• Mediation• Arbitration• Litigation


• Negotiation is a dialogue intended to resolve disputes, to produce an agreement upon courses of action, to bargain for individual or collective advantage, or to craft outcomes to satisfy various interests. It is the primary method of alternative dispute resolution. Negotiation occurs in business, non-profit organizations, government branches, legal proceedings, among nations and in personal situations such as marriage, divorce, parenting, and everyday life. The study of the subject is called negotiation theory. Those who work in negotiation professionally are called negotiators.


• Mediation, a form of alternative dispute resolution (ADR) or "appropriate dispute resolution", aims to assist two (or more) disputants in reaching an agreement. Whether an agreement results or not, and the content of that agreement (if any) the parties themselves determine — rather than accepting something imposed by a third party. The disputes may involve (as parties) states, organizations, communities, individuals or other representatives with a vested interest in the outcome.

• Mediators use appropriate techniques and/or skills to open and/or improve dialogue between disputants, aiming to help the parties reach an agreement (with concrete effects) on the disputed matter. Normally, all parties must view the mediator as impartial.


• Arbitration, a form of alternative dispute resolution (ADR) is a legal technique for the resolution of disputes outside the courts, wherein the parties to a dispute refer it to one or more persons (the "arbitrators", "arbiters" or "arbitral tribunal"), by whose decision (the "award") they agree to be bound.

• Litigation, This is the last stage of the process where the disputants have already lost the battle. Infact, wastages tend to be maximized in this stage relating to time, effort, money, stress & damages to relationship. Knowing & understanding fundamental legal principles better, could help in avoiding such a stage.


SALES LAW

The law relating to the transfer of ownership of property from one person to another for value, which is codified in article 2 of the Uniform Commercial Code (UCC), a body of law governing mercantile transactions adopted in whole or in part by the states. The sale of a good, or an item of value, is a transaction designed to benefit both buyer and seller. However, sales transactions can be complex, and they do not always proceed smoothly. Problems can arise at several phases of a sale, and at least one of the parties may suffer a loss. In recognition of these realities and of the basic importance of orderly commerce to society, legislatures and courts create laws governing sales of goods.


The most comprehensive set of laws on sales is the Uniform Commercial Code (UCC). The UCC is a collection of model laws on an assortment of commercial activities. The UCC itself does not have legal effect; it was written by the lawyers, judges, and professors in the American Law Institute and the National Conference of Commissioners on Uniform State Laws. All states have adopted the UCC in whole or in part by enacting the model laws contained in its eleven articles. Article 2 of the UCC deals with the sale of goods. Laws on the sale of real estate and the sale of services are different from laws on the sale of goods, and they are excluded from article 2. Some contracts are a blend of the sale of goods and the sale of services and may be covered by article 2. For example, the service of food by a restaurant may be considered, for some purposes, a contract for a sale of goods (U.C.C. § 2-314).


Environmental Realities: Implications on Supply Chain

The significant impact that members of the supply chain have an organizations’ environmental performance, either through their actions or the products they supply, is increasingly becoming recognized throughout business. To exert some influence over supply chain partners’ approaches to environmental issues, control the associated risks, and realize further potential benefits, companies have developed proactive environmental supply chain management (ESCM) programmes to complement existing supply chain and environmental management activity.


Organizations can be categorized into five types when relating to ESCM involvements namely:

• The Blissfully Ignorant

• Going Through the motions

• Control management

• State of the Art

• Ground breakers


Warehouse Operations

Warehouses today are being asked to:• Execute more, smaller transactions• Handle and store more items• Provide more product & service

customization• Offer more value added services• Process more returns• Receive and ship more international

orders


Warehouses today have:

• Less time to process an order

• Less margin for error

• Lesser young, skilled, and English speaking personnel

• Less warehouse management system (WMS) capability

A warehouse manager today has to do more with a resource crunch.


Warehouse Fundamentals

• Component warehouses: hold raw materials at or near the manufacturing unit or the consumer markets.

• Work in process: hold partially manufactured assemblies at various points or near the assembly lines.

• Finished goods warehouses: hold goods to balance the time variation between the production schedule & demand.

• Distribution warehouses: a centrally located point, which holds goods from one firm or many firms but for a common customer.

• Local warehouses: to shorten the transportation distances and create rapid response to customer demands.

• Fulfillment centers: receive, pick and deliver small orders for individual consumers.


Statutory Minimum Wage

• It is the wage determined according to the procedure prescribed by the relevant provisions of the Minimum Wages Act, 1948.

• Once the rates of such wages are fixed, it is the obligation of the employer to pay them, regardless of his ability to pay.

• Such wages are required to be fixed in certain employments where “sweated” labor is prevalent, or where there is a great chance of exploitation of labor.


Bare or Basic Minimum Wage• It is the wage, which is to be fixed in accordance

with the awards And judicial pronouncements of Industrial Tribunals, National Tribunals and Labor Courts. They are obligatory on the Employers.

• Minimum wage, and fair wage and living wage are the terms used by The Report of the Committee on Fair Wages, set up by the Government in 1948 to determine the principles on which fair wages should be based and to suggest how these principles should be applied.

• According to this Committee, the minimum wage should represent the lower limit of a fair wage. The next higher level is the fair wage, and the highest level of the fair wage is the living wage.


Minimum Wage

• It has been defined by the Committee as “the wage, which must provide not only for the bare sustenance of life, but for the preservation of the efficiency of the worker.

• A minimum wage should provide for the sustenance of the worker’s family, for his efficiency, for the education of his family, for their medical care and for some amenities.


INSURANCE & SALES TAX

• Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of a guaranteed small loss to prevent a large, possibly devastating large loss. An insurer is a company selling the insurance.


SALES TAX

• A sales tax is a consumption tax charged at the point of purchase for certain goods and services. The tax is usually set as a percentage by the government charging the tax. There is usually a list of exemptions. The tax can be included in the price (tax-inclusive) or added at the point of sale (tax-exclusive).

• Most sales taxes are collected by the seller, who pays the tax over to the government which charges the tax. The economic burden of the tax usually falls on the purchaser, but in some circumstances may fall on the seller. Sales taxes are commonly charged on sales of goods, but many sales taxes are also charged on sales of services. Ideally, a sales tax is fair, has a high compliance rate, is difficult to avoid, is charged exactly once on any one item, and is simple to calculate and simple to collect.


BLOCK-IVEMERGING TRENDS

UNIT-17

FUTURE TRENDS AND ISSUES


VENDOR MANAGED INVENTORY (VMI)

Vendor Managed Inventory (VMI) is a family of business models in which the buyer of a product provides certain information to a supplier of that product and the supplier takes full responsibility for maintaining an agreed inventory of the material, usually at the buyer's consumption location (usually a store). A third party logistics provider can also be involved to make sure that the buyer have the required level of inventory by adjusting the demand and supply gaps.


As a symbiotic relationship, VMI makes it less likely that a business will unintentionally become out of stock of a good and reduces inventory in the supply chain. Furthermore, vendor (supplier) representatives in a store benefit the vendor by ensuring the product is properly displayed and store staff are familiar with the features of the product line, all the while helping to clean and organize their product lines for the store. One of the keys to making VMI work is shared risk. Often if the inventory does not sell, the vendor (supplier) will repurchase the product from the buyer (retailer). In other cases, the product may be in the possession of the retailer but is not owned by the retailer until the sale takes place, meaning that the retailer simply houses (and assists with the sale of) the product in exchange for a predetermined commission or profit. A special form of this commission business is scan-based trading whereas VMI is usually applied but not mandatory to be used.


THIRD PARTY LOGISTICS

A third-party logistics provider (abbreviated 3PL) is a firm that provides outsourced or "third party" logistics services to companies for part, or sometimes all of their supply chain management function. Third party logistics providers typically specialize in integrated warehousing and transportation services that can be scaled and customized to customer’s needs based on market conditions and the demands and delivery service requirements for their products and materials.


Types of 3PL providersHertz and Alfredsson (2003) describe four categories of 3PL providers:• Standard 3PL provider: this is the most basic form of a 3PL provider. They

would perform activities such as, pick and pack, warehousing, and distribution (business) – the most basic functions of logistics. For a majority of these firms, the 3PL function is not their main activity.

• Service developer: this type of 3PL provider will offer their customers advanced value-added services such as: tracking and tracing, cross-docking, specific packaging, or providing a unique security system. A solid IT foundation and a focus on economies of scale and scope will enable this type of 3PL provider to perform these types of tasks.

• The customer adapter: this type of 3PL provider comes in at the request of the customer and essentially takes over complete control of the company’s logistics activities. The 3PL provider improves the logistics dramatically, but do not develop a new service. The customer base for this type of 3PL provider is typically quite small.

• The customer developer: this is the highest level that a 3PL provider can attain with respect to its processes and activities. This occurs when the 3PL provider integrates itself with the customer and takes over their entire logistics function. These providers will have few customers, but will perform extensive and detailed tasks for them.


FOUTH PARTY LOGISTICS

• Fourth-party logistics (4PL), Lead Logistics Provider or 4th Party Logistics, is a term coined by global consulting firm Accenture:

• “A 4PL is an integrator that assembles the resources, capabilities, and technology of its own organization and other organizations to design, supply chain solutions." of their supply chain management function. A 4PL uses a 3PL to supply service to customers, owning only computer systems and intellectual capital.

• It has been argued that a 4PL is the same thing as a "Non Asset-Based 3PL".


GREEN SUPPLY CHAIN

• A Green Sustainable Supply Chain can be defined as "the process of using environmentally friendly inputs and transforming these inputs through change agents - whose byproducts can improve or be recycled within the existing environment. This process develops outputs that can be reclaimed and re-used at the end of their life-cycle thus, creating a sustainable supply chain." The whole idea of a sustainable supply chain is to reduce costs while helping the environment. Many people would argue that being environmentally friendly increases your costs. In the past, most companies were focused on reducing unit costs. Many companies later evolved into looking at total landed costs with the on-set of global trade. Companies also started looking at the usage costs with a piece of equipment (i.e. what are my cost per copy when using a copier). In today's "sustainable" world the thinking should be what is the life cycle costs of this part, piece of equipment or supply chain process.


REVERSE LOGISTICSReverse logistics stands for all operations related to the reuse of products and materials. It is "the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. More precisely, reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. Remanufacturing and refurbishing activities also may be included in the definition of reverse logistics." The reverse logistics process includes the management and the sale of surplus as well as returned equipment and machines from the hardware leasing business. Normally, logistics deal with events that bring the product towards the customer. In the case of reverse, the resource goes at least one step back in the supply chain. For instance, goods move from the customer to the distributor or to the manufacturer.


BLOCK-VIEMERGING TRENDS

UNIT-18

DESIGN FOR SUPPLY CHAIN MANAGEMENT & GREENING

THE SUPPLY CHAIN


FACTORS INFLUENCING SUPPLY CHAIN DESIGN DECISIONS

• Rising Importance of Knowledge Work

In many industries knowledge work has become the primary condition that defines how well firms innovate and compete with one another. The shift towards knowledge work places a greater emphasis on how well managers can attract and retain talent. Often firms attempt to recruit technical talent from their competitors, and from companies in other industries as well. This growing flow of people promotes rapid flow of ideas, insights and innovation.


• Growth of Substitute Products and ServicesFirms in related neighboring industries often produce substitutes. The innovation of substitute products creates opportunities for new entrants and innovators to change the way firms must compete. For example, the rise of Internet based telephony.

• Rising Information IntensityThe growing information intensive nature of many industries means that the costs of creating and disseminating information are steadily declining over time. The cost of creating and transmitting information on wider scale, appears to be declining as the information content becomes richer.


• Impact of the Shifting LandscapeAs companies deal with the numerous changes and challenges posed by epicenters of massive change, it is important that managers broaden the scope of their skills to accommodate and learn new insights that will help them become more effective.

• Rise Of Virtual Organization The rise of the so-called Virtual Organization is just one manifestation of this broader trend. As information, knowledge and value flow across many firms, any firm operating within the virtual organization is a potential source for future innovation, learning and inflection point that can dramatically change the skills and competencies needed to compete effectively.


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. This results that companies have a better view of customers demand.

• 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.


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.

Competitive advantagesTo 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).


Misconceptions

There are five common made misconceptions of demand driven (DDSN):

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) have a better view of customers demand.


Demand visibility is everyone’s Top concern in moving Supply Chains towards DDSN’s

Improvement means attacking the problem at three levels. • Replenishment Based Demand: The predictable demand that

forms the base line for forecasting and planning. This may be electronic data interchange (EDI) orders or some other form of pull replenishment on steady run products. Visibility can be system to system or supported with manual planning and replenishment processes.

• Surge Demand: Sensing and managing events that change demand is more a matter of sophisticated demand modeling and forecasting and requires combining POS or other actual historical demand data with intelligence about customer behavior unique to events like weather, fashion, network effects, and promotions (yours and competitors). The role of technology is in the use of algorithm-based tools to model and prepare for such surge demand.


Future Demand: Strategic planning for future products and their effect on buying behavior is another important aspect to ponder upon. Planning for future demand especially as it relates to manufactures with long lead-time component and processes is really a matter for Product Portfolio Management (PPM). With future products, demand planning depends mostly on working ways lead time realities against marketing intent and attempting to build a supply chain that is ready once orders starts rolling in.


Key Skills of Modern Supply Chain Design Managers

• Define: integrated supply chain management, its components and how they are integrated.

• Understand: the impact of demand on the supply chain and the considerable competitive advantages that can result from managing demand across companies.

• Define Value: from the perspective of customers and learn how to manage the supply chain to deliver that value.

• Learn: to manage the sourcing and information technology functions with in the global supply chain.

• Understand: the importance of managing relationships with suppliers and customers to create differential advantage.


SUPPLY CHAIN DESIGN

Successful supply chain design requires several decisions relating to the flow of information, product and funds. These decisions fall into three categories or phases.

• Supply Chain Strategy or Design: A company’s competitive strategy defines the set of customer needs that it seeks to satisfy through its products and services. Achieving a strategic fit between a company’s competitive strategy and supply chain strategy is a key consideration. There are three basic steps to achieve this.

a. Understanding the customer b. Understanding the supply chainc. Achieving the strategic fit


• Supply Chain Planning: This starts with a forecast for the coming year of demand in different markets – with all the details of markets, supply locations, inventories, sub contracting of manufacturing etc.

• Supply Chain Operations: The goal is to implement the operating policies in the best possible manner.


S.No FUNCTIONAL INNOVATIVE

1 Low demand uncertainty High demand uncertainty

2 More predictable demand Difficult to forecast

3 Stable demand Variable demand

4 Long product life Short selling season

5 Low inventory cost High inventory cost

6 Low profit margin High profit margin

7 Low product variety High product variety

8 Higher volume Low volume

9 Low stock out cost High stock out cost

10 Low obsolescence High obsolescence

DEMAND UNCERTAINTY CHARACTERISTICS


SUPPLY UNCERTAINTY CHARACTERISTICS

S.NO.

STABLE EVOLVING

1 Less breakdowns Vulnerable to breakdowns

2 Stable and higher yields Variable and lower yields

3 Less quality problems Potential quality Problems

4 More supply sources Limited supply sources

5 Reliable suppliers Unreliable Suppliers

6 Less process changes More process changes

7 Less Capacity constraints Potential capacity constraints

8 Easier to change over Difficult to change over

9 Flexible Inflexible

10 Dependable lead times Variable lead times


TYPES OF SUPPLY CHAIN STRATEGIES

Efficient Supply Chains: These are supply chains that utilize strategies aimed at creating the highest cost efficiency. For such efficiencies to be achieved, non value added activities should be eliminated, scale economics should be pursued, optimization techniques should be deployed to get the best capacity utilization in production and distribution, and information linkages should be established to ensure the most efficient, accurate, and cost effective transmission of information across the supply chain.

Risk Hedging Supply Chains: These are supply chains that utilize the strategies aimed at pooling and sharing resources in a supply chain so that the risks in supply disruption can be shared.


Responsive supply Chains: These are supply chains that utilize strategies aimed at being responsive and flexible to the changing and diverse needs of the customers.

Agile Supply Chains: They have the ability to be responsive to the changing, diverse, and unpredictable demands of customers on the front end, while minimizing the back end risks of supply disruptions.


Tools for coping with Demand & Supply Uncertainties

• Outsourcing• Global sourcing• Mass Customization• Postponement

Key Drivers of Supply Chain Performance• Inventory• Transportation• Information, and• Facilities

THANKS…………..


BLOCK-VIEMERGING TRENDS

UNIT-19

SCM IN SERVICE ORGANIZATION/NON-

MANUFACTURING SECTOR


Supply Chain Management of Products Vs. Services• Simultaneous Production Consumption: A large

number of services can only be rendered when actually demanded e.g. banking, nursing etc. this leads to the second major difference I.e. of “inventory” concept.

• Absence of “Inventory” Concept: As stated above it is not possible to “store” a number of services in order to do a capacity matching between demand and supply, as is possible in case of products. Hence, this needs to be done by building up resources rather than the services to do demand – supply matching.

• Low/no Cost Inventory/Production: In a number of services/products (typically software), the incremental cost of either production or holding “inventory” is very low (or nil) in comparison to the value of product.


• “Instantaneous/Rapid” Production: In case of product/services, which can be digitally duplicated/copied, it is possible to “produce” virtually instantaneously at a very low cost e.g. movie prints, photograph copies etc.

• Rapid/Low Cost Distribution: Similarly, in case of electronic digital distribution over channels such as Internet, the cost of distribution is very low and speed extremely rapid.

• “Impossible” Distribution: On the other hand, in case of some services, “distribution” is not possible as consumption has to happen at the spot of “production”. (E.g. restaurants, hotels, etc.)

• “Instantaneous Value Destruction”: Unlike physical goods, which may gradually loose value over a time, services may incur sudden time related value destruction for e.g. once an aircraft takes off, the value of the unoccupied seats drops to zero.


Various Service Sector

• Financial services – including banking, insurance, stock trading, FOREX trading etc. and allied services.

• Hospitality – including hotels, restaurants, travel and tourism comprising road, rail, shipping and aviation industries pertaining to passenger transport.

• Transportation – consists of goods transport by road, rail air or water including courier and post.

• Software - though software may be considered a product also, we will look at the software development and distribution process from a service prospective.

• Communication – this will include the Telco providing POTS as well as ISP’s, mobile and satellite services etc. as well as broadcasting, telecasting and publishing industries.


• Healthcare – includes hospitals, pharmacies and allied services.

• Consultancy – t234his would include knowledge management activities as well.

• Education – both classroom and distance. • Government – this would municipal, administrative,

defense, police, judicial etc. services. • Retaining – includes trading and value added

reselling.

THANKS……………………….

MS-55 LOGISTICS AND SUPPLY CHAIN MANAGEMENT

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